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

DEPARTMENT OF COMMERCE

International Trade Administration

[A-580-812]

Dynamic Random Access Memory Semiconductors of One Megabit or

Above From the Republic of Korea: Final Results of Antidumping Duty

Administrative Review and Determination Not To Revoke the Order in Part

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of final results of antidumping duty administrative

review and determination not to revoke the order in part.

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

SUMMARY: On June 8, 1998, the Department of Commerce (``the

Department'') published the preliminary results of its administrative

review of the antidumping duty order on dynamic random access memory

semiconductors of one megabit or above (``DRAMs'') from the Republic of

Korea (``Korea''). The review covers two manufacturers/exporters of the

subject merchandise to the United States and one reseller for the

period May 1, 1997, through April 30, 1998. The two manufacturers/

exporters are Hyundai Electronics Industries, Co. (``Hyundai''), and LG

Semicon Co., Ltd. (``LG''). The reseller is the G5 Corporation

(``G5'').

As a result of our analysis of the comments received, we have

changed the results from those presented in our preliminary results of

review.

EFFECTIVE DATE: December 14, 1999.

FOR FURTHER INFORMATION CONTACT: Thomas Futtner, Alexander Amdur

(``Hyundai''), or John Conniff (``LG''), AD/CVD Enforcement, Group II,

Office IV, Import Administration, International Trade Administration,

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

Washington, D.C. 20230; telephone: (202) 482-3814, (202) 482-5346, and

(202) 482-1009, respectively.

SUPPLEMENTARY INFORMATION:

Applicable Statute and Regulations

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

as amended (``the Act''), are references to the provisions as of

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

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

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

to 19 CFR 351 (1998).

Background

On June 8, 1999, the Department published in the Federal Register

(64 FR 30481) the preliminary results of its administrative review of

the antidumping duty order on DRAMs from Korea. On September 13, 1999,

we released information to interest parties pertaining to possible

unreported sales by LG. On October 7, 1999, LG and an interested party

submitted factual information relevant to this issue. We also gave

interested parties an opportunity to comment on this information and

our preliminary review results.

The petitioner, Micron Technology, Inc. (``Micron''), Hyundai, and

LG submitted case briefs on October 21, 1999, and rebuttal briefs on

October 28, 1999. We held both public and closed hearings on November

4, 1999. We have now completed this administrative review in accordance

with section 751(a) of the Act.

Scope of Review

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

Included in the scope are assembled and unassembled DRAMs. Assembled

DRAMs include all package types. Unassembled DRAMs include processed

wafers, uncut die, and cut die. Processed wafers produced in Korea, but

packaged or assembled into memory modules in a third country, are

included in the scope; wafers produced in a third country and assembled

or packaged in Korea are not included in the scope.

The scope of this review includes memory modules. A memory module

is a collection of DRAMs, the sole function of which is memory. Modules

include single in-line processing modules (``SIPs''), single in-line

memory modules (``SIMMs''), or other collections of DRAMs, whether

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

parts that are needed to support the function of memory are covered.

Only those modules which contain additional items which alter the

function of the module to something other than memory, such as video

graphics adapter (``VGA'') boards and cards, are not included in the

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

memory semiconductors (``VRAMS''), as well as any future packaging and

assembling of DRAMs; and, removable memory modules placed on

motherboards, with or without a central processing unit (``CPU''),

unless the importer of motherboards certifies with the Customs Service

that neither it nor a party related to it or under contract to it will

remove the modules from the motherboards after importation. The scope

of this review does not include DRAMs or memory modules that are

reimported for repair or replacement.

The DRAMS and modules subject to this review are currently

classifiable under subheadings 8471.50.0085, 8471.91.8085,

8542.11.0024, 8542.11.8026, 8542.13.8034, 8471.50.4000, 8473.30.1000,

8542.11.0026, 8542.11.8034, 8471.50.8095, 8473.30.4000, 8542.11.0034,

8542.13.8005, 8471.91.0090, 8473.30.8000, 8542.11.8001, 8542.13.8024,

8471.91.4000, 8542.11.0001, 8542.11.8024 and 8542.13.8026 of the

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

the HTSUS subheadings are provided for convenience and customs

purposes, the

[[Page 69695]]

Department's written description of the scope of this review remains

dispositive.

Determination Not To Revoke

LG submitted a request for revocation from the order covering DRAMs

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

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

Secretary concludes that: (1) [o]ne or more producers or resellers

covered by the order have sold the merchandise at not less than

[normal] value for a period of at least three consecutive years; (2)

[i]t is not likely that those persons will in the future sell the

merchandise at less than normal value (``NV''); and (3) the producers

or resellers agree in writing to the immediate reinstatement of the

order, as long as any producer or reseller is subject to the order, if

the Secretary concludes that the producer or reseller, subsequent to

the revocation, sold the merchandise at less than NV. See 19 CFR

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

revocation. The Department found that LG sold the subject merchandise

at less than NV during the previous review period. See DRAMs from the

Republic of Korea: Final Results of Antidumping Duty Administrative

Review, 63 FR 50867 (September 23, 1998) (``Final Results 1998'').

Since LG has not met the first criterion for revocation, i.e., zero or

de-minimis margins for three consecutive reviews, the Department need

not reach a conclusion with respect to the other criteria. Therefore,

on this basis, we have determined not to revoke the Korean DRAM

antidumping duty order with respect to LG. In light of this decision,

interested party comments on revocation are moot and will not be

addressed further in these final results.

Facts Available (``FA'')

In accordance with section 776(a) of the Act, we have determined

that the use of adverse FA is warranted for LG and G5 for these final

results of review.

1. Application of FA

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

withholds information that has been requested by the Department, fails

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

requested, significantly impedes a proceeding under the antidumping

statute, or provides information which cannot be verified, the

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

otherwise available in reaching the applicable determination. In this

review, as described in detail below, the above-referenced companies

failed to provide the necessary information in the form and manner

requested, and, in some instances, the submitted information could not

be verified. Thus, pursuant to section 776(a) of the Act, the

Department is required to apply, subject to section 782(d), facts

otherwise available.

Section 782(d) of the Act provides that, if the Department

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

with the request, the Department will inform the person submitting the

response of the nature of the deficiency and shall, to the extent

practicable, provide that person the opportunity to remedy or explain

the deficiency. If that person submits further information that

continues to be unsatisfactory, or this information is not submitted

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.

Pursuant to section 782(e) of the Act, notwithstanding the

Department's determination that the submitted information is

``deficient'' under section 782(d) of the Act, the Department shall not

decline to consider such information if all of the following

requirements are satisfied: (1) The information is submitted by the

established deadline; (2) the information can be verified; (3) the

information is not so incomplete that it cannot serve as a reliable

basis for reaching the applicable determination; (4) the interested

party has demonstrated that it acted to the best of its ability; and

(5) the information can be used without undue difficulties.

2. Selection of FA

In selecting from among the facts otherwise available, section

776(b) of the Act authorizes the Department to use an adverse inference

if the Department finds that an interested party failed to cooperate by

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

information. See, e.g., Certain Welded Carbon Steel Pipes and Tubes

From Thailand: Final Results of Antidumping Duty Administrative Review,

62 FR 53808, 53819-20 (Oct. 16, 1997) (Pipe and Tubes From Thailand).

In this segment of the proceeding, the Department has determined that

it is appropriate to apply in these final review results total adverse

facts available to both LG and G5.

G5

For purposes of the preliminary results, the Department concluded

that, because G5 failed to respond to the Department's questionnaire, a

determination based on total adverse FA was warranted for this company.

We, accordingly, assigned an adverse FA rate and articulated detailed

reasons for our decision in Dynamic Random Access Memory Semiconductors

of One Megabit or Above From the Republic of Korea: Preliminary Results

of Antidumping Duty Administrative Review and Notice of Intent Not To

Revoke Order in Part, 64 FR 30481 (June 8, 1999) (``Preliminary

Results'').

For the final results, no interested party comments were submitted

regarding this issue and we continue to find that G5's failure to

respond to the Department's questionnaire in this review demonstrates

that it failed to cooperate by not acting to the best of its ability.

Thus, consistent with the Department's practice in cases where a

respondent fails to respond to the Department's questionnaire, in

selecting FA for G5 in this review, an adverse inference is warranted.

Therefore, we are assigning G5 an adverse FA rate of 10.44 percent, the

rate calculated for Hyundai in this review and the highest margin from

any segment of the proceeding related to DRAMS from Korea.

LG

Based on information obtained from Customs, the Department

preliminarily determined, as it had in the prior review, that numerous

sales which LG had reported as third-country sales, were in fact sales

to the United States. See Preliminary Results. For the final results,

we have considered interested party comments (see the Department

Position to LG Comment 1) and continue to find that sales which LG had

reported as third-country sales, were in fact sales to the United

States. See Memorandum for Holly A. Kuga, from John Conniff regarding

Dynamic Random Access Memory Semiconductors of One Megabit and Above

(DRAMs) from the Republic of Korea--LG Sales through Mexico, December

3, 1999.

Similarly, on January 4, 1999, the Department received an e-mail

from a former LG employee stating that LG was shipping subject

merchandise from Korea to the United States through a customer in

Europe and these shipments were being made with the knowledge and

support of LG's senior management.

[[Page 69696]]

At verification, LG submitted information related to these sales

which had been made by its German subsidiary, LG Germany (``LGSG'').

Subsequently, the Department queried Customs to determine if any of the

sales by LGSG to the European customer in question had entered the

United States. Customs data revealed entries covering Korean DRAMs

imports into the United States by the European customer's affiliate in

the United States. The quantities and values of DRAMs shown in the

entries were substantially identical to the quantities and values of

DRAMs reflected on the invoices between LGSG and the European customer

in question. Documentation from randomly selected sample entries

covering transactions between the European customer and its U.S.

operation confirm that the DRAMs in question were manufactured in Korea

by LG.

In August 1999, information was provided to the Department by a

former LG employee familiar with and responsible for worldwide sales to

the customer in question during the period of review (``POR''). He

stated that at the time that he sold DRAMs to the customer in question

in Europe, he had knowledge the DRAMS were ultimately destined for the

customer's operation in the United States. See Memorandum for Holly A.

Kuga, from John Conniff regarding Dynamic Random Access Memory

Semiconductors of One Megabit and Above (DRAMs) from the Republic of

Korea--LG Sales Through Germany, December 6, 1999 (``LG Sales Through

Germany Memo'').

On September 13, 1999, LG was provided with information collected

by the Department related to this matter and on September 22, 1999, LG

was provided an opportunity to submit factual information and comments

concerning this issue. See Letter from the Department to Michael House,

Esq. regarding Dynamic Random Access Memory Semiconductors of One

Megabit (DRAMs) from the Republic of Korea, September 22, 1999

(``September 22, 1999, letter''). On October 7, 1999, LG submitted

factual information and on October 21, 1999, and October 28, 1999, LG

also presented comments and arguments on this matter in its case briefs

and rebuttal briefs.

Based on the record evidence the Department concluded that LG knew

at the time it sold the subject DRAMS, that the merchandise was

destined for consumption in the United States. See LG Sales Through

Germany Memo. As LG did not report these sales, in accordance with

section 782(d) of the Act, the Department provided LG with the

opportunity to explain its deficiencies with respect to unreported U.S.

sales. See September 22, 1999, letter. However, LG failed to correct

these deficiencies. Thus, the Department is required, under section

782(d) to apply, subject to section 782(d) of the Act, FA.

We further determine that LG failed to satisfy several of the

requirements enunciated by 782(e) of the Act. First, LG failed to

report a significant portion of the company's U.S. sales data. Second,

because the unreported sales are significant, LG's U.S. sales data is

so incomplete that it cannot serve as a reliable basis for reaching the

applicable determination pursuant to subsection (e)(3). Third, LG did

not demonstrate that it acted to the best of its ability in providing

the necessary information under subsection (e)(4). Fourth, given the

incompleteness of LG's responses, the information could not be used

without undue difficulties, as required by subsection (e)(5). We thus

find that LG did not act to the best of its ability to comply with the

request for information under section 776(b) and that, under section

776(b), an adverse inference is warranted. Therefore, we are assigning

LG an adverse FA rate of 10.44 percent, the rate calculated for Hyundai

in this review, which is the highest margin from any of the proceedings

related to DRAMS from Korea.

Duty Absorption

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

determine whether antidumping duties had been absorbed during the POR.

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

to determine during an administrative review initiated two or four

years after the publication of the order, whether antidumping duties

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

merchandise is sold in the United States through an affiliated

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

through importers that are affiliated within the meaning of sections

751(a)(4) and 771(33) of the Act.

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

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

Department will conduct duty absorption reviews, if requested, for

administrative reviews initiated in 1996 or 1998. Because the order

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

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

determination in this segment of the proceeding.

On January 26, 1999, the Department requested evidence that

unaffiliated purchasers will ultimately pay the antidumping duties to

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

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

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

unaffiliated purchaser in the United States will ultimately pay the

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

absorbed by the producer or exporter during the POR. For further

discussion, see DOC position to general comment 5.

Fair Value Comparisons

Unless otherwise noted, to determine whether sales of subject

merchandise from Korea to the United States were made at less than fair

value, we compared the Constructed Export Price (``CEP'') to the NV, as

described in the ``Constructed Export Price'' and ``Normal Value''

sections of the preliminary results of review notice. See Dynamic

Random Access Memory Semiconductors (``DRAMs'') of One Megabit or Above

from the Republic of Korea, 64 FR 40481, (June 8, 1999) (``Preliminary

Results'').

Interested Party Comments

General Comments

Comment 1: Deferral of Research and Development (``R&D'') Expenses.

Hyundai and LG argue that the Department erred in rejecting their

accounting methodology for the amortization and deferral of R&D

expenses. Hyundai and LG, citing to Micron Technology v. United States,

893 F. Supp. 21, 28 (U.S. Court of International Trade (``CIT'') 1995)

(``Micron I''), The Thai Pineapple Public Co., Ltd. v. United States,

187 F.3d 1362, 1366 (Fed. Cir. 1999), NTN Bearing Corp. v. United

States, 17 CIT 713, 826 F. Supp. 1435, 1441 (1993), Ipsco, Inc. v.

United States, 12 CIT 384, 687 F. Supp. 633, 636 & n.3 (1988), Color

Television Receivers from Korea, 53 FR 24975, 24982 (July 1, 1988)

(``CTVs from Korea''), and Gilbert B. Kaplan, Marie Parker, et. al.,

Cost Analysis Under the Antidumping Law, 21 George Wash. J. Int'l L. &

Econ. 357, 373-74 (1988), contend that the accounting methodology at

issue is in conformity with Article 70.5 of Korean generally accepted

accounting principles (``GAAP''), and under section 773(f)(1)(A) of the

Act, the Department must accept this methodology unless it finds that

the reported costs are distortive. Hyundai contends that the Act's

preference for the exporting

[[Page 69697]]

country GAAP reflects Article 2.2.1.1 of the WTO Antidumping Agreement,

and that the Department has followed such a preference in numerous

cases, including Steel Wire Rod from Canada, 63 FR 9182 (February 28,

1998), Collated Roofing Nails from Korea, 62 FR 51420, 51423 (October

1, 1997); Ferrosilicon from Brazil, 62 FR 43504, 43511 (August 14,

1997); Polyethylene Terephthalate Film, Sheet, and Strip from the

Republic of Korea, 61 FR 35177, 35179 (July 5, 1996); Certain

Corrosion-Resistant Carbon Steel Flat Products from Korea, 61 FR 18547,

18568 (April 26, 1996); and Industrial Nitrocellulose from France, 48

FR 21615, 21617 (May 13, 1983).

Hyundai and LG further contend that there is no basis for finding

that Hyundai's reported R&D costs are distortive. Hyundai and LG state

that in Micron I, 893 F. Supp. at 29, the CIT specifically held that,

for the DRAM industry, the amortization of R&D expenses, as allowed by

Korean GAAP, is not distortive, and that the three to five-year

amortization period allowed by Korean GAAP was more reasonable than the

Department's expensing methodology. LG states that the Court's logic in

Micron I applies to LG's deferral of certain R&D expenses until the

related projects achieve commercial realization, as this methodology

allows R&D costs to be allocated over the commercial life of the

product. Hyundai also states that, in DRAMs from Korea, 61 FR 20216,

20219 (May 6, 1996) (``Final Results 1996''), the first administrative

review of this proceeding, the Department complied with this ruling in

its treatment of LG's R&D expenses.

Hyundai points out that, in CTVs from Korea, 53 FR at 24982,

Certain Welded Stainless Steel Pipe from the Republic of Korea, 57 FR

53693 (November 12, 1992) (``Pipe from Korea''), and Polyethylene

Terephthalate Film, Sheet, and Strip from the Republic of Korea, 56 FR

16305 (April 22, 1991) (``PET Film from Korea''), the Department

explicitly allowed the amortization of R&D expenses pursuant to Korean

GAAP. Hyundai maintains that amortizing R&D expenses is just as

appropriate in the present case as it was in those cases.

Hyundai also maintains that the Department, in Steel Wire Rod from

Canada, 63 FR 9182, 9187 (February 24, 1998), recognized that it is not

distortive for a company to defer expenses that will benefit future

operations. Hyundai states that, in much the same manner, it is

reasonable for Hyundai to spread R&D costs over future periods because

Hyundai's R&D expenses for the development of new generations of

products will benefit future periods by providing sales revenues for

improved products.

Hyundai further argues that the amortization and deferral of R&D

expenses under Korean GAAP conforms to the principles of International

Accounting Standard (``IAS'') No. 9, which is intended to match costs

with products that benefit from those expenditures, and not, as the

Department suggests, to ``alleviate losses listed on a company's

financial statement.'' Hyundai states that the Department explicitly

endorsed IAS No. 9 as the basis for amortizing R&D expenses for

products, including semiconductors, in Erasable Programmable Read Only

Memories (EPROMs) from Japan, 51 FR 39680, 39682 (October 30, 1986),

and Cellular Mobile Telephones and Subassemblies from Japan, 50 FR

45447, 45453 (October 31, 1985) (``Cell Phones from Japan''), and did

not rely upon U.S. GAAP to reject amortization of R&D until it issued

its decision (which was subsequently overturned by the CIT) in Dynamic

Random Access Memory Semiconductors of One Megabit and Above from

Korea, 58 FR 15467, 15472 (March 23, 1993) (``Final Determination'').

Hyundai also notes that the principles of IAS No. 9 are recognized in

Canadian and British accounting standards.

Hyundai contends that, in view of its ``virtual isolation,'' the

treatment of R&D under U.S. GAAP should not be automatically accepted

as the standard for determining whether costs are distorted under

section 773(f)(1)(A) of the Act. Hyundai notes that U.S. GAAP requires

the expensing of R&D expenditures because of the ``presumed'' absence

of a relationship between R&D expenditures and subsequent benefits,

whereas Hyundai's own experience demonstrates the direct link between

R&D expenditures and the revenues derived from the sale of later

generations of DRAMs. Hyundai also notes that the U.S. practice of

expensing R&D in Financial Accounting Standards Board (``FASB'')

Standard No. 2 has been criticized by accounting experts, such as

Baruch Lev and Theodore Sougiannis in ``The Capitalization,

Amortization, and Value-Relevance of R&D,'' 21 Journal of Accounting &

Economics, 107, 134 (1996), and is under review by the FASB. Hyundai

states that the FASB has proposed to abandon the U.S. GAAP requirement

for expensing in-process R&D acquired in a corporate acquisition in the

year of acquisition, and require the amortization of such R&D. Hyundai

maintains that although the FASB subsequently tabled this proposal, the

FASB has plans to eventually consider the treatment of all R&D, and the

Department cannot use a standard with such an uncertain future to judge

the validity of Korean GAAP.

Hyundai also argues that its method of recognizing R&D is

consistent with both accounting theory and the SAA. Hyundai notes that

Eiden Hendricksen, in Accounting Theory, (Irwin 1992), at 650, endorses

the matching of R&D expenses with ``the period benefitted,'' and the

SAA, at 835, specifically condones allocating R&D costs over current

and future production in order to match the expenditures with the

production that benefits from the expenditures. Hyundai contends that

its R&D methodology is particularly appropriate for the semiconductor

industry in general, and Hyundai in particular. Hyundai states that the

nature of its R&D activities, its emphasis on development of specific

products, and the steady flow of next generation products, contrary to

the rationale of FASB No. 2, produce ``direct and immediate'' benefits.

Hyundai argues that a large part of its 1997 R&D expenditures were for

products that were to be sold in 1998 and 1999, while the other part of

its R&D expenditures involves products that are expected by the

Semiconductor Industry Association to be available within the next five

years. Hyundai concludes that its treatment of R&D reasonably reflects

the cost of producing the subject merchandise.

Hyundai additionally contends that the Department improperly

rejected Hyundai's accounting treatment of R&D expenses on the grounds

that Hyundai, under the SAA at 834, had not demonstrated that it had

historically utilized such a methodology. Hyundai states that behind

this statement in the SAA is the need to justify the appropriate period

for amortizing expenses that benefit future production. Hyundai, citing

to the Micron I decision, contends that there is a history in the

Korean semiconductor industry of amortizing R&D expenses over five

years. Hyundai also adds that the SAA at 834 is directed at changes in

depreciation, and not R&D, methodology.

Hyundai further maintains that, in accordance with other standards

stated by the Department, its new R&D methodology better reflects the

actual costs incurred in producing the subject merchandise than the

prior methodology because it matches the cost of R&D with the products

that benefit from the R&D. Hyundai also

[[Page 69698]]

states that there is no risk that its R&D costs will never be reflected

in the dumping calculations. Hyundai notes that Korean GAAP provides

for the unamortized, deferred balance of R&D costs to be expensed

immediately if the possibility of realizing revenue from an R&D project

is remote. Hyundai asserts that the Department's statement that, under

this provision, Hyundai ``could potentially . . . never recognize any

of the R&D expenses'' deferred implies that Hyundai's auditors would

allow the company to violate GAAP by deferring R&D expenses

indefinitely, and ignores the fact that Hyundai stated in its

questionnaire response that it is following this requirement. Hyundai

adds that all R&D costs that were incurred in prior years have already

been captured by the Department in the cost calculations of this review

and prior reviews, and all current R&D expenditures will be captured in

this review and subsequent reviews.

LG contends that the Department's decision at issue is also

inconsistent with the CIT's decision after remand in Micron Technology

v. United States, Slip Op. 99-51 (June 16, 1996) (``Micron II''). LG,

citing to Micron II, Slip Op. 99-51 at 5, states that Court found that

the Department's concern over costs that would never be included in any

review was a ``red herring,'' and that such concerns in the present

case are similarly misplaced, as the R&D costs that are deferred and

amortized in this review period will be captured in subsequent periods.

LG also states that the Court, in the same decision, found that the

Department's concern that LG would change its accounting procedures to

achieve favorable antidumping treatment made ``little, if any, business

sense'' (see Id. at 6), and in this review, the Department has even

acknowledged that LG did not change its R&D accounting method for

antidumping purposes.

LG also states that, since it changed its accounting methodology

for R&D expenses in the normal course of business, it must show only,

as in PET Film from Korea, 56 FR at 16312-13, that its methodology is

not distortive, and does not have to justify its change in methodology.

In this regard, LG points out that the CIT ruled in Micron I that

amortization of DRAM R&D costs is not distortive, and is more

reasonable than expensing R&D costs in the year incurred.

LG further states that its R&D expense is lower in 1997, as noted

by the Department, purely as a result of the transition in

methodologies from expensing to amortizing, since in the transition

year there are no prior years' R&D expenses subject to amortization. LG

notes that all prior years' R&D expenses have already been included by

the Department in prior review periods, and argues that the CIT, in the

Micron II decision, ruled that the Department may not penalize LG for

changing accounting methodologies in the normal course of business. LG

states that, under the Department's reasoning, a company would never be

able to change from expensing any cost to amortizing that cost, because

the cost in a transition year would always be reduced from prior years

as a result of the transition.

LG also points out that the Department's concerns about its

complete deferral of certain R&D expenses are misplaced. LG states that

all of the deferred R&D projects are those of which there was no

current production, and no related revenue. LG also asserts that the

Department's position that R&D related to these future generation

projects' benefits current production is not supported by the record.

Micron contends that the Department correctly rejected Hyundai and

LG's accounting method for R&D expenses as distortive of costs, and

issued a legally sound determination on this issue. Micron, citing to

the SAA at 834, Certain Small Business Telephone Systems and

Subassemblies Thereof From Korea, 54 FR 53141, 53149 (December 27,

1989), Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat

Products From Korea, 64 FR 12927, 12944 (March 16, 1999), and Foam

Extruded PVC and Polystyrene Framing Stock From the United Kingdom, 61

FR 51411, 51418 (October 2, 1996), states that the issue is not whether

the Department has allowed R&D to be expensed or amortized in other

cases, but whether a company's own records, even when kept in

accordance with local GAAP, distort costs. Micron, citing to the SAA at

834, Mechanical Transfer Presses From Japan, 55 FR 335 (January 4,

1990), and Static Random Access Memory Semiconductors From Taiwan, 63

FR 8909, 8921-22 (February 23, 1998) (``SRAMs from Taiwan''), further

states that the Department determines whether costs are distortive by

looking to U.S. GAAP for the industry in question, and the Department,

in the instant case, fully explained how the respondents' accounting

for R&D was distortive under U.S. GAAP.

Micron maintains that the Court, in Micron I, 893 F. Supp. at 29,

did not rule as a matter of law either that the Department must

amortize R&D costs, or that Korean GAAP reasonably reflects R&D costs;

rather, Micron points out that the Court ruled that Department had

failed to articulate a reasoned analysis in support of its decision to

expense R&D. Micron also states that the respondents' claim that they

amortize R&D over the period of the DRAM ``life cycle'' noted by the

Court in Micron I in order to correspond to the life cycle of their

products is a ``post-hoc rationalization'' that is not supported by

documents prepared by the respondents in the normal course of business.

Micron adds that Korean GAAP does not specifically relate the

amortization period to the life cycle of the product, and notes that a

company could be conducting R&D on a product with a much shorter life

cycle than DRAMs, amortize the costs over five years, and still be

within Korean GAAP. Micron also notes, that, in any case, FASB No. 2

clearly states there is no direct relationship between R&D expenditures

and future benefits.

Micron further distinguishes the present case from Micron I. First,

Micron maintains that, unlike the situation in Micron I, the

respondents, in addition to amortization, adopted a new, ``inherently

uncertain'' accounting approach to R&D by completely deferring R&D

costs until they ``arbitrarily foresee any possibility of realizing

revenue.'' Micron also notes that the Department fully explained how

this approach affected the respondent's reported costs. Second, Micron

argues that, unlike the situation in Micron I, the respondents have

repeatedly changed their accounting methodologies for R&D throughout

the course of this proceeding, and distorted costs, in order to affect

their apparent profitability. In specific regards to Hyundai, Micron

states that Hyundai offered no substantive reason for this accounting

change, and simply changed its methodology without any change in the

nature of its R&D. Third, in Micron I, because the history of the

respondent's accounting changes was not before the Court, the Court had

no basis to consider, as it would now, the respondent's inability to

show that they have ``historically utilized'' such allocations, as

required by the SAA at 834.

Micron disagrees with LG that the Department's treatment of LG's

R&D expenses conflicts with the Micron II decision. Micron states that

this decision is irrelevant to LG's situation because it only concerned

R&D that was previously incurred but not expensed, and prior to this

review period, LG had no such R&D expenses.

Micron further argues, notwithstanding the issue of whether the

Department, under the Act, should

[[Page 69699]]

defer to international accounting standards over U.S. GAAP when the two

standards differ, that the international standards Hyundai discusses

are not inconsistent with the Department's analysis. Micron states that

both U.S. GAAP, under FASB No. 2, and international standards, under

IAS 9, both recognize that R&D expenses, in at least some instances,

cannot be matched to revenues because the benefits of R&D cannot be

discerned at the time the costs are incurred. In relating this

guideline to Hyundai and LG, Micron states that neither respondent

demonstrated during 1996 and 1997 that they could have associated

future revenues and current revenue with any reasonable certainty,

especially in light of the downturn in the DRAM market and the economic

crisis in South Korea at that time. Micron further generally states

that R&D may benefit future generations, but at the time that R&D is

incurred, one cannot tell when or whether R&D will produce a

commercially successful result; and amortizing R&D expense over a

number of years is a ``self-serving guess.''

DOC Position: Section 773(f)(1)(A) of the Act, directs to the

Department to rely ``on the records of the exporter or producer of the

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

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

reasonably reflect the costs associated with production and sale of the

merchandise.'' Section 773(f)(1)(A) of the Act also states that the

Department will consider whether ``such allocations have been

historically used by the exporter or the producer.'' Further, as

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

demonstrate that it has historically utilized such allocations,

particularly with regard to the establishment of appropriate

amortization and depreciation periods and allowances for capital

expenditures and other development costs.'' See SAA at 834. See also

Final Results 1998, 63 FR at 50871.

We agree with Hyundai and LG that their method of amortizing and

deferring R&D costs is permissible with Korean GAAP, and that their

previous method of expensing all current period R&D expenses in the

year incurred is also in accordance with Korean GAAP. However,

Hyundai's and LG's practice of continually changing between these

methods distorts the cost calculation in an antidumping analysis. As

explained in the Department's Memorandum on ``Whether to Accept the

Reported Research & Development Expenses of Hyundai Electronics

Industries Co., Ltd. and LG Semicon, Ltd.,'' dated June 1, 1999 (``R&D

Memo''), Hyundai and LG have repeatedly changed their accounting method

for R&D expenses throughout the course of these proceedings (i.e., from

capitalizing and amortizing, to expensing in the year incurred, and now

back to capitalizing and amortizing) and are now deferring certain R&D

expenses indefinitely. See R&D Memo at 2. As a result, the respondents

recognize, in relation to amounts that would be recognized if either

method was constantly applied, aberrationally high amounts of R&D

expense in some years, and aberrationally low amounts of R&D expense in

other years, that do not reasonably reflect the costs of producing the

subject merchandise. For example, in the first administrative review of

this proceeding, LG changed its method for recognizing R&D expenses

from capitalizing and amortizing R&D expenses over five years to

expensing in full in the current year. See DRAMs from Korea, 61 FR

20216, 20219 (May 6, 1996) (``Final Results 1996'') and Micron II, Slip

Op. 99-551. In that year, LG recognized, in addition to its current

year R&D expense, R&D expenses from its balance sheet which it had

capitalized in prior years (as part of its capitalizing and amortizing

methodology) and not yet amortized and recognized on its income

statement. Consequently, in that year, LG recognized the full amount of

R&D expenses incurred in that current year (under its expensing

methodology) as well as all of the previously unamortized and

unrecognized amounts of R&D expenses remaining on its balance sheet

from prior years. LG thus recognized in that year significantly higher

than normal amounts of R&D expenses than it would have under the

consistent application of either methodology.

In the current review period, Hyundai and LG have changed their

accounting methodology for R&D expenses once again, this time back to

capitalizing and amortizing their R&D expenses over five years. As a

result, the respondents recognize (and have reported to the Department)

less than one-fifth of their current year's R&D costs. With the

adoption of this new methodology, the respondents next year will

recognize approximately one-fifth of that year's R&D expense and

approximately one-fifth from the current review period, and will not

recognize the equivalent of a full year's R&D expense until at least

the fifth year. Thus, because of inconsistent accounting treatment, the

respondents are recognizing an aberrationally low amount of R&D

expenses.

A second methodology that further distorts Hyundai's and LG's

reported costs is their new practice of indefinitely capitalizing

certain R&D costs. Apart from R&D costs that are amortized over five

years, Hyundai and LG are now completely deferring R&D costs for

certain long-term projects until they realize revenues from these

projects, or until they foresee no possibility of realizing revenue

from these projects. While in prior years, the respondents recognized

all of this type of R&D expense in the year incurred, under the new

methodology, none of this R&D expense is recognized in the current

year. Moreover, this methodology is contrary to the principle of

conservatism in accounting where an expense is recognized when incurred

if the probability of associated revenue is remote or uncertain.

Therefore, we find that, for dumping purposes, this methodology does

not reasonably reflect the cost of producing the subject merchandise.

Hyundai and LG, by continually changing their R&D accounting

methodologies, are manipulating the magnitude of the R&D expenses that

they are recognizing, and reporting to the Department. This switching

of methodologies can lead to distortions for antidumping purposes

because the fluctuating costs tend to overstate per unit amounts in one

period and understate these amounts in other periods. The CIT has noted

the distortion that such changes in R&D accounting methodologies can

cause. In Micron II (which relates to the first review of this

proceeding, when LG switched from amortizing to expensing R&D costs

currently), the Court ruled that it was distortive for the Department

to include in its calculations, as LG included in its own books and

records, both the current year's R&D expenses and the unamortized

amount of prior years R&D expenses. See Micron II, Slip Op. 99-551. In

the same manner that the CIT believes that the amount of R&D expenses

that LG recognized, and the Department included in its calculations in

the first review (i.e., one full current year amount, plus prior

capitalized amounts), was overstated, the amount of R&D expenses that

Hyundai and LG recognized in the current review (i.e., less than one-

fifth of one year's R&D expense) is understated.

The Court, in Micron II, specifically stated that ``the object of

the cost of production exercise is*** to capture***those expenses that

reasonably and accurately reflect a respondent's actual production

costs for

[[Page 69700]]

a period of review.'' Micron II, Slip Op. 99-551, at 6. However, by

abruptly switching to amortizing and deferring R&D expenses, Hyundai

and LG are not capturing those expenses that reasonably and accurately

reflect their actual R&D costs for this POR. As a result of their

constantly changing of R&D methodologies, their latest method of

capitalization of R&D produces a distorted and meaningless (for the

cost of production exercise) result that does not reasonably reflect

the actual cost of producing the subject merchandise.

We have therefore determined that is appropriate to recognize for

antidumping purposes all of Hyundai's and LG's 1997 R&D expenses in

order to reasonably and accurately reflect their actual R&D costs for a

given year. The Department also believes that, in general, recognizing

the current year's R&D expenses is a reasonable method to recognize R&D

expenses. This methodology is consistent with both Korean and U.S.

GAAP, and is the same methodology that Hyundai and LG have been

following for the past several years.

Moreover, as Hyundai recognizes, the Department's practice is to

consider, among other factors, international accounting standards for

determining the reasonableness of a cost accounting methodology. While

IAS No. 9 principally provides for the amortization of R&D expenses,

IAS No. 9 also states that costs should be recognized as an expense on

a systematic basis, which directly contradicts Hyundai's and LG's

practice of continually changing how they recognize R&D expenses.

We disagree with Hyundai that the SAA at 835 (on non-recurring

costs) specifically supports Hyundai's argument that SAA prefers the

amortization of R&D expenses. The SAA at 835 states that Commerce

associates expenditures with all production benefitting from the

expenditure, and gives R&D costs as an example of an expenditure that

Commerce may allocate over current and future production. In some

limited instances, consistent with the SAA at 835, it may be

appropriate to allocate certain R&D costs for items that have

alternative future uses (and benefits) over future production. The

Department, in specific reference to the section of the SAA at issue,

stated in the preamble to its final regulations that ``the allocation

of nonrecurring costs, such as R&D costs, for purposes of computing COP

and CV is dependent on case-specific factors.'' Antidumping Duties;

Countervailing Duties; Final Rule, 62 FR 27296, 27362 (May 19, 1997)

(``Final Rule''). Moreover, in its proposed rules, the Department, also

in reference to the SAA at 835, specifically stated that:

* * *there is no guarantee that * * * [R&D] * * * costs, if incurred

to develop a new product or production process, would hold any

future benefit to a company. To the contrary, after many months of

costly research, a manufacturer could find its new product

technologically useless due to the efforts of its competitors. In

that case, the amounts incurred for R&D would not benefit the

producer in terms of future product sales. Under these

circumstances, the R&D expenditures must be recognized as a expense

in the year incurred rather than amortized to some future periods.

See Antidumping Duties; Countervailing Duties; Notice of Proposed Rule

Making and Request for Public Comments, 61 FR 7308, 7342 (February 27,

1996) (``Proposed Rule'') (emphasis added).

We also disagree with Hyundai that it has demonstrated, pursuant to

the SAA, that it has historically utilized its new R&D accounting

methodologies. While both Hyundai and LG previously amortized R&D, they

have not done so consistently, and for the last several years have been

expensing R&D currently. See Final Results 1996, DRAMs from Korea, 62

FR 965 (January 7, 1997) (``Final Results 1997 (I)'') (final results of

second review), DRAMs from Korea, 62 FR 39809 (July 24, 1997) (``Final

Results 1997 (II)'') (final results of third review), and Final Results

1998. Moreover, there is no evidence on the record that LG or Hyundai

(prior to 1996) ever completely deferred R&D expenses. Additionally,

the SAA at 834 is not, as Hyundai claims, directed at changes in

depreciation, but only discusses depreciation as an example of how a

company's records might not fairly allocate costs.

We disagree with both Hyundai and LG that the Department's decision

to reject their R&D accounting methodologies is contrary to the Micron

I decision. First, in Micron I, the Court ruled that the Department

``failed to articulate a reasoned analysis justifying the departure

from its established practice of amortizing those R&D expenses.'' See

Micron I at 28. In contrast, in the present case, the Department has

specifically articulated how amortizing and deferring R&D expenses is

distortive. Second, the Department's methodology of expensing R&D is no

longer a ``departure from its established practice.'' The Department's

established practice is to expense semiconductor R&D currently. While

the Department, prior to the Final Determination, in the cases cited by

Hyundai and LG (i.e., CTVs from Korea, Pipe from Korea, and PET Film

from Korea), allowed respondents to amortize R&D, the Department, for

at least the last six years, and throughout the course of this

proceeding, has constantly required that respondents recognize R&D

expenses currently. See, e.g., Final Determination, 58 FR at 15472

(Department rejected amortization of R&D), Final Results 1996, Final

Results 1997 (I), Final Results 1997 (II), and Final Results 1998

(Department accepted expensing of R&D currently). See also SRAMs from

Korea, 63 FR 8934 (February 23, 1998) and SRAMs from Taiwan (Department

accepted expensing of R&D currently) and Dynamic Random Access Memory

Semiconductors of One Megabit or Above from Taiwan, 64 FR 56308, 56319

(October 19, 1999) (Department agreed that ``R&D costs should be

expensed as incurred''). Third, the substance of the issues in Micron I

and the present case are different. The Micron I decision concerned

only the respondents' amortization of R&D expenses, while the present

case also involves the respondents' practice of continually changing

how they recognize R&D expenses.

Hyundai's citation to Steel Wire Rod from Canada also is misplaced.

Steel Wire Rod from Canada, 63 FR at 9187, concerned the amortization

of certain costs relating to a furnace conversion, and not the

amortization and deferral of R&D costs, as in the present case.

We disagree with LG that the Department would never allow a company

to change from expensing any cost to amortizing that cost because of

the reduced cost recognized in the transition year. The Department

evaluates any such change on a case by case basis. In the present case,

as explained above, we found that the reduced R&D cost recognized by

Hyundai and LG through the amortization and deferral of their R&D

expenses, and resulting allocation of R&D expenses to merchandise, does

not reasonably reflect the cost of producing the subject merchandise.

Comment 2: Cross-Fertilization of R&D. Hyundai and LG argue that

the Department erred in including the cost of R&D performed for non-

memory and non-DRAM semiconductor products, respectively, in the cost

of their DRAMs. Hyundai, citing section 773(e) of the Act, and LG,

citing section 773(f)(1)(A) of the Act, argue that this decision

violates the statutory requirements under the Act that Commerce

calculates constructed value (``CV'') based on the production and

general expenses related to the subject merchandise only. Hyundai,

citing High-Tenacity Rayon Filament Yarn from Germany, 60 FR

[[Page 69701]]

15897, 15899 (March 28, 1995), Large Power Transformers from Japan, 57

FR 45767, 45768 (October 5, 1992), Sweaters Wholly or in Chief Weight

of Man-Made Fiber from the Republic of Korea, 55 FR 32659, 32671

(August 10, 1990), Antifriction Bearings (Other Than Tapered Roller

Bearings) and Parts Thereof from France, et al., 61 FR 66472, 66491

(December 17, 1996)), Oil Country Tubular Goods from Argentina, 60 FR

33539, 33549 (June 28, 1995), High Information Content Flat Panel

Displays and Display Glass Therefor from Japan, 56 FR 32376, 32386

(July 16, 1991), and Certain Small Business Telephone Systems and

Subassemblies Thereof from Taiwan, 54 FR 42543, 42548 (October 17,

1989); and LG, additionally citing Lightweight Polyester Filament

Fabrics from Korea, 48 FR 49,679, 49,681 (Oct. 27, 1983), Shop Towels

from Bangladesh, 57 FR 3996, 3998-99 (Feb. 3, 1992), Erasable

Programmable Read Only Memories from Japan, 51 FR 39,680, 39,685 (Oct.

30, 1986) and Nippon Pillow Block Sales Co. v. United States, 17 CIT

276, 820 F. Supp. 1444 (1993); further argue that, consistent with the

statute, the Department's long-standing practice has been to calculate

the R&D expense component of CV on the most product-specific basis

possible, and to exclude those R&D expenses that do not relate to the

production of subject merchandise. LG, citing Cost Analysis Under the

Antidumping Law, 21 George Wash. J. Int'l L. & Econ. at 389, notes that

the Department has applied this practice without distinction to

semiconductor cases, including 64K DRAMs From Japan, 51 FR 15,943,

15,948 (April 29, 1986)

Hyundai and LG add that, in Micron I, 893 F. Supp. 21, 27, the CIT

reversed the same decision to include non-subject R&D in the

investigation of this case because it was unsupported by substantial

evidence. Hyundai and LG contend that nothing has changed in this

review that would justify a different result. Hyundai and LG maintain

the Department has provided no factual support for its cross-

fertilization theory that ``the subject merchandise benefits from R&D

expenditures earmarked for non-subject merchandise.'' Hyundai and LG

also maintain that the only cross-fertilization that may occur is that,

for Hyundai, non-memory, and for LG, SRAM, semiconductor R&D may

benefit from more advanced DRAM R&D.

Hyundai and LG state the Memorandum from Dr. Murzy Jhabvala to U.S.

Department of Commerce/Office of Antidumping Compliance regarding

Cross-Fertilization of R&D of Semiconductor Memory Devices (``September

1997 Jhabvala Memo''), on file in the CRU, provides no substantial

evidence to justify the Department's decision. Hyundai and LG contend

that the September 1997 Jhabvala Memo is general and conclusory, and

argue that the September 1997 Jhabvala Memo provides no evidence

specific to their R&D and operations. Hyundai specifically states that

its R&D for non-memory devices in its System IC Laboratory does not

benefit memory devices because of the fundamental differences in

function, design, and production between non-memory and memory

products. LG specifically argues that it demonstrated to the Department

at verification that its DRAM production operations do not derive any

benefit from the R&D conducted for other products. LG also argues that

Mr. Jhabvala's qualifications as set forth in his letter do not reveal

any experience in DRAM R&D and production, and that other letters by

actual experts on the record contradict his opinion.

Micron argues that the Department properly accounted for the cross-

fertilization of semiconductor R&D. Micron, citing to Final Results

1996, 61 FR at 20217-18, Final Results 1997 (2), 62 FR at 967, Final

Results 1997 (3), 63 FR at 39823, Final Results 1998, 63 FR at 50870,

SRAMs from Korea, 63 FR at 8938, SRAMs from Taiwan, 63 FR at 8925, and

DRAMs from Taiwan, 64 FR at 56319, states that the Department has found

that semiconductor industry R&D has a significant ``cross-fertilizing''

effect for R&D relating to all semiconductor products. Micron further

argues that all of the respondents' arguments, including those relating

to the Micron I decision, were rejected previously by the Department in

Final Results 1998 and SRAMs from Korea.

Micron also states that the September 1997 Jhabvala Memo, and

information that Micron placed on the record, support the Department's

finding on this matter. Micron also notes that the respondents have not

included in their case briefs any direct citations to any expert

opinion to support their arguments since the record evidence supports

the Department's position.

Micron contends that the Department has not departed from its

practice, or its statutory obligations, in this issue. Rather, as the

Department explained in SRAMs from Korea, 63 FR at 8940, the cost

calculations in the present review are product-specific. Micron further

points out that Hyundai, by proposing to allocate R&D on broad product

lines, memory and non-memory, has acknowledged that its R&D expenses

cannot be allocated on a model-specific or subject merchandise-specific

basis. Moreover, Micron notes that the Department stated in Final

Results 1998, 63 FR at 50870, that it is not bound by the way a company

such as Hyundai categorizes its costs.

DOC Position: We disagree with Hyundai and LG and have allocated

all semiconductor R&D expenses over the total semiconductor cost of

goods sold. This allocation methodology is fully consistent with the

antidumping statute and the R&D calculations we have used throughout

the Korean and Taiwan DRAMs and SRAMs proceedings.

In SRAMs from Korea, we noted that, as a result of the forward-

looking nature of R&D activities, we could not predict every instance

where SRAM R&D may influence logic products or where logic R&D may

influence SRAM products. As a result, we requested that Dr. Murzy

Jhabvala, a semiconductor device engineer at the National Aeronautics

and Space Administration with twenty-four years of experience, state

his views regarding any potential overlap or cross-fertilization of R&D

efforts in the semiconductor industry. In fact, Dr. Jhabvala had

identified in another semiconductor proceeding before the Department

areas where R&D from one type of semiconductor product influenced

another semiconductor product. These statements, including the

September 1997 Jhabvala Memo, are on the record of this review. In a

statement prepared for the SRAMs Final Determination, Dr. Jhabvala

stated that:

SRAMs represent along with DRAMs the culmination of

semiconductor research and development. Both families of devices

have benefitted from the advances in photo lithographic techniques

to print the fine geometries (the state-of-the-art steppers)

required for the high density of transistors * * * In addition to

achieve higher access speeds bipolar (ECL or TTL) output amplifiers

are incorporated directly on chip with the CMOS SRAM memory array, a

process known as BiCMOS. Further efforts to improve speed have

resulted in the combination of the bipolar ECL technology with CMOS

technology with silicon on insulator (SOI) technology.

Clearly, three distinct areas of semiconductor technology are

converging to benefit the SRAM device performance. There are other

instances where previous technology and the efforts expended to

develop that technology occurs in the SRAM technology. Some examples

of these are the use of thin film transistors (TFTs) in SRAMs,

advanced metal interconnect systems, anisotropic etching and filling

techniques for trenching and planarization (CMP) and implant

technology for retrograde wells.

See September 8, 1997, Memorandum from Murzy Jhabvala to U.S.

Department of Commerce regarding ``Cross Fertilization of Research and

[[Page 69702]]

Development of Semiconductor Memory Devices'' (``September 1997

Jhabvala Memo'').

In SRAMs from Korea, we disagreed with Hyundai's contention that we

must follow Hyundai's normal accounting records which categorize R&D

expenses by project and product. See SRAMs from Korea, 63 FR at 8940.

We disagree with similar contentions from LG and Hyundai in this

review. As we have said in the past (see, e.g., Final Results 1998, 63

FR at 50870), we are not bound by the way a company categorizes its

costs, R&D projects, or laboratory facilities, or by the company's

accounting records that we review at verification if they do not

reasonably reflect the costs attributable to production of the subject

merchandise. Moreover, the mere fact that R&D projects for memory and

non-memory products may be run in different laboratories, the fact that

process and product research for memory and non-memory products may be

distinguished, and the fact that each of the respondents may account

for these R&D projects separately in their respective books and

records, does not address the issue of cross-fertilization in

semiconductor R&D. The existence of cross-fertilization in

semiconductor R&D is the central theme of Dr. Jhabvala's many

statements to the Department. Dr. Jhabvala offers various examples in

those statements to illustrate that, regardless of the accounting or

laboratory arrangements, the research results or developments in the

processes and technologies used in the production and development of

one semiconductor family can be (and are) used in the production and

development of other semiconductor families. Dr. Jhabvala goes so far

as to state that it would be ``unrealistic to expect researchers to

work in complete technical isolation constantly reinventing technology

that might already exist.'' See September 1997 Jhabvala Memo. Hyundai,

in contrast to LG, does not contest the Department's position that all

R&D for memory semiconductor projects, including SRAMs, benefits DRAMs.

Given these facts, we do not believe that the reported expenses for

DRAM R&D projects reasonably reflect the appropriate cost of producing

the subject merchandise. As a result, we have continued to allocate all

semiconductor R&D expenses over the total semiconductor cost of goods

sold, a methodology which does not overstate costs, but which we

believe reasonably and accurately identifies the R&D expenses

attributable to subject merchandise. 1

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

\1\ In SRAMs from Korea, 63 FR at 8940, and SRAMs from Taiwan,

63 FR at 8925, we also disagreed with those same expert opinions

regarding semiconductor R&D that LG submitted in this review, and

for the reasons stated above, continue to disagree with those

opinions.

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

This methodology is not a change in the Department's approach to

this issue. It is the Department's long-standing practice where costs

benefit more than one product to allocate those costs to all the

products which they benefit. See, e.g., SRAMs from Korea, 63 FR at

8940. This methodology results in the calculation of product-specific

costs consistent with sections 773(e) and 773(f)(1)(A) of the Act

because we have determined that DRAM-specific R&D account entries do

not by themselves reflect all costs associated with the production and

sale of subject merchandise.

Comment 3: Level of Trade (``LOT'')/CEP Offset. Micron argues that

in two recent decisions the CIT held that the Department must perform

its LOT analysis based on unadjusted starting prices both for the U.S.

sales used to calculate CEP as well as the home market sales used to

calculate NV. See Borden, Inc. v. United States, 22 CIT __, 4 F. Supp.

2d 1221 (1998); Micron Technology, Inc. v. United States, 23 CIT __, 40

F. Supp. 2d 481, 485-86 (1999). In the Preliminary Results, the

Department failed to do this, and instead analyzed the LOT of the home

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

while analyzing the LOT of the U.S. 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.

Using this analysis, the Department determined, for both Hyundai

and LG, that the home market and U.S. sales were made at different

LOTs. In the absence of sales at more than one LOT in the comparison

market, the Department found it could not quantify a LOT adjustment,

and granted a CEP offset adjustment to each of the three respondents.

See id. The Department declines to follow Borden on the grounds that it

``is not a final decision.'' See Level of Trade Memorandum, dated May

27, 1999. However, as the Borden and Micron decisions both establish,

the Department's current practice is in conflict with the requirements

of the statute. When the Department conducts a corrected LOT analysis,

based on unadjusted starting prices in both the U.S. and the comparison

markets, it will find that the comparison market sales made by Hyundai

and LG were not made at a more advanced LOT than their sales in the

United States, and therefore there is no basis for granting either a

LOT adjustment or a CEP offset.

Hyundai argues that the Department has ruled that Hyundai has been

entitled to a CEP offset in each administrative review and argues that

there are no factual reasons why the Department should reverse its

long-standing practice. The Department has consistently ruled that the

LOT of CEP sales must be based on the adjusted CEP price, not on the

CEP starting price as advocated by Micron. See DRAMs from Taiwan 64 FR

at 56313 (October 19, 1999). Hyundai argues that Petitioner's reliance

on Borden is based on an incorrect interpretation of the statute. The

court in Borden stated that the adjustments to CEP must be disregarded

in defining the LOT of the CEP for purposes of the offset. However, the

adjustments authorized under section 772(b) are an integral part of the

definition of the statute and must be adhered to when determining the

adjusted CEP price for comparisons and conducting the LOT analysis.

Hyundai argues that the adoption of the court's reasoning in the Borden

case would result in an unfair and distorted price comparison that is

contrary to Congressional intent.

Hyundai argues that it has established that there is a difference

between the LOT in the home market and the CEP LOT. All of Hyundai's

U.S. sales are on a CEP basis and its home market sales are at a more

advanced stage of distribution than the CEP sales. Therefore, a CEP

offset is appropriate under the provisions of the statute.

LG asserts that the Department made a CEP offset correctly. LG also

maintains that the Department should not apply the Borden case to the

instant review. According to LG, the court held mistakenly that the

Department's adjustments to CEP starting prices (by removing certain

expenses) are inconsistent with section 773(a)(7) of the Act. LG claims

that the court believed that such adjustments distort the LOT analysis

and that this ``pre-adjustment'' creates an automatic CEP offset in

addition to any CEP offset or LOT adjustment made after a comparison of

adjusted CEP to HM price. LG contends that the Department's methodology

does not create a ``pre-adjustment'' and correctly removes from the

starting U.S. price only those expenses related to the resale

transaction between the U.S. affiliate and the unaffiliated U.S.

customer.

DOC Position: The Department agrees with Hyundai and LG. We have

[[Page 69703]]

consistently stated that the statute and the SAA support analyzing the

LOT 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 Proposed Rule, 61 FR at 7347.

Consistent with the above position, in those cases where a LOT

comparison is warranted and possible, the Department normally evaluates

the LOT 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 LOT 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

Hyundai and LG 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 LOT 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 LOT analysis, as articulated in the regulations at

section 351.412. Accordingly, consistent with the Preliminary

Determination, we will continue to analyze the LOT based on adjusted

CEP prices, rather than the starting CEP prices.

Comment 4: Exchange Rate Methodology. Hyundai and LG argue that the

Department failed to consider the rapid decline in the value of the

Korean won during the POR when it converted won to U.S. dollars. The

respondents state that, in Policy Bulletin 96-1, the Department

acknowledged the need to apply daily exchange rates in administrative

reviews as well as investigations during periods of substantial

exchange rate depreciation. The respondents further point out that in

two recent administrative reviews, Steel Wire Rope from Korea, 63 FR

67662, 67665 (December 8, 1998), (unchanged at Steel Wire Rope from the

Republic of Korea, 64 FR 17995 (April 13, 1999)) (``Steel Wire Rope

from Korea''), and Certain Cold-Rolled and Corrosion-Resistant Carbon

Steel Flat Products from Korea, 64 FR 48767, 48774 (September 8, 1999),

and several investigations, specifically Stainless Steel Sheet and

Strip in Coils from the Republic of Korea, 64 FR 30664, 30670 (June 8,

1999), Stainless Steel Round Wire from Korea, 64 FR 17342, 17343 (April

9, 1999), Stainless Steel Plate in Coils (``SSPC'') from the Republic

of Korea, 64 FR 15444, 15446 (March 31, 1999), and Emulsion Styrene-

Butadiene Rubber from the Republic of Korea, 64 FR 14865, 14867-8

(March 29, 1999) (``ESBR from Korea''), the Department applied the

modified exchange rate methodology. The respondents contend that the

same circumstances in these cases apply to this case because the POR

includes the period (at the end of 1997) when the won lost over 40

percent of its value, and there is no reason why the Department should

adopt any different treatment in this case. Hyundai specifically

maintains that the Department should use daily won-dollar exchange

rates for home market sales matched to U.S. sales occurring between

November 1 and December 31, 1997; and should also use the average of

the January 1 through February 28, 1998 exchange rate as a benchmark

for U.S. sales occurring between those dates.

Micron states that the Department properly applied its standard

exchange rate methodology in the preliminary results of the review, and

it should adhere to that standard methodology in the final results.

DOC Position: We agree with the respondents, in part. Section

773A(a) of the Act directs the Department to use a daily exchange rate

to convert foreign currencies into U.S. dollars unless the daily rate

involves a fluctuation. The Department considers a ``fluctuation'' to

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

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

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

have existed, we generally substitute the benchmark rate for the daily

rate, in accordance with established practice. (An exception to this

rule is described below.) (For an explanation of this method, see

Policy Bulletin 96-1: Currency Conversions (61 FR 9434, March 8,

1996).)

Our analysis of dollar-Korean-won exchange rates demonstrates that

the Korean won declined rapidly in November and December 1997.

Specifically, the won declined more than 40 percent over this two-month

period. The decline was, in both speed and magnitude, many times more

severe than any change in the dollar-won exchange rate during recent

years, and it did not rebound significantly in a short time. As such,

we determine that the decline in the won during November and December

1997 was of such magnitude that the dollar-won exchange rate cannot

reasonably be viewed as having simply fluctuated at that time, i.e., as

having experienced only a momentary drop in value relative to the

normal benchmark. Accordingly, the Department used actual daily

exchange rates exclusively in November and

[[Page 69704]]

December 1997. See Notice of Final Determination of Sales at Less Than

Fair Value: Stainless Steel Sheet and Strip from the Republic of Korea,

64 FR 30664, 30670 (June 8, 1999) (``SSSS from Korea'').

We note, however, that we have refined our methodology somewhat

from that applied in SSSS from Korea. We recognize that, following a

large and precipitous decline in the value of a currency, a period may

exist wherein it is unclear whether further declines are a continuation

of the large and precipitous decline or merely fluctuations. Under the

circumstances of this case, such uncertainty may have existed following

the large, precipitous drop in November and December 1997. Thus, we

devised a methodology for identifying the point following a precipitous

drop at which it is reasonable to presume that rates, more than 2.25

percent from the benchmark, were merely fluctuating. Following the

precipitous drop in November and December 1997, we continued to use

only actual daily rates until the daily rates were not more than 2.25

percent below the average of the 20 previous daily rates for five

consecutive days. At that point, we determined that the pattern of

daily rates no longer reasonably precluded the possibility that they

were merely ``fluctuating''. Using a 20-day average for this purpose

provides a reasonable indication that it is no longer necessary to

refrain from using the normal methodology, while avoiding the use of

daily rates exclusively for an excessive period of time. Accordingly,

from the first of these five days, we resumed classifying daily rates

as ``fluctuating'' or ``normal'' in accordance with our standard

practice, except that we began with a 20-day benchmark and on each

succeeding day added a daily rate to the average until the normal 40-

day average was restored as the benchmark. See Notice of Final Results

of Antidumping Duty Administrative Review: Certain Welded Carbon Steel

Pipes and Tubes from Thailand, 64 FR 56759, 56763, October 21, 1999.

See also Polyethylene Terephthalate Film, Sheet and Strip From Korea:

Final Results of Antidumping Duty Administrative Review and Notice of

Intent Not To Revoke in Part, 64 FR 62648, 62649 (November 17, 1999).

Applying this methodology in the instant case, we used daily rates

from November 3, 1997, through January 13, 1998. We then resumed the

use of our normal methodology, starting with a benchmark based on the

average of the 20 reported daily rates from January 14, 1998. We used

the normal 40-day benchmark from February 12, 1998, to the close of the

review period.

Comment 5: Duty Absorption. Hyundai contends that the finding of

duty absorption is null and void because the Department had no

authority to conduct a duty absorption inquiry in this administrative

review. Hyundai maintains that section 751(a)(4) of the Act

``explicitly limits'' duty absorption inquiries to administrative

reviews initiated 2 years or 4 years after the publication of an

antidumping duty order, and that this review was initiated on June 29,

1998, five years after publication of the antidumping duty order in

this case. Hyundai also maintains that section 351.213(j)(2) of the

Department's regulations, which provides for the Department to conduct

duty absorption inquiries for transition orders (as defined in section

751(c)(6) of the Act) in reviews initiated in 1996 or 1998, cannot

authorize the conduct of a duty absorption inquiry. Hyundai states that

this regulation is ``directly contradicted'' by section 751(a)(4) of

the Act, which makes no exception for transition orders.

Hyundai further argues that section 751(c)(6) of the Act, which

defines transition orders, only applies to section 751(c) of the Act,

which establishes procedures for the conduct of sunset reviews. Hyundai

states that section 751(c)(6) of the Act has no relationship to

administrative reviews conducted under section 751(a) of the Act, nor

to duty absorption inquiries conducted under section 751(a)(4) of the

Act.

LG argues that the Department may not lawfully presume that duties

have been absorbed by LG without record evidence to support this

conclusion. LG, citing to Extruded Rubber Thread from Malaysia, 63 FR

2752, 2757 (March 16, 1998) and Report to the House and Senate

Appropriations Committees: The Efficacy of Antidumping Measures in

Related Importer Situations (January 30, 1998), at 3, states that

Department presumes that absorption is occurring where a dumping margin

is found unless the U.S. affiliate's customers have promised in writing

to pay any antidumping duties imposed on the merchandise. LG further

states, citing to Id. at 4 and Certain Cut-to-Length Carbon Steel Plate

from Belgium, 63 FR 2959, 2963-64 (January 20, 1998), that the

Department has never found an instance of such a written agreement that

is acceptable. LG argues that it defies commercial reality to expect a

customer to agree to assume such a liability for antidumping duties,

and the Department's establishment of an ``effectively irrebuttable''

presumption that duties are being absorbed ``makes a mockery'' of the

duty absorption inquiry entrusted to the Department by Congress.

Micron argues that the Department correctly made a finding of duty

absorption for Hyundai and LG. Micron notes that both respondents

imported the subject merchandise through their affiliated U.S.

importers, and therefore, the antidumping duties assessed as a result

of this review will be paid, in the first instance, by those affiliated

importers. Micron also points out that the Department provided Hyundai

and LG with an opportunity to submit evidence that unaffiliated

purchasers will pay the antidumping duties to be assessed on entries

during the review period, and neither party submitted such evidence.

Micron maintains that, in the absence of any evidence, and in the light

of the ``commercial reality'' noted by LG under which no unaffiliated

customer would assume the liability for these assessments, the

Department can only reasonably conclude, based on record evidence, that

duties will be absorbed by Hyundai and LG.

Micron argues that since LG explicitly declined to submit any

evidence on this matter, it cannot now argue that the Department is

employing an ``inappropriately high evidentiary standard.'' Micron also

states, in reference to Hyundai's arguments, that section 751(a)(4) of

the Act does not limit the Department's authority to make a duty

absorption inquiry in the context of administrative reviews conducted

in those years not referenced by this section. Micron further argues

that, since Hyundai does not allege any harm arising out of the

Department's conduct of this inquiry, it has no standing to complain

that the Department's conduct is ultra vires.

Micron contends that the Department explained in Final Regulations,

62 FR at 27317-18, that its interpretation of section 751(a)(4) of the

Act, under section 351.213(j)(2) of the Department's regulations, is

necessary to carry out the legislative intent of the statute, i.e., to

provide the relevant information to the International Trade Commission

(``ITC'') in connection with its conduct of sunset reviews. Micron

further contends that if the Department had adopted Hyundai's

interpretation of the Act, then the Department would have had the

option of conducting a duty absorption inquiry, pursuant to Micron's

July 21, 1997 request, in the fourth review of this proceeding.

DOC Position: We agree with Micron. With regard to the time frame

in which we are conducting this review, section

[[Page 69705]]

351.213(j)(1) of our regulations, in accordance with section 751(a)(4)

of the Act, provides for the conduct, upon request, of absorption

inquiries in reviews initiated two and four years after the publication

of an antidumping duty order. With respect to transition orders, the

preamble to the proposed antidumping regulations explains that reviews

initiated in 1996 will be considered initiated in the second year, and

reviews initiated in 1998 will be considered initiated in the fourth

year. Notice of Proposed Rulemaking and Request for Public Comments, 61

FR 7308, 7317 (February 27, 1996). Because this order has been in

effect since 1993, this is a transition order in accordance with

section 751(c)(6)(C) of the Act. This being a review initiated in 1998

and a request having been made, we have made a duty absorption

determination as part of this administrative review.

We believe that Congress intended that the ITC would consider the

issue of duty absorption in all sunset reviews. In this regard, the

statutory provision requiring the consideration of duty absorption does

not distinguish between antidumping orders issued after January 1,

1995, and transition orders. See section 752(a)(1)(D) of the Act.

Moreover, in all of the legislative history, Congress explained the

implications of affirmative duty-absorption findings and clearly

contemplated that such findings would be considered in all sunset

reviews. See S. Rep.103-412 at 50 (1994). See also H. Rep. 103-826 at

60-61 (1994) (``Commerce will inform the Commission of its findings

regarding duty absorption, and the Commission will take such findings

into account in determining whether injury is likely to continue or

recur if an order were revoked''). Thus, we have made a duty absorption

determination as part of this administrative review. See Antifriction

Bearings (Other Than Tapered Roller Bearings) and Parts Thereof From

France, Germany, Italy, Japan, Romania, Sweden, and the United Kingdom:

Final Results of Antidumping Duty Administrative Reviews, 64 FR 35590,

35601 (July 1, 1999) (``AFBs'').

In considering methodologies that might be used for a duty

absorption inquiry, the Department sought to adopt one that would

comply with the statute, as well as one that would be administrable

within the time frame of a review period and still provide respondents

with a sufficient opportunity to cure any deficiencies. The method the

Department adopted accomplishes these goals. As the Department

explained in AFBs, 64 FR at 35601, the ``existence of a margin raises

an initial presumption that the respondent and its affiliated

importer(s) are absorbing the duty.'' This is a reasonable presumption

because the continued existence of dumping margins indicates that the

producer and its affiliated U.S. importer have not adjusted their

prices to eliminate dumping. If the producer has not set its price to

the first unaffiliated U.S. customer high enough to eliminate dumping

and the affiliated importer is liable for payment of the antidumping

duties, it is reasonable to presume that the producer is absorbing the

antidumping duties. The reasonableness of this presumption is also

reflected in the SAA at 885, which states that ``the affiliated

importer may choose to pay the antidumping duty rather than eliminate

the dumping.'' In sum, the existence of dumping gives rise to a

reasonable presumption that the affiliated importer is absorbing

dumping duties.

As in previous cases where the Department has found duty absorption

(see, e.g., AFBs), this is an instance where the existence of a margin

raises an initial presumption that the respondent and its affiliated

importer(s) are absorbing the duty. As such, the burden of producing

evidence to the contrary shifts to the respondent. See Creswell Trading

Co., Inc. v. United States, 15 F.3d 1054 (CAFC 1994). Here the

respondents have not placed evidence on the record, despite being given

ample time to do so, in support of their position that they and their

affiliated importer(s) are not absorbing the duties. In fact, as noted

by Micron, LG explicitly refused to do so. Therefore, because Hyundai

and LG submitted no information showing that their respective

affiliated importer is not absorbing the duties for this POR, we find

that duty absorption occurred.

Comment 6: Cash Deposit Rate. Micron argues that the Department

should establish a single cash deposit rate for both Hyundai and LG in

the final results of this review, at a minimum, by weight averaging the

combined dumping margins for Hyundai and LG. Micron asserts that, at

the end of the current POR, LG was acquired by Hyundai and renamed

Hyundai Microelectronics, and based on comments in a letter submitted

by LG, the merger is to be completed in October 1999. Micron contends

that one company will control both Hyundai and LG's fabrication

facilities, and that company could choose to designate all of its

exports to the United States as being from whichever respondent in the

fifth review turns out to have the lower duty deposit rate.

Hyundai argues that it is entitled to its own cash deposit rate

based exclusively on the Department's calculations for Hyundai. Hyundai

contends that the single rate advocated by Micron would incorporate any

adverse FA margin that the Department might impose on LG, and Hyundai

should not be penalized for any action taken with respect to LG.

Hyundai maintains that, whatever decisions the Department may make

concerning LG, Hyundai had no involvement in the matters alleged.

Hyundai states that there has been no indication of any diversion or

unreported sales by Hyundai in the six consecutive times that Hyundai

has been verified since this case began.

Hyundai further argues that the Department must disregard Micron's

argument because it relates to ``matters that allegedly might occur

well beyond'' the end of the current POR. Hyundai contends that

Micron's speculation as to what might happen after the merger has no

support on the record. Hyundai also contends that if one company

controls both companies' fabrication facilities, the cash deposit rate

would be the rate that applies to the controlling company, regardless

of which fab produced the DRAMs or how the company chose to

``designate'' the origin of the exports.

DOC Position: We are concerned about the implications of the

pending merger of Hyundai and LG on the efficacy of the antidumping

duty order on DRAMs from Korea. However, pursuant to Micron's November

12, 1999 request, we initiated a changed circumstances review under

section 751(b) of the Act to address the cash deposit issue. Because we

have initiated a separate segment of this proceeding to address the

cash deposit issue, we will continue to issue Hyundai and LG their own

cash deposit rates for these final results.

Comment 7: All Others Rate. Micron claims that the Department

should correct the ``all others'' rate to reflect the revised 4.55

percent rate calculated by the Department following judicial review of

the original less than fair value (``LTFV'') determination. See Micron

Technology, Inc. v. United States, 117 F.3d 1386 (Fed. Cir. 1997). In

its notice of the preliminary results of review the Department states

that the ``all others'' cash deposit rate ``will be 3.85 percent, the

`all others' rate established in the LTFV investigation.'' Preliminary

Results, 64 FR at 30486. Therefore, the Department's revised ``all

others'' rate of 4.55 percent has become final and should be reflected

in these final results.

[[Page 69706]]

No rebuttal briefs were filed in regards to this issue.

DOC Position: We agree with the petitioner and have corrected the

``all others'' rate to reflect the revised 4.55 percent rate calculated

by the Department following judicial review of the original LTFV

investigation.

Company-Specific Issues

A. Hyundai

Comment 1: Use of Cost of Goods Sold to Calculate R&D Ratio.

Hyundai states that the Department greatly overstated the per unit R&D

costs allocated to each product by calculating Hyundai's R&D ratio as a

percentage of cost of goods sold (``COGS'') rather than as a percentage

of cost of manufacturing (``COM''). Hyundai, citing to High Information

Content Flat Panel Displays and Display Glass Therefor from Japan, 56

FR 32376, 32382 (July 16, 1991), contends that since the R&D ratio is

applied to the COM, the denominator for the R&D ratio should also be

the COM. Hyundai points out that although the Department has used COGS

as the denominator for the R&D ratio in other proceedings including

DRAMs, it has not stated any reason why COGS is a more acceptable

denominator than COM.

Hyundai maintains that it is inconsistent to apply a COGS-based

percentage to calculate Hyundai's R&D cost since R&D is considered by

the Department as an element of the COM, and the Department applies the

R&D ratio to the total COM of each product. Hyundai notes that the

Department used to classify certain R&D costs as G&A expenses, but now

classifies all R&D costs as manufacturing costs. Hyundai states that,

in contrast to R&D expenses, G&A expenses, which support both sales and

production, could reasonably be compared to COGS to calculate the G&A

ratio.

Hyundai, citing the Department's Antidumping Manual at 48, and

DRAMs from Taiwan, 64 FR at 56312, further notes that, in the G&A ratio

calculation, the Department adjusts COGS to make it equivalent to COM

in order to reflect the same category of costs as the per unit COM to

which this ratio is applied. Hyundai argues that if it is appropriate

to adjust the COGS, when COGS is used as the denominator for a ratio

calculation, to align it more closely to the COM, then it is accurate

and appropriate to use COM itself as the denominator, which has been

calculated in the same manner as the per unit COM of each product.

Hyundai also contends that the Department's minor distinction between

COGS and COM indicate that the use of COGS as the denominator is merely

for administrative convenience.

Hyundai further argues that the propriety of the Department's

practice of using COGS to represent COM depends entirely on the

presumption that the COGS during a period is a reasonably close

approximation of the COM. Hyundai contends that, in the DRAM industry,

which has a consistent trend toward higher density products and strong

learning curve effects on costs, this presumption does not hold.

Hyundai explains that, during a period of ``rapid generational

progress,'' the cost of (new generation) DRAMs that are produced during

this period is higher than the cost of (old generation) DRAMs that are

sold during this period. Hyundai states that consequently, when total

current R&D expenses are calculated as a percentage of COGS rather than

as a percentage of COM, the R&D ratio is inflated, and Hyundai's total

R&D costs are overstated.

Finally, Hyundai argues that the application of the Department's

standard cost-of-production (``COP'') completeness test demonstrates

that the use of COGS as the denominator in the R&D ratio calculation

significantly overstates Hyundai's R&D expenses. Hyundai states that

multiplying Hyundai's total semiconductor COM by the Department's

calculated R&D ratio results in a total R&D expense that greatly

exceeds Hyundai's actual R&D expense.

Micron argues that the Department was correct to use the COGS

instead of COM for its R&D calculation, as is the Department's

practice. Micron contends that Hyundai never complained before about

the Department's use of COGS instead of COM in its R&D calculation

ratio, and is only complaining now because of the difference between

its COGS and COM figures. Micron also contends that the difference in

these figures is not due, as Hyundai claims, to the change in the

density of the DRAMs that it produced, but is due to a certain

proprietary item in its cost accounting records.

DOC Position: We agree with the petitioner. The Department's

practice, as we have carried out throughout this proceeding, is to

calculate the R&D ratio by dividing a respondent's R&D expense by the

respondent's COGS. See e.g., Final Determination, 58 FR at 15470, Final

Results 1997 (I), 62 FR at 967, Final Results 1997 (II), 62 FR at

39823, and Final Results 1998, 63 FR 50870. See also DRAMs from Taiwan,

64 FR at 56312. We calculate this ratio based on the COGS, or a

modified COGS, and not the COM, because R&D expenses, like G&A

expenses, are incurred for the products sold during a period, rather

than the products manufactured during a period. Furthermore, we believe

that evaluating whether to use COGS or COM as the denominator in the

R&D ratio from one review segment to the next would eliminate

significant consistency and predictability in our calculations.

We also agree with the petitioner that the record does not support

Hyundai's assertions that the difference between its COGS and COM is

due to the change in the densities that it produces. Rather, this

difference is due, in part, to the proprietary accounting item

referenced by Micron.

Comment 2: Double-Counting of R&D. Hyundai argues that the

Department double-counted certain R&D expenses incurred by Hyundai

Electronics America, Inc. (``Hyundai America''). Hyundai states that

the Department included Hyundai America's actual expense for certain

R&D projects, as well the amount that Hyundai paid to Hyundai America

to reimburse it for these expenses. Hyundai explains that it did not

itself offset these expenses in its response because these expenses

were classified as long-term R&D, and not included by Hyundai in the

current year R&D calculation. Hyundai states that the double-counting

occurred when the Department included all of Hyundai's expenditures on

long-term projects in current year production costs. Consequently,

Hyundai maintains that if the Department decides to continue expensing

all of Hyundai's R&D expenses incurred in 1997, then the Department

should either exclude the expenses at issue from Hyundai's R&D costs,

or offset Hyundai America's R&D expenditures, to avoid double-counting.

Micron did not comment on this issue.

DOC Position: We disagree with Hyundai that the record evidence

demonstrates that we double-counted certain R&D expenses incurred by

Hyundai America, and reimbursed by Hyundai. Hyundai America's financial

statement indicates that Hyundai America received revenue from Hyundai

for R&D services (see exhibit 17 of Hyundai's October 8, 1998 section A

response). However, the record evidence does not demonstrate that

Hyundai's R&D expenses include any payments to Hyundai America.

Therefore, we cannot confirm that any R&D expense has been double-

counted and have made no changes in our calculations with respect to

this issue from our preliminary results.

Comment 3: Offset for Long-Term Interest Income. Hyundai argues

that the Department improperly denied an offset

[[Page 69707]]

for long-term interest income earned on restricted bank deposits.

Hyundai states that the interest income at issue was earned by Hyundai

on (1) collateral that Hyundai is required to maintain on deposit at

banks in order to obtain loans to finance current operations; and (2)

deposits with insurance companies that can only be used to pay

retirement benefits. Hyundai states that, in both cases, the income is

not derived from long-term investments, but is directly tied to the

current operations of the company. Citing to Final Determination, 58 FR

at 15473, and The Timken Company. v. United States, 809 F. Supp. 121,

at 125 (1992), Hyundai contends that the Department grants adjustments

for interest income that is earned on compensating deposits because

such income is related to current operations; and that the Department

previously granted Hyundai an adjustment for interest income related to

current operations. Hyundai maintains that, since the income derived

from these deposits reduces the cost of the related loans, the interest

earned from those deposits should be used to offset Hyundai's interest

expense.

Hyundai explains that some of the deposits at issue are not

investments, but a prerequisite for receiving loans from the Korea

Development Bank. Hyundai states that the use of compensating deposits

enabled Hyundai to receive a lower effective interest rate from the

banks, and thus directly affected the interest expense that Hyundai

incurred for financing current operations during the POR. Hyundai

maintains that, since these deposits are an integral part of the

relevant loans, and since the Department considers all financing costs

to be related to current operations, then the interest earned on the

deposits is directly related to current operations, regardless of the

period of time over which the deposits are maintained.

Hyundai further explains that the other deposits at issue are held

at life insurance companies to fund accrued severance benefits. Hyundai

states that it makes these deposits in order to claim the total amount

of severance benefits as a tax-deductible expense. Hyundai contends

that, since the severance benefits themselves are included in the labor

expense element of Hyundai's COM, the income earned from these deposits

of severance benefits is directly related to current operations.

Hyundai, citing to Gulf States Tube Div. Of Quanex Corp. v. United

States, 981 F. Supp. 630, 643 (CIT 1997) and Recent Stitches in the

Department of Commerce's Cost of Production Analysis: MMF Sweaters

Antidumping Case and Commerce's Treatment of Interest Expense, 25

George Wash. J. Int'l L (1991), also contends that the Department

allows respondents an offset for interest income on long-term deposits

that are related to current operations. Hyundai also notes that, in

fact, the Department has granted offsets for long-term ``compensating''

deposits because such deposits are related to the cost of borrowing

funds for current operations.

Micron argues that the Department should not make any adjustment

for Hyundai's claimed offset for interest income. Micron, citing to

Final Determination, 58 FR at 15473, contends that the Department only

previously granted Hyundai an offset for interest income earned on

short-term assets. Micron further maintains that a respondent must show

at verification that deposits are compensating balances tied to loans

in order to receive an offset for interest earned on such deposits, and

that the verification report and preliminary calculation memorandum

indicate that the Department was not satisfied that Hyundai had shown

this.

Micron also contends that the severance insurance deposits are not

connected to loans at all, but represent Hyundai's funding of accrued

severance benefits. Micron states that the classification of the

insurance balance as a restricted deposit does not qualify it as a

compensating balance (for a loan). Micron concludes that Hyundai has

not demonstrated that the interest earned on the insurance deposit is

in any way tied to interest expense, and that the Department should

continue to exclude the claimed interest income from the offset to

Hyundai's interest expense rate.

DOC Position: We agree with Hyundai in part, and with Micron in

part. Upon further review of cost verification exhibit 2, and Hyundai's

1997 consolidated financial statement, which specifically mentions that

``certain bank deposits are pledged as collateral for long-term debt,''

we agree with Hyundai that its long-term restricted deposits at issue

with the Korea Development Bank are an integral part of certain loans

from that Bank. Since the income derived from these deposits are

directly related to specific loans, the interest earned from those

deposits should be used to offset Hyundai's interest expense for the

same loans. Additionally, we agree with Micron that the severance

insurance deposits are long-term investments that represent Hyundai's

funding of accrued severance benefits. These severance insurance

deposits are simply a source of funds from which Hyundai funds

severance benefits, and are only held by Hyundai as restricted deposits

to allow Hyundai to claim a tax deduction. Accordingly, we have only

offset the interest from the deposits at issue with the Korean

Development Bank against Hyundai's interest expense.

B. LG

Comment 1: LG's Knowledge of U.S. Sales: Mexico. LG asserts that,

in its relationship with a Mexican client, it requested a variety of

proof of delivery (``POD's'') to determine that the DRAMs were actually

destined for Mexico. LG states that it believed reasonably and in good

faith that this customer was a legitimate third country purchaser of LG

DRAMs with ample ability to consume them and to market LG's products in

Mexico, Latin America, as well as in other third country markets.

LG alleges that taken together, the facts on the record demonstrate

that it was the unsuspecting victim of Customs fraud, including the

alteration and falsification of LG invoices, and the unlawful diversion

of LG products into the United States. LG claims that there is

overwhelming evidence that it did not have knowledge. Thus, LG contends

that the Department has no lawful basis to attribute the illegally

diverted shipments to LG and to include such shipments as ``unreported

U.S. sales'' in the calculation of LG's dumping margin.

To support its argument, LG cites Tapered Roller Bearings from

China, where the petitioner in the case argued that the Department

should reclassify third country transactions, placed by a U.S. firm, as

U.S. sales. The Department disagreed and considered these transactions

as sales to a third country, stating ``the Act requires that the

producer of the merchandise know, at the time of sale to the reseller,

the country to which the reseller intends to export the merchandise in

order for the Department to treat sales to a reseller as sales to the

United States.'' LG points out that the Department made no inquiry as

to whether the respondent ``should have known'' that the goods were

destined for U.S. consumption.

According to LG, the Department applies its knowledge test to a

respondent at the time of sale, not later. For example, in Notice of

Final Determination of Sales at Less Than Fair Value: Manganese Sulfate

From the People's Republic of China, 60 FR 51255 (1995) (``Manganese

Sulfate''), the Department determined that a transaction was not a U.S.

sale where the respondent learned that the merchandise it sold to a

third country trading company was ultimately destined for the United

States ``at the time of shipment, after the sale had already been

made.'' Similarly, in Pure

[[Page 69708]]

Magnesium from the Russian Federation (``Magnesium''), the Department

treated certain sales as third country exports, even though the

respondent later learned that some of these exports were sold to U.S.

customers, because ``this knowledge always came after (the respondent)

had sold the merchandise.'' LG maintains that in neither of these cases

did the Department suggest that the sales could have been deemed U.S.

sales by the respondent if the respondent ``should have known'' the

ultimate destination was the United States, notwithstanding evidence on

the record from which such a conclusion might have been drawn.

According to LG, the CIT, in NSK Ltd. v. United States (``NSK''),

explicitly confirmed that the antidumping law mandates the knowledge

test as applied by the Department in these prior cases. In NSK, the

Department classified Honda as a reseller after concluding that Honda's

Japanese suppliers were unaware of the ultimate destination of the

merchandise they sold to Honda. The Court agreed, emphasizing the

statutory language and legislative history upon which the Department's

knowledge test is based. Specifically, the Court quoted the portion of

the statute which states that U.S. purchase price is ``the price at

which merchandise is purchased, or agreed to be purchased, prior to the

date of importation, from a reseller or the manufacturer or producer of

the merchandise for exportation to the United States.'' The Court cited

the legislative history to this provision:

If a producer knew that the merchandise was intended for sale to

an unrelated purchaser in the United States under terms of sale

fixed on or before the date of importation, the producer's sale

price to an unrelated middleman will be used as the purchase price.

LG states that the NSK Court acknowledged that the Department's

knowledge test requires a ``high standard'' which could possibly be

exploited by ``the `perfect' scenario, where a reseller hides the

ultimate destination of its purchases from its foreign suppliers,'' but

found nevertheless that ``such a standard is necessary to fulfill the

statutory intent that purchase price be based on sales of goods sold

abroad with the intent of being exported to the U.S.'' According to LG,

both the stress on the word ``knew'' in the quoted legislative history

and the Court's emphasis on the ``intent'' of the seller make clear

that the U.S. sales may not be attributed to the foreign producer if

the producer did not actually know that the United States was their

destination, even if in retrospect it appears to an outside observer

that the producer should have known that the goods would reach the

United States. The Court ruled that this sort of generalized suspicion

is not sufficient: ``the suppliers must have knowledge that particular

sales are destined for import into the U.S.''

LG asserts that, in INA Walzlager-Schaeffler KG v. United States

(``INA''), the CIT noted again the strict requirement for

particularized knowledge before U.S. sales may be attributed to a

foreign producer. After reviewing the Department's ``knew or should

have known'' test, the Court reiterated that this test applies only

under the NV section of the law:

This decision is not intended to alter the standard for imputed

knowledge pursuant to 19 U.S.C. 1677a(b). As both FAG and Commerce

acknowledge, section 1677a(b) requires knowledge that the

merchandise is purchased from a reseller for exportation to the

United States * * *. Under 19 U.S.C. 1677b(a) it is not necessary

for the respondent to have knowledge that all of the merchandise

sold is destined for the United States in order to impute knowledge

that the sales were not intended for home consumption.

LG states that, in Tapered Roller Bearings and Parts Thereof from

China (``TRBs II''), the Department had occasion to consider the

``perfect'' scenario envisioned by the Court in NSK. In TRBs II, the

petitioner argued that suppliers ``knew or had reason to know'' that

sales to a reseller were destined for the United States because TRBs

sold to the U.S. market were all identified with the supplier's trade

name, constituting ``sufficient evidence on the record for the

Department to impute knowledge on behalf of the suppliers.'' In

response, the reseller argued that ``NSK requires the Department to

find evidence of actual knowledge that particular sales were destined

for importation into the United States.'' In response to these

arguments, the Department held:

Lacking evidence of actual knowledge that particular sales were

destined for the United States, we cannot assume such knowledge,

regardless of general knowledge that some merchandise was intended

for exportation to the United States.

LG argues that the Department in TRBs II recognized that even when

a reseller hides the ultimate destination of its purchases from its

foreign supplier, and there is no evidence that the foreign supplier

had actual knowledge that particular sales were destined for the United

States, the Department may not attribute the resulting U.S. sales to

the supplier, regardless of whether the supplier ``should have known''

or ``had reason to know'' that the goods would be resold into the

United States.

Finally, in Certain Cut-to-Length Carbon Steel Plate from Ukraine,

62 FR 61,754, 61,760 (Nov. 19, 1997) (``Ukraine Plate''), the

Department excluded diverted sales where the respondent producer,

Ilyich, argued that it made the sales ``believing they were destined to

third countries and had no knowledge that these sales were ultimately

destined for the United States.'' The Department stated ``[i]t is the

Department's practice to include as U.S. sales only those sales known

by the producer/exporter to be destined for the United States at the

time of sale and delivery'' and determined that ``these originally non-

U.S. bound shipments were delivered to the U.S. without prior knowledge

of Ilyich. Therefore, consistent with * * * Department practice, we

have not included the pirated sales in the final margin calculation.''

LG states that the Department cited Yue Pak, Ltd. v. United States,

Slip Op. 96-65 at 9 (``CIT''), aff'd. 1997 U.S. App. LEXIS 5425 (Fed.

Cir. 1997) (``Yue Pak'') in the fourth review final results in support

of its contention that U.S. resales may be charged to a supplier that

did not know, but should have known, that the United States was the

ultimate destination of its shipments. But, according to LG, Yue Pak

fails to support the Department's legal theory. First, no party in that

case argued that under the antidumping law ``should have known'' is not

a sufficient standard for attribution of U.S. sales, and the Court was

thus not presented with the relevant issue. Second, from the facts

cited by the Court, it is apparent that the record evidence established

that the suppliers knew that the merchandise was destined for the

United States; the Court's references to whether the suppliers should

have known are thus dicta. Third, neither of the cases cited by the

Court for its interpretation of section 772(b) of the Act, 19 U.S.C.

1677a(b), see 20 CIT at 498, support the ``should have known'' theory;

rather, both cases clearly state that the supplier must know that the

merchandise is destined for the United States. Finally, to the extent

that Yue Pak is contrary, it has been overruled by the CIT's later

disposition of this issue in NSK and INA, both of which make clear that

section 772(b) of the Act, 19 U.S.C. 1677a(b) and its legislative

history allow U.S. sales to be charged to a producer only ``[i]f a

producer knew that the merchandise was intended for sale to an

unrelated purchaser in the United States.''

[[Page 69709]]

In sum, LG asserts that the CIT has clearly and consistently held,

in line with the consistent practice of the Department, that the

Department may treat third country sales as U.S. sales of a producer

only if the producer knew, at the time of sale, that those particular

sales were destined for the United States. LG contends that there is no

evidence on the record that they actually knew that its sales were

destined for the United States. Thus, it was unlawful for the

Department in the preliminary results to consider the diverted

shipments to have been U.S. sales of LG.

LG argues that the circumstances of the sales to its Mexican

customer did not provide LG with knowledge that the diverted sales were

destined for importation into the United States. According to LG, in

the fourth review final results, as in other cases cited above, the

Department suggested that the diverted transactions be deemed U.S.

sales of LG, regardless of whether LG knew the shipments' final

destination, because LG sometimes dealt directly with the customer's

U.S. parent company and because it arranged for the DRAMs to be shipped

in bond through the United States. This argument, LG maintains, is

contrary to numerous Department precedents.

LG contends that the shipment route chosen by LG's customer is

simply not relevant to the question of whether LG knew the ultimate

destination of the merchandise. According to LG, the relevant inquiry

is what LG knew at the time of sale about the goods' final destination,

not what route the goods traveled to get there.

LG asserts that the Department has many precedents on this issue

which uniformly hold that dealings with a U.S. company or a shipment

route through the United States do not transform a third country sale

into a U.S. sale. LG maintains that, in Magnesium, the Department

``found nothing to indicate any unreported instances of merchandise

being sold with the knowledge at the time of sale that the ultimate

destination was the United States,'' and refused to reclassify as U.S.

sales certain third-country sales with purchase orders placed by a U.S.

firm, determining that purchase orders placed by a U.S. company do not

constitute evidence that the respondent had knowledge the sale was

destined for the United States. Likewise, in Manganese Sulfate from

China, the Department determined that a transaction was not a U.S. sale

even where (1) the bill of lading listed the destination as a U.S.

port; (2) PRC Customs export statistics' printout of exports to the

United States showed that this shipment was sent to the United States;

and (3) correspondence from a New York company regarding this shipment

was dated before the issuance of the sales contract.

LG argues, contrary to the Department's conclusion that LG's sales

to the Mexican customer ``were shipped by LG directly to the United

States,'' that the undisputed facts on the record show that the

customer's purchases from LG were transported by its freight forwarder

from arrival in the United States in bond, just as the Mexican customer

had agreed. LG asserts that the Department is prohibited from treating

goods transported in bond as U.S. sales for purposes of the antidumping

law because in-bond entries do not enter the Customs territory of the

United States for consumption. LG maintains that in Titanium Metals

Corp. v. United States, 19 CIT 1143, 901 F. Supp. 362, 364 (1995)

(``Titanium Sponge''), the CIT has explicitly confirmed this point,

holding that goods entered for transportation in bond are not entered

for consumption, and thus cannot be included in the dumping margin

calculation, because the law restricts the assessment of antidumping

duties to merchandise entered or withdrawn from warehouse for

consumption.

Further, LG claims that the Department's interpretation of

Persulfates from the PRC (``Persulfates'') is wrong and entirely

contradicts the proposition that sales may not be considered to be U.S.

sales by the supplier unless (i) the supplier had actual knowledge that

the goods would be resold to the United States, and (ii) the goods

actually entered the Customs territory of the United States.

LG argues what dictated the result of Persulfates was not that the

producer shipped the goods to the United States, but that the producer

shipped the goods to the United States knowing that the customer

planned to enter the goods into the United States, rather than ship

them in bond to a third country. LG further asserts that the Department

has described its decision in Persulfates as turning on the producer's

knowledge, stating that ``in cases where evidence exists that a

supplier had knowledge that the ultimate destination of the merchandise

was the United States, such as * * * Persulfates, we have considered

the sale by the supplier to the reseller as the starting price in our

margin calculations.'' In direct contrast to Persulfates, LG claims

that LG's customer was outside the United States, and LG's products

were shipped to a bonded area, for further in-transit bonded shipment

to a third country, and, so far as LG ever knew, the goods did not

enter into the Customs territory of the United States. LG concludes

that Persulfates thus squarely contradicts the Department's suggestion

that the route of the shipments from LG to its third country customer

renders irrelevant the question of whether LG knew that the goods would

enter the United States.

LG also argues that the Department should correct errors committed

in its calculation of the dumping margin on the diverted sales. LG

contends that the Department may not apply adverse FA ignoring the

timely data submitted by LG concerning the unlawfully diverted

shipments. LG contends that it submitted timely expense data concerning

the Mexican sales, which the Department chose not to accept, instead

opting for adverse FA to determine the selling expenses for the

diverted sales. LG argues that the Department's action is an abuse of

discretion and must be reversed in the final results.

LG cites Olympic Adhesives, Inc. v. United States (``Olympic

Adhesives''), where the Court ruled that if a company was sent and

completely answered repeated questionnaires, and nothing in the record

suggests that the company withheld information, the Department is not

allowed to use best information available. LG additionally cites Ferro

Union, Inc. v. United States and Borden, Inc. v. United States as

particular examples where the Department must implement a narrower

interpretation of when to use FA.

LG contends that the Department's rejection of LG's reported

expenses in conjunction with its sales to the Mexican customer cannot

be justified and is clearly unlawful under the standard of Olympic

Adhesives. LG contends that the Department has failed to show that LG

withheld requested information, failed to provide information by the

applicable deadlines or in the form and manner requested, significantly

impeded this proceeding, or provided information that was not accurate

or verifiable. Thus, the Department's use of adverse FA in this review

does not meet even the minimum required statutory conditions for the

use of non-adverse FA.

Further, LG disputes the Department's two justifications for the

use of adverse inferences with respect to the Mexican sales. First, LG

disputes the reasoning that ``because LG did not report these sales as

U.S. sales, we are not using the expenses.'' LG argues that the

Department may not punish it simply for taking a position regarding the

underlying sales--a position supported by Department and Court

precedents--

[[Page 69710]]

with which the Department disagrees. LG additionally disputes the

contention that the Department was unable to verify these sales.

Because none of the expenses in question are transaction-specific, none

are in any way different for the diverted sales than for the U.S.

sales, and the Department verified each expense.

In conclusion, LG argues that the Department may not treat as U.S.

sales third country sales for which there is no evidence of entry into

the United States. LG contends that in the fourth review the Department

did not include all the sales to the third country customer, but only

sales for which there was corroborating Customs documentation which

showed that the merchandise was entered into the United States. LG

states that whether the error was intentional or inadvertent, however,

the Department should correct this error in the final results. The law

is clear that the Department may not treat as sales to the United

States sales that did not enter the United States.

In rebuttal, Micron argues that the Department properly determined

that LG knew or should have known that the unreported sales to its

customer in Mexico were destined for the United States. According to

the petitioner, the volume and pattern of the sales, the circumstances

of the placement of orders and payment by the customer's U.S.-based

parent, and the delivery of the subject merchandise by LG to the

customer's agent in the United States, all substantiate the

Department's finding that LG knew or should have known that the

ultimate destination of the sales was the United States.

Micron disputes the ``facts'' submitted by LG. According to Micron,

the declarations of Mr. Simon and Mr. Lee of LG, regarding LG's Mexican

customer, are not ``facts,'' but simply statements from interested

parties which do not square with neutral observers who claim something

different. Micron cites a Dun & Bradstreet (``D&B'') Report which

characterizes the company as a very small operation.

Micron asserts that it is not credible that Mr. Simon or Mr. Lee,

if they had actually inspected the facilities of LG's Mexican customer,

would have concluded that the company could have consumed internally

all of the merchandise that it purchased from LG.

Micron also submits that the quantity of DRAMs that the company was

buying makes it impossible for it to have been as small an operation as

D&B and LG officials reported. Thus, according to Micron, if it really

were an OEM consuming the merchandise it purchased from LG in its own

production, the company evidently refurbished more computers than is

possible for such a small company. (And this estimation does not take

into account the fact that the computers being re-furbished would

already contain some pre-existing DRAMs.)

Further, Micron argues that this is an unheard of quantity for a

second-hand computer vendor, and would put it among the top tiers of

new computer vendors. Micron contends that if the Mexican customer had

really shipped that many computers in a year, it would have been a much

better known name. Furthermore, the story of refurbishing old computers

is inconsistent with the type of modules purchased. The overwhelmingly

vast majority of the sales are of newer model DRAMs the type that

cannot be used in the older computers that the company was

refurbishing. The more advanced DRAMs are for use in newer generation

computers. In short, according to Micron, the company was buying

modules for use in the newest PCs.

With regard to manufacturing, Micron states that, during the POR,

the company purchased a large amount of DRAMs for manufacturing. Micron

points out that in his declaration, Mr. Simon stated that the facility

in Tijuana had two manufacturing lines, with three or four workers

each. These, Micron contends, are also evidently the same lines on

which computers and other products, according to Daniel Lee's

declaration, were being refurbished. Micron alleges that this means

that Mr. Simon and Mr. Lee believed that it was reasonable that a small

amount of workers could use a large amount of DRAMs to manufacture

computer applications, while at the same time producing a great many

computers. According to their declarations, both Mr. Simon and Mr. Lee

had worked for LG for many years, and would have visited many computer

manufacturing facilities while on sales calls. Micron contends that

they would have noticed immediately the disparity between the quantity

of merchandise purchased and the size of the companies facilities.

Micron concludes that the statements that they thought the facilities

could handle the quantity are extremely self-serving, but are just not

credible.

Micron argues that if LG really did not know what the company was

doing, it would be because nobody had actually visited the Tijuana

facilities. The fact that they described the Tijuana facilities in

terms similar to those in the D&B report indicate that they had either

visited the facilities or had read the D&B report. In either case,

according to Micron, it would have been readily apparent that the

Mexican company could not do what it said it was doing.

During the POR, Micron alleges that the Mexican customer acted as a

broker for LG's products. Micron states that most brokers have to take

the risk, when they purchase DRAMs, that the price they can command on

resale may fall below their own purchase price. LG, however, allowed

the Mexican customer to distribute its DRAMs without such a risk. When

the customer eventually sold the LG DRAMs, from several days to several

weeks after it had bought them, LG reinvoiced the customer at a new

price. Until near the end of the POR, when there was a temporary rise

in market prices, the new price was always lower than LG's other

customers. According to Micron, its research indicates that the price

for the Mexican customer was always lower than the open market, or

``spot'' market, at the time of the re-invoicing.

Micron asserts that LG's Mexican customer buys the DRAMs, and

immediately tries to sell them into the spot market, with LG's

knowledge and assistance. When it has a buyer, it informs LG of the

price, and based on the spot price, LG re-invoices the sale. Thus,

Micron maintains that the facts indicate that LG always knew that it

was dealing with a DRAM broker, not an OEM. The fact that LG felt

compelled to come up with the thoroughly implausible story of this

customer being a computer accessory manufacturer and refurbisher means

that it had something to hide.

Micron argues that LG continues to misinterpret the law regarding

whether actual knowledge is required to impute sales. According to

Micron, the standard for attributing U.S. sales to a foreign producer

or exporter is not restricted to ``actual knowledge,'' but is whether

the producer or exporter ``knew or had reason to know'' that such sales

were destined for the United States. Micron argues that in attributing

U.S. sales to a foreign producer or exporter, longstanding

administrative practice and judicial rulings, consistent with the

statute's legislative history, establish that the Department may find

either direct evidence of knowledge, or impute such knowledge, provided

in either event its finding rests on a reasonable factual foundation.

While the Department can rely on direct evidence of actual knowledge,

such evidence is rarely forthcoming. Therefore, Micron maintains that

the Department is not restricted to an actual knowledge test, and may

impute knowledge, as warranted, as was referenced in the Department's

May 27, 1999,

[[Page 69711]]

memorandum in this review. The Department applied this standard here.

Micron states that the statute's legislative history expressly

supports the Department's ``knew or had reason to know'' standard. See

section 772(a) of the Act, 19 U.S.C. 1677a(a). According to Micron,

although the current statute does not directly address how the

Department should determine attribution of sales ``for exportation'' to

the United States, the legislative history to the term's predecessor

provision, ``purchase price,'' does.

Micron states that in the Trade Agreements Act of 1979, Congress

modified the definition of ``purchase price'' in 19 U.S.C. 1677a(b) to

provide statutory authority for the administrative practice of basing

U.S. price on the transaction from a producer to an unrelated reseller

if the producer knew that the product was destined for the United

States. The statute did not indicate the degree of knowledge necessary

to find that a producer knew the destination of the merchandise, but

the SAA adopted with the Trade Agreements Act of 1979 (H.R. Doc. No.

153, 96th Cong., 1st Sess., at 411 (1979)) states: ``The definition {of

purchase price} makes clear that if the producer knew or had reason to

know the goods were for sale to an unrelated U.S. buyer, and the terms

of the sale were fixed or determinable from events beyond the control

of the parties as of the date of importation, the producer's sales

price will be used as the ``purchase price'' to be compared with that

producer's foreign market value.'' The Department has explained that

its application of the knowledge standard is based upon the House

Report language cited in the 1979 SAA.

Moreover, Micron asserts that, when Congress amended the statute in

1994, changing ``purchase price'' to ``export price,'' it made clear

that ``notwithstanding the change in terminology, no change is intended

in the circumstances under which export price (formerly ``purchase

price'') versus CEP (formerly ``exporters sales price'') are used.''

See 1994 SAA, H.R. Doc. 103-316, 103d Cong., 2d Sess. (1994), at 822-

23. Micron claims that Congress implicitly endorsed retention of the

``knew or had reason to know'' standard under the old law when it

changed purchase price to export price, and the Department continues to

apply that standard to attribute to a foreign producer or exporter

sales destined for the United States.

Micron argues that the Department's administrative practice and

judicial precedent support the ``knew or had reason to know'' standard.

Micron maintains that consistent with the legislative history, the

Department's longstanding and current practice is to determine whether

the foreign producer ``knew or had reason to know'' that the sales in

question were destined for the United States. The Department makes its

knowledge finding on a case-by-case basis after assessing all of the

information on the record. Micron alleges that the courts have

repeatedly upheld the Department's practice. See, e.g., Federal Mogul

Corp. v. United States, 17 CIT 1015 (1993) (``If the ITA finds that

respondents knew, or should have known, that sales to Japanese OEMs

with U.S. affiliates were destined for the U.S. market, the ITA will

disregard those sales in calculating FMV''); Yue Pak. Micron argues

that, in Yue Pak, the CIT expressly acknowledged that ``Commerce

interprets the phrase ``for exportation to the United States'' to mean

that the reseller or manufacturer from whom the merchandise was

purchased knew or should have known at the time of the sale that the

merchandise was being exported for the United States,'' and stated that

it has upheld this interpretation. Yue Pak, 20 CIT at 498. The Court of

Appeals affirmed the CIT decision in Yue Pak, adopting the holding and

reasoning of the Court below. 111 F.3d 141-42.

Micron alleges that LG ignores this longstanding practice, however,

contending that several of the Department's determinations and certain

judicial rulings require evidence of ``actual'' knowledge. LG, Micron

argues, misreads these cases. They do not repudiate use of the ``knew

or should have known'' standard. Rather, as discussed below, those

cases turned on whether there was evidence of knowledge, actual or

constructive, with respect to the destination of the sales in question.

For example, Micron contends that LG's assertion that the Court, in

NSK, implicitly rejected a reason to know standard is simply erroneous.

The point of the Court's holding in NSK, according to Micron, is that

knowledge of the ultimate destination of the goods, whether actual or

constructive, must exist with respect to particular sales. The type of

required knowledge does not, as LG asserts, limit the evidentiary basis

to proof of actual knowledge, or some admission by the producer. Micron

states that the Department may reasonably impute knowledge concerning

the ultimate destination of particular sales if the facts support such

an inference, as they clearly did here. Unlike the situation in NSK, in

this case, the Department looked at a very specific group of sales, and

compiled an extensive record on the distinct facts and circumstances

bearing on LG's reason to know that these particular sales to this

particular customer were destined for the United States.

Similarly, according to Micron, LG contends that the CIT's ``knew

or had reason to know'' test is relevant only to the issue of knowledge

of sales in the home market under section 773(a) of the Act, 19 U.S.C.

1677b(a), as opposed to knowledge of sales for export to the United

States. LG Case Brief at 27. The INA case, Micron maintains, stands for

no such proposition.

Micron claims that in INA, the Court clarified the standard for

determining whether sales of a respondent may be included in the home

market database. The Court stated that the test was whether the

respondent ``knew or should have known that the merchandise was not for

home market consumption based upon the particular facts and

circumstances surrounding the issues.'' The Court did not construe, and

in fact, made clear it was not altering, the standard for imputed

knowledge of U.S. sales. The Court merely noted that while knowledge

(actual or imputed) of the U.S. destination must be established to

treat an exporter's sales as sales to the United States, it was not

necessary to find such knowledge of the ultimate destination in order

to exclude sales for export from the home market database. The Court

never suggested that imputed knowledge was only permissible in

considering home market sales.

According to Micron, LG's arguments regarding Yue Pak are

incongruous because, as discussed above, NSK and INA no more directly

address LG's contention that ``should have known'' is not a sufficient

basis for attributing sales than does Yue Pak. Neither of these cases

discredit, but instead clarify, the Department's constructive knowledge

standard. Indeed, far from ``overruling'' Yue Pak, neither NSK nor INA

even reference the Court's earlier decision in Yue Pak.

Moreover, Micron claims that, LG inaccurately describes both the

facts and the law under Yue Pak. According to Micron, the Department

and the CIT considered extensive evidence that indicated knowledge by

the PRC producers, but very little if any of the evidence could be

considered the sort of direct evidence that would permit a finding that

the PRC suppliers in question actually ``knew'' of the U.S.

destination, such as when a producer is informed in advance of the U.S.

destination, or otherwise admits its awareness. Rather, the bulk of the

evidence was what might be considered

[[Page 69712]]

indirect, i.e., specific labeling instructions relaying DOT and OSHA

requirements, special order purchase practices, and the percentage of

shipments to the United States versus those to third countries. Such

evidence, Micron asserts, is precisely the sort of evidence indicating

that the producer had ``reason to know'' of the U.S. destination, and

thus the CIT's affirmance of the Department's finding of knowledge is

directly relevant here.

Nor, according to Micron, does LG's citation to TRBs II support its

theory of the knowledge standard. LG seizes on the Department's

statement in that case that ``lacking evidence of actual knowledge that

particular sales were destined for the United States, we cannot assume

such knowledge, regardless of general knowledge that some merchandise

was intended for exportation to the United States.'' However, Micron

argues that the Department was merely noting that the proper

evidentiary basis must exist in order to infer knowledge; it was not

abandoning its longstanding knowledge standard. Indeed, the Department

reaffirmed the ``knew or had reason to know'' formulation in the

immediately following section of the decision, finding that respondent

Premier's suppliers were unaware of the U.S. destination of their

merchandise.

Further, Micron alleges that other cases cited by LG similarly do

not repudiate a constructive knowledge standard, but merely show that

where there was no reasonably plausible evidence suggesting the

producer had knowledge at the time of the sale that the particular

sales were destined for the United States. Therefore, the Department

need not consider, let alone impute, knowledge. Micron contends that

such cases are a far cry from the situation here, where the record is

replete with evidence establishing that the producer knew or had reason

to know of the U.S. destination of the sales in question. In such

cases, the Department can and does impute knowledge.

For example, Micron alleges that in Tapered Roller Bearings from

China, there was no indication that the goods ever entered the United

States. In contrast, Micron argues, in the present case the record

shows not only purchase orders issued directly by the U.S.-based

purchaser to the producer's U.S.-based sales affiliate, but also

delivery to the purchaser in the United States, entry of the goods for

consumption in the United States, and payment by the purchaser from a

U.S. bank. Thus, issuance of the purchase orders by a ``U.S. firm'' is

only one piece of evidence among many.

Similarly, Micron maintains that the Ukrainian Plate decision

starkly differs from the instant case. There, the Department had no

basis to entertain imputed knowledge, because the evidence in this

regard was virtually nonexistent. The Department has vastly more

information in support of its decision in the instant case.

Micron alleges that in an attempt to side-step the collective

impact of the multiple factors supporting the Department's preliminary

decision here, LG addresses each factor in isolation, arguing that such

factors as ``dealings with a U.S. company or a shipment route through

the United States do not transform a third country sale into a U.S.

sale.'' Aside from assuming the conclusion--that these were ``third

country sales''--the decisions cited by LG can all be distinguished

from the instant case.

With respect to Magnesium, Micron contends that LG confuses the

allegations by the petitioner with the findings made by the Department.

There, the Department found that the producer did not know until after

the time of sale that it was selling to a U.S. customer. Here, by

contrast, the producer's U.S.-based sales outlet, LG, was very clearly

dealing directly and repeatedly with the U.S.-based customer.

Similarly, in Manganese Sulfate from China, it was not until after the

date of sale that the shipping document showing the U.S. port as the

destination of shipment was issued, and numerous other factors

indicated lack of knowledge. And in Tapered Roller Bearings from China,

purchase orders from a U.S. company were insufficient to impute

knowledge because the shipments were to a third country and there was

no other evidence that the producer was aware at the time of sale that

the merchandise was destined for the United States.

In this regard, Micron takes issue with LG's contention that after

LG had arranged for delivery of the goods to its agent in the United

States, they were transported away from the United States in bond, and

in-bond entries are not considered to enter the Customs territory of

the United States. Micron argues that, in fact, as the Department

noted, LG shipped the DRAMs to its customer's agent in the United

States, without requesting nor receiving assurance that the goods would

be placed in Customs bond upon arrival and thereafter remain in bond

until exported outside the United States. Moreover, as LG must

acknowledge, the goods were in fact entered for consumption into the

Customs territory of the United States.

In the Persulfates determination, according to Micron, the

``knowledge'' (or lack thereof) of the ultimate destination was not

relevant; it was sufficient that the producer had knowledge that the

goods were being shipped to an unaffiliated purchaser in the United

States, and that the purchaser entered the goods for consumption. In

this regard, Micron maintains that Persulfates offered an alternative

basis for attributing the sales in question to LG, as the fact that the

Mexican customer entered the merchandise for consumption in the United

States rendered the knowledge issue irrelevant.

Micron believes the Department's application of adverse FA in the

calculation of the margins for the Mexican sales is appropriate. Micron

states that the Department should apply a total adverse FA rate to all

of LG's U.S. direct and indirect sales.

Micron maintains, however, that if a calculation of the rate for

the Mexican sales is required, the Department acted in accordance with

law in using adverse FA to determine LG's dumping margin for the

preliminary results, and should use the same methodology for the final

results. Micron argues that LG withheld requested information, failed

to provide information in the form and manner requested, significantly

impeded the proceeding, and failed to act to the best of its ability to

comply with the Department's request. See 19 U.S.C. 1677e. According to

Micron, LG deliberately withheld important information requested by the

Department concerning U.S. sales, and attempted instead to characterize

that information as sales to third-countries. Not only did LG fail to

provide information of its U.S. sales in the form and manner requested

by the Department, but LG's willful attempt to mislead the Department,

to LG's benefit, significantly impeded the proceeding. Micron argues

that LG's failure to submit requested data constituted ``noncompliance

with an information request'' within the meaning of Olympic Adhesives.

In addition, LG's failure to produce requested information when it knew

that these allegedly third-country sales were in fact sales to the

United States, constituted a failure to cooperate. Therefore, LG failed

to act to the best of its ability by knowingly withholding information

requested by the Department. As a result, the Department appropriately

applied an adverse inference under Section 1677e(b) in selecting from

the facts otherwise available.

Micron states that to facilitate its analysis under Section 1677e,

the

[[Page 69713]]

Department has developed several factors that it applies on a case-by-

case basis. See SAA at 870 (``In employing adverse inferences, one

factor the agencies will consider is the extent to which a party may

benefit from its own lack of cooperation.''); Antifriction Bearings

(Other Than Tapered Roller Bearings) and Parts Thereof From France et

al.; Final Results of Antidumping Duty Administrative Reviews, 62 FR

2081, 2088 (Jan. 15, 1997) (considering (1) the experience of the

respondent in antidumping duty proceedings, (2) whether the respondent

was in control of the data which Commerce was unable to verify or rely

upon, and (3) the extent the respondent might have benefitted from its

own lack of cooperation); see also Extruded Rubber Thread from

Malaysia; Final Results of Antidumping Duty Administrative Review, 63

FR 12762 (Mar. 16, 1998) (using same criteria).

Micron alleges that in applying these factors to this case, it is

indisputable that the Department's use of total adverse FA to determine

LG's dumping margin was warranted. Not only is LG an experienced

respondent in the annual review processes, but LG was in control of the

U.S. sales data requested, and due to its deceptive failure to report

these sales, the Department was unable to verify such information. More

important, however, LG stood to benefit from its lack of cooperation.

Had the Department not known of LG's U.S. sales, its calculation of

LG's dumping margin would be skewed in LG's favor. Micron contends that

this is simply unacceptable. See SAA at 870.

DOC Position. A full discussion of our final conclusion, which

requires references to proprietary information, is included in the

December 6, 1999, Memorandum from John Conniff to Holly Kuga regarding

sales through a third country by LG contained in the official file for

this case. Generally, however, we have found that the record evidence

concerning unreported sales supports the conclusion that LG knew, or

should have known, that at the time it sold the subject DRAMs, the

merchandise was destined for consumption in the United States.

With respect to knowledge, we do not agree with LG's contention

that the Department may not assign a FA rate on the basis of the

unreported sales since LG had no actual knowledge of the diversion of

these sales. Numerous court decisions, including those by the U.S.

Court of Appeals for the Federal Circuit, have held that the

appropriate standard for making this decision is ``knew or should have

known at the time of the sale that the merchandise was being exported

for the United States.'' See Yue Pak. See also Peer Bearing Co. v.

United States, 800 F. Supp. 959, 964 (CIT 1992), Certain Pasta From

Italy: Termination of New Shipper Antidumping Duty Administrative

Review, 62 FR 66602 (1997), and Manganese Sulfate. While the statute

does not indicate the degree of knowledge necessary to find that the

producer knew the destination of the merchandise, the courts have

stated that even if a respondent denies knowledge of the destination of

its sales, the Department may review all facets of a transaction, and

based on extrinsic source data, determine that it is appropriate to

impute knowledge in a given case. See INA 1997, 957 F. Supp. at 265.

In the matter of these unreported sales, first we note that LG

essentially dealt with a U.S. customer. When shipping the merchandise,

LG took no steps itself to ensure that, when the merchandise was

delivered to the United States, it was subsequently placed under

Customs bond and transported to a third country, clearing Customs upon

export from the United States. What the record shows is that LG sold an

enormous amount of DRAMs to a very small company and turned the

merchandise over to the customer in the United States. Consequently, in

contrast to such cases as Ukraine Plate and Magnesium, LG knew for

certain that it was shipping DRAMs into the United States.

Moreover, this is not a situation where an exporter sells and ships

a relatively small amount of subject merchandise to a third country and

then, sometime much later, the customer reexports the merchandise to

the United States. In this case, we are confronted with a staggering

amount of merchandise that is being shipped by LG directly to the

United States. The merchandise is subsequently being entered for

consumption into the United States within days, if not hours, of it

leaving the possession of LG.

The relative size and nature of the purchaser's operations and the

quantity of acquisitions it made are germane to this case in several

respects. The amount of purchases this customer made are not modest. In

fact, the entered value of these transactions was quite large. However,

based on LG's description of the purchaser's operations, it is clear

that this party was not equipped to absorb such a vast amount of DRAMs.

In particular, LG should have known that the purchaser was buying more

DRAMs than it reasonably could consume in the manufacture of modules or

the refurbishment of computers and printers. Furthermore, the amounts

the customer purchased were so enormous they had to appear inconsistent

with the size of the third-country DRAM markets in question. Moreover,

as Micron points out, this customer could be expected to sell the vast

majority of its merchandise to the United States. Consequently, not

only was it reasonable to assume that this firm would sell some or all

the subject merchandise that it purchased, but that it would sell the

merchandise to the United States.

In summary, based on the nature and characteristics of these

transactions, we conclude that LG knew, or should have known, that the

merchandise was destined for the United States. Considering the above,

and as more fully described in the above-mentioned agency memorandum,

the Department has decided to include the unreported sales during the

POR in the analysis conducted of LG's sales for these final review

results. See the FA section of this notice for a discussion of the FA

that were applied in the case of LG.

Comment 2: LG's Knowledge of U.S. Sales: Germany. On September 13,

1999, the Department placed on the record a memorandum and accompanying

exhibits regarding certain LGSG sales to a customer in Europe that

subsequently shipped the LG DRAMs in question to its related entity in

the United States. The documents consisted of an anonymous e-mail from

a former LG employee, LG verification exhibits, U.S. Customs data, and

a signed declaration concerning this transaction chain from a former LG

salesman. On October 7, 1999, LG submitted information in response to

the Department's September 13, 1999, memorandum. Other interested

parties also filed relevant factual information regarding this matter

by letter dated October 7, 1999.

LG questions the Department's placing these allegations on the

record so late in the proceeding, and states that nothing in the

September 13, 1999, memorandum or elsewhere in the record provides a

lawful basis for the Department to treat sales of DRAMs by LG's German

subsidiary to its European customer as ``U.S. sales'' of LG. To the

contrary, LG argues that the record provides no evidence that any

responsible official of LG knew, at the time of sale, that these

particular shipments were ultimately destined for the United States.

LG contends that the record before the Department provides

overwhelming evidence that LG correctly considered these sales to

Germany as third-country sales and accurately treated them as such in

this proceeding. Furthermore,

[[Page 69714]]

LG claims that the evidence demonstrates that the transactions between

LGSG and its European customer were motivated solely by legitimate

business reasons and not by pricing differentials or the existence of

an antidumping duty order.

LG argues that, as a matter of law, because LG did not know that

particular sales were destined for the United States, none of the sales

can properly be treated as U.S. sales by LG. LG contends that it is

well-established that an exporter may not report sales made to a third

country as U.S. sales unless the exporter knew at the time of sale that

particular sales were destined for the United States. LG believes that

the NSK case is directly on point, because while LG had generalized

knowledge that some of the DRAMs sold to its European customer might

ultimately be shipped to the United States, LG did not know that any

particular sales were destined for import into the United States.

Similarly, LG argues that in INA, the CIT distinguished between the

knowledge standard for treating sales to resellers as sales to the home

market, and the standard for treating sales to export markets as sales

to the United States. Thus, LG argues, only if the respondent had known

which specific sales were destined for the United States could the

Department have considered the sales to be U.S. sales under section

772(b) of the Act. LG asserts that in this case too, where LG did not

have such knowledge, the sales to Germany cannot be considered U.S.

sales.

Likewise, LG maintains that in Tapered Roller Bearings and Parts

Thereof from China, the Department followed the holdings of NSK and INA

in finding that generalized knowledge by suppliers that some sales to a

reseller were destined for the United States was not adequate to treat

the suppliers' sales as U.S. sales. Thus, according to LG, the

Department has stated explicitly and unambiguously that the sort of

general knowledge that some merchandise was intended for exportation to

the United States that LG possessed with regard to the subject sales is

insufficient for the sales to be treated as U.S. sales by LG.

LG contends that the record in this case establishes that LG did

not know, and had no way of knowing, that any particular sales by LGSG

to Europe were destined for the United States. Indeed, LG does not know

even now which of its sales to its European customer were destined for

the United States because it distributed the DRAMs that it bought from

LG both to the United States and elsewhere, and did not inform LG as to

the destination of the goods either before or after the time of sale.

In these circumstances, where LG lacked ``actual knowledge that

particular sales were destined for the United States,'' LG maintains

that the law is clear that the sales may not be considered as U.S.

sales of LG.

According to LG, the Department has placed on the record evidence

obtained from the U.S. Customs Service that purports to ``indicate * *

* the likelihood that all of LG['s] sales [to the European customer]

entered the U.S.'' LG believes that there are numerous deficiencies,

however, in the evidence provided by the Department and the conclusions

that the Department draws from that evidence. LG states that from the

Customs data, quite the opposite is true--all of LG's sales to its

European customer did not enter the United States.

First, according to LG, the undisputed evidence on the record shows

that during the fifth review period, LGSG sold a great quantity of

DRAMs to its European customer. The Customs data produced by the

Department, however, shows that fewer DRAMs were sold to the United

States by its European customer during this period. Thus, LG concludes

that even if all DRAMs that Customs claims came into the United States

were manufactured by LG, there are still almost a majority of DRAMs

that were sold by LGSG to its European customer that were not resold by

the customer into the United States.

Second, LG maintains that there is no information contained in the

Department's Exhibit 3a concerning the identity of the manufacturer of

the DRAMs imported into the United States. LG alleges that the

Department has placed on the record only two instances of underlying

invoices in which LG is identified as the manufacturer, and these two

imports cover an insignificant amount of units. Thus, LG contends that

there is no way to determine, much less conclude that it is ``likely,''

that LG was the manufacturer of all of the DRAMs imported by its

European customer into the United States. For all the record shows, the

remaining DRAMs imported into the United States could all have been

manufactured by Samsung or other DRAM suppliers.

Finally, LG claims that, for more than half of the transactions

between LGSG and its European customer, the Department is unable to

provide any evidence linking these sales to the specific Customs data

regarding U.S. entries of Korean DRAMs. For the remainder of the

transactions between LGSG and the European customer, which the

Department has purported to link to particular U.S. imports by the

customer, the Customs data fail to identify a manufacturer or even a

product code. Thus, this record provides no evidence, other than two

individual import transactions, that the customer shipped to the United

States any DRAMs that LGSG had sold to it.

According to LG, the European customer's U.S. affiliate purchased

DRAMs in Europe as a method in order to take advantage of various

countries' Outward Processing Relief (``OPR'') provisions. Although

DRAMs later went to a duty-free status in Europe and there was no

longer a need to use the OPR provisions, the supply chain had been

established. LG states that, because of the reliability of this

transaction chain and the ``historic'' ties between the European

customer and its U.S. affiliate, the sales continued through this

channel.

LG argues that it makes no sense for the Department to conclude

that LG made sales through Europe in order to avoid reporting them as

U.S. sales when these transactions would have lowered its dumping

margin. In the Department's recent decision in DRAMs from Taiwan, the

Department stated with regard to two separate incidents that no adverse

action is warranted when a respondent has erroneously reported or

failed to report sales but correcting the error would lower the

respondent's dumping margin. Thus, even if the Department were to

conclude that LG's failure to report these sales was an error, there

would still be no cause for the Department to take adverse action

against LG.

LG claims that an e-mail sent by a former LG employee to the

Department accusing LG of dumping DRAMs into the United States through

its sales to the European customer is unreliable and has no evidentiary

value. LG asserts that the employee left the company under unfavorable

circumstances. LG submitted in its letter on October 7, 1999, a record

of this individual's employment which documented his problems with the

company. LG believes in light of the circumstances of his termination,

the e-mail is wholly unreliable as evidence against LG. Additionally,

LG argues that the evidence of an accountant who had no involvement in

sales lacks probative value, particularly when that evidence is

evaluated in light of his obvious bias and when that evidence is

measured against abundant, reliable evidence that entirely contradicts

it.

LG also questions the veracity of the declaration by Mark

Vecchiarelli, the LG manager responsible for sales LG to the customer

in question during the POR. LG has registered its strenuous objections

to the Department's conduct

[[Page 69715]]

with regard to Mr. Vecchiarelli, both in performing a ``secret''

interview with him and in drafting multiple versions of his

declaration.

LG disputes Mr. Vecchiarelli's claim that he ``was responsible for

servicing all of the semiconductor requirements of [the customer in

question] on a worldwide basis'' and that he was ``responsible for the

pricing and supply decisions for all sales worldwide to the

[company].'' LG claims that Mr. Vecchiarelli was responsible for all of

LG's sales to the parent company worldwide, but he was not responsible

for sales by other subsidiaries of LG to the branches of this company

located outside the United States. His successor, Mr. Pizarev,

confirmed this account in LG's October 7, 1999, submission to the

Department.

LG claims that during the time that Mr. Vecchiarelli worked for LG,

it was Mr. Sung-Jung Woo of LGSG who was responsible for making sales

from LGSG to Europe, not Mr. Vecchiarelli. LG also disputes Mr.

Vecchiarelli's statement that he ``left LG on good terms for a more

lucrative position and for the career advancement opportunities

available at TranSwitch.'' LG claims that Mr. Vecchiarelli left his

employment at LG to become the Western Area Sales Manager at Macronix

America, a subsidiary of a well-known Taiwanese memory semiconductor

producer and a direct competitor of LG. LG believes this omission

obscures Mr. Vecchiarelli's credibility.

Further, LG disputes Mr.Vecchiarelli's statement that he ``made

sales to [the customer's] divisions located outside the United States

and arranged for other LG entities to supply the semiconductors to

these * * * divisions for ultimate delivery to [its] manufacturing

facility in the United States.'' According to LG, Mr. Sung-Jung Woo of

LGSG was responsible for making these sales, not Mr. Vecchiarelli. In

addition, LG points out that Mr. Pizarev, who was trained by Mr.

Vecchiarelli to be his permanent successor as the account manager, has

attested to the fact that Mr. Vecchiarelli never mentioned that he sold

DRAMS to this customer in the United States through other LG

subsidiaries in third countries.

Moreover, LG also claims a ``floor'' price, or minimum price for

the sales of DRAMs in the United States, as compared to Europe, did not

exist. This is documented by the fact that prices to the European

customer in question were not in fact lower than LG's prices in the

United States.

In addition, LG argues that the customer in question claimed

multiple uses for the discrete DRAMs it purchased, contradicting Mr.

Vecchiarelli's statement that merchandise was ultimately destined for

the United States, and that the parent ``did not subcontract, anywhere

else in the world, the production of memory modules using the discrete

DRAMs LG sold to [it].'' LG claims that Mr. Vecchiarelli was not in a

position to know or supply the customer's global supply needs.

According to LG, Mr. Vecchiarelli only had control of fulfilling the

customer's supply requirements through LG.

LG concludes its arguments by stating that even if every word in

Mr. Vecchiarelli's declaration is truthful and accurate, nothing in Mr.

Vecchiarelli's declaration indicates that LG knew that particular sales

to its European customer were destined for the United States. While

some specific orders from LGSG may have been shipped in their entirety

to its U.S. affiliate, others clearly were not; some or all of the

DRAMs in those other orders were sent elsewhere, to destinations

outside the United States. Rather, LG maintains that the evidence on

the record shows that while LG had gene

This text is long and has been trimmed here. Open the source document for the complete record.