Notice of Final Determination of Sales at Less Than Fair Value: Static Random Access Memory Semiconductors From Taiwan

DEPARTMENT OF COMMERCE

International Trade Administration

[A-583-827]

Notice of Final Determination of Sales at Less Than Fair Value:

Static Random Access Memory Semiconductors From Taiwan

AGENCY: Import Administration, International Trade Administration, U.S.

Department of Commerce.

EFFECTIVE DATE: February 23, 1998.

FOR FURTHER INFORMATION CONTACT: Shawn Thompson at (202) 482-1776, or

David Genovese at (202) 482-0498,

[[Page 8910]]

Import Administration, International Trade Administration, U.S.

Department of Commerce, 14th Street and Constitution Avenue, N.W.,

Washington, D.C. 20230.

Applicable Statute and Regulations

Unless otherwise indicated, all citations to the Tariff Act of

1930, as amended (the Act), are references to the provisions effective

January 1, 1995, the effective date of the amendments made to the Act

by the Uruguay Round Agreements Act (URAA). In addition, unless

otherwise indicated, all citations to the Department's regulations are

to the regulations codified at 19 CFR Part 353 (April 1, 1996).

Final Determination

We determine that static random access memory semiconductors

(SRAMs) from Taiwan are being sold in the United States at less than

fair value (LTFV), as provided in section 735 of the Act. The estimated

margins are shown in the ``Suspension of Liquidation'' section of this

notice.

Case History

Since the preliminary determination in this investigation on

September 23, 1997 (see Notice of Preliminary Determination of Sales at

Less Than Fair Value and Postponement of Final Determination: Static

Random Access Memory Semiconductors from Taiwan, 62 FR 51442 (Oct. 1,

1997)), the following events have occurred:

In September 1997, we issued supplemental questionnaires to

Integrated Silicon Solution Inc. (ISSI) and United Microelectronics

Corporation (UMC). We received responses to these questionnaires in

October 1997.

On October 14, 1997, Taiwan Semiconductor Manufacturing Company

Ltd. (TSMC) requested that the Department reconsider its preliminary

determination to exclude TSMC as a respondent in this investigation. On

October 29, 1997, we informed TSMC that we were not altering our

decision and that we would not verify the information submitted by

TSMC. For further discussion of this issue, see the memorandum to the

file from James Maeder, dated October 29, 1997, and Comment 4 in the

``Interested Party Comments'' section of this notice.

On October 15, 1997, a U.S.-based producer of subject merchandise,

Galvantech, Inc. (Galvantech), requested that the Department accept and

verify a questionnaire response from it. On October 22, 1997, we denied

Galvantech's request. For further discussion, see Comment 3 in the

``Interested Party Comments'' section of this notice.

On October 17, 1997, an interested party in this investigation,

Texas Instruments-Acer Incorporated (TI-Acer), claimed that it had not

received the antidumping duty questionnaire issued to it in April 1997.

Thus, TI-Acer requested that the Department make no final determination

for it on the basis of facts available. On October 22, 1997, we

provided TI-Acer with a copy of the courier's delivery record which

indicated that TI-Acer had, in fact, received the questionnaire.

In October and November 1997, we verified the questionnaire

responses of the following respondents: Alliance Semiconductor Corp.

(Alliance), ISSI, UMC, and Winbond Electronics Corporation (Winbond).

In November and December 1997, the respondents submitted revised

sales databases at the Department's request. In addition, Alliance,

ISSI and UMC submitted revised cost databases.

On November 19, 1997, TI-Acer submitted its case brief in which it

reiterated its assertion that it did not receive a questionnaire. On

December 9, 1997, we provided TI-Acer with an additional copy of the

courier's delivery record demonstrating that the questionnaire had been

received by a TI-Acer official. TI-Acer responded to this letter on

December 18, 1997. For further discussion, see Comment 5 in the

``Interested Party Comments'' section of this notice.

The petitioner (i.e., Micron Technology, Inc.), the four

respondents, Galvantech, and TSMC submitted case briefs on December 23

and 24, 1997, and rebuttal briefs on January 7 and 8, 1998. In

addition, five interested parties, Compaq Computer Corporation

(Compaq), Cypress Semiconductor Corporation (Cypress), Digital

Equipment Corporation (Digital), Integrated Device Technology (IDT),

and Motorola Inc. (Motorola) submitted rebuttal briefs on January 7,

1998.

On January 7, 1998, the authorities on Taiwan submitted comments on

the appropriate treatment of stock distributions to company employees.

The petitioner responded to these comments on January 12, 1998. The

Department held a public hearing on January 13, 1998.

Scope of Investigation

The products covered by this investigation are synchronous,

asynchronous, and specialty SRAMs from Taiwan, whether assembled or

unassembled. Assembled SRAMs include all package types. Unassembled

SRAMs include processed wafers or die, uncut die and cut die. Processed

wafers produced in Taiwan, but packaged, or assembled into memory

modules, in a third country, are included in the scope; processed

wafers produced in a third country and assembled or packaged in Taiwan

are not included in the scope.

The scope of this investigation includes modules containing SRAMs.

Such modules include single in-line processing modules (SIPs), single

in-line memory modules (SIMMs), dual in-line memory modules (DIMMs),

memory cards, or other collections of SRAMs, whether unmounted or

mounted on a circuit board.

We have determined that the scope of this investigation does not

include SRAMs that are physically integrated with other components of a

motherboard in such a manner as to constitute one inseparable amalgam

(i.e., SRAMs soldered onto motherboards). For a detailed discussion of

our determination on this issue, see Comment 2 in the ``Interested

Party Comments'' section of this notice and the memorandum to Louis

Apple from the Team dated February 13, 1998.

The SRAMs within the scope of this investigation are currently

classifiable under the subheadings 8542.13.8037 through 8542.13.8049,

8473.30.10 through 8473.30.90, and 8542.13.8005 of the Harmonized

Tariff Schedule of the United States (HTSUS). Although the HTSUS

subheadings are provided for convenience and customs purposes, the

written description of the scope of this investigation is dispositive.

Period of Investigation

The period of this investigation (POI) for all respondents is

January 1, 1996, through December 31, 1996.

Facts Available

Three interested parties in this investigation, Advanced

Microelectronics Products Inc. (Advanced Microelectronics), Best

Integrated Technology, Inc. (BIT), and TI-Acer, failed to provide

timely responses to the Department's requests for information.

Specifically, Advanced Microelectronics and BIT did not respond at all

to the Department's questionnaire issued in April 1997, while TI-Acer

provided a partial response five months after the due date.

TI-Acer informed the Department after the preliminary determination

that it had not received the questionnaire. Moreover, TI-Acer asserted

that it is not a producer of subject merchandise. As such, TI-Acer

argued that it should not be assigned a margin based on facts

available. However, because there is evidence on the record which

[[Page 8911]]

demonstrates that the questionnaire was delivered to TI-Acer's offices

in Taiwan and that a TI-Acer company official actually signed for this

document, and because TI-Acer filed its partial response five months

after the original due date, we do not find TI-Acer's arguments

persuasive. For further discussion, see Comment 5 in the ``Interested

Party Comments'' section of this notice, below.

Section 776(a)(2) of the Act provides that if an interested party

1) withholds information that has been requested by the Department, 2)

fails to provide such information in a timely manner or in the form or

manner requested, 3) significantly impedes a determination under the

antidumping statute, or 4) provides such information but the

information cannot be verified, the Department shall, subject to

subsections 782(c)(1) and (e) of the Act, use facts otherwise available

in reaching the applicable determination. Because Advanced

Microelectronics, BIT, and TI-Acer failed to respond to the

Department's questionnaire in a timely manner and because subsections

(c)(1) and (e) do not apply with respect to these companies, we must

use facts otherwise available to calculate their dumping margins.

Section 776(b) of the Act provides that adverse inferences may be

used when a party has failed to cooperate by not acting to the best of

its ability to comply with requests for information. See also Statement

of Administrative Action accompanying the URAA, H.R. Rep. No. 316, 103d

Cong., 2d Sess. 870 (SAA). The failure of Advanced Microelectronics,

BIT, and TI-Acer to reply to the Department's questionnaire or to

provide a satisfactory explanation of their conduct demonstrates that

they have failed to act to the best of their ability in this

investigation. Thus, the Department has determined that, in selecting

among the facts otherwise available to these companies, an adverse

inference is warranted.

In accordance with our standard practice, as adverse facts

available, we are assigning to Advanced Microelectronics, BIT, and TI-

Acer the higher of: 1) the highest margin stated in the notice of

initiation; or 2) the highest margin calculated for any respondent in

this investigation. In this case, this margin is 113.85 percent, which

is the highest margin stated in the notice of initiation.

Section 776(c) of the Act provides that, when the Department relies

on secondary information (such as the petition) in using the facts

otherwise available, it must, to the extent practicable, corroborate

that information from independent sources that are reasonably at its

disposal. When analyzing the petition, the Department reviewed all of

the data the petitioner relied upon in calculating the estimated

dumping margins, and adjusted those calculations where necessary. See

Initiation Checklist, dated March 17, 1997. These estimated dumping

margins were based on a comparison of constructed value (CV) to U.S.

price, the latter of which was based on price quotations offered by two

companies in Taiwan. The estimated dumping margins, as recalculated by

the Department, ranged from 93.54 to 113.85 percent. For purposes of

corroboration, the Department re-examined the price information

provided in the petition in light of information developed during the

investigation and found that it has probative value. See the memorandum

to Louis Apple from the Team dated September 23, 1997, for a detailed

explanation of corroboration of the information in the petition.

Time Period for Cost and Price Comparisons

Section 777A(d) of the Act states that in an investigation, the

Department will compare the weighted average of the normal values to

the weighted average of the export prices or constructed export prices.

Generally, the Department will compare sales and conduct the sales

below cost test using annual averages. However, where prices have moved

significantly over the course of the POI, it has been the Department's

practice to use shorter time periods. See, e.g., Final Determination of

Sales at Less Than Fair Value: Erasable Programmable Read Only Memories

(EPROMs) from Japan, 51 FR 39680, 39682 (Oct. 30, 1986) (EPROMs from

Japan), Final Determination of Sales at Less Than Fair Value: Dynamic

Random Access Memory Semiconductors of One Megabit and Above From the

Republic of Korea, 58 FR 15467, 15476 (Mar. 23, 1993) (DRAMs from

Korea).

We invited comments from interested parties regarding this issue.

An analysis of these comments revealed that the petitioner and three of

the four respondents agreed that the SRAM market experienced a

significant and consistent price and cost decline during the POI.

Accordingly, in recognition of the significant and consistent price

decline in the SRAM market during the POI, the Department has compared

prices and conducted the sales below cost test using quarterly data

1. See Comment 10 in the ``Interested Party Comments'' of

this notice for further discussion.

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\1\ In accordance with section 773(b)(2)(D) of the Act, we

conducted the recovery of cost test using annual cost data.

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Fair Value Comparisons

To determine whether sales of SRAMs from Taiwan to the United

States were made at less than fair value, we compared the EP or CEP, as

appropriate, to the Normal Value (NV), as described in the ``Export

Price and Constructed Export Price'' and ``Normal Value'' sections of

this notice, below. In accordance with section 777A(d)(1)(A)(i) of the

Act, we calculated weighted-average EPs and CEPs for comparison to

weighted-average NVs.

In order to determine whether we should base price-averaging groups

on customer types, we conducted an analysis of the prices submitted by

the respondents. This analysis does not indicate that there was a

consistent and uniform difference in prices between customer types.

Accordingly, we have not based price comparisons on customer types.

On January 8, 1998, the Court of Appeals of the Federal Circuit

issued a decision in Cemex v. United States, 1998 WL 3626 (Fed. Cir.).

In that case, based on the pre-URAA version of the Act, the Court

discussed the appropriateness of using CV as the basis for foreign

market value when the Department finds home market sales to be outside

the ordinary course of trade. This issue was not raised by any party in

this proceeding. However the URAA amended the definition of sales

outside the ``ordinary course of trade'' to include sales below cost.

See section 771(15) of the Act. Because the Court's decision was issued

so close to the deadline for completing this investigation, we have not

had sufficient time to evaluate and apply the decision to the facts of

this post-URAA case. For these reasons, we have determined to continue

to apply our policy regarding the use of CV when we have disregarded

below-cost sales from the calculation of normal value.

Consequently, in making our comparisons, in accordance with section

771(16) of the Act, we considered all products sold in the home market

fitting the description specified in the ``Scope of Investigation''

section of this notice, above, to be foreign like products for purposes

of determining appropriate product comparisons to U.S. sales. Regarding

[[Page 8912]]

ISSI and UMC, where there were no sales of identical merchandise in the

home market to compare to U.S. sales, we compared U.S. sales to the

most similar foreign like product, based on the characteristics listed

in Sections B and C of the Department's antidumping questionnaire.

Regarding Winbond, we were unable to make price-to-price comparisons

involving non-identical products because Winbond did not provide

reliable difference in merchandise (difmer) information. Therefore, we

based the margin for U.S. products with no corresponding identical home

market match on facts available. As facts available, we used the

highest non-aberrant margin calculated for any of Winbond's other U.S.

sales. See Comment 25 in the ``Interested Party Comments'' section of

this notice for further discussion. Regarding Alliance, because we

found no home market sales at prices above the COP, we made no price-

to-price comparisons. See the ``Normal Value'' section of this notice,

below, for further discussion.

Moreover, Alliance and ISSI did not report certain costs of

production which were contemporaneous (i.e., in the same or a prior

quarter) with their U.S. sales, and ISSI did not report cost or difmer

information for one product sold in the United States. Because there is

insufficient information on the record to calculate a margin for these

products, we based the margin for them on facts available. As facts

available, we used the highest non-aberrant margin calculated for any

of that respondent's other sales. For further discussion, see Comment 7

in the ``Interested Party Comments'' section of this notice.

Level of Trade and Constructed Export Price Offset

In the preliminary determination, the Department determined that

there was sufficient evidence on the record to justify a CEP offset for

each of the four respondents. We found no evidence at verification to

warrant a change from that preliminary determination. Accordingly, we

have made a CEP offset for each of the respondents in this final

determination. For further discussion, see Comment 6 in the

``Interested Party Comments'' section of this notice and the memorandum

to the file from the Team, dated February 13, 1998.

Export Price and Constructed Export Price

For UMC and Winbond, we used the EP methodology, in accordance with

section 772(a) of the Act, when the subject merchandise was sold

directly to the first unaffiliated purchaser in the United States prior

to importation and the CEP methodology was not otherwise indicated.

In addition, for all companies, where sales to the first

unaffiliated purchaser took place after importation into the United

States, we used CEP methodology, in accordance with section 772(b) of

the Act.

We made the following company-specific adjustments:

A. Alliance

We calculated CEP based on packed, FOB U.S. warehouse prices to

unaffiliated purchasers in the United States. We adjusted gross unit

price for billing adjustments and freight revenue. We made deductions,

where appropriate, for discounts. We also made deductions for

international freight (including air freight and U.S. Customs

merchandise processing fees) and U.S. inland freight to the customer,

where appropriate, pursuant to section 772(c)(2)(A) of the Act.

In accordance with section 772(d) of the Act, we made additional

deductions for commissions, warranty and credit expenses, indirect

selling expenses, inventory carrying costs, U.S. repacking expenses and

U.S. further manufacturing costs.

Pursuant to section 772(d)(3) of the Act, gross unit price was

further reduced by an amount for profit, to arrive at CEP.

With regard to modules which were further-manufactured in the

United States, we have based CEP on the net price of the modules rather

than the net price of the individual SRAMs included in the modules.

B. ISSI

We calculated CEP based on packed, FOB U.S. warehouse prices to

unaffiliated purchasers in the United States. We made deductions from

the gross unit price, where appropriate, for discounts. We also made

deductions for foreign inland freight, pre-sale warehousing expenses,

foreign and U.S. inland insurance, foreign brokerage and handling, and

international freight (including air freight, U.S. customs merchandise

processing fees, and U.S. inland freight to ISSI's U.S. office), where

appropriate, pursuant to section 772(c)(2)(A) of the Act.

In accordance with section 772(d) of the Act, we made additional

deductions for commissions, credit expenses, indirect selling expenses,

inventory carrying costs, and U.S. repacking expenses. Regarding credit

expenses, we found that ISSI had not received either full or partial

payment for certain sales as of the date of verification. Consequently,

we used the last day of ISSI's U.S. sales verification as the date of

payment for any unpaid amount and recalculated credit expenses

accordingly. For further discussion, see Comment 11 in the ``Interested

Party Comments'' section of this notice.

Pursuant to section 772(d)(3) of the Act, gross unit price was

further reduced by an amount for profit, to arrive at CEP.

C. UMC

We calculated EP and CEP based on packed, FOB prices to

unaffiliated purchasers in the United States. We adjusted the gross

unit price for billing adjustments and freight charges. We made

deductions from the gross unit price, where appropriate, for discounts.

We also made deductions for foreign inland freight, foreign brokerage

and handling, and international freight, where appropriate, pursuant to

section 772(c)(2)(A) of the Act.

We made additional deductions from CEP, in accordance with section

772(d) of the Act, for commissions, warranty and credit expenses,

indirect selling expenses, and inventory carrying costs. Regarding

credit expenses, we found that UMC had not received payment for certain

sales as of the date of verification. Consequently, we used the last

day of UMC's U.S. sales verification as the date of payment for those

sales and recalculated credit expenses accordingly.

Pursuant to section 772(d)(3) of the Act, gross unit price was

further reduced by an amount for profit, to arrive at CEP.

D. Winbond

We calculated EP and CEP based on packed, FOB or delivered prices

to unaffiliated purchasers in the United States. We made deductions

from the gross unit price, where appropriate, for discounts. We also

made deductions for foreign inland freight, pre-sale warehousing

expenses, foreign inland insurance, foreign brokerage and handling,

international freight (including air freight, U.S. inland freight from

the port to Winbond's U.S. warehouse, and U.S. brokerage and handling

fees), international insurance, U.S. Customs merchandise processing

fees, and U.S. inland freight to customer, where appropriate, pursuant

to section 772(c)(2)(A) of the Act.

We made additional deductions from CEP, in accordance with section

772(d) of the Act, for commissions, credit expenses, advertising

expenses, warranty expenses, technical service expenses, indirect

selling expenses,

[[Page 8913]]

inventory carrying costs, and U.S. repacking expenses.

Pursuant to section 772(d)(3) of the Act, gross unit price was

further reduced by an amount for profit, to arrive at CEP.

Normal Value

In order to determine whether there was a sufficient volume of

sales in the home market to serve as a viable basis for calculating NV

(i.e., the aggregate volume of home market sales of the foreign like

product is greater than five percent of the aggregate volume of U.S.

sales), we compared each respondent's volume of home market sales of

the foreign like product to the volume of U.S. sales of the subject

merchandise, in accordance with section 773(a)(1)(C)(i) of the Act.

Because each respondent's aggregate volume of home market sales of the

foreign like product was greater than five percent of its aggregate

volume of U.S. sales for the subject merchandise, we determined that

there was a sufficient volume of home market sales.

Because UMC and Winbond reported home market sales to affiliated

parties, as defined by section 771(4)(B) of the Act, during the POI, we

tested these sales to ensure that the affiliated party sales were made

at ``arm's-length'' prices, in accordance with our practice. (See

Notice of Final Determination of Sales at Less Than Fair Value: Certain

Cold-Rolled Carbon Steel Flat Products from Argentina, 58 FR 37062,

37077 (Appendix II) (July 9, 1993).) To conduct this test, we compared

the gross unit prices of sales to affiliated and unaffiliated customers

net of all movement charges, discounts, rebates, and packing, where

appropriate. Based on the results of that test, we disregarded sales

from UMC and Winbond to their affiliated parties when they were not

made at ``arm's-length'' prices.

Based on the cost allegation contained in the petition, the

Department found reasonable grounds to believe or suspect that sales in

the home market were made at prices below the cost of producing the

merchandise, in accordance with section 773(b)(1) of the Act. As a

result, the Department initiated an investigation to determine whether

the respondents made home market sales during the POI at prices below

their respective COPs, within the meaning of section 773(b) of the Act.

We calculated the COP based on the sum of each respondent's cost of

materials and fabrication for the foreign like product, plus amounts

for selling, general, and administrative expenses (SG&A) and packing

costs, in accordance with section 773(b)(3) of the Act. General

expenses include items such as research and development (R&D) expenses,

and interest expenses.

Where possible, we used the respondents' reported weighted-average

COPs for each quarter of the POI, adjusted as discussed below. In cases

where there was no production within the same quarter as a given sale,

we referred to the most recent prior quarter for which costs had been

reported. In cases where there was no cost reported for either the same

quarter as the sale, or a prior quarter, we based the margin for those

sales of the products in question on facts available. See Comment 7 in

the ``Interested Party Comments'' of this notice for further

discussion.

We compared the weighted-average quarterly COP figures to home

market prices of the foreign like product, less any applicable movement

charges and discounts, as required under section 773(b) of the Act, in

order to determine whether these sales had been made at prices below

their respective COPs.

In determining whether to disregard home market sales made at

prices below the COP, we examined: (1) whether, within an extended

period of time, such sales were made in substantial quantities; and (2)

whether such sales were made at prices which permitted the recovery of

all costs within a reasonable period of time in the ordinary course of

trade.

Where 20 percent or more of a respondent's sales of a given foreign

like product were made at prices below the COP, we found that the

below-cost sales of that model were made in ``substantial quantities''

within an extended period of time, in accordance with section

773(b)(2)(B) and (C) of the Act. To determine whether prices were such

as to provide for recovery of costs within a reasonable period of time,

we tested whether the prices which were below the per-unit COP at the

time of the sale were above the weighted-average per-unit COP for the

POI, in accordance with section 773(b)(2)(D) of the Act. If such sales

were found to be below the weighted-average per-unit COP for the POI,

we disregarded them in determining NV.

In accordance with section 773(e) of the Act, we calculated CV

based on the sum of each respondent's cost of materials, fabrication

costs, SG&A, profit, and U.S. packing costs. In accordance with section

773(e)(2)(A) of the Act, we based SG&A and profit on the amounts

incurred and realized by each respondent in connection with the

production and sale of the foreign like product in the ordinary course

of trade, for consumption in the foreign country. Where respondents

made no home market sales in the ordinary course of trade (i.e., all

sales were found to be below cost), we based SG&A and profit on one of

the alternatives under section 773(e)(2)(B) of the Act. Specifically,

we based SG&A and profit on the weighted-average of the SG&A and profit

computed for those respondents with home market sales of the foreign

like product made in the ordinary course of trade. For further

discussion, see Comment 11 in the ``Interested Party Comments'' section

of this notice.

Company-specific calculations are discussed below.

A. Alliance

We relied on the reported per-unit COPs and CVs except as follows.

1. For COP, we revised the reported R&D expenses to allocate total

annual semiconductor R&D expenses over total annual semiconductor cost

of sales (see Comment 9).

2. For CV, we based SG&A and profit on the weighted-average SG&A

and profit experience of the three other respondents (see Comment 11).

Because all of Alliance's home market sales were made at prices

below the COP, we based NV on CV. In addition to the adjustments to CV

reported above, in accordance with section 773(a)(7)(B) of the Act, we

granted a CEP offset adjustment and reduced CV by the amount of weight-

averaged home market indirect selling expenses and commissions incurred

by those respondents with sales above the COP up to the amount of

indirect expenses which were deducted from the starting price under

section 772(d)(1)(D) of the Act.

B. ISSI

We relied on the reported per-unit COPs and CVs except as follows.

1. We revised the reported R&D expenses to allocate total annual

semiconductor R&D expenses over total annual semiconductor cost of

sales (see Comment 9). Additionally, we offset R&D expenses with R&D

revenue (see Comment 16).

2. We revised the reported general and administrative (G&A) expense

ratio to include physical inventory loss and loss from disposal of

property, plant and equipment (see Comment 14) and to eliminate the

double counting of marine insurance (see Comment 15).

3. We revised the cost of sales denominator used for the G&A and

R&D expense ratios by using the cost of sales from the audited income

statement.

For those comparison products for which there were sales made at

prices

[[Page 8914]]

above the COP, we based NV on delivered prices to home market

customers. We made deductions for discounts, foreign inland freight,

and insurance, where appropriate, pursuant to section 773(a)(6)(B) of

the Act. We also made circumstance-of-sale adjustments for credit

expenses and bank charges, pursuant to section 773(a)(6)(C)(iii) of the

Act.

We deducted home market indirect selling expenses, including

inventory carrying costs and other indirect selling expenses, up to the

amount of indirect selling expenses incurred on U.S. sales, in

accordance with section 773(a)(7)(B) of the Act. In addition, we

deducted home market packing costs and added U.S. packing costs, in

accordance with section 773(a)(6) of the Act. Where appropriate, we

made adjustments to NV to account for differences in physical

characteristics of the merchandise, in accordance with section

773(a)(6)(C)(ii) of the Act and 19 CFR section 353.57. Where

applicable, in accordance with 19 CFR section 353.56(b)(1), we offset

any commission paid on a U.S. sale by reducing the NV by any home

market commissions and indirect selling expenses remaining after the

deduction for the CEP offset, up to the amount of the U.S. commission.

Where NV was based on CV, we deducted from CV the weighted-average

home market direct selling expenses. In accordance with section

773(a)(7)(B) of the Act, we granted a CEP offset adjustment and reduced

NV by the amount of commissions and indirect selling expenses incurred

by ISSI in Taiwan on sales of SRAMs in Taiwan, up to the amount of

commissions and indirect selling expenses incurred on U.S. sales which

were deducted from the starting price.

C. UMC

We relied on the reported per-unit COPs and CVs except as follows.

1. We increased the cost of manufacturing (COM) to include the

market value of bonuses paid to directors, supervisors, and employees

(see Comment 8).

2. We revised the reported costs for wafers supplied by an

affiliated party to reflect the COP of the affiliate and the startup

adjustment claimed by UMC (see Comment 20).

3. We revised the reported R&D expenses to allocate total annual

semiconductor R&D expenses over total annual semiconductor cost of

sales (see Comment 9).

4. We removed from G&A foreign exchange gains and losses generated

by accounts receivable and another source.

5. We added bonuses to the cost of sales used in the denominator in

the G&A, R&D and interest expense ratios.

For those comparison products where there were sales made at prices

above the COP, we based NV on delivered and FOB prices to home market

customers. For home market price-to-EP comparisons, we adjusted the

gross unit price for billing adjustments, where appropriate. We made

deductions, where appropriate, for discounts, export duties, and

foreign inland freight, in accordance with section 773(a)(6)(B) of the

Act. Pursuant to section 773(a)(6)(C)(iii) of the Act and 19 CFR

section 353.56(a)(2), we made circumstance-of-sale adjustments, where

appropriate, for differences in warranty and credit expenses. We did

not allow an adjustment for home market commissions because we

determined that they were not made at ``arm's length.'' See the

memorandum to Louis Apple from the Team dated September 23, 1997, for a

detailed explanation.

For home market price-to-CEP comparisons, we adjusted the gross

unit price for billing adjustments, where appropriate. We made

deductions, where appropriate, for discounts, export duties, and

foreign inland freight, pursuant to section 773(a)(6)(B) of the Act. We

also made deductions for warranty and credit expenses. We deducted home

market indirect selling expenses, including inventory carrying costs

and other indirect selling expenses, up to the amount of indirect

selling expenses incurred on U.S. sales, in accordance with section

773(a)(7)(B) of the Act. Where applicable, in accordance with 19 CFR

section 353.56(b), we offset any commission paid on a U.S. sale by

reducing the NV by any home market indirect selling expenses remaining

after the deduction for the CEP offset, up to the amount of the U.S.

commission.

For all price-to-price comparisons, we deducted home market packing

costs and added U.S. packing costs, in accordance with section

773(a)(6) of the Act. In addition, where appropriate, we made

adjustments to NV to account for differences in physical

characteristics of the merchandise, in accordance with 773(a)(6)(C)(ii)

of the Act and 19 CFR section 353.57.

Where CV was compared to EP, we made circumstance-of-sale

adjustments, where appropriate, for credit and warranty expenses and

U.S. commissions in accordance with sections 773(a)(6)(C)(iii) and

(a)(8) of the Act. In accordance with 19 CFR section 353.56(b)(i), we

reduced NV by the amount of indirect selling expenses incurred by UMC

in Taiwan on sales of SRAMs in Taiwan, up to the amount of U.S.

commissions.

Where CV was compared to CEP, we made circumstance-of sale

adjustments, where appropriate, for credit and warranty expenses. We

also deducted indirect selling expenses, up to the amount of

commissions and indirect selling expenses incurred on U.S. sales, in

accordance with 773(a)(7)(B) of the Act.

D. Winbond

We relied on the reported per-unit COPs and CVs except as follows.

1. We increased the COM to include the market value of bonuses paid

to directors, supervisors, and employees (see Comment 8).

2. We revised the reported R&D expenses to allocate total annual

semiconductor R&D expenses over total annual semiconductor cost of

sales (see Comment 9).

3. We adjusted G&A expenses to include the unrecovered fire loss

(see Comment 27), bank charges, and other miscellaneous expenses.

Additionally, we excluded foreign exchange gains and losses on sales

transactions.

4. We added bonuses to the cost of sales used in the denominators

in the G&A, R&D and interest expense ratios (see Comment 28).

5. We increased Winbond's second quarter COM to include an

unreconciled difference between its accounting records and its reported

costs (see Comment 24).

6. We revised the COM for two products to reflect the standard cost

and variance at the time of production.

Furthermore, we found at verification that, for all products,

Winbond had misclassified certain variable overhead costs as fixed

overhead. Because we do not have sufficient data on the record to

appropriately reclassify these costs, we are unable to make difmer

adjustments based on Winbond's reported variable costs. Therefore, we

based the margin for all sales requiring a difmer adjustment on facts

available. For further discussion, see Comment 25 in the ``Interested

Party Comments'' section of this notice.

Regarding EP sales, because there were no identical comparison

products sold in the home market at prices above the COP, we made no EP

to home market price or EP to CV comparisons. Regarding CEP, for those

identical comparison products for which there were sales made at prices

above the COP, we based NV on delivered prices to home market

customers. We made deductions from gross unit price for discounts,

import duties and development fees paid on sales to

[[Page 8915]]

customers outside of duty free zones. We deducted home market movement

charges including pre-sale warehouse expenses, foreign inland freight,

brokerage and handling charges, and inland insurance, where

appropriate, in accordance with section 773(a)(6)(B) of the Act. We

also made circumstance-of-sale adjustments for credit expenses (offset

by the interest revenue actually received by the respondent), direct

advertising expenses, warranty expenses, and post-sale payments to a

third-party customer, pursuant to section 773(a)(6)(C)(iii) of the Act.

We made no separate adjustment for technical service expenses, as they

were included as part of R&D expenses. See Comment 30.

We deducted home market indirect selling expenses, including

inventory carrying costs and other indirect selling expenses, up to the

amount of indirect selling expenses incurred on U.S. sales, in

accordance with section 773(a)(7)(B) of the Act. Where applicable, in

accordance with 19 CFR section 353.56(b), we offset any commission paid

on a U.S. sale by reducing the NV by any home market indirect selling

expenses remaining after the deduction for the CEP offset, up to the

amount of the U.S. commission. In addition, we deducted home market

packing costs and added U.S. packing costs, in accordance with section

773(a)(6) of the Act.

Where CV was compared to CEP, we deducted from CV the weighted-

average home market direct selling expenses. In accordance with section

773(a)(7)(B) of the Act, we granted a CEP offset adjustment and reduced

normal value by the amount of indirect selling expenses, including

inventory carrying costs and other indirect selling expenses, up to the

amount of indirect selling expenses incurred on U.S. sales which were

deducted from the starting price.

Currency Conversion

We made currency conversions into U.S. dollars based on the

official exchange rates in effect on the dates of the U.S. sales as

certified by the Federal Reserve Bank. Section 773A(a) of the Act

directs the Department to use a daily exchange rate in order to convert

foreign currencies into U.S. dollars unless the daily rate involves a

fluctuation. It is the Department's practice to find that a fluctuation

exists when the daily exchange rate differs from the benchmark rate by

2.25 percent. The benchmark is defined as the moving average of rates

for the past 40 business days. When we determine that a fluctuation

exists, we substitute the benchmark rate for the daily rate, in

accordance with established practice. Further, section 773A(b) directs

the Department to allow a 60-day adjustment period when a currency has

undergone a sustained movement. A sustained movement has occurred when

the weekly average of actual daily rates exceeds the weekly average of

benchmark rates by more than five percent for eight consecutive weeks.

See Change in Policy Regarding Currency Conversions, 61 FR 9434 (March

8, 1996). Such an adjustment period is required only when a foreign

currency is appreciating against the U.S. dollar. The use of an

adjustment period was not warranted in this case because the New Taiwan

Dollar did not undergo a sustained movement.

Verification

As provided in section 782(i) of the Act, we verified the

information submitted by the respondents for use in our final

determination. We used standard verification procedures, including

examination of relevant accounting and production records and original

source documents provided by the respondents.

Interested Party Comments

General Issues

Comment 1: U.S. Companies as Producers

Alliance, ISSI, and Galvantech argue that, as U.S. producers of

subject merchandise, they should be excluded from this investigation.

Specifically, these companies contend that: 1) the Department has found

that the design is the essential component of the SRAMs under

investigation; and 2) because their designs are developed in the United

States, the SRAMs incorporating these designs are necessarily of U.S.

origin.

Furthermore, Alliance, ISSI, and Galvantech maintain that the

decision on origin of the subject merchandise set forth in the current

scope definition (i.e., where the wafer is produced) clearly conflicts

with the Department's preliminary decision on who constitutes the

producer in this case (i.e., who controls the design). These companies

state that continuing to define what constitutes subject merchandise by

the origin of the wafer would lead to the treatment of U.S. companies

as foreign producers, even when their home market is indisputably the

United States and they have no foreign facilities. According to these

companies, this result is contrary to the plain language of the dumping

law, which was intended to reach foreign, not U.S., producers.

Alliance argues that the Department should harmonize its respondent

and scope determinations by narrowly amending the scope of the case to

exclude SRAMs from Taiwan that are imported by a U.S. design company

that: 1) designed the chips in the United States; 2) controlled their

production from the United States; and 3) either will use them itself

or will market them from the United States. Alliance contends that this

exclusion would not create a loophole that would diminish the

effectiveness of any order in this case, because firms meeting the

above requirements would add significant value in the United States.

According to the petitioner, Alliance, ISSI, and Galvantech have

confused the Department's practice on two separate issues: 1)

determining country of origin for dumping purposes; and 2) selecting

the proper producer and exporter. The petitioner notes that, in past

semiconductor cases, the Department has consistently based country of

origin for dumping purposes on the place of wafer fabrication.

Moreover, the petitioner states that the Department has not hesitated

to include U.S. companies as respondents provided, as here, the

elements of the Department's test for tolling are satisfied. As support

for this contention, the petitioner cites several cases including

Notice of Final Determination of Sales at Less Than Fair Value:

Polyvinyl Alcohol from Taiwan, 61 FR 14064 (Mar. 29, 1996) (PVA from

Taiwan) and Notice of Final Determination of Sales at Less Than Fair

Value: Ferrovanadium and Nitrided Vanadium from the Russian Federation,

60 FR 27957 (May 26, 1995) (Ferrovanadium from Russia).

According to the petitioner, the Department dealt with an identical

issue in the 1993-1994 administrative reviews of the antidumping duty

orders on carbon steel flat products. Specifically, the petitioner

cites a December 1994 memorandum issued in those cases, where the

Department stated that ``the choice of respondent would be based on the

party which controls the sale of the subject merchandise, including

U.S. parties which subcontract part of the production process in a

foreign country . . .'' See ``Discussion Memorandum: A Proposed

Alternative to Current Tolling Methodology in the Current Antidumping

(AD) Reviews of Carbon Steel Flat Products'' from Joseph A. Spetrini,

Deputy Assistant Secretary for Compliance to Susan G. Esserman,

Assistant Secretary for Import Administration, dated December 12,

[[Page 8916]]

1994. The petitioner further notes that the analysis in those cases was

consistent with the current regulation on tolling, which states that

the Department will not consider a subcontractor to be the manufacturer

or producer, regardless of the proportion of production attributable to

the subcontracted operation or the location of the subcontractor or

owner of the goods. See 19 CFR section 351.401(h).

DOC Position

We agree with the petitioner. The Department's current policy on

subcontracted operations is to consider as the manufacturer the entity

which controls the production and sale of the subject merchandise. See,

e.g., Notice of Final Determination of Sales at Less Than Fair Value.

Certain Forged Stainless Steel Flanges from India, 58 FR 68853, 68855

(Dec. 29, 1993) (Flanges from India). Although the new regulations are

not in effect for purposes of this case, they codify this practice.

According to 19 CFR 351.401(h), the Department--

* * * will not consider a toller or subcontractor to be a

manufacturer or producer where the toller or subcontractor does not

acquire ownership, and does not control the relevant sale, of the

subject merchandise or foreign like product.

Nowhere in either our practice or in this regulation is there a

prohibition against selecting U.S. companies as producers, nor is this

the first case where we have treated U.S. companies as such.

2 Indeed, we note that Alliance agreed with our respondent

selection analysis at the public hearing in this case, when it stated

that U.S. companies can be respondents in dumping cases if their

products are within the scope. See page 92 of the transcript of the

public hearing, dated January 22, 1998. Because the U.S. design houses

control the production of the subject merchandise, as well as its

ultimate sale, we find that they are the appropriate respondents here.

See the memorandum to Louis Apple from the Team, dated September 23,

1997, regarding Treatment of Foundry Sales and the Elimination of TSMC

as a Respondent for a more detailed analysis concerning this issue.

---------------------------------------------------------------------------

\2\ See, e.g., PVA from Taiwan.

---------------------------------------------------------------------------

Regarding the respondents' arguments on the country of origin of

their products, we disagree that the design alone confers origin. At

the design stage, the SRAMs in question are merely ideas, not physical

products (i.e., merchandise). These designs do not become actual

merchandise until they are translated onto wafers. As such, while the

design may be the essential component in the finished product, the

design itself is not merchandise.

Consistent with our past practice, we find that the place of wafer

fabrication is determinative as to country of origin. See, e.g., DRAMs

from Korea. Because the wafers in question are fabricated in Taiwan, we

find that they constitute subject merchandise within the meaning of the

Act. Consequently, we are continuing to treat them as such for purposes

of the final determination.

Comment 2: Scope of the Investigation

The petitioner argues that the Department should clarify that the

scope of the order on SRAMs from Taiwan includes the SRAM content of

motherboards for personal computers. The petitioner contends that if

SRAMs incorporated on motherboards are not included in the scope of the

order, the respondents will shift a significant volume of SRAMs into

the production of motherboards in Taiwan that are destined for the

United States, thereby avoiding paying duties on the SRAMs.

In addition, argues the petitioner, while motherboards viewed as a

whole may be considered to fall within a class or kind of merchandise

separate from SRAMs, the placement of SRAMs on a motherboard does not

diminish their separate identity or function, and should not insulate

them from antidumping duties. The petitioner contends that its position

is supported by: 1) the Department's practice regarding combined or

aggregated products; 2) analogous principles of Customs Service

classification; and 3) the Department's inherent authority to craft an

antidumping order that forestalls potential circumvention of an order.

The petitioner also argues that the Customs Service can administer,

without undue difficulty, an antidumping duty order that covers SRAMs

carried on non-subject merchandise.

At the public hearing held by the Department, the petitioner

asserted that there are fundamental differences between the scope

language in DRAMs from Korea and the scope language in this

investigation that distinguish the two cases. The petitioner first

argues that the scope language in DRAMs from Korea ``said that the

modules had to be limited to where the function of the board was

memory. That limitation does not exist in this case.'' See the

transcript of the public hearing, dated January 22, 1998, at page 162.

The petitioner further argues that ``[i]n the DRAM case, it says that

`modules which contain additional items which alter the function of the

module to something other than memory are not covered modules.' That's

a fundamental difference between these two scopes that was very

carefully written and very carefully put into the scope of these two

cases.'' See the hearing transcript at page 163.

IDT and Cypress agree with the petitioner, arguing that SRAMs on a

motherboard are no less SRAMs than those imported separately and that

the Department's failure to cover such imports would provide an

incentive to foreign SRAM producers to shift their sales to motherboard

producers in Taiwan and elsewhere.

Alliance, ISSI, UMC, Winbond, Motorola, Compaq, and Digital oppose

the petitioner's position. Alliance, Compaq, and Digital argue that the

petitioner's circumvention concerns are unfounded. They note that the

Department determined in DRAMs from Korea that DRAMs physically

integrated with the other components of a motherboard in a manner that

made them part of an inseparable amalgam posed no circumvention risk

and that the same holds true in this case.

In addition, Alliance, Compaq, Digital, UMC, and Winbond argue

that, contrary to the petitioner's assertion, SRAMs affixed to a

motherboard do not retain their separate functional identities. Rather,

explains Alliance, SRAMs are integrated onto motherboards by soldering,

are interconnected with other motherboard elements by intricate

electronic circuitry, and become part of a complex electronic

processing unit representing an inseparable amalgam constituting a

different class or kind of merchandise that is outside the scope of the

investigation.

Finally, UMC, Compaq and Digital argue that the petitioner's

proposal is unworkable from an administrative standpoint, since it

would require motherboard manufacturers to track all SRAMs placed in

every motherboard throughout the world. Compaq and Digital note that

they cannot determine the value of Taiwan SRAMs incorporated in a

particular motherboard. In addition, ISSI, Compaq, and Digital argue

that the petitioner's proposal would be unadministrable by the Customs

Service because the SRAM content of a motherboard cannot be determined

by physical inspection and also because the petitioner has provided no

realistic proposition as to how the Customs Service might carry out the

petitioner's proposal on an entry-by-entry basis, given the enormous

volume of trade in motherboards.

With regard to the petitioner's assertion that the scope of the

language

[[Page 8917]]

in DRAMs from Korea is fundamentally different from the scope language

in this investigation, Compaq and Digital argue that the language is

quite similar and that there is no ``doubt that literally the language

in this Notice of Investigation and in the preliminary referred to

certain modules, and those are memory modules, not any kind of board on

which other elements are stuffed.'' See the hearing transcript at page

172.

DOC Position

We disagree with the petitioner. The petitioner's argument that the

scope of the investigation as defined in the preliminary determination

should be interpreted to encompass the SRAM content of motherboards is

unpersuasive for three basic reasons. First, the SRAM content of

motherboards (when affixed to the motherboard) was not expressly or

implicitly referenced in the scope language used in this investigation.

Second, just as we found in the investigation of DRAMs from Korea, the

petitioner's claims about potential circumvention of the order with

SRAMs soldered onto motherboards are inseparable. Third, it is not

appropriate for an antidumping duty order to cover the input content of

a downstream product. As the Department found in DRAMs from Korea, a

case in which a nearly identical proposal was rejected by the

Department, when a DRAM is physically integrated with a motherboard, it

becomes a component part of the motherboard (an inseparable amalgam).

As there has been no request to include motherboards within the scope

of this investigation, the SRAM content of motherboards (when

physically integrated with the motherboard) cannot be covered.

As to the first point, we disagree with the petitioner's assertion

that the differences between the scope language in DRAMs From Korea and

the language in this case are so fundamental that the differences can

be interpreted to mean that SRAMs soldered onto motherboards are

included within the scope of this investigation. The SRAM scope

language relied upon by the petitioner includes within the scope of

this investigation ``other collection[s] of SRAMs;'' as the petitioner

notes in its argument, this refers specifically to modules whether

mounted or unmounted on a circuit board. There is similar scope

language in DRAMs From Korea. In that case, we interpreted the language

as not extending to modules which contain additional items which alter

the function of the module to something other than memory. Such an

interpretation, applied to this case, indicates clearly that the SRAM

content of motherboards is not within the scope of this investigation.

We found in DRAMs From Korea that memory boards whose sole function

was memory were included within the definition of memory modules;

however, we further concluded that other boards, such as video graphic

adapter boards and cards were not included because they contained

additional items which altered the function of the modules to something

other than memory. Consequently, at the time of the final

determination, we added language to the DRAMs From Korea scope in order

that these other, enhanced, boards be specifically excluded. Since the

issue of such enhanced boards was not raised in this case, we did not

find it necessary to include an express exclusion for such products.

Thus, the absence of such language should not be interpreted to permit

the inclusion of products which do not fall under the rubric of ``other

collections of SRAMs.''

As to the second point, the petitioner argued in DRAMs from Korea

that unremovable DRAMs on motherboards should be included in the scope

of the order to counter the potential for circumvention of the order.

We stated in our determination that we considered it ``infeasible that

a party would import motherboards with the intention of removing the

integrated DRAM content and, therefore, consider it unreasonable to

expect that any order arising from this investigation could be evaded

in such a fashion.'' See the memorandum to Joseph Spetrini from Richard

Moreland, dated March 15, 1993, at page 13, attached as Exhibit 1 to

Winbond's submission of January 7, 1998. We find it equally infeasible

that an importer would import SRAMs soldered onto a motherboard for the

sole purpose of removing those SRAMs for individual resale thereby

circumventing the antidumping duty order.

As to the third point, our statute does not provide a basis for

assessing duties on the input content of a downstream product. See

Senate Rep. 100-71, 100th Congress, 1st Sess. 98 (1987) (in which the

report notes both the general rule and the ``major input'' exception,

which applies only in an investigation or review of a downstream

product). Thus, where an SRAM loses its separate identity by being

incorporated into a downstream product, and where the investigation

covers SRAMs but does not cover the downstream product, there can be no

basis for assessing duties against the SRAMs incorporated in the

downstream product.

For a more detailed discussion regarding this issue, see the

memorandum to Louis Apple from the Team, dated February 13, 1998.

Comment 3: Selection of Dumping Margin for Galvantech

Galvantech argues that, if the Department does not exclude its

products from the scope of the investigation, the Department should

assign Galvantech the margin calculated for ISSI for purposes of the

final determination. According to Galvantech, 19 U.S.C. Sec. 1677(e)

requires the Department to determine an importer's margin based on the

most reliable information available. Galvantech asserts that, in this

case, ISSI's margin is the most reliable information applicable to

Galvantech because both companies fabricate wafers using the same

foundry under similar foundry agreements. Galvantech asserts that the

all others rate is less reliable because it does not contain any

information related to either Galvantech or its foundry.

The petitioner asserts that Galvantech is not entitled to ISSI's

margin as facts available. According to the petitioner, Galvantech

provides no compelling reason for the Department to abandon its

standard practice in this investigation and assign one individual

respondent's rate to a non-participating producer. The petitioner notes

that, because Galvantech neither submitted a questionnaire response nor

participated in verification, the Department has no basis to determine

that Galvantech is more similarly situated to ISSI than to Alliance,

another design house without a fabrication facility (i.e., ``fabless'')

that received a preliminary dumping margin which exceeded the all

others rate.

DOC Position

We agree with the petitioner that Galvantech should not be assigned

ISSI's margin. The Department's practice in this area is to assign the

all others rate to any company not specifically investigated in a

proceeding. See, e.g., Notice of Final Determination of Sales at Less

Than Fair Value: Certain Steel Concrete Reinforcing Bars from Turkey,

62 FR 9737, 9742 (Mar. 4, 1997) (Rebar from Turkey). Consistent with

this practice, we have assigned Galvantech the all others rate because

it was not a respondent in this investigation.

We note that the all others rate is not intended to set the rate at

which antidumping duties are ultimately assessed on entries of subject

merchandise. Rather, the all others rate merely establishes the level

of antidumping duty deposits required on future entries. Prior to the

time that

[[Page 8918]]

actual duty assessments are made, each exporter, importer or producer

of subject merchandise has the right to request that the Department

conduct an administrative review of its actual entries and determine

its dumping liability on a company-specific basis. In the event that an

antidumping duty order is issued in this case, Galvantech will have an

opportunity to request such an administrative review.

Comment 4: Exclusion of TSMC as a Respondent

TSMC argues that the decision to exclude it as a respondent in this

investigation is not supported by evidence on the record, and is

contrary to applicable laws, regulations, precedent, and requirements

for procedural fairness.

Specifically, TSMC cites 19 CFR section 351.401(h),\3\ stating that

TSMC qualifies as both a manufacturer and an interested party because

evidence on the record establishes that TSMC acquires ownership of the

subject merchandise and that design houses do not control TSMC's sales

of subject merchandise.\4\

---------------------------------------------------------------------------

\3\ TSMC cites to the new regulations as a codification of

current Department practice.

\4\ TSMC considers the relevant sale to be its sale of SRAM

wafers to its design house customers in the United States and

Taiwan. However, the Department preliminarily determined that the

relevant sale in a foundry agreement is the ultimate sale of SRAMs

made by the design house.

---------------------------------------------------------------------------

In addition, TSMC contends that the Department based its decision

on erroneous information, including the following: (1) design houses

perform all of the R&D for SRAMs; (2) design houses tell the foundries

what and how much to produce; (3) TSMC has no right to sell wafers to

any party other than the design house unless it fails to pay for the

wafers; (4) design houses own and provide masks for the production

process; and (5) masks are considered to be inputs into the production

of SRAMs. TSMC argues that it is a proper respondent because it

performs all process R&D, freely negotiates production quantities and

types, freely contracts to supply merchandise exclusively to particular

design houses, and makes and maintains possession of virtually all

masks used in its fabrication facilities (also known as ``fabs'').

Moreover, TSMC characterizes masks as equipment used in the wafer

fabrication process, rather than raw material inputs.

TSMC also states that, based on the facts on the record and the

Department's practice of granting manufacturer status to, and

calculating individual margins for, producers that manufacture and sell

custom-made products, it should be considered the producer of the

subject merchandise. TSMC cites the following cases in support of its

position: Flanges from India, Notice of Final Determination of Sales at

Less Than Fair Value: Engineered Process Gas Turbo-Compressor Systems,

Whether Assembled or Unassembled, and Whether Complete or Incomplete,

from Japan, 62 FR 24394 (May 5, 1997), Antifriction Bearings (Other

Than Tapered Roller Bearings) and Parts Thereof from France, Germany,

Italy, Japan, Singapore, and the United Kingdom: Final Results of

Antidumping Duty Administrative Reviews, 54 FR 18992, 19012 (May 3,

1989) (AFBs), Antifriction Bearings (Other Than Tapered Roller

Bearings) and Parts Thereof from France, Germany, Italy, Japan,

Singapore, and the United Kingdom: Final Results of Antidumping Duty

Administrative Reviews, 62 FR 2081 (Jan. 15, 1997), Certain Corrosion-

Resistant Carbon Steel Flat Products and Certain Cut-to-Length Carbon

Steel Plate from Canada: Preliminary Results of Antidumping Duty

Administrative Reviews, 61 FR 51891 (Oct. 4, 1996), Notice of Final

Determination of Sales at Less Than Fair Value: Large Newspaper

Printing Presses and Components Thereof, Whether Assembled or

Unassembled, from Japan, 61 FR 38139 (July 23, 1996), Mechanical

Transfer Presses from Japan; Final Results of Antidumping

Administrative Review, 62 FR 11820 (Mar. 13, 1997), and Large Power

Transformers from Japan; Final Results of Antidumping Duty

Administrative Review, 56 FR 29215 (June 26, 1991). In addition, TSMC

cites Sweaters Wholly or in Chief Weight of Man-Made Fiber from Taiwan;

Final Results of Changed Circumstances Antidumping Duty Administrative

Review, 58 FR 32644 (June 11, 1993), claiming that, as in that case,

the Department should grant TSMC manufacturer status because it bought

raw materials used to produce subject merchandise, controlled the

process of manufacture, and performed processing on the subject

merchandise.

TSMC claims that, by making the decision to exclude it at the

preliminary determination and, therefore, to not verify it, the

Department denied any meaningful opportunity for TSMC to present its

case. Finally, TSMC argues that, if the Department upholds its decision

that the design house is the producer of the subject merchandise, the

Department should also find that TSMC's products (i.e., SRAM wafers)

are of U.S. origin. Accordingly, TSMC argues that the Department should

exclude its wafers from the scope of the investigation.

The petitioner states that the Department properly excluded TSMC as

a respondent for the following reasons: (1) the Department properly

determined that TSMC is not a proper producer or exporter based on

applicable law and regulations regarding ``tolling''; (2) the

Department's decision is fully grounded in the record with respect to

each element of an affirmative finding of tolling between TSMC and its

design houses; (3) the cases cited by TSMC are distinguishable from the

instant case, as described in the memorandum to Louis Apple from the

Team, dated September 23, 1997; and (4) TSMC was afforded due process

not only because the memorandum to Louis Apple from the Team, dated May

15, 1997, regarding respondent selection, implied that TSMC would not

be considered a proper respondent if all of its sales were made through

foundry agreements, but also because all interested parties were given

an opportunity to comment on this issue after the preliminary

determination.

DOC Position

We agree with the petitioner. The preliminary determination to

exclude TSMC as a respondent in this investigation was made after

taking into account the evidence on the record, and was in accordance

with applicable law, regulations, and precedent. Regarding TSMC's claim

that the Department based its decision on erroneous information, we

continue to reach the central conclusions set forth in our decision

memorandum on this issue. See the memorandum to Louis Apple from the

Team, dated September 23, 1997, regarding Treatment of Foundry Sales

and the Elimination of TSMC as a Respondent. As we stated in this

memorandum,

Regarding control over production in this case, after reviewing

and analyzing the information submitted by respondents, including

the contracts between the design houses and the foundries, we

believe that the entity controlling the wafer design in effect

controls production in the SRAMs industry. The design house performs

all of the research and development for the SRAM that is to be

produced. It produces, or arranges and pays for the production of,

the design mask. At all stages of production, it retains ownership

of the design and design mask. The design house then subcontracts

the production of processed wafers with a foundry and provides the

foundry with the design mask. It tells the foundry what and how much

to make. The foundry agrees to dedicate a certain amount of its

production capacity to the production of the processed wafers for

the design house. The foundry has no right to sell those wafers to

any party other than the design house unless the design house fails

to pay for the wafers. Once the design house takes possession of the

processed

[[Page 8919]]

wafers, it arranges for the subsequent steps in the production

process. The design of the processed wafer is not only an important

part of the finished product, it is a substantial element of

production and imparts the essential features of the product. The

design defines the ultimate characteristics and performance of the

subject merchandise and delineates the purposes for which it can be

used. The foundries manufactured processed SRAMs wafers using the

proprietary designs of the design houses during the POI. As such,

they did not control the production of the wafers in question, but

merely translated the design of other companies into actual

products.

We agree with TSMC that there are certain factual errors in the

memorandum of September 23, 1997, but disagree as to the significance

of these errors. With regard to the first alleged ``error'' identified

by TSMC, we agree that the process R&D is performed by the foundry, but

note that the design houses are responsible for all product-related R&D

as well as the proprietary designs. These steps impart the essential

features of the product and define its ultimate characteristics and

performance. With regard to the second alleged ``error,'' we agree that

the production quantities and types are negotiated between the foundry

and the design houses; this fact neither supports nor undermines a

finding that the design houses are the producers of the subject

merchandise. With regard to the third alleged ``error,'' we note that

TSMC does not dispute the finding that the foundry has no right to sell

wafers to any party other than the design house unless the design house

fails to pay for the wafers. With regard to the fourth alleged

``error,'' while it may be true that the masks are produced and

retained for a limited time by the foundry, the party that provides the

design imparts the essential features of both the mask and the product;

indeed, the design house controls the use of the mask just as much as

it controls the use of the finished product (in that TSMC is obligated

at some point to destroy the mask to prevent unauthorized reuse). With

regard to the fifth alleged ``error,'' we do not find the

characterization of the masks as either ``inputs'' or ``equipment'' to

be a relevant distinction in this case.

With regard to TSMC's argument that this case is analogous to cases

in which the Department has found the manufacturer of a ``custom-made''

product to be the producer, we note that the decision memorandum

concluded with the finding that ``[t]he design of the processed wafer

is not only an important part of the finished product, it is a

substantial element of production and imparts the essential features of

the product. The design defines the ultimate characteristics and

performance of the subject merchandise and delineates the purposes for

which it can be used.'' This case is not analogous to cases in which

the purchaser merely provides product specifications to the

manufacturer. Moreover, we find unpersuasive TSMC's reference to AFBs.

The issue discussed by the Department in the cited portion of the

notice was whether certain custom-designed bearings were within the

scope of the investigation. The Department did not discuss the question

of whether the bearing designer, as opposed to the bearing

manufacturer, should be considered to be the respondent.

Finally, with regard to TSMC's argument that its wafers should not

be covered by the scope of the investigation, we find that these wafers

constitute subject merchandise. As subject merchandise, we find that

they are properly included in the scope. For further discussion, see

Comment 1, above.

Comment 5: Facts Available for TI-Acer

For the preliminary determination, the Department assigned TI-Acer

a margin based on adverse facts available because it did not respond to

the antidumping questionnaire. TI-Acer argues that the Department

should not assign it a dumping margin based on adverse facts available

because TI-Acer has no record of receiving the questionnaire. Rather,

TI-Acer asserts that the Department should apply the all others rate,

consistent with both previous legal decisions and the Department's

treatment of other companies in this investigation. (See Queen's

Flowers de Colombia v. United States, Slip Op. 97-120 (CIT Aug. 25,

1997) (Queen's Flowers), where the Court of International Trade found

that the use of facts available was unwarranted when a respondent did

not receive the questionnaire, and the Department's preliminary

determination in this investigation, where the Department applied the

all others rate to a company that could not be located.) TI-Acer claims

that it should be subject to the all others rate because it is not a

producer of subject merchandise and section 735(c)(1)(B)(i)(II) of the

Act states that the all others rate is applied to all exporters and

producers not individually investigated.

DOC Position

We disagree with TI-Acer's assertion that the Department should

assign it the all others rate. In Queen's Flowers, the Department found

that the application of facts available was unwarranted because the

questionnaire was delivered to the wrong address. However, in this case

the questionnaire was sent to TI-Acer's correct address and, according

to records obtained from the courier, was accepted by TI-Acer. See the

Department's letters addressed to TI-Acer dated October 22 and December

9, 1997.

Regarding TI-Acer's assertion that it should be assigned the all

others rate under section 735(c)(1)(B)(i)(II) of the Act because it was

not individually investigated, we note that our investigation of TI-

Acer began with the issuance of the questionnaire. Because TI-Acer did

not file a timely questionnaire response, we were unable to determine

that it was not a significant producer or exporter of subject

merchandise and, consequently, to determine that it did not warrant

individual investigation. For this reason, we found that TI-Acer failed

to act to the best of its ability and applied adverse facts available

to it for the preliminary determination. Since the time of the

preliminary determination we have not received any information which

would cause us to change this decision. Accordingly, we have assigned a

dumping margin to this company based on adverse facts available for

purposes of the final determination. This margin, 113.85 percent, is

the highest margin stated in the notice of initiation.

Comment 6: CEP Offset

The petitioner contends that the Department should make no CEP

offset adjustment for any respondent for purposes of the final

determination. The petitioner asserts that the Department's practice of

determining the number and comparability of levels of trade after

making all adjustments to CEP, but before adjusting NV, makes CEP

offsets virtually automatic. According to the petitioner, under both

the plain terms of the statute and the intent of Congress, such

adjustments should be the exception, not the rule. The petitioner notes

that it raised the same argument in another case and that the issue is

being litigated. See Dynamic Random Access Memory Semiconductors of One

Megabit or Above From the Republic of Korea; Final Results of

Antidumping Duty Administrative Review, 62 FR 965 (Jan. 7, 1997) (1994-

1995 DRAMs Review).

In addition to this general argument, the petitioner asserts that

the Department specifically erred in granting a CEP offset adjustment

to UMC because UMC neither requested an adjustment nor demonstrated

that it was entitled to one. According to the

[[Page 8920]]

petitioner, the Department's practice is to require respondents to

affirmatively request adjustments in their favor and to demonstrate

entitlement for these adjustments. As support for this position, the

petitioner cites Mechanical Transfer Presses From Japan; Final Results

of Antidumping Administrative Review, 61 FR 52910 (Oct. 9, 1996)

(Mechanical Transfer Presses) and Cold-Rolled Carbon Steel Flat

Products from the Netherlands; Final Results of Antidumping

Administrative Review, 62 FR 18476 (April 15, 1997) (Cold-Rolled Carbon

Steel Flat Products).

The respondents disagree, noting that the statute requires that a

level of trade analysis be performed only after adjustment is made for

U.S. selling expenses. See 19 U.S.C. Sec. 1677b(a)(7)(A). The

respondents further state that the Department's practice in this area

is both clear and consistent with the statute. As support for this

proposition, the respondents cite the 1994-1995 DRAMs Review, where the

Department stated that the level of trade will be evaluated based on

the price after adjustments are made under section 772(d) of the Act.

The respondents maintain that there is nothing new in the law or the

facts of this investigation to suggest that the Department should

reexamine its practice of beginning its level of trade analysis after

adjusting for U.S. expenses.

The respondents further assert that the Department properly

interpreted its statutory mandate by granting CEP offset adjustments in

this case. Specifically, the respondents assert that they have

supported their claims for these adjustments in their questionnaire

responses and the Department verified the basis for these claims.

Regarding the offset granted to UMC, UMC argues that nothing in the

statute imposes an obligation on a respondent to claim a CEP offset.

Nonetheless, UMC states that it effectively asked the Department for

the equivalent of an offset when it requested that the Department find

two levels of trade in the home market and the United States.

Moreover, UMC asserts that the cases cited by the petitioner (i.e.,

Mechanical Transfer Presses and Cold-Rolled Carbon Steel Flat Products)

do not apply here, as the former involved a company which submitted no

information showing a difference in selling functions and the latter

involved a company which made inconsistent statements involving level

of trade in its questionnaire responses. UMC states that, since the

beginning of the case, it has consistently provided information showing

that it qualifies for a CEP offset. Consequently, UMC states that the

statute leaves the Department with no choice but to grant one.

DOC Position

We agree with the respondents. As we stated in the 1994-1995 DRAMs

Review, the Department has--

consistently stated that, in those cases where a level of trade

comparison is warranted and possible, then for CEP sales the level

of trade will be evaluated based on the price after adjustments are

made under section 772(d) of the Act (see Large Newspaper Printing

Presses and Components Thereof, Whether Assembled or Unassembled,

From Japan; Notice of Final Determination of Sales at Less Than Fair

Value, 61 FR 38139, 38143 (July 23, 1996). In every case decided

under the revised antidumping statute, we have consistently adhered

to this interpretation of the SAA and of the Act. See, e.g., Aramid

Fiber Formed of Poly para-Phenylene Terephthalamide from the

Netherlands; Preliminary Results of Antidumping Duty Administrative

Review, 61 FR 15766, 15768 (April 9, 1996); Certain Stainless Steel

Wire Rods from France; Preliminary Result of Antidumping Duty

Administrative Review, FR 8915, 8916 (March 9, 1996); Antifriction

Bearings (Other Than Tapered Roller Bearings) and parts Thereof from

France, et. al., Preliminary Results of Antidumping Duty

Administrative Review, 61 FR 25713, 35718-23 (July 8, 1996).

The Department's practice in this area is clear. Accordingly,

consistent with this practice, we performed our level of trade analysis

only after adjusting for selling expenses deducted from CEP starting

price pursuant to section 772(d) of the Act. Based on our analysis, we

determined that each respondent sold SRAMs during the POI at a level of

trade in the home market which was different, and more advanced, than

the level of trade at which it sold SRAMs in the United States.

Because there is insufficient information on the record to make a

level of trade adjustment for any respondent in this case, we have

granted a CEP offset adjustment for purposes of the final

determination, in accordance with section 773(a)(7)(B) of the Act. Each

of the respondents, including UMC, provided sufficient data to justify

this adjustment,

Comment 7: Use of Production Costs Incurred After the Quarter of Sale

The petitioner argues that the Department should compare home

market sales with quarterly costs for the same or a prior quarter when

performing the cost test, rather than using costs incurred in

subsequent quarters. The petitioner asserts that use of actual

production costs is particularly important in this case, because the

Department found that there was a significant and consistent price and

cost decline which requires the use of quarterly data. The petitioner

contends that the Department should use facts available for those sales

where the respondents have not provided actual cost data. As facts

available, the petitioner argues that the Department should use the

weighted-average dumping margin calculated for all other sales by that

respondent.

ISSI does not dispute the use of quarterly costs incurred in the

same or a prior quarter as the quarter of sale. However, ISSI contends

that, when those costs are not on the record, the Department should use

either: (1) The reported costs from the closest subsequent quarter in

which production occurred (i.e., the methodology employed in the

preliminary determination); or (2) the weighted-average margin

calculated for ISSI's other sales. According to ISSI, the latter

methodology is the Department's practice when adverse facts available

is not warranted.

Alliance argues that the petitioner's arguments do not apply,

because it supplied all of the data requested by the Department.

DOC Position

We agree with the petitioner, in part. We requested that all

respondents provide cost data in the same quarter as the quarter of

their home market and U.S. sales, or, when production did not occur in

that quarter, to provide cost data for the most recent prior quarter in

which production did occur. UMC and Winbond complied with these

requests. Accordingly, we have used their cost data for purposes of the

final determination. However, Alliance and ISSI did not submit

production costs on this basis for a small number of products.

Moreover, ISSI did not report production costs at all for one product.

Because we afforded respondents the opportunity to report their actual

costs for these products and Alliance and ISSI failed to do so, we have

based the dumping margins for the associated sales on facts available.

Regarding Alliance, as facts available, we have used the weighted-

average dumping margin calculated for all of Alliance's other sales. We

have determined that this methodology is appropriate, given that, after

the preliminary determination, Alliance was not given an express

opportunity (unlike the other respondents, including ISSI) to provide

the necessary data.

Regarding ISSI, we have determined that, contrary to the

petitioner's neutral facts available methodology, an adverse assumption

is appropriate. Because ISSI

[[Page 8921]]

has not explained why it was unable to provide the requested data, we

find that ISSI has failed to cooperate to the best of its ability in

complying with our requests for this information. Accordingly, as

adverse facts available, we have used the highest non-aberrant margin

calculated for any of ISSI's other U.S. sales, consistent with our

treatment of ISSI's unreported costs in the preliminary determination.

Comment 8: Cash and Stock Bonus Distributions to Directors,

Supervisors, and Employees

UMC and Winbond argue that cash and shares of company stock given

to their employees are distributions of profits that should not be

included in the calculations of COP or CV. These respondents argue that

these distributions are not recorded on their audited financial

statements as an expense, but as direct reductions to retained

earnings. In addition, Winbond argues that its distributions are paid

out of post-tax earnings and are, therefore, not tax-deductible. The

respondents note that section 773(f)(1)(A) of the Act states that COP

and CV shall normally be calculated based on the books and records of

the exporter or producer of the merchandise if such records are kept in

accordance with the generally accepted accounting principles (GAAP) of

the exporting country, and if such records reasonably reflect the costs

associated with the production of the merchandise under investigation.

The respondents claim that these requirements are met by their

consistent treatment of these stock distributions as reductions to

retained earnings, in accordance with Taiwan GAAP.

The respondents argue that the distributions are analogous to

dividends, which the Department has previously excluded from COP and

CV. Specifically, Winbond maintains that, as with dividends, the

company shareholders alone have the ability to authorize these

payments. In support of its position, Winbond presented a letter from

its Taiwanese attorneys which argues that cash and stock distributions

to employees are treated as equivalent to dividends. Winbond also

claims that English versions of its financial statements refer to the

employee stock distributions as ``bonus shares'' in a short-hand,

casual manner, which is factually inaccurate and prejudicial. Winbond

argues that readers of its financial statements understand that such

distributions are actually a transfer of wealth from shareholders to

employees. Winbond also presented a letter from its auditing firm which

stated that the distributions were issued from equity, rather than

company capital, and, as such, are more akin to preferred stock than

bonuses under U.S. GAAP.

Winbond argues that the Department has consistently held that

payments made by a company on behalf of its owners are not costs of

production, even if they are carried on the company's books. In support

of its position, Winbond cites to Final Determination of Sales at Less

Than Fair Value: Fresh Cut Roses from Colombia, 60 FR 6980, 7000 (Feb.

6, 1995) (Colombian Roses) and Final Determination of Sales at Less

Than Fair Value: Fresh Kiwifruit from New Zealand, 57 FR 13695, 13704

(April 17, 1992) (New Zealand Kiwifruit). Winbond also cites to Final

Determination of Sales at Less Than Fair Value: Oil Country Tubular

Goods from Austria, 60 FR 33551, 33557 (June 28, 1995) (Austrian OCTG),

claiming that the bonus distributions are similar to dividends which

were recorded in the equity section of the balance sheet rather than on

the income statement.

Likewise, UMC argues that the recipients of its distributions are

in a similar position to shareholders who receive dividends. UMC notes

that the value of company stock varies with its performance and the

recipients of distributions and dividends both share the economic risk

the company faces. UMC argues that company stock distributed to

employees represents a conveyance of ownership rights, and thus these

distributions are more akin to dividends than to the cash distributed

as bonuses to employees in Porcelain-on-Steel Cookware from Mexico:

Notice of Final Results of Antidumping Duty Administrative Review, 62

FR 25908, 25914 (May 12, 1997) (Mexican Cookware).

The respondents claim that treating employee stock distributions as

a cost of production would be contrary to Department practice. UMC

cites Notice of Final Results of Antidumping Duty Administrative

Review: Ferrosilicon from Brazil, 62 FR 43504, 43511 (August 14, 1997)

(Ferrosilicon from Brazil), where the Department treated ``social

contributions'' for employees as a type of federal income tax and

excluded the costs from the calculation of G&A expenses. Similarly,

Winbond cites the Department's treatment of the enterprise tax in Final

Determination of Sales at Less Than Fair Value: High Information

Content Flat Panel Display Screen and Glass Therefor from Japan, 56 FR

32376, 32392 (July 16, 1991) (Flat Panel Displays from Japan), where

the tax was levied on the basis of corporate income and unrelated to

the COP.

Finally, the respondents argue that, should the Department decide

to include employee stock distributions in COP and CV, the stock should

be valued at par rather than at market value. The respondents claim

that the par value more accurately reflects the cost of the

transaction, as reflected in their accounting records. However, UMC

asserts that, if the Department uses market value, it should discount

the value of the distributions for associated risk factors because to

do otherwise would overstate their value. Finally, arguing that the

Department's calculation was incorrect under U.S. GAAP, Winbond

presented a calculation prepared by its auditors setting forth their

calculation of the market value of the distributions.

The authorities on Taiwan argue that the record in this case

provides substantial evidence that stock distributions bear no

relationship to production costs and have been properly classified as

adjustments to retained earnings. The authorities on Taiwan state that

this evidence includes: (1) A clear record of prior accounting

treatment; (2) the fact that the existence and amount of stock

distributions are ultimately controlled by shareholders; (3) the fact

that stock bonuses are not tax deductible; and (4) the fact that the

market value of the stock can and has fluctuated significantly.

The petitioner argues that the Department correctly classified the

stock distributions in question as bonuses and properly included them

in COP and CV. The petitioner points out that the Department's

questionnaire requires respondents to report all compensation to

employees, including bonuses. Moreover, the petitioner argues that, not

only does U.S. GAAP prohibit companies from excluding stock bonuses

from the income statement, but also excluding a significant portion of

employee remuneration from the cost calculation fails to reasonably

reflect the costs associated with the production of subject

merchandise. Therefore, according to the petitioner, it is appropriate

for the Department to adjust the costs as recorded in the respondents'

normal books and records.

The petitioner points to an article prepared by ING Barings in

March 1996 which states that net margins for some Taiwan electronics

corporations ``are deceptively high * * * due to the way employee bonus

shares are distributed and the way accounting is treated.'' See the

petitioner's letter dated September 3, 1997. According to the

petitioner, the ING Barings report notes that the Taiwan GAAP treatment

of such

[[Page 8922]]

bonuses permits companies to retain key employees while giving the

appearance of high profitability, and characterizes such bonuses as a

hidden cost not reflected in the income statement.

The petitioner asserts that the respondents' arguments regarding

the control and authorization of bonuses by company shareholders are

irrelevant and that such arguments do not change the fact that these

amounts represent a cost of labor. The petitioner claims that stock and

cash payments represent compensation by UMC and Winbond to their

employees because they are paid in return for work performed for the

company. The petitioner notes that U.S. GAAP states that, with regard

to stock options, ``Employees provide services to the entity--not

directly to the individual stockholders--as consideration for their

options * * * To omit such costs would give a misleading picture of the

entity's financial performance.'' See Statement of Financial Accounting

Standards (SFAS) No. 123, issued by the Financial Accounting Standards

Board (FASB) in October 1995, at paragraph 90.

The petitioner argues that the Department has previously found that

payments to employees, in whatever form, are a part of the compensation

paid to employees and should be treated no differently than salaries or

other employee benefits because they flow directly to a factor of

production. See Mexican Cookware. The petitioner claims that the

Department did not conclude in Mexican Cookware that if the bonuses had

been made in the form of stock then they should be excluded from cost,

despite the respondents' arguments to the contrary.

According to the petitioner, stock bonuses should be included in

COP and CV at the market value. The petitioner argues that the par

value of stock is purely nominal, with no relationship to the stock's

actual value. The petitioner notes that the par value of stock for all

companies in Taiwan is set at NT$10 and that the use of par value

ignores the economic substance of the transaction. The petitioner

points out that U.S. GAAP rejects the use of par value and instead

requires that bonuses be recorded at the market value on the date the

stock or stock option is granted.

DOC Position

We agree with the petitioner. The amounts distributed by UMC and

Winbond to their directors, supervisors, and employees, whether in the

form of stock or cash, represent compensation for services which the

individual has provided to the company. Therefore, in accordance with

section 773(f)(1)(A) of the Act, we have determined that it is

appropriate to include these amounts in the calculation of COP and CV.

We acknowledge that the respondents' treatment of these

distributions as reductions to equity is in accordance with Taiwan

GAAP. However, we find that this treatment is contrary to the

requirements of section 773(f)(1)(A) of the Act, as it does not

reasonably reflect the respondents' cost of production, because the

stock transferred to employees in exchange for their labor is a cost to

the company that is not reflected in the reported COPs and CVs.

Specifically, we disagree with the respondents' classification of

these payments as dividends. First, we note that they are identified on

the respondents' English version audited financial statements as

bonuses. Second, we note that the distribution arrangement is set forth

in each company's articles of incorporation, is known to the

individuals that seek employment at UMC or Winbond and is considered by

each company's management when setting wage and salary

levels.5

---------------------------------------------------------------------------

\5\ For example, UMC announces on its Internet home page, under

the heading of ``Employment opportunities--Compensation'' that a

``fixed portion of surplus profit is passed to employees as either

cash or UMC shares.'' Winbond announces on its home page that its

compensation and benefits include ``holiday bonuses'' and ``profit

sharing.''

---------------------------------------------------------------------------

Authorization by the stockholders does not mean that the

distributions are not a cost to the company; we note that the company

is foregoing the opportunity to acquire capital by issuing or selling

those shares to investors at the market price. The economic substance

of the distributions is that the directors, supervisors and employees

have performed services for the company and the stock and cash

distributions are provided to them as additional compensation for their

services. Under U.S. GAAP, these distributions would be reported as an

expense on the income statement and not as a deduction from retained

earnings.

We disagree with the respondents' claims that the inclusion of

these amounts in COP and CV contradicts Department's normal practice

and is contrary to our findings in Mexican Cookware. The Department

addressed the issue of profit-sharing in Mexican Cookware, where

profit-sharing was accounted for in a similar manner. In Mexican

Cookware we stated that profit-sharing is distinct from dividends in

that the profit-sharing distributions represent a legal obligation to a

productive factor in the manufacturing process and not a distribution

to the owners of the company. Dividends paid to shareholders would not

be considered a cost by the Department. In Mexican Cookware, as in this

case, the distributions were to employees in exchange for their

services on behalf of the company. It is irrelevant that company

employees who receive stock bonuses obtain ownership rights and will

thereafter share an economic risk with other shareholders.

Furthermore, we disagree with Winbond's interpretation of the

Department's practice, as presented in Colombian Roses, New Zealand

Kiwifruit, and Austrian OCTG. In Colombian Roses, the amounts paid out

by the respondent were excluded because the recipient of the payments

did not perform any service for the company. In the instant case,

however, the stock distributions made by UMC and Winbond are

compensation to company employees for their services. Similarly, in New

Zealand Kiwifruit the Department excluded from COP costs which were

determined to be the owner's personal expenses. Contrary to Winbond's

claim, the New Zealand Kiwifruit decision does not indicate that the

Department excluded costs which were recorded in the respondent's

accounting records. Finally, we note that Austrian OCTG supports the

Department's decision in this case, because in Austrian OCTG the

Department noted that ``profit sharing plans are directly related to

wages and salaries. Profit distributions to employees are treated in a

manner similar to bonuses * * * these mandatory payments represent

compensation to the employees for their efforts in the production of

merchandise and the administration of the company.'' The same

circumstances exist here and our treatment of employee stock

distributions is entirely consistent with the decision made in Austrian

OCTG. Finally, regarding Winbond's attempts to compare its stock

distributions to the dividends paid out in Austrian OCTG, we note that

stock distributions can be easily distinguished from dividends, as

discussed in Mexican Cookware.

We find that the respondents' cites to Ferrosilicon from Brazil and

Flat Panel Displays from Japan are equally misplaced. In those cases

the amounts were charges by the government to the company, rather than

amounts authorized by the board of directors and paid by the company to

its employees.

Regarding the respondents' claim that we should value the stock

distributions at par value (which reflects the amount at which they are

recorded in the

[[Page 8923]]

companies' financial statements), we disagree. Because the par value of

company stock in Taiwan is set under the Company Law at NT$10 for each

company, we find that the stock's par value does not represent the

value of the distribution to the employees. As described in

Intermediate Accounting (8th Edition, Kieso & Weygandt, 1995) at 739,

par value ``has but one real significance; it establishes the maximum

responsibility of a stockholder in the event of insolvency or other

involuntary dissolution. Par value is thus not `value' in the ordinary

sense of word.''

We agree with the petitioner that these distributions should be

valued at fair market value. Under U.S. GAAP, as directed by the FASB

in SFAS No. 123, shares of stock awarded to employees should be valued

at the fair value of the stock at the grant date. The SFAS also directs

that, ``If an award is for past services, the related compensation cost

shall be recognized in the period in which it is granted.'' In the

instant case, the stock distributed by UMC and Winbond in the current

year was for service of the prior year. Under U.S. GAAP, it is

appropriate to recognize the compensation cost in the period when it

was granted. Therefore, the stock bonus granted during 1996 for 1995

service should be recognized as a cost during 1996.

As to the determination of fair market value, because the employee

stock bonuses were authorized by UMC and Winbond shareholders at the

annual shareholders' meetings, our preference would be to value the

stock at the market price on those dates. However, since the dates of

those meetings are not on the case record, we have valued the stock

distributions on the dates of issuance. This is a reasonable surrogate

because employees do not receive the stock until the date of issuance

and, thus, the value of what they are receiving is not fixed until that

date. We note that using the closing stock price on the date of

issuance accounts for market risk associated with the distribution. We

disagree with the calculation prepared by Winbond's auditors because

that calculation incorrectly values Winbond stock at the company's

fiscal year end, rather than the grant date specified under U.S. GAAP.

We also disagree with the arguments raised by the authorities on

Taiwan. The record supports the Department's determination that the

cash and stock distributions represent compensation to directors,

supervisors, and employees and, therefore, they are a cost within the

meaning of section 773(f)(1)(A) of the Act, despite the accounting

treatment prescribed by Taiwan GAAP. We acknowledge the existence of

the specific items that the government of Taiwan points to as evidence,

but we disagree with the government of Taiwan's conclusion that these

items support the exclusion of the cash and stock distributions from

the respondents' COP and CV.

Comment 9: Research and Development Expenses

Each of the four respondents argues that the Department improperly

allocated semiconductor R&D expenses to all semiconductor products in

the preliminary determination.

Alliance claims that such an allocation is inappropriate because

companies without fabrication facilities, such as Alliance, engage in

R&D for circuit design of new products, rather than in the process R&D

pursued by companies that fabricate SRAM wafers. Alliance refers to a

letter from Professor Bruce A. Wooley which states that, ``[I]n the

case of circuit design techniques there is virtually no cross-

fertilization among various classes of memories.'' See exhibit one of

Alliance's submission dated September 15, 1997. Alliance claims that

the articles proffered by the petitioner to support its claim that R&D

conducted in one area benefits other areas mainly relate to process

technology which may benefit a variety of products and to the

incorporation of separate designs on a single chip; they do not address

whether design technology from one type of memory product benefits the

design of another. Alliance argues that both its verified R&D

information and the fact that the company separates product-specific

R&D for accounting purposes demonstrate that the R&D conducted by

Alliance is product-specific design R&D, which does not benefit all

products. Alliance argues that, if the Department determines that

cross-fertilization of design R&D among memory products does occur, it

should still not aggregate product-specific R&D for logic products with

product-specific R&D for memory products.

In addition, argues Alliance, if the Department allocates R&D

expenses over all SRAM products, it should calculate the R&D expense

factor using the costs incurred during the POI, rather than the

company's fiscal year. Alliance claims that the Department's intention

in the preliminary determination was to ``allocate the total amount of

semiconductor R&D for the POI over the total cost of sales of

semiconductor products sold during the POI, using an annual ratio.''

Alliance argues that the Department incorrectly calculated its R&D

ratio using data from its fiscal year, rather than the expenses

incurred during the POI.

ISSI claims that the methodology followed by the Department in

previous cases where it allocated all semiconductor R&D expenses to all

semiconductor products does not apply to ISSI because it is a non-

integrated, U.S.-owned and controlled, fabless semiconductor producer.

See e.g., Dynamic Random Access Memory Semiconductors from Korea: Final

Results of Antidumping Duty Administrative Review, 61 FR, 20216, 20217

(May 6, 1996). ISSI asserts that the Department should accept its R&D

expense allocation methodology because ISSI performs largely design R&D

which, unlike process R&D, is specific to a given product category and

has no application or benefit to other product groups. ISSI notes that

it separated and allocated design R&D expenses into the distinct, non-

overlapping product areas of volatile memory (i.e., DRAMs and SRAMs),

non-volatile memory, and logic.

UMC argues that the Department should allocate process and design

R&D only for memory products to SRAMs, not total semiconductor R&D to

all semiconductors. UMC contends that, while it may be appropriate to

allocate process R&D across all semiconductor products in some

instances, it is not appropriate to use this methodology with product-

specific design R&D. Moreover, UMC argues that the Department's

practice is to use product-specific costs and cites to the Court of

International Trade's decision in Micron Technology, Inc. v. U.S. 893

F. Supp. 21, 27 (CIT, 1995) (Micron Technology). UMC argues that the

CIT stated in Micron Technology that R&D costs may not be allocated on

an aggregate basis unless there is substantial evidence demonstrating

that the subject merchandise benefits from R&D expenditures earmarked

for non-subject merchandise. UMC states that, in this case, there is no

credible evidence on the record demonstrating that the subject

merchandise benefits from non-subject R&D (i.e., there are no specific

instances on the record of cross-fertilization of R&D across product

lines). In addition, UMC claims that a number of detailed statements on

the record by semiconductor experts unanimously conclude that there is

virtually no benefit accruing to memory products from R&D performed on

non-memory products.

Furthermore, argues UMC, the Department should differentiate the

Taiwan SRAM industry from its Korean counterpart, in that most Korean

firms

[[Page 8924]]

are highly integrated, while much of the Taiwan industry consists of

segmented production. UMC argues that product design R&D is far more

likely to lead to cross-fertilization among products when it is

performed by an integrated firm rather than by a non-integrated firm.

Accordingly, UMC argues that a finding of cross-fertilization of R&D in

the Korean industry may have little or no application here. Moreover,

UMC maintains that in its accounting records it segregates process R&D

from product design R&D which relates only to specific types of

integrated circuits. UMC claims that there is no cross-fertilization

between its R&D for SRAM product design and R&D for product design for

other types of integrated circuit devices. UMC argues that, if the

Department determines that design R&D costs for non-subject merchandise

do, in fact, cross-fertilize SRAM design R&D, then a distinction must

be drawn between design R&D for memory and design R&D for non-memory

(i.e., logic) products.

Winbond asserts that the Department's R&D allocation at the

preliminary determination significantly overstated its COP. According

to Winbond, its other product lines have an entirely different

engineering focus and are segregated from Winbond's SRAM R&D activities

both organizationally and in its accounting system. Winbond asserts

that it tracks in its accounting records all R&D expenses by category,

such as product design or process R&D, and further by product type and

project.

Winbond argues that the antidumping law requires the use of

product-specific costs. Winbond argues further that, as a legal matter,

there is no evidence on the record to overcome the verified fact that

cross-fertilization does not occur at Winbond. Winbond contends that

the allocation of R&D on a company-wide basis fails to account for the

fluctuation of logic R&D and the stability of SRAM R&D. In addition,

Winbond notes that the focus of logic product R&D is the end product's

specific function, whereas SRAM R&D focuses on the reduction in cell

size, a completely different and more discrete goal. Moreover, Winbond

asserts that it is unreasonable to include Winbond's logic product R&D

costs in the allocation factor since R&D spending on logic products was

vastly higher in 1996 than R&D spending for SRAMs.

The petitioner agrees with the Department's treatment of R&D

expenses in its preliminary determination. The petitioner argues that

contrary to ISSI's and Alliance's assertions, the allocation

methodology used in Korean DRAMs applies in this case. The petitioner

states that the respondents fail to appreciate that in Korean DRAMs,

process R&D was considered to be part of overhead and that only product

R&D of the type incurred by ISSI and Alliance was at issue.

Furthermore, in Korean DRAMs, the Department allocated all product

semiconductor R&D over all semiconductor production.

The petitioner criticizes the letters submitted on behalf of the

respondents, stating that each is entitled to no more weight on the

basis of their credentials than are those submitted on behalf of the

petitioner or the Department. The petitioner claims that information on

the record, such as the expert testimony of Mr. Cloud of Micron and Dr.

Murzy Jhabvala of the National Aeronautics and Space Administration

(NASA), as well as numerous magazine articles, supports its claim that

cross-fertilization occurs among R&D projects conducted for various

semiconductor products. The petitioner notes that ISSI itself allocated

SRAM and DRAM R&D over memory cost of sales, thereby implicitly

assuming cross-fertilization of SRAM and DRAM R&D.

In addition, the petitioner maintains that the Department's

methodology was appropriate because R&D is supported by revenues from

the complete range of products sold, not solely by the revenues of a

particular product on which an R&D project is focused. Accordingly, the

petitioner argues, it is most appropriate to allocate all semiconductor

R&D over the base that sustains it (i.e., over all semiconductor

production). Moreover, the petitioner argues that the respondents'

maintenance of product-specific accounting categorization by project

does not prove that R&D conducted for one type of semiconductor cannot

benefit the development of another type.

DOC Position

We agree with the petitioner. We find that there is cross-

fertilization of scientific ideas between the R&D activities of

semiconductor products. Processing advancements for one semiconductor

product can benefit other types of semiconductor products (including

logic and memory). Furthermore, design improvements, although

undertaken for a specific product, can, and often do, become

incorporated into the design of other semiconductors, whether they are

logic or memory devices. We find that it is appropriate to allocate the

cost of all semiconductor R&D to all semiconductor products, given that

scientific ideas developed in one semiconductor area can be and have

been utilized in the development of other semiconductor products.

Therefore, for purposes of the final determination, we have calculated

R&D for SRAMs using the ratio of total semiconductor R&D to total

semiconductor cost of sales for the annual period that most closely

corresponds to the POI.

Due to the forward-looking nature of R&D activities, the Department

cannot identify every instance where SRAM R&D may influence logic

products or where logic R&D may influence SRAM products, but the

Department's own expert has identified areas where R&D from one type of

semiconductor product has influenced another semiconductor product. Dr.

Murzy Jhabvala, a semiconductor device engineer at NASA with twenty-

four years of experience, was invited by the Department to express his

views regarding cross-fertilization of R&D efforts in the semiconductor

industry. He has stated that ``it is reasonable and realistic to

contend that R&D from one area (e.g., bipolar) applies and benefits R&D

efforts in another area (e.g., MOS memory).'' Dr. Jhabvala went on to

state that--

SRAMs represent along with DRAMs the culmination of semiconductor

research and development. Both families of devices have benefitted

from the advances in photolithographic techniques to print the fine

geometries (the state-of-the-art steppers) required for the high

density of transistors. . . . Clearly, three distinct areas of

semiconductor technology are converging to benefit the SRAM device

performance. There are other instances where previous technology and

the efforts expended to develop that technology occurs in the SRAM

technology. Some examples of these are the use of thin film

transistors (TFTs) in SRAMs, advanced metal interconnect systems,

anisotropic etching and filling techniques for trenching and

planarization (CMP) and implant technology for retrograde wells.

See memo from Peter Scholl to the file dated September 16, 1997,

placing letters from Dr. Jhabvala on the record.6

---------------------------------------------------------------------------

\6\ In letters dated January 23 and 28, 1998, the respondents

expressed concern that the Department might consider information

from the Korean SRAM record or a memorandum from Dr. Jhabvala placed

on the record on January 15, 1998, (i.e., after the public hearing

in this case) which the parties did not have any opportunity to

comment upon. We agree that the parties have not had an opportunity

to comment upon this memorandum. Therefore, we have not considered

it or any information on the Korean SRAMs record in our final

determination. We note that we have quoted from Dr. Jhabvala's pre-

verification comments on the record in this case.

---------------------------------------------------------------------------

The Department has also identified through published magazine

articles examples of cross-fertilization in the semiconductor industry.

See, e.g., ``A 250-MHz Skewed-Clock Pipelined Data

[[Page 8925]]

Buffer,'' Institute of Electrical and Electronics Engineers Journal of

Solid State Circuits, March 1996; and ``A 1-Mb 2 Tr/b Nonvolatile CAM

Based on Flash Memory Technologies,'' Institute of Electrical and

Electronics Engineers Journal of Solid State Circuits, November 1996.

We also noted numerous published articles in the Institute of

Electrical and Electronics Engineers Journal of Solid State Circuits

which described how significant advancements in the advanced

semiconductor integrated circuit (ASIC)/logic product area have had

important ramifications for chip design in the memory areas. The

articles described how multilayer metal design development categorized

as logic/ASIC R&D will permit companies to build chips that are

smaller, faster and more power-efficient. The articles concluded that

the research will be used in the future to improve microprocessors,

memory and mixed-signal devices. As an example, one article entitled

``The Challenges of Embedded DRAM in ASICs: A Manufacturing Economics

Point of View,'' Dataquest Interactive, August 25, 1997, discussed the

technical challenges of embedding memory into ASICs, which illustrated

the overlap in design and process technology between logic and memory

circuits. This article noted on page two that ``[b]oth the fast SRAM

and the `pseudo-DRAM' structures are actually subsets of the process

flow for advanced logic, so designing and constructing SLI ASICs are a

natural extension and do not really add much to the per-wafer cost of

the process.'' The articles were attached as exhibits to the letter

submitted by the petitioner on October 15, 1997.

We reviewed the views of the respondents' expert on this subject

and found them to be of less probative value than the cases cited

above, as the published articles refute Dr. Wooley's assertion that

there is no cross-fertilization among circuit design techniques. In

fact, Dr. Wooley, writing on behalf of ISSI, agrees that there can be

cross-fertilization in the development of process technologies among

various classes of memories. This assertion also refutes the other

respondents' claims that there is no cross-fertilization in the

development of process technologies.

Moreover, contrary to the respondents' assertion, the methodology

we are applying does calculate product-specific costs. Where

expenditures benefit more than one product, it is the Department's

practice to allocate those costs to all the products which are

benefitted. Therefore, as semiconductor R&D benefits all semiconductor

products, we have allocated semiconductor R&D to all semiconductor

products.

We also disagree with the respondents' assertion that the

methodology employed by the Department should be based on respondents'

normal accounting records. While we do not disagree that each R&D

project is accounted for separately in each of the respondents'

respective books and records, we note that the existence of separate

accounting records does not necessarily preclude the phenomenon of

cross-fertilization of scientific ideas. Since accounting records do

not address the critical issue of whether ideas from research in one

area benefit another area, we do not find this argument persuasive.

We also found unpersuasive the following arguments presented by

respondents: (1) That SRAMs are a mature product that cannot benefit

from R&D performed in other areas; (2) that logic R&D is more complex

than memory R&D; (3) that logic R&D is unique to an application; and

(4) that logic R&D involves high level architecture and functionality

which is different from SRAM R&D (which focuses on shrinking cell size,

increasing capacity and efficiency). The record shows that the primary

focus for SRAM and DRAM R&D is reducing die size and increasing speed,

which will benefit from the metal multilayer design R&D being conducted

in connection with logic/ASIC products. Moreover, the issue is not

whether application-specific design R&D for logic products can be used

for SRAMs, but rather whether what is learned from logic/ASIC product

R&D can be used to improve SRAM performance. We also disagree with

Winbond's arguments that, since it has more logic product lines than

memory product lines, more employees for logic R&D than SRAM R&D and

proportionally more expenses for the logic product line than the SRAM

product line, it follows that no logic R&D should be assigned to SRAMs.

When applied to the cost of manufacturing, the ratio of total

semiconductor R&D to the total semiconductor cost of sales results in

proportional amounts of R&D for each specific product. Our methodology

assigns R&D costs to products in proportion to the amount sold during

the period. If 75 percent of the cost of products sold were logic

products then logic products would receive 75 percent of the R&D costs

incurred during the period. This in no way assigns SRAMs an

unreasonable portion of R&D costs.

Based on the foregoing, for purposes of the final determination, we

have calculated R&D for SRAMs using the ratio of total semiconductor

R&D to total semiconductor cost of sales for the annual period that

most closely corresponds to the POI.

Company-Specific Issues

A. Alliance

Comment 10: Time Period for Cost and Price Comparisons

In the preliminary determination, the Department compared prices

and conducted the sales below cost test using quarterly data. Alliance

argues that for the final determination the Department should compare

prices and conduct the sales below cost test using annual data.

Alliance gives three reasons in support of its argument.

First, Alliance argues that there is no regulatory requirement that

the Department compare prices and costs on a quarterly basis and that

it is clearly envisioned that the Department will use annual averages

unless there is a strong reason to do otherwise. Alliance argues that,

in this case, there is no such reason. Moreover, Alliance argues, while

the Department has used quarterly data in some previous semiconductor

cases, the Department has recognized that it must apply the most

reasonable methodology for each respondent based upon its price and

cost trends. Alliance cites to DRAMs From Korea at 15476, where the

Department used monthly averages for one respondent and POI averages

for another.

Second, Alliance argues that its structure as a fabless company

that subcontracts various phases of SRAM production makes the use of

annual costs appropriate. Alliance states that integrated producers

have large fixed costs that tend to mute changes in total costs from

one quarter to another and that they tend to have declining costs over

time due to the learning curve. By contrast, argues Alliance, its costs

of production consist almost completely of variable costs, which vary

greatly from quarter to quarter according to volume and other factors.

Moreover, Alliance maintains that, because its costs consist primarily

of payments to subcontractors, they do not steadily trend downward over

time.

Third, Alliance argues that the Department has established that,

where cost or pricing factors vary erratically from quarter to quarter,

it is more appropriate to use annual comparisons to smooth out the

aberrational results. In support of this argument, Alliance cites to a

number of cases, including Color Television Receivers From the Republic

of Korea; Final Results of Antidumping

[[Page 8926]]

Duty Administrative Review, 55 FR 26225, 26228 (June 27, 1990), Final

Determination of Sales at Less Than Fair Value; Color Picture Tubes

From Canada, 52 FR 44161, 44167 (Nov. 18, 1987), Final Determination of

Sales at Less Than Fair Value; Color Picture Tubes From Japan, 52 FR

44171, 44182 (Nov. 18, 1987), and Final Determination of Sales at Less

Than Fair Value; Sweaters Wholly or In Chief Weight of Man-Made Fiber

From Taiwan, 55 FR 34585, 34598 (Aug. 23, 1990).

Moreover, Alliance also notes that the Department often uses annual

averages in seasonal industries to avoid magnifying the impact of costs

that vary from quarter to quarter. Alliance cites to Grey Portland

Cement and Clinker From Mexico; Final Results of Antidumping Duty

Administrative Review, 58 FR 47253, 47255 (Sept. 8, 1993), and Circular

Welded Non-Alloy Steel Pipe and Tube From Mexico; Final Results of

Antidumping Duty Administrative Review, 62 FR 37014, 37020 (July 10,

1997), in support of this contention.

Accordingly, Alliance argues that, given the extreme variability of

its prices and costs in different quarters, it is more reasonable for

the Department to use annual, rather than quarterly, figures for

Alliance, regardless of whether prices declined in general over the

POI.

Finally, Alliance notes that the Department's statement in its

preliminary determination that ``all parties agree'' that there was ``a

significant and consistent price decline during the POI'' is false.

Alliance contends that its position has always been that its costs and

prices during the POI were marked by aberrational, short-term price or

cost fluctuations.

The petitioner argues that the Department's decision to use

quarterly rather than annual averages was both in accordance with the

regulations and based on an established dynamic in the semiconductor

industry--that costs and prices generally decline from quarter to

quarter. According to the petitioner, all of the parties in this

investigation except Alliance have accepted this principle. The

petitioner contends that the Department is not obligated to deviate

from a rational, well-established industry benchmark simply on the

basis that a particular respondent prefers an alternative approach that

may lower its margin. The petitioner notes that declining market prices

affect all of the respondents (including Alliance) and that, therefore,

the Department's approach at the preliminary determination was fair and

reasonable.

With regard to Alliance's argument that, as a fabless company, its

costs are mostly variable, and hence vary more than the costs of

integrated producers, which are mostly fixed, the petitioner notes that

ISSI, another fabless company, did not share Alliance's views. The

petitioner states that the Department's decision was based on an

established consensus regarding declining market prices and that this

phenomenon affected the behavior of all of the respondents (including

Alliance), as well as the petitioner. The petitioner further states

that basing the Department's decision on such a broad phenomenon of

market behavior is an eminently fair and reasonable approach, and that

the Department acted well within its discretion.

In addition, the petitioner notes that none of the cases cited by

Alliance to demonstrate that the Department uses annual comparisons

when costs or prices vary from quarter to quarter involve the

semiconductor industry, which tends to exhibit discernible price and

cost declines. Rather, the petitioner notes that many of the cases

Alliance cites involve industries impacted by seasonal price or cost

fluctuations, patterns not present in the semiconductor industry.

DOC Position

We disagree with Alliance. The Department's practice is to

calculate weighted-averages over a shorter period of time when normal

values, export prices, or constructed export prices have moved

significantly over the POI. See, e.g., EPROMs from Japan and DRAMs from

Korea; see also 19 CFR section 351.414(d)(3) of the Department's new

regulations. In this case, demand for SRAMs decreased dramatically

during the POI, causing worldwide SRAM prices to decrease dramatically.

As SRAM producers, all respondents, including Alliance, were directly

affected by this decrease in prices, whether they were fabless or

integrated producers. Moreover, while Alliance may not have agreed with

the other respondents that there was a significant and consistent price

decline during the POI, Alliance concedes that there was a ``worldwide

drop in demand and falling prices that occurred in 1996'' for SRAMs.

See Alliance's submission of December 23, 1997, at page 47.

In addition, none of the cases cited by Alliance involve instances

in which prices and cost were declining over the POI. Rather, they

focus on instances where the Department used annual averages to smooth

out quarterly or seasonal fluctuations in costs. Moreover, none of

those cases involved the semiconductor industry, which, as the

Department has recognized through its practice of using shorter

averaging periods, is subject to declining prices and costs. Indeed,

Alliance fails adequately to distinguish the cases relied on by the

Department at the preliminary determination (i.e., EPROMs from Japan

and DRAMs from Korea) from the facts in this case. Alliance does cite

to DRAMs from Korea to argue that the Department recognizes that it

must apply the methodology that makes the most sense for each

respondent, based upon its price and cost trends. However, in that

case, the Department determined that it was more appropriate to use

monthly weighted-average prices for foreign market value (i.e., normal

value) for one respondent since those averages were more representative

of its pricing than POI averages. See DRAMs from Korea, comment 29.

Similarly, in this case, given the significant decrease in the price of

SRAMs that occurred throughout the POI, we have determined that

quarterly averages result in a more accurate comparison of pricing

behavior during the POI than do annual averages.

Accordingly, we made quarterly weighted-average price and cost

comparisons for all respondents, including Alliance, for the final

determination.

Comment 11: General Expenses and Profit for Constructed Value

Alliance argues that the methodology employed by the Department to

calculate Alliance's CV value at the preliminary determination was

contrary to the letter and intent of the statute. Alliance notes that

the statue provides three alternatives for determining SG&A and profit

when a respondent's own data may not be used and argues that the lack

of a hierarchy implies that the chosen methodology should produce the

most accurate and fair result possible. Alliance claims that, because

it has cooperated fully in this investigation, the Department's

selected methodology should not be adverse in nature.

Alliance argues that the Department's use of the weighted-average

SG&A expenses of the other three respondents to calculate CV is

unreasonable. Alliance claims that the statute requires the use of

actual SG&A expense data, that such data is available for Alliance, and

that this data was verified by the Department.

Alliance argues that the fact that all of its home market sales

were found to be below cost does not suggest that its SG&A expenses

would have been higher

[[Page 8927]]

had these sales been above cost. Alliance argues that its cost data was

considered acceptable for purposes of the below-cost test and should

also be accepted for purposes of calculating CV. Alliance claims that

the costs incurred by UMC and Winbond are very different from its own

SG&A expenses because they perform more steps in the SRAM production

process, including wafer fabrication, and have a larger corporate

bureaucracy to manage those facilities. Additionally, Alliance argues

that its R&D activities are for product development alone, while UMC

and Winbond have both product and process R&D activities. Alliance

argues that the process R&D costs reported by other respondents are

part of their cost of manufacturing and that these costs would already

be included in the price paid by Alliance for wafers, since it does not

have its own wafer fabrication facilities. Alliance argues that, if the

Department calculates Alliance's R&D expenses using cost data from the

other Taiwan respondents, it should also exclude that portion of R&D

expenses incurred on behalf of wafer fabrication process developments

since Alliance's costs would not include such activities.

Alliance also claims that the Department's use of the weighted-

average profit rate of the other three respondents to calculate CV is

likewise unreasonable. According to Alliance, the rationale behind

basing profit on the data of other respondents appears to be that the

other respondents are similarly situated and that their profits reflect

those which Alliance would earn in the home market if its sales were

made in the ordinary course of trade. However, Alliance claims that

neither the results of its relatively few sales to its developing

Taiwan export market, nor the profits of Taiwan producers operating in

their own home market, are indicative of Alliance's normal profit

experience. Moreover, Alliance claims that the profit rate assigned by

the Department includes the profits of two companies, UMC and Winbond,

which have entirely different cost structures. Alliance argues that the

foundry operations of UMC and Winbond involve high fixed costs, whereas

Alliance's costs are largely variable. Alliance maintains that basing

its profit rate on the experience of UMC and Winbond, both of which

fabricate their own SRAM wafers, has the effect of double-counting

profit; UMC and Winbond earn a higher profit because their costs do not

include the profit markup that Alliance, a fabless producer, must pay

for fabricated wafers. Finally, Alliance argues that its costs are

based on accounting under U.S. GAAP, while UMC and Winbond follow

Taiwan GAAP. Accordingly, Alliance claims that the only reasonable

method for determining CV profit is to use the profit of either its own

SRAM product line or the overall company, for the fiscal year ending

March 30, 1996. Alliance argues that both of these approaches would be

consistent with the Department's methodology, contemporaneous to the

POI, and reasonably specific to subject merchandise.

The petitioner argues that the Department is not required to

justify the methodology selected for determining Alliance's SG&A

expenses and profit as the most reasonable alternative. The petitioner

claims that the statute clearly indicates a preference for the

Department to base SG&A expenses and profit, if possible, on amounts

normally incurred or realized on above-cost home market sales.

Moreover, the petitioner maintains that the statute intends for CV

profit to correspond to normal rates of profit for the respondent or

industry in the comparison foreign market and that Alliance's suggested

methodology fails to meet this requirement. Specifically, the

petitioner notes that Alliance's overall company profits result from

sales to all markets, with the United States representing Alliance's

dominant market.

According to the petitioner, there is no evidence that the

differences in corporate strategy identified by Alliance render the

other companies' profit rates unrepresentative of Taiwan SRAM producers

in the context of this case. Moreover, the petitioner claims that

Alliance has not suggested any means to establish that a profit rate

that includes the integrated producers' profits somehow ``double-

counts'' profits. Consequently, the petitioner argues that it is proper

to include all types of SRAM producers in the calculation of the

weighted-average profit rate. Finally, the petitioner notes that

Alliance's 1996 fiscal year data only overlaps with three months of the

POI and, thus, is only marginally contemporaneous.

The petitioner argues that Alliance's arguments regarding the

methodology to be used for SG&A expenses depend on the assertion that

Alliance would have incurred the same level of expenses on its home

market sales irrespective of whether those sales were made at prices

above or below COP. The petitioner contends that such an argument flies

in the face of the statutory scheme, which directs the Department to

use SG&A expenses for sales made in the ordinary course of trade.

Moreover, the petitioner claims that Alliance's argument is flawed

because it allocates its reported home market indirect selling expenses

among semiconductor products on the basis of sales revenue. The

petitioner notes that, if Alliance's home market sales had been made at

significantly higher prices, then the allocated selling expenses would

have been proportionately increased.

DOC Position

We disagree with Alliance, in part. Pursuant to section

773(e)(2)(A) of the Act, the Department will calculate SG&A expenses

and profit based on the actual amounts incurred and realized by the

company in connection with the production and sale of the foreign like

product, in the ordinary course of trade, for consumption in the home

market. Where a respondent's own SG&A expense and profit data are not

available, section 773(e)(2)(B) of the Act provides the Department with

three alternatives for calculating CV. In the instant case, Alliance's

own SG&A expense and profit data may not be used because all of its

home market sales failed the cost test, and hence, pursuant to section

771(15) of the Act, are not sales in the ordinary course of trade.

For purposes of the preliminary determination, we calculated

Alliance's CV using the alternative methodology described in section

773(e)(2)(B)(ii) of the Act. This approach involved basing SG&A

expenses and profit on the weighted-average data of the other three

respondents. Because R&D expenses are included in general expenses, we

also based R&D expenses on the same methodology used to determine SG&A

expenses.

For our final determination, we have considered several

alternatives which are available for calculating Alliance's CV under

section 773(e)(2)(B) of the Act, including the methodology used for the

preliminary determination and the alternatives proposed by Alliance.

The SAA at 840 (170) indicates that the Act does not establish a

hierarchy or preference among the alternatives under section

773(e)(2)(B) of the Act and that the selection of an alternative will

be made on a case-by-case basis. The methodology which we used for the

preliminary determination is one of the three alternatives provided for

in the Act and provides a reasonable basis on which to base SG&A

expenses and profit for Alliance's CV.

As discussed below, Alliance's proposed alternatives have

significant flaws that make them less desirable choices for use as

Alliance's SG&A expenses and profit. The method we used in the

preliminary determination provides a reasonable methodology on

[[Page 8928]]

which to base Alliance's SG&A expenses and profit. Accordingly, we have

used this approach for calculating Alliance's CV for the final

determination because it reflects the experience of the other Taiwanese

SRAM producers. Although we recognize that there may be differences in

organizational structure and strategy among the respondents, the

differences identified by Alliance do not preclude us from choosing one

of the alternatives provided for in the Act.

We believe that the methodologies offered by Alliance for

calculating profit have significant flaws. First, with respect to

Alliance's suggestion that the Department use Alliance's own SRAM

product line data for the fiscal year ended March 31, 1996, we verified

cost and price information for the three months of this period, January

through March 1996, that fell within the POI and found significant

quantities of below-cost sales. Based on these findings, we have no

reason to believe that the amounts reported by Alliance as SRAM profits

for the March 31, 1996, fiscal year would provide a reasonable measure

of profit due to the fact that the figure includes a number of sales

known to be outside the ordinary course of trade, as well as

significant potential for other such sales during the first nine months

of the fiscal year. Moreover, data is available for the profit

calculation that is more contemporaneous than the respondent's proposed

period. Second, with respect to Alliance's suggestion that we base

profit on its overall operations for the fiscal year ended March 31,

1996, this data includes sales to markets other than the home market.

In addition, this data includes sales of products which are outside the

general category of SRAMs. Again, we have data that is more

contemporaneous than the data offered under this proposal.

We disagree with Alliance's assertion that the Department should

use its SG&A expenses for the calculation of CV. The Act directs the

Department to use an alternative methodology for these expenses when a

respondent's actual data are not available. As stated above, Alliance

did not make any home market SRAM sales in the ordinary course of trade

and therefore its actual data may not be used.

With respect to Alliance's argument regarding our treatment of

process R&D expenses, we believe that including these expenses in the

weighted-average SG&A rate calculated for our final determination would

double count the actual amount of the expense. Process R&D costs would

normally be accounted for as part of the cost of the wafer which

Alliance purchases from its supplier. Thus, for our final

determination, we have excluded process R&D expenses from Alliance's

SG&A expenses.

B. ISSI

Comment 12: Commission Expenses

According to the petitioner, the Department discovered at

verification that ISSI failed to report commission expenses on sales to

its U.S. distributor customers. The petitioner maintains that the

Department should base the amount of the commissions for these

customers on facts available because the information presented at

verification was not a minor correction. As facts available, the

petitioner argues that the Department should use the highest commission

rate paid on sales to any other customer.

ISSI contends that its failure to report distributor commissions

was a ministerial error of small magnitude. Specifically, ISSI asserts

that these commissions: 1) represent only a fraction of the total

commissions paid; 2) are recorded in a different manner in its

accounting system; and 3) were thoroughly verified by the Department.

Moreover, ISSI argues that it is a cooperative respondent that has done

nothing in this investigation that would justify adverse inferences. As

such, ISSI contends that the Department should use the commission

expense data on the record for purposes of the final determination.

DOC Position

We agree with ISSI. We find that ISSI's failure to report

commissions on sales to distributor customers was the result of an

inadvertent error which was minor in nature. Because it is the

Department's practice to accept such minor corrections arising from

verification, we have used ISSI's verified commission rate for purposes

of the final determination. See, e.g., Rebar from Turkey and Notice of

Final Determination of Sales at Less Than Fair Value: Bicycles From the

People's Republic of China, 61 FR 19026, 19044 (April 30, 1996)

(Bicycles from the PRC).

Comment 13: Date of Payment

The Department noted at verification that ISSI had not received

full or partial payment for a small number of U.S. sales. According to

ISSI, the Department should assign these sales the average payment

period for ISSI's other U.S. sales, rather than using the date of the

final determination. Alternatively, ISSI asserts that the Department

should calculate a weighted-average payment date for each sale where

partial payment was received, using both the date of the partial

payment and the date of verification. ISSI argues that to use the date

of the final determination would be inappropriate because to do so

would be to make the adverse assumption that its outstanding

receivables have not been collected.

The petitioner asserts that the Department's standard practice in

situations involving unpaid sales is to calculate the credit period

using the date of the final determination as a proxy for the actual

date of payment. See Final Determination of Sales at Less Than Fair

Value: Stainless Steel Wire Rods From France, 58 FR 68865 (Dec. 29,

1993). According to the petitioner, the Department should follow its

standard practice in this case because ISSI has provided no compelling

reason to depart from it. Specifically, the petitioner notes that ISSI

has provided no reason to assume that the payments in question will be

received prior to the final determination. Indeed, the petitioner

maintains, it is equally likely that payment will be received after

this date. Moreover, the petitioner asserts that, given the long time

since the end of the POI, it is unclear that using the date of the

final determination represents an adverse inference.

Regarding ISSI's suggestion that the Department use an average

payment period, the petitioner asserts that this method would be no

more accurate. The petitioner notes that the sales in question have

unusually long payment periods which would be excluded entirely from

the calculation of the average.

DOC Position

The Department's recent practice regarding this issue has been to

use the last day of verification as the date of payment for all unpaid

sales. See Brass Sheet and Strip from Sweden; Final Results of

Antidumping Administrative Review 60 FR 3617, 3620 (Jan. 18, 1995).

Accordingly, we have used the last day of ISSI's U.S. verification as

the date of payment for all unpaid transactions or portions thereof.

Comment 14: Non-operating expenses

The petitioner argues that the Department should include non-

operating expenses incurred by ISSI-Taiwan in the calculation of ISSI's

G&A expense. The petitioner argues that failure to include these

expenses in ISSI's total G&A expenses conflicts with the Department's

established practice concerning the classification of such expenses and

results in a distortion of the reported cost of production for ISSI.

ISSI does not dispute that the Department should capture the loss

on

[[Page 8929]]

disposal of property, plant and equipment and physical inventory loss,

but argues that the cost should be included as part of financial

expense. ISSI stated that the expenses were classified with other non-

operating expenses in its audited records. Therefore, ISSI contends

that the Department should follow its normal practice of adhering to a

firm's recording of costs in its financial statements, in accordance

with the GAAP of its home country, when such principles are not

distortive.

DOC Position

We agree with the petitioner that these expenses should be included

in the calculation of ISSI's total G&A expenses. We disagree with the

respondent that these expenses should be classified as financial

expenses because disposal of property, plant, and equipment and

physical inventory losses relate to the general activities of the

company and not to financing activities. See Notice of Final

Determination of Sales at Less Than Fair Value: Small Diameter Circular

Seamless Carbon and Alloy Steel, Standard Line and Pressure Pipe From

Italy, 60 FR 31981, 31989 (June 19, 1995). Inclusion of these expenses

in financing expense would not reasonably reflect the costs associated

with the production of the merchandise. Accordingly, we have adjusted

the G&A expense ratio to include these items.

Comment 15: Double-Counting of Marine Insurance Expenses

According to ISSI, the Department discovered during verification

that ISSI reported marine insurance expenses both as part of G&A and as

a separate movement expense in its U.S. sales listing. ISSI asserts

that the Department should reduce G&A by the amount of these expenses

in order to avoid double-counting.

The petitioner disagrees, stating that the burden is on the

respondent to submit accurate information. According to the petitioner,

the discovery of this error at verification indicates that ISSI's

response may contain additional errors which were not discovered due to

the limited time available at verification. Consequently, the

petitioner asserts that the Department should make no adjustment to G&A

for purposes of the final determination because it is unable to adjust

for the undetected inaccuracies in ISSI's response.

DOC Position

The Department conducted thorough verifications of ISSI's sales and

cost data. Based on these verifications, we have deemed the

respondent's data to be reliable for use in the final determination. We

do not believe that these data contain material inaccuracies, as the

petitioner suggests.

Because it is the Department's practice to correct minor errors

found during the course of verification (see, e.g., Rebar From Turkey

and Bicycles From the PRC), we have made the appropriate correction to

ISSI's G&A expenses for purposes of the final determination.

Comment 16: Offset to R&D Expenses

ISSI argues that the Department should include an offset for R&D

revenue in its calculation of ISSI's R&D expense.

DOC Position

We agree with ISSI that the R&D revenue should be included as an

offset in the R&D expense ratio calculation, because the corresponding

costs are included in ISSI's R&D expense. Consequently, we have granted

this offset for purposes of the final determination.

C. UMC

Comment 17: Calculation of the CV Profit Rate

UMC argues that the Department erred in its choice of methodology

for the computation of profit in calculating CV. UMC explains that the

Department computed UMC's CV profit by first calculating a profit

percentage for each home market transaction in the ordinary course of

trade, then weight-averaging the percentages by quantity to determine

the overall CV profit rate. UMC argues that this methodology was a

departure from the Department's normal practice of calculating a CV

profit rate based on the total revenue and total cost of home market

sales transacted in the ordinary course of trade. In support of its

position, UMC cites to Certain Stainless Steel Wire Rods from France:

Final Results of Antidumping Duty Administrative Review, 62 Fed. Reg.

7206, 7209-7210 (Feb. 18, 1997) (SSWR from France) and Certain Hot-

Rolled Lead and Bismuth Carbon Steel Products from the United Kingdom:

Final Results of Antidumping Duty Administrative Review, 61 Fed. Reg.

56514, 56514 (Nov. 1, 1996) (Lead and Bismuth from the U.K.). UMC

contends that in Lead and Bismuth from the U.K. the Department

recognized that weight-averaging individual profit percentages by

quantity introduces serious distortions into the calculation of CV

profit.

The petitioner argues that the methodology used at the preliminary

determination does not produce a serious distortion of the CV profit in

this case. The petitioner contends that use of this methodology is

appropriate, because a small number of expensive-to-produce, low profit

sales of higher-density SRAMs will not artificially pull down the

overall profit rate that applies to the large majority of sales. Thus,

the petitioner argues that this methodology more realistically

calculates a per-unit profit rate that is applied to all CV sales

comparisons.

DOC Position

We agree with UMC. It is the Department's normal practice to divide

total home market profits by total home market costs when calculating

the profit ratio. As noted in SSWR from France and Lead and Bismuth

from the U.K., the methodology employed by the Department in the

preliminary determination has the effect of distorting the respondent's

CV profit rate. Accordingly, for the final determination, we calculated

profit based on total home market profits and total home market costs

for sales made in the ordinary course of trade.

Moreover, because CV profit was calculated in the same fashion for

ISSI at the preliminary determination, we have also made the

corresponding change to ISSI's calculations.

Comment 18: Substantial Quantities Test

UMC argues that the Department made an error in performing the

substantial quantities portion of the sales below cost test. UMC

maintains that, in a case where quarterly costs are used, sales can

only be disregarded if: (1) the sale price is below the quarterly

average cost; (2) the sale price is below the annual average cost; and

(3) the quantity of such sales meets the substantial quantities

threshold of 20 percent on a product-specific basis. UMC alleges that

the Department failed to correctly apply the third part of this test.

Specifically, UMC states that the Department conducted the substantial

quantities test only on an annual average cost basis when in fact it

should have conducted the test on an annual average cost and quarterly

average cost basis.

According to the petitioner, UMC's assertion that the Department is

required, under section 773(b)(1) of the Act, to examine the volume of

sales against the 20 percent threshold on the basis of the volume of

sales made in each quarter is without merit. The petitioner states that

section 773(b)(2)(C)(i) of the Act provides that the substantial

quantities test is satisfied

[[Page 8930]]

if the volume of such sales represents 20 percent or more of the volume

of sales under consideration for the determination of normal value. The

petitioner notes that section 773(b)(2)(B) of the Act provides that the

term ``extended period of time'' means a period that is normally one

year, but not less than six months. Thus, argues the petitioner, the

Department correctly determined that a given product was below cost in

substantial quantities if the volume of below cost sales was at least

20 percent of the volume during the twelve-month POI.

DOC Position

We agree with the petitioner. Section 773(b) of the Act states that

the Department will disregard sales made at less than the cost of

production if such sales were made within an extended period of time in

substantial quantities (see section 773(b)(1)(A)). The Act defines

``extended period of time'' as normally one year but not less than six

months (see section 773(b)(2)(B) of the Act). Because the Act states

that ``an extended period of time'' can not be less than six months, we

cannot follow UMC's recommendation and perform the substantial

quantities test on a quarterly basis.

Accordingly, we have made no changes to the substantial quantities

test for purposes of the final determination.

Comment 19: Startup Adjustment

UMC claims that the Department should continue the approach taken

in its preliminary determination in accepting its claimed startup

adjustment, because it has met the threshold criteria. According to

UMC, the technical factors limiting production at its affiliate's new

facility included process qualification to qualify both new equipment

technology and new process technology. Additionally, UMC notes that the

startup period involved the qualification of individual products and

the fine tuning of new equipment to allow it to work efficiently with

the existing equipment.

UMC claims that a company will not meet its practicable level of

operations until the fab has achieved the level of ``cleanness'' to

operate properly (which requires a certain amount of time) and it also

has achieved a critical mass of product qualifications. UMC argues that

the initial product qualification phase, which involves test runs and

evaluations to build a stable of products that the new fab is qualified

to produce, is a significant technical factor which impedes production

during the startup phase.

Although UMC's claimed startup adjustment reflects a startup period

that does not include the entire year, UMC argues that the new fab was

actually in a startup phase at least through the end of 1996. UMC bases

its claim on the quantity of wafer starts and wafers out in relation to

the quantity of wafers processed in May 1997 and at the time of the

cost verification. UMC notes that low product yields are one of a

number of factors that the Department can consider as evidence of the

extent to which technical factors affect production levels. UMC also

argues that, although the same number of production processes were

available for sale to customers in December 1996 as were in place in

June of that year, the number available at September 1997 demonstrates

that the company was still in startup mode at the end of 1996 and that

the startup adjustment claimed is conservative.

The petitioner asserts that UMC's request for a startup adjustment

should be denied since UMC failed to demonstrate that its production

levels were limited by technical factors. The petitioner acknowledges

that the product qualification process contributed to UMC's low

production levels, but claims that the qualification process does not

represent a ``technical difficulty.'' The petitioner argues that the

statute directs the Department to ``consider factors unrelated to

startup operations that might affect the volume of production

processed, such as demand, seasonality, or business cycles'' in

determining whether commercial production levels have been achieved.

See section 773(f)(1)(C)(ii) of the Act. The petitioner claims that

customer demand was the only factor that may have limited production

volumes and points out that demand is not a technical factor. The

petitioner notes that the SAA at 836 (166) states that ``to determine

when a company reaches commercial production levels, Commerce will

consider first the actual production experience of the merchandise in

question. Production levels will be measured based on units

processed.'' The petitioner claims that yields improve continually

throughout a product's life cycle beyond the point at which commercial

production can be said to have begun and thus yields are irrelevant to

the startup analysis. Finally, the petitioner argues that, even if

technical factors did limit production to some extent, commercial

production at the new facility began sooner than claimed by UMC.

DOC Position

We have accepted UMC's claimed startup adjustment. UMC produced

subject merchandise during the POI using SRAM wafers obtained from its

affiliate's new facility and provided the Department with a number of

technical factors that limited the new facility's production levels,

including the development of process parameters, cleaning of the

fabrication facility, and installation, adjustment, calibration, and

testing of new equipment. These technical factors appear to have

restricted production of SRAM wafers through the startup period, after

which time the new facility achieved commercial production levels that

are characteristic of the producer. Although UMC claims that product

qualification represents another technical factor that limited

production levels during the startup period, we agree with the

petitioner that this process is a normal part of operations that is

often performed for new products the company plans to produce.

Moreover, it does not appear that product qualification, which involved

UMC's producing small quantities of products for customer approval

while bringing the new facility up to normal levels of production,

represents a technical difficulty that resulted in the underutilization

of the facility.

While we agree with UMC that production yields may indicate the

existence of technical factors that limited production output, the SAA

at 836 (166) directs us to examine the units processed in determining

the claimed startup period. Accordingly, our determination of the

startup period was based, in large part, on a review of the wafer

starts at the new facility during the POI, which represents the best

measure of the facility's ability to produce at commercial production

levels. We concluded that the number of wafer starts during the startup

period did not meet commercial production levels that are

characteristic of the producer. Consequently, we determined that the

claimed startup period did, in fact, end when commercial production

reached a level that was characteristic of UMC's non-startup

experience.

While the petitioner argues that an absence of customer demand may

have contributed to the low production levels during the claimed

startup period, evidence on the record suggests that the demand for the

type of SRAM wafers produced at the new facility was as high during the

claimed startup period as it was during the remainder of the POI.

Moreover, even if demand had been greater during the claimed startup

period, there is no evidence that UMC could have more quickly achieved

production levels at the new facility that are characteristic of the

producer, merchandise, or industry.

[[Page 8931]]

Comment 20: Calculation of Credit Expense

UMC argues that the Department incorrectly computed UMC's imputed

credit expense adjustment using a 365 day year. In its response, UMC

reported its imputed credit expense based on a 360 day year. UMC

alleges that the Department's computation of UMC's imputed credit

expense based on a 365 day year was inconsistent with section

773(f)(1)(A) of the Act and the Department's longstanding practice as

outlined in the Import Administration Antidumping Manual ((1994)

Chapter 8, p. 36).

DOC Position

We disagree with UMC. Section 773(f)(1)(A) of the Act directs the

Department to calculate costs based on the records of the exporter or

producer of the merchandise. The expense in question, however, is an

imputed expense which is not kept by UMC in its records. Thus, we note

that UMC does not record imputed credit expense in its accounting

system based on a 360 day year. The Department is not required to

compute this expense based on 360 days, instead of the standard 365,

merely because UMC chose to report it in that manner in its

submissions.

In addition, we note that UMC itself was inconsistent in its credit

calculations, in that it calculated its accounts receivable turnover

rate using a 365 day year. Accordingly, for the final determination, we

have continued to calculate UMC's imputed credit expense using a 365

day year.

Comment 21: Ministerial Errors Acknowledged by the Department

UMC notes that in its memorandum of October 20, 1997, the

Department acknowledged that it made several ministerial errors in the

calculations performed at the preliminary determination for UMC. UMC

requests that the Department correct these ministerial errors in its

final determination.

DOC Position

We agree. We have made the appropriate corrections for purposes of

the final determination.

D. Winbond

Comment 22: Treatment of Winbond's EP sales

Winbond argues that its EP transactions were outside the ordinary

course of trade and should be disregarded for purposes of the final

determination. Winbond cites to Final Determination of Sales at Less

Than Fair Value: Coated Groundwood Paper from France, 56 FR 56380 (Nov.

4, 1991) (Coated Groundwood Paper) and Colombian Roses at 7004 as

instances where the Department disregarded U.S. sales when the volume

of such sales was insignificant or when the sales were atypical and not

part of the respondent's ordinary business practice. Including such

sales, according to Winbond, has the potential to undermine the

fairness of the dumping comparisons.

According to the petitioner, the term ``outside the ordinary course

of trade'' applies only to home market sales, and, nonetheless, Winbond

has not demonstrated that its EP sales are outside the ordinary course

of trade. The petitioner asserts that, although it is true that the

Department may disregard certain U.S. sales if the volume of such sales

is insignificant, Winbond has not demonstrated that these particular

sales were low volume sales. Furthermore, the petitioner maintains that

Winbond has not established, as required in Colombian Roses, that the

inclusion of these sales would undermine the fairness of the

comparison. The petitioner states that the Department should use its

discretionary authority and retain Winbond's EP sales

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