Notice of Final Determination of Sales at Less Than Fair Value: Dynamic Random Access Memory Semiconductors of One Megabit and Above (``DRAMs'') From Taiwan

DEPARTMENT OF COMMERCE

International Trade Administration

[A-583-832]

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

Dynamic Random Access Memory Semiconductors of One Megabit and Above

(``DRAMs'') From Taiwan

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: October 19, 1999.

FOR FURTHER INFORMATION CONTACT: Thomas Futtner at (202) 482-3814,

Alexander Amdur at (202) 482-5346 (Etron), Ronald Trentham at (202)

482-6320 (MVI), Nova Daly at (202) 482-0989 (Nanya), or John Conniff at

(202) 482-1009 (Vanguard), Group II, Office 4, Import Administration,

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

Street and Constitution Avenue, N.W., Washington, D.C. 20230.

The Applicable Statute

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 Uruguay Round

Agreements Act (``URAA''). In addition, unless otherwise indicated, all

citations to the Department's regulations are to the regulations at 19

CFR Part 351 (1998).

Final Determination

We determine that DRAMs from Taiwan are being, or are likely to be,

sold in the United States at less than fair value (``LTFV''), as

provided in section 733 of the Act. The estimated margins of sales at

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

notice.

Case History

The preliminary determination in this investigation was issued on

May 21, 1999. See Notice of Preliminary Determination of Sales at Less

Than Fair Value and Postponement of Final Determination: Dynamic Random

Access Memory Semiconductors of One Megabit and Above (``DRAMs'') from

Taiwan, 64 FR 28983 (May 28, 1999) (``Preliminary Determination'').

Since the preliminary determination, the following events have

occurred:

On May 24 and 27, 1999, we received information from the

petitioner, Micron Technology, on possible circumvention of a future

antidumping duty order. On June 1, 1999, we received a submission from

Vanguard International

[[Page 56309]]

Semiconductor Corporation (``Vanguard'') alleging that the Department

made ministerial errors in the preliminary determination. In response

to Vanguard's ministerial error allegations, we issued an amended

preliminary determination on June 11, 1998. See Notice of Amended

Preliminary Determination of Sales at Less Than Fair Value: Dynamic

Random Access Memory Semiconductors of One Megabit and Above

(``DRAMs'') from Taiwan, 64 FR 32480 (June 17, 1999).

In May and June 1999, we received responses to supplemental

questionnaires from Mosel-Vitelic, Inc. (``MVI'') and Vanguard.

In June, July and August, 1999, we verified the sales and cost

questionnaire responses of Etron Technology, Inc. (``Etron''), MVI, Nan

Ya Technology Corporation, (``Nanya''), and Vanguard (hereinafter

``respondents'').

In July, August, and September 1999, the respondents submitted

revised sales and cost databases.

On July 26, 1999, Etron submitted information requested by the

Department at the sales verification. On August 6 and 9, 1999, the

Department issued supplemental questionnaires to Etron. On August 18,

1999, Etron submitted a letter to the Department stating that it would

not be filing a response to the Department's August 6 and 9, 1999

supplemental questionnaires, and that it would not allow the

verification that the Department scheduled at Caltron Technology

(``Caltron''), Etron's affiliate in the United States.

The petitioner and the respondents submitted case briefs on

September 1, 1999 and rebuttal briefs on September 8, 1999. At the

Department's direction, Etron submitted amended case and rebuttal

briefs on September 7 and 10, 1999, eliminating new factual information

that the Department considered untimely. We held a public hearing on

September 13, 1999.

Amendment to Scope

The Department is amending the scope of this investigation in order

to require importers of motherboards that contain removable DRAM memory

modules to certify to U.S. Customs that such modules will not be

removed. This amendment follows the precedent set forth in DRAMs from

the Republic of Korea, Antidumping Duty Order and Amended Final

Determination, 58 FR 27520 (May 10, 1993) (``DRAMs from Korea Order''),

and is in response to the petitioner's concerns about the circumvention

of any antidumping duty order issued in this proceeding. See Comment 1

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

Scope of Investigation

The products covered by this investigation are DRAMs from Taiwan,

whether assembled or unassembled. Assembled DRAMs include all package

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

die. Processed wafers fabricated in Taiwan, but packaged or assembled

into finished semiconductors in a third country, are included in the

scope. Wafers fabricated in a third country and assembled or packaged

in Taiwan are not included in the scope.

The scope of this investigation 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''), dual in-line memory modules

(``DIMMs''), memory cards or other collections of DRAMs whether mounted

or unmounted on a circuit board. Modules that contain other parts that

are needed to support the function of memory are covered. Only those

modules that contain additional items that 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. Modules

containing DRAMs made from wafers fabricated in Taiwan, but either

assembled or packaged into finished semiconductors in a third country,

are also included in the scope.

The scope includes, but is not limited to, video RAM (``VRAM''),

Windows RAM (``WRAM''), synchronous graphics RAM (``SGRAM''), as well

as various types of DRAMs, including fast page-mode (``FPM''), extended

data-out (``EDO''), burst extended data-out (``BEDO''), synchronous

dynamic RAM (``SDRAMs''), and ``Rambus'' DRAMs (``RDRAMs''). The scope

of this investigation also includes any future density, packaging or

assembling of DRAMs. Also included in the scope of this investigation

are removable memory modules placed on motherboards, with or without a

central processing unit (CPU), unless the importer of the 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 investigation does not include

DRAMs or memory modules that are re-imported for repair or replacement.

The DRAMs subject to this investigation are currently classifiable

under subheadings 8542.13.80.05 and 8542.13.80.24 through 8542.13.80.34

of the Harmonized Tariff Schedule of the United States (``HTSUS'').

Also included in the scope are Taiwanese DRAM modules, described above,

entered into the United States under subheading 8473.30.10 through

8473.30.90 of the HTSUS or possibly other HTSUS numbers. 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 investigation (``POI'') is October 1, 1997 to

September 30, 1998.

Facts Available

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

or any other person--(A) withholds information that has been requested

by the administering authority; (B) fails to provide such information

by the deadlines for the submission of the information or in the form

and manner requested, subject to subsections (c)(1) and (e) of section

782; (C) significantly impedes a proceeding under this title; or (D)

provides such information but the information cannot be verified as

provided in section 782(i), the administering authority shall, subject

to section 782(d), use the facts otherwise available in reaching the

applicable determination under this title.''

The statute requires that certain conditions be met before the

Department may resort to the facts available. Where the Department

determines that a response to a request for information does not comply

with the request, section 782(d) of the Act provides that the

Department will so inform the party submitting the response and will,

to the extent practicable, provide that party the opportunity to remedy

or explain the deficiency. If the party fails to remedy the deficiency

within the applicable time limits, the Department may, subject to

section 782(e), disregard all or part of the original and subsequent

responses, as appropriate. Briefly, section 782(e) provides that the

Department ``shall not decline to consider information that is

submitted by an interested party and is necessary to the determination

but does not meet all the applicable requirements established by (the

Department)'' if the information is timely, can be verified, is not so

incomplete that it cannot be used, and if the interested party acted to

the best of its ability in providing the information. Where all of

these conditions are met, and the Department can use the information

without undue

[[Page 56310]]

difficulties, the statute requires it to do so.

In addition, section 776(b) of the Act provides that, if the

Department finds that an interested party ``has failed to cooperate by

not acting to the best of its ability to comply with a request for

information,'' the Department may use information that is adverse to

the interests of the party as the facts otherwise available. Adverse

inferences are appropriate ``to ensure that the party does not obtain a

more favorable result by failing to cooperate than if it had cooperated

fully.'' See Statement of Administrative Action (SAA) accompanying the

URAA, H.R. Doc. No. 103-316 at 870 (1994).

Furthermore, ``an affirmative finding of bad faith on the part of

the respondent is not required before the Department may make an

adverse inference.'' Antidumping Duties; Countervailing Duties; Final

Rule, 62 FR 27296, 27340 (May 19, 1997) (``Final Rule''). Section

776(b) of the Act notes, in addition, that in selecting from among the

facts available the Department may, subject to the corroboration

requirements of section 776(c), rely upon information drawn from the

petition, a final determination in the investigation, or any previous

administrative review conducted under section 751 (or section 753 for

countervailing duty cases). Under Section 776(b), in selecting from

among the facts available, the Department may also rely on any other

information on the record.

Etron

Based on our verification and independent research, we have

determined that Etron withheld a significant amount of information from

the Department, including information concerning its relationship with

its U.S. customers. We were also unable to verify certain information

and found numerous accounting irregularities in Etron's records. We

have further determined, based on documents obtained from the U.S.

Customs Service, that Etron provided the Department with altered sales

documents. Due to the proprietary nature of these issues, for further

discussion, see Memorandum from Holly Kuga to Bernard Carreau on

Whether to Determine the Margin of Etron Technology, Inc. for the Final

Determination Based on the Facts Otherwise Available dated October 12,

1999 (``Etron FA Memorandum''). Also see Comment 3 in the ``Interested

Party Comments'' section of this notice.

After the sales verification in Taiwan, the Department scheduled a

verification of Etron's U.S. sales affiliate, Caltron. The Department

also issued additional supplemental questionnaires to Etron to provide

it with yet another opportunity to explain and clarify the deficiencies

revealed at verification. After receiving an extension of time to

answer these questionnaires, and after two extensive conversations with

the Department regarding these questionnaires,1 Etron

eventually refused to answer them, and did not allow the verification

of Caltron.

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\1\ See Memoranda dated August 11 and August 17, 1999 from

Alexander Amdur to the File.

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Because Etron withheld information that had been requested by the

Department, failed to provide such information in a timely manner,

significantly impeded this investigation, and provided information

which cannot be verified, section 776(a)(2) of the Act directs the

Department, subject to sections 782(d) and (e), to use facts otherwise

available for Etron in reaching the final determination of this

investigation.

In accordance with section 782(d) of the Act, the Department issued

numerous supplemental questionnaires to Etron regarding its initial

sales and cost responses. Furthermore, as discussed above, after the

sales verification in Taiwan, on August 6 and 9, 1999, the Department

sent to Etron two additional supplemental questionnaires addressing

certain deficiencies in the company's questionnaire response that the

Department found at the sales verification. Etron refused to submit a

response to these questionnaires. Thus, despite numerous opportunities

granted to Etron to remedy the serious deficiencies in its responses,

Etron failed to do so within the meaning of section 782(d) of the Act.

The application of facts available under section 776(a) is also

subject to the provisions of section 782(e) of the Act regarding

whether to decline to consider information submitted by the respondent

despite identified deficiencies. In this case, Etron failed to meet all

of the requirements enunciated under section 782(e) of the Act.

Although Etron generally submitted its questionnaire responses by the

established deadlines, with the exception of the responses to the

August 6 and 9, 1999 questionnaires, these responses could not be

properly verified, as required by section 782(e)(2). Furthermore, the

information that we independently obtained and the results of

verification demonstrate that Etron's responses are so incomplete that

they cannot serve as reliable bases for reaching the final

determination. The gaps in Etron's responses, which the Department

unsuccessfully attempted to address in the August supplemental

questionnaires, and Etron's refusal to allow the verification of

Caltron, all raise serious questions about the reliability and accuracy

of Etron's entire U.S. sales database. Additionally, Etron failed to

demonstrate that it has acted to the best of its ability under section

782(e)(4) of the Act. Etron withheld a significant amount of

information from the Department, and subsequently completely ceased

cooperating in this investigation. Furthermore, it also appears that

Etron attempted to deceive the Department by providing altered

documents at verification, and by making misleading statements to

Department officials. Finally, the Department cannot use Etron's

submitted information without undue difficulties under section

782(e)(5) of the Act in light of the numerous questions surrounding

Etron's entire U.S. sales database. For a detailed proprietary

discussion of these issues, see Etron FA Memorandum. As a result, the

Department determines that, pursuant to section 776(a) of the Act, the

use of facts available is appropriate.

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

used in selecting from the facts available if a party has failed to

cooperate by not acting to the best of its ability to comply with a

request for information. As explained above, and in the Etron FA

Memorandum; Etron withheld a significant amount of information from the

Department. Moreover, Etron impeded the Department's efforts to clarify

information concerning its relationships with its U.S. customers,

refused verification of its U.S. subsidiary, and provided the

Department with false information. For these reasons, the Department

finds that Etron did not act to the best of its ability to provide the

information requested. Therefore, we have determined to use an adverse

inference in selecting the facts available to determine Etron's margin.

As adverse facts available, we have assigned Etron a margin of 69

percent, the highest margin alleged in the petition,2 as

stated in the notice of initiation (see Initiation of Antidumping Duty

Investigation: Dynamic Random Access Memory Semiconductors From Taiwan,

63 FR 60404 (November 18, 1998) (``Notice of Initiation'')).

Furthermore, as adverse facts available,

[[Page 56311]]

we applied the 69 percent margin to Etron's reported U.S. prices, and

using the company's total reported product densities, calculated a

specific rate for Etron of $0.40 per megabit. We calculated the per

megabit rate in this manner because we believe that it would be

inappropriate to base Etron's specific rate on any other margin,

including a calculated margin, that is lower than 69 percent.

Furthermore, while we consider Etron's data unreliable, we believe that

applying the 69 percent margin to Etron's U.S. database is the most

appropriate means to calculate a facts available per megabit rate for

this company.

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\2\ See Antidumping Petition: Dynamic Random Access Memory

Semiconductors of One Megabit and Above from Taiwan, submitted by

Micron Technology, Inc., October 22, 1998; and DRAMs from Taiwan:

Supplement to Petition, November 5, 1998 (which includes

recalculated margins).

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

on secondary information in using the facts otherwise available, it

must, to the extent practicable, corroborate that information from

independent sources that are reasonably at its disposal. The SAA

clarifies that ``corroborate'' means that the Department will satisfy

itself that the secondary information to be used has probative value

(see SAA at 870). The SAA also states that independent sources used to

corroborate may include, for example, published price lists, official

import statistics and customs data, as well as information obtained

from interested parties during the particular investigation (see Id.).

In accordance with section 776(c) of the Act, we sought to

corroborate the data contained in the petition. We reviewed the

adequacy and accuracy of the information in the petition during our

pre-initiation analysis of the petition, to the extent appropriate

information was available for this purpose (e.g., import statistics and

foreign market research reports). See Notice of Initiation, 63 FR at

64041. To further corroborate the information in the petition, for the

final determination, we reexamined the highest margin in the petition

in light of information obtained during the investigation to the extent

it is practicable, and determined it has probative value. For further

discussion, see Etron FA Memorandum.

Fair Value Comparisons

To determine whether sales of DRAMs from Taiwan to the United

States were made at LTFV, we compared the constructed export price

(``CEP'') to the normal value (``NV''). Our calculations followed the

methodologies described in the preliminary determination, except as

noted below and in company-specific analysis memoranda dated October

12, 1999.

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 above in the ``Scope of Investigation''

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

determining appropriate product comparisons to U.S. sales. 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 next most similar foreign

like product, based on the characteristics listed in Sections B and C

of the Department's antidumping questionnaire. We made product

comparisons based on the same characteristics and in the same general

manner as that outlined in the preliminary determination.

Constructed Export Price

We used CEP, in accordance with section 772(b) of the Act, for MVI,

Nanya and Vanguard, when the subject merchandise was first sold in the

United States by or for the account of the producer or exporter of such

merchandise, or by a seller affiliated with the producer or exporter,

to an unaffiliated purchaser. We calculated CEP for MVI, Nanya and

Vanguard based on the same methodology used in the preliminary

determination, with the following exceptions:

We corrected for certain clerical errors found during verification,

including corrections that MVI, Nanya, and Vanguard identified in their

responses in the course of preparing for verification.

MVI

1. We recalculated MVI's reported marine insurance expense by

allocating the reported expense over the amount of the total DRAM sales

of MVI's U.S. affiliate, Mosel Vitelic Corporation (``MVC'').

Vanguard

1. We recalculated Vanguard's reported royalty expense by including

those royalties which were inappropriately included in sales expenses

in Vanguard's cost of production (``COP'').

2. We recalculated Vanguard's reported international freight

expense by allocating this expense by quantity, as the expense was

incurred.

Normal Value

We used the same methodology to calculate NV as that described in

the preliminary determination, with the following exceptions:

We corrected for certain clerical errors found during verification,

including corrections that MVI, Nanya, and Vanguard identified in their

responses in the course of preparing for verification. For Vanguard, we

also recalculated its reported sales duty tax using the rates charged

for this tax by the authorities in Taiwan, and adjusted certain freight

expenses by attributing these charges only to the sales that incurred

these expenses.

Cost of Production

In accordance with section 773(b)(3) of the Act, we calculated a

quarterly weighted-average 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 (``SG&A'') expenses

and packing costs. We determined that research and development

(``R&D'') related to semiconductors benefits all semiconductor

products, and that allocation of R&D on a product-specific basis was

not appropriate.

We relied on the submitted COP except in the following specific

instances where the submitted costs were not appropriately quantified

or valued:

MVI

1. We disallowed MVI's startup adjustment (see comment 14 in the

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

2. We included ProMOS Technologies Inc.'s (``ProMOS's'') R&D

expenses and G&A expenses in ProMOS's COP (see comment 11 in the

``Interested Party Comments'' section).

3. We recalculated ChipMOS Technologies, Inc.'s (``ChipMOS's'') COP

to include R&D and selling expenses from its 1998 audited financial

statements.

4. Pursuant to section 773(f)(3) of the Act, and section 351.407(b)

of the Department's regulations, we adjusted both ChipMOS's and

ProMOS's reported costs to the higher of transfer price or COP.

5. We valued MVI's stock bonus to its employees as of the date the

shareholders' approval of the stock bonus (see comment 13 in the

``Interested Party Comments'' section).

6. We added MVI's non-operating expenses to, and subtracted marine

insurance from, its total G&A expenses used in the calculation of the

G&A expense ratio (see comments 17 and 18 in the ``Interested Party

Comments'' section). We also subtracted MVI's packing expense from the

unconsolidated cost of goods sold (``COGS'') used in the denominator of

this calculation.

7. We combined MVI's reported allocation rates for general and

product-

[[Page 56312]]

specific R&D to determine one R&D allocation rate to apply to MVI's

COM.

8. To make the denominator consistent with the COM to which it is

applied, we adjusted MVI's financial expense ratio by subtracting

packing and the stock bonus from the denominator of the allocation

ratio. We also excluded foreign exchange gains from investments as an

offset to net consolidated financial expenses from the numerator. See

Cost Calculation Memorandum for MVI dated October 12, 1999.

Nanya

1. Pursuant to section 773(f)(2) of the Act, and section 351.407(b)

of the Department's regulations, for assembly and test services

performed by affiliates, we used the higher of cost, transfer price, or

market price.

2. We adjusted Nanya's reported R&D rate to include all of Nanya's

semiconductor R&D expenses divided by the company-wide COGS.

3. We reclassified expenses incurred by Genesis Semiconductor,

Inc., a U.S. affiliate of Nanya that performs DRAM R&D, as R&D expense.

4. We adjusted Nanya's reported G&A expense to include certain

``other revenue'' items and exchange losses. See comments 21 and 22 in

the ``Interested Party Comments'' section.

5. We recalculated Nanya's reported production-related royalty

expense ratio by dividing the total expense incurred by the COGS for

DRAMs.

6. Since wafers processed in a country other than Taiwan are not

subject to this investigation, we have excluded the costs and sales of

fully-processed wafers purchased from a third country.

7. We have included interest expenses in the calculation of

financial expense. See comment 20 in the ``Interested Party Comments''

section. See Cost Calculation Memorandum for Nanya dated October 12,

1999.

Vanguard

1. We revised the submitted COP to include the cost of obsolete

materials written off, and the standard cost and ``lower of cost or

market'' revaluations associated with raw materials and work-in-process

(``WIP'') inventories (see comments 24 and 25 in the ``Interested Party

Comments''section ).

2. We revised COP for back-end (assembly) services performed by an

affiliate to include selling expenses.

3. Pursuant to section 773(f)(2) and (3) of the Act, and section

351.407(b) of the Department's regulations, for DRAM assembly performed

by an affiliate, we adjusted the reported cost to the highest of cost,

transfer price, or market price (see comment 26 in the ``Interested

Party Comments'' section).

4. We revised the submitted COP to include certain royalty expenses

which were inappropriately included in selling expenses. See Cost

Calculation Memorandum for Vanguard dated October 12, 1999.

We conducted our sales below-cost test in the same manner as that

described in our preliminary determination. We found that, for MVI,

Nanya, and Vanguard, for certain models of DRAMs, more than 20 percent

of the home market sales within an extended period of time were at

prices less than COP. Further, 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 sales as the basis for

determining NV, in accordance with section 773(b)(1). For those U.S.

sales of DRAMs for which there were no comparable home market sales in

the ordinary course of trade, we compared CEPs to CV in accordance with

section 773(a)(4) of the Act.

Constructed Value

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

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

G&A, U.S. packing costs, direct and indirect selling expenses, interest

expenses, and profit. We relied on the submitted CVs except for the

specific changes described above in the ``Cost of Production'' section

of the notice. In accordance with section 773(e)(2)(A) of the Act, we

based SG&A expenses 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 Taiwan. Where respondents made no home market sales in the ordinary

course of trade (i.e., all sales failed the cost test), we based profit

and SG&A expenses on the weighted-average of the profit and SG&A data

computed for those respondents with home market sales of the foreign

like product made in the ordinary course of trade in accordance with

section 773(e)(2)(B)(ii) of the Act.

Price-to-Price and Price-to-CV Comparisons

We made price-to-price and price-to-CV comparisons using the same

methodology as that described in the preliminary determination.

Currency Conversion

As in the preliminary determination, we made currency conversions

into U.S. dollars based on the exchange rates in effect on the dates of

the U.S. sales as certified by the Federal Reserve Bank in accordance

with section 773(A) of the Act.

Interested Party Comments

General Issues

Comment 1: Certification for Modules on Motherboards. The

petitioner argues that the respondents have made plans to avoid the

antidumping duty order to be issued in this case. The petitioner states

that it previously submitted to the Department news articles from the

Taiwan press in which the respondents discussed plans to avoid any

antidumping duty order by shipping subject merchandise to intermediate

countries for assembly or further processing, including placing memory

modules on motherboards. The petitioner also notes that the preliminary

determination in this investigation, as well as the Customs

instructions issued by the Department after the preliminary

determination, do not contain the scope language that is standard in

the DRAMs from Korea antidumping proceeding. Specifically, this scope

language, as stated in DRAMs from Korea: Amended Final Results of

Administrative Review, 63 FR 56905, 56907 (October 23, 1998), requires

importers of motherboards that contain removable memory modules to

certify to 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 petitioner contends that, because Taiwan is

the world's leading producer of motherboards, it is therefore

``essential'' that this certification requirement be applied to

importers of motherboards containing DRAMs from Taiwan.

No other parties commented in their case or rebuttal briefs with

respect to this issue.

DOC Position: We agree with the petitioner's comments regarding the

potential for circumvention resulting from the importation of DRAMs on

motherboards. In order to avoid the possibility that an order on DRAMs

would be evaded in such a manner, the Department will follow the

precedent, set forth in DRAMs from Korea Order, 58 FR at 27520. As a

consequence, if a party imports motherboards that contain removable

DRAMs memory modules, we will require the importer to certify with

Customs that such modules will not be removed by them, a party under

contract to them, or a party related to them, after importation. Such

certification will apply regardless of

[[Page 56313]]

whether the host product contains a CPU.

Comment 2: CEP Offset. The petitioner argues that, in the

preliminary determination, the Department failed to perform a level of

trade analysis based on unadjusted starting prices for CEP sales for

MVI, Nanya, and Vanguard. The petitioner states that the Department

analyzed the level of trade of CEP sales based on the level of the

constructed sale from the exporter to the affiliated importer, i.e.,

the prices after adjustment for U.S. related selling expenses.

Concurrently, the Department analyzed the level of trade of the home

market sales based on the unadjusted starting prices of those sales.

The petitioner states that this methodology conflicts with the

requirements of the statute and the decisions established in Borden

Inc. v United States, 4 F. Supp. 2d 1221 CIT 1998) (``Borden'') and

Micron Technology, Inc. v. United States, 40 F. Supp. 2d 481, 485-86

(CIT 1999) (``Micron''). The petitioner argues that the Department

should conduct a level of trade analysis based on unadjusted starting

prices in both the U.S. and the comparison markets. The petitioner

states that the results of this analysis will demonstrate that the

comparison market sales made by MVI, Vanguard, and Nanya were not made

at a more advanced level of trade than their sales in the U.S., and

that, therefore, there is no basis for granting either a level of trade

adjustment or a CEP offset to MVI, Nanya or Vanguard.

MVI, Nanya, and Vanguard disagree with the petitioner. They state

that the Department's established practice of analyzing the CEP level

of trade for purposes of determining whether a CEP offset is warranted

is consistent with the statute and legislative history. They argue that

section 773(a)(7)(A) of the Act specifies that a level of trade

analysis must examine the price difference between the ``constructed''

export price (``EP'') and NV, and that any price difference must be due

to differences in the selling functions and expenses, other than a

difference for which allowance is otherwise made, i.e., other than the

selling expenses in the U.S. market that already are deducted. They

further state, citing Antifriction Bearings (other than Tapered Roller

Bearings) and Parts Thereof from France, et al., 62 FR 54043, 54055

(October 17, 1997), that the Department correctly based the CEP level

of trade on the ``constructed'' price, i.e., on the price in the United

States after making the CEP deductions.

DOC Position: The Department agrees with the respondents. We have

consistently stated that the statute and the SAA support analyzing the

level of trade of CEP sales at the constructed level, after expenses

associated with economic activities in the United States have been

deducted, pursuant to section 772(d) of the Act. In the preamble to our

proposed regulations, we stated

With respect to the identification of levels of trade, some

commentators argued that, consistent with past practice, the

Department should base level of trade on the starting price for both

export price EP and CEP sales * * * The Department believes that

this proposal is not supported by the SAA. If the starting price is

used for all U.S. sales, the Department's ability to make meaningful

comparisons at the same level of trade (or appropriate adjustments

for differences in levels of trade) would be severely undermined in

cases involving CEP sales. As noted by other commentators, using the

starting price to determine the level of trade of both types of U.S.

sales would result in a finding of different levels of trade for an

EP sale and a CEP sale adjusted to a price that reflected the same

selling functions. Accordingly, the regulations specify that the

level of trade analyzed for EP sales is that of the starting price,

and for CEP sales it is the constructed level of trade of the price

after the deduction of U.S. selling expenses and profit.

See Antidumping Duties; Countervailing Duties; Notice of Proposed

Rule Making and Request for Public Comments, 61 FR 7308, 7347

(February 27, 1996).

Consistent with the above position, in those cases where a level of

trade comparison is warranted and possible, the Department normally

evaluates the level of trade for CEP sales based on the price after

adjustments are made under section 772(d) of the Act. See, e.g., 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). We note that, 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, 61 FR 8915, 8916 (March 6,

1996); and 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).

In this case, in accordance with the above precedent, our

instructions in the questionnaire issued to respondents stated that

constructed level of trade should be used. All respondents adequately

documented the differences in selling functions in the home and in the

U.S. markets. Therefore, the Department's decision to grant a CEP

offset to Nanya, MVI, and Vanguard was consistent with the statute and

the Department's practice, and was supported by substantial evidence on

the record.

We disagree with the petitioner's interpretation of Borden and of

its impact on our current practice. In Borden, the court held that the

Department's practice to base the level of trade comparisons of CEP

sales after CEP deductions is an impermissible interpretation of

section 772(d) of the Act. See Borden, 4 F. Supp. 2d at 1236-38; see

also Micron, 40 F. Supp. 2d at 485-86. The Department believes,

however, that its practice is in full compliance with the statute, and

that the court decision does not contain a persuasive statutory

analysis. Because Borden is not a final and conclusive decision, the

Department has continued to follow its normal practice of adjusting CEP

under section 772(d) of the Act, prior to starting a level of trade

analysis, as articulated in the regulations at section 351.412.

Accordingly, consistent with the Preliminary Determination, we will

continue to analyze the level of trade based on adjusted CEP prices,

rather than the starting CEP prices.

Company-Specific Issues

A. Etron

Comment 3: Facts Available. The petitioner argues that the

Department must determine Etron's dumping margin based on facts

otherwise available, and apply the highest margin calculated by the

Department from the information provided in the petition. The

petitioner states that Etron's actions in this investigation meet all

the criteria for the application of facts available under section

776(a)(2) of the Act. The petitioner argues that: (1) Etron withheld

information originally requested by the Department; (2) Etron refused

to provide requested information in accordance with the Department's

supplemental questionnaires; (3) Etron significantly impeded the

Department's investigation by providing erroneous information and by

refusing to allow verification of critical information; and (4) the

Department found that critical aspects of the information that Etron

did provide were unreliable and unverifiable. The petitioner states

that, in general, the information on the record

[[Page 56314]]

reveals a web of undisclosed relationships that taints the reliability

of the U.S. sales data reported by Etron, while the numerous accounting

irregularities found in Etron's own records undermine the integrity of

Etron's entire response.

Specifically, the petitioner argues that Etron failed to disclose

essential facts concerning its relationship with one of its U.S.

customers, as required by the Department's questionnaire. The

petitioner states that information gathered by the Department, in

combination with Etron's refusal to provide clarifying information in a

response to a request for information from the Department, establishes

an undisclosed affiliation between Etron and this customer. The

petitioner states that this customer appears to be nothing more than a

shell for Etron's U.S. subsidiary, Caltron, given certain facts,

including the absence of any proof confirming a separate corporate

existence for this customer. The petitioner also states that a sample

sale examined at verification indicates that Etron's transactions with

this customer were not made on an arm's length basis.

The petitioner further argues that the information gathered by the

Department indicating undisclosed affiliations between Etron and its

customers renders Etron's questionnaire response inherently unreliable.

The petitioner adds that this unreliability is compounded by Etron's

refusal to provide critical, clarifying information on these

relationships, and its refusal to allow verification at its U.S.

subsidiary, Caltron. The petitioner states that, in particular, the

evidence that Etron had reported U.S. sales to an affiliate instead of

sales from the affiliate to the first unrelated customer means that the

submitted U.S. sales listing is fatally incomplete. To support its

argument, the petitioner cites to Hot-Rolled Flat-Rolled Carbon-Quality

Steel Products from Japan, 64 FR 24329, 24367-68 (May 6, 1999) (``Hot-

Rolled Steel from Japan''), in which the Department stated that

``information possessed by a U.S. affiliate * * * is essential to the

dumping determination.''

The petitioner further indicates that the Department's sales

verification uncovered numerous other discrepancies that by themselves

justify rejection of Etron's entire questionnaire response. The

petitioner states that the Department discovered that Etron submitted

incomplete and erroneous financial statements, and had accounting

irregularities in its financial statement. Citing Antifriction Bearings

(Other than Tapered Roller Bearings) from Germany, 56 FR 31692 (July

11, 1991) (``Bearings from Germany''), the petitioner states that these

problems jeopardize the integrity of Etron's entire questionnaire

response. The petitioner also states that Etron employed highly

irregular procedures and intentionally misleading accounting practices

in connection with its U.S. sales operations and with respect to Etron

and its U.S. affiliate, EiC Corporation. The petitioner further states

that Etron's attempt to report fictitious home market sales prices

throws additional doubt on the accuracy and completeness of all of its

reported sales.

The petitioner also argues that the application of facts available

is justified in light of other factors, such as Etron's failure to

report certain purchases in its response, Etron's failure to provide a

page of its 1998 consolidated financial statement in its response, and

the Department's inability to reconcile Etron's total DRAMs purchases

to Etron's financial statement. Citing again Bearings from Germany, the

petitioner notes that a significant aspect of the Department's

verification procedures is to reconcile the company's reported data to

its financial statements. The petitioner adds that the findings at

verification are more than simple oversights: they demonstrate Etron's

untruthfulness in responding to direct questions from the Department.

The petitioner concludes that Etron's actions, including its

refusal to provide requested information and blocking the verification

of Caltron Technology, establish that Etron has not cooperated to the

best of its ability in this investigation and has impeded the

Department's investigation. The petitioner concludes that the numerous

errors and omissions in Etron's submitted financial statements and the

accounting irregularities discovered by the Department at verification

render Etron's questionnaire response as a whole unreliable and

unusable.

The petitioner notes that, in other instances involving similarly

uncooperative respondents, such as in Welded Carbon Steel Pipes and

Tubes from Thailand, 62 FR 53808 (October 16, 1997) (``Pipe from

Thailand''), the Department has imposed total adverse facts available.

Citing Emulsion Styrene-Butadiene Rubber from Brazil, 64 FR 14683

(March 29, 1999) (``Rubber from Brazil''), Stainless Steel Bar from

Spain, 59 FR 66931 (December 28, 1994) (``Bar from Spain''), and

Circular Welded Non-Alloy Steel from Venezuela, 57 FR 42962 (September

17, 1992) (``Welded Steel from Venezuela''), the petitioner also notes

that the Department should base Etron's margin on the highest margin

listed in the petition in accordance with its standard practice in

dealing with uncooperative respondents.

In its rebuttal brief, the petitioner further points out that

Etron, in its case brief, offers no explanation or justification for:

evidence of an affiliation between Etron and a U.S. customer; critical

discrepancies that the Department found at verification in U.S. sales

documentation; and Etron's refusal to respond to the Department's

request for supplemental information and to permit verification at

Caltron. The petitioner also argues that Etron's attempt to minimize

the numerous errors the Department found at Etron's sales verification

is not credible, and that these problems confirm the total

unreliability of Etron's questionnaire data.

Etron disagrees with the petitioner's claim that the Department

should apply total adverse facts available to Etron based on the

highest petition rate. Etron claims that the application of total

adverse facts available in this case would be improper and

inappropriate. Specifically, Etron states that it did not report any

fictitious sales to one of its U.S. customers. Etron maintains that

various documents on the record demonstrate that Etron had business

dealings and significant sales with this company. Etron adds that there

would be no reason for Etron to hide such a small portion of sales and

jeopardize its overall position in the dumping case.

Etron further argues that a failure to disclose certain information

about EiC Corporation is irrelevant because Etron had acknowledged from

the start of this case that EiC Corporation is an affiliated party.

Etron claims that there was nothing irregular in its accounting records

for a sale involving EiC Corporation, and that Etron, due to its

inexperience, incorrectly identified this sale as a CEP sale.

Etron argues that the warehouse sales were properly reported and

verified. Etron further states that the discrepancies between the U.S.

warehouse sales ledger and the source documents described by the

Department are readily explained from examination of the relevant sales

verification exhibit itself.

Etron notes that the vast majority of the errors in its auditor's

translation of its financial statement are minor. Etron states that,

among these errors, the inadvertent submission of the income statement

of its unconsolidated financial statement as that of its consolidated

financial statement cannot invalidate an entire record, nor constitute

a basis for applying total adverse facts available. Furthermore, in

[[Page 56315]]

regards to the incorrect home market prices that Etron reported for

certain sales, Etron states that the impact of Etron's error is minor

at most, especially given that Etron provided the Department with both

the actual and incorrect prices.

Etron additionally asserts that the Department was able to verify

Etron's purchases from Vanguard to the relevant accounting documents.

Etron states that, as it explained and documented at verification, its

outside auditors had presented an incorrect figure in the financial

statement for Etron's purchases from Vanguard. Etron also states that

it reported in the response the details of a purchase that the

petitioner claims Etron failed to report. Etron further claims that it

correctly eliminated a U.S. sale from the sales listing.

Etron further contends that the cases the petitioner cites to

support its argument that the Department should use total facts

available to determine Etron's margin present facts different from the

situation at issue. Etron states that, in Pipe from Thailand, the

respondent, Saha Thai, refused to provide information relating to what

parties controlled Saha Thai, and thereby impeded the Department's

affiliation analysis. Etron states that, in the instant case, the issue

at hand does not relate to control of Etron itself, and Etron's

inability to respond to the supplemental questionnaire and participate

in a U.S. verification does not distort the entire dumping analysis in

the same manner as in Pipe from Thailand.

Etron argues that other cases cited by the petitioner (i.e., Rubber

from Brazil, Stainless Bar from Spain, and Welded Steel from Venezuela)

involve respondents who refused to allow any verification at all of any

information. Etron states that, in contrast, it participated in a full

two weeks of cost and sales verifications in Taiwan, and responded to

multiple deficiency questionnaires. Etron also states that Static

Random Access Memory Semiconductors from Taiwan, 63 FR 8909 (February

23, 1998) (``SRAMs from Taiwan'') is also distinguishable from the

instant case because, in that case, the Department applied total

adverse facts available to parties who refused to participate at all in

the Department's investigation.

Etron further claims that, if the Department decides that total

adverse facts available is warranted, it should, consistent with its

authority and past practice, apply adverse facts available only to the

volume and value of sales to the U.S. customer at issue. Citing the

preamble of the Department's regulations (Final Rule, 62 FR at 27340),

Etron states that the use of adverse inferences in the selection of

facts available is discretionary, and not mandatory. As such, this

issue should be decided on a fact and case-specific basis. Etron also

states that the Department has the authority, as affirmed by the CIT in

National Steel Corporation v. United States, 870 F. Supp. 1130, 1335

(CIT 1994), to apply adverse facts available on a partial or total

basis.

Etron specifically argues that the only direct implication of any

failure by Etron to disclose a possible affiliation with a customer

could only impact sales to that customer. According to Etron, if the

Department deems it appropriate to apply adverse facts available to

sales by Caltron, the Department should limit the application of

adverse facts available to only the volume and value of Caltron's

sales, which Etron claims were verified by the Department in Taiwan.

Etron also argues that, in any case, there is no basis for applying

adverse facts available to the sale involving EiC Corporation.

Etron contends that the Department has applied partial, rather than

total, adverse facts available in other similar circumstances. To

support its position, Etron cites DRAMs from the Republic of Korea, 61

FR 20216 (May 6, 1996), 64 FR 30481 (June 8, 1999) (``DRAMs from Korea

1996 and 1999'', respectively), Steel Sheet and Strip in Coils from

Italy, 64 FR 30750 (June 8, 1999) (``Steel Sheet and Strip from

Italy''), Industrial Nitrocellulose from the United Kingdom, 59 FR

66902 (December 28, 1994), Certain Hot-Rolled Carbon Steel Flat

Products, et al, from Canada, 58 FR 37099, 37100 (July 9, 1993), and

Hot-Rolled Steel from Japan.

Citing Antifriction Bearings (Other than Tapered Roller Bearings)

and Parts Thereof from France, 62 FR 2081, 2088 (January 15, 1997) and

Extruded Rubber Thread from Malaysia, 63 FR 12752, 12762 (March 16,

1998) (``Thread from Malaysia''), Etron further states that the

Department takes into account the respondent's degree of experience in

antidumping proceedings when determining the extent to which adverse

facts available should be applied. According to Etron, in the instant

case, the Department should take into account Etron's lack of

experience in dumping proceedings when determining what margins to

impose.

Etron further contends that, if the Department incorrectly

determines that it should impose total adverse facts available on

Etron, the Department should apply the highest calculated rate for any

respondent in this proceeding, and not the petition rates. Etron states

that the rates alleged in the petition have not been corroborated, and

are therefore invalid, given that they were calculated for Nanya and

Vanguard. Etron also states the petition rates are wildly out of line

with the rates that the Department calculated in its preliminary

determination, which are likely to remain the same for the final

determination. Etron also argues that the petition rates do not reflect

Etron's true range of margins because Etron sells a significant

percentage of DRAMs that are high-priced, specialty graphic DRAMs, and

Etron made a profit during the period of investigation.

In support of this position, Etron points out that, in D&L Supply

Co. v. United States, 113 F. 3d 1120, 1223 (Fed. Cir. 1997), Sigma

Corp. v. United States, 117 F.3d 1401, 1410 (Fed. Cir. 1997), Pulton

Chain Co., Inc. v. United States, No. 96-12-02877, Slip Op. 97-162 (CIT

December 2, 1997), Borden, 4 F. Supp. 2d at 1221, and Ferro Union, Inc.

v. United States, 44 F. Supp.2d 1310 (CIT 1999), the courts have held

that the Department may not use, as adverse facts available, a rate,

including a petition rate, that was subsequently determined to be

invalid. Etron also states that the Department itself, in Melamine

Institutional Dinnerware from Indonesia, 62 FR 1719, 1720 (January 13,

1997), determined that uncorroborated petition data for one respondent

should not be used as the basis for adverse facts available for other

respondents. Citing Frozen Concentrated Orange Juice from Brazil, 64 FR

5767, 5768 (February 5, 1999), Etron further argues that the

Department's standard practice in administrative reviews is to use, as

adverse facts available, the highest calculated margin for other

respondents in the proceeding.

DOC Position: We agree with the petitioner. The record evidence in

this case amply demonstrates that Etron withheld crucial information

necessary to substantiate Etron's representations regarding its

affiliations with its U.S. customers. This, coupled with other

inconsistencies and irregularities in Etron's database, as well as

Etron's refusal to undergo a mandatory verification of the information

requested by the Department, indicate that Etron failed to cooperate to

the best of its ability under section 776(b) of the Act. Thus, we have

determined that the application of total adverse facts available is

warranted. See Etron FA Memo for a detailed evaluation of Etron's

submissions and the Department's findings.

[[Page 56316]]

We disagree with Etron that its actions in this proceeding do not

justify the application of total adverse facts available because Etron

cooperated to the best of its ability under section 776(b) of the Act.

As explained in detail in the Etron FA Memo, although the Department

explicitly requested in the initial questionnaire, supplemental

questionnaires, and subsequently at verification, that Etron disclose

all of its affiliations, Etron failed to comply with these repeated

requests. Following the verification, when Etron's failure to disclose

all affiliations became apparent, and in light of other irregularities

and omissions in Etron's responses (see Etron FA Memo), the Department

issued additional supplemental questionnaires to provide Etron with yet

another opportunity to explain and clarify these issues. In addition,

the Department scheduled a verification at Etron's U.S. subsidiary,

Caltron. As the record reveals, although Etron initially asked for an

extension to respond to these supplemental questionnaires, it

eventually refused to answer them in their entirety, and informed the

Department that it would not undergo the scheduled verification. As a

result of Etron's actions, the Department was unable to confirm the

reliability and accuracy of Etron's submissions. In fact, the

Department's independent efforts to corroborate Etron's affiliations

revealed that the company indeed provided the Department with false and

incomplete information. Therefore, as explained in detail in the Etron

FA Memo, given that the necessary information is not available for

purposes of reaching the final determination, section 776(a)(2) of the

Act mandates that the Department apply total facts available to Etron.

Moreover, because Etron's actions, as described above and in the Etron

FA Memo, demonstrate that the company failed to cooperate by not acting

to the best of its ability, section 776(b) authorizes the Department to

use an adverse inference.

We disagree with Etron that the facts in the instant case differ

from those in Pipe from Thailand, where the Department applied total

adverse facts available. In both cases, the respondents at issue failed

to disclose essential information concerning affiliations with their

customers, and the Department discovered information establishing

affiliation late in the proceeding. We also note that, unlike Pipe from

Thailand, Etron has not submitted responses to all of the Department's

questionnaires, while Saha Thai, the respondent in the latter case,

submitted responses to all of the Department's questionnaires.

Moreover, Etron refused to allow some verifications scheduled by the

Department, while in Pipe from Thailand, Saha Thai allowed all

verifications.

We further disagree with Etron that this case can be distinguished

from other cases, such as Rubber from Brazil, Bar from Spain, Welded

Steel from Venezuela, and SRAMs from Taiwan, where the Department

applied total adverse facts available to uncooperative respondents.

Although the Department determined to apply total adverse facts

available based on the particular facts in each of these cases, each

respondent failed to cooperate with the Department to the best of its

ability. For example, in Rubber from Brazil, 64 FR at 14683-84, the

respondent at issue did not participate in any verification, and in

SRAMs from Taiwan, 63 FR at 8910-11, the respondents did not respond to

any of the Department's requests for information. In this case, as

explained above, Etron simply refused to cooperate with the Department

by withholding essential information that appeared to be readily at its

disposal, not to mention its refusal to cure other deficiencies in its

responses and undergo verification. The totality of facts in this case

thus demonstrate, as in other cases cited by Etron, that Etron did not

cooperate to the best of its ability within the meaning of section

776(b) of the Act.

We further disagree with Etron that the facts in the instant case

merit the application of partial adverse facts available only to

missing or unverified information. Contrary to Etron's position, in the

cases cited by Etron, the information submitted by respondents was

usable, and there was no question with respect to the veracity of the

submissions. For example, in DRAMs from Korea 1999, 64 FR at 30482,

Steel Sheet and Strip from Italy, 64 FR at 30755, and Hot-Rolled Steel

from Japan, 64 FR at 24367-69, the Department applied partial adverse

facts available to certain isolated subsets of U.S. sales, such as

sales through U.S. affiliates, that respondents failed to report. These

omissions, unlike Etron's omissions, did not affect the usability of

the other information submitted by respondents.

In contrast to other cases involving cooperative respondents, here

the record demonstrates that, despite our repeated requests, Etron

purposely withheld information necessary to confirm the reliability of

its questionnaire responses. Contrary to Etron's assertion, this

information did not pertain only to a small portion of Etron's U.S.

sales, but to a large part of Etron's U.S. database, and calls into

question the veracity of Etron's entire U.S. database. Etron's refusal

to undergo the U.S. verification at Caltron raises further questions

with respect to the accuracy of the information and increases the

Department's concerns that Etron purposely may have provided false

data. This, in turn, undermines the reliability of Etron's submissions

as a whole, regardless of whether the company appeared to cooperate

with the Department during part of the proceeding. See Stainless Steel

Sheet and Strip in Coils from Germany, 64 FR 30710, 30740 (June 8,

1999) (during verification, where ``errors are identified in the sample

transactions, the untested data are presumed to be similarly tainted

absent satisfactory explanation and quantification on the part of the

respondent'').

We agree with Etron that, in determining whether the respondent

cooperated to the best of its ability, the Department considers the

general experience of the respondent in antidumping duty proceedings,

which, in turn, dictates the extent to which facts available should be

applied. See Thread from Malaysia, 63 FR at 12762. However, the

deficiencies in Etron's responses, for the most part, have not resulted

from a lack of experience, but from Etron's willful attempts, as

discussed above and in the Etron FA Memo, to conceal and withhold

information from the Department.

Finally, we disagree with the respondent that the Department may

not use, as adverse facts available, a rate from the petition, where

different, company-specific rates are subsequently calculated in the

LTFV final determination. As explained in the ``Facts Available''

section of this notice, when selecting adverse facts available, the

Department may rely upon, inter alia, secondary information drawn from

the petition, subject to the corroboration requirements of section

776(c) of the Act. As explained in detail in the Etron FA Memo, given

that the information in the petition in this case has probative value,

we have determined to use, as adverse facts available, the highest

margin alleged in the petition. Our determination is consistent with

the Court of Appeals for the Federal Circuit's recent holding that it

is reasonable for the Department to rely on the petition rate as

adverse facts available, even though this rate differs from the rates

calculated in the Department's subsequent LTFV investigation. Such a

petition rate would not be appropriate only where it has been

judicially invalidated, which does not apply in the instant case. See

[[Page 56317]]

D&L Supply Co. v. United States, Consol. Court No. 92-06-00424, Slip

Op. 98-81 (CIT June 22, 1998), aff'd in Guangdong Metals & Minerals v.

United States, Court Nos. 98-1497, 98-1549, 1999 U.S. App. LEXIS 21650

(Fed. Cir. Sept. 10, 1999).

Comment 4: Affiliation Between Etron and Vanguard. The petitioner

argues that the Department's sales verification report provides

previously undisclosed facts that confirm the existence of an

affiliation between Etron and Vanguard. The petitioner states that the

Department discovered that Etron failed to report certain purchases

from Vanguard and other companies, which underscores the extent to

which Etron relied on Vanguard as a source of supply. The petitioner

further contends that the Etron sales verification report discloses

additional evidence of the Lu family's extensive, collective control

over Etron. The petitioner argues that this evidence supports the

conclusion that C.Y. Lu, as a member of the Lu family, the brother of

Etron's CEO, and as President of Vanguard, was in a position to

exercise restraint or direction over Etron. The petitioner additionally

argues that Etron's purchase of Vanguard stock, and purchase and sale

of its own stock (which are listed on the page of Etron's 1998

consolidated financial statement that Etron had failed to submit to the

Department), further support a finding of affiliation between Etron and

Vanguard.

According to Etron, the Department confirmed during verification

the central elements that the Department relied upon in its preliminary

determination to demonstrate that Etron and Vanguard are not

affiliated. Etron states that, contrary to the petitioner's claims,

certain of Etron's purchases demonstrate the dynamic nature of the

market, and that Etron is able to purchase products from multiple

sources. Etron adds that the fact that certain parties owned small

shareholdings in Etron is irrelevant to the affiliation issue, and no

information in the verification reports in any way undercuts the

conclusion that the brother of C.C. Lu, the CEO and Chairman of Etron,

was not in a position of ``control'' over Vanguard. Etron further

argues that, simply because a portion of Taiwan Semiconductor

Manufacturing Company's (``TSMC's'') purchases of Etron stock was made

in a certain way, rather than entirely on the open market, in no way

supports a finding of affiliation between Etron and Vanguard,

particularly since all the transactions took place after the POI.

Etron finally claims that it was under no obligation to identify a

certain other company as an affiliated party because this company was

not involved in the sale or production of the subject merchandise.

DOC Position: For purposes of the preliminary determination, the

Department determined that Etron and Vanguard were not affiliated

within the meaning of section 771(33)(F), given that the Lu family was

not in a position of legal or operational control over Vanguard. See

Memorandum on Whether Etron Technology, Inc. and Vanguard International

Semiconductor Corporation are Affiliated Under Section 771(33) of the

Act, dated May 21, 1999. At verification, we carefully examined

Vanguard's corporate and financial records. While family members

occupied positions in Vanguard and Etron, we found no evidence of the

Lu family's control over Vanguard's daily operations that would

contradict our preliminary finding. Accordingly, consistent with our

preliminary determination, we continue to find that during the POI, no

member of the Lu family was in a position of legal and operational

control over Vanguard within the meaning of section 771(33)(F) of the

Act. See Vanguard's Sales Verification Report at 3-4. We note, however,

if we issue an order in this case, we intend to reexamine the

relationship between these two companies in any future administrative

review.

Comment 5: Research and Development Expenses. Etron argues that its

offset to R&D expenses for R&D revenues was in accordance with the

Department's practice and that the Department erroneously excluded the

offset in its preliminary determination.

The petitioner contends that the Department was correct in its

preliminary determination to deny Etron's offset to its R&D expense for

revenues received from R&D projects.

DOC Position: Given that the Department is rejecting Etron's

reported sales and cost information to calculate Etron's margin, and is

applying total facts available, the issue of whether the Department

should allow an offset to Etron's R&D expenses is moot.

Comment 6: Stock Bonus Distributions to Employees. Etron argues

that, in its preliminary determination, the Department erroneously

included the stock bonus provided to employees in Etron's COP.

The petitioner counters that the Department appropriately included

Etron's 1998 employee stock bonus and cash payments to supervisors in

the reported costs in its preliminary determination.

DOC Position: As with comments 5, the question of how to treat the

stock distribution to Etron's employees is moot in light of our

decision to apply total facts available to Etron.

B. MVI

Comment 7: Collapsing MVI and ProMOS. MVI states that the

Department's preliminary determination not to collapse MVI and ProMOS

and to treat ProMOS as a non-producing subcontractor was made in

contravention of the law, the regulations, and the Department's

established practice. According to MVI, ProMOS and MVI should be

collapsed, the major input rule should not apply, and consequently, the

cost of DRAMs produced at ProMOS should be valued using ProMOS's actual

COP.

MVI claims that, under section 351.401(h) of the regulations, the

Department should treat DRAM semiconductor foundries as producers

unless the foundry: (1) Does not acquire ownership of the subject

merchandise, and (2) does not control the relevant sale of the subject

merchandise. According to MVI, in SRAMs from Taiwan, the Department

stated that, even though the foundries owned the processed wafer, they

did not own the crucial SRAM design, and therefore were not

``producers.'' MVI maintains that this same logic does not apply in

this case because ProMOS has ownership rights in the proprietary

designs of the DRAMs it manufactures, similar to the design houses in

SRAMs from Taiwan. Therefore, MVI contends that ProMOS must be deemed a

producer of subject merchandise.

Further, MVI states that, under section 351.401(f)(1) of the

Department's regulations, the Department must collapse MVI and ProMOS

because they are: (1) Affiliated producers of subject merchandise; (2)

they have production facilities in Taiwan for similar or identical

products that would not require substantial retooling of either

facility in order to restructure manufacturing priorities; and (3)

there is a significant potential for the manipulation of price or

production. According to MVI, because MVI and ProMOS should be

collapsed and treated as a single entity under the regulations, the

major input rule is inapplicable to them. Therefore, the Department

should value ProMOS die using ProMOS's actual costs of production.

The petitioner states that, under the totality of facts, ProMOS is

no different from the other semiconductor

[[Page 56318]]

fabricators that the Department has, in other cases, found to be simply

foundries for the respondents. According to the petitioner, because

there is no dispute that ProMOS is affiliated with MVI, and because

there is no dispute that a fabricated wafer is a ``major input'' to a

finished DRAM, the Department properly used the highest of cost or

transfer price to determine the cost of DRAM die purchased by MVI from

ProMOS.

The petitioner further argues that, if the Department were to find

that ProMOS is a producer, it must collapse ProMOS and MVI, and

calculate a single dumping margin, including margins on the sales of

ProMOS DRAMs made through Siemens. In such a case, the petitioner

contends that, because MVI did not report the sales through Siemens,

the Department must make an adverse inference in applying facts

available, and recommends that the Department should apply to the

unreported volume of sales made through Siemens the highest individual

dumping margin calculated for any other sale.

DOC Position: We disagree with MVI's contention that ProMOS should

be considered a ``producer'', and that MVI and ProMOS should be

collapsed for the purposes of the final determination. In response to

the comments filed by MVI and the petitioner, we have reexamined the

terms of the agreements between MVI and Siemens, and MVI, Siemens, and

ProMOS. Based on this analysis, we stand by our preliminary

determination that ProMOS is not a ``producer'' of the subject

merchandise within the meaning of section 771(28) of the Act. See

Preliminary Determination, 64 FR at 28986. Rather, the terms of the

agreements indicate that ProMOS did not acquire ownership of the

relevant subject merchandise and did not control the sale of relevant

subject merchandise. Moreover, ProMOS did not control the sale of any

merchandise. Therefore, we determine that, under 19 CFR 351.401(h),

ProMOS served as a subcontractor to MVI and should be treated as such

in our analysis. See Memorandum on Whether ProMOS Technologies, Inc.

(``ProMOS'') is a Producer of Subject Merchandise and as Such Should be

Collapsed with Mosel Vitelic, Inc. (``MVI''), dated October 8. 1999.

Thus, for the final determination, we have not collapsed MVI and

ProMOS. We, therefore, have continued to apply the major input rule,

pursuant to section 773(f)(2) and (3) of the Act and section 351.407(b)

of the Department's regulations, to MVI's purchase of inputs from

ProMOS. We note, however, that should we issue an order in this case,

we intend to revisit this issue if any of the facts of this situation

change in any future administrative review.

Comment 8: Unreported Home Market Sales. MVI argues that, if the

Department concludes that certain sales shipped to destinations within

Taiwan, and invoiced to North American customers by MVI's U.S.

affiliate, MVC, should be treated as home market sales, then the

Department should exclude them from the home market sales listing. MVI

states that these sales are relatively few in number and were made

outside the ordinary course of business. MVI also argues that, if the

Department decides to include these sales in MVI's home market sales

listing, it should use all of the data from MVC's Verification Exhibit

22, which contains all the invoices as well as a complete sales

listing, including adjustments, for these sales.

The petitioner points out that no documentation was provided by MVC

at verification indicating that the sales with bill-to addresses in

North America but ship-to addresses in Taiwan were in fact destined for

North America. According to petitioner, these sales should have been

included in the home market database.

The petitioner argues that, because MVI 's submitted home market

sales listing is incomplete, and thus not verified, the Department must

rely on facts available. For this purpose, the petitioner states, the

Department should add the sales listed in Verification Exhibit 22 to

the home market sales database, using the listed gross unit price for

the calculation of normal value. The petitioner claims that, because

MVI did not submit in its response the transaction-specific data

required to make adjustments to gross unit price, the unadjusted prices

must be used as facts available. This, the petitioner maintains,

represents a measured response that avoids the application of total

facts available, yet it is a sufficiently adverse consequence for MVI's

failure to provide a complete and accurate sales listing.

In rebuttal, MVI argues that the petitioner's suggestion for facts

available should be rejected because MVC has been a cooperative

respondent in this investigation and its reporting methodology for U.S.

sales was fully disclosed and adopted in good faith. Further, MVI

contends that the petitioner is incorrect in arguing that MVI did not

submit in its response the transaction-specific data that is required

to make adjustments to gross unit price. According to MVI, the

necessary adjustments are allocations that were reported in full in

MVI's Section B and C responses and supplemental responses of February

26, 1999 and March 24, 1999, which all were subject to verification.

DOC Position: We disagree with the petitioner that we should apply

facts available for these unreported sales. An examination of the

information collected at verification reveals that MVI should have

reported these sales, but the amount of the sales in question is

relatively insignificant, both in terms of quantity and value of MVI's

total home market sales. Thus, we are disregarding those sales

discovered during verification because the volume of unreported sales

is relatively insignificant.

The Department has, in the past, disregarded sales inadvertently

omitted from the home market database when such reported sales were of

insignificant quantity and value. See Final Determination of Sales at

Less Than Fair Value: Oil Country Tubular Goods from Austria, 60 FR

33553 (June 28, 1995); Notice of Final Determinations of Sales at Less

Than Fair Value: Certain Hot-Rolled Carbon Steel Flat Products, Certain

Cold-Rolled Carbon Steel Flat Products, Certain Corrosion-Resistant

Carbon Steel Flat Products, and Certain Cut to Length Carbon Steel

Plate from France, 58 FR 37125 (July 8, 1993).

Further, based on our analysis of information collected at

verification, including invoices and sales listing (including

adjustments), the inclusion of these sales in home market sales

database would lower MVI's weighted-average dumping margin. Thus, the

record indicates that the omission of these unreported sales is in

fact, adverse to MVI's interests. Accordingly, no further adverse

action is warranted.

Comment 9: Manufacturing Costs Capitalized in ProMOS's Construction

in Progress Accounts. MVI argues that the manufacturing costs

capitalized in ProMOS's construction in progress (``CIP'') accounts

should not be included in ProMOS's reported production costs. MVI

states that ProMOS's records are kept in accordance with Taiwanese GAAP

and reasonably reflect the costs associated with the production of the

subject merchandise. MVI cites Accounting Principles Board (``APB'')

Opinion number 4, which calls for the deferral to future accounting

periods of those costs associated with future revenue. MVI argues that

the costs booked in ProMOS's CIP accounts are costs associated with the

testing and approval of production machinery used in the future

production of various types of DRAM products. MVI argues that these

costs are therefore related to future

[[Page 56319]]

revenue, and are properly capitalized under both U.S. and Taiwanese

GAAP. As such, they should not be added to ProMOS's COP. MVI further

argues that, if the increase in the CIP account for SDRAM DRAM wafers

is added to ProMOS's COP, then the decrease in the CIP account for EDO

DRAM products should be subtracted from ProMOS's COP.

The petitioner argues that it is very unusual for a wafer

fabrication facility to have large amounts of manufacturing expenses in

a CIP account. According to the petitioner, even though MVI considers

its treatment of capitalized expenses reasonable, it makes no attempt

to show how the capitalization of such unusually large amounts of

manufacturing expenses is reasonable. The petitioner asserts that it is

not the increase in the amount of CIP account as a whole that is of

concern, but rather the capitalization of extraordinarily large amounts

of non-fixed assets in the CIP account. Also, the petitioner states

that the Department has incomplete information as to the amount of

fixed assets in the CIP account for EDO DRAM products. The petitioner

points out that this was a relatively mature production process by the

end of the POI, and that much of the equipment for this product should

have come online during the POI. Thus, even though there is no evidence

on the record of such, the petitioner indicates that there was probably

a great increase in the manufacturing CIP for EDO DRAMs over the POI,

and that the Department should add an amount to ProMOS's EDO production

costs.

DOC Position: We agree with MVI that ProMOS's manufacturing costs

capitalized in its CIP accounts should not be included in full in

ProMOS's COP for the POI. 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 generally accepted accounting principles of the

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

reasonably reflect the costs associated with production and sale of the

merchandise.'' In its ordinary books and records, ProMOS capitalized

manufacturing costs incurred during the testing phase of operations at

its new production lines. Even though these cost items are normally

expensed as incurred for commercial operations, Taiwanese GAAP allows

companies to capitalize these costs to CIP during the testing phase of

operations. In accordance with its normal books and records and

Taiwanese GAAP, ProMOS reported only the amortized portion of the

capitalized costs. We agree with MVI that it was appropriate to report

only the amortized portion of the manufacturing because the

capitalization of these expenses during the testing phase of production

is reasonable and the amortization of these expense reasonably reflects

the per-unit cost of producing the subject merchandise. In other words,

deferring some of the testing costs by capitalizing them and only

reflecting the amortized portion in the per-unit COP through

depreciation of the associated fixed assets is reasonable.

We agree with MVI that Taiwanese GAAP requires immediate

recognition of manufacturing costs in mature production facilities but

allows for capitalization and amortization of costs for production

lines still involved in the testing phase of operations. As a result of

the continuous testing of the SDRAM production line, SDRAM production

activity during the period in which manufacturing costs were

capitalized was relatively low when compared to the post-capitalization

production period activity. In addition, we disagree with the

petitioner's statement that the capitalized manufacturing costs were

extraordinarily high. We find that, when compared to the manufacturing

costs incurred during the testing phase, the manufacturing costs

incurred and capitalized in aggregate during the test phase appear

neither extraordinarily high nor unreasonable. See MVI cost

verification exhibits 17 and 41.

The SAA at 834 states that ``[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.'' In this case, we

verified that the company had capitalized and amortized manufacturing

costs incurred during the test phase of production at its new

production lines prior to the inception of this case. See MVI cost

verification exhibit 41. In addition, we note that ProMOS's treatment

of these manufacturing costs incurred during the test phase of

production is consistent with the CIT's remand in Micron Technology,

Inc., v. United States, 893 F. Supp. 21 (CIT 1995). In this case, the

court stated that, ``to the extent test production and related

construction provide a benefit to current and future production, such

costs are properly capitalized and amortized over the periods in which

the benefits accrue.'' 893 F. Supp. at 25.

Comment 10: ProMOS's R&D Expenses. MVI argues that the entire

amount of R&D expenses capitalized in the CIP accounts at the end of

the POI should not be added to ProMOS's R&D expenses. Instead, MVI

maintains that only the R&D expenses incurred during the POI should be

included in the R&D allocation calculation. MVI points out that a

portion of the R&D expense capitalized prior to the POI was amortized

during the POI, and it was included in the R&D expense on MVI's

financial statements. MVI reasons that, given that these R&D costs were

not actually incurred during the POI, they should not be included in

the allocation calculation.

The petitioner argues that no R&D should be deferred in a CIP

account because capitalizing R&D is distortive of costs. The petitioner

cites DRAMS from Korea 1999, 64 FR at 30484-85, which states that

``capitalizing R&D expenditures is distortive of costs.'' The

petitioner also cites U.S. GAAP which requires ``all R&D costs to be

expensed in the year incurred,'' as support for its position that no

R&D be deferred in a CIP account.

DOC Position: We disagree with both MVI and the petitioner. While

we agree that R&D costs should be expensed as incurred, the current

situation is different. As explained in comment 9, ProMOS capitalized

current manufacturing costs related to testing costs. In this instance,

ProMOS classified some of these manufacturing costs as R&D incurred

during the testing phase of operations. Although ProMOS classified

these costs as R&D, they actually are costs from the testing phase of

operations. Consistent with our position on the capitalized

manufacturing costs that ProMOS incurred during the testing phase of

operations, we consider it appropriate, under Taiwanese GAAP, for

ProMOS to capitalize and amortize operating costs incurred during this

testing phase. Following this approach, all testing expenses amortized

during the POI should be recognized as a POI cost of production,

regardless of whether it was originally incurred and capitalized prior

to or during the POI.

Comment 11: Allocation of ProMOS's R&D expenses. MVI argues that,

in following the cross-fertilization principle, the Department should

allocate ProMOS's R&D expenses to all products sold by MVI. MVI cites

SRAMS from Taiwan, 63 FR at 8925, where the Department concluded that

``where expenditures benefit more than one product, it is the

Department's practice to allocate those costs to all of the products

which are benefitted.'' MVI

[[Page 56320]]

states that, under the cross-fertilization principle, MVI products

could benefit from ProMOS's R&D expenditures and, therefore, ProMOS's

R&D expenses should be allocated over all MVI's semiconductor products.

Furthermore, MVI states that, if the Department continues to allocate

ProMOS's R&D expenses exclusively to ProMOS's production, then MVI's

R&D expenses should only be applied to merchandise produced at MVI.

The petitioner argues that ProMOS's R&D should only be allocated to

ProMOS, which is consistent with the Department's treatment of ProMOS

as a subcontractor.

DOC Position: We agree with the petitioner. ProMOS is an affiliated

subcontractor of MVI that provides a specific input to MVI for the

production of subject merchandise. As a subcontractor, ProMOS's R&D

expenses should be connected with the merchandise ProMOS produced,

which, in this case, is the input provided to MVI, whereas MVI's R&D

costs should be allocated to all of the merchandise it produced.

Moreover, we normally calculate G&A and R&D on an entity-specific

level, not on a consolidated level. See Notice of Final Determination

of Sales at Less Than Fair Value: Stainless Steel Round Wire From

Canada, 64 FR 17324, 17334 (April 9, 1999) (``Stainless Steel Round

Wire From Canada''). In the present case, respondent's reference to

SRAMS from Taiwan is not applicable because that case refers to R&D

cross-fertilization between different semiconductor products produced

by the same company, and not between semiconductor products of the

respondent and an affiliated subcontractor supplier, as in this case.

Comment 12: MVI's R&D expenses. MVI points out that MVC's R&D

expenses are included in MVI's R&D expenses in its unconsolidated

financial statements. However, MVC's COGS is not included in MVI's

unconsolidated financial statements, thereby distorting MVI's R&D

allocation ratio. MVI states that the numerator and the denominator

used in the R&D expense allocation should be calculated using data from

the same companies.

The petitioner claims that MVI's COGS used in the R&D ratio

calculation was taken from MVI's financial statements and included the

cost of products sold by MVI to MVC for resale to the U.S. market. The

petitioner states that, if the Department were to add MVC's COGS to

MVI's COGS, it would result in double-counting.

DOC Position: We agree with the petitioner that MVI's R&D rate

computation should be based on the R&D costs and the cost of sales

amounts as reported on MVI's audited financial statements. The fact

that MVI may have performed some R&D for the benefit of MVC does not

mean that MVI did not derive any benefit from that R&D. Consistent with

our position that all semiconductor R&D benefits all semiconductor

products (see SRAMS from Taiwan, 63 FR at 8925), we computed MVI's R&D

rate as the ratio of MVI's company-wide R&D over company-wide cost of

sales. Moreover, we note that MVI's cost of sales as reported on its

financial statements already includes the cost of sales for those

products which were sold to MVC and then resold in the U.S. market. See

MVI cost verification exhibit 15. To include MVC's cost of sales in

MVI's R&D rate calculation, as MVI argues, would double-count these

cost of sales.

Comment 13: Employee Stock Bonuses. MVI states that the employee

stock bonuses paid by MVI should be valued at the market price of MVI's

stock on the date of the distribution of the shares. MVI points out

that the Department's preference is that stocks be valued as of the

grant date, based on the Financial Accounting Standards Board's

Statement of Financial Accounting Standard (``SFAS'') No. 123. MVI

argues that SFAS 123 is not appropriate in this circumstance because

SFAS 123 applies to stock options awarded as compensation, whereas MVI

has awarded actual stock shares as compensation. MVI asserts that, with

stock options, the company has no way of predicting when employees will

choose to exercise the option. Consequently, the company has no

immediate way to measure the value of the stock provided. However, in

this instance, MVI knows the value of the shares provided and the

actual cost to the company on the day the shares are distributed to the

employees.

MVI continues that, even though it is not applicable, SFAS No.

123's definition of grant date as ``the date on which the employer and

employee come to a mutual understanding of the terms of a stock-based

compensation award'' further supports their argument for the use of the

distribution date. MVI claims that the mutual understanding of the

value of the employees' profit-sharing bonus does not occur until the

date on which the stock is issued because the value of the stock is not

determined until that date.

MVI states that, in calculating a company's actual costs, the

Department should use the share distribution costs that best reflects

the known costs to the company. MVI points out that, in SRAMs from

Taiwan, 63 FR at 8922, the Department reasoned that the cost of stock

bonuses to the company ``is foregoing the opportunity to acquire

capital by issuing or selling those shares to investors at the market

price.'' MVI argues that, in this case, the opportunity cost is not

incurred upon the announcement of the bonus, but rather upon the

distribution of the bonus. Furthermore, MVI states that the employees'

ownership rights to the shares are vested upon distribution, and not

upon declaration.

MVI maintains that if the market value of the stock shares is

determined by using the value of the shares on the date of declaration,

the Department should consider the dilution effect of the share

distribution. MVI states that the actual market value is diminished by

the quantity of shares issued over shares outstanding. MVI points out

that MVI's stock value declined as a result of the declaration of the

stock bonuses, and that the Department should therefore adjust the

market price used for the valuation of the stock shares by the dilution

effect of the declaration.

MVI contends that, if the Department uses the date of the

shareholder meeting to value employee stock bonuses, the Department

should calculate an offset to the bonus given that the company did not

issue shares until the date of distribution. MVI reasons that, if the

Department attributes a cost to MVI that the company did not incur,

then the Department should attribute to MVI the corresponding benefit

that would inure to MVI because of the delay in the distribution of

shares.

The petitioner argues that the Department should adhere to the

policy it adopted in SRAMs from Taiwan and value MVI's stock bonus at

the fair market value on the date the bonus was authorized. In

particular, the petitioner cites SRAMs from Taiwan, 63 FR at 8922-23,

in which the Department stated that ``[a]s 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 date of

issuance.''

The petitioner asserts that the terms of MVI's stock bonus were

clearly settled on the date MVI's shareholders authorized the stock

bonus and specified the number of shares to distribute. The petitioner

points out that the number of shares to be distributed was in no sense

dependent on the

[[Page 56321]]

market value of the stock on the issue date or MVI's number of

employees. The petitioner states that, using the declaration date is

supported by the Accounting Principles Board (``APB'') Opinion 25,

which states that the measurement date is the earliest date on which

both the number of shares to which an individual employee is entitled

is known, and the option price is fixed. The petitioner argues that, in

SRAMs from Taiwan, the Department had to resort to the market value on

the date of issuance as a reasonable surrogate because the necessary

information was not available in the record. The petitioner states that

the opportunity cost forgone by MVI by issuing the stock as

compensation to employees, rather than by selling it to investors on

the open market, is better measured by the share value on the

declaration date, and not the distribution date. The petitioner

contends that, on the authorization date, the company obligated itself

to issue a certain number of shares as a bonus to its employees, and

that number of shares was fixed and did not vary with the fluctuations

in the market value of the stock. The petitioner claims that MVI's

examples of the stock bonus's dilution effect are not accurate because

those examples involve stock splits and dividends, which constitute a

distribution of additional shares to existing shareholders, and not the

issuance of additional shares as compensation for services provided to

the company. The petitioner concludes that MVI's theoretical benefit

from delaying the issuance of the stock shares to employees would be a

non-operating investment gain, and would not be allowed as an offset

had such a gain been realized.

DOC Position: We agree with the petitioner that the employee stock

bonuses should be recorded at fair market value on the date of the

shareholders' approval. Our determination is based on the standards

prescribed by SFAS 123 along with the precedent set forth in SRAMs from

Taiwan, 63 FR at 8923. We recognize that Taiwanese GAAP allows stock

bonuses to be recorded at par value as a reduction in stockholders'

equity. However, in SRAMS from Taiwan, we determined that the treatment

of stock bonuses under Taiwanese GAAP is distortive and does not

reasonably reflect the cost of the subject merchandise, and,

accordingly, we decided to rely on U.S. GAAP. While the Department

acknowledges that SFAS 123 primarily addresses stock options, the

standard actually stipulates that it applies ``to [both] stock options

and other stock-based compensation arrangements.'' Interpretation and

Application of Generally Accepted Accounting Principles 1998, by

Patrick Delaney, et al. (John Wiley and Sons 1998) at 638. Thus, SFAS

123 would encompass the stock bonuses awarded by MVI to its employees

and, as such, the shares of stock awarded to employees should be valued

at fair market value on the grant date.

We disagree with MVI's claim that a ``mutual understanding'' of the

value or opportunity cost of the stock bonus is not known until the

date of distribution. A review of the record clearly indicates that the

terms of the bonus were outlined in the minutes of the meeting where

shareholder approval was granted. See MVI cost verification exhibit 47.

As noted in SRAMs from Taiwan, 63 FR at 8923, SFAS 123 directs that

``[i]f 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 MVI in the current year was for

service of the prior year. Under U.S. GAAP, it is appropriate to

recognize the compensation cost, and thus value the compensation, when

the stock bonus was granted, which was as of the date of the

shareholders' approval.

We also disagree with MVI's argument as to the dilution effect the

stock bonus will have on market price. There are many complex factors,

such as investor predictions of future company performance, changes in

a company's management or changes in a company's business plan, which

influence the stock market price of a publicly traded company. To

speculate that there is a direct correlation between the authorization

of the stock bonus and the market price, which can be quantified in a

simple mathematical formula, is therefore not reasonable.

In addition, we disagree with MVI that the company should be

granted an offset to account for any benefit accrued due to the delay

in the issuance of the shares to employees. Once shareholder approval

is obtained, a legal obligation exists requiring immediate recognition.

There is no indication on the record that MVI derived a benefit from

the delay in the distribution of the shares. Therefore, in order to

avoid speculation as to the impact of dilution or the value of any lost

future benefit, the Department adheres to its previously stated

practice of using the declaration date for the valuation of stock

bonuses.

Comment 14: Startup Adjustment. MVI argues that the Department

should grant MVI's request for a startup adjustment for the ProMOS

facility. MVI states that the Department should use the number of

wafers out and good die out, as well as the number of wafers entering

production, to determine whether ProMOS reached commercial levels of

production. MVI asserts that the precedent established in SRAMs from

Taiwan of determining commercial levels of production based on wafer

starts during the period is not an accurate measure. MVI claims that,

during ProMOS's startup period, wafer starts are not relevant to the

number of units processed because ProMOS used many wafers during the

POI for engineering and other test purposes that were unrelated to the

production of finished goods. MVI claims that commercial levels of

production should be measured by volumes of wafers out, volumes of good

chips, rated monthly capacity, yields at a commercially feasible level,

commercial levels of depreciation, and commercial levels of employees.

MVI contends that it was not until the third quarter of 1998 that

ProMOS ended its startup period.

MVI asserts that the Department failed to explain why a relative

escalation in wafer starts is indicative of commercial levels of

production, or how this escalation is characteristic of the

merchandise, producer or industry concerned. MVI provides examples of

other wafer fabrication facilities' capacity levels during the POI to

emphasize the point that ProMOS was operating below normal industry

capacity levels during the POI. Finally, MVI states that the October

21, 1997 news release declaring commercial availability of 64 Megabit

(``meg'') DRAMs produced by ProMOS should not be confused with the

level of commercial production characteristic of the industry. MVI

explains that the former is indicative of having merchandise, even the

smallest amount, available for sale; the latter is indicative of having

reached a particular level of production such that period costs

reasonably reflect the normal COP.

The petitioner argues that ProMOS's startup period appears to have

ended prior to the beginning of the POI. The petitioner cites section

773(f)(1)(C)(ii) of the Act, which states that ``the statute permits a

startup adjustment to be made only if: a producer is using new

production facilities or producing a new product that requires

substantial new investment, and production levels are limited by

technical factors associated with the initial phase of commercial

production.'' The petitioner states that, while ProMOS was using a new

production facility, any technical factors that may have initially

limited

[[Page 56322]]

production levels ceased to be at issue in October 1997, when ProMOS

achieved commercial production levels that are characteristic of the

DRAM industry.

The petitioner claims that, in the October 21, 1997 press release,

ProMOS announces commercial availability of 64 meg DRAMs. In the press

release, ProMOS held itself out to be a facility producing at self-

proclaimed high volumes, and offering commercial production. It also

provided to customers detailed information with respect to its full

product line and price data. This, according to petitioner, indicates

that ProMOS had surpassed the threshold of initial commercial

production. The petitioner asserts that the information ProMOS provided

at verification regarding wafer starts further contradicts MVI's claim

for a startup adjustment, pointing out that ProMOS's wafer starts

remained constant throughout most of the POI.

The petitioner contends that ProMOS's achievement of its rated

capacity is not the proper benchmark for determining when the startup

period ends. The petitioner cites the SAA at 836, which states that

``[t]he attainment of peak production levels will not be the standard

for identifying the end of the startup period, because the startup

period may end well before a company achieves optimum capacity

utilization.''

The petitioner argues that the number of units going into finished

goods inventory is not a good measure of the achievement of commercial

levels of production. The petitioner states that the number of good die

resulting from the production process reflects not only the output of

the process but also, and more important, the yield achieved in the

production process. The petitioner cites SRAMs from Taiwan, 63 FR at

8930, where the Department focused on a similar product and determined

the beginning of commercial production levels (and the end of the

startup period) based on the number of wafer starts, and notes that the

Department found this represented the best measure of the facility's

ability to produce at commercial production levels.

Furthermore, the petitioner notes that in SRAMs from Taiwan, where

a similar product was examined, the Department, citing the SAA at 836,

which directs the Department to examine the units processed in

determining the claimed startup period, rejected respondent's argument

that the Department examine production yields as a measure of when

commercial production begins. The petitioner points out that yields

improve constantly throughout the life cycle of a semiconductor

product. The petitioner cites the SAA at 836, which directs the

Department to not extend the startup period so as to cover improvements

and cost reductions that may occur over the entire life cycle of a

product.

The petitioner asserts that the other factors, which MVI claims are

a measure of commercial production, are without merit. The petitioner

states that investment in DRAM facilities is ongoing and continues

beyond the initial startup period. Finally, the petitioner argues that

the wafer production data for other Taiwanese producers are not

appropriate measures because fabrication facilities can, and are,

designed to handle different capacity levels.

DOC Position: We disagree with MVI that a startup adjustment is

warranted in this case. Section 773(f)(1)(C)(ii) of the Act authorizes

adjustments for startup operations ``only where (I) a producer is using

new production facilities or producing a new product that requires

substantial additional investment, and (II) production levels are

limited by technical factors associated with the initial phase of

production'' (emphasis added). In light of the information contained in

the administrative record, we consider ProMOS's facilities to be

``new'' within the meaning of section 773(f)(1)(C)(ii)(I) of the Act

because the record indicates that these production facilities have been

built for the purpose of producing DRAM products not produced by MVI's

other fabrication facility. See January 25, 1999 section A response.

However, we do not consider ProMOS's production levels to have been

limited by technical factors associated with the initial phase of

production during the POI within the meaning of section

773(f)(1)(C)(ii)(II) of the Act. Section 773(f)(1)(C)(ii) states that

``the initial phase of commercial production ends at the end of the

startup period.'' Since, as explained below, the startup period has

ended, we have determined that any technical factors that may have

limited ProMOS's production ceased to be an issue when the facility

reached what we consider to be commercial levels of production in

October 1997, the beginning of the POI.

In determining whether commercial levels have been achieved,

section 773(f)(1)(C)(ii) directs the Department to consider factors

unrelated to the startup operations that might affect the volume of

production processed, such as demand, seasonality or business cycles.

Moreover, the SAA at 836 directs the Department to examine the units

processed in determining the claimed startup period. In SRAMs from

Taiwan, 63 FR at 8930, we stated that ``our determination of the

startup period was based, in a 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.'' Consistent with the SAA and SRAMs from Taiwan, in this case,

we continue to believe that wafer starts provide the best measure of

the facility's ability to produce at commercial production levels

because the increase in wafer starts is indicative of ProMOS's

resolution of technical problems that had initially restricted

production. Based on this measure, we have determined that ProMOS

reached commercial levels of production prior to the start of the POI.

Due to the proprietary nature of this analysis, see Cost Calculation

Memorandum for MVI dated October 12, 1999 for a more detailed

explanation regarding the startup adjustment. Because section

773(f)(1)(C)(ii) of the Act establishes that both prongs of the test

must be met before a startup adjustment is warranted, we have denied

MVI's startup claim.

We agree with the petitioner's argument that units going into

finished goods inventory are not a good measure of the achievement of

commercial levels of production, given that they are more a reflection

of the quality of the product produced and the yields achieved in the

production process. In addition, we do not consider a industry-wide

comparative yield approach appropriate for determining the end of the

startup period because the respondent may never reach yields comparable

to other producers. Furthermore, because yields improve constantly

throughout the life cycle of a semiconductor product, based on yields,

we might improperly find that some respondents may appear to never

leave the startup period.

Additionally, commercial levels of depreciation, number of

employees, and a commercially feasible yield are not appropriate

measures of commercial levels of production because they do not measure

the units processed as mandated by the SAA at 836. The SAA does not

refer to quality of merchandise produced, the efficiency of production

operations, or the number of employees, as criteria for measuring the

length of the startup period. Rather the SAA at 836 relies strictly on

the number of units processed, rather than output yields, as a primary

indicator of the end of the startup period.

Regarding the October 21, 1997, press release, we disagree with

MVI's statement that commercial availability is indicative of having

the smallest amount of merchandise available for sale. We agree with

the petitioner that,

[[Page 56323]]

because the press release provided product line information and pricing

data, ProMOS held itself out to its customers as a high volume

producer. This further supports our finding that the startup period

ended by the beginning of the POI.

Finally, MVI's comparison of ProMOS's capacity to production data

of other wafer fabrication facilities is without merit. We agree with

the petitioner that each fabrication facility is designed to handle

different capacity levels, which makes such a comparison incongruous.

Moreover, even if production levels were limited, MVI failed to provide

the Department with sufficient evidence of technical factors that may

have limited ProMOS's new facility production levels during the POI.

Comment 15: Reconciliation Adjustment to ProMOS's Costs. MVI claims

that ProMOS's costs should not be adjusted for the unreconciled

difference reported by the Department. MVI explains that, because

ProMOS is an affiliated producer of subject merchandise, it reported

ProMOS's actual per-unit costs of manufacturing the subject merchandise

instead of the transfer price recorded in its normal books and records.

MVI states that, because the reconciliation assumes that all

merchandise sold by ProMOS was fabricated in the same quarter in which

it was sold, the timing difference between products going to ProMOS's

finished goods inventory and output going to COGS accounts for the

unreconciled difference reported in the cost verification report.

The petitioner argues that MVI has not provided a credible

explanation for the unreconciled difference, and that the Department

should increase ProMOS's costs by the amount of the unreconciled

difference. The petitioner points out that MVI speculates that the

discrepancy may be due to differences between the time a product was

produced and the time it was sold, but MVI does not provide specific

explanations identifying the differences. The petitioner asserts that

ProMOS should have easily been able to show how its costs were

allocated to subject merchandise, and to the extent that there is a

discrepancy between the financial statements and the response, the

amount of the discrepancy should be added to ProMOS's COP.

DOC Position: We agree with MVI's claim that ProMOS's costs should

not be adjusted for the unreconciled difference. After reviewing

certain verification exhibits, we have determined that the reconciling

difference is eliminated when accounting for different valuations

between the quarter the input merchandise was produced by ProMOS, and

the quarter the merchandise was sold by ProMOS. See Cost Calculation

Memorandum for MVI dated October 12, 1999 for a detailed explanation.

Comment 16: Back End Costs. MVI states that, in making an

adjustment for MVI's affiliated back-end (i.e., assembly and test)

costs, the Department should ensure that the quarterly back-end costs

and transfer prices of different products within the same control

number are weight-averaged.

The petitioner did not comment on this issue.

DOC Position: We agree with MVI. In calculating the adjustment for

MVI's affiliated back-end costs, the Department utilized information

from the verification exhibits and MVI's June 24, 1999 submission to

ensure that costs for multiple products within the same control number

were weight-averaged.

Comment 17: Marine Insurance. MVI states that it double-counted

marine insurance expenses in its responses. MVI requests that the

Department adjust the reported G&A expenses to correct for this

duplication.

The petitioner did not comment on this issue.

DOC Position: We agree with MVI that marine insurance expenses have

been double-counted as both a sales expense in its sales response and

as a G&A expense in its cost response. For the final determination, the

Department will deduct the marine insurance amount from MVI's G&A

expenses to correct for this duplication.

Comment 18: Non-operating Expenses. MVI states that it is the

Department's long standing policy not to include non-operating expenses

that are unrelated to the production of subject merchandise. MVI argues

that the dormitory depreciation and G&A building depreciation are

clearly not related to production activities: the dormitory is used for

housing students, interns, and guests, and the administrative building

was dedicated to non-subject activities.

The petitioner asserts that it is appropriate for the Department to

include MVI's non-operating expenses relating to the production of

subject merchandise (i.e., depreciation of the G&A building, and

depreciation relating to the R&D building) to MVI's G&A expenses. The

petitioner also claims that it is appropriate to include ProMOS's costs

from the other miscellaneous expenses account that appear to be related

to the production of subject merchandise.

DOC Position: In calculating the G&A rate, the Department's

practice is to include certain expenses and revenues that relate to the

general operations of the company as a whole, as opposed to including

only those expenses that directly relate to the production of the

subject merchandise. See Notice of Final Determination of Sales at Less

Than Fair Value: Stainless Steel Round Wire from Taiwan, 64 FR 17336,

17339 (April 9, 1999) (``Wire from Taiwan''); and Notice of Final

Results and Partial Recission of Antidumping Duty Administrative

Review: Certain Pasta From Italy, 64 FR 6615, 6627 (February 10, 1999)

(``Pasta From Italy''). The CIT agreed with the Department that ``G&A

costs, by definition, are period costs that relate to the company as a

whole.'' U.S. Steel Group v. United States, 998 F. Supp. 1151 (CIT

1998). Accordingly, the G&A category covers a diverse range of items.

Consequently, in determining whether it is appropriate to include or

exclude a particular item from the G&A calculation, the Department

reviews the nature of the G&A activity and the relationship between

this activity and the general operations of the company. See Wire from

Taiwan, 64 FR at 1733, and Pasta From Italy, 64 FR at 6627. The items

at issue for both MVI and ProMOS, which include depreciation on the G&A

and R&D buildings and losses on the sales of fixed assets, relate to

the general operations of the respective company, and the Department

has, therefore, included these expenses in MVI's and ProMOS's G&A

expenses.

Comment 19: Clerical Errors. MVI notes an error in the Department's

margin calculation program for the preliminary determination. In the

cost test portion of the normal value calculation, the margin

calculation program first attempts to match a given home market sale to

the COP for that product for the same quarter. If there is no match in

the COP file for that quarter, the margin calculation program searched

for a match in the most recent previous quarter and the home market

sale was designated as made in the earlier quarter. According to MVI,

the error occurred when, at the end of the cost test, the designation

was not changed back to the original quarter so that the appropriate

sales price to sales price comparison could be made.

The petitioner does not dispute the presence of the error, but

notes that the same problem exists in the matching of U.S. sales with

CV.

DOC Position: We agree with MVI and petitioner and have made the

necessary changes to the margin calculation program for the final

determination so that the appropriate comparisons are made. We also

discovered the same error in Vanguard's margin calculation

[[Page 56324]]

program and have made appropriate changes for the final determination

so that the appropriate comparisons are made.

C. Nanya

Comment 20: Interest Income. Nanya states that its consolidated

financial statement does not specifically address the nature of

interest income on its income statement. Therefore, the company was

unable to specifically identify the interest income which was short-

term. As an alternative, Nanya suggests that the Department should

calculate a short-term rate by comparing Nanya's liquid assets to total

assets, and apply this ratio to Nanya's total interest income. Citing

Stainless Steel Sheet and Strip in Coils From the United Kingdom, 64 FR

30688, 30710 (June 8, 1999) (``Sheet and Strip From the United

Kingdom''), Nanya states that when a respondent is unable to

specifically identify short-term interest income, it is the

Department's practice to offset interest expenses by an amount of

interest income equivalent to the ratio of current assets to total

assets, given that the relationship of current assets to total assets

is representative of the relationship of short-term interest income to

total interest income.

The petitioner argues that Nanya's reliance on Sheet and Strip From

the United Kingdom for the calculation of short-term interest expense

is misplaced. The petitioner argues that this case did not involve a

complete failure to verify submitted data. Rather, the respondent in

that case demonstrated to the Department that it did not have access to

that company's underlying interest income data. The petitioner argues

that Nanya has made no claim that it could not obtain access to the

relevant supporting information to calculate the actual amount of its

parent's short-term interest income, and that Nanya, instead,

stonewalled the Department's request for this specific information at

verification. The petitioner requests that the Department make an

adverse inference in selecting facts otherwise available regarding

Nanya's financial expense. The petitioner further requests that the

Department calculate Nanya's financial expense ratio by using all of

its reported financial expenses, without any offset for short-term

interest income.

DOC Position: We agree with the petitioner that Nanya failed to

substantiate its claim that some of its interest income on its

consolidated financial statement was from short-term sources. The

Department specifically requested, in section VII of the Cost

Verification Outline, that Nanya demonstrate how it arrived at its

figures for short-term interest income. Although Nanya was well aware

of the Department's requests at verification, the company did not

provide any supporting documentation to substantiate its reported

figures for short-term interest expense or income. As we noted in

Nanya's Cost Verification Report at page 18, the company did not submit

material at verification supporting its claim that some of its interest

income on its consolidated financial statement was from short-term

sources, and did not offer the Department supporting documentation for

any other amounts claimed as financial expense offsets. The Department

agrees with the petitioner that when a company cannot support the data

reported in its response, the information is unverified and cannot be

used to support a determination. Furthermore, we disagree with Nanya

that Sheet and Strip From the United Kingdom supports its argument. In

Sheet and Strip From the United Kingdom, the Department agreed to make

an adjustment to the respondent's interest income figure because the

respondent demonstrated that it did not have access to its parent

company's underlying interest income data. Unlike that case, Nanya has

made no claim that it could not obtain access to the relevant

supporting information to calculate the actual amount of its parent's

short-term interest income.

Given that Nanya was aware of the Department's request prior to

verification, but did not demonstrate how it arrived at its reported

figures, we have determined not to grant the short-term offset to its

financial expenses. Rather, the Department has calculated Nanya's

financial expense ratio using all of its reported financial expense,

without any offset for interest income. See Nanya Cost Calculation

Memorandum dated October 12, 1999. Consequently, the application of

facts available does not apply because we are not allowing this offset,

as the petitioner, in any case, requested.

Comment 21: Exchange Gains and Losses. The petitioner argues that

Nanya was unable to provide any supporting documentation to verify its

reported classification of its foreign exchange gains and losses. The

petitioner believes that, in the context of this verification failure,

the Department cannot rely on the amounts submitted by Nanya, and must,

instead, apply facts available. The petitioner further argues that the

Department should apply certain adverse assumptions concerning the

nature of the reported foreign exchange gains and losses by treating

all of Nanya's foreign exchange losses as related to production, and by

treating all of the reported foreign exchange gains as unrelated to

production, and not allowing any part of such gains to offset Nanya's

general expenses.

Nanya explains that it was unable to demonstrate at verification

that it correctly distributed the foreign exchange gains and losses to

the proper cost elements because there was insufficient time to verify

all elements of Nanya's cost response. Nanya argues that, although the

Department did not examine Nanya's foreign exchange gains and losses,

this should not lead the Department to question the validity of Nanya's

categorization of those items. Nanya states that, even if the

Department were to resort to facts available for the categorization of

these items, the application of adverse inferences proposed by the

petitioner is not justified in light of Nanya's cooperation in this

proceeding and at verification. Nanya states that, when a party is

cooperative, the Department will make its determinations by weighing

the record evidence to determine what is most probative of the issue

under consideration. See SAA at 869. Therefore, Nanya urges the

Department that, even if it were necessary for the Department to resort

to facts available, the most probative and accurate information on the

record is the categorization of foreign exchange gains and losses

reported by Nanya in its response.

DOC Position: We agree with the petitioner that Nanya failed to

provide documentation substantiating its submitted figures for exchange

gains and losses to the Department at verification. Sections VI and VII

of the Nanya Cost Verification Outline specifically requested that

Nanya provide documents necessary to reconcile the company's reported

figures for exchange gains and losses, as noted in exhibit 20 of

Nanya's April 14, 1999 submission. At Nanya's cost verification, the

Department twice requested that Nanya account for its submitted figures

for exchange gains and losses. See Nanya Cost Verification Report at

17-18. Moreover, to provide sufficient time to verify Nanya's cost

responses, the Department officials agreed to extend the time period

devoted to address this issue. Despite this opportunity, Nanya failed

to substantiate, at verification, these reported figures.

In light of Nanya's failure to support its submitted figures for

exchange gains and losses, the Department is required to treat these

figures as unverified and,

[[Page 56325]]

as such, this data cannot be used for purposes of the final

determination. Therefore, the Department is treating all of Nanya's

foreign exchange losses as related to production, and all of the

reported foreign exchange gains as unrelated to production or the

general activities of the company as a whole, and thus we are not

allowing any part of such gains to offset Nanya's G&A expenses. For a

more detailed explanation, see Cost Calculation Memorandum for Nanya

dated October 12, 1999.

Comment 22: Other Revenue. The petitioner states that it supports

the Department's decision in the Preliminary Determination to adjust

Nanya's reported G&A to exclude certain other revenue items as offsets

to cost. These other revenue items include: other revenue-over

estimated, material income, adjustment credits-claims income, gains on

physical inventory and cash, gains on overseas employees' aids, returns

on loss on price decline in inventory, and others.

Nanya disagrees with the petitioner. Nanya believes that excluding

this revenue would be contrary to the Department's established

practice, which permits offsets to G&A expenses for certain income

earned from the company's production operations. As support for its

position, Nanya cites Circular Welded Non-Alloy Steel Pipe from the

Republic of Korea; Final Results of Antidumping Duty Administrative

Review, 63 FR 32832, 32838 (June 16, 1998) (``Circular Welded Pipe from

Korea'').

DOC Position: We agree with Nanya that the Department permits

offsets to G&A expenses for miscellaneous income earned from a

company's general production operations. As we explained in Circular

Welded Pipe from Korea, 63 FR at 32832, we permit offsets to G&A

expenses for income earned from the company's production operations.

Therefore, we have allowed, in part, the other revenue items listed in

exhibit 16 of Nanya's April 14, 1999, response as an offset to G&A

expenses because these revenue items are considered income earned from

the company's general operations. We note, in particular, that the item

listed ``return on loss on price decline in inventory'' represents the

company's normal accounting treatment for the lower of cost or market

provision adjustment to raw materials, WIP and finished goods

inventory. In its normal books and records, Nanya includes the lower of

cost or market write-down of its raw material, WIP and finished goods

inventories as an element on its income statement and records a

provision account on its balance sheet. In the following period, when

items are used in production or are sold, the provision and the

historical cost of those items are reflected on the income statement of

that year. Because both raw material and WIP inventories are inputs

into the cost of manufacturing the subject merchandise, any inventory

write-downs or recognition of inventory write-down provisions should be

included in determining the reported costs. See Notice of Final

Determination of Sales Less Than Fair Value: Stainless Steel Wire Rod

from Italy, 63 FR 40422, 40430, (July 29, 1998). We did not include the

write-down of finished goods, which is, conversely, more closely

associated with the sale of the merchandise rather than the production

of the merchandise. For the computation of this specific item, we

included only the provision associated with raw materials and WIP

inventories. Therefore, we allowed, in part, the other revenue items in

Nanya's submission as an offset to G&A expenses.

D. Vanguard

Comment 23: Misreported and Unreported Home Market Sales. The

petitioner asserts that the Department's discovery of numerous errors

by Vanguard in the reporting of its home market sales at verification

warrants an adverse inference in the application of facts otherwise

available. The petitioner states that, as adverse facts available, the

Department should leave certain home market sales that, in fact, are

export sales, in Vanguard's home market database, and use the

unadjusted gross unit price of these sales in the calculation of NV.

The petitioner further states that, as adverse facts available, the

Department should allocate the value of an unreported home market sale

over all of Vanguard's sales to this customer, which results in an

increase in the gross unit price of these sales.

Vanguard refutes the petitioner's argument, stating that the

Department should not apply facts available because Vanguard may have

misreported certain sales with ultimate destinations in third countries

as home market sales. Vanguard states that it reported all sales that

it shipped to addresses in Taiwan as home market sales. Vanguard states

that it does not know whether the merchandise shipped to customers in

Taiwan would be sold domestically or consumed in Taiwan before

exportation, adding that the sales at issue could have been

substantially transformed in Taiwan before reshipment. Vanguard further

argues that it cannot be expected to have investigated all of the

potential ultimate destinations for its many home market transactions.

Vanguard states that its cooperation in this investigation does not

meet the standard for the application of adverse facts available, and

if the Department determines that certain sales shipped to customers in

Taiwan should not be designated as home market sales, the Department

should simply eliminate the sales in question from the home market

database.

DOC Position: We agree with Vanguard that Vanguard's misreporting

of home market sales does not warrant the application of adverse facts

available. Vanguard's actions in this investigation do not meet any of

the criteria for the application of facts available under section

776(a) of the Act. Vanguard simply reported the sales of all

merchandise that it produced and shipped to customers in Taiwan as home

market sales, and thereby inadvertently included certain third country

sales in its database. We also note that, as reported, these sales

raise Vanguard's dumping rate, a result that appears to support

Vanguard's claim that the inclusion of these sales was an oversight.

At verification, the Department discovered that Vanguard knew, or

should have known, at the time of sale that certain sales that Vanguard

shipped to customers in Taiwan were ultimately destined, without

further processing, for customers in third countries (due to the

proprietary nature of this issue, for further details, see Memorandum

on Whether Certain Sales that Vanguard International Semiconductor

Corporation Reported as Home Market Sales are Export Sales dated

October 12, 1999).

Section 773(a)(1)(B)(i) of the Act, and section 351.404(c)(i) of

the Department's regulations, provides that, if the exporting country

constitutes a viable market, normal value shall be based on the price

in the exporting country. Since, in this investigation, we are basing

normal value for Vanguard on the price in the exporting country,

Taiwan, we are excluding from the calculation of NV those sales that

Vanguard knew, or should have known, at the time of sale were

ultimately destined for customers outside of Taiwan and inadvertently

included in its home market sales database. See Final Determination of

Sales at Less Than Fair Value: Canned Pineapple Fruit From Thailand, 60

FR 29553 (June 5, 1995) and Final Determination at Sales at Less than

Fair Value: Stainless Steel Plate in Coil from Belgium, 64 FR 15476,

15482 (March 31, 1999) (The Department excluded third country sales

that the respondent inadvertently included in its home market

database).

[[Page 56326]]

We also disagree with the petitioner that we should apply adverse

facts available to an unreported home market sale. Although Vanguard

failed to report this sale, even if properly reported, this sale would

not be used as a match for any of Vanguard's U.S. sales, and has an

insignificant effect on our calculations.

We also note that our exclusion of the third country sales from our

calculation of normal value does not call into question the

completeness of Vanguard's sales reporting. We verified that Vanguard

reported all sales that it produced and shipped to destinations in

Taiwan as home market sales. Vanguard only failed to report two

insignificant sales of subject merchandise that it purchased from other

companies, and shipped to customers in Taiwan.

Comment 24: Lower of Cost or Market. Vanguard contends that its

inventory adjustment for the lower of cost or market should not be

included in the company's reported cost of manufacturing. Citing

Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts

Thereof from France et al., 62 FR 2081, 2117-18 (Jan. 15, 1997)

(``Antifriction Bearings from France'') in support of its argument,

Vanguard presents the adjustment as a ``provisional reduction-in-

inventory value'' in anticipation of lower sales revenues which should

not be regarded as an actual or realized cost.

Vanguard states that the lower of cost or market adjustment is

recorded on an aggregate basis and is not reflected in the unit

standard costs. Therefore, according to Vanguard, the full cost of

manufacturing the subject merchandise was reported as products entered

the finished goods inventory. Vanguard further contends that the

recognition of the loss in the COGS portion of the income statement

reflects the loss in value of a balance sheet item, not the occurrence

of a realized cost. Vanguard stresses that these adjustments are

``post-production'' and including them in the reported costs would, in

effect, double-count the costs of manufacturing.

The petitioner counters that the lower of cost or market

adjustments excluded from the cost of manufacturing in Antifriction

Bearings from France were ``not a realized expense, and were not

reflected in their accounting of costs of goods in inventory.'' The

petitioner suggests that the inclusion of Vanguard's COGS on its

financial statements indicates that the adjustment also should be

included in Vanguard's reported costs. The petitioner argues that the

revaluation of inventory is an early recognition of the loss the

company expects to experience on the future sale of the product due to

the changes in market conditions. The fact that the write-down of

inventory costs arose ``post-production,'' the petitioner states, does

not eliminate it as an actual COP.

DOC Position: We agree in part with the petitioner that the lower

of cost or market adjustments made by Vanguard during the period of

investigation should be included in the reported costs. Consistent with

section 773(f)(1)(A) of the Act, it is the Department's practice to

rely upon a company's normal books and records where they are prepared

in accordance with the home country's GAAP and reasonably reflect the

cost of producing and selling the subject merchandise. We found that

Vanguard includes, in its normal books and records, the write-downs of

its raw material, WIP and finished goods inventories as an element of

its current costs per its financial statements. However, we discovered

that these adjustments were not reflected in Vanguard's reported costs.

Additionally, because both raw material and WIP inventories are

inputs into the cost of manufacturing the subject merchandise, any

write-downs of these amounts should be included in determining the

reported costs. See Notice of Final Determination of Sales Less Than

Fair Value: Stainless Steel Wire Rod from Italy, 63 FR 40422, 40430

(July 29, 1998). The write-down of finished goods, conversely, is more

closely associated with the sale of the merchandise, rather than the

production of the merchandise. When finished goods are written down,

the merchandise has already been fully manufactured and fully costed in

the COM statement. The inventory valuation is simply being adjusted to

reflect a market value which is below COP. Thus, the company is

currently expensing the anticipated loss in revenues from the future

sale of these goods. Since the full cost of the finished goods has

already been included in COM prior to the adjustments, it is

appropriate to exclude the write-down for finished goods from the

reported costs. Therefore, for our cost calculations, we included only

the write-down provision associated with raw materials and WIP

inventories.

Comment 25: Standard Cost Revaluation. Vanguard states that the

standard cost revaluations constitute adjustments to the standard costs

only and do not affect the actual manufacturing costs recorded on the

books. Vanguard emphasizes that the manufacturing variance (i.e.,

actual cost less standard cost) absorbs the differences resulting from

the revalued standards. Because the revaluation adjustment is reflected

in a more favorable or unfavorable variance being applied to the

standard costs in obtaining actual costs, Vanguard argues that adding

the adjustment to the derived actual costs would inflate the cost of

manufacturing.

Vanguard acknowledges that, under a standard cost system, the

inclusion of the standard cost revaluation is necessary to compute the

actual COGS on the income statement, but maintains that the adjustment

is not a component of the actual cost of manufacturing. Vanguard

contends that the standard COGS must be adjusted by both the

manufacturing variance and the revaluation amount to derive the actual

COGS. However, Vanguard continues, the revaluations are not adjustments

to actual costs and including them in the actual cost of manufacturing

would overstate actual costs.

The petitioner argues that the standard cost revaluations should be

included in the reported costs, and points to the fact that the

revaluation amount appears on Vanguard's financial statements. The

petitioner further comments that deducting the revaluation amount from

the COGS to derive the actual cost of manufacturing is in effect saying

that the costs on the financial statements were overstated to

Vanguard's shareholders. The petitioner emphasizes that because the

standard cost revaluations are added to standard COGS in achieving

actual COGS, these costs constitute an element of actual cost and

should not be excluded from reported costs. The petitioner concludes

that, in performing the overall cost reconciliation, the COGS presented

on Vanguard's financial statements should only be adjusted for changes

in inventory, costs reported in the sales files, non-subject

merchandise and ``third-country-only'' sales in arriving at total

reported costs.

DOC Position: We agree in part with the petitioner that the

standard cost revaluation should be included in the reported costs. Due

to expected cost decreases, Vanguard revalues its standard costs of

production on a quarterly basis. The new standards are employed not

only for the current product-specific manufacturing costs, but also for

revaluation of the raw materials inventories and the WIP and finished

goods inventories manufactured in previous quarters. Because the new

standards are utilized in current production, this revaluation has no

impact on the computation of the variance (i.e., current standard costs

of manufacturing minus current actual

[[Page 56327]]

costs). Therefore, the production costs incurred currently, which have

been reported at standard plus variance, result in an actual cost.

However, current actual manufacturing costs must be adjusted for

beginning and ending WIP inventory values in deriving a period's COMs.

Along with raw materials, beginning WIP is essentially a ``raw

material'' or input into the finished products manufactured during the

period and, as a result, must be included in the cost of manufacturing

the goods produced during the POI. This is why there is a

reconciliation difference between costs reflected on the company's

audited financial statements and those reported to the Department.

Based on the record evidence, the ending WIP for each quarter is

revalued at the beginning of the ensuing quarter. Because WIP and raw

materials have been ``revalued,'' the values for these inputs are

incorrectly stated. As noted previously, the restatement of WIP is not

factored into the variance computation and was not noted elsewhere in

the submitted costs for COP and CV. Thus, the writedown of WIP and raw

materials must be included in the respective beginning inventory values

to result in the actual cost of the inputs consumed (i.e., the

beginning WIP and raw material inventory amounts). Regarding the

standard cost revaluation adjustments to the finished goods

inventories, we agree with Vanguard that these adjustments are made

post-production and should not be included in the reported costs.

Comment 26: Use of Higher of Cost or Transfer Price for Affiliated

Subcontractor. The petitioner states that the Department's rule for

valuing major inputs from affiliated suppliers at the higher of cost or

transfer price should be exercised for the transactions involving

Vanguard's affiliated assembly contractor. Vanguard did not address

this issue in its briefs.

DOC Position: We agree with the petitioner that the transactions

involving Vanguard's affiliated assembly contractor should be reported

in accordance with the major input rule, pursuant to section 773(f)(3)

of the Act and section 351.407(b) of the Department's regulations.

Accordingly, for the final determination, we valued the assembly

transactions between Vanguard and the affiliated supplier at the

highest of the transfer price between the affiliates, the affiliated

supplier's actual COP, or the market price.

Continuation of Suspension of Liquidation

In accordance with section 735(c)(1)(B) of the Act, we are

directing the Customs Service to continue to suspend liquidation of all

entries of subject merchandise from Taiwan that are entered, or

withdrawn from warehouse, for consumption on or after May 28, 1999 (the

date of publication of the preliminary determination in the Federal

Register). The Customs Service shall continue to require a cash deposit

or posting of a bond equal to the estimated amount by which the normal

value exceeds the U.S. price as shown below. These suspension of

liquidation instructions will remain in effect until further notice.

The weighted-average dumping margins are as follows:

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

Weighted-average Weighted-average per

Exporter/manufacturer margin (percent) megabit rate

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

Etron Technology, Inc....... 69.00 $0.40

Mosel-Vitelic, Inc.......... 35.58 0.12

Nan Ya Technology 14.18 0.02

Corporation................

Vanguard International 8.21 0.01

Semiconductor Corp.........

All Others.................. 21.35 0.04

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

Pursuant to section 735(c)(5)(A) of the Act, the Department has

excluded any margins determined entirely under section 776 of the Act

from the calculation of the ``All Others Rate.''

ITC Notification

In accordance with section 735(d) of the Act, we have notified the

International Trade Commission (ITC) of our determination. As our final

determination is affirmative, the ITC will, within 45 days, determine

whether these imports are materially injuring, or threaten material

injury to, the U.S. industry. If the ITC determines that material

injury, or threat of material injury does not exist, the proceeding

will be terminated and all securities posted will be refunded or

canceled. If the ITC determines that such injury does exist, the

Department will issue an antidumping duty order directing Customs

officials to assess antidumping duties on all imports of the subject

merchandise entered for consumption on or after the effective date of

the suspension of liquidation.

This determination is issued and published pursuant to sections

735(d) and 777(i) of the Act.

Dated: October, 12, 1999.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 99-27294 Filed 10-18-99; 8:45 am]

BILLING CODE 3510-DS-P