Opinion ID: 211643
Heading Depth: 3
Heading Rank: 1

Heading: Amortization vs. Expensing

Text: 16 During the less-than-fair value investigation, Hynix amortized its R&D expenses. 8 See Dynamic Random Access Memory Semiconductors of One Megabit or Above from the Republic of Korea, 58 Fed. Reg. 27,520 (May 10, 1993). Hynix switched methods, however, in the first review, and began expensing its R&D costs. 9 In the year that Hynix changed from amortizing to expensing, its R&D costs were unusually high. As a result, the Court of International Trade cautioned Commerce not to include all expenses reported in that year in the dumping calculation because it would not fairly represent the cost of production. Micron Tech., Inc. v. United States, 44 F.Supp.2d 216, 221 (Ct. Int'l Trade 1999). In the fifth review, Hynix reverted to amortizing. To avoid the effect of changing methods, Commerce expensed Hynix's R&D for all reviews, including the fifth, sixth, and final reviews. Hynix did not challenge this practice until the final review, however. Now it claims that its choice to amortize (as well as its choice to switch methods) complies with Korean GAAP and that Commerce verified its records; therefore Commerce is required by section 1677b(f) to accept its amortized R&D expenses. 17 Commerce acknowledges that Hynix's decision to change accounting methods complies with Korean GAAP. Nevertheless, Commerce argues that it need not accept a company's records pursuant to section 1677b(f) if they do not represent the costs of producing the merchandise. In this case, Commerce argues that the change between methods has resulted in the underreporting of R&D expenses. As Commerce explained, underreporting occurs when a company switches from expensing to amortizing. Instead of recognizing one-fifth of the current year's R&D costs in addition to one-fifth from the previous four years, Hynix only recognized one-fifth during this POR because the prior years' costs had been expensed. Commerce also noted that Hynix was unable to show that it had used the questioned accounting methods historically. See Am. Silicon, 261 F.3d at 1379 (19 U.S.C. § 1677b(f)(1)(A) states that Commerce shall consider the exporter's or producer's records on allocation of costs only if the records of the exporter or producer have been historically used by the exporter or producer.); Statement of Administrative Action, Uruguay Round Agreements Act, Pub. L. No. 103-465, 103rd Cong.2d Sess., H. Doc. 103-316, vol. I, at 834 (1994) (The 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.). 18 While Hynix was able to show that its records comply with Korean GAAP, Commerce showed by substantial evidence that Hynix's reported R&D expenses fail to reflect the costs of production. It is facially apparent that a fraction of costs does not accurately capture full costs. Even if the inadequacy of this method were not transparent, it would be appropriate for us to defer to Commerce's judgment that Hynix's change from amortizing to expensing and back again results in underreporting. See Thai Pineapple, 187 F.3d at 1367 (Antidumping investigations are complex and complicated matters in which Commerce has particular expertise and thus, Commerce's determinations are entitled to deference.). Further, Hynix was not able to demonstrate that it historically used this accounting methodology, which undermines the assumption that its bookkeeping was not influenced by a desire to minimize costs during the review. The court's judgment requiring Commerce to accept Hynix's amortized R&D expenses is reversed. The case is remanded to the court with instructions to remand to Commerce, which shall recalculate the duty by expensing Hynix's R&D costs as in the Final Results.