[Federal Register Volume 64, Number 201 (Tuesday, October 19, 1999)]
[Notices]
[Pages 56308-56327]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27294]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-583-832]
Notice of Final Determination of Sales at Less Than Fair Value:
Dynamic Random Access Memory Semiconductors of One Megabit and Above
(``DRAMs'') From Taiwan
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: October 19, 1999.
FOR FURTHER INFORMATION CONTACT: Thomas Futtner at (202) 482-3814,
Alexander Amdur at (202) 482-5346 (Etron), Ronald Trentham at (202)
482-6320 (MVI), Nova Daly at (202) 482-0989 (Nanya), or John Conniff at
(202) 482-1009 (Vanguard), Group II, Office 4, Import Administration,
International Trade Administration, U.S. Department of Commerce, 14th
Street and Constitution Avenue, N.W., Washington, D.C. 20230.
The Applicable Statute
Unless otherwise indicated, all citations to the Tariff Act of
1930, as amended (``the Act''), are references to the provisions
effective January 1, 1995, the effective date of the Uruguay Round
Agreements Act (``URAA''). In addition, unless otherwise indicated, all
citations to the Department's regulations are to the regulations at 19
CFR Part 351 (1998).
Final Determination
We determine that DRAMs from Taiwan are being, or are likely to be,
sold in the United States at less than fair value (``LTFV''), as
provided in section 733 of the Act. The estimated margins of sales at
LTFV are shown in the ``Suspension of Liquidation'' section of this
notice.
Case History
The preliminary determination in this investigation was issued on
May 21, 1999. See Notice of Preliminary Determination of Sales at Less
Than Fair Value and Postponement of Final Determination: Dynamic Random
Access Memory Semiconductors of One Megabit and Above (``DRAMs'') from
Taiwan, 64 FR 28983 (May 28, 1999) (``Preliminary Determination'').
Since the preliminary determination, the following events have
occurred:
On May 24 and 27, 1999, we received information from the
petitioner, Micron Technology, on possible circumvention of a future
antidumping duty order. On June 1, 1999, we received a submission from
Vanguard International
[[Page 56309]]
Semiconductor Corporation (``Vanguard'') alleging that the Department
made ministerial errors in the preliminary determination. In response
to Vanguard's ministerial error allegations, we issued an amended
preliminary determination on June 11, 1998. See Notice of Amended
Preliminary Determination of Sales at Less Than Fair Value: Dynamic
Random Access Memory Semiconductors of One Megabit and Above
(``DRAMs'') from Taiwan, 64 FR 32480 (June 17, 1999).
In May and June 1999, we received responses to supplemental
questionnaires from Mosel-Vitelic, Inc. (``MVI'') and Vanguard.
In June, July and August, 1999, we verified the sales and cost
questionnaire responses of Etron Technology, Inc. (``Etron''), MVI, Nan
Ya Technology Corporation, (``Nanya''), and Vanguard (hereinafter
``respondents'').
In July, August, and September 1999, the respondents submitted
revised sales and cost databases.
On July 26, 1999, Etron submitted information requested by the
Department at the sales verification. On August 6 and 9, 1999, the
Department issued supplemental questionnaires to Etron. On August 18,
1999, Etron submitted a letter to the Department stating that it would
not be filing a response to the Department's August 6 and 9, 1999
supplemental questionnaires, and that it would not allow the
verification that the Department scheduled at Caltron Technology
(``Caltron''), Etron's affiliate in the United States.
The petitioner and the respondents submitted case briefs on
September 1, 1999 and rebuttal briefs on September 8, 1999. At the
Department's direction, Etron submitted amended case and rebuttal
briefs on September 7 and 10, 1999, eliminating new factual information
that the Department considered untimely. We held a public hearing on
September 13, 1999.
Amendment to Scope
The Department is amending the scope of this investigation in order
to require importers of motherboards that contain removable DRAM memory
modules to certify to U.S. Customs that such modules will not be
removed. This amendment follows the precedent set forth in DRAMs from
the Republic of Korea, Antidumping Duty Order and Amended Final
Determination, 58 FR 27520 (May 10, 1993) (``DRAMs from Korea Order''),
and is in response to the petitioner's concerns about the circumvention
of any antidumping duty order issued in this proceeding. See Comment 1
in the ``Interested Party Comments'' section of this notice.
Scope of Investigation
The products covered by this investigation are DRAMs from Taiwan,
whether assembled or unassembled. Assembled DRAMs include all package
types. Unassembled DRAMs include processed wafers, uncut die and cut
die. Processed wafers fabricated in Taiwan, but packaged or assembled
into finished semiconductors in a third country, are included in the
scope. Wafers fabricated in a third country and assembled or packaged
in Taiwan are not included in the scope.
The scope of this investigation includes memory modules. A memory
module is a collection of DRAMs, the sole function of which is memory.
Modules include single in-line processing modules (``SIPs''), single
in-line memory modules (``SIMMs''), dual in-line memory modules
(``DIMMs''), memory cards or other collections of DRAMs whether mounted
or unmounted on a circuit board. Modules that contain other parts that
are needed to support the function of memory are covered. Only those
modules that contain additional items that alter the function of the
module to something other than memory, such as video graphics adapter
(``VGA'') boards and cards, are not included in the scope. Modules
containing DRAMs made from wafers fabricated in Taiwan, but either
assembled or packaged into finished semiconductors in a third country,
are also included in the scope.
The scope includes, but is not limited to, video RAM (``VRAM''),
Windows RAM (``WRAM''), synchronous graphics RAM (``SGRAM''), as well
as various types of DRAMs, including fast page-mode (``FPM''), extended
data-out (``EDO''), burst extended data-out (``BEDO''), synchronous
dynamic RAM (``SDRAMs''), and ``Rambus'' DRAMs (``RDRAMs''). The scope
of this investigation also includes any future density, packaging or
assembling of DRAMs. Also included in the scope of this investigation
are removable memory modules placed on motherboards, with or without a
central processing unit (CPU), unless the importer of the motherboards
certifies with Customs that neither it, nor a party related to it or
under contract to it, will remove the modules from the motherboards
after importation. The scope of this investigation does not include
DRAMs or memory modules that are re-imported for repair or replacement.
The DRAMs subject to this investigation are currently classifiable
under subheadings 8542.13.80.05 and 8542.13.80.24 through 8542.13.80.34
of the Harmonized Tariff Schedule of the United States (``HTSUS'').
Also included in the scope are Taiwanese DRAM modules, described above,
entered into the United States under subheading 8473.30.10 through
8473.30.90 of the HTSUS or possibly other HTSUS numbers. Although the
HTSUS subheadings are provided for convenience and customs purposes,
the written description of the scope of this investigation is
dispositive.
Period of Investigation
The period of investigation (``POI'') is October 1, 1997 to
September 30, 1998.
Facts Available
Section 776(a)(2) of the Act provides that ``if an interested party
or any other person--(A) withholds information that has been requested
by the administering authority; (B) fails to provide such information
by the deadlines for the submission of the information or in the form
and manner requested, subject to subsections (c)(1) and (e) of section
782; (C) significantly impedes a proceeding under this title; or (D)
provides such information but the information cannot be verified as
provided in section 782(i), the administering authority shall, subject
to section 782(d), use the facts otherwise available in reaching the
applicable determination under this title.''
The statute requires that certain conditions be met before the
Department may resort to the facts available. Where the Department
determines that a response to a request for information does not comply
with the request, section 782(d) of the Act provides that the
Department will so inform the party submitting the response and will,
to the extent practicable, provide that party the opportunity to remedy
or explain the deficiency. If the party fails to remedy the deficiency
within the applicable time limits, the Department may, subject to
section 782(e), disregard all or part of the original and subsequent
responses, as appropriate. Briefly, section 782(e) provides that the
Department ``shall not decline to consider information that is
submitted by an interested party and is necessary to the determination
but does not meet all the applicable requirements established by (the
Department)'' if the information is timely, can be verified, is not so
incomplete that it cannot be used, and if the interested party acted to
the best of its ability in providing the information. Where all of
these conditions are met, and the Department can use the information
without undue
[[Page 56310]]
difficulties, the statute requires it to do so.
In addition, section 776(b) of the Act provides that, if the
Department finds that an interested party ``has failed to cooperate by
not acting to the best of its ability to comply with a request for
information,'' the Department may use information that is adverse to
the interests of the party as the facts otherwise available. Adverse
inferences are appropriate ``to ensure that the party does not obtain a
more favorable result by failing to cooperate than if it had cooperated
fully.'' See Statement of Administrative Action (SAA) accompanying the
URAA, H.R. Doc. No. 103-316 at 870 (1994).
Furthermore, ``an affirmative finding of bad faith on the part of
the respondent is not required before the Department may make an
adverse inference.'' Antidumping Duties; Countervailing Duties; Final
Rule, 62 FR 27296, 27340 (May 19, 1997) (``Final Rule''). Section
776(b) of the Act notes, in addition, that in selecting from among the
facts available the Department may, subject to the corroboration
requirements of section 776(c), rely upon information drawn from the
petition, a final determination in the investigation, or any previous
administrative review conducted under section 751 (or section 753 for
countervailing duty cases). Under Section 776(b), in selecting from
among the facts available, the Department may also rely on any other
information on the record.
Etron
Based on our verification and independent research, we have
determined that Etron withheld a significant amount of information from
the Department, including information concerning its relationship with
its U.S. customers. We were also unable to verify certain information
and found numerous accounting irregularities in Etron's records. We
have further determined, based on documents obtained from the U.S.
Customs Service, that Etron provided the Department with altered sales
documents. Due to the proprietary nature of these issues, for further
discussion, see Memorandum from Holly Kuga to Bernard Carreau on
Whether to Determine the Margin of Etron Technology, Inc. for the Final
Determination Based on the Facts Otherwise Available dated October 12,
1999 (``Etron FA Memorandum''). Also see Comment 3 in the ``Interested
Party Comments'' section of this notice.
After the sales verification in Taiwan, the Department scheduled a
verification of Etron's U.S. sales affiliate, Caltron. The Department
also issued additional supplemental questionnaires to Etron to provide
it with yet another opportunity to explain and clarify the deficiencies
revealed at verification. After receiving an extension of time to
answer these questionnaires, and after two extensive conversations with
the Department regarding these questionnaires,1 Etron
eventually refused to answer them, and did not allow the verification
of Caltron.
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\1\ See Memoranda dated August 11 and August 17, 1999 from
Alexander Amdur to the File.
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Because Etron withheld information that had been requested by the
Department, failed to provide such information in a timely manner,
significantly impeded this investigation, and provided information
which cannot be verified, section 776(a)(2) of the Act directs the
Department, subject to sections 782(d) and (e), to use facts otherwise
available for Etron in reaching the final determination of this
investigation.
In accordance with section 782(d) of the Act, the Department issued
numerous supplemental questionnaires to Etron regarding its initial
sales and cost responses. Furthermore, as discussed above, after the
sales verification in Taiwan, on August 6 and 9, 1999, the Department
sent to Etron two additional supplemental questionnaires addressing
certain deficiencies in the company's questionnaire response that the
Department found at the sales verification. Etron refused to submit a
response to these questionnaires. Thus, despite numerous opportunities
granted to Etron to remedy the serious deficiencies in its responses,
Etron failed to do so within the meaning of section 782(d) of the Act.
The application of facts available under section 776(a) is also
subject to the provisions of section 782(e) of the Act regarding
whether to decline to consider information submitted by the respondent
despite identified deficiencies. In this case, Etron failed to meet all
of the requirements enunciated under section 782(e) of the Act.
Although Etron generally submitted its questionnaire responses by the
established deadlines, with the exception of the responses to the
August 6 and 9, 1999 questionnaires, these responses could not be
properly verified, as required by section 782(e)(2). Furthermore, the
information that we independently obtained and the results of
verification demonstrate that Etron's responses are so incomplete that
they cannot serve as reliable bases for reaching the final
determination. The gaps in Etron's responses, which the Department
unsuccessfully attempted to address in the August supplemental
questionnaires, and Etron's refusal to allow the verification of
Caltron, all raise serious questions about the reliability and accuracy
of Etron's entire U.S. sales database. Additionally, Etron failed to
demonstrate that it has acted to the best of its ability under section
782(e)(4) of the Act. Etron withheld a significant amount of
information from the Department, and subsequently completely ceased
cooperating in this investigation. Furthermore, it also appears that
Etron attempted to deceive the Department by providing altered
documents at verification, and by making misleading statements to
Department officials. Finally, the Department cannot use Etron's
submitted information without undue difficulties under section
782(e)(5) of the Act in light of the numerous questions surrounding
Etron's entire U.S. sales database. For a detailed proprietary
discussion of these issues, see Etron FA Memorandum. As a result, the
Department determines that, pursuant to section 776(a) of the Act, the
use of facts available is appropriate.
Section 776(b) of the Act provides that adverse inferences may be
used in selecting from the facts available if a party has failed to
cooperate by not acting to the best of its ability to comply with a
request for information. As explained above, and in the Etron FA
Memorandum; Etron withheld a significant amount of information from the
Department. Moreover, Etron impeded the Department's efforts to clarify
information concerning its relationships with its U.S. customers,
refused verification of its U.S. subsidiary, and provided the
Department with false information. For these reasons, the Department
finds that Etron did not act to the best of its ability to provide the
information requested. Therefore, we have determined to use an adverse
inference in selecting the facts available to determine Etron's margin.
As adverse facts available, we have assigned Etron a margin of 69
percent, the highest margin alleged in the petition,2 as
stated in the notice of initiation (see Initiation of Antidumping Duty
Investigation: Dynamic Random Access Memory Semiconductors From Taiwan,
63 FR 60404 (November 18, 1998) (``Notice of Initiation'')).
Furthermore, as adverse facts available,
[[Page 56311]]
we applied the 69 percent margin to Etron's reported U.S. prices, and
using the company's total reported product densities, calculated a
specific rate for Etron of $0.40 per megabit. We calculated the per
megabit rate in this manner because we believe that it would be
inappropriate to base Etron's specific rate on any other margin,
including a calculated margin, that is lower than 69 percent.
Furthermore, while we consider Etron's data unreliable, we believe that
applying the 69 percent margin to Etron's U.S. database is the most
appropriate means to calculate a facts available per megabit rate for
this company.
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\2\ See Antidumping Petition: Dynamic Random Access Memory
Semiconductors of One Megabit and Above from Taiwan, submitted by
Micron Technology, Inc., October 22, 1998; and DRAMs from Taiwan:
Supplement to Petition, November 5, 1998 (which includes
recalculated margins).
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Section 776(c) of the Act provides that, when the Department relies
on secondary information in using the facts otherwise available, it
must, to the extent practicable, corroborate that information from
independent sources that are reasonably at its disposal. The SAA
clarifies that ``corroborate'' means that the Department will satisfy
itself that the secondary information to be used has probative value
(see SAA at 870). The SAA also states that independent sources used to
corroborate may include, for example, published price lists, official
import statistics and customs data, as well as information obtained
from interested parties during the particular investigation (see Id.).
In accordance with section 776(c) of the Act, we sought to
corroborate the data contained in the petition. We reviewed the
adequacy and accuracy of the information in the petition during our
pre-initiation analysis of the petition, to the extent appropriate
information was available for this purpose (e.g., import statistics and
foreign market research reports). See Notice of Initiation, 63 FR at
64041. To further corroborate the information in the petition, for the
final determination, we reexamined the highest margin in the petition
in light of information obtained during the investigation to the extent
it is practicable, and determined it has probative value. For further
discussion, see Etron FA Memorandum.
Fair Value Comparisons
To determine whether sales of DRAMs from Taiwan to the United
States were made at LTFV, we compared the constructed export price
(``CEP'') to the normal value (``NV''). Our calculations followed the
methodologies described in the preliminary determination, except as
noted below and in company-specific analysis memoranda dated October
12, 1999.
In making our comparisons, in accordance with section 771(16) of
the Act, we considered all products sold in the home market, fitting
the description specified above in the ``Scope of Investigation''
section of this notice to be foreign like products for purposes of
determining appropriate product comparisons to U.S. sales. Where there
were no sales of identical merchandise in the home market to compare to
U.S. sales, we compared U.S. sales to the next most similar foreign
like product, based on the characteristics listed in Sections B and C
of the Department's antidumping questionnaire. We made product
comparisons based on the same characteristics and in the same general
manner as that outlined in the preliminary determination.
Constructed Export Price
We used CEP, in accordance with section 772(b) of the Act, for MVI,
Nanya and Vanguard, when the subject merchandise was first sold in the
United States by or for the account of the producer or exporter of such
merchandise, or by a seller affiliated with the producer or exporter,
to an unaffiliated purchaser. We calculated CEP for MVI, Nanya and
Vanguard based on the same methodology used in the preliminary
determination, with the following exceptions:
We corrected for certain clerical errors found during verification,
including corrections that MVI, Nanya, and Vanguard identified in their
responses in the course of preparing for verification.
MVI
1. We recalculated MVI's reported marine insurance expense by
allocating the reported expense over the amount of the total DRAM sales
of MVI's U.S. affiliate, Mosel Vitelic Corporation (``MVC'').
Vanguard
1. We recalculated Vanguard's reported royalty expense by including
those royalties which were inappropriately included in sales expenses
in Vanguard's cost of production (``COP'').
2. We recalculated Vanguard's reported international freight
expense by allocating this expense by quantity, as the expense was
incurred.
Normal Value
We used the same methodology to calculate NV as that described in
the preliminary determination, with the following exceptions:
We corrected for certain clerical errors found during verification,
including corrections that MVI, Nanya, and Vanguard identified in their
responses in the course of preparing for verification. For Vanguard, we
also recalculated its reported sales duty tax using the rates charged
for this tax by the authorities in Taiwan, and adjusted certain freight
expenses by attributing these charges only to the sales that incurred
these expenses.
Cost of Production
In accordance with section 773(b)(3) of the Act, we calculated a
quarterly weighted-average COP based on the sum of each respondent's
cost of materials and fabrication for the foreign like product, plus
amounts for selling, general, and administrative (``SG&A'') expenses
and packing costs. We determined that research and development
(``R&D'') related to semiconductors benefits all semiconductor
products, and that allocation of R&D on a product-specific basis was
not appropriate.
We relied on the submitted COP except in the following specific
instances where the submitted costs were not appropriately quantified
or valued:
MVI
1. We disallowed MVI's startup adjustment (see comment 14 in the
``Interested Party Comments'' section of this notice).
2. We included ProMOS Technologies Inc.'s (``ProMOS's'') R&D
expenses and G&A expenses in ProMOS's COP (see comment 11 in the
``Interested Party Comments'' section).
3. We recalculated ChipMOS Technologies, Inc.'s (``ChipMOS's'') COP
to include R&D and selling expenses from its 1998 audited financial
statements.
4. Pursuant to section 773(f)(3) of the Act, and section 351.407(b)
of the Department's regulations, we adjusted both ChipMOS's and
ProMOS's reported costs to the higher of transfer price or COP.
5. We valued MVI's stock bonus to its employees as of the date the
shareholders' approval of the stock bonus (see comment 13 in the
``Interested Party Comments'' section).
6. We added MVI's non-operating expenses to, and subtracted marine
insurance from, its total G&A expenses used in the calculation of the
G&A expense ratio (see comments 17 and 18 in the ``Interested Party
Comments'' section). We also subtracted MVI's packing expense from the
unconsolidated cost of goods sold (``COGS'') used in the denominator of
this calculation.
7. We combined MVI's reported allocation rates for general and
product-
[[Page 56312]]
specific R&D to determine one R&D allocation rate to apply to MVI's
COM.
8. To make the denominator consistent with the COM to which it is
applied, we adjusted MVI's financial expense ratio by subtracting
packing and the stock bonus from the denominator of the allocation
ratio. We also excluded foreign exchange gains from investments as an
offset to net consolidated financial expenses from the numerator. See
Cost Calculation Memorandum for MVI dated October 12, 1999.
Nanya
1. Pursuant to section 773(f)(2) of the Act, and section 351.407(b)
of the Department's regulations, for assembly and test services
performed by affiliates, we used the higher of cost, transfer price, or
market price.
2. We adjusted Nanya's reported R&D rate to include all of Nanya's
semiconductor R&D expenses divided by the company-wide COGS.
3. We reclassified expenses incurred by Genesis Semiconductor,
Inc., a U.S. affiliate of Nanya that performs DRAM R&D, as R&D expense.
4. We adjusted Nanya's reported G&A expense to include certain
``other revenue'' items and exchange losses. See comments 21 and 22 in
the ``Interested Party Comments'' section.
5. We recalculated Nanya's reported production-related royalty
expense ratio by dividing the total expense incurred by the COGS for
DRAMs.
6. Since wafers processed in a country other than Taiwan are not
subject to this investigation, we have excluded the costs and sales of
fully-processed wafers purchased from a third country.
7. We have included interest expenses in the calculation of
financial expense. See comment 20 in the ``Interested Party Comments''
section. See Cost Calculation Memorandum for Nanya dated October 12,
1999.
Vanguard
1. We revised the submitted COP to include the cost of obsolete
materials written off, and the standard cost and ``lower of cost or
market'' revaluations associated with raw materials and work-in-process
(``WIP'') inventories (see comments 24 and 25 in the ``Interested Party
Comments''section ).
2. We revised COP for back-end (assembly) services performed by an
affiliate to include selling expenses.
3. Pursuant to section 773(f)(2) and (3) of the Act, and section
351.407(b) of the Department's regulations, for DRAM assembly performed
by an affiliate, we adjusted the reported cost to the highest of cost,
transfer price, or market price (see comment 26 in the ``Interested
Party Comments'' section).
4. We revised the submitted COP to include certain royalty expenses
which were inappropriately included in selling expenses. See Cost
Calculation Memorandum for Vanguard dated October 12, 1999.
We conducted our sales below-cost test in the same manner as that
described in our preliminary determination. We found that, for MVI,
Nanya, and Vanguard, for certain models of DRAMs, more than 20 percent
of the home market sales within an extended period of time were at
prices less than COP. Further, the prices did not permit the recovery
of costs within a reasonable period of time. We therefore disregarded
the below-cost sales and used the remaining sales as the basis for
determining NV, in accordance with section 773(b)(1). For those U.S.
sales of DRAMs for which there were no comparable home market sales in
the ordinary course of trade, we compared CEPs to CV in accordance with
section 773(a)(4) of the Act.
Constructed Value
In accordance with section 773(e) of the Act, we calculated CV
based on the sum of the respondent's cost of materials, fabrication,
G&A, U.S. packing costs, direct and indirect selling expenses, interest
expenses, and profit. We relied on the submitted CVs except for the
specific changes described above in the ``Cost of Production'' section
of the notice. In accordance with section 773(e)(2)(A) of the Act, we
based SG&A expenses and profit on the amounts incurred and realized by
each respondent in connection with the production and sale of the
foreign like product in the ordinary course of trade, for consumption
in Taiwan. Where respondents made no home market sales in the ordinary
course of trade (i.e., all sales failed the cost test), we based profit
and SG&A expenses on the weighted-average of the profit and SG&A data
computed for those respondents with home market sales of the foreign
like product made in the ordinary course of trade in accordance with
section 773(e)(2)(B)(ii) of the Act.
Price-to-Price and Price-to-CV Comparisons
We made price-to-price and price-to-CV comparisons using the same
methodology as that described in the preliminary determination.
Currency Conversion
As in the preliminary determination, we made currency conversions
into U.S. dollars based on the exchange rates in effect on the dates of
the U.S. sales as certified by the Federal Reserve Bank in accordance
with section 773(A) of the Act.
Interested Party Comments
General Issues
Comment 1: Certification for Modules on Motherboards. The
petitioner argues that the respondents have made plans to avoid the
antidumping duty order to be issued in this case. The petitioner states
that it previously submitted to the Department news articles from the
Taiwan press in which the respondents discussed plans to avoid any
antidumping duty order by shipping subject merchandise to intermediate
countries for assembly or further processing, including placing memory
modules on motherboards. The petitioner also notes that the preliminary
determination in this investigation, as well as the Customs
instructions issued by the Department after the preliminary
determination, do not contain the scope language that is standard in
the DRAMs from Korea antidumping proceeding. Specifically, this scope
language, as stated in DRAMs from Korea: Amended Final Results of
Administrative Review, 63 FR 56905, 56907 (October 23, 1998), requires
importers of motherboards that contain removable memory modules to
certify to Customs that ``neither it, nor a party related to it or
under contract to it, will remove the modules from the motherboards
after importation.'' The petitioner contends that, because Taiwan is
the world's leading producer of motherboards, it is therefore
``essential'' that this certification requirement be applied to
importers of motherboards containing DRAMs from Taiwan.
No other parties commented in their case or rebuttal briefs with
respect to this issue.
DOC Position: We agree with the petitioner's comments regarding the
potential for circumvention resulting from the importation of DRAMs on
motherboards. In order to avoid the possibility that an order on DRAMs
would be evaded in such a manner, the Department will follow the
precedent, set forth in DRAMs from Korea Order, 58 FR at 27520. As a
consequence, if a party imports motherboards that contain removable
DRAMs memory modules, we will require the importer to certify with
Customs that such modules will not be removed by them, a party under
contract to them, or a party related to them, after importation. Such
certification will apply regardless of
[[Page 56313]]
whether the host product contains a CPU.
Comment 2: CEP Offset. The petitioner argues that, in the
preliminary determination, the Department failed to perform a level of
trade analysis based on unadjusted starting prices for CEP sales for
MVI, Nanya, and Vanguard. The petitioner states that the Department
analyzed the level of trade of CEP sales based on the level of the
constructed sale from the exporter to the affiliated importer, i.e.,
the prices after adjustment for U.S. related selling expenses.
Concurrently, the Department analyzed the level of trade of the home
market sales based on the unadjusted starting prices of those sales.
The petitioner states that this methodology conflicts with the
requirements of the statute and the decisions established in Borden
Inc. v United States, 4 F. Supp. 2d 1221 CIT 1998) (``Borden'') and
Micron Technology, Inc. v. United States, 40 F. Supp. 2d 481, 485-86
(CIT 1999) (``Micron''). The petitioner argues that the Department
should conduct a level of trade analysis based on unadjusted starting
prices in both the U.S. and the comparison markets. The petitioner
states that the results of this analysis will demonstrate that the
comparison market sales made by MVI, Vanguard, and Nanya were not made
at a more advanced level of trade than their sales in the U.S., and
that, therefore, there is no basis for granting either a level of trade
adjustment or a CEP offset to MVI, Nanya or Vanguard.
MVI, Nanya, and Vanguard disagree with the petitioner. They state
that the Department's established practice of analyzing the CEP level
of trade for purposes of determining whether a CEP offset is warranted
is consistent with the statute and legislative history. They argue that
section 773(a)(7)(A) of the Act specifies that a level of trade
analysis must examine the price difference between the ``constructed''
export price (``EP'') and NV, and that any price difference must be due
to differences in the selling functions and expenses, other than a
difference for which allowance is otherwise made, i.e., other than the
selling expenses in the U.S. market that already are deducted. They
further state, citing Antifriction Bearings (other than Tapered Roller
Bearings) and Parts Thereof from France, et al., 62 FR 54043, 54055
(October 17, 1997), that the Department correctly based the CEP level
of trade on the ``constructed'' price, i.e., on the price in the United
States after making the CEP deductions.
DOC Position: The Department agrees with the respondents. We have
consistently stated that the statute and the SAA support analyzing the
level of trade of CEP sales at the constructed level, after expenses
associated with economic activities in the United States have been
deducted, pursuant to section 772(d) of the Act. In the preamble to our
proposed regulations, we stated
With respect to the identification of levels of trade, some
commentators argued that, consistent with past practice, the
Department should base level of trade on the starting price for both
export price EP and CEP sales * * * The Department believes that
this proposal is not supported by the SAA. If the starting price is
used for all U.S. sales, the Department's ability to make meaningful
comparisons at the same level of trade (or appropriate adjustments
for differences in levels of trade) would be severely undermined in
cases involving CEP sales. As noted by other commentators, using the
starting price to determine the level of trade of both types of U.S.
sales would result in a finding of different levels of trade for an
EP sale and a CEP sale adjusted to a price that reflected the same
selling functions. Accordingly, the regulations specify that the
level of trade analyzed for EP sales is that of the starting price,
and for CEP sales it is the constructed level of trade of the price
after the deduction of U.S. selling expenses and profit.
See Antidumping Duties; Countervailing Duties; Notice of Proposed
Rule Making and Request for Public Comments, 61 FR 7308, 7347
(February 27, 1996).
Consistent with the above position, in those cases where a level of
trade comparison is warranted and possible, the Department normally
evaluates the level of trade for CEP sales based on the price after
adjustments are made under section 772(d) of the Act. See, e.g., Large
Newspaper Printing Presses and Components Thereof, Whether Assembled or
Unassembled, From Japan: Notice of Final Determination of Sales at Less
Than Fair Value, 61 FR 38139, 38143 (July 23, 1996). We note that, in
every case decided under the revised antidumping statute, we have
consistently adhered to this interpretation of the SAA and of the Act.
See, e.g., Aramid Fiber Formed of Poly Para-Phenylene Terephthalamide
from the Netherlands; Preliminary Results of Antidumping Duty
Administrative Review, 61 FR 15766, 15768 (April 9, 1996); Certain
Stainless Steel Wire Rods from France; Preliminary Result of
Antidumping Duty Administrative Review, 61 FR 8915, 8916 (March 6,
1996); and Antifriction Bearings (Other Than Tapered Roller Bearings)
and parts Thereof from France, et al., Preliminary Results of
Antidumping Duty Administrative Review, 61 FR 25713, 35718-23 (July 8,
1996).
In this case, in accordance with the above precedent, our
instructions in the questionnaire issued to respondents stated that
constructed level of trade should be used. All respondents adequately
documented the differences in selling functions in the home and in the
U.S. markets. Therefore, the Department's decision to grant a CEP
offset to Nanya, MVI, and Vanguard was consistent with the statute and
the Department's practice, and was supported by substantial evidence on
the record.
We disagree with the petitioner's interpretation of Borden and of
its impact on our current practice. In Borden, the court held that the
Department's practice to base the level of trade comparisons of CEP
sales after CEP deductions is an impermissible interpretation of
section 772(d) of the Act. See Borden, 4 F. Supp. 2d at 1236-38; see
also Micron, 40 F. Supp. 2d at 485-86. The Department believes,
however, that its practice is in full compliance with the statute, and
that the court decision does not contain a persuasive statutory
analysis. Because Borden is not a final and conclusive decision, the
Department has continued to follow its normal practice of adjusting CEP
under section 772(d) of the Act, prior to starting a level of trade
analysis, as articulated in the regulations at section 351.412.
Accordingly, consistent with the Preliminary Determination, we will
continue to analyze the level of trade based on adjusted CEP prices,
rather than the starting CEP prices.
Company-Specific Issues
A. Etron
Comment 3: Facts Available. The petitioner argues that the
Department must determine Etron's dumping margin based on facts
otherwise available, and apply the highest margin calculated by the
Department from the information provided in the petition. The
petitioner states that Etron's actions in this investigation meet all
the criteria for the application of facts available under section
776(a)(2) of the Act. The petitioner argues that: (1) Etron withheld
information originally requested by the Department; (2) Etron refused
to provide requested information in accordance with the Department's
supplemental questionnaires; (3) Etron significantly impeded the
Department's investigation by providing erroneous information and by
refusing to allow verification of critical information; and (4) the
Department found that critical aspects of the information that Etron
did provide were unreliable and unverifiable. The petitioner states
that, in general, the information on the record
[[Page 56314]]
reveals a web of undisclosed relationships that taints the reliability
of the U.S. sales data reported by Etron, while the numerous accounting
irregularities found in Etron's own records undermine the integrity of
Etron's entire response.
Specifically, the petitioner argues that Etron failed to disclose
essential facts concerning its relationship with one of its U.S.
customers, as required by the Department's questionnaire. The
petitioner states that information gathered by the Department, in
combination with Etron's refusal to provide clarifying information in a
response to a request for information from the Department, establishes
an undisclosed affiliation between Etron and this customer. The
petitioner states that this customer appears to be nothing more than a
shell for Etron's U.S. subsidiary, Caltron, given certain facts,
including the absence of any proof confirming a separate corporate
existence for this customer. The petitioner also states that a sample
sale examined at verification indicates that Etron's transactions with
this customer were not made on an arm's length basis.
The petitioner further argues that the information gathered by the
Department indicating undisclosed affiliations between Etron and its
customers renders Etron's questionnaire response inherently unreliable.
The petitioner adds that this unreliability is compounded by Etron's
refusal to provide critical, clarifying information on these
relationships, and its refusal to allow verification at its U.S.
subsidiary, Caltron. The petitioner states that, in particular, the
evidence that Etron had reported U.S. sales to an affiliate instead of
sales from the affiliate to the first unrelated customer means that the
submitted U.S. sales listing is fatally incomplete. To support its
argument, the petitioner cites to Hot-Rolled Flat-Rolled Carbon-Quality
Steel Products from Japan, 64 FR 24329, 24367-68 (May 6, 1999) (``Hot-
Rolled Steel from Japan''), in which the Department stated that
``information possessed by a U.S. affiliate * * * is essential to the
dumping determination.''
The petitioner further indicates that the Department's sales
verification uncovered numerous other discrepancies that by themselves
justify rejection of Etron's entire questionnaire response. The
petitioner states that the Department discovered that Etron submitted
incomplete and erroneous financial statements, and had accounting
irregularities in its financial statement. Citing Antifriction Bearings
(Other than Tapered Roller Bearings) from Germany, 56 FR 31692 (July
11, 1991) (``Bearings from Germany''), the petitioner states that these
problems jeopardize the integrity of Etron's entire questionnaire
response. The petitioner also states that Etron employed highly
irregular procedures and intentionally misleading accounting practices
in connection with its U.S. sales operations and with respect to Etron
and its U.S. affiliate, EiC Corporation. The petitioner further states
that Etron's attempt to report fictitious home market sales prices
throws additional doubt on the accuracy and completeness of all of its
reported sales.
The petitioner also argues that the application of facts available
is justified in light of other factors, such as Etron's failure to
report certain purchases in its response, Etron's failure to provide a
page of its 1998 consolidated financial statement in its response, and
the Department's inability to reconcile Etron's total DRAMs purchases
to Etron's financial statement. Citing again Bearings from Germany, the
petitioner notes that a significant aspect of the Department's
verification procedures is to reconcile the company's reported data to
its financial statements. The petitioner adds that the findings at
verification are more than simple oversights: they demonstrate Etron's
untruthfulness in responding to direct questions from the Department.
The petitioner concludes that Etron's actions, including its
refusal to provide requested information and blocking the verification
of Caltron Technology, establish that Etron has not cooperated to the
best of its ability in this investigation and has impeded the
Department's investigation. The petitioner concludes that the numerous
errors and omissions in Etron's submitted financial statements and the
accounting irregularities discovered by the Department at verification
render Etron's questionnaire response as a whole unreliable and
unusable.
The petitioner notes that, in other instances involving similarly
uncooperative respondents, such as in Welded Carbon Steel Pipes and
Tubes from Thailand, 62 FR 53808 (October 16, 1997) (``Pipe from
Thailand''), the Department has imposed total adverse facts available.
Citing Emulsion Styrene-Butadiene Rubber from Brazil, 64 FR 14683
(March 29, 1999) (``Rubber from Brazil''), Stainless Steel Bar from
Spain, 59 FR 66931 (December 28, 1994) (``Bar from Spain''), and
Circular Welded Non-Alloy Steel from Venezuela, 57 FR 42962 (September
17, 1992) (``Welded Steel from Venezuela''), the petitioner also notes
that the Department should base Etron's margin on the highest margin
listed in the petition in accordance with its standard practice in
dealing with uncooperative respondents.
In its rebuttal brief, the petitioner further points out that
Etron, in its case brief, offers no explanation or justification for:
evidence of an affiliation between Etron and a U.S. customer; critical
discrepancies that the Department found at verification in U.S. sales
documentation; and Etron's refusal to respond to the Department's
request for supplemental information and to permit verification at
Caltron. The petitioner also argues that Etron's attempt to minimize
the numerous errors the Department found at Etron's sales verification
is not credible, and that these problems confirm the total
unreliability of Etron's questionnaire data.
Etron disagrees with the petitioner's claim that the Department
should apply total adverse facts available to Etron based on the
highest petition rate. Etron claims that the application of total
adverse facts available in this case would be improper and
inappropriate. Specifically, Etron states that it did not report any
fictitious sales to one of its U.S. customers. Etron maintains that
various documents on the record demonstrate that Etron had business
dealings and significant sales with this company. Etron adds that there
would be no reason for Etron to hide such a small portion of sales and
jeopardize its overall position in the dumping case.
Etron further argues that a failure to disclose certain information
about EiC Corporation is irrelevant because Etron had acknowledged from
the start of this case that EiC Corporation is an affiliated party.
Etron claims that there was nothing irregular in its accounting records
for a sale involving EiC Corporation, and that Etron, due to its
inexperience, incorrectly identified this sale as a CEP sale.
Etron argues that the warehouse sales were properly reported and
verified. Etron further states that the discrepancies between the U.S.
warehouse sales ledger and the source documents described by the
Department are readily explained from examination of the relevant sales
verification exhibit itself.
Etron notes that the vast majority of the errors in its auditor's
translation of its financial statement are minor. Etron states that,
among these errors, the inadvertent submission of the income statement
of its unconsolidated financial statement as that of its consolidated
financial statement cannot invalidate an entire record, nor constitute
a basis for applying total adverse facts available. Furthermore, in
[[Page 56315]]
regards to the incorrect home market prices that Etron reported for
certain sales, Etron states that the impact of Etron's error is minor
at most, especially given that Etron provided the Department with both
the actual and incorrect prices.
Etron additionally asserts that the Department was able to verify
Etron's purchases from Vanguard to the relevant accounting documents.
Etron states that, as it explained and documented at verification, its
outside auditors had presented an incorrect figure in the financial
statement for Etron's purchases from Vanguard. Etron also states that
it reported in the response the details of a purchase that the
petitioner claims Etron failed to report. Etron further claims that it
correctly eliminated a U.S. sale from the sales listing.
Etron further contends that the cases the petitioner cites to
support its argument that the Department should use total facts
available to determine Etron's margin present facts different from the
situation at issue. Etron states that, in Pipe from Thailand, the
respondent, Saha Thai, refused to provide information relating to what
parties controlled Saha Thai, and thereby impeded the Department's
affiliation analysis. Etron states that, in the instant case, the issue
at hand does not relate to control of Etron itself, and Etron's
inability to respond to the supplemental questionnaire and participate
in a U.S. verification does not distort the entire dumping analysis in
the same manner as in Pipe from Thailand.
Etron argues that other cases cited by the petitioner (i.e., Rubber
from Brazil, Stainless Bar from Spain, and Welded Steel from Venezuela)
involve respondents who refused to allow any verification at all of any
information. Etron states that, in contrast, it participated in a full
two weeks of cost and sales verifications in Taiwan, and responded to
multiple deficiency questionnaires. Etron also states that Static
Random Access Memory Semiconductors from Taiwan, 63 FR 8909 (February
23, 1998) (``SRAMs from Taiwan'') is also distinguishable from the
instant case because, in that case, the Department applied total
adverse facts available to parties who refused to participate at all in
the Department's investigation.
Etron further claims that, if the Department decides that total
adverse facts available is warranted, it should, consistent with its
authority and past practice, apply adverse facts available only to the
volume and value of sales to the U.S. customer at issue. Citing the
preamble of the Department's regulations (Final Rule, 62 FR at 27340),
Etron states that the use of adverse inferences in the selection of
facts available is discretionary, and not mandatory. As such, this
issue should be decided on a fact and case-specific basis. Etron also
states that the Department has the authority, as affirmed by the CIT in
National Steel Corporation v. United States, 870 F. Supp. 1130, 1335
(CIT 1994), to apply adverse facts available on a partial or total
basis.
Etron specifically argues that the only direct implication of any
failure by Etron to disclose a possible affiliation with a customer
could only impact sales to that customer. According to Etron, if the
Department deems it appropriate to apply adverse facts available to
sales by Caltron, the Department should limit the application of
adverse facts available to only the volume and value of Caltron's
sales, which Etron claims were verified by the Department in Taiwan.
Etron also argues that, in any case, there is no basis for applying
adverse facts available to the sale involving EiC Corporation.
Etron contends that the Department has applied partial, rather than
total, adverse facts available in other similar circumstances. To
support its position, Etron cites DRAMs from the Republic of Korea, 61
FR 20216 (May 6, 1996), 64 FR 30481 (June 8, 1999) (``DRAMs from Korea
1996 and 1999'', respectively), Steel Sheet and Strip in Coils from
Italy, 64 FR 30750 (June 8, 1999) (``Steel Sheet and Strip from
Italy''), Industrial Nitrocellulose from the United Kingdom, 59 FR
66902 (December 28, 1994), Certain Hot-Rolled Carbon Steel Flat
Products, et al, from Canada, 58 FR 37099, 37100 (July 9, 1993), and
Hot-Rolled Steel from Japan.
Citing Antifriction Bearings (Other than Tapered Roller Bearings)
and Parts Thereof from France, 62 FR 2081, 2088 (January 15, 1997) and
Extruded Rubber Thread from Malaysia, 63 FR 12752, 12762 (March 16,
1998) (``Thread from Malaysia''), Etron further states that the
Department takes into account the respondent's degree of experience in
antidumping proceedings when determining the extent to which adverse
facts available should be applied. According to Etron, in the instant
case, the Department should take into account Etron's lack of
experience in dumping proceedings when determining what margins to
impose.
Etron further contends that, if the Department incorrectly
determines that it should impose total adverse facts available on
Etron, the Department should apply the highest calculated rate for any
respondent in this proceeding, and not the petition rates. Etron states
that the rates alleged in the petition have not been corroborated, and
are therefore invalid, given that they were calculated for Nanya and
Vanguard. Etron also states the petition rates are wildly out of line
with the rates that the Department calculated in its preliminary
determination, which are likely to remain the same for the final
determination. Etron also argues that the petition rates do not reflect
Etron's true range of margins because Etron sells a significant
percentage of DRAMs that are high-priced, specialty graphic DRAMs, and
Etron made a profit during the period of investigation.
In support of this position, Etron points out that, in D&L Supply
Co. v. United States, 113 F. 3d 1120, 1223 (Fed. Cir. 1997), Sigma
Corp. v. United States, 117 F.3d 1401, 1410 (Fed. Cir. 1997), Pulton
Chain Co., Inc. v. United States, No. 96-12-02877, Slip Op. 97-162 (CIT
December 2, 1997), Borden, 4 F. Supp. 2d at 1221, and Ferro Union, Inc.
v. United States, 44 F. Supp.2d 1310 (CIT 1999), the courts have held
that the Department may not use, as adverse facts available, a rate,
including a petition rate, that was subsequently determined to be
invalid. Etron also states that the Department itself, in Melamine
Institutional Dinnerware from Indonesia, 62 FR 1719, 1720 (January 13,
1997), determined that uncorroborated petition data for one respondent
should not be used as the basis for adverse facts available for other
respondents. Citing Frozen Concentrated Orange Juice from Brazil, 64 FR
5767, 5768 (February 5, 1999), Etron further argues that the
Department's standard practice in administrative reviews is to use, as
adverse facts available, the highest calculated margin for other
respondents in the proceeding.
DOC Position: We agree with the petitioner. The record evidence in
this case amply demonstrates that Etron withheld crucial information
necessary to substantiate Etron's representations regarding its
affiliations with its U.S. customers. This, coupled with other
inconsistencies and irregularities in Etron's database, as well as
Etron's refusal to undergo a mandatory verification of the information
requested by the Department, indicate that Etron failed to cooperate to
the best of its ability under section 776(b) of the Act. Thus, we have
determined that the application of total adverse facts available is
warranted. See Etron FA Memo for a detailed evaluation of Etron's
submissions and the Department's findings.
[[Page 56316]]
We disagree with Etron that its actions in this proceeding do not
justify the application of total adverse facts available because Etron
cooperated to the best of its ability under section 776(b) of the Act.
As explained in detail in the Etron FA Memo, although the Department
explicitly requested in the initial questionnaire, supplemental
questionnaires, and subsequently at verification, that Etron disclose
all of its affiliations, Etron failed to comply with these repeated
requests. Following the verification, when Etron's failure to disclose
all affiliations became apparent, and in light of other irregularities
and omissions in Etron's responses (see Etron FA Memo), the Department
issued additional supplemental questionnaires to provide Etron with yet
another opportunity to explain and clarify these issues. In addition,
the Department scheduled a verification at Etron's U.S. subsidiary,
Caltron. As the record reveals, although Etron initially asked for an
extension to respond to these supplemental questionnaires, it
eventually refused to answer them in their entirety, and informed the
Department that it would not undergo the scheduled verification. As a
result of Etron's actions, the Department was unable to confirm the
reliability and accuracy of Etron's submissions. In fact, the
Department's independent efforts to corroborate Etron's affiliations
revealed that the company indeed provided the Department with false and
incomplete information. Therefore, as explained in detail in the Etron
FA Memo, given that the necessary information is not available for
purposes of reaching the final determination, section 776(a)(2) of the
Act mandates that the Department apply total facts available to Etron.
Moreover, because Etron's actions, as described above and in the Etron
FA Memo, demonstrate that the company failed to cooperate by not acting
to the best of its ability, section 776(b) authorizes the Department to
use an adverse inference.
We disagree with Etron that the facts in the instant case differ
from those in Pipe from Thailand, where the Department applied total
adverse facts available. In both cases, the respondents at issue failed
to disclose essential information concerning affiliations with their
customers, and the Department discovered information establishing
affiliation late in the proceeding. We also note that, unlike Pipe from
Thailand, Etron has not submitted responses to all of the Department's
questionnaires, while Saha Thai, the respondent in the latter case,
submitted responses to all of the Department's questionnaires.
Moreover, Etron refused to allow some verifications scheduled by the
Department, while in Pipe from Thailand, Saha Thai allowed all
verifications.
We further disagree with Etron that this case can be distinguished
from other cases, such as Rubber from Brazil, Bar from Spain, Welded
Steel from Venezuela, and SRAMs from Taiwan, where the Department
applied total adverse facts available to uncooperative respondents.
Although the Department determined to apply total adverse facts
available based on the particular facts in each of these cases, each
respondent failed to cooperate with the Department to the best of its
ability. For example, in Rubber from Brazil, 64 FR at 14683-84, the
respondent at issue did not participate in any verification, and in
SRAMs from Taiwan, 63 FR at 8910-11, the respondents did not respond to
any of the Department's requests for information. In this case, as
explained above, Etron simply refused to cooperate with the Department
by withholding essential information that appeared to be readily at its
disposal, not to mention its refusal to cure other deficiencies in its
responses and undergo verification. The totality of facts in this case
thus demonstrate, as in other cases cited by Etron, that Etron did not
cooperate to the best of its ability within the meaning of section
776(b) of the Act.
We further disagree with Etron that the facts in the instant case
merit the application of partial adverse facts available only to
missing or unverified information. Contrary to Etron's position, in the
cases cited by Etron, the information submitted by respondents was
usable, and there was no question with respect to the veracity of the
submissions. For example, in DRAMs from Korea 1999, 64 FR at 30482,
Steel Sheet and Strip from Italy, 64 FR at 30755, and Hot-Rolled Steel
from Japan, 64 FR at 24367-69, the Department applied partial adverse
facts available to certain isolated subsets of U.S. sales, such as
sales through U.S. affiliates, that respondents failed to report. These
omissions, unlike Etron's omissions, did not affect the usability of
the other information submitted by respondents.
In contrast to other cases involving cooperative respondents, here
the record demonstrates that, despite our repeated requests, Etron
purposely withheld information necessary to confirm the reliability of
its questionnaire responses. Contrary to Etron's assertion, this
information did not pertain only to a small portion of Etron's U.S.
sales, but to a large part of Etron's U.S. database, and calls into
question the veracity of Etron's entire U.S. database. Etron's refusal
to undergo the U.S. verification at Caltron raises further questions
with respect to the accuracy of the information and increases the
Department's concerns that Etron purposely may have provided false
data. This, in turn, undermines the reliability of Etron's submissions
as a whole, regardless of whether the company appeared to cooperate
with the Department during part of the proceeding. See Stainless Steel
Sheet and Strip in Coils from Germany, 64 FR 30710, 30740 (June 8,
1999) (during verification, where ``errors are identified in the sample
transactions, the untested data are presumed to be similarly tainted
absent satisfactory explanation and quantification on the part of the
respondent'').
We agree with Etron that, in determining whether the respondent
cooperated to the best of its ability, the Department considers the
general experience of the respondent in antidumping duty proceedings,
which, in turn, dictates the extent to which facts available should be
applied. See Thread from Malaysia, 63 FR at 12762. However, the
deficiencies in Etron's responses, for the most part, have not resulted
from a lack of experience, but from Etron's willful attempts, as
discussed above and in the Etron FA Memo, to conceal and withhold
information from the Department.
Finally, we disagree with the respondent that the Department may
not use, as adverse facts available, a rate from the petition, where
different, company-specific rates are subsequently calculated in the
LTFV final determination. As explained in the ``Facts Available''
section of this notice, when selecting adverse facts available, the
Department may rely upon, inter alia, secondary information drawn from
the petition, subject to the corroboration requirements of section
776(c) of the Act. As explained in detail in the Etron FA Memo, given
that the information in the petition in this case has probative value,
we have determined to use, as adverse facts available, the highest
margin alleged in the petition. Our determination is consistent with
the Court of Appeals for the Federal Circuit's recent holding that it
is reasonable for the Department to rely on the petition rate as
adverse facts available, even though this rate differs from the rates
calculated in the Department's subsequent LTFV investigation. Such a
petition rate would not be appropriate only where it has been
judicially invalidated, which does not apply in the instant case. See
[[Page 56317]]
D&L Supply Co. v. United States, Consol. Court No. 92-06-00424, Slip
Op. 98-81 (CIT June 22, 1998), aff'd in Guangdong Metals & Minerals v.
United States, Court Nos. 98-1497, 98-1549, 1999 U.S. App. LEXIS 21650
(Fed. Cir. Sept. 10, 1999).
Comment 4: Affiliation Between Etron and Vanguard. The petitioner
argues that the Department's sales verification report provides
previously undisclosed facts that confirm the existence of an
affiliation between Etron and Vanguard. The petitioner states that the
Department discovered that Etron failed to report certain purchases
from Vanguard and other companies, which underscores the extent to
which Etron relied on Vanguard as a source of supply. The petitioner
further contends that the Etron sales verification report discloses
additional evidence of the Lu family's extensive, collective control
over Etron. The petitioner argues that this evidence supports the
conclusion that C.Y. Lu, as a member of the Lu family, the brother of
Etron's CEO, and as President of Vanguard, was in a position to
exercise restraint or direction over Etron. The petitioner additionally
argues that Etron's purchase of Vanguard stock, and purchase and sale
of its own stock (which are listed on the page of Etron's 1998
consolidated financial statement that Etron had failed to submit to the
Department), further support a finding of affiliation between Etron and
Vanguard.
According to Etron, the Department confirmed during verification
the central elements that the Department relied upon in its preliminary
determination to demonstrate that Etron and Vanguard are not
affiliated. Etron states that, contrary to the petitioner's claims,
certain of Etron's purchases demonstrate the dynamic nature of the
market, and that Etron is able to purchase products from multiple
sources. Etron adds that the fact that certain parties owned small
shareholdings in Etron is irrelevant to the affiliation issue, and no
information in the verification reports in any way undercuts the
conclusion that the brother of C.C. Lu, the CEO and Chairman of Etron,
was not in a position of ``control'' over Vanguard. Etron further
argues that, simply because a portion of Taiwan Semiconductor
Manufacturing Company's (``TSMC's'') purchases of Etron stock was made
in a certain way, rather than entirely on the open market, in no way
supports a finding of affiliation between Etron and Vanguard,
particularly since all the transactions took place after the POI.
Etron finally claims that it was under no obligation to identify a
certain other company as an affiliated party because this company was
not involved in the sale or production of the subject merchandise.
DOC Position: For purposes of the preliminary determination, the
Department determined that Etron and Vanguard were not affiliated
within the meaning of section 771(33)(F), given that the Lu family was
not in a position of legal or operational control over Vanguard. See
Memorandum on Whether Etron Technology, Inc. and Vanguard International
Semiconductor Corporation are Affiliated Under Section 771(33) of the
Act, dated May 21, 1999. At verification, we carefully examined
Vanguard's corporate and financial records. While family members
occupied positions in Vanguard and Etron, we found no evidence of the
Lu family's control over Vanguard's daily operations that would
contradict our preliminary finding. Accordingly, consistent with our
preliminary determination, we continue to find that during the POI, no
member of the Lu family was in a position of legal and operational
control over Vanguard within the meaning of section 771(33)(F) of the
Act. See Vanguard's Sales Verification Report at 3-4. We note, however,
if we issue an order in this case, we intend to reexamine the
relationship between these two companies in any future administrative
review.
Comment 5: Research and Development Expenses. Etron argues that its
offset to R&D expenses for R&D revenues was in accordance with the
Department's practice and that the Department erroneously excluded the
offset in its preliminary determination.
The petitioner contends that the Department was correct in its
preliminary determination to deny Etron's offset to its R&D expense for
revenues received from R&D projects.
DOC Position: Given that the Department is rejecting Etron's
reported sales and cost information to calculate Etron's margin, and is
applying total facts available, the issue of whether the Department
should allow an offset to Etron's R&D expenses is moot.
Comment 6: Stock Bonus Distributions to Employees. Etron argues
that, in its preliminary determination, the Department erroneously
included the stock bonus provided to employees in Etron's COP.
The petitioner counters that the Department appropriately included
Etron's 1998 employee stock bonus and cash payments to supervisors in
the reported costs in its preliminary determination.
DOC Position: As with comments 5, the question of how to treat the
stock distribution to Etron's employees is moot in light of our
decision to apply total facts available to Etron.
B. MVI
Comment 7: Collapsing MVI and ProMOS. MVI states that the
Department's preliminary determination not to collapse MVI and ProMOS
and to treat ProMOS as a non-producing subcontractor was made in
contravention of the law, the regulations, and the Department's
established practice. According to MVI, ProMOS and MVI should be
collapsed, the major input rule should not apply, and consequently, the
cost of DRAMs produced at ProMOS should be valued using ProMOS's actual
COP.
MVI claims that, under section 351.401(h) of the regulations, the
Department should treat DRAM semiconductor foundries as producers
unless the foundry: (1) Does not acquire ownership of the subject
merchandise, and (2) does not control the relevant sale of the subject
merchandise. According to MVI, in SRAMs from Taiwan, the Department
stated that, even though the foundries owned the processed wafer, they
did not own the crucial SRAM design, and therefore were not
``producers.'' MVI maintains that this same logic does not apply in
this case because ProMOS has ownership rights in the proprietary
designs of the DRAMs it manufactures, similar to the design houses in
SRAMs from Taiwan. Therefore, MVI contends that ProMOS must be deemed a
producer of subject merchandise.
Further, MVI states that, under section 351.401(f)(1) of the
Department's regulations, the Department must collapse MVI and ProMOS
because they are: (1) Affiliated producers of subject merchandise; (2)
they have production facilities in Taiwan for similar or identical
products that would not require substantial retooling of either
facility in order to restructure manufacturing priorities; and (3)
there is a significant potential for the manipulation of price or
production. According to MVI, because MVI and ProMOS should be
collapsed and treated as a single entity under the regulations, the
major input rule is inapplicable to them. Therefore, the Department
should value ProMOS die using ProMOS's actual costs of production.
The petitioner states that, under the totality of facts, ProMOS is
no different from the other semiconductor
[[Page 56318]]
fabricators that the Department has, in other cases, found to be simply
foundries for the respondents. According to the petitioner, because
there is no dispute that ProMOS is affiliated with MVI, and because
there is no dispute that a fabricated wafer is a ``major input'' to a
finished DRAM, the Department properly used the highest of cost or
transfer price to determine the cost of DRAM die purchased by MVI from
ProMOS.
The petitioner further argues that, if the Department were to find
that ProMOS is a producer, it must collapse ProMOS and MVI, and
calculate a single dumping margin, including margins on the sales of
ProMOS DRAMs made through Siemens. In such a case, the petitioner
contends that, because MVI did not report the sales through Siemens,
the Department must make an adverse inference in applying facts
available, and recommends that the Department should apply to the
unreported volume of sales made through Siemens the highest individual
dumping margin calculated for any other sale.
DOC Position: We disagree with MVI's contention that ProMOS should
be considered a ``producer'', and that MVI and ProMOS should be
collapsed for the purposes of the final determination. In response to
the comments filed by MVI and the petitioner, we have reexamined the
terms of the agreements between MVI and Siemens, and MVI, Siemens, and
ProMOS. Based on this analysis, we stand by our preliminary
determination that ProMOS is not a ``producer'' of the subject
merchandise within the meaning of section 771(28) of the Act. See
Preliminary Determination, 64 FR at 28986. Rather, the terms of the
agreements indicate that ProMOS did not acquire ownership of the
relevant subject merchandise and did not control the sale of relevant
subject merchandise. Moreover, ProMOS did not control the sale of any
merchandise. Therefore, we determine that, under 19 CFR 351.401(h),
ProMOS served as a subcontractor to MVI and should be treated as such
in our analysis. See Memorandum on Whether ProMOS Technologies, Inc.
(``ProMOS'') is a Producer of Subject Merchandise and as Such Should be
Collapsed with Mosel Vitelic, Inc. (``MVI''), dated October 8. 1999.
Thus, for the final determination, we have not collapsed MVI and
ProMOS. We, therefore, have continued to apply the major input rule,
pursuant to section 773(f)(2) and (3) of the Act and section 351.407(b)
of the Department's regulations, to MVI's purchase of inputs from
ProMOS. We note, however, that should we issue an order in this case,
we intend to revisit this issue if any of the facts of this situation
change in any future administrative review.
Comment 8: Unreported Home Market Sales. MVI argues that, if the
Department concludes that certain sales shipped to destinations within
Taiwan, and invoiced to North American customers by MVI's U.S.
affiliate, MVC, should be treated as home market sales, then the
Department should exclude them from the home market sales listing. MVI
states that these sales are relatively few in number and were made
outside the ordinary course of business. MVI also argues that, if the
Department decides to include these sales in MVI's home market sales
listing, it should use all of the data from MVC's Verification Exhibit
22, which contains all the invoices as well as a complete sales
listing, including adjustments, for these sales.
The petitioner points out that no documentation was provided by MVC
at verification indicating that the sales with bill-to addresses in
North America but ship-to addresses in Taiwan were in fact destined for
North America. According to petitioner, these sales should have been
included in the home market database.
The petitioner argues that, because MVI 's submitted home market
sales listing is incomplete, and thus not verified, the Department must
rely on facts available. For this purpose, the petitioner states, the
Department should add the sales listed in Verification Exhibit 22 to
the home market sales database, using the listed gross unit price for
the calculation of normal value. The petitioner claims that, because
MVI did not submit in its response the transaction-specific data
required to make adjustments to gross unit price, the unadjusted prices
must be used as facts available. This, the petitioner maintains,
represents a measured response that avoids the application of total
facts available, yet it is a sufficiently adverse consequence for MVI's
failure to provide a complete and accurate sales listing.
In rebuttal, MVI argues that the petitioner's suggestion for facts
available should be rejected because MVC has been a cooperative
respondent in this investigation and its reporting methodology for U.S.
sales was fully disclosed and adopted in good faith. Further, MVI
contends that the petitioner is incorrect in arguing that MVI did not
submit in its response the transaction-specific data that is required
to make adjustments to gross unit price. According to MVI, the
necessary adjustments are allocations that were reported in full in
MVI's Section B and C responses and supplemental responses of February
26, 1999 and March 24, 1999, which all were subject to verification.
DOC Position: We disagree with the petitioner that we should apply
facts available for these unreported sales. An examination of the
information collected at verification reveals that MVI should have
reported these sales, but the amount of the sales in question is
relatively insignificant, both in terms of quantity and value of MVI's
total home market sales. Thus, we are disregarding those sales
discovered during verification because the volume of unreported sales
is relatively insignificant.
The Department has, in the past, disregarded sales inadvertently
omitted from the home market database when such reported sales were of
insignificant quantity and value. See Final Determination of Sales at
Less Than Fair Value: Oil Country Tubular Goods from Austria, 60 FR
33553 (June 28, 1995); Notice of Final Determinations of Sales at Less
Than Fair Value: Certain Hot-Rolled Carbon Steel Flat Products, Certain
Cold-Rolled Carbon Steel Flat Products, Certain Corrosion-Resistant
Carbon Steel Flat Products, and Certain Cut to Length Carbon Steel
Plate from France, 58 FR 37125 (July 8, 1993).
Further, based on our analysis of information collected at
verification, including invoices and sales listing (including
adjustments), the inclusion of these sales in home market sales
database would lower MVI's weighted-average dumping margin. Thus, the
record indicates that the omission of these unreported sales is in
fact, adverse to MVI's interests. Accordingly, no further adverse
action is warranted.
Comment 9: Manufacturing Costs Capitalized in ProMOS's Construction
in Progress Accounts. MVI argues that the manufacturing costs
capitalized in ProMOS's construction in progress (``CIP'') accounts
should not be included in ProMOS's reported production costs. MVI
states that ProMOS's records are kept in accordance with Taiwanese GAAP
and reasonably reflect the costs associated with the production of the
subject merchandise. MVI cites Accounting Principles Board (``APB'')
Opinion number 4, which calls for the deferral to future accounting
periods of those costs associated with future revenue. MVI argues that
the costs booked in ProMOS's CIP accounts are costs associated with the
testing and approval of production machinery used in the future
production of various types of DRAM products. MVI argues that these
costs are therefore related to future
[[Page 56319]]
revenue, and are properly capitalized under both U.S. and Taiwanese
GAAP. As such, they should not be added to ProMOS's COP. MVI further
argues that, if the increase in the CIP account for SDRAM DRAM wafers
is added to ProMOS's COP, then the decrease in the CIP account for EDO
DRAM products should be subtracted from ProMOS's COP.
The petitioner argues that it is very unusual for a wafer
fabrication facility to have large amounts of manufacturing expenses in
a CIP account. According to the petitioner, even though MVI considers
its treatment of capitalized expenses reasonable, it makes no attempt
to show how the capitalization of such unusually large amounts of
manufacturing expenses is reasonable. The petitioner asserts that it is
not the increase in the amount of CIP account as a whole that is of
concern, but rather the capitalization of extraordinarily large amounts
of non-fixed assets in the CIP account. Also, the petitioner states
that the Department has incomplete information as to the amount of
fixed assets in the CIP account for EDO DRAM products. The petitioner
points out that this was a relatively mature production process by the
end of the POI, and that much of the equipment for this product should
have come online during the POI. Thus, even though there is no evidence
on the record of such, the petitioner indicates that there was probably
a great increase in the manufacturing CIP for EDO DRAMs over the POI,
and that the Department should add an amount to ProMOS's EDO production
costs.
DOC Position: We agree with MVI that ProMOS's manufacturing costs
capitalized in its CIP accounts should not be included in full in
ProMOS's COP for the POI. Section 773(f)(1)(A) of the Act states that
costs ``shall normally be calculated based on the records of the
exporter or producer of the merchandise, if such records are kept in
accordance with the generally accepted accounting principles of the
exporting country (or the producing country, where appropriate) and
reasonably reflect the costs associated with production and sale of the
merchandise.'' In its ordinary books and records, ProMOS capitalized
manufacturing costs incurred during the testing phase of operations at
its new production lines. Even though these cost items are normally
expensed as incurred for commercial operations, Taiwanese GAAP allows
companies to capitalize these costs to CIP during the testing phase of
operations. In accordance with its normal books and records and
Taiwanese GAAP, ProMOS reported only the amortized portion of the
capitalized costs. We agree with MVI that it was appropriate to report
only the amortized portion of the manufacturing because the
capitalization of these expenses during the testing phase of production
is reasonable and the amortization of these expense reasonably reflects
the per-unit cost of producing the subject merchandise. In other words,
deferring some of the testing costs by capitalizing them and only
reflecting the amortized portion in the per-unit COP through
depreciation of the associated fixed assets is reasonable.
We agree with MVI that Taiwanese GAAP requires immediate
recognition of manufacturing costs in mature production facilities but
allows for capitalization and amortization of costs for production
lines still involved in the testing phase of operations. As a result of
the continuous testing of the SDRAM production line, SDRAM production
activity during the period in which manufacturing costs were
capitalized was relatively low when compared to the post-capitalization
production period activity. In addition, we disagree with the
petitioner's statement that the capitalized manufacturing costs were
extraordinarily high. We find that, when compared to the manufacturing
costs incurred during the testing phase, the manufacturing costs
incurred and capitalized in aggregate during the test phase appear
neither extraordinarily high nor unreasonable. See MVI cost
verification exhibits 17 and 41.
The SAA at 834 states that ``[t]he exporter or producer will be
expected to demonstrate that it has historically utilized such
allocations, particularly with regard to the establishment of
appropriate amortization and depreciation periods and allowances for
capital expenditures and other development costs.'' In this case, we
verified that the company had capitalized and amortized manufacturing
costs incurred during the test phase of production at its new
production lines prior to the inception of this case. See MVI cost
verification exhibit 41. In addition, we note that ProMOS's treatment
of these manufacturing costs incurred during the test phase of
production is consistent with the CIT's remand in Micron Technology,
Inc., v. United States, 893 F. Supp. 21 (CIT 1995). In this case, the
court stated that, ``to the extent test production and related
construction provide a benefit to current and future production, such
costs are properly capitalized and amortized over the periods in which
the benefits accrue.'' 893 F. Supp. at 25.
Comment 10: ProMOS's R&D Expenses. MVI argues that the entire
amount of R&D expenses capitalized in the CIP accounts at the end of
the POI should not be added to ProMOS's R&D expenses. Instead, MVI
maintains that only the R&D expenses incurred during the POI should be
included in the R&D allocation calculation. MVI points out that a
portion of the R&D expense capitalized prior to the POI was amortized
during the POI, and it was included in the R&D expense on MVI's
financial statements. MVI reasons that, given that these R&D costs were
not actually incurred during the POI, they should not be included in
the allocation calculation.
The petitioner argues that no R&D should be deferred in a CIP
account because capitalizing R&D is distortive of costs. The petitioner
cites DRAMS from Korea 1999, 64 FR at 30484-85, which states that
``capitalizing R&D expenditures is distortive of costs.'' The
petitioner also cites U.S. GAAP which requires ``all R&D costs to be
expensed in the year incurred,'' as support for its position that no
R&D be deferred in a CIP account.
DOC Position: We disagree with both MVI and the petitioner. While
we agree that R&D costs should be expensed as incurred, the current
situation is different. As explained in comment 9, ProMOS capitalized
current manufacturing costs related to testing costs. In this instance,
ProMOS classified some of these manufacturing costs as R&D incurred
during the testing phase of operations. Although ProMOS classified
these costs as R&D, they actually are costs from the testing phase of
operations. Consistent with our position on the capitalized
manufacturing costs that ProMOS incurred during the testing phase of
operations, we consider it appropriate, under Taiwanese GAAP, for
ProMOS to capitalize and amortize operating costs incurred during this
testing phase. Following this approach, all testing expenses amortized
during the POI should be recognized as a POI cost of production,
regardless of whether it was originally incurred and capitalized prior
to or during the POI.
Comment 11: Allocation of ProMOS's R&D expenses. MVI argues that,
in following the cross-fertilization principle, the Department should
allocate ProMOS's R&D expenses to all products sold by MVI. MVI cites
SRAMS from Taiwan, 63 FR at 8925, where the Department concluded that
``where expenditures benefit more than one product, it is the
Department's practice to allocate those costs to all of the products
which are benefitted.'' MVI
[[Page 56320]]
states that, under the cross-fertilization principle, MVI products
could benefit from ProMOS's R&D expenditures and, therefore, ProMOS's
R&D expenses should be allocated over all MVI's semiconductor products.
Furthermore, MVI states that, if the Department continues to allocate
ProMOS's R&D expenses exclusively to ProMOS's production, then MVI's
R&D expenses should only be applied to merchandise produced at MVI.
The petitioner argues that ProMOS's R&D should only be allocated to
ProMOS, which is consistent with the Department's treatment of ProMOS
as a subcontractor.
DOC Position: We agree with the petitioner. ProMOS is an affiliated
subcontractor of MVI that provides a specific input to MVI for the
production of subject merchandise. As a subcontractor, ProMOS's R&D
expenses should be connected with the merchandise ProMOS produced,
which, in this case, is the input provided to MVI, whereas MVI's R&D
costs should be allocated to all of the merchandise it produced.
Moreover, we normally calculate G&A and R&D on an entity-specific
level, not on a consolidated level. See Notice of Final Determination
of Sales at Less Than Fair Value: Stainless Steel Round Wire From
Canada, 64 FR 17324, 17334 (April 9, 1999) (``Stainless Steel Round
Wire From Canada''). In the present case, respondent's reference to
SRAMS from Taiwan is not applicable because that case refers to R&D
cross-fertilization between different semiconductor products produced
by the same company, and not between semiconductor products of the
respondent and an affiliated subcontractor supplier, as in this case.
Comment 12: MVI's R&D expenses. MVI points out that MVC's R&D
expenses are included in MVI's R&D expenses in its unconsolidated
financial statements. However, MVC's COGS is not included in MVI's
unconsolidated financial statements, thereby distorting MVI's R&D
allocation ratio. MVI states that the numerator and the denominator
used in the R&D expense allocation should be calculated using data from
the same companies.
The petitioner claims that MVI's COGS used in the R&D ratio
calculation was taken from MVI's financial statements and included the
cost of products sold by MVI to MVC for resale to the U.S. market. The
petitioner states that, if the Department were to add MVC's COGS to
MVI's COGS, it would result in double-counting.
DOC Position: We agree with the petitioner that MVI's R&D rate
computation should be based on the R&D costs and the cost of sales
amounts as reported on MVI's audited financial statements. The fact
that MVI may have performed some R&D for the benefit of MVC does not
mean that MVI did not derive any benefit from that R&D. Consistent with
our position that all semiconductor R&D benefits all semiconductor
products (see SRAMS from Taiwan, 63 FR at 8925), we computed MVI's R&D
rate as the ratio of MVI's company-wide R&D over company-wide cost of
sales. Moreover, we note that MVI's cost of sales as reported on its
financial statements already includes the cost of sales for those
products which were sold to MVC and then resold in the U.S. market. See
MVI cost verification exhibit 15. To include MVC's cost of sales in
MVI's R&D rate calculation, as MVI argues, would double-count these
cost of sales.
Comment 13: Employee Stock Bonuses. MVI states that the employee
stock bonuses paid by MVI should be valued at the market price of MVI's
stock on the date of the distribution of the shares. MVI points out
that the Department's preference is that stocks be valued as of the
grant date, based on the Financial Accounting Standards Board's
Statement of Financial Accounting Standard (``SFAS'') No. 123. MVI
argues that SFAS 123 is not appropriate in this circumstance because
SFAS 123 applies to stock options awarded as compensation, whereas MVI
has awarded actual stock shares as compensation. MVI asserts that, with
stock options, the company has no way of predicting when employees will
choose to exercise the option. Consequently, the company has no
immediate way to measure the value of the stock provided. However, in
this instance, MVI knows the value of the shares provided and the
actual cost to the company on the day the shares are distributed to the
employees.
MVI continues that, even though it is not applicable, SFAS No.
123's definition of grant date as ``the date on which the employer and
employee come to a mutual understanding of the terms of a stock-based
compensation award'' further supports their argument for the use of the
distribution date. MVI claims that the mutual understanding of the
value of the employees' profit-sharing bonus does not occur until the
date on which the stock is issued because the value of the stock is not
determined until that date.
MVI states that, in calculating a company's actual costs, the
Department should use the share distribution costs that best reflects
the known costs to the company. MVI points out that, in SRAMs from
Taiwan, 63 FR at 8922, the Department reasoned that the cost of stock
bonuses to the company ``is foregoing the opportunity to acquire
capital by issuing or selling those shares to investors at the market
price.'' MVI argues that, in this case, the opportunity cost is not
incurred upon the announcement of the bonus, but rather upon the
distribution of the bonus. Furthermore, MVI states that the employees'
ownership rights to the shares are vested upon distribution, and not
upon declaration.
MVI maintains that if the market value of the stock shares is
determined by using the value of the shares on the date of declaration,
the Department should consider the dilution effect of the share
distribution. MVI states that the actual market value is diminished by
the quantity of shares issued over shares outstanding. MVI points out
that MVI's stock value declined as a result of the declaration of the
stock bonuses, and that the Department should therefore adjust the
market price used for the valuation of the stock shares by the dilution
effect of the declaration.
MVI contends that, if the Department uses the date of the
shareholder meeting to value employee stock bonuses, the Department
should calculate an offset to the bonus given that the company did not
issue shares until the date of distribution. MVI reasons that, if the
Department attributes a cost to MVI that the company did not incur,
then the Department should attribute to MVI the corresponding benefit
that would inure to MVI because of the delay in the distribution of
shares.
The petitioner argues that the Department should adhere to the
policy it adopted in SRAMs from Taiwan and value MVI's stock bonus at
the fair market value on the date the bonus was authorized. In
particular, the petitioner cites SRAMs from Taiwan, 63 FR at 8922-23,
in which the Department stated that ``[a]s to the determination of fair
market value, because the employee stock bonuses were authorized by UMC
and Winbond shareholders at the annual shareholders' meetings, our
preference would be to value the stock at the market price on those
dates. However, since the dates of those meetings are not on the case
record, we have valued the stock distributions on the date of
issuance.''
The petitioner asserts that the terms of MVI's stock bonus were
clearly settled on the date MVI's shareholders authorized the stock
bonus and specified the number of shares to distribute. The petitioner
points out that the number of shares to be distributed was in no sense
dependent on the
[[Page 56321]]
market value of the stock on the issue date or MVI's number of
employees. The petitioner states that, using the declaration date is
supported by the Accounting Principles Board (``APB'') Opinion 25,
which states that the measurement date is the earliest date on which
both the number of shares to which an individual employee is entitled
is known, and the option price is fixed. The petitioner argues that, in
SRAMs from Taiwan, the Department had to resort to the market value on
the date of issuance as a reasonable surrogate because the necessary
information was not available in the record. The petitioner states that
the opportunity cost forgone by MVI by issuing the stock as
compensation to employees, rather than by selling it to investors on
the open market, is better measured by the share value on the
declaration date, and not the distribution date. The petitioner
contends that, on the authorization date, the company obligated itself
to issue a certain number of shares as a bonus to its employees, and
that number of shares was fixed and did not vary with the fluctuations
in the market value of the stock. The petitioner claims that MVI's
examples of the stock bonus's dilution effect are not accurate because
those examples involve stock splits and dividends, which constitute a
distribution of additional shares to existing shareholders, and not the
issuance of additional shares as compensation for services provided to
the company. The petitioner concludes that MVI's theoretical benefit
from delaying the issuance of the stock shares to employees would be a
non-operating investment gain, and would not be allowed as an offset
had such a gain been realized.
DOC Position: We agree with the petitioner that the employee stock
bonuses should be recorded at fair market value on the date of the
shareholders' approval. Our determination is based on the standards
prescribed by SFAS 123 along with the precedent set forth in SRAMs from
Taiwan, 63 FR at 8923. We recognize that Taiwanese GAAP allows stock
bonuses to be recorded at par value as a reduction in stockholders'
equity. However, in SRAMS from Taiwan, we determined that the treatment
of stock bonuses under Taiwanese GAAP is distortive and does not
reasonably reflect the cost of the subject merchandise, and,
accordingly, we decided to rely on U.S. GAAP. While the Department
acknowledges that SFAS 123 primarily addresses stock options, the
standard actually stipulates that it applies ``to [both] stock options
and other stock-based compensation arrangements.'' Interpretation and
Application of Generally Accepted Accounting Principles 1998, by
Patrick Delaney, et al. (John Wiley and Sons 1998) at 638. Thus, SFAS
123 would encompass the stock bonuses awarded by MVI to its employees
and, as such, the shares of stock awarded to employees should be valued
at fair market value on the grant date.
We disagree with MVI's claim that a ``mutual understanding'' of the
value or opportunity cost of the stock bonus is not known until the
date of distribution. A review of the record clearly indicates that the
terms of the bonus were outlined in the minutes of the meeting where
shareholder approval was granted. See MVI cost verification exhibit 47.
As noted in SRAMs from Taiwan, 63 FR at 8923, SFAS 123 directs that
``[i]f an award is for past services, the related compensation cost
shall be recognized in the period in which it is granted.'' In the
instant case, the stock distributed by MVI in the current year was for
service of the prior year. Under U.S. GAAP, it is appropriate to
recognize the compensation cost, and thus value the compensation, when
the stock bonus was granted, which was as of the date of the
shareholders' approval.
We also disagree with MVI's argument as to the dilution effect the
stock bonus will have on market price. There are many complex factors,
such as investor predictions of future company performance, changes in
a company's management or changes in a company's business plan, which
influence the stock market price of a publicly traded company. To
speculate that there is a direct correlation between the authorization
of the stock bonus and the market price, which can be quantified in a
simple mathematical formula, is therefore not reasonable.
In addition, we disagree with MVI that the company should be
granted an offset to account for any benefit accrued due to the delay
in the issuance of the shares to employees. Once shareholder approval
is obtained, a legal obligation exists requiring immediate recognition.
There is no indication on the record that MVI derived a benefit from
the delay in the distribution of the shares. Therefore, in order to
avoid speculation as to the impact of dilution or the value of any lost
future benefit, the Department adheres to its previously stated
practice of using the declaration date for the valuation of stock
bonuses.
Comment 14: Startup Adjustment. MVI argues that the Department
should grant MVI's request for a startup adjustment for the ProMOS
facility. MVI states that the Department should use the number of
wafers out and good die out, as well as the number of wafers entering
production, to determine whether ProMOS reached commercial levels of
production. MVI asserts that the precedent established in SRAMs from
Taiwan of determining commercial levels of production based on wafer
starts during the period is not an accurate measure. MVI claims that,
during ProMOS's startup period, wafer starts are not relevant to the
number of units processed because ProMOS used many wafers during the
POI for engineering and other test purposes that were unrelated to the
production of finished goods. MVI claims that commercial levels of
production should be measured by volumes of wafers out, volumes of good
chips, rated monthly capacity, yields at a commercially feasible level,
commercial levels of depreciation, and commercial levels of employees.
MVI contends that it was not until the third quarter of 1998 that
ProMOS ended its startup period.
MVI asserts that the Department failed to explain why a relative
escalation in wafer starts is indicative of commercial levels of
production, or how this escalation is characteristic of the
merchandise, producer or industry concerned. MVI provides examples of
other wafer fabrication facilities' capacity levels during the POI to
emphasize the point that ProMOS was operating below normal industry
capacity levels during the POI. Finally, MVI states that the October
21, 1997 news release declaring commercial availability of 64 Megabit
(``meg'') DRAMs produced by ProMOS should not be confused with the
level of commercial production characteristic of the industry. MVI
explains that the former is indicative of having merchandise, even the
smallest amount, available for sale; the latter is indicative of having
reached a particular level of production such that period costs
reasonably reflect the normal COP.
The petitioner argues that ProMOS's startup period appears to have
ended prior to the beginning of the POI. The petitioner cites section
773(f)(1)(C)(ii) of the Act, which states that ``the statute permits a
startup adjustment to be made only if: a producer is using new
production facilities or producing a new product that requires
substantial new investment, and production levels are limited by
technical factors associated with the initial phase of commercial
production.'' The petitioner states that, while ProMOS was using a new
production facility, any technical factors that may have initially
limited
[[Page 56322]]
production levels ceased to be at issue in October 1997, when ProMOS
achieved commercial production levels that are characteristic of the
DRAM industry.
The petitioner claims that, in the October 21, 1997 press release,
ProMOS announces commercial availability of 64 meg DRAMs. In the press
release, ProMOS held itself out to be a facility producing at self-
proclaimed high volumes, and offering commercial production. It also
provided to customers detailed information with respect to its full
product line and price data. This, according to petitioner, indicates
that ProMOS had surpassed the threshold of initial commercial
production. The petitioner asserts that the information ProMOS provided
at verification regarding wafer starts further contradicts MVI's claim
for a startup adjustment, pointing out that ProMOS's wafer starts
remained constant throughout most of the POI.
The petitioner contends that ProMOS's achievement of its rated
capacity is not the proper benchmark for determining when the startup
period ends. The petitioner cites the SAA at 836, which states that
``[t]he attainment of peak production levels will not be the standard
for identifying the end of the startup period, because the startup
period may end well before a company achieves optimum capacity
utilization.''
The petitioner argues that the number of units going into finished
goods inventory is not a good measure of the achievement of commercial
levels of production. The petitioner states that the number of good die
resulting from the production process reflects not only the output of
the process but also, and more important, the yield achieved in the
production process. The petitioner cites SRAMs from Taiwan, 63 FR at
8930, where the Department focused on a similar product and determined
the beginning of commercial production levels (and the end of the
startup period) based on the number of wafer starts, and notes that the
Department found this represented the best measure of the facility's
ability to produce at commercial production levels.
Furthermore, the petitioner notes that in SRAMs from Taiwan, where
a similar product was examined, the Department, citing the SAA at 836,
which directs the Department to examine the units processed in
determining the claimed startup period, rejected respondent's argument
that the Department examine production yields as a measure of when
commercial production begins. The petitioner points out that yields
improve constantly throughout the life cycle of a semiconductor
product. The petitioner cites the SAA at 836, which directs the
Department to not extend the startup period so as to cover improvements
and cost reductions that may occur over the entire life cycle of a
product.
The petitioner asserts that the other factors, which MVI claims are
a measure of commercial production, are without merit. The petitioner
states that investment in DRAM facilities is ongoing and continues
beyond the initial startup period. Finally, the petitioner argues that
the wafer production data for other Taiwanese producers are not
appropriate measures because fabrication facilities can, and are,
designed to handle different capacity levels.
DOC Position: We disagree with MVI that a startup adjustment is
warranted in this case. Section 773(f)(1)(C)(ii) of the Act authorizes
adjustments for startup operations ``only where (I) a producer is using
new production facilities or producing a new product that requires
substantial additional investment, and (II) production levels are
limited by technical factors associated with the initial phase of
production'' (emphasis added). In light of the information contained in
the administrative record, we consider ProMOS's facilities to be
``new'' within the meaning of section 773(f)(1)(C)(ii)(I) of the Act
because the record indicates that these production facilities have been
built for the purpose of producing DRAM products not produced by MVI's
other fabrication facility. See January 25, 1999 section A response.
However, we do not consider ProMOS's production levels to have been
limited by technical factors associated with the initial phase of
production during the POI within the meaning of section
773(f)(1)(C)(ii)(II) of the Act. Section 773(f)(1)(C)(ii) states that
``the initial phase of commercial production ends at the end of the
startup period.'' Since, as explained below, the startup period has
ended, we have determined that any technical factors that may have
limited ProMOS's production ceased to be an issue when the facility
reached what we consider to be commercial levels of production in
October 1997, the beginning of the POI.
In determining whether commercial levels have been achieved,
section 773(f)(1)(C)(ii) directs the Department to consider factors
unrelated to the startup operations that might affect the volume of
production processed, such as demand, seasonality or business cycles.
Moreover, the SAA at 836 directs the Department to examine the units
processed in determining the claimed startup period. In SRAMs from
Taiwan, 63 FR at 8930, we stated that ``our determination of the
startup period was based, in a large part, on a review of the wafer
starts at the new facility during the POI, which represents the best
measure of the facility's ability to produce at commercial production
levels.'' Consistent with the SAA and SRAMs from Taiwan, in this case,
we continue to believe that wafer starts provide the best measure of
the facility's ability to produce at commercial production levels
because the increase in wafer starts is indicative of ProMOS's
resolution of technical problems that had initially restricted
production. Based on this measure, we have determined that ProMOS
reached commercial levels of production prior to the start of the POI.
Due to the proprietary nature of this analysis, see Cost Calculation
Memorandum for MVI dated October 12, 1999 for a more detailed
explanation regarding the startup adjustment. Because section
773(f)(1)(C)(ii) of the Act establishes that both prongs of the test
must be met before a startup adjustment is warranted, we have denied
MVI's startup claim.
We agree with the petitioner's argument that units going into
finished goods inventory are not a good measure of the achievement of
commercial levels of production, given that they are more a reflection
of the quality of the product produced and the yields achieved in the
production process. In addition, we do not consider a industry-wide
comparative yield approach appropriate for determining the end of the
startup period because the respondent may never reach yields comparable
to other producers. Furthermore, because yields improve constantly
throughout the life cycle of a semiconductor product, based on yields,
we might improperly find that some respondents may appear to never
leave the startup period.
Additionally, commercial levels of depreciation, number of
employees, and a commercially feasible yield are not appropriate
measures of commercial levels of production because they do not measure
the units processed as mandated by the SAA at 836. The SAA does not
refer to quality of merchandise produced, the efficiency of production
operations, or the number of employees, as criteria for measuring the
length of the startup period. Rather the SAA at 836 relies strictly on
the number of units processed, rather than output yields, as a primary
indicator of the end of the startup period.
Regarding the October 21, 1997, press release, we disagree with
MVI's statement that commercial availability is indicative of having
the smallest amount of merchandise available for sale. We agree with
the petitioner that,
[[Page 56323]]
because the press release provided product line information and pricing
data, ProMOS held itself out to its customers as a high volume
producer. This further supports our finding that the startup period
ended by the beginning of the POI.
Finally, MVI's comparison of ProMOS's capacity to production data
of other wafer fabrication facilities is without merit. We agree with
the petitioner that each fabrication facility is designed to handle
different capacity levels, which makes such a comparison incongruous.
Moreover, even if production levels were limited, MVI failed to provide
the Department with sufficient evidence of technical factors that may
have limited ProMOS's new facility production levels during the POI.
Comment 15: Reconciliation Adjustment to ProMOS's Costs. MVI claims
that ProMOS's costs should not be adjusted for the unreconciled
difference reported by the Department. MVI explains that, because
ProMOS is an affiliated producer of subject merchandise, it reported
ProMOS's actual per-unit costs of manufacturing the subject merchandise
instead of the transfer price recorded in its normal books and records.
MVI states that, because the reconciliation assumes that all
merchandise sold by ProMOS was fabricated in the same quarter in which
it was sold, the timing difference between products going to ProMOS's
finished goods inventory and output going to COGS accounts for the
unreconciled difference reported in the cost verification report.
The petitioner argues that MVI has not provided a credible
explanation for the unreconciled difference, and that the Department
should increase ProMOS's costs by the amount of the unreconciled
difference. The petitioner points out that MVI speculates that the
discrepancy may be due to differences between the time a product was
produced and the time it was sold, but MVI does not provide specific
explanations identifying the differences. The petitioner asserts that
ProMOS should have easily been able to show how its costs were
allocated to subject merchandise, and to the extent that there is a
discrepancy between the financial statements and the response, the
amount of the discrepancy should be added to ProMOS's COP.
DOC Position: We agree with MVI's claim that ProMOS's costs should
not be adjusted for the unreconciled difference. After reviewing
certain verification exhibits, we have determined that the reconciling
difference is eliminated when accounting for different valuations
between the quarter the input merchandise was produced by ProMOS, and
the quarter the merchandise was sold by ProMOS. See Cost Calculation
Memorandum for MVI dated October 12, 1999 for a detailed explanation.
Comment 16: Back End Costs. MVI states that, in making an
adjustment for MVI's affiliated back-end (i.e., assembly and test)
costs, the Department should ensure that the quarterly back-end costs
and transfer prices of different products within the same control
number are weight-averaged.
The petitioner did not comment on this issue.
DOC Position: We agree with MVI. In calculating the adjustment for
MVI's affiliated back-end costs, the Department utilized information
from the verification exhibits and MVI's June 24, 1999 submission to
ensure that costs for multiple products within the same control number
were weight-averaged.
Comment 17: Marine Insurance. MVI states that it double-counted
marine insurance expenses in its responses. MVI requests that the
Department adjust the reported G&A expenses to correct for this
duplication.
The petitioner did not comment on this issue.
DOC Position: We agree with MVI that marine insurance expenses have
been double-counted as both a sales expense in its sales response and
as a G&A expense in its cost response. For the final determination, the
Department will deduct the marine insurance amount from MVI's G&A
expenses to correct for this duplication.
Comment 18: Non-operating Expenses. MVI states that it is the
Department's long standing policy not to include non-operating expenses
that are unrelated to the production of subject merchandise. MVI argues
that the dormitory depreciation and G&A building depreciation are
clearly not related to production activities: the dormitory is used for
housing students, interns, and guests, and the administrative building
was dedicated to non-subject activities.
The petitioner asserts that it is appropriate for the Department to
include MVI's non-operating expenses relating to the production of
subject merchandise (i.e., depreciation of the G&A building, and
depreciation relating to the R&D building) to MVI's G&A expenses. The
petitioner also claims that it is appropriate to include ProMOS's costs
from the other miscellaneous expenses account that appear to be related
to the production of subject merchandise.
DOC Position: In calculating the G&A rate, the Department's
practice is to include certain expenses and revenues that relate to the
general operations of the company as a whole, as opposed to including
only those expenses that directly relate to the production of the
subject merchandise. See Notice of Final Determination of Sales at Less
Than Fair Value: Stainless Steel Round Wire from Taiwan, 64 FR 17336,
17339 (April 9, 1999) (``Wire from Taiwan''); and Notice of Final
Results and Partial Recission of Antidumping Duty Administrative
Review: Certain Pasta From Italy, 64 FR 6615, 6627 (February 10, 1999)
(``Pasta From Italy''). The CIT agreed with the Department that ``G&A
costs, by definition, are period costs that relate to the company as a
whole.'' U.S. Steel Group v. United States, 998 F. Supp. 1151 (CIT
1998). Accordingly, the G&A category covers a diverse range of items.
Consequently, in determining whether it is appropriate to include or
exclude a particular item from the G&A calculation, the Department
reviews the nature of the G&A activity and the relationship between
this activity and the general operations of the company. See Wire from
Taiwan, 64 FR at 1733, and Pasta From Italy, 64 FR at 6627. The items
at issue for both MVI and ProMOS, which include depreciation on the G&A
and R&D buildings and losses on the sales of fixed assets, relate to
the general operations of the respective company, and the Department
has, therefore, included these expenses in MVI's and ProMOS's G&A
expenses.
Comment 19: Clerical Errors. MVI notes an error in the Department's
margin calculation program for the preliminary determination. In the
cost test portion of the normal value calculation, the margin
calculation program first attempts to match a given home market sale to
the COP for that product for the same quarter. If there is no match in
the COP file for that quarter, the margin calculation program searched
for a match in the most recent previous quarter and the home market
sale was designated as made in the earlier quarter. According to MVI,
the error occurred when, at the end of the cost test, the designation
was not changed back to the original quarter so that the appropriate
sales price to sales price comparison could be made.
The petitioner does not dispute the presence of the error, but
notes that the same problem exists in the matching of U.S. sales with
CV.
DOC Position: We agree with MVI and petitioner and have made the
necessary changes to the margin calculation program for the final
determination so that the appropriate comparisons are made. We also
discovered the same error in Vanguard's margin calculation
[[Page 56324]]
program and have made appropriate changes for the final determination
so that the appropriate comparisons are made.
C. Nanya
Comment 20: Interest Income. Nanya states that its consolidated
financial statement does not specifically address the nature of
interest income on its income statement. Therefore, the company was
unable to specifically identify the interest income which was short-
term. As an alternative, Nanya suggests that the Department should
calculate a short-term rate by comparing Nanya's liquid assets to total
assets, and apply this ratio to Nanya's total interest income. Citing
Stainless Steel Sheet and Strip in Coils From the United Kingdom, 64 FR
30688, 30710 (June 8, 1999) (``Sheet and Strip From the United
Kingdom''), Nanya states that when a respondent is unable to
specifically identify short-term interest income, it is the
Department's practice to offset interest expenses by an amount of
interest income equivalent to the ratio of current assets to total
assets, given that the relationship of current assets to total assets
is representative of the relationship of short-term interest income to
total interest income.
The petitioner argues that Nanya's reliance on Sheet and Strip From
the United Kingdom for the calculation of short-term interest expense
is misplaced. The petitioner argues that this case did not involve a
complete failure to verify submitted data. Rather, the respondent in
that case demonstrated to the Department that it did not have access to
that company's underlying interest income data. The petitioner argues
that Nanya has made no claim that it could not obtain access to the
relevant supporting information to calculate the actual amount of its
parent's short-term interest income, and that Nanya, instead,
stonewalled the Department's request for this specific information at
verification. The petitioner requests that the Department make an
adverse inference in selecting facts otherwise available regarding
Nanya's financial expense. The petitioner further requests that the
Department calculate Nanya's financial expense ratio by using all of
its reported financial expenses, without any offset for short-term
interest income.
DOC Position: We agree with the petitioner that Nanya failed to
substantiate its claim that some of its interest income on its
consolidated financial statement was from short-term sources. The
Department specifically requested, in section VII of the Cost
Verification Outline, that Nanya demonstrate how it arrived at its
figures for short-term interest income. Although Nanya was well aware
of the Department's requests at verification, the company did not
provide any supporting documentation to substantiate its reported
figures for short-term interest expense or income. As we noted in
Nanya's Cost Verification Report at page 18, the company did not submit
material at verification supporting its claim that some of its interest
income on its consolidated financial statement was from short-term
sources, and did not offer the Department supporting documentation for
any other amounts claimed as financial expense offsets. The Department
agrees with the petitioner that when a company cannot support the data
reported in its response, the information is unverified and cannot be
used to support a determination. Furthermore, we disagree with Nanya
that Sheet and Strip From the United Kingdom supports its argument. In
Sheet and Strip From the United Kingdom, the Department agreed to make
an adjustment to the respondent's interest income figure because the
respondent demonstrated that it did not have access to its parent
company's underlying interest income data. Unlike that case, Nanya has
made no claim that it could not obtain access to the relevant
supporting information to calculate the actual amount of its parent's
short-term interest income.
Given that Nanya was aware of the Department's request prior to
verification, but did not demonstrate how it arrived at its reported
figures, we have determined not to grant the short-term offset to its
financial expenses. Rather, the Department has calculated Nanya's
financial expense ratio using all of its reported financial expense,
without any offset for interest income. See Nanya Cost Calculation
Memorandum dated October 12, 1999. Consequently, the application of
facts available does not apply because we are not allowing this offset,
as the petitioner, in any case, requested.
Comment 21: Exchange Gains and Losses. The petitioner argues that
Nanya was unable to provide any supporting documentation to verify its
reported classification of its foreign exchange gains and losses. The
petitioner believes that, in the context of this verification failure,
the Department cannot rely on the amounts submitted by Nanya, and must,
instead, apply facts available. The petitioner further argues that the
Department should apply certain adverse assumptions concerning the
nature of the reported foreign exchange gains and losses by treating
all of Nanya's foreign exchange losses as related to production, and by
treating all of the reported foreign exchange gains as unrelated to
production, and not allowing any part of such gains to offset Nanya's
general expenses.
Nanya explains that it was unable to demonstrate at verification
that it correctly distributed the foreign exchange gains and losses to
the proper cost elements because there was insufficient time to verify
all elements of Nanya's cost response. Nanya argues that, although the
Department did not examine Nanya's foreign exchange gains and losses,
this should not lead the Department to question the validity of Nanya's
categorization of those items. Nanya states that, even if the
Department were to resort to facts available for the categorization of
these items, the application of adverse inferences proposed by the
petitioner is not justified in light of Nanya's cooperation in this
proceeding and at verification. Nanya states that, when a party is
cooperative, the Department will make its determinations by weighing
the record evidence to determine what is most probative of the issue
under consideration. See SAA at 869. Therefore, Nanya urges the
Department that, even if it were necessary for the Department to resort
to facts available, the most probative and accurate information on the
record is the categorization of foreign exchange gains and losses
reported by Nanya in its response.
DOC Position: We agree with the petitioner that Nanya failed to
provide documentation substantiating its submitted figures for exchange
gains and losses to the Department at verification. Sections VI and VII
of the Nanya Cost Verification Outline specifically requested that
Nanya provide documents necessary to reconcile the company's reported
figures for exchange gains and losses, as noted in exhibit 20 of
Nanya's April 14, 1999 submission. At Nanya's cost verification, the
Department twice requested that Nanya account for its submitted figures
for exchange gains and losses. See Nanya Cost Verification Report at
17-18. Moreover, to provide sufficient time to verify Nanya's cost
responses, the Department officials agreed to extend the time period
devoted to address this issue. Despite this opportunity, Nanya failed
to substantiate, at verification, these reported figures.
In light of Nanya's failure to support its submitted figures for
exchange gains and losses, the Department is required to treat these
figures as unverified and,
[[Page 56325]]
as such, this data cannot be used for purposes of the final
determination. Therefore, the Department is treating all of Nanya's
foreign exchange losses as related to production, and all of the
reported foreign exchange gains as unrelated to production or the
general activities of the company as a whole, and thus we are not
allowing any part of such gains to offset Nanya's G&A expenses. For a
more detailed explanation, see Cost Calculation Memorandum for Nanya
dated October 12, 1999.
Comment 22: Other Revenue. The petitioner states that it supports
the Department's decision in the Preliminary Determination to adjust
Nanya's reported G&A to exclude certain other revenue items as offsets
to cost. These other revenue items include: other revenue-over
estimated, material income, adjustment credits-claims income, gains on
physical inventory and cash, gains on overseas employees' aids, returns
on loss on price decline in inventory, and others.
Nanya disagrees with the petitioner. Nanya believes that excluding
this revenue would be contrary to the Department's established
practice, which permits offsets to G&A expenses for certain income
earned from the company's production operations. As support for its
position, Nanya cites Circular Welded Non-Alloy Steel Pipe from the
Republic of Korea; Final Results of Antidumping Duty Administrative
Review, 63 FR 32832, 32838 (June 16, 1998) (``Circular Welded Pipe from
Korea'').
DOC Position: We agree with Nanya that the Department permits
offsets to G&A expenses for miscellaneous income earned from a
company's general production operations. As we explained in Circular
Welded Pipe from Korea, 63 FR at 32832, we permit offsets to G&A
expenses for income earned from the company's production operations.
Therefore, we have allowed, in part, the other revenue items listed in
exhibit 16 of Nanya's April 14, 1999, response as an offset to G&A
expenses because these revenue items are considered income earned from
the company's general operations. We note, in particular, that the item
listed ``return on loss on price decline in inventory'' represents the
company's normal accounting treatment for the lower of cost or market
provision adjustment to raw materials, WIP and finished goods
inventory. In its normal books and records, Nanya includes the lower of
cost or market write-down of its raw material, WIP and finished goods
inventories as an element on its income statement and records a
provision account on its balance sheet. In the following period, when
items are used in production or are sold, the provision and the
historical cost of those items are reflected on the income statement of
that year. Because both raw material and WIP inventories are inputs
into the cost of manufacturing the subject merchandise, any inventory
write-downs or recognition of inventory write-down provisions should be
included in determining the reported costs. See Notice of Final
Determination of Sales Less Than Fair Value: Stainless Steel Wire Rod
from Italy, 63 FR 40422, 40430, (July 29, 1998). We did not include the
write-down of finished goods, which is, conversely, more closely
associated with the sale of the merchandise rather than the production
of the merchandise. For the computation of this specific item, we
included only the provision associated with raw materials and WIP
inventories. Therefore, we allowed, in part, the other revenue items in
Nanya's submission as an offset to G&A expenses.
D. Vanguard
Comment 23: Misreported and Unreported Home Market Sales. The
petitioner asserts that the Department's discovery of numerous errors
by Vanguard in the reporting of its home market sales at verification
warrants an adverse inference in the application of facts otherwise
available. The petitioner states that, as adverse facts available, the
Department should leave certain home market sales that, in fact, are
export sales, in Vanguard's home market database, and use the
unadjusted gross unit price of these sales in the calculation of NV.
The petitioner further states that, as adverse facts available, the
Department should allocate the value of an unreported home market sale
over all of Vanguard's sales to this customer, which results in an
increase in the gross unit price of these sales.
Vanguard refutes the petitioner's argument, stating that the
Department should not apply facts available because Vanguard may have
misreported certain sales with ultimate destinations in third countries
as home market sales. Vanguard states that it reported all sales that
it shipped to addresses in Taiwan as home market sales. Vanguard states
that it does not know whether the merchandise shipped to customers in
Taiwan would be sold domestically or consumed in Taiwan before
exportation, adding that the sales at issue could have been
substantially transformed in Taiwan before reshipment. Vanguard further
argues that it cannot be expected to have investigated all of the
potential ultimate destinations for its many home market transactions.
Vanguard states that its cooperation in this investigation does not
meet the standard for the application of adverse facts available, and
if the Department determines that certain sales shipped to customers in
Taiwan should not be designated as home market sales, the Department
should simply eliminate the sales in question from the home market
database.
DOC Position: We agree with Vanguard that Vanguard's misreporting
of home market sales does not warrant the application of adverse facts
available. Vanguard's actions in this investigation do not meet any of
the criteria for the application of facts available under section
776(a) of the Act. Vanguard simply reported the sales of all
merchandise that it produced and shipped to customers in Taiwan as home
market sales, and thereby inadvertently included certain third country
sales in its database. We also note that, as reported, these sales
raise Vanguard's dumping rate, a result that appears to support
Vanguard's claim that the inclusion of these sales was an oversight.
At verification, the Department discovered that Vanguard knew, or
should have known, at the time of sale that certain sales that Vanguard
shipped to customers in Taiwan were ultimately destined, without
further processing, for customers in third countries (due to the
proprietary nature of this issue, for further details, see Memorandum
on Whether Certain Sales that Vanguard International Semiconductor
Corporation Reported as Home Market Sales are Export Sales dated
October 12, 1999).
Section 773(a)(1)(B)(i) of the Act, and section 351.404(c)(i) of
the Department's regulations, provides that, if the exporting country
constitutes a viable market, normal value shall be based on the price
in the exporting country. Since, in this investigation, we are basing
normal value for Vanguard on the price in the exporting country,
Taiwan, we are excluding from the calculation of NV those sales that
Vanguard knew, or should have known, at the time of sale were
ultimately destined for customers outside of Taiwan and inadvertently
included in its home market sales database. See Final Determination of
Sales at Less Than Fair Value: Canned Pineapple Fruit From Thailand, 60
FR 29553 (June 5, 1995) and Final Determination at Sales at Less than
Fair Value: Stainless Steel Plate in Coil from Belgium, 64 FR 15476,
15482 (March 31, 1999) (The Department excluded third country sales
that the respondent inadvertently included in its home market
database).
[[Page 56326]]
We also disagree with the petitioner that we should apply adverse
facts available to an unreported home market sale. Although Vanguard
failed to report this sale, even if properly reported, this sale would
not be used as a match for any of Vanguard's U.S. sales, and has an
insignificant effect on our calculations.
We also note that our exclusion of the third country sales from our
calculation of normal value does not call into question the
completeness of Vanguard's sales reporting. We verified that Vanguard
reported all sales that it produced and shipped to destinations in
Taiwan as home market sales. Vanguard only failed to report two
insignificant sales of subject merchandise that it purchased from other
companies, and shipped to customers in Taiwan.
Comment 24: Lower of Cost or Market. Vanguard contends that its
inventory adjustment for the lower of cost or market should not be
included in the company's reported cost of manufacturing. Citing
Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts
Thereof from France et al., 62 FR 2081, 2117-18 (Jan. 15, 1997)
(``Antifriction Bearings from France'') in support of its argument,
Vanguard presents the adjustment as a ``provisional reduction-in-
inventory value'' in anticipation of lower sales revenues which should
not be regarded as an actual or realized cost.
Vanguard states that the lower of cost or market adjustment is
recorded on an aggregate basis and is not reflected in the unit
standard costs. Therefore, according to Vanguard, the full cost of
manufacturing the subject merchandise was reported as products entered
the finished goods inventory. Vanguard further contends that the
recognition of the loss in the COGS portion of the income statement
reflects the loss in value of a balance sheet item, not the occurrence
of a realized cost. Vanguard stresses that these adjustments are
``post-production'' and including them in the reported costs would, in
effect, double-count the costs of manufacturing.
The petitioner counters that the lower of cost or market
adjustments excluded from the cost of manufacturing in Antifriction
Bearings from France were ``not a realized expense, and were not
reflected in their accounting of costs of goods in inventory.'' The
petitioner suggests that the inclusion of Vanguard's COGS on its
financial statements indicates that the adjustment also should be
included in Vanguard's reported costs. The petitioner argues that the
revaluation of inventory is an early recognition of the loss the
company expects to experience on the future sale of the product due to
the changes in market conditions. The fact that the write-down of
inventory costs arose ``post-production,'' the petitioner states, does
not eliminate it as an actual COP.
DOC Position: We agree in part with the petitioner that the lower
of cost or market adjustments made by Vanguard during the period of
investigation should be included in the reported costs. Consistent with
section 773(f)(1)(A) of the Act, it is the Department's practice to
rely upon a company's normal books and records where they are prepared
in accordance with the home country's GAAP and reasonably reflect the
cost of producing and selling the subject merchandise. We found that
Vanguard includes, in its normal books and records, the write-downs of
its raw material, WIP and finished goods inventories as an element of
its current costs per its financial statements. However, we discovered
that these adjustments were not reflected in Vanguard's reported costs.
Additionally, because both raw material and WIP inventories are
inputs into the cost of manufacturing the subject merchandise, any
write-downs of these amounts should be included in determining the
reported costs. See Notice of Final Determination of Sales Less Than
Fair Value: Stainless Steel Wire Rod from Italy, 63 FR 40422, 40430
(July 29, 1998). The write-down of finished goods, conversely, is more
closely associated with the sale of the merchandise, rather than the
production of the merchandise. When finished goods are written down,
the merchandise has already been fully manufactured and fully costed in
the COM statement. The inventory valuation is simply being adjusted to
reflect a market value which is below COP. Thus, the company is
currently expensing the anticipated loss in revenues from the future
sale of these goods. Since the full cost of the finished goods has
already been included in COM prior to the adjustments, it is
appropriate to exclude the write-down for finished goods from the
reported costs. Therefore, for our cost calculations, we included only
the write-down provision associated with raw materials and WIP
inventories.
Comment 25: Standard Cost Revaluation. Vanguard states that the
standard cost revaluations constitute adjustments to the standard costs
only and do not affect the actual manufacturing costs recorded on the
books. Vanguard emphasizes that the manufacturing variance (i.e.,
actual cost less standard cost) absorbs the differences resulting from
the revalued standards. Because the revaluation adjustment is reflected
in a more favorable or unfavorable variance being applied to the
standard costs in obtaining actual costs, Vanguard argues that adding
the adjustment to the derived actual costs would inflate the cost of
manufacturing.
Vanguard acknowledges that, under a standard cost system, the
inclusion of the standard cost revaluation is necessary to compute the
actual COGS on the income statement, but maintains that the adjustment
is not a component of the actual cost of manufacturing. Vanguard
contends that the standard COGS must be adjusted by both the
manufacturing variance and the revaluation amount to derive the actual
COGS. However, Vanguard continues, the revaluations are not adjustments
to actual costs and including them in the actual cost of manufacturing
would overstate actual costs.
The petitioner argues that the standard cost revaluations should be
included in the reported costs, and points to the fact that the
revaluation amount appears on Vanguard's financial statements. The
petitioner further comments that deducting the revaluation amount from
the COGS to derive the actual cost of manufacturing is in effect saying
that the costs on the financial statements were overstated to
Vanguard's shareholders. The petitioner emphasizes that because the
standard cost revaluations are added to standard COGS in achieving
actual COGS, these costs constitute an element of actual cost and
should not be excluded from reported costs. The petitioner concludes
that, in performing the overall cost reconciliation, the COGS presented
on Vanguard's financial statements should only be adjusted for changes
in inventory, costs reported in the sales files, non-subject
merchandise and ``third-country-only'' sales in arriving at total
reported costs.
DOC Position: We agree in part with the petitioner that the
standard cost revaluation should be included in the reported costs. Due
to expected cost decreases, Vanguard revalues its standard costs of
production on a quarterly basis. The new standards are employed not
only for the current product-specific manufacturing costs, but also for
revaluation of the raw materials inventories and the WIP and finished
goods inventories manufactured in previous quarters. Because the new
standards are utilized in current production, this revaluation has no
impact on the computation of the variance (i.e., current standard costs
of manufacturing minus current actual
[[Page 56327]]
costs). Therefore, the production costs incurred currently, which have
been reported at standard plus variance, result in an actual cost.
However, current actual manufacturing costs must be adjusted for
beginning and ending WIP inventory values in deriving a period's COMs.
Along with raw materials, beginning WIP is essentially a ``raw
material'' or input into the finished products manufactured during the
period and, as a result, must be included in the cost of manufacturing
the goods produced during the POI. This is why there is a
reconciliation difference between costs reflected on the company's
audited financial statements and those reported to the Department.
Based on the record evidence, the ending WIP for each quarter is
revalued at the beginning of the ensuing quarter. Because WIP and raw
materials have been ``revalued,'' the values for these inputs are
incorrectly stated. As noted previously, the restatement of WIP is not
factored into the variance computation and was not noted elsewhere in
the submitted costs for COP and CV. Thus, the writedown of WIP and raw
materials must be included in the respective beginning inventory values
to result in the actual cost of the inputs consumed (i.e., the
beginning WIP and raw material inventory amounts). Regarding the
standard cost revaluation adjustments to the finished goods
inventories, we agree with Vanguard that these adjustments are made
post-production and should not be included in the reported costs.
Comment 26: Use of Higher of Cost or Transfer Price for Affiliated
Subcontractor. The petitioner states that the Department's rule for
valuing major inputs from affiliated suppliers at the higher of cost or
transfer price should be exercised for the transactions involving
Vanguard's affiliated assembly contractor. Vanguard did not address
this issue in its briefs.
DOC Position: We agree with the petitioner that the transactions
involving Vanguard's affiliated assembly contractor should be reported
in accordance with the major input rule, pursuant to section 773(f)(3)
of the Act and section 351.407(b) of the Department's regulations.
Accordingly, for the final determination, we valued the assembly
transactions between Vanguard and the affiliated supplier at the
highest of the transfer price between the affiliates, the affiliated
supplier's actual COP, or the market price.
Continuation of Suspension of Liquidation
In accordance with section 735(c)(1)(B) of the Act, we are
directing the Customs Service to continue to suspend liquidation of all
entries of subject merchandise from Taiwan that are entered, or
withdrawn from warehouse, for consumption on or after May 28, 1999 (the
date of publication of the preliminary determination in the Federal
Register). The Customs Service shall continue to require a cash deposit
or posting of a bond equal to the estimated amount by which the normal
value exceeds the U.S. price as shown below. These suspension of
liquidation instructions will remain in effect until further notice.
The weighted-average dumping margins are as follows:
------------------------------------------------------------------------
Weighted-average Weighted-average per
Exporter/manufacturer margin (percent) megabit rate
------------------------------------------------------------------------
Etron Technology, Inc....... 69.00 $0.40
Mosel-Vitelic, Inc.......... 35.58 0.12
Nan Ya Technology 14.18 0.02
Corporation................
Vanguard International 8.21 0.01
Semiconductor Corp.........
All Others.................. 21.35 0.04
------------------------------------------------------------------------
Pursuant to section 735(c)(5)(A) of the Act, the Department has
excluded any margins determined entirely under section 776 of the Act
from the calculation of the ``All Others Rate.''
ITC Notification
In accordance with section 735(d) of the Act, we have notified the
International Trade Commission (ITC) of our determination. As our final
determination is affirmative, the ITC will, within 45 days, determine
whether these imports are materially injuring, or threaten material
injury to, the U.S. industry. If the ITC determines that material
injury, or threat of material injury does not exist, the proceeding
will be terminated and all securities posted will be refunded or
canceled. If the ITC determines that such injury does exist, the
Department will issue an antidumping duty order directing Customs
officials to assess antidumping duties on all imports of the subject
merchandise entered for consumption on or after the effective date of
the suspension of liquidation.
This determination is issued and published pursuant to sections
735(d) and 777(i) of the Act.
Dated: October, 12, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-27294 Filed 10-18-99; 8:45 am]
BILLING CODE 3510-DS-P
