67 FR 70927, November 27, 2002

DEPARTMENT OF COMMERCE

International Trade Administration

[C-580-851]
 
Notice of Initiation of Countervailing Duty Investigation: 
Dynamic Random Access Memory Semiconductors from the Republic of Korea


AGENCY:  Import Administration, International Trade Administration, 
Department of Commerce.


ACTION: Initiation of Countervailing Duty Investigation.


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EFFECTIVE DATE:  November 27, 2002.


FOR FURTHER INFORMATION CONTACT:  Suresh Maniam or Ryan Langan at (202) 
482-0176 or (202) 482-2613, respectively; AD/CVD Enforcement, Group I, 
Office 1, Import Administration, International Trade Administration, 
U.S. Department of Commerce, Room 3099, 14th Street and Constitution 
Avenue, NW, Washington, DC 20230.
SUMMARY: The Department of Commerce is initiating a countervailing duty 
investigation to determine whether manufacturers, producers, or 
exporters of dynamic random access memory from the Republic of Korea 
have received countervailable subsidies.


SUPPLEMENTARY INFORMATION:


INITIATION OF INVESTIGATION:


The Applicable Statute and Regulations


    Unless otherwise indicated, all citations to the statute are 
references to the provisions effective January 1, 1995, the effective 
date of the amendments made to the Tariff Act of 1930 (the ``Act'') by 
the Uruguay Round Agreements Act. In addition, unless otherwise 
indicated, all citations to the Department of Commerce's (the 
``Department'') regulations are references to the provisions codified 
at 19 CFR Part 351 (April 2002).


The Petition


    On November 1, 2002, the Department received a petition filed in 
proper form by Micron Technology, Inc. (the ``petitioner''). The 
Department received supplemental information to support the petition on 
November 13 and 19, 2002.
    In accordance with section 702(b)(1) of the Act, the petitioner 
alleges that manufacturers, producers, or exporters of the subject 
merchandise from the Republic of Korea (``Korea'') receive 
countervailable subsidies within the meaning of section 701 of the Act, 
and that imports of the subject merchandise are materially injuring, or 
threatening material injury to, an industry in the United States.
    The Department finds that the petitioner filed this petition on 
behalf of the domestic industry because the petitioner is an interested 
party as defined in section 771(9)(C) of the Act and it has 
demonstrated sufficient industry support. See ``Determination of 
Industry Support for the Petition'' section, below.


Scope of Investigation


    The products covered by this investigation are Dynamic Random 
Access Memory semiconductors (``DRAMs'') from Korea, whether assembled 
or unassembled. Assembled DRAMs include all package types. Unassembled 
DRAMs include processed wafers, uncut die, and cut die. Processed 
wafers fabricated in Korea, but assembled into finished semiconductors 
outside Korea are also included in the scope. Processed wafers 
fabricated outside Korea and assembled into finished semiconductors in 
Korea are not included in the scope.
    The scope of this investigation additionally includes memory 
modules containing DRAMs from Korea. A memory module is a collection of 
DRAMs, the sole function of which is memory. Memory modules include 
single in-line processing modules (``SIPs''), single in-line memory 
modules (``SIMMs''), dual in-line memory modules (``DIMMs''), small 
outline dual in-line memory modules (``SODIMMs''), Rambus in-line 
memory modules (``RIMMs''), and memory cards 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 that 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. This investigation also covers future DRAM module types.
    The scope of this investigation additionally includes, but is not 
limited to, video random access memory (``VRAM''), and synchronous 
graphics RAM (``SGRAM''), as well as various types of DRAMs, including 
fast page-mode (``FPM''), extended data-out (``EDO''), burst extended 
data-out (``BEDO''), synchronous dynamic RAM (``SDRAM''), Rambus DRAM 
(``RDRAM'') and Double Data Rate DRAM, (``DDR SDRAM''). The scope also 
includes any future density, packaging, or assembling of DRAMs. Also 
included in the scope of this investigation are removable memory 
modules placed on motherboards, with or without a central processing 
unit (``CPU''), unless the importer of the motherboards certifies with 
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 investigation does not include DRAMs or 
memory modules that are re-imported for repair or replacement.
    The DRAMs subject to this investigation are currently classifiable 
under subheadings 8542.21.8005 and 8542.21.8021 through 8542.21.8029 of 
the Harmonized Tariff Schedule of the United States (``HTSUS''). The 
memory modules containing DRAMs from Korea, described above, are 
currently classifiable under subheadings 8473.30.10.40 or 8473.30.10.80 
of the HTSUS. Although the HTSUS subheadings are provided for 
convenience and Customs purposes, the Department's written description 
of the scope of this investigation remains dispositive.


Scope Issue


    The scope language as proposed by the petitioner included 
``[p]rocessed wafers fabricated outside Korea, and assembled into 
finished semiconductors in Korea.'' As discussed below, the Department 
has determined not to include this language in the scope of this 
investigation. In past semiconductor cases, the Department has 
determined that country of fabrication confers country of origin and in 
fact has specifically excluded wafers produced in a third country that 
are


[[Page 70928]]


assembled and packaged in Korea. See, e.g., Notice of Final 
Determination of Sales at Less Than Fair Value: Dynamic Random Access 
Memory Semiconductors of One Megabit and Above 
([quot][quot]DRAMs[quot][quot]) From Taiwan, 64 FR 56308, 56309 
(October 19, 1999) and Final Determination of Sales at Less Than Fair 
Value: Dynamic Random Access Memory Semiconductors of One Megabit and 
Above From the Republic of Korea, 58 FR 15467 (March 23, 1993).
    The petitioner states that it considers DRAMs to originate in Korea 
if the DRAMs are fabricated and/or assembled in Korea, asserting that 
this position takes into account the country of origin rule used for 
U.S. Customs purposes, which is based on the country of assembly. The 
petitioner further asserts that the subsidies that are being provided 
by the Government of the Republic of Korea (``GOK'') provide a 
significant benefit to all facets of the semiconductor production 
process in Korea, including the assembly and testing phases. The 
petitioner notes that the past cases before the Department have been 
antidumping cases and asserts that the scope from earlier antidumping 
cases should not be imported into a countervailing duty case based on 
the fundamental differences between the two types of proceedings. 
According to the petitioner, unlike an antidumping case where the 
Department is concerned with unfair pricing between private parties, a 
countervailing duty case involves the examination of government 
subsidies that benefit an entire production process. The petitioner 
claims that any DRAM assembled in Korea must be included in the scope 
because all DRAMs have benefitted from the subsidies. According to the 
petitioner, while the limitation of scope to the country of fabrication 
may be reasonable in an antidumping case, such a finding in this case 
would address only a part of the overall DRAM production process in 
Korea and would permit a continuation of the material injury the law is 
designed to prevent.
    The petitioner further argues that the increasing cost and 
sophistication of the assembly and testing operations in recent years 
separately justifies including DRAMs assembled in Korea in the scope of 
this investigation. In addition, the petitioner asserts that to include 
assembly in the scope resolves an inconsistency in the earlier 
semiconductor cases where the Department based the scope on country of 
fabrication but the International Trade Commission's definition of the 
domestic industry included fabricators and assemblers. Finally, the 
petitioner states that the Department typically defers to the 
petitioner when framing the scope of the merchandise being 
investigated.
    At consultations and in its later filings, the GOK has argued that 
the Department should not expand the scope from prior determinations to 
include merchandise fabricated outside Korea but assembled and tested 
in Korea. The GOK contends that the expanded scope is contrary to 
Department practice and that the facts do not support a change in 
practice. The GOK asserts that the wafers are the defining component of 
the DRAM or memory module and that the value added for final assembly 
is much smaller than the wafer fabrication, accounting for less than 15 
percent of the total cost of the DRAM. In support of its position, the 
GOK cites Erasable Programmable Read Only Memories (EPROMs) From Japan; 
Final Determination of Sales at Less than Fair Value (``EPROMs''), 51 
FR 39680 (October 30, 1986), where the Department found that EPROM 
wafers and dice originated in the country of fabrication, not in the 
country where assembly and testing occurred. In EPROMs, the Department 
found that third country assembly and testing did not constitute a 
``substantial transformation'' that changed the country of origin from 
the country of fabrication. Concerning the petitioner's assertion that 
the language in past cases is not applicable because those cases were 
antidumping cases, the GOK notes that the Department based its analysis 
in EPROMS on its interpretation of the ``class or kind of foreign 
merchandise'' as defined in the antidumping statute, and that the 
subsidy statute uses almost the identical language.
    Concerning the petitioner's argument regarding Customs' rulings, 
the GOK points out that the Department has not felt bound by Customs' 
country of origin rulings because these rulings serve different 
purposes.
    We have considered this issue carefully and, as stated in the 
``scope of investigation'' section above, have determined that 
processed wafers fabricated outside Korea and assembled into finished 
semiconductors in Korea are not included in the scope. The principal 
reason for this determination is that in numerous past proceedings on 
DRAMs and similar products such as EPROMs, the Department has 
consistently maintained that the country of origin is the country where 
wafer fabrication occurs. Given those precedents, we are unwilling to 
adopt different criteria for determining origin absent compelling 
information that new criteria are appropriate. The information 
presented by the petitioner does not meet that threshold.
    First, section 701(a)(1) of the Act provides for the investigation 
of whether a countervailable subsidy is being provided to ``a class or 
kind of merchandise.'' A single definable class or kind of merchandise 
is linked inextricably to its country of origin, which is in turn 
determined, for purposes of both antidumping and countervailing duty 
proceedings, by the substantial transformation test. (EPROMs, supra, at 
General Comment 28.) Accordingly, the Department finds that it would 
not be appropriate or feasible to have a class or kind of merchandise 
subject to investigation that would require two different and 
potentially conflicting country-of-origin tests. Thus, the Department 
cannot accept the alternative test implicated by petitioner's proposed 
scope language, i.e., that the assembly and testing operations should 
also set country-of-origin.
    The Department has independent authority to determine the scope of 
its investigations. See Diversified Products Corp. v. United States, 
572 F. Supp. 883, 887 (CIT 1983). The Department's authority to make 
its own country of origin determinations is inherent in its independent 
authority to determine the scope of AD/CVD investigations. Moreover, 
the Department's country-of-origin determinations, which have not 
always been identical with Customs's country-of-origin determinations, 
reflect concerns specific to enforcement of the AD/CVD laws, such as 
the potential for the circumvention of orders. See, e.g., EPROMS from 
Japan, 51 FR 39680 (October 30, 1986); DRAMS of 256 Kilobits and Above 
from Japan, 51 FR 28396 (August 7, 1986); Certain Cold-Rolled Carbon 
Steel Flat Products From Argentina, 58 FR 37062 (July 9, 1993).
    Given this authority, the Department has determined that it is 
appropriate to continue to base origin on wafer fabrication. While the 
petitioner may be correct that testing and assembly may be more costly 
than in the past, there does not seem to be any dispute that wafer 
fabrication is still the more important stage of the production 
process. Indeed, the petitioner contends, and we agree as in past 
determinations, that wafers fabricated in Korea and assembled and 
tested in third countries are within the scope of this proceeding. 
Consequently, we have not adopted the petitioner's proposed scope.


Consultations


    Pursuant to section 702(b)(4)(A)(ii) of the Act, the Department 
invited


[[Page 70929]]


representatives of the GOK for consultations with respect to the 
petition filed. On November 12, 2002, the Department held consultations 
with the GOK. The points raised in the consultations are described in a 
memorandum to the file entitled ``CVD Consultations with Officials from 
the Government of the Republic of Korea,'' dated November 13, 2002. 
This memorandum is on file in the Department's Central Records Unit, 
Room B-099 of the main Department of Commerce building. The GOK filed 
submissions with the Department on November 18 and 19, 2002.


Determination of Industry Support for the Petition


    Section 771(4)(A) of the Act defines the ``industry'' as the 
producers as a whole of a domestic like product. Thus, when determining 
the degree of industry support, the statute directs the Department to 
look to producers and workers who produce the domestic like product. 
The International Trade Commission (``ITC''), which is responsible for 
determining whether ``the domestic industry'' has been injured, must 
also determine what constitutes a domestic like product in order to 
define the industry. While both the Department and the ITC must apply 
the same statutory definition regarding the domestic like product 
(section 771(10) of the Act), they do so for different purposes and 
pursuant to separate and distinct authority. In addition, the 
Department's determination is subject to limitations of time and 
information. Although this may result in different definitions of the 
like product, such differences do not render the decision of either 
agency contrary to the law.\1\
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    \1\ See Algoma Steel Corp. Ltd., v. United States, 688 F. Supp. 
639, 642-44 (CIT 1988); High Information Content Flat Panel Displays 
and Display Glass from Japan: Final Determination; Rescission of 
Investigation and Partial Dismissal of Petition, 56 FR 32376, 32380-
81 (July 16, 1991).
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    Section 771(10) of the Act defines the domestic like product as ``a 
product which is like, or in the absence of like, most similar in 
characteristics and uses with, the article subject to an investigation 
under this title.'' Thus, the reference point from which the domestic 
like product analysis begins is ``the article subject to an 
investigation,'' i.e., the class or kind of merchandise to be 
investigated, which normally will be the scope as defined in the 
petition. As discussed in the scope section of this notice, we have 
modified the scope from the scope presented in the petition. For 
purposes of calculating industry support, we have used a domestic like 
product definition that is consistent with our revised scope language. 
The petition covers DRAMs as defined in the ``Scope of the 
Investigation'' section, above, a single class or kind of merchandise.
    Section 702(b)(1) of the Act requires that a petition be filed on 
behalf of the domestic industry. Section 702(c)(4)(A) of the Act 
provides that a petition meets this requirement if the domestic 
producers or workers who support the petition account for: (1) at least 
25 percent of the total production of the domestic like product; and 
(2) more than 50 percent of the production of the domestic like product 
produced by that portion of the industry expressing support for or 
opposition to the petition. Finally, section 702(c)(4)(D) of the Act 
provides that if the petition does not establish support of domestic 
producers or workers accounting for more than 50 percent of the total 
production of the domestic like product, the administering agency 
shall: (i) poll the industry or rely on other information in order to 
determine if there is support for the petition as required by 
subparagraph (A); or (ii) determine industry support using any 
statistically valid sampling method to poll the industry.
    The Department has determined, pursuant to section 702(c)(4)(D), 
that there is support for the petition as required by subparagraph (A). 
Specifically, the Department made the following determinations. The 
domestic producers or workers who support the petition established 
industry support representing over 50 percent of total production of 
the domestic like product. Therefore, the domestic producers or workers 
who support the petition account for at least 25 percent of the total 
production of the domestic like product, and the requirements of 
section 702(c)(4)(A)(i) are met. Furthermore, because the Department 
received no opposition to the petition, the domestic producers or 
workers who support the petition account for more than 50 percent of 
the production of the domestic like product produced by that portion of 
the industry expressing support for or opposition to the petition. 
Thus, the requirements of section 702(c)(4)(A)(ii) are also met. 
Accordingly, the Department determines that the petition was filed on 
behalf of the domestic industry within the meaning of section 702(b)(1) 
of the Act. See the Initiation Checklist dated November 21, 2002 
(``Initiation Checklist'').


Injury Test


    Because Korea is a ``Subsidies Agreement Country'' within the 
meaning of section 701(b) of the Act, section 701(a)(2) of the Act 
applies to this investigation. Accordingly, the ITC must determine 
whether imports of the subject merchandise from Korea materially 
injure, or threaten material injury to, an industry in the United 
States.


Allegations and Evidence of Material Injury and Causation


    The petition alleges that the U.S. industry producing the domestic 
like product is being materially injured, or is threatened with 
material injury, by reason of the subsidization of the imports of the 
subject merchandise. The petitioner contends that the industry's 
injured condition is evident in the declining trends in domestic 
prices, operating income and profitability, market share, budgeting for 
research and development, capital expenditures, inventory 
valuations,\2\ production capacity,\3\ as well as lost sales and 
revenue due to subject imports. The petitioner further alleges threat 
of injury due to increased import volumes, inventory levels in Korea, 
unused and increasing production capacity, and price depression. The 
petitioner asserts that because of the negative trends discussed above, 
several domestic producers have either ceased operations or 
consolidated operations with other domestic producers, and there have 
been no new entrants in the domestic industry. The allegations of 
injury and causation are supported by relevant evidence including U.S. 
Customs import data, the financial statements of Micron and Infineon 
Technologies, lost sales and revenue data, and pricing information. We 
have assessed the allegations and supporting evidence regarding 
material injury and causation, and we have determined that these 
allegations are properly supported by accurate and adequate evidence, 
and meet the statutory requirements for initiation (see Initiation 
Checklist).
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    \2\ Specifically, the petitioner alleges that the industry has 
recently experienced large write-downs of inventory valuation due to 
historically low selling prices.
    \3\ The petitioner states that wafer capacity has not increased 
over the last three years. Rather, capacity has been reduced due to 
industry consolidation and plant closures, and it has been retooled 
for production of other types of semiconductors or upgraded with new 
equipment to accommodate new densities, die shrinks, or address 
technologies.
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Allegations of Subsidies


    Section 702(b) of the Act requires the Department to initiate a 
countervailing duty proceeding whenever an interested party files a 
petition on behalf of an industry that (1) alleges the elements 
necessary for the imposition of a duty


[[Page 70930]]


under section 701(a), and (2) is accompanied by information reasonably 
available to the petitioner supporting the allegations.


Period of Investigation


    The petitioner has identified numerous instances of alleged 
government support for Hynix Semiconductor Inc. (``Hynix'')\4\ in 2001. 
The petitioner has argued that much of this assistance should be 
addressed under the Department's grant methodology because although the 
assistance was ostensibly in the form of loans, there were non-viable 
contingencies on repayment. Alternatively, the petitioner has argued 
that the assistance should be treated as long-term loans with special 
characteristics such that the benefit would be recognized at the time 
the funds were disbursed to Hynix in accordance with the methodology 
described in 19 CFR 351.505(b) and 351.505(c)(3). If the Department 
rejects these methodologies, then its regulations indicate that the 
benefit would accrue at the time that interest would be paid on a 
comparable commercial loan, according to the petitioner. However, based 
on information reasonably available to it, the petitioner has not been 
able to determine the terms of the allegedly subsidized assistance and, 
consequently, has not been able to calculate the interest that would 
have been paid in 2001 or whether, in fact, interest obligations even 
began before 2002.
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    \4\ Hynix was known as Hyundai Electronics Industries Co. Ltd. 
(``HEI'') until March 29, 2001.
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    To address these unique circumstances, the petitioner requests that 
the Department expand the period of investigation (``POI'') to include 
not only 2001, but also the first six months of 2002. The petitioner 
claims this is necessary because a POI limited to 2001 may permit the 
subsidies to Hynix to escape scrutiny. If the Department finds that the 
assistance to Hynix should be addressed under a methodology that 
assigns the benefits to 2001, the petitioner states that there may be 
no need to extend the POI.
    In consultations, the GOK argued that Hynix, Samsung Electronics 
Company (``Samsung''), and the GOK have calendar fiscal years and, as 
such, the Department's standard practice is to use only the calendar 
year 2001 as the POI. The GOK claims that no basis for expanding the 
POI exists because 1) any benefits received in 2002 would be captured 
in a review; 2) expanding the POI would unnecessarily complicate the 
case; 3) completed and audited financial statements or completed and 
submitted tax returns would not be available, placing an unnecessary 
burden on the U.S. government, the GOK, and the respondents; and 4) no 
rationale was provided to expand the POI, nor has the petitioner cited 
any cases in which the Department departed from its practice of using a 
single calendar year POI.
    Under 19 CFR 351.204(b)(2), the Department normally relies on 
information pertaining to the most recently completed fiscal year for 
the government and exporters or producers in question. That same 
regulation also states, however, that we may rely on information for 
any additional or alternative period that we conclude is appropriate. 
In this proceeding, because the petition was filed in November 2002, 
the normal POI would be 2001.
    Recognizing that adoption of an 18-month period of investigation 
would be a departure from our normal practice, we have carefully 
considered the merits of the petitioner's claims and the concerns raise 
by the GOK. Given the lateness of the filing in 2002, we considered 
collecting data for two separate 12-month periods, 2001 and 2002, and 
then deciding which data set to use once the relevant facts were 
discovered through the investigation process. However, such an approach 
has the obvious drawback that the Department would have to select 
between the two periods in making its final determination of subsidies, 
and the period picked could have a significant effect on the outcome of 
the proceeding.
    Instead, we have determined from the outset of this proceeding that 
we will use the 18-month period of investigation urged by the 
petitioner. We agree that the terms of various alleged subsidies are 
not reasonably available to the petitioner and that the methodology, 
including the point in time that the benefits would be deemed to have 
accrued, will only be known after an investigation and analysis of the 
parties' comments. In these circumstances, we do not believe that we 
should limit this investigation to the normal POI because doing so may 
be tantamount to telling the petitioner that it has to bring a case 
simply to learn that the petition should have been filed at a later 
time (despite that fact that allegedly injurious imports have been 
occurring all along). Our regulations at 19 CFR 351.204(b)(2) accord us 
the flexibility to address these unusual circumstances by expanding the 
POI.
    Moreover, we do not intend to scale back the 18-month period of 
investigation if, as the petitioner suggests, we find it unnecessary. 
By setting out an 18-month POI at the outset, we avoid the situation of 
having parties seek to shape the period of investigation to achieve a 
particular outcome.
    Regarding the concerns raised by the GOK, the issue is not whether 
the subsidies will be captured in the investigation or a possible 
administrative review. Instead, the petitioner has provided information 
available to it indicating that the subject merchandise is subsidized. 
The lack of perfect information, or questions about the timing of the 
benefits under the Department's various methodological approaches, 
should not preclude the petitioner from seeking meaningful relief. 
Second, we do not see that an expanded POI would complicate the 
investigation beyond the collection of additional data. Third, although 
completed and audited 2002 financial statements might not be initially 
available, the Department routinely relies on draft financial 
statements. Finally, although the petitioner has not cited any cases in 
which the Department departed from its practice of using a single 
calendar year as the POI, as noted above, the Department has the 
discretion to do so.


Initiation of Countervailing Duty Investigation


    The Department has examined the countervailing duty petition on 
DRAMs from Korea and found that it complies with the requirements of 
section 702(b) of the Act. Therefore, in accordance with section 702(b) 
of the Act, we are initiating a countervailing duty investigation to 
determine whether manufacturers, producers, or exporters of DRAMs from 
Korea receive countervailable subsidies.
I. Creditworthiness and Equityworthiness
    The petitioner alleges that Hynix was uncreditworthy in 2000 and 
2001 and continues to be uncreditworthy in 2002. The petitioner claims 
that at the end of 1999, HEI was at a cash crisis point, with 495 
billion Won in short-term debt and 2,502 billion Won in long-term debt, 
and approximately one trillion Won in interest payments due in 2000. 
HEI had only 808 billion Won in operating profits in 1999 so it was 
clear that HEI would be unable to pay off the loans and meet its 
interest obligations. Specifically, the petitioner claims that Hynix 
has not received any new lending on commercial terms since the 
beginning of 2001. With one exception, all loans received by Hynix in 
2002 were from government agencies or creditors entrusted or directed 
by the


[[Page 70931]]


government to extend credit to Hynix. The petitioner states that Hynix 
received one ``relatively insignificant'' loan from Citibank. However, 
the petitioner notes that the Department's practice is to examine the 
circumstances surrounding commercial bank loans that are part of 
financing packages that involve the government to determine whether 
there are any special features of the package that would lead the 
commercial lender to offer lower, more favorable terms than would be 
offered absent the government/ commercial bank package (citing to the 
Preamble to the Countervailing Duties: Final Rule, 63 FR 65348, 65363-
64 (November 25, 1998). The petitioner claims that the loan from 
Citibank, for several reasons, could not be viewed as being comparable 
to the GOK's loans.
    The petitioner further alleges that throughout the period 2000 and 
2001, Hynix had a significant amount of debt coming due and the company 
would not be able to pay off this debt using its internal free cash 
flow. Therefore, Hynix needed help from the government. To support 
this, the petitioner points to comments made by investment banks in 
their reports during 2000 and 2001. For example, the reports stated: 
``[w]e believe it would be difficult for [Hynix] to secure sufficient 
funds to repay its debt...;'' ``[Hynix has a] fundamental problem of 
excessive debt which was around 87 percent of 2001 sales;'' ``[Hynix 
is] not profitable and is not paying off debt at a sufficiently fast 
rate from internal cash flow or asset disposals;'' ``we believe Hynix's 
balance sheet risk remains high.'' According to the petitioner, the 
investment community's analyses at the time reveals that it was known 
that Hynix did not have the cash flow to repay debts and would not be 
able to obtain funding from normal commercial sources.
    Since the two bailouts in 2001, the petitioner claims that Hynix's 
financial situation has continued to worsen, with Hynix reporting a 
loss of more than 410 billion Won for the first half of 2002. 
Meanwhile, the petitioner notes, Hynix still has 5,982 billion Won in 
debt, a large portion of which is coming due in the next few years. 
With DRAM prices at historical lows, the petitioner argues that there 
is no reasonable expectation, under normal commercial considerations, 
that Hynix's debt will ever be repaid without GOK assistance. Without 
GOK intervention, the petitioner claims, banks would not continue to 
provide new money to Hynix, at any interest rate.
    The petitioner additionally examines Hynix's financial condition 
during the time relying on various financial indicators: total 
liabilities to net worth; fixed assets to net worth; current 
liabilities to net worth; the current ratio; and the quick ratio. 
According to the petitioner, the current ratio indicates that even if 
Hynix were to liquidate its current assets at full book value, it would 
be unable to pay off its current liabilities in full. Regarding the 
quick ratio, the petitioner notes that Hynix could cover only 8 percent 
of its current liabilities with current assets other than inventories. 
The petitioner also claims that Hynix's debt was increasing. The 
company's debt-to-equity ratio was 186 percent in 2000 and rose to 193 
percent in 2001. Finally, the petitioner notes that for the period 1998 
to 2001, Hynix had current liabilities which exceeded its net worth for 
three of the years. According to the petitioner, only after the bailout 
in 2001, did this ratio drop below one. In examining a company's 
creditworthiness we attempt to determine if the company in question 
could obtain long-term financing from conventional commercial sources. 
19 CFR 351.505(a)(4). We find that the financial information submitted 
by the petitioner provides a reasonable basis to believe or suspect 
that Hynix was uncreditworthy in 2000 - 2002. Therefore, if we find 
that Hynix received any non-recurring grants, loans, or loan guarantees 
in those years, we will determine whether the company was creditworthy 
in those years.
    The petitioner also alleges that Hynix was unequityworthy in 2001, 
the year in which Hynix recorded convertible bonds as capital 
adjustments (i.e., swapped debt for equity). Specifically, according to 
the petitioner: 1) Hynix posted net losses since 1998; 2) the lead 
underwriter of Hynix's 2001 issuance of global depository receipts 
(``GDR'') did not foresee positive free cash flow for the company 
through the fourth quarter of 2003; 3) without free positive cash flow, 
Hynix could not service its debt, forcing it into bankruptcy and 
eliminating any claims by the shareholders on the company's proceeds; 
4) Hynix's return on equity was negative for the period 1998 through 
2000 (negative 35.5 in 2000), and was projected to range from negative 
54.1 percent to negative 89.1 percent through 2003; and 5) although 
Hynix had a GDR equity offering to private investors in June 2001, 
because the 72 percent drop in the prices of these GDRs showed that 
Hynix's financial position had degenerated, this offering does not 
indicate that Hynix was equityworthy at the time of the debt-equity 
swap in October 2001. The petitioner claims that the convertible bonds 
should be treated as equity, not debt, because the bondholders were 
obligated to convert the bonds and Hynix treated these bonds as capital 
adjustments. In the case of a government equity infusion, the 
Department measures the benefit by examining the investment decision 
against the usual investment practice of a private investor. 19 CFR 
351.507(a)(1). Specifically, the Department compares the purchase price 
paid by the government to prices paid for new shares by private 
investors, if such prices exist. 19 CFR 351.507(a)(2). If actual 
private investor prices are unavailable, the Department will determine 
the equityworthiness of a company at the time of the equity infusion. 
19 CFR 351.507(a)(3).
    In this case, although Hynix did issue GDR's in the first half of 
2001, we find that the petitioner provides a reasonable basis to 
believe or suspect that, at the time of the October 2001 bailout, Hynix 
was not equityworthy. If we determine that Hynix received an equity 
infusion in 2001, we will make a determination regarding Hynix's 
equityworthiness at the time of the infusion.
II. Programs
    We are including in our investigation the following programs 
alleged in the petition to have provided countervailable subsidies to 
producers and exporters of the subject merchandise in Korea. The bases 
for our determination to investigate these programs are set forth in 
the Initiation Checklist.
    For several of the programs listed below, the petitioner alleges 
that the GOK 1) directs credit in Korea, and 2) this credit was 
directed specifically to the semiconductor industry. For the reasons 
stated in the Initiation Checklist, we are investigating whether the 
GOK directs credit in Korea and whether the semiconductor industry 
receives a disproportionate share of the directed credit.
A. Bailout Subsidies to Hynix
1. Syndicated Bank Loan of 800 Billion Won
2. 22.7 Billion Won Citibank Loan
3. KDB Fast Track Program
4. May 2001 Bailout
 a. Creditor Purchase of 994.1 Billion Won of Convertible Bonds
 b. 6 Billion Won Grant
 c. 5.9 Billion Won Loan
 d. Extension of Maturities of 58 Billion Won of Short-Term Loans
 e. Extension of Maturities of Long-Term Loans
 f. Committed Availability of Short-Term Financing


[[Page 70932]]


5. 680 Billion Won Bond Guarantee
6. October 2001 Bailout
 a. Equity Infusion
 b. Extension of Debt Maturities and Reduction or Elimination of 
Interest Obligations
 c. Debt Forgiveness
 d. Conversion of Short-Term Financing to Long-Term Loans
 e. Fresh Loans
7. D/A Financing
B. Other Subsidies
1. Preferential Loan Programs
 a. Fund for Industrial Technology Development
 b. Fund for Promotion of Science and Technology
 c. Fund for Rental Housing
 d. Fund for Promotion of Defense Industry
 e. Long-Term Usance Loans
 f. Export Industry Facility Loans (``EIFLs'')
 g. Short-term Export Financing
 h. Export Credit Financing From Export-Import Bank of Korea
 i. Loans From the Energy Savings Fund
 j. Fund for Machinery Made in Korea
 k. Fund for Promotion of Informatization
2. R&D Support
3. Tax Programs
 a. Reserve for Overseas Market Development - (Former) Article 17 of 
TERCL
 b. Technological Development Reserve Funds - (Former) Article 8 of 
TERCL
 c. Reserve for Export Loss - (Former) Article 16 of TERCL
 d. Tax Credit for Investment in Facilities for Productivity 
Enhancement under Article 24 of RSTA
 e. Miscellaneous Investment Tax Credits - Article 10, 18, 25, 26, and 
71 of RSTA
 f. Foreign Investment Promotion Act (Formerly Foreign Capital 
Inducement Law (``FCIL''))
4. Other Benefits
 a. Duty Drawback on Non-Physically Incorporated Items and Excessive 
Loss Rates
 b. Export Insurance
 c. Electricity Discounts Under the Requested Load Adjustment Program
 d. Targeted Assistance Programs
 i. Operation G&/HAN Program and 21st Century Frontier R&D Program
 ii. Korean Semiconductor Research Project
    We are not investigating the following alleged subsidy programs: 
Tax Credit for Investment in Equipment to Develop Technology and 
Manpower - Article 11 of RSTA (formerly Article 9 of TERCL) and Special 
Taxation Provisions Relating to Corporate Restructuring.


Distribution of Copies of the Petition


    In accordance with section 702(b)(4)(A)(i) of the Act, a public 
version of the petition has been provided to the GOK. We will attempt 
to provide a public version of the petition to each exporter named in 
the petition, as provided for under 19 CFR 351.203(c)(2).


ITC Notification


    We have notified the ITC of our initiation, as required by section 
702(d) of the Act.


Preliminary Determination by the ITC


    The ITC will determine, no later than December 16, 2002, whether 
there is a reasonable indication that imports of DRAMs from Korea are 
causing material injury, or threatening to cause material injury, to an 
industry in the United States. A negative ITC determination will result 
in the investigation being terminated; otherwise, this investigation 
will proceed according to statutory and regulatory time limits.
    This notice is issued and published pursuant to section 777(i) of 
the Act.


    Dated: November 21, 2002.
Faryar Shirzad,
Assistant Secretary for Import Administration.
[FR Doc. 02-30138 Filed 11-26-02; 8:45 am]