Dynamic Random Access Memory Semiconductors of One Megabit or Above From the Republic of Korea: Preliminary Results of Antidumping Duty Administrative Review and Notice of Intent Not To Revoke Order in Part

DEPARTMENT OF COMMERCE

International Trade Administration

[A-580-812]

Dynamic Random Access Memory Semiconductors of One Megabit or

Above From the Republic of Korea: Preliminary Results of Antidumping

Duty Administrative Review and Notice of Intent Not To Revoke Order in

Part

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of preliminary results of antidumping duty

administrative review and notice of intent not to revoke order in part.

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

SUMMARY: In response to requests from one manufacturer/exporter and one

U.S. producer, the Department of Commerce (the Department) is

conducting an administrative review of the antidumping duty order on

dynamic random access memory semiconductors of one megabit or above

(DRAMs) from the Republic of Korea (Korea). The review covers two

manufacturers/exporters and one exporter of subject merchandise to the

United States during the period of review (POR), May 1, 1997 through

April 30, 1998. Based upon our analysis, the Department has

preliminarily determined that dumping margins exist for both

manufacturers/exporters and the exporter during the POR. If these

preliminary results are adopted in our final results of administrative

review, we will instruct the United States Customs Service (Customs) to

assess antidumping duties as appropriate. Interested parties are

invited to comment on these preliminary results. Parties who submit

arguments in this proceeding are requested to submit with the argument

(1) A statement of the issue, and (2) a brief summary of the argument.

EFFECTIVE DATE: June 8, 1999.

FOR FURTHER INFORMATION CONTACT: Alexander Amdur or John Conniff, AD/

CVD Enforcement, Group II, Office 4, Import Administration,

International Trade Administration, U.S. Department of Commerce, 14th

and Constitution Avenue, NW., Washington, DC. 20230; telephone: (202)

482-5346 or (202) 482-1009, respectively.

SUPPLEMENTARY INFORMATION:

Applicable Statute and Regulations

Unless otherwise stated, all citations to the Tariff Act of 1930,

as amended (the Act), are references to the provisions as of 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 references to the regulations of the Department are to

19 CFR part 351 (1998).

Background

On May 10, 1993, the Department published in the Federal Register

(58 FR 27250) the antidumping duty order on DRAMs from Korea. On May

12, 1998, the Department published a notice of ``Opportunity to Request

an Administrative Review'' of this antidumping duty order for the

period May 1, 1997 through April 30, 1998 (63 FR 26143). We received

timely requests for review from one manufacturer/exporter of subject

merchandise to the United States; LG Semicon Co., Ltd. (LG). The

petitioner, Micron Technology Inc., requested an administrative review

of LG and Hyundai Electronics Industries, Co., Ltd. (Hyundai), also a

Korean manufacturer of DRAMs, and The G5 Corporation (G5), a Korean

exporter of DRAMs. Moreover, the petitioner requested a cost

investigation of LG and Hyundai pursuant to section 773(b) of the Act.

On June 29, 1998, the Department initiated a review of LG, Hyundai, and

G5, including cost investigations of Hyundai and LG (63 FR 35188). The

POR for all respondents is May 1, 1997 through April 30, 1998. The

Department is conducting this review in accordance with section 751 of

the Act.

On January 20, 1999, the Department published in the Federal

Register (64 FR 3065) a notice extending the time for the preliminary

results from January 30, 1999, until May 31, 1999.

Scope of the Review

Imports covered by the review are shipments of DRAMs from Korea.

Included in the scope are assembled and unassembled DRAMs of one

megabit and above. Assembled DRAMs include all package types.

Unassembled DRAMs include processed wafers, uncut die, and cut die.

Processed wafers produced in Korea, but packaged or assembled into

memory modules in a third country, are included in the scope; wafers

produced in a third country and assembled or packaged in Korea, are not

included in the scope. The scope of this review includes memory

modules. A memory module is a collection of DRAMs, the sole function of

which is memory. Modules include single in-line processing modules

(SIPs), single in-line memory modules (SIMMs), or other collections of

DRAMs, whether unmounted or mounted on a circuit board. Modules that

contain other parts that are needed to support the function of memory

are covered. Only those modules which contain additional items which

alter the function of the module to something other than memory, such

as video graphics adapter (VGA) boards and cards, are not included in

the scope. The scope of this review also includes video random access

memory semiconductors (VRAMs), as well as any future packaging and

assembling of DRAMs. The scope of this review also includes removable

memory modules placed on motherboards, with or without a central

processing unit (CPU), unless the importer of motherboards certifies

with Customs that neither it, nor a party related to it or under

contract to it, will remove the modules from the motherboards after

importation. The scope of this review does not include DRAMs or memory

modules that are reimported for repair or replacement. The DRAMs

subject to this review are currently classifiable under subheadings

8542.11.0001, 8542.11.0024, 8542.11.0026, and 8542.11.0034 of the

Harmonized Tariff Schedule of the United States (HTSUS). Also included

in the scope are those removable Korean DRAMs contained on or within

products classifiable under subheadings 8471.91.0000 and 8473.30.4000

of the HTSUS. Although the HTSUS subheadings are provided for

convenience and Customs purposes, the written description of the scope

of this review remains dispositive.

Intent Not To Revoke

LG submitted a request to revoke it from the order covering DRAMs

from Korea pursuant to 19 CFR 351.222(b)(2). Under the Department's

regulations, the Department may revoke an order, in part, if the

Secretary concludes that, among other things: (1) ``[O]ne or more

exporters or producers covered by the order have sold the merchandise

at not less than normal value for a period of at least three

consecutive years''; (2) ``[i]t is not likely that those persons will

in the future sell the merchandise at less than normal value''; and (3)

``the producers or resellers agree in writing to the immediate

reinstatement of the order, as long as any producer or reseller is

subject to the order, if the

[[Page 30482]]

Secretary concludes that the producer or reseller, subsequent to the

revocation, sold the merchandise at less than (normal) value.'' See 19

CFR 351.222(a)(2). In this case, LG does not meet the first criterion

for revocation. In the previous segment of this proceeding the

Department found that LG sold subject merchandise at less than normal

value. See Notice of Final Results of Antidumping Administrative

Review: Dynamic Random Access Memory Semiconductors (DRAMs) of One

Megabit or Above from the Republic of Korea, 63 FR 50867, September 23,

1998) (Final Results 1998). Since LG has not met the first criterion

for revocation, i.e., zero or de minimis margins for three consecutive

reviews, the Department need not reach a conclusion with respect to the

second and third criteria. Therefore, on this basis, we have

preliminarily determined not to revoke the Korean DRAM antidumping duty

order with regard to LG.

Verification

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

provided by LG and Hyundai. We used standard verification procedures,

including on-site inspection of the respondents' facilities,

examination of relevant sales, financial, and/or cost records, and

selection of original documentation containing relevant information. G5

was not verified because the company refused to permit verification to

take place.

Facts Available

Facts Available

1. Application of Facts Available

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

(A) Withholds information that has been requested by the Department;

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

or manner requested; (C) significantly impedes an antidumping

investigation; or (D) provides such information but the information

cannot be verified, the Department shall use facts otherwise available

in making its determination.

Based on information obtained from Customs, we have determined that

a number of sales that LG reported as third-country sales were actually

sales to the United States. Moreover, the Department has determined

that at the time LG made these sales, it knew, or should have known,

that the DRAMs were destined for consumption in the United States. This

is the same issue the Department addressed in the prior review period.

See the May 27, 1999 Memorandum regarding `` Dynamic Random Access

Memory Semiconductors of One Megabit or Above (DRAMs) from the Republic

of Korea--Total Unreported Sales''. Thus, we have determined that LG

withheld information we requested and significantly impeded the

antidumping proceeding.

On July 15, 1998, the Department sent G5 a Section A questionnaire

requesting that G5 provide information regarding any sales that it made

to the United States during the POR. On August 10, 1998, G5 stated that

it had not sold any of the subject merchandise to the United States

during the POR. On December 1, 1998, the Department issued a

supplemental questionnaire to G5 again requesting information regarding

any sales that were made to the United States during the POR.

Specifically, the Department requested that G5 examine the scope of the

review and state whether it had any shipments, or knowledge, directly

or indirectly, of sales to the United States of the subject merchandise

during the POR. The Department also requested that G5 state whether

they had any knowledge, directly or indirectly, of sales to business

entities in third countries in which the final destination of the sale

of the subject merchandise was the United States. In a December 17,

1998, letter, G5 stated that it has not sold or delivered DRAMs to the

United States during the POR.

On January 20, 1999, the Department obtained information from

Customs indicating that there were entries for consumption into the

United States of Korean DRAMs shipped from G5 during the POR. In a

March 3, 1999, letter, G5 acknowledged that it did have sales of LG

DRAMs to the United States during the POR. Thus, we have determined

that G5 withheld information we requested and significantly impeded the

antidumping proceeding.

Because LG and G5 failed to respond in full to our questionnaire,

pursuant to section 776(a) of the Act, we have applied facts otherwise

available to calculate their dumping margins. Moreover, while we have

preliminarily determined that certain sales should have been reported

as sales to the United States, we will continue to examine Customs data

as well as other data sources to determine whether there are any

additional sales that have not been properly reported.

2. Selection of Adverse Facts Available

Section 776(b) of the Act provides that, in selecting from the

facts available, adverse inferences may be used against a party that

failed to cooperate by not acting to the best of its ability to comply

with requests for information. See also Statement of Administrative

Action (SAA) accompanying the URAA, H.R. Doc. No. 316, 103d Cong., 2d

Sess. 870 (1994).

Section 776(b) states further that an adverse inference may include

reliance on information derived from the petition, the final

determination, the final results of prior reviews, or any other

information placed on the record. See also Id. at 868.

LG's decision to report as third-country sales a substantial number

of U.S. sales that it knew, or should have known, were U.S. sales,

indicates that LG failed to cooperate to the best of its ability.

Similarly, G5's failure to provide information on its U.S. sales or

permit verification demonstrates that G5 has failed to cooperate to the

best of its ability in this review. Therefore, the Department has

determined that an adverse inference is warranted in selecting among

the facts otherwise available for LG and G5, in accordance with section

776(b) of the Act. Consequently, we have based the margin for G5 on

total adverse facts available and for LG on partial adverse facts

available.

As partial adverse facts available for LG, we have calculated a

dumping margin based on both LG's reported and unreported sales to the

United States, the latter of which we were able to identify from

Customs data. While LG disagrees with the Department's position, LG

provided the selling expenses for the sales transactions obtained from

Customs. However, because LG did not report these transactions as U.S.

sales, we are not using the expenses. Furthermore, the Department did

not verify these expenses as they related to unreported sales.

Therefore, since LG did not report these as U.S. sales, we are using as

adverse facts available the highest U.S. selling expenses from LG's

reported transactions involving identical products. Where there were no

reported transactions involving identical merchandise, we used the

highest U.S. selling expenses from LG's reported transactions involving

similar merchandise.

As total adverse facts available for G5, we have assigned the

highest company-specific margin in the history of this proceeding,

which is the rate calculated for Hyundai in the instant review.

Per Megabit Cash Deposit Rates for Certain Memory Modules

On February 4, 1999, Compaq requested that the Department establish

per megabit cash deposit rates for imports of certain memory modules

[[Page 30483]]

containing DRAMs from Korea. Consistent with the practice established

in the LFTV investigation of DRAMs from Korea, the Department is

establishing per megabit cash deposit rates to be applied to memory

modules containing subject and non-subject merchandise. For a detailed

discussion, see memorandum regarding Calculation of Per Megabit Rate,

May 28, 1999.

Duty Absorption

On July 27, 1998, the petitioner requested that the Department

determine whether antidumping duties had been absorbed during the POR.

Section 751(a)(4) of the Act provides for the Department, if requested,

to determine during an administrative review initiated two or four

years after the publication of the order, whether antidumping duties

have been absorbed by a foreign producer or exporter, if the subject

merchandise is sold in the United States through an affiliated

importer. In this case, both Hyundai and LG sold to the United States

through an importer that is affiliated within the meaning of section

751(a)(4) of the Act.

Section 351.213(j)(2) of the Department's regulations provides that

for transition orders (i.e., orders in effect on January 1, 1995), the

Department will conduct duty absorption reviews, if requested, for

administrative reviews initiated in 1996 or 1998. Because the order

underlying this review was issued prior to January 1, 1995, and this

review was initiated in 1998, we will make a duty absorption

determination in this segment of the proceeding.

On January 26, 1999, the Department requested evidence that

unaffiliated purchasers will ultimately pay the antidumping duties to

be assessed on entries during the review period. Neither Hyundai nor LG

provided any evidence in response to the Department's request.

Accordingly, based on the record, we cannot conclude that the

unaffiliated purchaser in the United States will ultimately pay the

assessed duty. Therefore, we find that antidumping duties have been

absorbed by the producer or exporter during the POR.

Fair Value Comparisons

To determine whether sales of DRAMs from Korea to the United States

were made at less than fair value (LTFV), we compared the constructed

export price (CEP) to the normal value (NV), as described in the

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

notice, below. When making comparisons in accordance with section

771(16) of the Act, we considered all products as described in the

``Scope of Review'' section of this notice, above, that were sold in

the home market in the ordinary course of trade for purposes of

determining appropriate product comparisons to U.S. sales. Where there

were no sales of the identical or the most similar merchandise in the

home market that were suitable for comparison, we compared U.S. sales

to sales of the next most similar foreign like product, based on the

characteristics listed in Section B and C of our antidumping

questionnaire.

CEP

For LG and Hyundai, in calculating United States price, the

Department used CEP, as defined in section 772(b) of the Act, because

the merchandise was first sold to an unaffiliated U.S. purchaser after

importation. We calculated CEP based on delivered prices to

unaffiliated customers in the United States. We made deductions from

the starting price, where appropriate, for discounts, rebates, foreign

brokerage and handling, foreign inland insurance, air freight, air

insurance, U.S. duties and direct and indirect selling expenses to the

extent that they are associated with economic activity in the United

States in accordance with sections 772(c)(2) and 772(d)(1) of the Act.

These included credit expenses, commissions, as applicable, and

inventory carrying costs incurred by the respondents' U.S.

subsidiaries. We added duty drawback paid on imported materials in the

home market, where applicable, pursuant to section 772(c)(1)(B) of the

Act.

For Hyundai DRAMs that were further manufactured into memory

modules after importation, we deducted all costs of further

manufacturing in the United States, pursuant to section 772(b)(2) of

the Act. These costs consisted of the costs of the materials,

fabrication, and general expenses associated with further manufacturing

in the United States. Pursuant to section 772(d)(3) of the Act, we also

reduced the CEP by the amount of profit allocated to the expenses

deducted under section 772(d)(1) and (2).

For Hyundai modules that were imported by U.S. affiliates of

Hyundai and then further processed into computer workstations before

being sold to unaffiliated parties in the United States, we determined

that the special rule for merchandise with value added after

importation under section 772(e) of the Act applied. Section 772(e) of

the Act provides that, where the subject merchandise is imported by an

affiliated person and the value added in the United States by the

affiliated person is likely to exceed substantially the value of the

subject merchandise, we shall determine the CEP for such merchandise

using the price of identical or other subject merchandise sold in the

United States if there is a sufficient quantity of sales to provide a

reasonable basis for comparison. If there is not a sufficient quantity

of such sales or if we determine that using the price of identical or

other subject merchandise is not appropriate, we may use any other

reasonable basis to determine the CEP.

To determine whether the value added is likely to exceed

substantially the value of the subject merchandise, we estimated the

value added based on the difference between the averages of the prices

charged to the first unaffiliated purchaser for the merchandise as sold

in the United States and the averages of the prices paid for the

subject merchandise by the affiliated person. Based on this analysis,

we determined that the estimated value added in the United States by

Hyundai's U.S. affiliates accounted for at least 65 percent of the

price charged to the first unaffiliated customer for the merchandise as

sold in the United States. See 19 CFR 351.402 for an explanation of our

practice on this issue. Therefore, we determined that the value added

is likely to exceed substantially the value of the subject merchandise.

We also determined that there was a sufficient quantity of sales

available to provide a reasonable basis for comparison and that the use

of such sales is appropriate in accordance with 772(e). Accordingly,

for purposes of determining dumping margins for these sales, we have

used the weighted-average dumping margins calculated on sales of

identical or other subject merchandise sold to unaffiliated persons in

the United States. For further discussion, see Memorandum on Whether to

Determine the Constructed Export Price for Certain Further-Manufactured

Sales Sold by Hyundai Electronics Industries Co., Ltd. in the United

States During the Period of Review Under Section 772(e) of the Act

dated June 1, 1999.

Level of Trade

In accordance with section 773(a)(1(B) of the Act, to the extent

practical, we determined NV based on sales in the comparison market at

the same level of trade as the CEP sales. The NV level of trade is that

of the starting-price sales in the comparison market or, when NV is

based on constructed value (CV), that of the sales from which we derive

selling, general, and administrative (SG&A) expenses and profit. For

CEP, it is the level of the constructed sale from the exporter to the

importer.

[[Page 30484]]

To determine whether NV sales are at a different level of trade

than the CEP sales, we examined stages in the marketing process and

selling activities along the chain of distribution between the producer

and the unaffiliated customer. If the comparison-market sales are at a

different level of trade, and the difference affects price

comparability, as manifested in a pattern of consistent price

differences between the sales on which NV is based and comparison-

market sales at the level of trade of the export transaction, we make a

level of trade adjustment under section 773(a)(7)(A) of the Act.

Finally, for CEP sales, if the NV level is more remote from the factory

than the CEP level and there is no basis for determining whether the

difference in the levels between NV and CEP affects price

comparability, we adjust NV under section 773(a)(7)(B) of the Act (the

CEP offset provision). See Notice of Final Determination of Sales at

Less Than Fair Value: Certain Cut-to Length Carbon Steel Plate from

South Africa, 62 FR 61731 (November 19, 1997).

We reviewed the questionnaire responses of Hyundai and LG to

establish whether there were sales at different levels of trade based

on the distribution system, selling activities, and services offered to

each customer or customer category. For both respondents, we identified

one level of trade in the home market with direct sales by the parent

corporation to the domestic customer. These direct sales were made by

both respondents to original equipment manufacturers (OEMs) and to

distributors. In addition, all sales, whether made to OEM customers or

to distributors, included the same selling functions. For the U.S.

market, all sales for both respondents were reported as CEP sales. The

level of trade of the U.S. sales is determined for the sale to the

affiliated importer rather than the resale to the unaffiliated

customer. We examined the selling functions performed by the Korean

companies for U.S. CEP sales (as adjusted) and preliminarily determine

that they are at a different level of trade from the Korean companies'

home market sales because the companies' CEP transactions were at a

less advanced stage of marketing. For instance, at the CEP level, the

Korean companies did not engage in any general promotion activities,

marketing functions, or price negotiations for U.S. sales. Because we

compared CEP sales to home market sales at a more advanced level of

trade, we examined whether a level of trade adjustment may be

appropriate. In this case, both respondents only sold at one level of

trade in the home market. Therefore, there is no basis upon which

either respondent can demonstrate a pattern of consistent price

differences between levels of trade. Further, we do not have

information which would allow us to examine pricing patterns based on

the respondents' sales of other products and there is no other record

information on which such an analysis could be based. Because the data

available do not provide an appropriate basis for making a level of

trade adjustment and the level of trade in the home market is at a more

advanced stage of distribution than the level of trade of the CEP

sales, a CEP offset is appropriate. Both respondents claimed a CEP

offset. We applied the CEP offset to adjusted home market prices or CV,

as appropriate. The CEP offset consisted of an amount equal to the

lesser of the weighted-average U.S. indirect selling expenses and U.S.

commissions or home market indirect selling expenses. See the

Memorandum on Level of Trade for LG, dated May 27, 1999 and Memorandum

on Level of Trade for Hyundai, dated May 28, 1999.

NV

Home Market Viability

In order to determine whether there were a sufficient sales of

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

we compared the respondents' 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) of the Act. Because the aggregate

volume of home market sales of the foreign like products for both

Hyundai and LG was greater than five percent of the respective

aggregate volume of U.S. sales of the subject merchandise, we

determined that the home market provides a viable basis for calculating

NV for all respondents.

Cost of Production (COP)

We disregarded Hyundai's and LG's sales found to have been made

below the COP in the Notice of Final Results of Antidumping

Administrative Review: Dynamic Random Access Memory Semiconductors

(DRAMs) of One Megabit or Above from the Republic of Korea, 62 FR

39809, July 24, 1997), the most recent segment of this proceeding for

which final results were available at the time of the initiation of

this review. Accordingly, the Department, pursuant to section 773(b) of

the Act, initiated COP investigations of both respondents for purposes

of this administrative review.

We calculated the COP based on the sum of the costs of materials

and fabrication employed in producing the foreign like product, SG&A

expenses, and the cost of all expenses incidental to placing the

foreign like product in condition, packed, ready for shipment, in

accordance with section 773(b)(3) of the Act. We compared weighted-

average quarterly COP figures for each respondent, adjusted where

appropriate (see below), to home market sales of the foreign like

product, as required under section 773(b) of the Act, in order to

determine whether these sales had been made at prices below the COP. In

determining whether to disregard home market sales made at prices below

the COP, we examined whether such sales were made: (1) Within an

extended period of time in substantial quantities, and (2) at prices

which permitted the recovery of all costs within a reasonable period of

time in the normal course of trade, in accordance with sections

773(b)(1)(A) and (B) of the Act. In accordance with section

773(b)(2)(D) of the Act, we conducted the recovery of cost test using

annual cost data.

Pursuant to section 773(b)(2)(C)(i) of the Act, where less than 20

percent of home market sales of a given model were at prices less than

the COP, we did not disregard any below-cost sales of that model

because the below-cost sales were not made in ``substantial

quantities''. Where 20 percent or more of home market sales of a given

model were at prices less than the COP, we disregarded the below-cost

sales because we determined that the below-cost sales were made in

``substantial quantities'' and at prices that would not permit recovery

of all costs within a reasonable period of time, in accordance with

section 773(b)(2)(D) of the Act.

We found that for both respondents, more than 20 percent of their

home market sales for certain products were made at prices that were

less than the COP. Furthermore, the prices did not permit the recovery

of costs within a reasonable period of time. We, therefore, disregarded

the below-cost sales and used the remaining above-cost sales as the

basis for determining NV, in accordance with section 773(b)(1). For

those sales for which there were no comparable home market sales in the

ordinary course of trade, we compared CEP to CV pursuant to section

773(a)(4) of the Act.

Adjustments to COP

Research & Development (R&D)

Consistent with our past practice in this case, the R&D element of

COP was based on R&D expenses related to all

[[Page 30485]]

semiconductor products, not product-specific expenditures. See

Memorandum Regarding Cross Fertilization of Research and Development in

the Semiconductor Industry, dated May 29, 1999.

In addition, Hyundai and LG both changed their accounting

methodologies for R&D expenses during this POR. Specifically, in 1997,

both Hyundai and LG changed their accounting methodology from

recognizing the R&D costs as expenses when incurred, to deferring such

costs and amortizing them over five years using the straight-line

method. Furthermore, in 1997, LG also began to completely defer certain

R&D costs for long-term R&D projects until the relevant revenue is

realized. While the Department did not become aware of this fact until

the current POR, Hyundai began to completely defer certain R&D costs in

the same manner in 1996. Both Hyundai and LG based the R&D expenses

that they reported to the Department for this POR on the amount of R&D

costs that they expensed in 1997.

Hyundai and LG have repeatedly changed their accounting

methodologies for R&D expenses throughout the course of this

proceeding. In their 1991 financial statements (which the Department

used, in part, in the original investigation to calculate R&D

expenses), both Hyundai and LG amortized R&D expenses. See Final

Determination of Sales at Less Than Fair Value: DRAMs from Korea, 58 FR

15467 (March 23, 1993) (``Final Determination''); and Micron Technology

v. United States, 893 F. Supp. 21, 28 (CIT 1995) (``Micron I''). In

their 1993 financial statements, LG changed its accounting methodology

for R&D expenses, and expensed R&D expenses in the year incurred. See

Notice of Final Results of Antidumping Administrative Review: Dynamic

Random Access Memory Semiconductors of One Megabit or Above from the

Republic of Korea, 61 FR 20216 (May 6, 1996); and Micron Technology v.

United States and LG Semicon Co., Ltd., and LG Semicon America, Inc.

(Slip Op. 99-12, January 28, 1999) (Micron II). Hyundai changed its R&D

accounting methodology, and also began to expense R&D expenses in the

year incurred, sometime between 1991 and 1996. In 1997, as explained

above, Hyundai and LG changed their accounting methodologies a second

time, switching back to the amortizing methodology they previously used

in 1991. Furthermore, in 1996 and 1997, Hyundai and LG, respectively,

began to use a third type of accounting methodology by completely

deferring certain R&D expenses until revenue is realized from the R&D

project.

Section 773(f)(1)(A) of the Act states that costs ``shall normally

be calculated based on the records of the exporter or producer of the

merchandise, if such records are kept in accordance with the GAAP of

the exporting country (or the producing country where appropriate) and

reasonably reflect the costs associated with production and sale of the

merchandise.'' The SAA states that, in determining whether a company's

records reasonably reflect costs, Commerce will consider U.S. GAAP

employed by the industry in question. See SAA at 834. Further, as

explained in the SAA, ``[t]he exporter or producer will be expected to

demonstrate that it has historically utilized such allocations,

particularly with regard to the establishment of appropriate

amortization and depreciation periods and allowances for capital

expenditures and other development costs.'' See Id. See also Final

Results 1998, 63 FR at 50871.

The Department has preliminarily determined that Hyundai's and LG's

revised accounting methodologies for R&D expenses do not reasonably

reflect the costs associated with the production of DRAMs. These

revisions in accounting methodologies result in distortions in the

costs attributed to the POR and are not consistent with U.S. GAAP.

Furthermore, there is no information on the record to justify this

change in accounting methodologies. Therefore, the Department has

preliminary determined, consistent with Hyundai's and LG's historical

R&D accounting methodology and U.S. GAAP, to expense all R&D expenses

that Hyundai and LG incurred in 1997, and, consistent with Micron II

Remand, to expense any R&D expenses that Hyundai expensed in 1997,

which Hyundai had previously incurred but not previously expensed. For

further discussion of this issue, see Memorandum on Whether to Accept

the Reported Research & Development Expenses of Hyundai Electronics

Industries Co., Ltd. and LG Semicon, Ltd., dated June 1, 1999.

We also note that a number of the projects that LG classified as

R&D expenses apply to products which were being commercially produced

in 1997. The Department will examine these projects further to

determine whether they are more appropriately classified as part of

COM.

Company-Specific Adjustments

Hyundai

1. We excluded certain non-operating expenses from Hyundai's R&D

expenses.

2. We adjusted Hyundai's depreciation expenses to reflect the net

effect of increasing depreciation, consistent with Final Results 1998,

for special depreciation that would have been taken had the respondent

continued to take special depreciation on certain equipment for the

period of 1997 and the first half of 1998 and decreasing depreciation

expenses to reflect the amount of special depreciation which the

Department expensed in Final Results 1998, but which Hyundai expensed

in its own books and records, and reported in its response, for the

current POR.

3. We adjusted Hyundai's general and administrative (``G&A'')

expense rate by excluding foreign currency transaction gains and losses

related to account receivables.

4. We adjusted Hyundai's interest expense rate by excluding offsets

of long-term interest income.

See Memorandum on Hyundai Electronics Industries Co., Ltd.:

Calculations for the Preliminary Results, dated June 1, 1999.

LG

1. We included in COP certain costs for an operational new

fabrication facility which LG excluded from its COM by recording them

in a construction-in-progress account.

2. We adjusted LG's G&A expense rate by excluding foreign currency

transaction gains and losses related to account receivables.

3. We adjusted LG's interest expense rate by including translation

gains and losses and the amortized amounts of deferred foreign currency

translation gains and losses, consistent with the Department's practice

(see Final Results 1998, 63 FR at 50872). See Memorandum on LG Semicon

Co., Ltd.,: Preliminary Results of Review Analysis Memorandum, dated

June 1, 1999.

CV

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

based on the respondents' cost of materials and fabrication employed in

producing the subject merchandise, SG&A expenses, the profit incurred

and realized in connection with the production and sale of the foreign

like product, and U.S. packing costs. We used the cost of materials,

fabrication, and SG&A expenses as reported in the CV portion of the

questionnaire response, adjusted as discussed in the COP section above.

[[Page 30486]]

We used the U.S. packing costs as reported in the U.S. sales portion of

the respondents' questionnaire responses. For selling expenses, we used

the average of the selling expenses reported for home market sales that

survived the cost test, weighted by the total quantity of those sales.

For actual profit, we first calculated the difference between the home

market sales value and home market COP, and divided the difference by

the home market COP. We then multiplied this percentage by the COP for

each U.S. model to derive an actual profit.

Price Comparisons

For price-to-price comparisons, we based NV on the price at which

the foreign like product is first sold for consumption in the exporting

country, in the usual commercial quantities and in the ordinary course

of trade, and to the extent practicable, at the same level of trade, in

accordance with section 773(a)(1)(B)(i) of the Act. We compared the

U.S. prices of individual transactions to the monthly weighted-average

price of sales of the foreign like product. In the case of LG, we

calculated NV based on delivered prices to unaffiliated customers and,

where appropriate, to affiliated customers in the home market.

With respect to LG, we tested those sales that LG made in the home

market to affiliated customers to determine whether they were made at

arm's length and could be used in our analysis. See 19 CFR 351.102(b).

To test whether these sales were made at arm's length prices, we

compared, on a model-specific basis, prices of sales to affiliated and

unaffiliated customers, net of discounts, all movement charges, direct

selling expenses, and packing. For tested models of the subject

merchandise, prices to an affiliated party were on average 99.5 percent

or more of the price to unaffiliated parties and we determined that

sales made to the affiliated party were at arm's length. See 19 CFR

351.403(c) and Preamble to the Department's regulations, 62 FR at

27355.

With respect to both CV and home market prices, we made

adjustments, where appropriate, for inland freight, inland insurance,

and discounts. We also reduced CV and home market prices by packing

costs incurred in the home market, in accordance with section

773(a)(6)(B)(i) of the Act. In addition, we increased CV and home

market prices for U.S. packing costs, in accordance with section

773(a)(6)(A) of the Act. We made further adjustments to home market

prices, when applicable, to account for differences in physical

characteristics of the merchandise in accordance with section

773(a)(6)(c)(ii) of the Act. Finally, pursuant to section

773(a)(6)(C)(iii) of the Act, we made an adjustment for differences in

circumstances of sale by deducting home market direct selling expenses

(credit expenses and bank charges) and adding any direct selling

expenses associated with U.S. sales not deducted under the provisions

of section 772(d)(1) of the Act. For Hyundai and LG, we recalculated

the credit expense on home market sales using the interest rate of the

currency in which the sales were made.

Preliminary Results of Review

As a result of this review, we preliminarily determine that the

following weighted-average dumping margins exist for May 1, 1997

through April 30, 1998:

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

Percent

Manufacturer/exporter margin

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

The G5 Corporation......................................... 13.11

Hyundai Electronic Industries, Inc......................... 13.11

LG Semicon Co., Ltd........................................ 10.67

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

Pursuant to 19 CFR 351.224(b), the Department will disclose to

parties to the proceeding any calculations performed in connection with

these preliminary results within 5 days of the date of publication of

this notice. Any interested party may request a hearing within 30 days

of the date of publication of this notice. Parties who submit arguments

in this proceeding are requested to submit with each argument: (1) A

statement of the issue and (2) a brief summary of the argument. All

case briefs must be submitted within 30 days of the date of publication

of this notice. Rebuttal briefs, which are limited to issues raised in

the case briefs, may be filed not later than seven days after the case

briefs are filed. A hearing, if requested, will be held two days after

the date the rebuttal briefs are filed or the first business day

thereafter.

The Department will publish a notice of the final results of this

administrative review, which will include the results of its analysis

of the issues raised in any written comments or at the hearing, within

120 days from the publication of these preliminary results.

The Department shall determine, and Customs shall assess,

antidumping duties on all appropriate entries. The Department will

issue appraisement instructions directly to Customs. The final results

of this review shall be the basis for the assessment of antidumping

duties on entries of merchandise covered by the determination and for

future deposits of estimated duties. We have calculated importer-

specific STD valorem duty assessment rates based on the ratio of the

total amount of dumping margins calculated for the examined sales made

during POR to the entered value of sales used to calculate those

duties. These rates will be assessed uniformly on all entries of each

particular importer made during the POR.

Furthermore, the following deposit requirements will be effective

upon completion of the final results of these administrative reviews

for all shipments of DRAMs from Korea entered, or withdrawn from

warehouse, for consumption on or after publication date of the final

results of these administrative reviews, as provided by section

751(a)(1) of the Act: (1) The cash deposit rate for the reviewed

companies will be the rate established in the final results of this

administrative review, except if the rate is less than 0.5 percent STD

valorem and, therefore, de minimis, no cash deposit will be required;

(2) for exporters not covered in this review, but covered in the

original LTFV investigation or a previous review, the cash deposit rate

will continue to be the company-specific rate published in the most

recent period; (3) if the exporter is not a firm covered in this

review, a previous review, or the original LTFV investigation, but the

manufacturer is, the cash deposit rate will be the rate established for

the most recent period for the manufacturer of the merchandise; and (4)

if neither the exporter nor the manufacturer is a firm covered in this

or any previous reviews or the LTFV investigation, the cash deposit

rate will be 3.85 percent, the ``all-others'' rate established in the

LTFV investigation. These deposit requirements, when imposed, shall

remain in effect until publication of the final results of the next

administrative review.

This notice serves as a preliminary reminder to importers of their

responsibility under 19 CFR 351.402(f) of the Department's regulations

to file a certificate regarding the reimbursement of antidumping duties

prior to liquidation of the relevant entries during this review period.

Failure to comply with this requirement could result in the Secretary's

presumption that reimbursement of antidumping duties occurred and the

subsequent assessment of double antidumping duties. This administrative

review and this notice are in accordance with sections 751(a)(1) and

777(i)(1) of the Act.

[[Page 30487]]

Dated: June 1, 1999.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 99-14511 Filed 6-7-99; 8:45 am]

BILLING CODE 3510-DS-P