66 FR 52097, October 12, 2001
                                                           A-580-812
                                          ARP: 5/1/1999 - 12/31/1999
                                                     Public Document
                                                         GIIOIV: PRR

MEMORANDUM TO: Faryar Shirzad
               Assistant Secretary
                 for Import Administration

FROM:          Bernard T. Carreau 
               Deputy Assistant Secretary
                 for Import Administration

SUBJECT: Issues and Decision Memorandum for the Administrative Review of
Dynamic Random Access Memory Semiconductors from Korea - 5/1/1999 through
12/31/1999; Final Results

Summary

We have analyzed the comments and rebuttal comments of interested parties
in the 1999 administrative review of the antidumping duty order covering
Dynamic Random Access Memory Semiconductors (DRAMs) from Korea. As a
result of our analysis, we have made changes from our preliminary results.
We recommend that you approve the positions we have developed in the
Discussion of the Issues section of this memorandum. Below is the complete
list of the issues in this administrative review for which we received
comments and rebuttal comments by parties:

Comment 1: Offset to Foreign Currency Translation Losses
Comment 2: Research and Development (R&D)
Comment 3: Cross-Fertilization of R&D 
Comment 4: Use of Cost of Goods Sold (COGS) to Calculate R&D Ratio
Comment 5: Increase in Useful Lives
Comment 6: U.S. Antidumping Statute and World Trade Organization (WTO)
           Antidumping Agreement
Comment 7: Post Period of Review (POR) Sales of Subject Merchandise
           Entered During the POR
Comment 8: Offset for Constructed Export Price (CEP) Sales
Comment 9: Recalculation of Expenses in Margin Program
Comment 10: Calculation of Home Market (HM) Credit Expense
Comment 11: CEP Profit Ratio - Calculation of Total Profit
Comment 12: U.S. Credit Expense

Background

On June 7, 2001, the Department of Commerce (the Department) published
the Dynamic Random Access Memory Semiconductors of One Megabit or Above
From the Republic of Korea: Preliminary Results of Antidumping Duty
Administrative Review, 66 FR 30688 (June 7, 2001) (Preliminary Results).
Because the order was revoked, effective January 1, 2000, pursuant to the
sunset procedures established by the statute, the period of review (POR)
is May 1, 1999, through December 31, 1999.

The merchandise covered by this order is DRAMs from the Republic of
Korea. The review covers two manufacturers, Hyundai Electronics Industries
Co., Ltd. and its U.S. sales affiliate Hyundai Electronics America, and LG
Semicon Co., Ltd. (LG) and its U.S. sales affiliate LG Semicon America
(collectively LG), and six resellers, the G5 Corporation (G5), Kim's
Marketing, Jewon Trading (Jewon), Wooyang Industry Co., Ltd. (Wooyang),
Jae Won Microelectronics (Jae Won), and Techsan Electronics (Techsan). As
discussed in the Preliminary Results, we have collapsed Hyundai and LG
into one entity for this review (collectively Hyundai). See Decision
Memorandum: Whether to Collapse Hyundai Electronics Industries Co., Ltd.
and LG Semicon Co., Ltd. Into a Single Entity, dated May 1, 2001. However,
for the purposes of analysis, the Department discusses LG as a separate
entity when referring to events that have taken place prior to the
collapsing of Hyundai and LG. We invited parties to comment on our
preliminary results of review. We received comments on July 9, 2001, from
Hyundai and from Micron Technology, Inc. (petitioners). On July 17, 2001,
we received rebuttal briefs from petitioners and Hyundai.

The Department has conducted this administrative review in accordance
with section 751 of the Act of 1930, as amended (the Act).

Changes Since the Preliminary Results

Since the preliminary results we have made the following change in our
calculations:

We corrected an error in the CEP offset calculation, see Comment 8. 

We corrected two errors in the final margin part of the program, 
see Comment 9. 

We recalculated HM credit expense, see Comment 10. 

We recalculated CEP profit ratio, see Comment 11. 

We recalculated U.S. credit expense, see Comment 12. 

Discussion of the Issues

Comment 1: Offset to Foreign Currency Translation Losses

Hyundai argues that the Department erred in rejecting the use of asset
revaluation increments (the increase in the value of Hyundai's capital
equipment resulting from an independent appraisal) as an offset to
deferred foreign currency translation losses. Hyundai states that it
revalued its property, plant, and equipment in accordance with the Asset
Revaluation Law of Korea and the Korean Generally Accepted Accounting
Principles (GAAP). Hyundai states that foreign currency translation losses
and the increased value of the assets in won purchased with dollar-
denominated debt were the result of the same cause: the rapid devaluation
of the won. Hyundai contends it is appropriate to offset deferred foreign
currency translation losses by the increase in the value of the fixed
assets because the foreign currency translation losses were incurred on
loans that were used to purchase those assets. 

Hyundai contends that its use of the revaluation increment to offset
foreign currency translation losses is consistent with the accounting
principle of matching related income and expenses, which it notes is a
basic tenet that the Department has endorsed in other antidumping
proceedings. See Notice of Final Determination of Sales at Less Than Fair
Value: Certain Cut-To-Length Carbon-Quality Steel Plate Products from
Korea, 64 FR 73196 (December 29, 1999) (Plate from Korea). Hyundai asserts
that, in Plate from Korea, 64 FR at 73206, the Department explicitly
acknowledged the match between asset revaluation and foreign currency
translation losses.

Further, Hyundai believes that inclusion of both the restated asset
values and the foreign currency translation losses in Hyundai's cost of
production (COP) results in a double counting of the impact of exchange
rate fluctuations. According to Hyundai, the deferred foreign currency
translation losses represent the won increase in principal that Hyundai
must pay in order to retire its debt. That principal was converted by
Hyundai to depreciable physical assets through the purchase of
semiconductor manufacturing equipment. The impact of the won devaluation
on the principal, according to Hyundai, is fully reflected in the increase
in won asset values and thus flows through the income statement as
increased depreciation expenses.

Micron argues that respondent's argument does not directly address the
point made by the Department in the final results of the sixth review.
Micron states that Hyundai adopted a one-way ratchet designed to
manipulate its apparent profitability in one year. In particular, Micron
notes that when Hyundai experienced significant foreign exchange gains in
1998, it did nothing to revalue its assets. According to Micron, given the
distortive nature of the asset revaluation/foreign exchange loss offset
practice, the Department appropriately continued to use the sixth review
methodology in this review, and it should continue to do so for the final
results. 

Department's Position:

We disagree with Hyundai. Fixed assets are revalued because inflation
renders meaningless in terms of today's values the historical values in
which the assets were originally recorded, and hence their values are
adjusted upward. Foreign exchange gains or losses recognize the real cost
of having to spend more won to pay back the same dollar value loan.
Therefore, we disagree that the foreign exchange losses and the
revaluation increment are directly linked and that the offset of these
losses by the revaluation increment is appropriate. Section 773(f)(1)(A)
of the Act directs 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 Statement of Administrative Actions, Uruguay Round Agreements Act,
Pub. L. No. 103.465, 103rd Cong. 2d Sess., H. Doc. 103-316, vol. I (1994)
(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.

Both the fixed asset revaluation increment and the unamortized foreign
exchange translation losses were treated as adjustments to the equity
section of Hyundai's balance sheets (i.e., did not flow through its income
statements) in the ordinary course of business, in accordance with Korean
GAAP. (1) For submission purposes, Hyundai excluded both of these items
from its reported costs. (2) While we agree with this treatment for the
fixed asset revaluation increment, we believe exclusion of the unamortized
foreign exchange translation losses is distortive because the revaluation
of the fixed assets (i.e., non-monetary assets) does not represent income
during the year. In economic terms, the company is in the same position
holding the same assets. Likewise, the revaluation of non-monetary
liabilities (e.g., equity and capital) does not represent a loss during
the fiscal year; rather, it represents the restatement of non-monetary
liabilities into current price levels just as was accomplished by the
restatement of the fixed assets. See Notice of Final Determination of
Sales at Less Than Fair Value: Certain Preserved Mushrooms from Chile, 63
FR 56613, 56621 (October 22, 1998). In other words, the restatement of the
book value of a truck into a greater number of (lower value) won does not
result in an economic gain since one still only owns the truck. Therefore,
we do not include the incremental gain resulting from these revaluations
in our antidumping analysis. We include only the depreciation on the
revalued asset values in our COP and constructed value (CV) computations
since it represents a production expense stated at current price levels.

The notion of depreciation expense is to spread the initial cost of
acquiring a fixed asset over the useful life of that asset in order to
match the resulting expense to the revenues of the corresponding period. A
failure to adjust the historical cost basis of the fixed assets for the
significant devaluation of the won results in the depreciation recognized
in the current year being understated. In order to avoid this
understatement, Hyundai revalued its fixed assets during the year and
recognized depreciation expense on the higher revalued basis in the
ordinary course of business. (3) Accordingly, we have continued to rely on
Hyundai's normal books and records by including the increased depreciation
expense based on the revalued asset basis, and by not including the fixed
asset revaluation increment in the reported costs. 

The deferred foreign currency translation losses are the result of
exchange rate changes on foreign denominated debt. Because loans are
monetary assets, the respondent is obligated to pay back the full amount
of the loans in the currency in which they are denominated. Thus, when the
won loses value in relation to the foreign currency in which the loans are
denominated, the loans' year-end balance in won increases, indicating that
the debtors will have to pay more won to satisfy the loans (i.e.,
translation losses). The Department's practice is to include foreign
exchange translation gains and losses related to current debt in the COP
and CV computations. See, e.g., Notice of Final Determination of Sales at
Less Than Fair Value: Fresh Atlantic Salmon From Chile, 63 FR 31411, 31430
(June 9, 1998). It is only because Hyundai has continually changed its
method of accounting for its foreign currency translation gains and losses
that the issue of amortization arises.

In 1997, Hyundai capitalized its long-term translation losses, and
amortized the losses over the lives of the corresponding liabilities. In
1998, the unamortized translation losses still remained. The respondent,
in its new accounting methodology, simply moved these translation losses
to a different part of its balance sheet. While this may be appropriate
for Korean financial accounting, for antidumping purposes, this new
practice fails to reasonably reflect the cost of producing the subject
merchandise: the respondent's new accounting treatment of these
translation losses does not change that fact that these translation losses
represent an additional cost of financing to the companies, as was
recognized by the respondent in its amortization of these translation
losses in its own books and records in 1997. The respondent's 1997
treatment of the deferred financial losses is also consistent with the
Department's amortization of the respondent's deferred translation gains
and losses in the fourth administrative review covering 1996, when Hyundai
did not recognize in its income statements any of its deferred translation
gains and losses. See Dynamic Random Access Memory Semiconductors of One
Megabit or Above From the Republic of Korea: Final Results of Antidumping
Duty Administrative Review, Partial Rescission of Administrative Review
and Notice of Determination Not to Revoke Order, 63 FR at 50872 (September
23, 1998) (Final Results 1996-1997). 

The unreasonableness of the respondent's new accounting method for its
deferred translation losses in 1998 is further highlighted by the
inconsistent way in which it treats its deferred translation gains in that
same year. While Hyundai and LG wrote off the deferred translation losses
to the equity section of the balance sheet, they continued amortizing the
deferred gains (i.e., they reflected the gains on the income statement) in
1999. (4) This inconsistent accounting treatment of deferred translation
gains and losses greatly diminishes the impact of the losses, and
heightens the impact of the gains. Therefore, consistent with the
respondent's practice for both translation losses and gains in 1997 and
for deferred translation gains in 1998 and the Department's practice, we
have continued to include an amortized portion of the 1997 long-term
translation losses in the respondent's COP.

Comment 2: R&D

Hyundai states that the Department overstated Hyundai's R&D costs by
including in such costs product development expenses for future projects
that Hyundai had amortized and deferred, in accordance with Korean GAAP.
Respondent argues that it submitted R&D costs based on its financial
accounting records, which, in turn, were based on Korean GAAP.

Hyundai claims that its reported R&D costs were derived from its normal
accounting records based on Korean GAAP. Consistent with the International
Accounting Standards (IAS), Korean GAAP allows for amortization of product
development costs where the beneficiary products can be reasonably
expected to have a multi-year life span. The product development costs are
amortized over the life of the product. "Deferred" R&D costs are those
product development costs that were incurred for future products that have
not yet been produced and, therefore, for which there is no current
revenue. Such development costs are deferred until production commences,
unless there is no reasonable expectation that the expenditures will ever
result in commercial benefits. In the latter situation, Hyundai following
Korean GAAP and the IAS, expensing those development costs in the current
year. Respondent argues that its submitted R&D costs were based on its
financial accounting records, which in turn, were based on Korean GAAP.

Hyundai further argues that the Department has accepted foreign GAAP
principles that capitalize costs where U.S. GAAP would otherwise expense
those costs and cites to several cases to support its claim. Hyundai
states the Court of International Trade (CIT) in the original
investigation in this case found that capitalization of R&D costs under
Korean GAAP reasonably reflects the costs of production. See Micron
Technology, Inc. v. United States, 893 F. Supp. 21, 29 (CIT 1995) (Micron
I). In the case cited by Hyundai, the Department found that amortization
of R&D expenses matches production costs to future benefits. Hyundai
argues that the record in this case demonstrates Hyundai's development
costs also result in imminent and predictable future benefits, thus, it is
appropriate for Hyundai to defer and amortize product development costs
pursuant to Korean GAAP.

Hyundai argues that Korean GAAP's treatment of R&D expenses reasonably
reflects the costs of production. According to the respondent, the
Department is incorrect in utilizing the methodology used in the sixth
review final determination when the Department stated that the "matching
principle" cannot be applied to R&D costs because there is a lack of
recognizable future benefits, and therefore, the concept of conservatism
in accounting dictates that those costs be expensed in the accounting
period in which they are incurred. According to Hyundai, the Department
relied on the Financial Accounting Standards Board's (FASB) Statement of
Financial Accounting Standards No. 2 (SFAS No. 2). The FASB believes that
both R&D costs should be expensed due to the high degree of uncertainty
regarding the future benefits of individual R&D projects. According to
Hyundai, the International Accounting Standards Committee's (IASC)
International Accounting Standard 9 (IAS9) takes a different approach with
respect to accounting for R&D costs. Research costs are to be expensed as
they are incurred but development costs of a project may be deferred and
amortized if five criteria are met. Hyundai states that it meets those
five criteria and Korean GAAP follows IAS 9. Additionally, the vast
majority of the major industrialized nations follow at least some variant
of IAS. Hyundai adds that the Department has been proceeding down a path
largely inconsistent with the rest of the world, and the growing weight of
accounting opinion. Hyundai urges the Department to accept Korean GAAP as
reasonable.

Hyundai argues that the fact that Hyundai changed its accounting
treatment of R&D expenses several years ago is not a justification for
rejecting Hyundai's costs. Hyundai claims that the statute does not
prohibit a respondent from changing its accounting practices provided the
change is consistent with that country's GAAP and the new methodology does
not distort costs. Further, Hyundai states that administrative reviews are
wholly independent proceedings, therefore, adjustments to costs in one
period cannot subsequently effect every period thereafter. Consequently,
the Department should only evaluate whether the accounting methodology
used during the current POR accurately reflects the costs of production.
Hyundai adds that the Department's position would force a company involved
in an antidumping proceeding to never change any of its accounting
practices. 

Micron argues that the Department properly rejected the costs of
Hyundai's most recent method of accounting as distortive. Micron claims
that the latest set of changes follows a pattern of frequent changes in
Hyundai's and LG's accounting treatment of R&D.

Micron also claims that the Department's decision is in accordance with
the statute, past practice, and CIT precedent. Despite Hyundai's
arguments, Micron asserts that section 773(f)(1)(A) of the Act provides
that costs shall "normally' be based on the company's records in
accordance with local GAAP unless such records do not "reasonably reflect
the costs associated with production and sale of the merchandise." In
addition, the Uruguay Round Agreements Act and the accompanying SAA
instruct the Department to question instances when the foreign producer
has deviated from its historical allocations. See SAA at 834. Micron
points out that the Department does not defer to a company's records, even
when kept in accordance with local GAAP, if its accounting methodologies
distort costs. See, e.g., Certain Small Business Telephone Systems and
Subassemblies Thereof From Korea, 54 FR 53141, 53149 (December 27, 1989).

Micron states that Hyundai's assertion that the Department's
determination contradicts Micron I is incorrect. Micron claims that the
critical factors distinguishing the circumstances here from the original
investigation are Hyundai's frequent changes in accounting methodologies
and its deferral of certain costs.

Micron submits that the international standards that Hyundai discusses
are not inconsistent with the Department's analysis. According to Micron,
U.S. GAAP requires that all R&D costs be expensed in the year incurred.
IAS 9 requires that costs identified as research be charged to current
expenses, but that costs identified as development be capitalized if
specified criteria are met, including that the "costs attributable to the
product can be separately identified and measured reliably." Micron
continues to say if, however, those criteria are not met, development
costs should be charged to expense. According to Micron, in this respect
IAS 9 is similar to SFAS No. 2, which provides that R&D expenses cannot be
matched to revenues because the benefits of R&D cannot be discerned at the
time the costs are incurred. In this case, Hyundai did not indicate that
it could have associated future revenues and current R&D with any
reasonable certainty. Micron claims that, for this reason, the
Department's decision is especially appropriate for this particular
industry, and for this particular respondent.

Department's Position:

Section 773(f)(1)(A) of the Act directs 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 1996-1997, 63 FR at 50871.

We agree with Hyundai that its method of amortizing and deferring R&D
costs is permissible under Korean GAAP, and that its previous method of
expensing all current period R&D expenses in the year incurred is also in
accordance with Korean GAAP. However, Hyundai's practice of continually
changing between these methods distorts the cost calculation in an
antidumping analysis. As discussed in the Department's Issues and Decision
Memorandum for the Administrative Review of Dynamic Random Access Memory
Semiconductors of One Megabit or Above from the Republic of Korea -
5/1/1998 through 4/30/1999; Final Results, dated November 15, 2000,
(Decision Memorandum) from the sixth review of this proceeding, Hyundai
and LG have repeatedly changed their accounting method for R&D expenses
throughout the course of this proceeding (i.e., from capitalizing and
amortizing, to expensing in the year incurred, and now back to
capitalizing and amortizing). As a result, they recognize 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. See Dynamic Random Access Memory
Semiconductors of One Megabit or Above From the Republic of Korea; Final
Results of Antidumping Duty Administrative Review, 61 FR 20216, 20219 (May
6, 1996) (Final Results 1992-1994) and Micron Technology, Inc. v. United
States, 44 F. Supp. 2d 216 (CIT 1999) (Micron II).

In the current review period, Hyundai used the accounting methodology,
adopted in the fifth administrative review, of capitalizing and amortizing
its R&D expenses over five years. As a result, the respondent recognizes
(and has reported to the Department) approximately one-fifth of its
current year's R&D costs. (5) If it had consistently used this
capitalization and amortization method in past years, one-fifth of the R&D
expense incurred in each of the previous four years, in addition to the
one-fifth of the current year's amount, would be included in the current
year's income statement. However, because of inconsistent accounting
treatment, in this POR the respondent is recognizing an aberrationally low
amount of R&D expenses in the current year. 

A second methodological issue that further distorts Hyundai's reported
costs is its practice of indefinitely deferring certain R&D costs. Apart
from R&D costs that are amortized over five years, Hyundai is completely
deferring R&D costs for certain long-term projects until it realizes
revenues from these projects, or until they foresee no possibility of
realizing revenue from these projects. While in the past, the respondents
recognized all of this type of R&D expense in the year incurred, under the
current 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, by continually changing its R&D accounting methodology, is
manipulating the magnitude of the R&D expenses that it is recognizing and
reporting to the Department in each POR. 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 in the current review), 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. 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 recognized in the current review (i.e., less than one-fifth
of one year's total 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 a period
of review." See Micron II, 44 F. Supp. 2d at 216. However, by abruptly
switching back to amortizing and deferring R&D expenses, Hyundai is not
capturing those expenses that reasonably and accurately reflect their
actual R&D costs for this POR. As a result of its constantly changing R&D
accounting methodologies, its latest method of capitalization of R&D
produces a distorted result that does not reasonably reflect the actual
cost of producing the subject merchandise.

As noted in Hyundai's case brief, the Department did verify how Hyundai
recorded its R&D expenditures in the normal course of business. The
Department did verify the information that Hyundai presented in its
response which was consistent with Korean GAAP. See Verification Report,
May 31, 2001. However, the issue is not whether Hyundai's reporting
methodology is consistent with Korean GAAP or is the same as was reported
to the Department, but whether the change in accounting methodologies is
distortive with respect to Hyundai's costs. As stated above, the
Department finds that Hyundai's continual changing of its accounting
methodologies, regardless of its adherence to Korean GAAP, is distortive.

We have therefore determined that it is appropriate to recognize for
antidumping purposes all of Hyundai's 1999 R&D expenses in order to
reasonably and accurately reflect the company's 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 had been following prior to the
fifth administrative review.

Further, we disagree with Hyundai that the Department's decision to
reject its 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, 893
F. Supp 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 costs in the year
incurred is not a "departure from its established practice." While the
Department, prior to the final determination, in the cases cited by
Hyundai (i.e., CTVs from Korea, Pipe from Korea, and PET Film), 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 in the year incurred.
See, e.g., 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, 15472 (March 23, 1993) (Final
Determination) (Department rejected amortization of R&D), Final Results
1992-1994, Dynamic Random Access Memory Semiconductors of One Megabit or
Above From the Republic of Korea; Final Results of Antidumping Duty
Administrative Review, 62 FR 965 (January 7, 1997) (Final Results 1994-
1995), Notice of Final Results of Antidumping Duty Administrative Review
and Determination Not To Revoke Order in Part: Dynamic Random Access
Memory Semiconductors of One Megabyte or Above From the Republic of Korea,
62 FR 39809 (July 24, 1997) (Final Results 1995-1996), Final Results 1996-
1997, and Dynamic Random Access Memory Semiconductors of One Megabit or
Above From the Republic of Korea: Final Results of Antidumping Duty
Administrative Review, 65 FR 68976 (November 15, 2000) (Final Results 1998-
1999). See also Notice of Final Determination of Sales at Less Than Fair
Value: Static Random Access Memory Semiconductors From Taiwan, 63FR 6909
(February 23, 1998) (SRAMs from Taiwan); Notice of Final Determination of
Sales at Less Than Fair Value: Static Random Access Memory Semiconductors
From the Republic of Korea, 63 FR 8934 (February 23, 1998) (SRAMs from
Korea) (Department accepted expensing of current R&D) and Notice of Final
Determination of Sales at Less Than Fair Value: Dynamic Random Access
Memory Semiconductors of One Megabit and Above (DRAMs) From Taiwan, 64 FR
56308, 56319 (October 19, 1999) (DRAMs from Taiwan) (Department agreed
that "R&D costs should be expensed as incurred"). 

Third, the facts 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 respondent's practice
of continually changing how it recognizes R&D expenses.

Further, we disagree with Hyundai 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, as a result of the continually changing methodology we
found that the reduced R&D costs 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 3: Cross-Fertilization of R&D

Respondent argues that the Department's R&D calculation improperly
included R&D costs for non-memory products. According to respondent,
Hyundai utilized its accounting records to calculate an R&D ratio based
solely on R&D costs incurred for memory products. Hyundai asserts that the
Department verified that Hyundai tracks every R&D expense item based on
the individual product to which the R&D project is directed. See
Verification Report, at 12. Respondent states that it believes that the
Department's decision is based on its belief that there are "cross-
fertilization" benefits for companies that undertake R&D in the
semiconductor industry. 

Hyundai states that R&D for non-memory devices does not benefit memory
devices because there are fundamental differences in function, design, and
production between the two products. Hyundai asserts that memory devices
such as SRAMs and DRAMs are standard, generic products, while non-memory
devices are produced to meet specific customers' requirements, who often
provide the designs. The respondent states that the objective of non-
memory R&D is product design and specific end-use applications, while the
focus of memory R&D is on die shrinks. Moreover, Hyundai notes that the
production volume for non-memory devices is very small while millions of
memory devices are produced every month. Hyundai states that the
development of non-memory products lags behind the development of memory
products. According to Hyundai, while memory products represent the state-
of-the-art in semiconductor manufacturing technology, non-memory products
depend on more mature manufacturing processes. Consequently, Hyundai
argues that R&D projects involving non-memory products do not contribute
to the development of cutting edge products like DRAMs, and the money
spent on developing application specific circuit designs has no influence
in memory production. Hence, according to Hyundai, there is no
justification for the Department to include R&D expenses for non-memory
products in the calculation of an R&D cost ratio for DRAM products. 

In rebuttal, Micron argues that the Department properly accounted for the
cross-fertilization of semiconductor R&D. According to Micron, since the
first administrative review in these proceedings, the Department has
determined that semiconductor R&D benefits all semiconductor products, and
therefore, a company's total semiconductor R&D expense should be allocated
over its total semiconductor production. Micron points out that the
Department also adhered to this practice in the antidumping cases
involving DRAMs from Taiwan and SRAMs from Taiwan and Korea. See DRAMs
from Taiwan; SRAMs from Taiwan, and SRAMs from Korea. Micron asserts that
the expert technical advice provided by an independent semiconductor
expert, Dr. Murzy Jhabvala, supports the Department's finding regarding
cross-fertilization of semiconductor R&D in this industry. Micron
maintains that in this review the Department has again followed this
approach, based on substantial evidence in support of its conclusion that
all semiconductor R&D benefits all semiconductors.

Micron contends that the Department's approach in this and its prior
determinations is legally sound and supported by the record evidence.
According to Micron, the respondents make no new arguments that the
Department has not previously considered and rejected. On the facts,

Micron argues, respondents again present no new information to rebut the
conclusion of the Department's independent expert that there is a
significant cross-fertilization in R&D efforts among various semiconductor
product lines.

Department's Position:

We disagree with Hyundai's argument that the Department erred by deciding
that semiconductor R&D benefits all semiconductor products. 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. 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 SRAMS from Korea at Comment 3.

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 Hyundai in this review. As we have said in
the past (see, e.g., Final Results 1996-1997, 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 SRAMs from Korea, at Comment 3. 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 COGSsold, a methodology which does not overstate
costs, but which we believe reasonably and accurately identifies the R&D
expenses attributable to subject merchandise.

This methodology reflects 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.
Contrary to Hyundai's arguments, this methodology results in the
calculation of product-specific costs consistent with sections 773(e) and
773(f)(1)(A) of the Act because it includes all relevant R&D rather than
just DRAM-specific R&D "account entries," which do not by themselves
reflect all costs associated with the production and sale of subject
merchandise.

Comment 4: Use of COGS to Calculate R&D Ratio

Hyundai contends that by calculating Hyundai's R&D ratio as a percentage
of COGS rather than as a percentage of cost of manufacturing (COM), the
Department overstated Hyundai's per unit R&D cost. Hyundai believes that
this is distortive as the Department applied the COGS-based percentage to
the COM for each product. Hyundai believes that, under the principle of
parallel construction, the denominator that is used to calculate the R&D
ratio should be derived on the same basis as the per-unit value to which
the ratio is applied. Since the per unit value to which the ratio is
applied is the COM, the denominator for the ratio calculation should also
be the COM.

Hyundai states 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 reasonably approximates the COM. Hyundai argues that this
is not the case in the DRAM industry, in which DRAM product costs decline
significantly over the product life cycle. Hyundai states that, in the
DRAM industry, the COGS during a period of rapid generational progress is
lower than the COM during the same period because the DRAMs that are
produced include more costly, higher density products that have not yet
been sold. Thus, Hyundai concludes that the R&D ratio is inflated when
total current R&D expense ratios are calculated as a percentage of COGS
rather than as a percentage of COM and then applied to COM to derive the
product-specific cost.

Micron believes that the Department did not err in calculating Hyundai's
R&D ratio as a percentage of COGS. Micron contends that Hyundai's argument
that COM should be used because of the difference between COM and COGS
does not apply in this case. In this review period, Micron asserts that
the difference between COM and cost of sales is not very large. Citing to
Exhibit SS-8 in Hyundai's March 5, 2001 supplemental response. Moreover,
Micron states that the record does not provide a basis to evaluate
Hyundai's claim, such as semiconductor beginning and ending inventories.
Micron urges the Department to retain its standard practice of using COGS. 

Micron contends that in the preliminary results, the Department followed
its past practices in this antidumping proceeding and allocated each
company's current R&D spending on semiconductors over all semiconductor
products. According to Micron, the Department's R&D calculation in the
preliminary results of this review is fully in accord with the statute and
established practice in semiconductor cases, and clearly justified by the
facts in the record. In addition, the Department should continue its
longstanding practice of calculating the R&D percentage on the basis of
COGS rather than COM.

Department's Position:

This is the same issue that Hyundai raised in the final results of both
the fifth and sixth administrative review, and we continue to disagree
with Hyundai. The R&D expense rate is generated from a respondent's
financial statement on the basis of COGS in that financial statement. It
represents the amount of R&D incurred during a given period relative to
the merchandise sold during that same time period. Unlike the COM, which
is tracked through a company's accounting records, the COGS is readily
available from its financial statement. The ratio of R&D expenses to COGS
is applied to the per-unit COM as a reasonable and predictable means of
calculating the per-unit R&D. The antidumping law does not prescribe a
specific method for calculating the R&D expense rate. When a statute is
silent or ambiguous, the determination of a reasonable and appropriate
method is left to the discretion of the Department. Because there is no
bright-line definition in the Act of what an R&D expense is or how the R&D
expense rate should be calculated, the Department has, over time,
developed a consistent and predictable practice for calculating and
allocating R&D expenses. This consistent and predictable method is to
calculate the R&D ratio by dividing a respondent's R&D expense by the
respondent's COGS, and to apply the ratio to the reported COM. See, e.g.,
Final Determination, at 58 FR at 15470, Final Results 1994-1995, 62 FR at
967, Final Results 1995-1996, 62 FR at 39823 and Final Results 1996-1997,
63 FR at 50870. See also DRAMs from Taiwan, 64 FR at 56312.

Like many cost allocation issues that arise during the course of an
antidumping proceeding, there may be more than one way to reasonably
allocate the costs at issue. This is precisely why we have developed a
consistent and predictable approach which is not results-oriented. To
allow a respondent to choose between the Department's normal method and an
alternative method simply because the outcome of one method is a lower
rate, would encourage respondents to adopt a results-oriented approach.
That is, parties will only illustrate other methods, as Hyundai has, when
it benefits them. Therefore, we have made no changes with respect to this
issue, and have continued to calculate Hyundai's R&D rate in accordance
with the Department's normal practice.

Comment 5: Increase in Useful Lives

According to Hyundai, the Department erred in rejecting Hyundai's
reported depreciation expense. Hyundai argues that its depreciation as
recorded in its books should be accepted because the useful lives were
extended based on a report by independent experts, and the depreciation
periods were in accordance with Korean GAAP. 

Hyundai contends that the Department is required to rely on its company
records because they are consistent with Korean GAAP and do not distort
actual costs. Hyundai relies on section 773(f)(1)(A) of the Act and many
other cases, including Stainless Steel Sheet and Strip in Coils from
France, 64 FR 30820, 30836 (June 8, 1999). Hyundai contends that it has
obtained additional information that demonstrates that the original
estimate of the useful lives for some equipment was inaccurate. Hyundai
cites to Erasable Programmable Read Only Memories (EPROMs) from Japan, 51
FR 39680 (Oct. 30, 1986), which states that "generally accepted accounting
principles which pertain to a change in the estimated useful life apply to
situations where . . . additional information has been obtained as to make
the original estimate inaccurate." Hyundai asserts that an appraiser,
after analyzing the physical condition of Hyundai's equipment and
comparing the useful life experience of Hyundai's equipment with that of
other semiconductor manufacturers, concluded that Hyundai had
underestimated the actual useful lives of certain pieces of equipment.
Therefore, Hyundai concludes that this additional information warrants a
change in the estimated useful lives.

Hyundai states that the facts in the current case parallel those in Final
Determination of Sales at Less Than Fair Value: Oil Country Tubular Goods
from Mexico, 60 FR 33567, 33573 (June 28, 1995), where the Department
accepted the restatement of the useful life of the respondent's assets
because the useful life of the assets was determined by an independent
appraiser in accordance with Mexican GAAP. 

Hyundai contends that, contrary to the Department's assertions, Hyundai's
restatement of the useful lives of its assets was not distortive, but
rather that it made its depreciation schedules more accurate. Hyundai also
states that the Department incorrectly concluded that Hyundai distorted
the useful lives of its assets because Hyundai diverged from the company's
past experience. Hyundai asserts that the independent appraisers carefully
selected new useful lives to match the actual economic life of each
category of assets based on the historical experience of actual use.
According to Hyundai, where equipment was not actually being used for a
longer period of time, the appraisers did not change its useful life. This
was the case even where, as in the case of wafer fabrication equipment, it
would have benefitted Hyundai by reducing its depreciation expenses.

Hyundai acknowledges that it has broken with its own past practice, but
asserts that its revaluation of the useful lives of its assets is fully
consistent with the common practice of the global semiconductor industry.
Hyundai lists companies such as Samsung, Micron, and Infineon and their
revaluation of the useful lives of their machinery and equipment using a
three to five year useful life assumption to illustrate its contention
that there is a common practice of revaluation that is not calculated to
reduce depreciation expenses for antidumping purposes.

Hyundai characterizes as misleading the Department's statement that in
1998, in some instances, Hyundai adopted useful lives greater than fifty
percent longer than the previous useful lives. Hyundai asserts that this
occurred only in a few instances. According to Hyundai, the actual impact
on Hyundai's overall depreciation expense was minimal because the useful
lives of most equipment was extended by much less than fifty percent, and
there was no change in the useful lives of the most costly equipment used
in manufacturing DRAMs.

Hyundai contends that the Department's rejection of its increased useful
lives is inconsistent with the Department's decision to increase Hyundai's
depreciation expense. Hyundai argues that the Department should either use
or reject both the extended useful lives and the increased valuation of
Hyundai's assets because the information came from the same appraisers'
report. Hyundai characterizes the appraiser's reevaluation of Hyundai's
useful asset lives and values as inextricably linked; Korean semiconductor
manufacturers revalued both to more accurately gauge the useful lives of
their equipment because the won devaluation made replacing equipment more
costly.

Micron argues that the Department appropriately adjusted depreciation
expenses to use pre-1998 useful lives. Micron believes that it is not
necessary for the Department to find that a company has changed its
accounting methodology for antidumping purposes in order to conclude that
the change distorts the cost calculation. Micron asserts that companies
revalue assets and change the useful lives of existing assets based on how
well the DRAM market is doing rather than any changes in how long
equipment is being used. Also, Micron contends that Korean GAAP is
sufficiently permissive that companies can be in conformity no matter what
they did. 

Micron characterizes Hyundai's change in useful lives as a part of a
pattern of accounting changes designed to make the company appear more
profitable than it otherwise would be. Micron states that the Department
correctly concluded that Hyundai's latest change in accounting practice,
coming on top of a less extreme extension of useful lives made two years
earlier, did not provide a reasonable reflection of the costs associated
with the production of the merchandise under review. Micron states that
adjusting Hyundai's depreciation expenses to reflect pre-1998 useful lives
was appropriate, and consistent with the Department's adjustments to
Hyundai's R&D and foreign exchange loss expenses. Micron urges that the
Department continue to adjust Hyundai's depreciation expenses for the
final results.

Department's Position:

Our practice, pursuant to section 773(f)(1)(A) of the Act and the SAA at
834, is to use those accounting methods and practices that respondents
have historically used. Hyundai, in 1998, changed the useful lives of its
assets for the second time since 1996. See Final Results 1996-1997, 63 FR
at 50871. The Department accepted the respondent's 1996 adjustment to
useful lives because those new useful lives reflected common practice
within the semiconductor industry and the respondents' own practice. As we
stated, "[i]t is common practice within the semiconductor industry to
depreciate machinery and equipment using a three-to five-year useful-life
assumption. Respondents change...does not deviate from this three to five
year band." See Id. In contrast, the respondents' latest change to the
useful lives of their assets now deviates from this common practice in the
semiconductor industry, as the revised useful lives are greater than five
years, and in some cases, significantly greater than five years. This
change also deviates from the respondents' own historical practice, as
semiconductor manufacturers, of depreciating their machinery and equipment
in a three-to-five-year band. See Id. Although the useful lives adopted by
the respondents were based on those lives recommended by an independent
appraiser, the appraiser's recommendations do not reflect either the
practice of the semiconductor industry on the whole, or the historical
practice of Hyundai. Furthermore, we have no reason to believe that the
common practice in the semiconductor industry regarding the useful lives
for depreciation purposes has changed since 1998, when the Department
accepted the respondents' previous change in useful lives. Therefore,
since the new useful lives adopted by the respondent distorts costs for
dumping purposes, we adjusted Hyundai's depreciation expense using the pre-
1998 useful lives. 

We also disagree with the respondent that the facts in this case directly
parallel those in OCTG from Mexico. In OCTG from Mexico, 60 FR at 33573,
the Department made no adjustment for the useful life of the assets
because there was no evidence that the lives used in the depreciation
calculation were overstated. In the present case, for the reasons stated
above, we found that many of the revised useful lives were overstated.

We further disagree with Hyundai that it is inappropriate to accept the
revaluation of its assets, but not the change in the useful lives of
certain assets, because both changes resulted from the same appraiser's
report. The revaluation of the assets and the change in the useful lives
are two completely separate events that were based on separate parts of
the appraiser's report. (6) The revaluation of the assets resulted from
the reappraisal of Hyundai's assets subsequent to the recent devaluation
of the won. As depreciation enables companies to spread large expenditures
on purchases of machinery and equipment over multiple years, adjusting the
historical cost basis of fixed assets for the devaluation of the won
results in the depreciation recognized in the current year not being
understated. On the other hand, the change in useful lives was based on a
completely separate analysis in the appraiser's report that, as we
explained above, does not reflect the semiconductor industry or Hyundai's
own, historical practice. In accordance with section 773(f)(1)(A) of the
Act, we based depreciation on the revalued assets as recorded in Hyundai's
records because the revaluation was in accordance with Korean GAAP, and
the resulting depreciation reasonably reflected the cost of producing the
subject merchandise in post-devaluation Korea. We also based depreciation,
in accordance with section 773(f)(1)(A) of the Act, on the pre-1998 useful
lives employed by Hyundai because, as explained above, we believe that the
useful lives adopted in 1999, and the resulting depreciation, are
distortive.

Comment 6: U.S. Antidumping Statute and WTO Antidumping Agreement

Hyundai argues that the Department's decision to reject some of its
submitted costs violates the U.S. antidumping statute and the WTO
Antidumping Agreement. Hyundai states that sections 773(b)(3) and
773(f)(1) of the Act requires the Department to examine and calculate a
particular exporter's cost of manufacture (COM) to determine actual costs
as accurately as possible. Also, Hyundai argues Congress intended section
773(f)(1) of the Act to reflect Article 2.2.1.1 of the GATT 1994
Antidumping Agreement, which precludes governments from using arbitrary
profit and cost figures. Instead, the respondent argues that member
countries are required to use the records of exporters/producers as long
as those records are not distortive.

Micron states that the Department's decision to reject some of Hyundai's
costs is consistent with the WTO Antidumping Agreement, the U.S.
antidumping law, and Department practice. According to the petitioner, the
SAA makes it clear that the Department can, and should, adjust a
respondent's costs when it determines that the costs as reported, even
when based on the company's audited financial statements, are distortive.
Further, the SAA specifies that the Department should consider whether the
company has historically used the reported allocations, and it should take
into consideration U.S. GAAP.

Department's Position:

We agree with petitioner. The Act directs 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 1996-1997, 63 FR at 50871.

We agree with Hyundai that its reported costs of production are
calculated in a manner permissible under Korean GAAP, and that its
previous method of calculating its costs of production is also in
accordance with Korean GAAP. However, Hyundai's practice of continually
changing between these methods distorts the cost calculation in an
antidumping analysis. The issue is not whether Hyundai's reporting
methodology is consistent with Korean GAAP, but whether the change in
accounting methodologies is distortive as to Hyundai's costs. As stated in
the previous review, the Department finds that Hyundai's continual
changing of its accounting methodologies, regardless of its adherence to
Korean GAAP, is distortive. See Decision Memorandum at Comment 9.

As demonstrated above, the Department's treatment of Hyundai's submitted
costs of production is consistent with the U.S. law, which is fully
consistent with all WTO requirements. For purposes of this administrative
review, therefore, the Department need not consider respondent's arguments
further concerning implementation by the United States of its obligations
under the WTO Antidumping Agreement.

For a further discussion of this issue, please see Comment 2.

Comment 7: Post-POR Sales of Subject Merchandise Entered During POR

Hyundai states that the Department failed to utilize the correct universe
of HM sales and accompanying costs in its preliminary results because of a
programming error. Hyundai contends that the Department's practice is to
mirror the universe of HM sales with the U.S. sales database, plus two
"shoulder periods" that comprise that comprise 90 days before the earliest
U.S. sale and 60 days after the latest U.S. sale. Hyundai argues that the
HM sales database must be extended past the truncated POR to match the
U.S. sales database, which contains sales for a 12-month period.

Micron objects to any expansion of the date range for the HM sales
database, contending that Hyundai has disguised a methodological issue as
a clerical error. 

Micron contends that the Department departed without explanation from its
long-standing practice of calculating dumping margins for CEP transactions
based on the sales made during the POR, rather than sales of goods entered
during the POR. Micron states that the Department adopted this practice
because of the practical difficulties inherent in relying upon entries in
CEP transactions. The difficulties, according to Micron, include tying
sales to specific entries and the extended time lag between entry and
sales. Micron states that the CIT has upheld the Department's practice,
recognizing that "dumping on sales made during the review period is
representative of dumping on entries made during the review period." Ad
Hoc Comm. Of Southern California Producers of Gray Portland Cement v.
United States, 914 F. Supp. 535, 544 n.7 (CIT 1995); NSK Ltd. v. United
States, 825 F. Supp. 315, 320 (CIT 1993). Furthermore, Micron states that
the courts have upheld the Department's practice even when information on
entries was available in a given review. Ad Hoc Comm., 914 F. Supp. At
544. Finally, Micron states that the Department has examined CEP sales,
not entries of merchandise sold after the POR in another case which was
also truncated by a sunset revocation. See Preliminary Results of
Antidumping Duty Administrative Review; Aramid Fiber Formed of Poly Para-
Phenylene Terephthalamide from the 

Netherlands, 66 FR 13879 (March 8, 2001) (Aramid Fiber).

Hyundai distinguishes the present case from Aramid Fiber. In the Aramid
Fiber case, the Department relied on CEP sales rather than entries to
calculate the dumping margin, even in a final review that had been
similarly truncated by a sunset revocation. Hyundai distinguishes the
present case by stating that the parties did not contest this issue in the
proceeding and that there appears to be no deliberate discussion of this
issue at all. 

Hyundai asserts that, in the preliminary results, the Department
correctly calculated Hyundai's dumping margin using US sales of subject
merchandise for DRAMs entered during the POR, but which had "dates of
sale" after the end of the POR. Hyundai asserts that the Department has
discretion on a case-by-case basis, to review either entries or sales,
depending on which of these provides a more accurate rate. See
Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts
Thereof From Japan; Final Results of Antidumping Duty Administrative
Reviews, 56 FR 31754 (July 11, 1991) (AFBs from Japan). Hyundai contends
that the Department has stated that its "regulations permit a review of
either entries or sales." See Silicon Metal from Brazil; Final Results of
Antidumping Duty Administration Review, 61 FR 46763, 46765 (September 5,
1996). Also, Hyundai notes that the preamble to the Department's
regulations states that the Department has discretion to "base a review on
sales of merchandise entered during the POR, rather than on sales that
occurred during the period of review." Preamble, at 27314.

Micron argues that switching methodologies between reviews will lead to
inconsistent and distorted results. Micron contends that Hyundai's
proposed methodology of calculating margins based on a mix of all sales
made during the POR plus certain sales made after the POR departs from the
consistent approach used by the Department for all previous reviews, and
thereby distorts the calculation. Micron states that Hyundai's proposed
approach is neither a sales-based nor an entry-based approach but an
amalgam of the two. Micron asserts that Hyundai is proposing that the
Department base its calculation on a mix of 1) all sales made during the
May 1 to December 31, 1999 POR, including an unknown volume of merchandise
entered prior to May 1, 1999 and sold during the POR and 2) a select group
of sales made after December 31, 1999 that can be tied to entries made
before that date. 

Hyundai asserts that the facts of its situation justify the Department's
use of the sales database of CEP sales of subject merchandise entered
prior to the POR. Hyundai points out that the relevant factors for
determining whether or not to base a review on entries are set forth in
the Department's regulations, and include: 1) whether sales may be
"missed" in previous or current reviews, and 2) whether sales and entries
have been "linked" in prior or future reviews. Antidumping Duties;
Countervailing Duties, Final Rule, 62 FR 27296, 27314 (May 19, 1997). In
the instant case, Hyundai states that it had provided the necessary
linkage of sales to entries by tying all U.S. POR entries to post-POR
sales using a first-in-first-out methodology. Also, Hyundai asserts that
the Department will not miss any of Hyundai's U.S. sales in the future
because this is the last administrative review that will be conducted
under the AD order. Hyundai states that the petitioner's suggested
approach would eliminate these sales from the margin, thereby causing them
to be "missed" and distorting the margin. In light of the fact that this
review is the last review of the proceeding, Hyundai points out that
excluding sales made after the POR would ensure that they are never part
of any margin calculation, even though the subject merchandise entered
during the POR. Accordingly, Hyundai states that including these sales
would ensure accuracy in calculating the dumping margins and prevent any
distortions. 

Micron asserts that Hyundai's methodology of matching post-POR sales to
POR entries is unreliable and flawed. Micron contends that Hyundai's
methodology does not allow the Department to trace each entry of subject
merchandise made during the POR to a particular sale or sales of that same
merchandise to unaffiliated customers. Micron objects to the inventory
listing submitted by Hyundai because it is incomplete and internally
inconsistent. Furthermore, according to Micron, Hyundai continued to apply
to all reported sales the average selling expenses calculated for the May
to December 1999 POR. Thus, Micron urges the Department to exclude from
its analysis sales made after the end of the POR. 

In response to the petitioner's critique of Hyundai's first-in-first-out
methodology, Hyundai states that the Department performed a thorough
verification of its data and methodology and that its methodology captures
almost 100 percent of its inventory. Hyundai admits that the sales made
from January to April 2000 exceeds beginning inventory but that in no way
undermines the reliability of its submitted information. 

Hyundai rejects Micron's assertion that some of Hyundai's inventory
remained unsold on April 30, 2000, as misleading. According to Hyundai,
the vast majority of the December 31, 1999 inventory had been sold by
April 30, 2000. To account for the remaining unsold inventory, would
require a sales data base after April 30, 2000, a period outside the
original POR. Hyundai objects to Micron's methodology which would prohibit
it from accounting for the inventory sales if even a single unit remained
in inventory. 

Hyundai also rejects Micron's assertion that some expenses were based on
a different period of time as a basis for rejecting the underlying sales
that were entered into the United States during the POR. Hyundai states
that the Department can use the expense ratio from the earlier time
period, or the current period because the difference is minimal.

Micron rejects Hyundai's claim that an inherent imbalance between duties
calculated and duties collected would occur if the calculations exclude
entries of goods. Micron states that many factors contribute to the
difference between duties calculated and duties collected, such as whether
inventories and sales are rising or falling from one POR to the next, and
whether dumping margins are higher or lower from one review to the next.
Micron states that Hyundai has failed to show that a consistent
application of a sales-based approach causes any distortion in general,
nor on the facts of this record. Thus, Micron urges the Department to
continue to use a sales-based method in the final review.

Department's Position:

We agree with Micron that the Department should adhere to its normal
approach and calculate the dumping margin for US sales using sales made
during the POR, and not include sales made after the POR. It is the
Department's practice to calculate dumping margins for CEP sales made
after importation based on the sales actually made during the POR, and we
have consistently applied this practice throughout this proceeding. We
note that the courts have upheld the Department's practice even when the
information could be obtained in a given review. See Ad Hoc Comm. Of
Southern California Producers of Grey Portland Cement v. United States,
914 F. Supp. 535, 544 n. 7 (CIT 1995). See also American Silicon Tech. v.
United States, Slip Op. 99-34 (CIT 1999). The Department's standard
approach is even-handed, and applies whether the respondent has a surge or
a fall-off in entries of subject merchandise during the last period of
review. See Aramid Fiber. While there was no explicit discussion of the
entry date versus sale date issue in Aramid Fiber, it illustrates standard
Department practice. To diverge from standard Department practice would
suggest a results-oriented approach. There is no compelling evidence to
cause the Department to deviate from its normal methodology. Therefore, we
have included only the CEP sales that were made during the period of
review, for purposes of these final results.

We also note that the correct universe of HM sales was used in the
Preliminary Results. Although Hyundai presented this argument as a
clerical error, we are categorizing it as a methodological issue. We agree
with Hyundai's assertion that the Department's practice is to use a
universe of HM sales starting 90 days before the earliest U.S. sale
through the period 60 days after the latest U.S. sale in order to match
U.S. sales with the most contemporaneous identical or similar HM sale.
Therefore, for these final results we have used the reported 12 months of
HM sales that we used in the preliminary results because these sales were
made within the POR and the contemporaneity windows.

Comment 8: CEP Offset for CEP Sales

According to Hyundai, the Department should correct an error in the CEP
offset calculation portion of the programming. Hyundai states that the CEP
offset was erroneously set to zero in the Department's preliminary results.

Micron did not comment on this issue.

Department's Position:

We agree with Hyundai's clerical error allegation and have made the
appropriate corrections to the CEP offset portion of the computer program.
See Final Results Calculation Memorandum dated October 5, 2001.

Comment 9: Recalculation of Expenses in Margin Program

Micron claims that in its calculation of two expenses, the Department
failed to convert a sum of total value to a per-unit amount in the margin
part of the program. Micron states that the program creates sums for six
data fields, rather than a weighted average. Furthermore, the fields were
not converted to a per-unit average later on in the program. 

Hyundai did not comment on this issue.

Department's Position:

We agree with Micron's clerical error allegation and have made the
appropriate corrections to the expenses in the margin program. See Final
Results Calculation Memorandum dated October 5, 2001.

Comment 10: Calculation of HM Credit Expense

Hyundai asserts that the Department erroneously recalculated HM credit
expense, net of discounts. Hyundai states that the Department further
erred by not using the recomputed HM credit. According to Hyundai, its
submitted databases already provided the credit expense net of discounts,
and no recalculation was needed. 

Micron did not comment on this issue.

Department's Position:

We agree with Hyundai's clerical error allegation and have made the
appropriate corrections to the Department's HM credit expense portion of
the computer program. See Final Results Calculation Memorandum dated
October 5, 2001.

Comment 11: CEP Profit Ratio - Calculation of Total Profit

Hyundai states that, in the preliminary results, the Department
erroneously computed the total revenue for HM sales (for the purpose of
the CEP profit ratio) using gross price, rather than gross price net of
discounts. 

Micron did not comment on this issue.

Department's Position:

We agree with Hyundai's clerical error allegation and have made the
appropriate corrections to the CEP profit ratio portion of the computer
program. See Final Results Calculation Memorandum dated October 5, 2001.

Comment 12: U.S. Credit Expense

Hyundai states that, in the preliminary results, the Department
erroneously recalculated the U.S. credit expense using an incorrect
interest rate, rather than the interest rate used in Hyundai's database. 

Micron did not comment on this issue.

Department's Position:

We agree with Hyundai's clerical error allegation and have made the
appropriate 

corrections to the Department's U.S. credit expense calculation in the
computer program. See Final Results Calculation Memorandum dated October
5, 2001.

Recommendation

Based on our analysis of the comments received, we recommend adopting all
of the above positions and adjusting all related margin calculations
accordingly. If these recommendations are accepted, we will publish the
final results of review and the final weighted-average dumping margins for
all reviewed firms in the Federal Register.

Agree                  Disagree 

____________________________

Faryar Shrizad
Assistant Secretary
  for Import Administration

____________________________
(Date)

____________________________________________________________________
footnotes:

1. See Hyundai's and LG's 1999 financial statements in Hyundai's 
   October 17, 2000, Exhibit 16, and March 5, 2001, Exhibit 1, 
   responses respectively. 

2. See Id. 

3. See Id. 

4. See Id. 

5. See Questionnaire Response, Hyundai, Section D, October 17, 2001. 

6. See Hyundai's March 5, 2001, submission, Exhibit 11.