[Federal Register Volume 63, Number 35 (Monday, February 23, 1998)]
[Notices]
[Pages 8909-8933]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4360]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-583-827]
Notice of Final Determination of Sales at Less Than Fair Value:
Static Random Access Memory Semiconductors From Taiwan
AGENCY: Import Administration, International Trade Administration, U.S.
Department of Commerce.
EFFECTIVE DATE: February 23, 1998.
FOR FURTHER INFORMATION CONTACT: Shawn Thompson at (202) 482-1776, or
David Genovese at (202) 482-0498,
[[Page 8910]]
Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue, N.W.,
Washington, D.C. 20230.
Applicable Statute and Regulations
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 amendments made to the Act
by the Uruguay Round Agreements Act (URAA). In addition, unless
otherwise indicated, all citations to the Department's regulations are
to the regulations codified at 19 CFR Part 353 (April 1, 1996).
Final Determination
We determine that static random access memory semiconductors
(SRAMs) from Taiwan are being sold in the United States at less than
fair value (LTFV), as provided in section 735 of the Act. The estimated
margins are shown in the ``Suspension of Liquidation'' section of this
notice.
Case History
Since the preliminary determination in this investigation on
September 23, 1997 (see Notice of Preliminary Determination of Sales at
Less Than Fair Value and Postponement of Final Determination: Static
Random Access Memory Semiconductors from Taiwan, 62 FR 51442 (Oct. 1,
1997)), the following events have occurred:
In September 1997, we issued supplemental questionnaires to
Integrated Silicon Solution Inc. (ISSI) and United Microelectronics
Corporation (UMC). We received responses to these questionnaires in
October 1997.
On October 14, 1997, Taiwan Semiconductor Manufacturing Company
Ltd. (TSMC) requested that the Department reconsider its preliminary
determination to exclude TSMC as a respondent in this investigation. On
October 29, 1997, we informed TSMC that we were not altering our
decision and that we would not verify the information submitted by
TSMC. For further discussion of this issue, see the memorandum to the
file from James Maeder, dated October 29, 1997, and Comment 4 in the
``Interested Party Comments'' section of this notice.
On October 15, 1997, a U.S.-based producer of subject merchandise,
Galvantech, Inc. (Galvantech), requested that the Department accept and
verify a questionnaire response from it. On October 22, 1997, we denied
Galvantech's request. For further discussion, see Comment 3 in the
``Interested Party Comments'' section of this notice.
On October 17, 1997, an interested party in this investigation,
Texas Instruments-Acer Incorporated (TI-Acer), claimed that it had not
received the antidumping duty questionnaire issued to it in April 1997.
Thus, TI-Acer requested that the Department make no final determination
for it on the basis of facts available. On October 22, 1997, we
provided TI-Acer with a copy of the courier's delivery record which
indicated that TI-Acer had, in fact, received the questionnaire.
In October and November 1997, we verified the questionnaire
responses of the following respondents: Alliance Semiconductor Corp.
(Alliance), ISSI, UMC, and Winbond Electronics Corporation (Winbond).
In November and December 1997, the respondents submitted revised
sales databases at the Department's request. In addition, Alliance,
ISSI and UMC submitted revised cost databases.
On November 19, 1997, TI-Acer submitted its case brief in which it
reiterated its assertion that it did not receive a questionnaire. On
December 9, 1997, we provided TI-Acer with an additional copy of the
courier's delivery record demonstrating that the questionnaire had been
received by a TI-Acer official. TI-Acer responded to this letter on
December 18, 1997. For further discussion, see Comment 5 in the
``Interested Party Comments'' section of this notice.
The petitioner (i.e., Micron Technology, Inc.), the four
respondents, Galvantech, and TSMC submitted case briefs on December 23
and 24, 1997, and rebuttal briefs on January 7 and 8, 1998. In
addition, five interested parties, Compaq Computer Corporation
(Compaq), Cypress Semiconductor Corporation (Cypress), Digital
Equipment Corporation (Digital), Integrated Device Technology (IDT),
and Motorola Inc. (Motorola) submitted rebuttal briefs on January 7,
1998.
On January 7, 1998, the authorities on Taiwan submitted comments on
the appropriate treatment of stock distributions to company employees.
The petitioner responded to these comments on January 12, 1998. The
Department held a public hearing on January 13, 1998.
Scope of Investigation
The products covered by this investigation are synchronous,
asynchronous, and specialty SRAMs from Taiwan, whether assembled or
unassembled. Assembled SRAMs include all package types. Unassembled
SRAMs include processed wafers or die, uncut die and cut die. Processed
wafers produced in Taiwan, but packaged, or assembled into memory
modules, in a third country, are included in the scope; processed
wafers produced in a third country and assembled or packaged in Taiwan
are not included in the scope.
The scope of this investigation includes modules containing SRAMs.
Such 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 SRAMs, whether unmounted or
mounted on a circuit board.
We have determined that the scope of this investigation does not
include SRAMs that are physically integrated with other components of a
motherboard in such a manner as to constitute one inseparable amalgam
(i.e., SRAMs soldered onto motherboards). For a detailed discussion of
our determination on this issue, see Comment 2 in the ``Interested
Party Comments'' section of this notice and the memorandum to Louis
Apple from the Team dated February 13, 1998.
The SRAMs within the scope of this investigation are currently
classifiable under the subheadings 8542.13.8037 through 8542.13.8049,
8473.30.10 through 8473.30.90, and 8542.13.8005 of the Harmonized
Tariff Schedule of the United States (HTSUS). 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 this investigation (POI) for all respondents is
January 1, 1996, through December 31, 1996.
Facts Available
Three interested parties in this investigation, Advanced
Microelectronics Products Inc. (Advanced Microelectronics), Best
Integrated Technology, Inc. (BIT), and TI-Acer, failed to provide
timely responses to the Department's requests for information.
Specifically, Advanced Microelectronics and BIT did not respond at all
to the Department's questionnaire issued in April 1997, while TI-Acer
provided a partial response five months after the due date.
TI-Acer informed the Department after the preliminary determination
that it had not received the questionnaire. Moreover, TI-Acer asserted
that it is not a producer of subject merchandise. As such, TI-Acer
argued that it should not be assigned a margin based on facts
available. However, because there is evidence on the record which
[[Page 8911]]
demonstrates that the questionnaire was delivered to TI-Acer's offices
in Taiwan and that a TI-Acer company official actually signed for this
document, and because TI-Acer filed its partial response five months
after the original due date, we do not find TI-Acer's arguments
persuasive. For further discussion, see Comment 5 in the ``Interested
Party Comments'' section of this notice, below.
Section 776(a)(2) of the Act provides that if an interested party
1) withholds information that has been requested by the Department, 2)
fails to provide such information in a timely manner or in the form or
manner requested, 3) significantly impedes a determination under the
antidumping statute, or 4) provides such information but the
information cannot be verified, the Department shall, subject to
subsections 782(c)(1) and (e) of the Act, use facts otherwise available
in reaching the applicable determination. Because Advanced
Microelectronics, BIT, and TI-Acer failed to respond to the
Department's questionnaire in a timely manner and because subsections
(c)(1) and (e) do not apply with respect to these companies, we must
use facts otherwise available to calculate their dumping margins.
Section 776(b) of the Act provides that adverse inferences may be
used when a party has failed to cooperate by not acting to the best of
its ability to comply with requests for information. See also Statement
of Administrative Action accompanying the URAA, H.R. Rep. No. 316, 103d
Cong., 2d Sess. 870 (SAA). The failure of Advanced Microelectronics,
BIT, and TI-Acer to reply to the Department's questionnaire or to
provide a satisfactory explanation of their conduct demonstrates that
they have failed to act to the best of their ability in this
investigation. Thus, the Department has determined that, in selecting
among the facts otherwise available to these companies, an adverse
inference is warranted.
In accordance with our standard practice, as adverse facts
available, we are assigning to Advanced Microelectronics, BIT, and TI-
Acer the higher of: 1) the highest margin stated in the notice of
initiation; or 2) the highest margin calculated for any respondent in
this investigation. In this case, this margin is 113.85 percent, which
is the highest margin stated in the notice of initiation.
Section 776(c) of the Act provides that, when the Department relies
on secondary information (such as the petition) in using the facts
otherwise available, it must, to the extent practicable, corroborate
that information from independent sources that are reasonably at its
disposal. When analyzing the petition, the Department reviewed all of
the data the petitioner relied upon in calculating the estimated
dumping margins, and adjusted those calculations where necessary. See
Initiation Checklist, dated March 17, 1997. These estimated dumping
margins were based on a comparison of constructed value (CV) to U.S.
price, the latter of which was based on price quotations offered by two
companies in Taiwan. The estimated dumping margins, as recalculated by
the Department, ranged from 93.54 to 113.85 percent. For purposes of
corroboration, the Department re-examined the price information
provided in the petition in light of information developed during the
investigation and found that it has probative value. See the memorandum
to Louis Apple from the Team dated September 23, 1997, for a detailed
explanation of corroboration of the information in the petition.
Time Period for Cost and Price Comparisons
Section 777A(d) of the Act states that in an investigation, the
Department will compare the weighted average of the normal values to
the weighted average of the export prices or constructed export prices.
Generally, the Department will compare sales and conduct the sales
below cost test using annual averages. However, where prices have moved
significantly over the course of the POI, it has been the Department's
practice to use shorter time periods. See, e.g., Final Determination of
Sales at Less Than Fair Value: Erasable Programmable Read Only Memories
(EPROMs) from Japan, 51 FR 39680, 39682 (Oct. 30, 1986) (EPROMs from
Japan), Final Determination of Sales at Less Than Fair Value: Dynamic
Random Access Memory Semiconductors of One Megabit and Above From the
Republic of Korea, 58 FR 15467, 15476 (Mar. 23, 1993) (DRAMs from
Korea).
We invited comments from interested parties regarding this issue.
An analysis of these comments revealed that the petitioner and three of
the four respondents agreed that the SRAM market experienced a
significant and consistent price and cost decline during the POI.
Accordingly, in recognition of the significant and consistent price
decline in the SRAM market during the POI, the Department has compared
prices and conducted the sales below cost test using quarterly data
1. See Comment 10 in the ``Interested Party Comments'' of
this notice for further discussion.
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\1\ In accordance with section 773(b)(2)(D) of the Act, we
conducted the recovery of cost test using annual cost data.
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Fair Value Comparisons
To determine whether sales of SRAMs from Taiwan to the United
States were made at less than fair value, we compared the EP or CEP, as
appropriate, to the Normal Value (NV), as described in the ``Export
Price and Constructed Export Price'' and ``Normal Value'' sections of
this notice, below. In accordance with section 777A(d)(1)(A)(i) of the
Act, we calculated weighted-average EPs and CEPs for comparison to
weighted-average NVs.
In order to determine whether we should base price-averaging groups
on customer types, we conducted an analysis of the prices submitted by
the respondents. This analysis does not indicate that there was a
consistent and uniform difference in prices between customer types.
Accordingly, we have not based price comparisons on customer types.
On January 8, 1998, the Court of Appeals of the Federal Circuit
issued a decision in Cemex v. United States, 1998 WL 3626 (Fed. Cir.).
In that case, based on the pre-URAA version of the Act, the Court
discussed the appropriateness of using CV as the basis for foreign
market value when the Department finds home market sales to be outside
the ordinary course of trade. This issue was not raised by any party in
this proceeding. However the URAA amended the definition of sales
outside the ``ordinary course of trade'' to include sales below cost.
See section 771(15) of the Act. Because the Court's decision was issued
so close to the deadline for completing this investigation, we have not
had sufficient time to evaluate and apply the decision to the facts of
this post-URAA case. For these reasons, we have determined to continue
to apply our policy regarding the use of CV when we have disregarded
below-cost sales from the calculation of normal value.
Consequently, 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 in the ``Scope of Investigation''
section of this notice, above, to be foreign like products for purposes
of determining appropriate product comparisons to U.S. sales. Regarding
[[Page 8912]]
ISSI and UMC, 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
most similar foreign like product, based on the characteristics listed
in Sections B and C of the Department's antidumping questionnaire.
Regarding Winbond, we were unable to make price-to-price comparisons
involving non-identical products because Winbond did not provide
reliable difference in merchandise (difmer) information. Therefore, we
based the margin for U.S. products with no corresponding identical home
market match on facts available. As facts available, we used the
highest non-aberrant margin calculated for any of Winbond's other U.S.
sales. See Comment 25 in the ``Interested Party Comments'' section of
this notice for further discussion. Regarding Alliance, because we
found no home market sales at prices above the COP, we made no price-
to-price comparisons. See the ``Normal Value'' section of this notice,
below, for further discussion.
Moreover, Alliance and ISSI did not report certain costs of
production which were contemporaneous (i.e., in the same or a prior
quarter) with their U.S. sales, and ISSI did not report cost or difmer
information for one product sold in the United States. Because there is
insufficient information on the record to calculate a margin for these
products, we based the margin for them on facts available. As facts
available, we used the highest non-aberrant margin calculated for any
of that respondent's other sales. For further discussion, see Comment 7
in the ``Interested Party Comments'' section of this notice.
Level of Trade and Constructed Export Price Offset
In the preliminary determination, the Department determined that
there was sufficient evidence on the record to justify a CEP offset for
each of the four respondents. We found no evidence at verification to
warrant a change from that preliminary determination. Accordingly, we
have made a CEP offset for each of the respondents in this final
determination. For further discussion, see Comment 6 in the
``Interested Party Comments'' section of this notice and the memorandum
to the file from the Team, dated February 13, 1998.
Export Price and Constructed Export Price
For UMC and Winbond, we used the EP methodology, in accordance with
section 772(a) of the Act, when the subject merchandise was sold
directly to the first unaffiliated purchaser in the United States prior
to importation and the CEP methodology was not otherwise indicated.
In addition, for all companies, where sales to the first
unaffiliated purchaser took place after importation into the United
States, we used CEP methodology, in accordance with section 772(b) of
the Act.
We made the following company-specific adjustments:
A. Alliance
We calculated CEP based on packed, FOB U.S. warehouse prices to
unaffiliated purchasers in the United States. We adjusted gross unit
price for billing adjustments and freight revenue. We made deductions,
where appropriate, for discounts. We also made deductions for
international freight (including air freight and U.S. Customs
merchandise processing fees) and U.S. inland freight to the customer,
where appropriate, pursuant to section 772(c)(2)(A) of the Act.
In accordance with section 772(d) of the Act, we made additional
deductions for commissions, warranty and credit expenses, indirect
selling expenses, inventory carrying costs, U.S. repacking expenses and
U.S. further manufacturing costs.
Pursuant to section 772(d)(3) of the Act, gross unit price was
further reduced by an amount for profit, to arrive at CEP.
With regard to modules which were further-manufactured in the
United States, we have based CEP on the net price of the modules rather
than the net price of the individual SRAMs included in the modules.
B. ISSI
We calculated CEP based on packed, FOB U.S. warehouse prices to
unaffiliated purchasers in the United States. We made deductions from
the gross unit price, where appropriate, for discounts. We also made
deductions for foreign inland freight, pre-sale warehousing expenses,
foreign and U.S. inland insurance, foreign brokerage and handling, and
international freight (including air freight, U.S. customs merchandise
processing fees, and U.S. inland freight to ISSI's U.S. office), where
appropriate, pursuant to section 772(c)(2)(A) of the Act.
In accordance with section 772(d) of the Act, we made additional
deductions for commissions, credit expenses, indirect selling expenses,
inventory carrying costs, and U.S. repacking expenses. Regarding credit
expenses, we found that ISSI had not received either full or partial
payment for certain sales as of the date of verification. Consequently,
we used the last day of ISSI's U.S. sales verification as the date of
payment for any unpaid amount and recalculated credit expenses
accordingly. For further discussion, see Comment 11 in the ``Interested
Party Comments'' section of this notice.
Pursuant to section 772(d)(3) of the Act, gross unit price was
further reduced by an amount for profit, to arrive at CEP.
C. UMC
We calculated EP and CEP based on packed, FOB prices to
unaffiliated purchasers in the United States. We adjusted the gross
unit price for billing adjustments and freight charges. We made
deductions from the gross unit price, where appropriate, for discounts.
We also made deductions for foreign inland freight, foreign brokerage
and handling, and international freight, where appropriate, pursuant to
section 772(c)(2)(A) of the Act.
We made additional deductions from CEP, in accordance with section
772(d) of the Act, for commissions, warranty and credit expenses,
indirect selling expenses, and inventory carrying costs. Regarding
credit expenses, we found that UMC had not received payment for certain
sales as of the date of verification. Consequently, we used the last
day of UMC's U.S. sales verification as the date of payment for those
sales and recalculated credit expenses accordingly.
Pursuant to section 772(d)(3) of the Act, gross unit price was
further reduced by an amount for profit, to arrive at CEP.
D. Winbond
We calculated EP and CEP based on packed, FOB or delivered prices
to unaffiliated purchasers in the United States. We made deductions
from the gross unit price, where appropriate, for discounts. We also
made deductions for foreign inland freight, pre-sale warehousing
expenses, foreign inland insurance, foreign brokerage and handling,
international freight (including air freight, U.S. inland freight from
the port to Winbond's U.S. warehouse, and U.S. brokerage and handling
fees), international insurance, U.S. Customs merchandise processing
fees, and U.S. inland freight to customer, where appropriate, pursuant
to section 772(c)(2)(A) of the Act.
We made additional deductions from CEP, in accordance with section
772(d) of the Act, for commissions, credit expenses, advertising
expenses, warranty expenses, technical service expenses, indirect
selling expenses,
[[Page 8913]]
inventory carrying costs, and U.S. repacking expenses.
Pursuant to section 772(d)(3) of the Act, gross unit price was
further reduced by an amount for profit, to arrive at CEP.
Normal Value
In order to determine whether there was a sufficient volume of
sales in the home market to serve as a viable basis for calculating NV
(i.e., the aggregate volume of home market sales of the foreign like
product is greater than five percent of the aggregate volume of U.S.
sales), we compared each respondent's volume of home market sales of
the foreign like product to the volume of U.S. sales of the subject
merchandise, in accordance with section 773(a)(1)(C)(i) of the Act.
Because each respondent's aggregate volume of home market sales of the
foreign like product was greater than five percent of its aggregate
volume of U.S. sales for the subject merchandise, we determined that
there was a sufficient volume of home market sales.
Because UMC and Winbond reported home market sales to affiliated
parties, as defined by section 771(4)(B) of the Act, during the POI, we
tested these sales to ensure that the affiliated party sales were made
at ``arm's-length'' prices, in accordance with our practice. (See
Notice of Final Determination of Sales at Less Than Fair Value: Certain
Cold-Rolled Carbon Steel Flat Products from Argentina, 58 FR 37062,
37077 (Appendix II) (July 9, 1993).) To conduct this test, we compared
the gross unit prices of sales to affiliated and unaffiliated customers
net of all movement charges, discounts, rebates, and packing, where
appropriate. Based on the results of that test, we disregarded sales
from UMC and Winbond to their affiliated parties when they were not
made at ``arm's-length'' prices.
Based on the cost allegation contained in the petition, the
Department found reasonable grounds to believe or suspect that sales in
the home market were made at prices below the cost of producing the
merchandise, in accordance with section 773(b)(1) of the Act. As a
result, the Department initiated an investigation to determine whether
the respondents made home market sales during the POI at prices below
their respective COPs, within the meaning of section 773(b) of the Act.
We calculated the 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 expenses (SG&A) and packing
costs, in accordance with section 773(b)(3) of the Act. General
expenses include items such as research and development (R&D) expenses,
and interest expenses.
Where possible, we used the respondents' reported weighted-average
COPs for each quarter of the POI, adjusted as discussed below. In cases
where there was no production within the same quarter as a given sale,
we referred to the most recent prior quarter for which costs had been
reported. In cases where there was no cost reported for either the same
quarter as the sale, or a prior quarter, we based the margin for those
sales of the products in question on facts available. See Comment 7 in
the ``Interested Party Comments'' of this notice for further
discussion.
We compared the weighted-average quarterly COP figures to home
market prices of the foreign like product, less any applicable movement
charges and discounts, as required under section 773(b) of the Act, in
order to determine whether these sales had been made at prices below
their respective COPs.
In determining whether to disregard home market sales made at
prices below the COP, we examined: (1) whether, within an extended
period of time, such sales were made in substantial quantities; and (2)
whether such sales were made at prices which permitted the recovery of
all costs within a reasonable period of time in the ordinary course of
trade.
Where 20 percent or more of a respondent's sales of a given foreign
like product were made at prices below the COP, we found that the
below-cost sales of that model were made in ``substantial quantities''
within an extended period of time, in accordance with section
773(b)(2)(B) and (C) of the Act. To determine whether prices were such
as to provide for recovery of costs within a reasonable period of time,
we tested whether the prices which were below the per-unit COP at the
time of the sale were above the weighted-average per-unit COP for the
POI, in accordance with section 773(b)(2)(D) of the Act. If such sales
were found to be below the weighted-average per-unit COP for the POI,
we disregarded them in determining NV.
In accordance with section 773(e) of the Act, we calculated CV
based on the sum of each respondent's cost of materials, fabrication
costs, SG&A, profit, and U.S. packing costs. In accordance with section
773(e)(2)(A) of the Act, we based SG&A 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 the foreign country. Where respondents
made no home market sales in the ordinary course of trade (i.e., all
sales were found to be below cost), we based SG&A and profit on one of
the alternatives under section 773(e)(2)(B) of the Act. Specifically,
we based SG&A and profit on the weighted-average of the SG&A and profit
computed for those respondents with home market sales of the foreign
like product made in the ordinary course of trade. For further
discussion, see Comment 11 in the ``Interested Party Comments'' section
of this notice.
Company-specific calculations are discussed below.
A. Alliance
We relied on the reported per-unit COPs and CVs except as follows.
1. For COP, we revised the reported R&D expenses to allocate total
annual semiconductor R&D expenses over total annual semiconductor cost
of sales (see Comment 9).
2. For CV, we based SG&A and profit on the weighted-average SG&A
and profit experience of the three other respondents (see Comment 11).
Because all of Alliance's home market sales were made at prices
below the COP, we based NV on CV. In addition to the adjustments to CV
reported above, in accordance with section 773(a)(7)(B) of the Act, we
granted a CEP offset adjustment and reduced CV by the amount of weight-
averaged home market indirect selling expenses and commissions incurred
by those respondents with sales above the COP up to the amount of
indirect expenses which were deducted from the starting price under
section 772(d)(1)(D) of the Act.
B. ISSI
We relied on the reported per-unit COPs and CVs except as follows.
1. We revised the reported R&D expenses to allocate total annual
semiconductor R&D expenses over total annual semiconductor cost of
sales (see Comment 9). Additionally, we offset R&D expenses with R&D
revenue (see Comment 16).
2. We revised the reported general and administrative (G&A) expense
ratio to include physical inventory loss and loss from disposal of
property, plant and equipment (see Comment 14) and to eliminate the
double counting of marine insurance (see Comment 15).
3. We revised the cost of sales denominator used for the G&A and
R&D expense ratios by using the cost of sales from the audited income
statement.
For those comparison products for which there were sales made at
prices
[[Page 8914]]
above the COP, we based NV on delivered prices to home market
customers. We made deductions for discounts, foreign inland freight,
and insurance, where appropriate, pursuant to section 773(a)(6)(B) of
the Act. We also made circumstance-of-sale adjustments for credit
expenses and bank charges, pursuant to section 773(a)(6)(C)(iii) of the
Act.
We deducted home market indirect selling expenses, including
inventory carrying costs and other indirect selling expenses, up to the
amount of indirect selling expenses incurred on U.S. sales, in
accordance with section 773(a)(7)(B) of the Act. In addition, we
deducted home market packing costs and added U.S. packing costs, in
accordance with section 773(a)(6) of the Act. Where appropriate, we
made adjustments to NV to account for differences in physical
characteristics of the merchandise, in accordance with section
773(a)(6)(C)(ii) of the Act and 19 CFR section 353.57. Where
applicable, in accordance with 19 CFR section 353.56(b)(1), we offset
any commission paid on a U.S. sale by reducing the NV by any home
market commissions and indirect selling expenses remaining after the
deduction for the CEP offset, up to the amount of the U.S. commission.
Where NV was based on CV, we deducted from CV the weighted-average
home market direct selling expenses. In accordance with section
773(a)(7)(B) of the Act, we granted a CEP offset adjustment and reduced
NV by the amount of commissions and indirect selling expenses incurred
by ISSI in Taiwan on sales of SRAMs in Taiwan, up to the amount of
commissions and indirect selling expenses incurred on U.S. sales which
were deducted from the starting price.
C. UMC
We relied on the reported per-unit COPs and CVs except as follows.
1. We increased the cost of manufacturing (COM) to include the
market value of bonuses paid to directors, supervisors, and employees
(see Comment 8).
2. We revised the reported costs for wafers supplied by an
affiliated party to reflect the COP of the affiliate and the startup
adjustment claimed by UMC (see Comment 20).
3. We revised the reported R&D expenses to allocate total annual
semiconductor R&D expenses over total annual semiconductor cost of
sales (see Comment 9).
4. We removed from G&A foreign exchange gains and losses generated
by accounts receivable and another source.
5. We added bonuses to the cost of sales used in the denominator in
the G&A, R&D and interest expense ratios.
For those comparison products where there were sales made at prices
above the COP, we based NV on delivered and FOB prices to home market
customers. For home market price-to-EP comparisons, we adjusted the
gross unit price for billing adjustments, where appropriate. We made
deductions, where appropriate, for discounts, export duties, and
foreign inland freight, in accordance with section 773(a)(6)(B) of the
Act. Pursuant to section 773(a)(6)(C)(iii) of the Act and 19 CFR
section 353.56(a)(2), we made circumstance-of-sale adjustments, where
appropriate, for differences in warranty and credit expenses. We did
not allow an adjustment for home market commissions because we
determined that they were not made at ``arm's length.'' See the
memorandum to Louis Apple from the Team dated September 23, 1997, for a
detailed explanation.
For home market price-to-CEP comparisons, we adjusted the gross
unit price for billing adjustments, where appropriate. We made
deductions, where appropriate, for discounts, export duties, and
foreign inland freight, pursuant to section 773(a)(6)(B) of the Act. We
also made deductions for warranty and credit expenses. We deducted home
market indirect selling expenses, including inventory carrying costs
and other indirect selling expenses, up to the amount of indirect
selling expenses incurred on U.S. sales, in accordance with section
773(a)(7)(B) of the Act. Where applicable, in accordance with 19 CFR
section 353.56(b), we offset any commission paid on a U.S. sale by
reducing the NV by any home market indirect selling expenses remaining
after the deduction for the CEP offset, up to the amount of the U.S.
commission.
For all price-to-price comparisons, we deducted home market packing
costs and added U.S. packing costs, in accordance with section
773(a)(6) of the Act. In addition, where appropriate, we made
adjustments to NV to account for differences in physical
characteristics of the merchandise, in accordance with 773(a)(6)(C)(ii)
of the Act and 19 CFR section 353.57.
Where CV was compared to EP, we made circumstance-of-sale
adjustments, where appropriate, for credit and warranty expenses and
U.S. commissions in accordance with sections 773(a)(6)(C)(iii) and
(a)(8) of the Act. In accordance with 19 CFR section 353.56(b)(i), we
reduced NV by the amount of indirect selling expenses incurred by UMC
in Taiwan on sales of SRAMs in Taiwan, up to the amount of U.S.
commissions.
Where CV was compared to CEP, we made circumstance-of sale
adjustments, where appropriate, for credit and warranty expenses. We
also deducted indirect selling expenses, up to the amount of
commissions and indirect selling expenses incurred on U.S. sales, in
accordance with 773(a)(7)(B) of the Act.
D. Winbond
We relied on the reported per-unit COPs and CVs except as follows.
1. We increased the COM to include the market value of bonuses paid
to directors, supervisors, and employees (see Comment 8).
2. We revised the reported R&D expenses to allocate total annual
semiconductor R&D expenses over total annual semiconductor cost of
sales (see Comment 9).
3. We adjusted G&A expenses to include the unrecovered fire loss
(see Comment 27), bank charges, and other miscellaneous expenses.
Additionally, we excluded foreign exchange gains and losses on sales
transactions.
4. We added bonuses to the cost of sales used in the denominators
in the G&A, R&D and interest expense ratios (see Comment 28).
5. We increased Winbond's second quarter COM to include an
unreconciled difference between its accounting records and its reported
costs (see Comment 24).
6. We revised the COM for two products to reflect the standard cost
and variance at the time of production.
Furthermore, we found at verification that, for all products,
Winbond had misclassified certain variable overhead costs as fixed
overhead. Because we do not have sufficient data on the record to
appropriately reclassify these costs, we are unable to make difmer
adjustments based on Winbond's reported variable costs. Therefore, we
based the margin for all sales requiring a difmer adjustment on facts
available. For further discussion, see Comment 25 in the ``Interested
Party Comments'' section of this notice.
Regarding EP sales, because there were no identical comparison
products sold in the home market at prices above the COP, we made no EP
to home market price or EP to CV comparisons. Regarding CEP, for those
identical comparison products for which there were sales made at prices
above the COP, we based NV on delivered prices to home market
customers. We made deductions from gross unit price for discounts,
import duties and development fees paid on sales to
[[Page 8915]]
customers outside of duty free zones. We deducted home market movement
charges including pre-sale warehouse expenses, foreign inland freight,
brokerage and handling charges, and inland insurance, where
appropriate, in accordance with section 773(a)(6)(B) of the Act. We
also made circumstance-of-sale adjustments for credit expenses (offset
by the interest revenue actually received by the respondent), direct
advertising expenses, warranty expenses, and post-sale payments to a
third-party customer, pursuant to section 773(a)(6)(C)(iii) of the Act.
We made no separate adjustment for technical service expenses, as they
were included as part of R&D expenses. See Comment 30.
We deducted home market indirect selling expenses, including
inventory carrying costs and other indirect selling expenses, up to the
amount of indirect selling expenses incurred on U.S. sales, in
accordance with section 773(a)(7)(B) of the Act. Where applicable, in
accordance with 19 CFR section 353.56(b), we offset any commission paid
on a U.S. sale by reducing the NV by any home market indirect selling
expenses remaining after the deduction for the CEP offset, up to the
amount of the U.S. commission. In addition, we deducted home market
packing costs and added U.S. packing costs, in accordance with section
773(a)(6) of the Act.
Where CV was compared to CEP, we deducted from CV the weighted-
average home market direct selling expenses. In accordance with section
773(a)(7)(B) of the Act, we granted a CEP offset adjustment and reduced
normal value by the amount of indirect selling expenses, including
inventory carrying costs and other indirect selling expenses, up to the
amount of indirect selling expenses incurred on U.S. sales which were
deducted from the starting price.
Currency Conversion
We made currency conversions into U.S. dollars based on the
official exchange rates in effect on the dates of the U.S. sales as
certified by the Federal Reserve Bank. Section 773A(a) of the Act
directs the Department to use a daily exchange rate in order to convert
foreign currencies into U.S. dollars unless the daily rate involves a
fluctuation. It is the Department's practice to find that a fluctuation
exists when the daily exchange rate differs from the benchmark rate by
2.25 percent. The benchmark is defined as the moving average of rates
for the past 40 business days. When we determine that a fluctuation
exists, we substitute the benchmark rate for the daily rate, in
accordance with established practice. Further, section 773A(b) directs
the Department to allow a 60-day adjustment period when a currency has
undergone a sustained movement. A sustained movement has occurred when
the weekly average of actual daily rates exceeds the weekly average of
benchmark rates by more than five percent for eight consecutive weeks.
See Change in Policy Regarding Currency Conversions, 61 FR 9434 (March
8, 1996). Such an adjustment period is required only when a foreign
currency is appreciating against the U.S. dollar. The use of an
adjustment period was not warranted in this case because the New Taiwan
Dollar did not undergo a sustained movement.
Verification
As provided in section 782(i) of the Act, we verified the
information submitted by the respondents for use in our final
determination. We used standard verification procedures, including
examination of relevant accounting and production records and original
source documents provided by the respondents.
Interested Party Comments
General Issues
Comment 1: U.S. Companies as Producers
Alliance, ISSI, and Galvantech argue that, as U.S. producers of
subject merchandise, they should be excluded from this investigation.
Specifically, these companies contend that: 1) the Department has found
that the design is the essential component of the SRAMs under
investigation; and 2) because their designs are developed in the United
States, the SRAMs incorporating these designs are necessarily of U.S.
origin.
Furthermore, Alliance, ISSI, and Galvantech maintain that the
decision on origin of the subject merchandise set forth in the current
scope definition (i.e., where the wafer is produced) clearly conflicts
with the Department's preliminary decision on who constitutes the
producer in this case (i.e., who controls the design). These companies
state that continuing to define what constitutes subject merchandise by
the origin of the wafer would lead to the treatment of U.S. companies
as foreign producers, even when their home market is indisputably the
United States and they have no foreign facilities. According to these
companies, this result is contrary to the plain language of the dumping
law, which was intended to reach foreign, not U.S., producers.
Alliance argues that the Department should harmonize its respondent
and scope determinations by narrowly amending the scope of the case to
exclude SRAMs from Taiwan that are imported by a U.S. design company
that: 1) designed the chips in the United States; 2) controlled their
production from the United States; and 3) either will use them itself
or will market them from the United States. Alliance contends that this
exclusion would not create a loophole that would diminish the
effectiveness of any order in this case, because firms meeting the
above requirements would add significant value in the United States.
According to the petitioner, Alliance, ISSI, and Galvantech have
confused the Department's practice on two separate issues: 1)
determining country of origin for dumping purposes; and 2) selecting
the proper producer and exporter. The petitioner notes that, in past
semiconductor cases, the Department has consistently based country of
origin for dumping purposes on the place of wafer fabrication.
Moreover, the petitioner states that the Department has not hesitated
to include U.S. companies as respondents provided, as here, the
elements of the Department's test for tolling are satisfied. As support
for this contention, the petitioner cites several cases including
Notice of Final Determination of Sales at Less Than Fair Value:
Polyvinyl Alcohol from Taiwan, 61 FR 14064 (Mar. 29, 1996) (PVA from
Taiwan) and Notice of Final Determination of Sales at Less Than Fair
Value: Ferrovanadium and Nitrided Vanadium from the Russian Federation,
60 FR 27957 (May 26, 1995) (Ferrovanadium from Russia).
According to the petitioner, the Department dealt with an identical
issue in the 1993-1994 administrative reviews of the antidumping duty
orders on carbon steel flat products. Specifically, the petitioner
cites a December 1994 memorandum issued in those cases, where the
Department stated that ``the choice of respondent would be based on the
party which controls the sale of the subject merchandise, including
U.S. parties which subcontract part of the production process in a
foreign country . . .'' See ``Discussion Memorandum: A Proposed
Alternative to Current Tolling Methodology in the Current Antidumping
(AD) Reviews of Carbon Steel Flat Products'' from Joseph A. Spetrini,
Deputy Assistant Secretary for Compliance to Susan G. Esserman,
Assistant Secretary for Import Administration, dated December 12,
[[Page 8916]]
1994. The petitioner further notes that the analysis in those cases was
consistent with the current regulation on tolling, which states that
the Department will not consider a subcontractor to be the manufacturer
or producer, regardless of the proportion of production attributable to
the subcontracted operation or the location of the subcontractor or
owner of the goods. See 19 CFR section 351.401(h).
DOC Position
We agree with the petitioner. The Department's current policy on
subcontracted operations is to consider as the manufacturer the entity
which controls the production and sale of the subject merchandise. See,
e.g., Notice of Final Determination of Sales at Less Than Fair Value.
Certain Forged Stainless Steel Flanges from India, 58 FR 68853, 68855
(Dec. 29, 1993) (Flanges from India). Although the new regulations are
not in effect for purposes of this case, they codify this practice.
According to 19 CFR 351.401(h), the Department--
* * * will not consider a toller or subcontractor to be a
manufacturer or producer where the toller or subcontractor does not
acquire ownership, and does not control the relevant sale, of the
subject merchandise or foreign like product.
Nowhere in either our practice or in this regulation is there a
prohibition against selecting U.S. companies as producers, nor is this
the first case where we have treated U.S. companies as such.
2 Indeed, we note that Alliance agreed with our respondent
selection analysis at the public hearing in this case, when it stated
that U.S. companies can be respondents in dumping cases if their
products are within the scope. See page 92 of the transcript of the
public hearing, dated January 22, 1998. Because the U.S. design houses
control the production of the subject merchandise, as well as its
ultimate sale, we find that they are the appropriate respondents here.
See the memorandum to Louis Apple from the Team, dated September 23,
1997, regarding Treatment of Foundry Sales and the Elimination of TSMC
as a Respondent for a more detailed analysis concerning this issue.
---------------------------------------------------------------------------
\2\ See, e.g., PVA from Taiwan.
---------------------------------------------------------------------------
Regarding the respondents' arguments on the country of origin of
their products, we disagree that the design alone confers origin. At
the design stage, the SRAMs in question are merely ideas, not physical
products (i.e., merchandise). These designs do not become actual
merchandise until they are translated onto wafers. As such, while the
design may be the essential component in the finished product, the
design itself is not merchandise.
Consistent with our past practice, we find that the place of wafer
fabrication is determinative as to country of origin. See, e.g., DRAMs
from Korea. Because the wafers in question are fabricated in Taiwan, we
find that they constitute subject merchandise within the meaning of the
Act. Consequently, we are continuing to treat them as such for purposes
of the final determination.
Comment 2: Scope of the Investigation
The petitioner argues that the Department should clarify that the
scope of the order on SRAMs from Taiwan includes the SRAM content of
motherboards for personal computers. The petitioner contends that if
SRAMs incorporated on motherboards are not included in the scope of the
order, the respondents will shift a significant volume of SRAMs into
the production of motherboards in Taiwan that are destined for the
United States, thereby avoiding paying duties on the SRAMs.
In addition, argues the petitioner, while motherboards viewed as a
whole may be considered to fall within a class or kind of merchandise
separate from SRAMs, the placement of SRAMs on a motherboard does not
diminish their separate identity or function, and should not insulate
them from antidumping duties. The petitioner contends that its position
is supported by: 1) the Department's practice regarding combined or
aggregated products; 2) analogous principles of Customs Service
classification; and 3) the Department's inherent authority to craft an
antidumping order that forestalls potential circumvention of an order.
The petitioner also argues that the Customs Service can administer,
without undue difficulty, an antidumping duty order that covers SRAMs
carried on non-subject merchandise.
At the public hearing held by the Department, the petitioner
asserted that there are fundamental differences between the scope
language in DRAMs from Korea and the scope language in this
investigation that distinguish the two cases. The petitioner first
argues that the scope language in DRAMs from Korea ``said that the
modules had to be limited to where the function of the board was
memory. That limitation does not exist in this case.'' See the
transcript of the public hearing, dated January 22, 1998, at page 162.
The petitioner further argues that ``[i]n the DRAM case, it says that
`modules which contain additional items which alter the function of the
module to something other than memory are not covered modules.' That's
a fundamental difference between these two scopes that was very
carefully written and very carefully put into the scope of these two
cases.'' See the hearing transcript at page 163.
IDT and Cypress agree with the petitioner, arguing that SRAMs on a
motherboard are no less SRAMs than those imported separately and that
the Department's failure to cover such imports would provide an
incentive to foreign SRAM producers to shift their sales to motherboard
producers in Taiwan and elsewhere.
Alliance, ISSI, UMC, Winbond, Motorola, Compaq, and Digital oppose
the petitioner's position. Alliance, Compaq, and Digital argue that the
petitioner's circumvention concerns are unfounded. They note that the
Department determined in DRAMs from Korea that DRAMs physically
integrated with the other components of a motherboard in a manner that
made them part of an inseparable amalgam posed no circumvention risk
and that the same holds true in this case.
In addition, Alliance, Compaq, Digital, UMC, and Winbond argue
that, contrary to the petitioner's assertion, SRAMs affixed to a
motherboard do not retain their separate functional identities. Rather,
explains Alliance, SRAMs are integrated onto motherboards by soldering,
are interconnected with other motherboard elements by intricate
electronic circuitry, and become part of a complex electronic
processing unit representing an inseparable amalgam constituting a
different class or kind of merchandise that is outside the scope of the
investigation.
Finally, UMC, Compaq and Digital argue that the petitioner's
proposal is unworkable from an administrative standpoint, since it
would require motherboard manufacturers to track all SRAMs placed in
every motherboard throughout the world. Compaq and Digital note that
they cannot determine the value of Taiwan SRAMs incorporated in a
particular motherboard. In addition, ISSI, Compaq, and Digital argue
that the petitioner's proposal would be unadministrable by the Customs
Service because the SRAM content of a motherboard cannot be determined
by physical inspection and also because the petitioner has provided no
realistic proposition as to how the Customs Service might carry out the
petitioner's proposal on an entry-by-entry basis, given the enormous
volume of trade in motherboards.
With regard to the petitioner's assertion that the scope of the
language
[[Page 8917]]
in DRAMs from Korea is fundamentally different from the scope language
in this investigation, Compaq and Digital argue that the language is
quite similar and that there is no ``doubt that literally the language
in this Notice of Investigation and in the preliminary referred to
certain modules, and those are memory modules, not any kind of board on
which other elements are stuffed.'' See the hearing transcript at page
172.
DOC Position
We disagree with the petitioner. The petitioner's argument that the
scope of the investigation as defined in the preliminary determination
should be interpreted to encompass the SRAM content of motherboards is
unpersuasive for three basic reasons. First, the SRAM content of
motherboards (when affixed to the motherboard) was not expressly or
implicitly referenced in the scope language used in this investigation.
Second, just as we found in the investigation of DRAMs from Korea, the
petitioner's claims about potential circumvention of the order with
SRAMs soldered onto motherboards are inseparable. Third, it is not
appropriate for an antidumping duty order to cover the input content of
a downstream product. As the Department found in DRAMs from Korea, a
case in which a nearly identical proposal was rejected by the
Department, when a DRAM is physically integrated with a motherboard, it
becomes a component part of the motherboard (an inseparable amalgam).
As there has been no request to include motherboards within the scope
of this investigation, the SRAM content of motherboards (when
physically integrated with the motherboard) cannot be covered.
As to the first point, we disagree with the petitioner's assertion
that the differences between the scope language in DRAMs From Korea and
the language in this case are so fundamental that the differences can
be interpreted to mean that SRAMs soldered onto motherboards are
included within the scope of this investigation. The SRAM scope
language relied upon by the petitioner includes within the scope of
this investigation ``other collection[s] of SRAMs;'' as the petitioner
notes in its argument, this refers specifically to modules whether
mounted or unmounted on a circuit board. There is similar scope
language in DRAMs From Korea. In that case, we interpreted the language
as not extending to modules which contain additional items which alter
the function of the module to something other than memory. Such an
interpretation, applied to this case, indicates clearly that the SRAM
content of motherboards is not within the scope of this investigation.
We found in DRAMs From Korea that memory boards whose sole function
was memory were included within the definition of memory modules;
however, we further concluded that other boards, such as video graphic
adapter boards and cards were not included because they contained
additional items which altered the function of the modules to something
other than memory. Consequently, at the time of the final
determination, we added language to the DRAMs From Korea scope in order
that these other, enhanced, boards be specifically excluded. Since the
issue of such enhanced boards was not raised in this case, we did not
find it necessary to include an express exclusion for such products.
Thus, the absence of such language should not be interpreted to permit
the inclusion of products which do not fall under the rubric of ``other
collections of SRAMs.''
As to the second point, the petitioner argued in DRAMs from Korea
that unremovable DRAMs on motherboards should be included in the scope
of the order to counter the potential for circumvention of the order.
We stated in our determination that we considered it ``infeasible that
a party would import motherboards with the intention of removing the
integrated DRAM content and, therefore, consider it unreasonable to
expect that any order arising from this investigation could be evaded
in such a fashion.'' See the memorandum to Joseph Spetrini from Richard
Moreland, dated March 15, 1993, at page 13, attached as Exhibit 1 to
Winbond's submission of January 7, 1998. We find it equally infeasible
that an importer would import SRAMs soldered onto a motherboard for the
sole purpose of removing those SRAMs for individual resale thereby
circumventing the antidumping duty order.
As to the third point, our statute does not provide a basis for
assessing duties on the input content of a downstream product. See
Senate Rep. 100-71, 100th Congress, 1st Sess. 98 (1987) (in which the
report notes both the general rule and the ``major input'' exception,
which applies only in an investigation or review of a downstream
product). Thus, where an SRAM loses its separate identity by being
incorporated into a downstream product, and where the investigation
covers SRAMs but does not cover the downstream product, there can be no
basis for assessing duties against the SRAMs incorporated in the
downstream product.
For a more detailed discussion regarding this issue, see the
memorandum to Louis Apple from the Team, dated February 13, 1998.
Comment 3: Selection of Dumping Margin for Galvantech
Galvantech argues that, if the Department does not exclude its
products from the scope of the investigation, the Department should
assign Galvantech the margin calculated for ISSI for purposes of the
final determination. According to Galvantech, 19 U.S.C. Sec. 1677(e)
requires the Department to determine an importer's margin based on the
most reliable information available. Galvantech asserts that, in this
case, ISSI's margin is the most reliable information applicable to
Galvantech because both companies fabricate wafers using the same
foundry under similar foundry agreements. Galvantech asserts that the
all others rate is less reliable because it does not contain any
information related to either Galvantech or its foundry.
The petitioner asserts that Galvantech is not entitled to ISSI's
margin as facts available. According to the petitioner, Galvantech
provides no compelling reason for the Department to abandon its
standard practice in this investigation and assign one individual
respondent's rate to a non-participating producer. The petitioner notes
that, because Galvantech neither submitted a questionnaire response nor
participated in verification, the Department has no basis to determine
that Galvantech is more similarly situated to ISSI than to Alliance,
another design house without a fabrication facility (i.e., ``fabless'')
that received a preliminary dumping margin which exceeded the all
others rate.
DOC Position
We agree with the petitioner that Galvantech should not be assigned
ISSI's margin. The Department's practice in this area is to assign the
all others rate to any company not specifically investigated in a
proceeding. See, e.g., Notice of Final Determination of Sales at Less
Than Fair Value: Certain Steel Concrete Reinforcing Bars from Turkey,
62 FR 9737, 9742 (Mar. 4, 1997) (Rebar from Turkey). Consistent with
this practice, we have assigned Galvantech the all others rate because
it was not a respondent in this investigation.
We note that the all others rate is not intended to set the rate at
which antidumping duties are ultimately assessed on entries of subject
merchandise. Rather, the all others rate merely establishes the level
of antidumping duty deposits required on future entries. Prior to the
time that
[[Page 8918]]
actual duty assessments are made, each exporter, importer or producer
of subject merchandise has the right to request that the Department
conduct an administrative review of its actual entries and determine
its dumping liability on a company-specific basis. In the event that an
antidumping duty order is issued in this case, Galvantech will have an
opportunity to request such an administrative review.
Comment 4: Exclusion of TSMC as a Respondent
TSMC argues that the decision to exclude it as a respondent in this
investigation is not supported by evidence on the record, and is
contrary to applicable laws, regulations, precedent, and requirements
for procedural fairness.
Specifically, TSMC cites 19 CFR section 351.401(h),\3\ stating that
TSMC qualifies as both a manufacturer and an interested party because
evidence on the record establishes that TSMC acquires ownership of the
subject merchandise and that design houses do not control TSMC's sales
of subject merchandise.\4\
---------------------------------------------------------------------------
\3\ TSMC cites to the new regulations as a codification of
current Department practice.
\4\ TSMC considers the relevant sale to be its sale of SRAM
wafers to its design house customers in the United States and
Taiwan. However, the Department preliminarily determined that the
relevant sale in a foundry agreement is the ultimate sale of SRAMs
made by the design house.
---------------------------------------------------------------------------
In addition, TSMC contends that the Department based its decision
on erroneous information, including the following: (1) design houses
perform all of the R&D for SRAMs; (2) design houses tell the foundries
what and how much to produce; (3) TSMC has no right to sell wafers to
any party other than the design house unless it fails to pay for the
wafers; (4) design houses own and provide masks for the production
process; and (5) masks are considered to be inputs into the production
of SRAMs. TSMC argues that it is a proper respondent because it
performs all process R&D, freely negotiates production quantities and
types, freely contracts to supply merchandise exclusively to particular
design houses, and makes and maintains possession of virtually all
masks used in its fabrication facilities (also known as ``fabs'').
Moreover, TSMC characterizes masks as equipment used in the wafer
fabrication process, rather than raw material inputs.
TSMC also states that, based on the facts on the record and the
Department's practice of granting manufacturer status to, and
calculating individual margins for, producers that manufacture and sell
custom-made products, it should be considered the producer of the
subject merchandise. TSMC cites the following cases in support of its
position: Flanges from India, Notice of Final Determination of Sales at
Less Than Fair Value: Engineered Process Gas Turbo-Compressor Systems,
Whether Assembled or Unassembled, and Whether Complete or Incomplete,
from Japan, 62 FR 24394 (May 5, 1997), Antifriction Bearings (Other
Than Tapered Roller Bearings) and Parts Thereof from France, Germany,
Italy, Japan, Singapore, and the United Kingdom: Final Results of
Antidumping Duty Administrative Reviews, 54 FR 18992, 19012 (May 3,
1989) (AFBs), Antifriction Bearings (Other Than Tapered Roller
Bearings) and Parts Thereof from France, Germany, Italy, Japan,
Singapore, and the United Kingdom: Final Results of Antidumping Duty
Administrative Reviews, 62 FR 2081 (Jan. 15, 1997), Certain Corrosion-
Resistant Carbon Steel Flat Products and Certain Cut-to-Length Carbon
Steel Plate from Canada: Preliminary Results of Antidumping Duty
Administrative Reviews, 61 FR 51891 (Oct. 4, 1996), Notice of Final
Determination of Sales at Less Than Fair Value: Large Newspaper
Printing Presses and Components Thereof, Whether Assembled or
Unassembled, from Japan, 61 FR 38139 (July 23, 1996), Mechanical
Transfer Presses from Japan; Final Results of Antidumping
Administrative Review, 62 FR 11820 (Mar. 13, 1997), and Large Power
Transformers from Japan; Final Results of Antidumping Duty
Administrative Review, 56 FR 29215 (June 26, 1991). In addition, TSMC
cites Sweaters Wholly or in Chief Weight of Man-Made Fiber from Taiwan;
Final Results of Changed Circumstances Antidumping Duty Administrative
Review, 58 FR 32644 (June 11, 1993), claiming that, as in that case,
the Department should grant TSMC manufacturer status because it bought
raw materials used to produce subject merchandise, controlled the
process of manufacture, and performed processing on the subject
merchandise.
TSMC claims that, by making the decision to exclude it at the
preliminary determination and, therefore, to not verify it, the
Department denied any meaningful opportunity for TSMC to present its
case. Finally, TSMC argues that, if the Department upholds its decision
that the design house is the producer of the subject merchandise, the
Department should also find that TSMC's products (i.e., SRAM wafers)
are of U.S. origin. Accordingly, TSMC argues that the Department should
exclude its wafers from the scope of the investigation.
The petitioner states that the Department properly excluded TSMC as
a respondent for the following reasons: (1) the Department properly
determined that TSMC is not a proper producer or exporter based on
applicable law and regulations regarding ``tolling''; (2) the
Department's decision is fully grounded in the record with respect to
each element of an affirmative finding of tolling between TSMC and its
design houses; (3) the cases cited by TSMC are distinguishable from the
instant case, as described in the memorandum to Louis Apple from the
Team, dated September 23, 1997; and (4) TSMC was afforded due process
not only because the memorandum to Louis Apple from the Team, dated May
15, 1997, regarding respondent selection, implied that TSMC would not
be considered a proper respondent if all of its sales were made through
foundry agreements, but also because all interested parties were given
an opportunity to comment on this issue after the preliminary
determination.
DOC Position
We agree with the petitioner. The preliminary determination to
exclude TSMC as a respondent in this investigation was made after
taking into account the evidence on the record, and was in accordance
with applicable law, regulations, and precedent. Regarding TSMC's claim
that the Department based its decision on erroneous information, we
continue to reach the central conclusions set forth in our decision
memorandum on this issue. See the memorandum to Louis Apple from the
Team, dated September 23, 1997, regarding Treatment of Foundry Sales
and the Elimination of TSMC as a Respondent. As we stated in this
memorandum,
Regarding control over production in this case, after reviewing
and analyzing the information submitted by respondents, including
the contracts between the design houses and the foundries, we
believe that the entity controlling the wafer design in effect
controls production in the SRAMs industry. The design house performs
all of the research and development for the SRAM that is to be
produced. It produces, or arranges and pays for the production of,
the design mask. At all stages of production, it retains ownership
of the design and design mask. The design house then subcontracts
the production of processed wafers with a foundry and provides the
foundry with the design mask. It tells the foundry what and how much
to make. The foundry agrees to dedicate a certain amount of its
production capacity to the production of the processed wafers for
the design house. The foundry has no right to sell those wafers to
any party other than the design house unless the design house fails
to pay for the wafers. Once the design house takes possession of the
processed
[[Page 8919]]
wafers, it arranges for the subsequent steps in the production
process. The design of the processed wafer is not only an important
part of the finished product, it is a substantial element of
production and imparts the essential features of the product. The
design defines the ultimate characteristics and performance of the
subject merchandise and delineates the purposes for which it can be
used. The foundries manufactured processed SRAMs wafers using the
proprietary designs of the design houses during the POI. As such,
they did not control the production of the wafers in question, but
merely translated the design of other companies into actual
products.
We agree with TSMC that there are certain factual errors in the
memorandum of September 23, 1997, but disagree as to the significance
of these errors. With regard to the first alleged ``error'' identified
by TSMC, we agree that the process R&D is performed by the foundry, but
note that the design houses are responsible for all product-related R&D
as well as the proprietary designs. These steps impart the essential
features of the product and define its ultimate characteristics and
performance. With regard to the second alleged ``error,'' we agree that
the production quantities and types are negotiated between the foundry
and the design houses; this fact neither supports nor undermines a
finding that the design houses are the producers of the subject
merchandise. With regard to the third alleged ``error,'' we note that
TSMC does not dispute the finding that the foundry has no right to sell
wafers to any party other than the design house unless the design house
fails to pay for the wafers. With regard to the fourth alleged
``error,'' while it may be true that the masks are produced and
retained for a limited time by the foundry, the party that provides the
design imparts the essential features of both the mask and the product;
indeed, the design house controls the use of the mask just as much as
it controls the use of the finished product (in that TSMC is obligated
at some point to destroy the mask to prevent unauthorized reuse). With
regard to the fifth alleged ``error,'' we do not find the
characterization of the masks as either ``inputs'' or ``equipment'' to
be a relevant distinction in this case.
With regard to TSMC's argument that this case is analogous to cases
in which the Department has found the manufacturer of a ``custom-made''
product to be the producer, we note that the decision memorandum
concluded with the finding that ``[t]he design of the processed wafer
is not only an important part of the finished product, it is a
substantial element of production and imparts the essential features of
the product. The design defines the ultimate characteristics and
performance of the subject merchandise and delineates the purposes for
which it can be used.'' This case is not analogous to cases in which
the purchaser merely provides product specifications to the
manufacturer. Moreover, we find unpersuasive TSMC's reference to AFBs.
The issue discussed by the Department in the cited portion of the
notice was whether certain custom-designed bearings were within the
scope of the investigation. The Department did not discuss the question
of whether the bearing designer, as opposed to the bearing
manufacturer, should be considered to be the respondent.
Finally, with regard to TSMC's argument that its wafers should not
be covered by the scope of the investigation, we find that these wafers
constitute subject merchandise. As subject merchandise, we find that
they are properly included in the scope. For further discussion, see
Comment 1, above.
Comment 5: Facts Available for TI-Acer
For the preliminary determination, the Department assigned TI-Acer
a margin based on adverse facts available because it did not respond to
the antidumping questionnaire. TI-Acer argues that the Department
should not assign it a dumping margin based on adverse facts available
because TI-Acer has no record of receiving the questionnaire. Rather,
TI-Acer asserts that the Department should apply the all others rate,
consistent with both previous legal decisions and the Department's
treatment of other companies in this investigation. (See Queen's
Flowers de Colombia v. United States, Slip Op. 97-120 (CIT Aug. 25,
1997) (Queen's Flowers), where the Court of International Trade found
that the use of facts available was unwarranted when a respondent did
not receive the questionnaire, and the Department's preliminary
determination in this investigation, where the Department applied the
all others rate to a company that could not be located.) TI-Acer claims
that it should be subject to the all others rate because it is not a
producer of subject merchandise and section 735(c)(1)(B)(i)(II) of the
Act states that the all others rate is applied to all exporters and
producers not individually investigated.
DOC Position
We disagree with TI-Acer's assertion that the Department should
assign it the all others rate. In Queen's Flowers, the Department found
that the application of facts available was unwarranted because the
questionnaire was delivered to the wrong address. However, in this case
the questionnaire was sent to TI-Acer's correct address and, according
to records obtained from the courier, was accepted by TI-Acer. See the
Department's letters addressed to TI-Acer dated October 22 and December
9, 1997.
Regarding TI-Acer's assertion that it should be assigned the all
others rate under section 735(c)(1)(B)(i)(II) of the Act because it was
not individually investigated, we note that our investigation of TI-
Acer began with the issuance of the questionnaire. Because TI-Acer did
not file a timely questionnaire response, we were unable to determine
that it was not a significant producer or exporter of subject
merchandise and, consequently, to determine that it did not warrant
individual investigation. For this reason, we found that TI-Acer failed
to act to the best of its ability and applied adverse facts available
to it for the preliminary determination. Since the time of the
preliminary determination we have not received any information which
would cause us to change this decision. Accordingly, we have assigned a
dumping margin to this company based on adverse facts available for
purposes of the final determination. This margin, 113.85 percent, is
the highest margin stated in the notice of initiation.
Comment 6: CEP Offset
The petitioner contends that the Department should make no CEP
offset adjustment for any respondent for purposes of the final
determination. The petitioner asserts that the Department's practice of
determining the number and comparability of levels of trade after
making all adjustments to CEP, but before adjusting NV, makes CEP
offsets virtually automatic. According to the petitioner, under both
the plain terms of the statute and the intent of Congress, such
adjustments should be the exception, not the rule. The petitioner notes
that it raised the same argument in another case and that the issue is
being litigated. See Dynamic Random Access Memory Semiconductors of One
Megabit or Above From the Republic of Korea; Final Results of
Antidumping Duty Administrative Review, 62 FR 965 (Jan. 7, 1997) (1994-
1995 DRAMs Review).
In addition to this general argument, the petitioner asserts that
the Department specifically erred in granting a CEP offset adjustment
to UMC because UMC neither requested an adjustment nor demonstrated
that it was entitled to one. According to the
[[Page 8920]]
petitioner, the Department's practice is to require respondents to
affirmatively request adjustments in their favor and to demonstrate
entitlement for these adjustments. As support for this position, the
petitioner cites Mechanical Transfer Presses From Japan; Final Results
of Antidumping Administrative Review, 61 FR 52910 (Oct. 9, 1996)
(Mechanical Transfer Presses) and Cold-Rolled Carbon Steel Flat
Products from the Netherlands; Final Results of Antidumping
Administrative Review, 62 FR 18476 (April 15, 1997) (Cold-Rolled Carbon
Steel Flat Products).
The respondents disagree, noting that the statute requires that a
level of trade analysis be performed only after adjustment is made for
U.S. selling expenses. See 19 U.S.C. Sec. 1677b(a)(7)(A). The
respondents further state that the Department's practice in this area
is both clear and consistent with the statute. As support for this
proposition, the respondents cite the 1994-1995 DRAMs Review, where the
Department stated that the level of trade will be evaluated based on
the price after adjustments are made under section 772(d) of the Act.
The respondents maintain that there is nothing new in the law or the
facts of this investigation to suggest that the Department should
reexamine its practice of beginning its level of trade analysis after
adjusting for U.S. expenses.
The respondents further assert that the Department properly
interpreted its statutory mandate by granting CEP offset adjustments in
this case. Specifically, the respondents assert that they have
supported their claims for these adjustments in their questionnaire
responses and the Department verified the basis for these claims.
Regarding the offset granted to UMC, UMC argues that nothing in the
statute imposes an obligation on a respondent to claim a CEP offset.
Nonetheless, UMC states that it effectively asked the Department for
the equivalent of an offset when it requested that the Department find
two levels of trade in the home market and the United States.
Moreover, UMC asserts that the cases cited by the petitioner (i.e.,
Mechanical Transfer Presses and Cold-Rolled Carbon Steel Flat Products)
do not apply here, as the former involved a company which submitted no
information showing a difference in selling functions and the latter
involved a company which made inconsistent statements involving level
of trade in its questionnaire responses. UMC states that, since the
beginning of the case, it has consistently provided information showing
that it qualifies for a CEP offset. Consequently, UMC states that the
statute leaves the Department with no choice but to grant one.
DOC Position
We agree with the respondents. As we stated in the 1994-1995 DRAMs
Review, the Department has--
consistently stated that, in those cases where a level of trade
comparison is warranted and possible, then for CEP sales the level
of trade will be evaluated based on the price after adjustments are
made under section 772(d) of the Act (see 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). 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, FR 8915, 8916 (March 9, 1996); 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).
The Department's practice in this area is clear. Accordingly,
consistent with this practice, we performed our level of trade analysis
only after adjusting for selling expenses deducted from CEP starting
price pursuant to section 772(d) of the Act. Based on our analysis, we
determined that each respondent sold SRAMs during the POI at a level of
trade in the home market which was different, and more advanced, than
the level of trade at which it sold SRAMs in the United States.
Because there is insufficient information on the record to make a
level of trade adjustment for any respondent in this case, we have
granted a CEP offset adjustment for purposes of the final
determination, in accordance with section 773(a)(7)(B) of the Act. Each
of the respondents, including UMC, provided sufficient data to justify
this adjustment,
Comment 7: Use of Production Costs Incurred After the Quarter of Sale
The petitioner argues that the Department should compare home
market sales with quarterly costs for the same or a prior quarter when
performing the cost test, rather than using costs incurred in
subsequent quarters. The petitioner asserts that use of actual
production costs is particularly important in this case, because the
Department found that there was a significant and consistent price and
cost decline which requires the use of quarterly data. The petitioner
contends that the Department should use facts available for those sales
where the respondents have not provided actual cost data. As facts
available, the petitioner argues that the Department should use the
weighted-average dumping margin calculated for all other sales by that
respondent.
ISSI does not dispute the use of quarterly costs incurred in the
same or a prior quarter as the quarter of sale. However, ISSI contends
that, when those costs are not on the record, the Department should use
either: (1) The reported costs from the closest subsequent quarter in
which production occurred (i.e., the methodology employed in the
preliminary determination); or (2) the weighted-average margin
calculated for ISSI's other sales. According to ISSI, the latter
methodology is the Department's practice when adverse facts available
is not warranted.
Alliance argues that the petitioner's arguments do not apply,
because it supplied all of the data requested by the Department.
DOC Position
We agree with the petitioner, in part. We requested that all
respondents provide cost data in the same quarter as the quarter of
their home market and U.S. sales, or, when production did not occur in
that quarter, to provide cost data for the most recent prior quarter in
which production did occur. UMC and Winbond complied with these
requests. Accordingly, we have used their cost data for purposes of the
final determination. However, Alliance and ISSI did not submit
production costs on this basis for a small number of products.
Moreover, ISSI did not report production costs at all for one product.
Because we afforded respondents the opportunity to report their actual
costs for these products and Alliance and ISSI failed to do so, we have
based the dumping margins for the associated sales on facts available.
Regarding Alliance, as facts available, we have used the weighted-
average dumping margin calculated for all of Alliance's other sales. We
have determined that this methodology is appropriate, given that, after
the preliminary determination, Alliance was not given an express
opportunity (unlike the other respondents, including ISSI) to provide
the necessary data.
Regarding ISSI, we have determined that, contrary to the
petitioner's neutral facts available methodology, an adverse assumption
is appropriate. Because ISSI
[[Page 8921]]
has not explained why it was unable to provide the requested data, we
find that ISSI has failed to cooperate to the best of its ability in
complying with our requests for this information. Accordingly, as
adverse facts available, we have used the highest non-aberrant margin
calculated for any of ISSI's other U.S. sales, consistent with our
treatment of ISSI's unreported costs in the preliminary determination.
Comment 8: Cash and Stock Bonus Distributions to Directors,
Supervisors, and Employees
UMC and Winbond argue that cash and shares of company stock given
to their employees are distributions of profits that should not be
included in the calculations of COP or CV. These respondents argue that
these distributions are not recorded on their audited financial
statements as an expense, but as direct reductions to retained
earnings. In addition, Winbond argues that its distributions are paid
out of post-tax earnings and are, therefore, not tax-deductible. The
respondents note that section 773(f)(1)(A) of the Act states that COP
and CV shall normally be calculated based on the books and records of
the exporter or producer of the merchandise if such records are kept in
accordance with the generally accepted accounting principles (GAAP) of
the exporting country, and if such records reasonably reflect the costs
associated with the production of the merchandise under investigation.
The respondents claim that these requirements are met by their
consistent treatment of these stock distributions as reductions to
retained earnings, in accordance with Taiwan GAAP.
The respondents argue that the distributions are analogous to
dividends, which the Department has previously excluded from COP and
CV. Specifically, Winbond maintains that, as with dividends, the
company shareholders alone have the ability to authorize these
payments. In support of its position, Winbond presented a letter from
its Taiwanese attorneys which argues that cash and stock distributions
to employees are treated as equivalent to dividends. Winbond also
claims that English versions of its financial statements refer to the
employee stock distributions as ``bonus shares'' in a short-hand,
casual manner, which is factually inaccurate and prejudicial. Winbond
argues that readers of its financial statements understand that such
distributions are actually a transfer of wealth from shareholders to
employees. Winbond also presented a letter from its auditing firm which
stated that the distributions were issued from equity, rather than
company capital, and, as such, are more akin to preferred stock than
bonuses under U.S. GAAP.
Winbond argues that the Department has consistently held that
payments made by a company on behalf of its owners are not costs of
production, even if they are carried on the company's books. In support
of its position, Winbond cites to Final Determination of Sales at Less
Than Fair Value: Fresh Cut Roses from Colombia, 60 FR 6980, 7000 (Feb.
6, 1995) (Colombian Roses) and Final Determination of Sales at Less
Than Fair Value: Fresh Kiwifruit from New Zealand, 57 FR 13695, 13704
(April 17, 1992) (New Zealand Kiwifruit). Winbond also cites to Final
Determination of Sales at Less Than Fair Value: Oil Country Tubular
Goods from Austria, 60 FR 33551, 33557 (June 28, 1995) (Austrian OCTG),
claiming that the bonus distributions are similar to dividends which
were recorded in the equity section of the balance sheet rather than on
the income statement.
Likewise, UMC argues that the recipients of its distributions are
in a similar position to shareholders who receive dividends. UMC notes
that the value of company stock varies with its performance and the
recipients of distributions and dividends both share the economic risk
the company faces. UMC argues that company stock distributed to
employees represents a conveyance of ownership rights, and thus these
distributions are more akin to dividends than to the cash distributed
as bonuses to employees in Porcelain-on-Steel Cookware from Mexico:
Notice of Final Results of Antidumping Duty Administrative Review, 62
FR 25908, 25914 (May 12, 1997) (Mexican Cookware).
The respondents claim that treating employee stock distributions as
a cost of production would be contrary to Department practice. UMC
cites Notice of Final Results of Antidumping Duty Administrative
Review: Ferrosilicon from Brazil, 62 FR 43504, 43511 (August 14, 1997)
(Ferrosilicon from Brazil), where the Department treated ``social
contributions'' for employees as a type of federal income tax and
excluded the costs from the calculation of G&A expenses. Similarly,
Winbond cites the Department's treatment of the enterprise tax in Final
Determination of Sales at Less Than Fair Value: High Information
Content Flat Panel Display Screen and Glass Therefor from Japan, 56 FR
32376, 32392 (July 16, 1991) (Flat Panel Displays from Japan), where
the tax was levied on the basis of corporate income and unrelated to
the COP.
Finally, the respondents argue that, should the Department decide
to include employee stock distributions in COP and CV, the stock should
be valued at par rather than at market value. The respondents claim
that the par value more accurately reflects the cost of the
transaction, as reflected in their accounting records. However, UMC
asserts that, if the Department uses market value, it should discount
the value of the distributions for associated risk factors because to
do otherwise would overstate their value. Finally, arguing that the
Department's calculation was incorrect under U.S. GAAP, Winbond
presented a calculation prepared by its auditors setting forth their
calculation of the market value of the distributions.
The authorities on Taiwan argue that the record in this case
provides substantial evidence that stock distributions bear no
relationship to production costs and have been properly classified as
adjustments to retained earnings. The authorities on Taiwan state that
this evidence includes: (1) A clear record of prior accounting
treatment; (2) the fact that the existence and amount of stock
distributions are ultimately controlled by shareholders; (3) the fact
that stock bonuses are not tax deductible; and (4) the fact that the
market value of the stock can and has fluctuated significantly.
The petitioner argues that the Department correctly classified the
stock distributions in question as bonuses and properly included them
in COP and CV. The petitioner points out that the Department's
questionnaire requires respondents to report all compensation to
employees, including bonuses. Moreover, the petitioner argues that, not
only does U.S. GAAP prohibit companies from excluding stock bonuses
from the income statement, but also excluding a significant portion of
employee remuneration from the cost calculation fails to reasonably
reflect the costs associated with the production of subject
merchandise. Therefore, according to the petitioner, it is appropriate
for the Department to adjust the costs as recorded in the respondents'
normal books and records.
The petitioner points to an article prepared by ING Barings in
March 1996 which states that net margins for some Taiwan electronics
corporations ``are deceptively high * * * due to the way employee bonus
shares are distributed and the way accounting is treated.'' See the
petitioner's letter dated September 3, 1997. According to the
petitioner, the ING Barings report notes that the Taiwan GAAP treatment
of such
[[Page 8922]]
bonuses permits companies to retain key employees while giving the
appearance of high profitability, and characterizes such bonuses as a
hidden cost not reflected in the income statement.
The petitioner asserts that the respondents' arguments regarding
the control and authorization of bonuses by company shareholders are
irrelevant and that such arguments do not change the fact that these
amounts represent a cost of labor. The petitioner claims that stock and
cash payments represent compensation by UMC and Winbond to their
employees because they are paid in return for work performed for the
company. The petitioner notes that U.S. GAAP states that, with regard
to stock options, ``Employees provide services to the entity--not
directly to the individual stockholders--as consideration for their
options * * * To omit such costs would give a misleading picture of the
entity's financial performance.'' See Statement of Financial Accounting
Standards (SFAS) No. 123, issued by the Financial Accounting Standards
Board (FASB) in October 1995, at paragraph 90.
The petitioner argues that the Department has previously found that
payments to employees, in whatever form, are a part of the compensation
paid to employees and should be treated no differently than salaries or
other employee benefits because they flow directly to a factor of
production. See Mexican Cookware. The petitioner claims that the
Department did not conclude in Mexican Cookware that if the bonuses had
been made in the form of stock then they should be excluded from cost,
despite the respondents' arguments to the contrary.
According to the petitioner, stock bonuses should be included in
COP and CV at the market value. The petitioner argues that the par
value of stock is purely nominal, with no relationship to the stock's
actual value. The petitioner notes that the par value of stock for all
companies in Taiwan is set at NT$10 and that the use of par value
ignores the economic substance of the transaction. The petitioner
points out that U.S. GAAP rejects the use of par value and instead
requires that bonuses be recorded at the market value on the date the
stock or stock option is granted.
DOC Position
We agree with the petitioner. The amounts distributed by UMC and
Winbond to their directors, supervisors, and employees, whether in the
form of stock or cash, represent compensation for services which the
individual has provided to the company. Therefore, in accordance with
section 773(f)(1)(A) of the Act, we have determined that it is
appropriate to include these amounts in the calculation of COP and CV.
We acknowledge that the respondents' treatment of these
distributions as reductions to equity is in accordance with Taiwan
GAAP. However, we find that this treatment is contrary to the
requirements of section 773(f)(1)(A) of the Act, as it does not
reasonably reflect the respondents' cost of production, because the
stock transferred to employees in exchange for their labor is a cost to
the company that is not reflected in the reported COPs and CVs.
Specifically, we disagree with the respondents' classification of
these payments as dividends. First, we note that they are identified on
the respondents' English version audited financial statements as
bonuses. Second, we note that the distribution arrangement is set forth
in each company's articles of incorporation, is known to the
individuals that seek employment at UMC or Winbond and is considered by
each company's management when setting wage and salary
levels.5
---------------------------------------------------------------------------
\5\ For example, UMC announces on its Internet home page, under
the heading of ``Employment opportunities--Compensation'' that a
``fixed portion of surplus profit is passed to employees as either
cash or UMC shares.'' Winbond announces on its home page that its
compensation and benefits include ``holiday bonuses'' and ``profit
sharing.''
---------------------------------------------------------------------------
Authorization by the stockholders does not mean that the
distributions are not a cost to the company; we note that the company
is foregoing the opportunity to acquire capital by issuing or selling
those shares to investors at the market price. The economic substance
of the distributions is that the directors, supervisors and employees
have performed services for the company and the stock and cash
distributions are provided to them as additional compensation for their
services. Under U.S. GAAP, these distributions would be reported as an
expense on the income statement and not as a deduction from retained
earnings.
We disagree with the respondents' claims that the inclusion of
these amounts in COP and CV contradicts Department's normal practice
and is contrary to our findings in Mexican Cookware. The Department
addressed the issue of profit-sharing in Mexican Cookware, where
profit-sharing was accounted for in a similar manner. In Mexican
Cookware we stated that profit-sharing is distinct from dividends in
that the profit-sharing distributions represent a legal obligation to a
productive factor in the manufacturing process and not a distribution
to the owners of the company. Dividends paid to shareholders would not
be considered a cost by the Department. In Mexican Cookware, as in this
case, the distributions were to employees in exchange for their
services on behalf of the company. It is irrelevant that company
employees who receive stock bonuses obtain ownership rights and will
thereafter share an economic risk with other shareholders.
Furthermore, we disagree with Winbond's interpretation of the
Department's practice, as presented in Colombian Roses, New Zealand
Kiwifruit, and Austrian OCTG. In Colombian Roses, the amounts paid out
by the respondent were excluded because the recipient of the payments
did not perform any service for the company. In the instant case,
however, the stock distributions made by UMC and Winbond are
compensation to company employees for their services. Similarly, in New
Zealand Kiwifruit the Department excluded from COP costs which were
determined to be the owner's personal expenses. Contrary to Winbond's
claim, the New Zealand Kiwifruit decision does not indicate that the
Department excluded costs which were recorded in the respondent's
accounting records. Finally, we note that Austrian OCTG supports the
Department's decision in this case, because in Austrian OCTG the
Department noted that ``profit sharing plans are directly related to
wages and salaries. Profit distributions to employees are treated in a
manner similar to bonuses * * * these mandatory payments represent
compensation to the employees for their efforts in the production of
merchandise and the administration of the company.'' The same
circumstances exist here and our treatment of employee stock
distributions is entirely consistent with the decision made in Austrian
OCTG. Finally, regarding Winbond's attempts to compare its stock
distributions to the dividends paid out in Austrian OCTG, we note that
stock distributions can be easily distinguished from dividends, as
discussed in Mexican Cookware.
We find that the respondents' cites to Ferrosilicon from Brazil and
Flat Panel Displays from Japan are equally misplaced. In those cases
the amounts were charges by the government to the company, rather than
amounts authorized by the board of directors and paid by the company to
its employees.
Regarding the respondents' claim that we should value the stock
distributions at par value (which reflects the amount at which they are
recorded in the
[[Page 8923]]
companies' financial statements), we disagree. Because the par value of
company stock in Taiwan is set under the Company Law at NT$10 for each
company, we find that the stock's par value does not represent the
value of the distribution to the employees. As described in
Intermediate Accounting (8th Edition, Kieso & Weygandt, 1995) at 739,
par value ``has but one real significance; it establishes the maximum
responsibility of a stockholder in the event of insolvency or other
involuntary dissolution. Par value is thus not `value' in the ordinary
sense of word.''
We agree with the petitioner that these distributions should be
valued at fair market value. Under U.S. GAAP, as directed by the FASB
in SFAS No. 123, shares of stock awarded to employees should be valued
at the fair value of the stock at the grant date. The SFAS also directs
that, ``If 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 UMC and Winbond in the current
year was for service of the prior year. Under U.S. GAAP, it is
appropriate to recognize the compensation cost in the period when it
was granted. Therefore, the stock bonus granted during 1996 for 1995
service should be recognized as a cost during 1996.
As 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 dates of issuance. This is a reasonable surrogate
because employees do not receive the stock until the date of issuance
and, thus, the value of what they are receiving is not fixed until that
date. We note that using the closing stock price on the date of
issuance accounts for market risk associated with the distribution. We
disagree with the calculation prepared by Winbond's auditors because
that calculation incorrectly values Winbond stock at the company's
fiscal year end, rather than the grant date specified under U.S. GAAP.
We also disagree with the arguments raised by the authorities on
Taiwan. The record supports the Department's determination that the
cash and stock distributions represent compensation to directors,
supervisors, and employees and, therefore, they are a cost within the
meaning of section 773(f)(1)(A) of the Act, despite the accounting
treatment prescribed by Taiwan GAAP. We acknowledge the existence of
the specific items that the government of Taiwan points to as evidence,
but we disagree with the government of Taiwan's conclusion that these
items support the exclusion of the cash and stock distributions from
the respondents' COP and CV.
Comment 9: Research and Development Expenses
Each of the four respondents argues that the Department improperly
allocated semiconductor R&D expenses to all semiconductor products in
the preliminary determination.
Alliance claims that such an allocation is inappropriate because
companies without fabrication facilities, such as Alliance, engage in
R&D for circuit design of new products, rather than in the process R&D
pursued by companies that fabricate SRAM wafers. Alliance refers to a
letter from Professor Bruce A. Wooley which states that, ``[I]n the
case of circuit design techniques there is virtually no cross-
fertilization among various classes of memories.'' See exhibit one of
Alliance's submission dated September 15, 1997. Alliance claims that
the articles proffered by the petitioner to support its claim that R&D
conducted in one area benefits other areas mainly relate to process
technology which may benefit a variety of products and to the
incorporation of separate designs on a single chip; they do not address
whether design technology from one type of memory product benefits the
design of another. Alliance argues that both its verified R&D
information and the fact that the company separates product-specific
R&D for accounting purposes demonstrate that the R&D conducted by
Alliance is product-specific design R&D, which does not benefit all
products. Alliance argues that, if the Department determines that
cross-fertilization of design R&D among memory products does occur, it
should still not aggregate product-specific R&D for logic products with
product-specific R&D for memory products.
In addition, argues Alliance, if the Department allocates R&D
expenses over all SRAM products, it should calculate the R&D expense
factor using the costs incurred during the POI, rather than the
company's fiscal year. Alliance claims that the Department's intention
in the preliminary determination was to ``allocate the total amount of
semiconductor R&D for the POI over the total cost of sales of
semiconductor products sold during the POI, using an annual ratio.''
Alliance argues that the Department incorrectly calculated its R&D
ratio using data from its fiscal year, rather than the expenses
incurred during the POI.
ISSI claims that the methodology followed by the Department in
previous cases where it allocated all semiconductor R&D expenses to all
semiconductor products does not apply to ISSI because it is a non-
integrated, U.S.-owned and controlled, fabless semiconductor producer.
See e.g., Dynamic Random Access Memory Semiconductors from Korea: Final
Results of Antidumping Duty Administrative Review, 61 FR, 20216, 20217
(May 6, 1996). ISSI asserts that the Department should accept its R&D
expense allocation methodology because ISSI performs largely design R&D
which, unlike process R&D, is specific to a given product category and
has no application or benefit to other product groups. ISSI notes that
it separated and allocated design R&D expenses into the distinct, non-
overlapping product areas of volatile memory (i.e., DRAMs and SRAMs),
non-volatile memory, and logic.
UMC argues that the Department should allocate process and design
R&D only for memory products to SRAMs, not total semiconductor R&D to
all semiconductors. UMC contends that, while it may be appropriate to
allocate process R&D across all semiconductor products in some
instances, it is not appropriate to use this methodology with product-
specific design R&D. Moreover, UMC argues that the Department's
practice is to use product-specific costs and cites to the Court of
International Trade's decision in Micron Technology, Inc. v. U.S. 893
F. Supp. 21, 27 (CIT, 1995) (Micron Technology). UMC argues that the
CIT stated in Micron Technology that R&D costs may not be allocated on
an aggregate basis unless there is substantial evidence demonstrating
that the subject merchandise benefits from R&D expenditures earmarked
for non-subject merchandise. UMC states that, in this case, there is no
credible evidence on the record demonstrating that the subject
merchandise benefits from non-subject R&D (i.e., there are no specific
instances on the record of cross-fertilization of R&D across product
lines). In addition, UMC claims that a number of detailed statements on
the record by semiconductor experts unanimously conclude that there is
virtually no benefit accruing to memory products from R&D performed on
non-memory products.
Furthermore, argues UMC, the Department should differentiate the
Taiwan SRAM industry from its Korean counterpart, in that most Korean
firms
[[Page 8924]]
are highly integrated, while much of the Taiwan industry consists of
segmented production. UMC argues that product design R&D is far more
likely to lead to cross-fertilization among products when it is
performed by an integrated firm rather than by a non-integrated firm.
Accordingly, UMC argues that a finding of cross-fertilization of R&D in
the Korean industry may have little or no application here. Moreover,
UMC maintains that in its accounting records it segregates process R&D
from product design R&D which relates only to specific types of
integrated circuits. UMC claims that there is no cross-fertilization
between its R&D for SRAM product design and R&D for product design for
other types of integrated circuit devices. UMC argues that, if the
Department determines that design R&D costs for non-subject merchandise
do, in fact, cross-fertilize SRAM design R&D, then a distinction must
be drawn between design R&D for memory and design R&D for non-memory
(i.e., logic) products.
Winbond asserts that the Department's R&D allocation at the
preliminary determination significantly overstated its COP. According
to Winbond, its other product lines have an entirely different
engineering focus and are segregated from Winbond's SRAM R&D activities
both organizationally and in its accounting system. Winbond asserts
that it tracks in its accounting records all R&D expenses by category,
such as product design or process R&D, and further by product type and
project.
Winbond argues that the antidumping law requires the use of
product-specific costs. Winbond argues further that, as a legal matter,
there is no evidence on the record to overcome the verified fact that
cross-fertilization does not occur at Winbond. Winbond contends that
the allocation of R&D on a company-wide basis fails to account for the
fluctuation of logic R&D and the stability of SRAM R&D. In addition,
Winbond notes that the focus of logic product R&D is the end product's
specific function, whereas SRAM R&D focuses on the reduction in cell
size, a completely different and more discrete goal. Moreover, Winbond
asserts that it is unreasonable to include Winbond's logic product R&D
costs in the allocation factor since R&D spending on logic products was
vastly higher in 1996 than R&D spending for SRAMs.
The petitioner agrees with the Department's treatment of R&D
expenses in its preliminary determination. The petitioner argues that
contrary to ISSI's and Alliance's assertions, the allocation
methodology used in Korean DRAMs applies in this case. The petitioner
states that the respondents fail to appreciate that in Korean DRAMs,
process R&D was considered to be part of overhead and that only product
R&D of the type incurred by ISSI and Alliance was at issue.
Furthermore, in Korean DRAMs, the Department allocated all product
semiconductor R&D over all semiconductor production.
The petitioner criticizes the letters submitted on behalf of the
respondents, stating that each is entitled to no more weight on the
basis of their credentials than are those submitted on behalf of the
petitioner or the Department. The petitioner claims that information on
the record, such as the expert testimony of Mr. Cloud of Micron and Dr.
Murzy Jhabvala of the National Aeronautics and Space Administration
(NASA), as well as numerous magazine articles, supports its claim that
cross-fertilization occurs among R&D projects conducted for various
semiconductor products. The petitioner notes that ISSI itself allocated
SRAM and DRAM R&D over memory cost of sales, thereby implicitly
assuming cross-fertilization of SRAM and DRAM R&D.
In addition, the petitioner maintains that the Department's
methodology was appropriate because R&D is supported by revenues from
the complete range of products sold, not solely by the revenues of a
particular product on which an R&D project is focused. Accordingly, the
petitioner argues, it is most appropriate to allocate all semiconductor
R&D over the base that sustains it (i.e., over all semiconductor
production). Moreover, the petitioner argues that the respondents'
maintenance of product-specific accounting categorization by project
does not prove that R&D conducted for one type of semiconductor cannot
benefit the development of another type.
DOC Position
We agree with the petitioner. We find that there is cross-
fertilization of scientific ideas between the R&D activities of
semiconductor products. Processing advancements for one semiconductor
product can benefit other types of semiconductor products (including
logic and memory). Furthermore, design improvements, although
undertaken for a specific product, can, and often do, become
incorporated into the design of other semiconductors, whether they are
logic or memory devices. We find that it is appropriate to allocate the
cost of all semiconductor R&D to all semiconductor products, given that
scientific ideas developed in one semiconductor area can be and have
been utilized in the development of other semiconductor products.
Therefore, for purposes of the final determination, we have calculated
R&D for SRAMs using the ratio of total semiconductor R&D to total
semiconductor cost of sales for the annual period that most closely
corresponds to the POI.
Due to the forward-looking nature of R&D activities, the Department
cannot identify every instance where SRAM R&D may influence logic
products or where logic R&D may influence SRAM products, but the
Department's own expert has identified areas where R&D from one type of
semiconductor product has influenced another semiconductor product. Dr.
Murzy Jhabvala, a semiconductor device engineer at NASA with twenty-
four years of experience, was invited by the Department to express his
views regarding cross-fertilization of R&D efforts in the semiconductor
industry. He has stated that ``it is reasonable and realistic to
contend that R&D from one area (e.g., bipolar) applies and benefits R&D
efforts in another area (e.g., MOS memory).'' Dr. Jhabvala went on to
state that--
SRAMs represent along with DRAMs the culmination of semiconductor
research and development. Both families of devices have benefitted
from the advances in photolithographic techniques to print the fine
geometries (the state-of-the-art steppers) required for the high
density of transistors. . . . Clearly, three distinct areas of
semiconductor technology are converging to benefit the SRAM device
performance. There are other instances where previous technology and
the efforts expended to develop that technology occurs in the SRAM
technology. Some examples of these are the use of thin film
transistors (TFTs) in SRAMs, advanced metal interconnect systems,
anisotropic etching and filling techniques for trenching and
planarization (CMP) and implant technology for retrograde wells.
See memo from Peter Scholl to the file dated September 16, 1997,
placing letters from Dr. Jhabvala on the record.6
---------------------------------------------------------------------------
\6\ In letters dated January 23 and 28, 1998, the respondents
expressed concern that the Department might consider information
from the Korean SRAM record or a memorandum from Dr. Jhabvala placed
on the record on January 15, 1998, (i.e., after the public hearing
in this case) which the parties did not have any opportunity to
comment upon. We agree that the parties have not had an opportunity
to comment upon this memorandum. Therefore, we have not considered
it or any information on the Korean SRAMs record in our final
determination. We note that we have quoted from Dr. Jhabvala's pre-
verification comments on the record in this case.
---------------------------------------------------------------------------
The Department has also identified through published magazine
articles examples of cross-fertilization in the semiconductor industry.
See, e.g., ``A 250-MHz Skewed-Clock Pipelined Data
[[Page 8925]]
Buffer,'' Institute of Electrical and Electronics Engineers Journal of
Solid State Circuits, March 1996; and ``A 1-Mb 2 Tr/b Nonvolatile CAM
Based on Flash Memory Technologies,'' Institute of Electrical and
Electronics Engineers Journal of Solid State Circuits, November 1996.
We also noted numerous published articles in the Institute of
Electrical and Electronics Engineers Journal of Solid State Circuits
which described how significant advancements in the advanced
semiconductor integrated circuit (ASIC)/logic product area have had
important ramifications for chip design in the memory areas. The
articles described how multilayer metal design development categorized
as logic/ASIC R&D will permit companies to build chips that are
smaller, faster and more power-efficient. The articles concluded that
the research will be used in the future to improve microprocessors,
memory and mixed-signal devices. As an example, one article entitled
``The Challenges of Embedded DRAM in ASICs: A Manufacturing Economics
Point of View,'' Dataquest Interactive, August 25, 1997, discussed the
technical challenges of embedding memory into ASICs, which illustrated
the overlap in design and process technology between logic and memory
circuits. This article noted on page two that ``[b]oth the fast SRAM
and the `pseudo-DRAM' structures are actually subsets of the process
flow for advanced logic, so designing and constructing SLI ASICs are a
natural extension and do not really add much to the per-wafer cost of
the process.'' The articles were attached as exhibits to the letter
submitted by the petitioner on October 15, 1997.
We reviewed the views of the respondents' expert on this subject
and found them to be of less probative value than the cases cited
above, as the published articles refute Dr. Wooley's assertion that
there is no cross-fertilization among circuit design techniques. In
fact, Dr. Wooley, writing on behalf of ISSI, agrees that there can be
cross-fertilization in the development of process technologies among
various classes of memories. This assertion also refutes the other
respondents' claims that there is no cross-fertilization in the
development of process technologies.
Moreover, contrary to the respondents' assertion, the methodology
we are applying does calculate product-specific costs. Where
expenditures benefit more than one product, it is the Department's
practice to allocate those costs to all the products which are
benefitted. Therefore, as semiconductor R&D benefits all semiconductor
products, we have allocated semiconductor R&D to all semiconductor
products.
We also disagree with the respondents' assertion that the
methodology employed by the Department should be based on respondents'
normal accounting records. While we do not disagree that each R&D
project is accounted for separately in each of the respondents'
respective books and records, we note that the existence of separate
accounting records does not necessarily preclude the phenomenon of
cross-fertilization of scientific ideas. Since accounting records do
not address the critical issue of whether ideas from research in one
area benefit another area, we do not find this argument persuasive.
We also found unpersuasive the following arguments presented by
respondents: (1) That SRAMs are a mature product that cannot benefit
from R&D performed in other areas; (2) that logic R&D is more complex
than memory R&D; (3) that logic R&D is unique to an application; and
(4) that logic R&D involves high level architecture and functionality
which is different from SRAM R&D (which focuses on shrinking cell size,
increasing capacity and efficiency). The record shows that the primary
focus for SRAM and DRAM R&D is reducing die size and increasing speed,
which will benefit from the metal multilayer design R&D being conducted
in connection with logic/ASIC products. Moreover, the issue is not
whether application-specific design R&D for logic products can be used
for SRAMs, but rather whether what is learned from logic/ASIC product
R&D can be used to improve SRAM performance. We also disagree with
Winbond's arguments that, since it has more logic product lines than
memory product lines, more employees for logic R&D than SRAM R&D and
proportionally more expenses for the logic product line than the SRAM
product line, it follows that no logic R&D should be assigned to SRAMs.
When applied to the cost of manufacturing, the ratio of total
semiconductor R&D to the total semiconductor cost of sales results in
proportional amounts of R&D for each specific product. Our methodology
assigns R&D costs to products in proportion to the amount sold during
the period. If 75 percent of the cost of products sold were logic
products then logic products would receive 75 percent of the R&D costs
incurred during the period. This in no way assigns SRAMs an
unreasonable portion of R&D costs.
Based on the foregoing, for purposes of the final determination, we
have calculated R&D for SRAMs using the ratio of total semiconductor
R&D to total semiconductor cost of sales for the annual period that
most closely corresponds to the POI.
Company-Specific Issues
A. Alliance
Comment 10: Time Period for Cost and Price Comparisons
In the preliminary determination, the Department compared prices
and conducted the sales below cost test using quarterly data. Alliance
argues that for the final determination the Department should compare
prices and conduct the sales below cost test using annual data.
Alliance gives three reasons in support of its argument.
First, Alliance argues that there is no regulatory requirement that
the Department compare prices and costs on a quarterly basis and that
it is clearly envisioned that the Department will use annual averages
unless there is a strong reason to do otherwise. Alliance argues that,
in this case, there is no such reason. Moreover, Alliance argues, while
the Department has used quarterly data in some previous semiconductor
cases, the Department has recognized that it must apply the most
reasonable methodology for each respondent based upon its price and
cost trends. Alliance cites to DRAMs From Korea at 15476, where the
Department used monthly averages for one respondent and POI averages
for another.
Second, Alliance argues that its structure as a fabless company
that subcontracts various phases of SRAM production makes the use of
annual costs appropriate. Alliance states that integrated producers
have large fixed costs that tend to mute changes in total costs from
one quarter to another and that they tend to have declining costs over
time due to the learning curve. By contrast, argues Alliance, its costs
of production consist almost completely of variable costs, which vary
greatly from quarter to quarter according to volume and other factors.
Moreover, Alliance maintains that, because its costs consist primarily
of payments to subcontractors, they do not steadily trend downward over
time.
Third, Alliance argues that the Department has established that,
where cost or pricing factors vary erratically from quarter to quarter,
it is more appropriate to use annual comparisons to smooth out the
aberrational results. In support of this argument, Alliance cites to a
number of cases, including Color Television Receivers From the Republic
of Korea; Final Results of Antidumping
[[Page 8926]]
Duty Administrative Review, 55 FR 26225, 26228 (June 27, 1990), Final
Determination of Sales at Less Than Fair Value; Color Picture Tubes
From Canada, 52 FR 44161, 44167 (Nov. 18, 1987), Final Determination of
Sales at Less Than Fair Value; Color Picture Tubes From Japan, 52 FR
44171, 44182 (Nov. 18, 1987), and Final Determination of Sales at Less
Than Fair Value; Sweaters Wholly or In Chief Weight of Man-Made Fiber
From Taiwan, 55 FR 34585, 34598 (Aug. 23, 1990).
Moreover, Alliance also notes that the Department often uses annual
averages in seasonal industries to avoid magnifying the impact of costs
that vary from quarter to quarter. Alliance cites to Grey Portland
Cement and Clinker From Mexico; Final Results of Antidumping Duty
Administrative Review, 58 FR 47253, 47255 (Sept. 8, 1993), and Circular
Welded Non-Alloy Steel Pipe and Tube From Mexico; Final Results of
Antidumping Duty Administrative Review, 62 FR 37014, 37020 (July 10,
1997), in support of this contention.
Accordingly, Alliance argues that, given the extreme variability of
its prices and costs in different quarters, it is more reasonable for
the Department to use annual, rather than quarterly, figures for
Alliance, regardless of whether prices declined in general over the
POI.
Finally, Alliance notes that the Department's statement in its
preliminary determination that ``all parties agree'' that there was ``a
significant and consistent price decline during the POI'' is false.
Alliance contends that its position has always been that its costs and
prices during the POI were marked by aberrational, short-term price or
cost fluctuations.
The petitioner argues that the Department's decision to use
quarterly rather than annual averages was both in accordance with the
regulations and based on an established dynamic in the semiconductor
industry--that costs and prices generally decline from quarter to
quarter. According to the petitioner, all of the parties in this
investigation except Alliance have accepted this principle. The
petitioner contends that the Department is not obligated to deviate
from a rational, well-established industry benchmark simply on the
basis that a particular respondent prefers an alternative approach that
may lower its margin. The petitioner notes that declining market prices
affect all of the respondents (including Alliance) and that, therefore,
the Department's approach at the preliminary determination was fair and
reasonable.
With regard to Alliance's argument that, as a fabless company, its
costs are mostly variable, and hence vary more than the costs of
integrated producers, which are mostly fixed, the petitioner notes that
ISSI, another fabless company, did not share Alliance's views. The
petitioner states that the Department's decision was based on an
established consensus regarding declining market prices and that this
phenomenon affected the behavior of all of the respondents (including
Alliance), as well as the petitioner. The petitioner further states
that basing the Department's decision on such a broad phenomenon of
market behavior is an eminently fair and reasonable approach, and that
the Department acted well within its discretion.
In addition, the petitioner notes that none of the cases cited by
Alliance to demonstrate that the Department uses annual comparisons
when costs or prices vary from quarter to quarter involve the
semiconductor industry, which tends to exhibit discernible price and
cost declines. Rather, the petitioner notes that many of the cases
Alliance cites involve industries impacted by seasonal price or cost
fluctuations, patterns not present in the semiconductor industry.
DOC Position
We disagree with Alliance. The Department's practice is to
calculate weighted-averages over a shorter period of time when normal
values, export prices, or constructed export prices have moved
significantly over the POI. See, e.g., EPROMs from Japan and DRAMs from
Korea; see also 19 CFR section 351.414(d)(3) of the Department's new
regulations. In this case, demand for SRAMs decreased dramatically
during the POI, causing worldwide SRAM prices to decrease dramatically.
As SRAM producers, all respondents, including Alliance, were directly
affected by this decrease in prices, whether they were fabless or
integrated producers. Moreover, while Alliance may not have agreed with
the other respondents that there was a significant and consistent price
decline during the POI, Alliance concedes that there was a ``worldwide
drop in demand and falling prices that occurred in 1996'' for SRAMs.
See Alliance's submission of December 23, 1997, at page 47.
In addition, none of the cases cited by Alliance involve instances
in which prices and cost were declining over the POI. Rather, they
focus on instances where the Department used annual averages to smooth
out quarterly or seasonal fluctuations in costs. Moreover, none of
those cases involved the semiconductor industry, which, as the
Department has recognized through its practice of using shorter
averaging periods, is subject to declining prices and costs. Indeed,
Alliance fails adequately to distinguish the cases relied on by the
Department at the preliminary determination (i.e., EPROMs from Japan
and DRAMs from Korea) from the facts in this case. Alliance does cite
to DRAMs from Korea to argue that the Department recognizes that it
must apply the methodology that makes the most sense for each
respondent, based upon its price and cost trends. However, in that
case, the Department determined that it was more appropriate to use
monthly weighted-average prices for foreign market value (i.e., normal
value) for one respondent since those averages were more representative
of its pricing than POI averages. See DRAMs from Korea, comment 29.
Similarly, in this case, given the significant decrease in the price of
SRAMs that occurred throughout the POI, we have determined that
quarterly averages result in a more accurate comparison of pricing
behavior during the POI than do annual averages.
Accordingly, we made quarterly weighted-average price and cost
comparisons for all respondents, including Alliance, for the final
determination.
Comment 11: General Expenses and Profit for Constructed Value
Alliance argues that the methodology employed by the Department to
calculate Alliance's CV value at the preliminary determination was
contrary to the letter and intent of the statute. Alliance notes that
the statue provides three alternatives for determining SG&A and profit
when a respondent's own data may not be used and argues that the lack
of a hierarchy implies that the chosen methodology should produce the
most accurate and fair result possible. Alliance claims that, because
it has cooperated fully in this investigation, the Department's
selected methodology should not be adverse in nature.
Alliance argues that the Department's use of the weighted-average
SG&A expenses of the other three respondents to calculate CV is
unreasonable. Alliance claims that the statute requires the use of
actual SG&A expense data, that such data is available for Alliance, and
that this data was verified by the Department.
Alliance argues that the fact that all of its home market sales
were found to be below cost does not suggest that its SG&A expenses
would have been higher
[[Page 8927]]
had these sales been above cost. Alliance argues that its cost data was
considered acceptable for purposes of the below-cost test and should
also be accepted for purposes of calculating CV. Alliance claims that
the costs incurred by UMC and Winbond are very different from its own
SG&A expenses because they perform more steps in the SRAM production
process, including wafer fabrication, and have a larger corporate
bureaucracy to manage those facilities. Additionally, Alliance argues
that its R&D activities are for product development alone, while UMC
and Winbond have both product and process R&D activities. Alliance
argues that the process R&D costs reported by other respondents are
part of their cost of manufacturing and that these costs would already
be included in the price paid by Alliance for wafers, since it does not
have its own wafer fabrication facilities. Alliance argues that, if the
Department calculates Alliance's R&D expenses using cost data from the
other Taiwan respondents, it should also exclude that portion of R&D
expenses incurred on behalf of wafer fabrication process developments
since Alliance's costs would not include such activities.
Alliance also claims that the Department's use of the weighted-
average profit rate of the other three respondents to calculate CV is
likewise unreasonable. According to Alliance, the rationale behind
basing profit on the data of other respondents appears to be that the
other respondents are similarly situated and that their profits reflect
those which Alliance would earn in the home market if its sales were
made in the ordinary course of trade. However, Alliance claims that
neither the results of its relatively few sales to its developing
Taiwan export market, nor the profits of Taiwan producers operating in
their own home market, are indicative of Alliance's normal profit
experience. Moreover, Alliance claims that the profit rate assigned by
the Department includes the profits of two companies, UMC and Winbond,
which have entirely different cost structures. Alliance argues that the
foundry operations of UMC and Winbond involve high fixed costs, whereas
Alliance's costs are largely variable. Alliance maintains that basing
its profit rate on the experience of UMC and Winbond, both of which
fabricate their own SRAM wafers, has the effect of double-counting
profit; UMC and Winbond earn a higher profit because their costs do not
include the profit markup that Alliance, a fabless producer, must pay
for fabricated wafers. Finally, Alliance argues that its costs are
based on accounting under U.S. GAAP, while UMC and Winbond follow
Taiwan GAAP. Accordingly, Alliance claims that the only reasonable
method for determining CV profit is to use the profit of either its own
SRAM product line or the overall company, for the fiscal year ending
March 30, 1996. Alliance argues that both of these approaches would be
consistent with the Department's methodology, contemporaneous to the
POI, and reasonably specific to subject merchandise.
The petitioner argues that the Department is not required to
justify the methodology selected for determining Alliance's SG&A
expenses and profit as the most reasonable alternative. The petitioner
claims that the statute clearly indicates a preference for the
Department to base SG&A expenses and profit, if possible, on amounts
normally incurred or realized on above-cost home market sales.
Moreover, the petitioner maintains that the statute intends for CV
profit to correspond to normal rates of profit for the respondent or
industry in the comparison foreign market and that Alliance's suggested
methodology fails to meet this requirement. Specifically, the
petitioner notes that Alliance's overall company profits result from
sales to all markets, with the United States representing Alliance's
dominant market.
According to the petitioner, there is no evidence that the
differences in corporate strategy identified by Alliance render the
other companies' profit rates unrepresentative of Taiwan SRAM producers
in the context of this case. Moreover, the petitioner claims that
Alliance has not suggested any means to establish that a profit rate
that includes the integrated producers' profits somehow ``double-
counts'' profits. Consequently, the petitioner argues that it is proper
to include all types of SRAM producers in the calculation of the
weighted-average profit rate. Finally, the petitioner notes that
Alliance's 1996 fiscal year data only overlaps with three months of the
POI and, thus, is only marginally contemporaneous.
The petitioner argues that Alliance's arguments regarding the
methodology to be used for SG&A expenses depend on the assertion that
Alliance would have incurred the same level of expenses on its home
market sales irrespective of whether those sales were made at prices
above or below COP. The petitioner contends that such an argument flies
in the face of the statutory scheme, which directs the Department to
use SG&A expenses for sales made in the ordinary course of trade.
Moreover, the petitioner claims that Alliance's argument is flawed
because it allocates its reported home market indirect selling expenses
among semiconductor products on the basis of sales revenue. The
petitioner notes that, if Alliance's home market sales had been made at
significantly higher prices, then the allocated selling expenses would
have been proportionately increased.
DOC Position
We disagree with Alliance, in part. Pursuant to section
773(e)(2)(A) of the Act, the Department will calculate SG&A expenses
and profit based on the actual amounts incurred and realized by the
company in connection with the production and sale of the foreign like
product, in the ordinary course of trade, for consumption in the home
market. Where a respondent's own SG&A expense and profit data are not
available, section 773(e)(2)(B) of the Act provides the Department with
three alternatives for calculating CV. In the instant case, Alliance's
own SG&A expense and profit data may not be used because all of its
home market sales failed the cost test, and hence, pursuant to section
771(15) of the Act, are not sales in the ordinary course of trade.
For purposes of the preliminary determination, we calculated
Alliance's CV using the alternative methodology described in section
773(e)(2)(B)(ii) of the Act. This approach involved basing SG&A
expenses and profit on the weighted-average data of the other three
respondents. Because R&D expenses are included in general expenses, we
also based R&D expenses on the same methodology used to determine SG&A
expenses.
For our final determination, we have considered several
alternatives which are available for calculating Alliance's CV under
section 773(e)(2)(B) of the Act, including the methodology used for the
preliminary determination and the alternatives proposed by Alliance.
The SAA at 840 (170) indicates that the Act does not establish a
hierarchy or preference among the alternatives under section
773(e)(2)(B) of the Act and that the selection of an alternative will
be made on a case-by-case basis. The methodology which we used for the
preliminary determination is one of the three alternatives provided for
in the Act and provides a reasonable basis on which to base SG&A
expenses and profit for Alliance's CV.
As discussed below, Alliance's proposed alternatives have
significant flaws that make them less desirable choices for use as
Alliance's SG&A expenses and profit. The method we used in the
preliminary determination provides a reasonable methodology on
[[Page 8928]]
which to base Alliance's SG&A expenses and profit. Accordingly, we have
used this approach for calculating Alliance's CV for the final
determination because it reflects the experience of the other Taiwanese
SRAM producers. Although we recognize that there may be differences in
organizational structure and strategy among the respondents, the
differences identified by Alliance do not preclude us from choosing one
of the alternatives provided for in the Act.
We believe that the methodologies offered by Alliance for
calculating profit have significant flaws. First, with respect to
Alliance's suggestion that the Department use Alliance's own SRAM
product line data for the fiscal year ended March 31, 1996, we verified
cost and price information for the three months of this period, January
through March 1996, that fell within the POI and found significant
quantities of below-cost sales. Based on these findings, we have no
reason to believe that the amounts reported by Alliance as SRAM profits
for the March 31, 1996, fiscal year would provide a reasonable measure
of profit due to the fact that the figure includes a number of sales
known to be outside the ordinary course of trade, as well as
significant potential for other such sales during the first nine months
of the fiscal year. Moreover, data is available for the profit
calculation that is more contemporaneous than the respondent's proposed
period. Second, with respect to Alliance's suggestion that we base
profit on its overall operations for the fiscal year ended March 31,
1996, this data includes sales to markets other than the home market.
In addition, this data includes sales of products which are outside the
general category of SRAMs. Again, we have data that is more
contemporaneous than the data offered under this proposal.
We disagree with Alliance's assertion that the Department should
use its SG&A expenses for the calculation of CV. The Act directs the
Department to use an alternative methodology for these expenses when a
respondent's actual data are not available. As stated above, Alliance
did not make any home market SRAM sales in the ordinary course of trade
and therefore its actual data may not be used.
With respect to Alliance's argument regarding our treatment of
process R&D expenses, we believe that including these expenses in the
weighted-average SG&A rate calculated for our final determination would
double count the actual amount of the expense. Process R&D costs would
normally be accounted for as part of the cost of the wafer which
Alliance purchases from its supplier. Thus, for our final
determination, we have excluded process R&D expenses from Alliance's
SG&A expenses.
B. ISSI
Comment 12: Commission Expenses
According to the petitioner, the Department discovered at
verification that ISSI failed to report commission expenses on sales to
its U.S. distributor customers. The petitioner maintains that the
Department should base the amount of the commissions for these
customers on facts available because the information presented at
verification was not a minor correction. As facts available, the
petitioner argues that the Department should use the highest commission
rate paid on sales to any other customer.
ISSI contends that its failure to report distributor commissions
was a ministerial error of small magnitude. Specifically, ISSI asserts
that these commissions: 1) represent only a fraction of the total
commissions paid; 2) are recorded in a different manner in its
accounting system; and 3) were thoroughly verified by the Department.
Moreover, ISSI argues that it is a cooperative respondent that has done
nothing in this investigation that would justify adverse inferences. As
such, ISSI contends that the Department should use the commission
expense data on the record for purposes of the final determination.
DOC Position
We agree with ISSI. We find that ISSI's failure to report
commissions on sales to distributor customers was the result of an
inadvertent error which was minor in nature. Because it is the
Department's practice to accept such minor corrections arising from
verification, we have used ISSI's verified commission rate for purposes
of the final determination. See, e.g., Rebar from Turkey and Notice of
Final Determination of Sales at Less Than Fair Value: Bicycles From the
People's Republic of China, 61 FR 19026, 19044 (April 30, 1996)
(Bicycles from the PRC).
Comment 13: Date of Payment
The Department noted at verification that ISSI had not received
full or partial payment for a small number of U.S. sales. According to
ISSI, the Department should assign these sales the average payment
period for ISSI's other U.S. sales, rather than using the date of the
final determination. Alternatively, ISSI asserts that the Department
should calculate a weighted-average payment date for each sale where
partial payment was received, using both the date of the partial
payment and the date of verification. ISSI argues that to use the date
of the final determination would be inappropriate because to do so
would be to make the adverse assumption that its outstanding
receivables have not been collected.
The petitioner asserts that the Department's standard practice in
situations involving unpaid sales is to calculate the credit period
using the date of the final determination as a proxy for the actual
date of payment. See Final Determination of Sales at Less Than Fair
Value: Stainless Steel Wire Rods From France, 58 FR 68865 (Dec. 29,
1993). According to the petitioner, the Department should follow its
standard practice in this case because ISSI has provided no compelling
reason to depart from it. Specifically, the petitioner notes that ISSI
has provided no reason to assume that the payments in question will be
received prior to the final determination. Indeed, the petitioner
maintains, it is equally likely that payment will be received after
this date. Moreover, the petitioner asserts that, given the long time
since the end of the POI, it is unclear that using the date of the
final determination represents an adverse inference.
Regarding ISSI's suggestion that the Department use an average
payment period, the petitioner asserts that this method would be no
more accurate. The petitioner notes that the sales in question have
unusually long payment periods which would be excluded entirely from
the calculation of the average.
DOC Position
The Department's recent practice regarding this issue has been to
use the last day of verification as the date of payment for all unpaid
sales. See Brass Sheet and Strip from Sweden; Final Results of
Antidumping Administrative Review 60 FR 3617, 3620 (Jan. 18, 1995).
Accordingly, we have used the last day of ISSI's U.S. verification as
the date of payment for all unpaid transactions or portions thereof.
Comment 14: Non-operating expenses
The petitioner argues that the Department should include non-
operating expenses incurred by ISSI-Taiwan in the calculation of ISSI's
G&A expense. The petitioner argues that failure to include these
expenses in ISSI's total G&A expenses conflicts with the Department's
established practice concerning the classification of such expenses and
results in a distortion of the reported cost of production for ISSI.
ISSI does not dispute that the Department should capture the loss
on
[[Page 8929]]
disposal of property, plant and equipment and physical inventory loss,
but argues that the cost should be included as part of financial
expense. ISSI stated that the expenses were classified with other non-
operating expenses in its audited records. Therefore, ISSI contends
that the Department should follow its normal practice of adhering to a
firm's recording of costs in its financial statements, in accordance
with the GAAP of its home country, when such principles are not
distortive.
DOC Position
We agree with the petitioner that these expenses should be included
in the calculation of ISSI's total G&A expenses. We disagree with the
respondent that these expenses should be classified as financial
expenses because disposal of property, plant, and equipment and
physical inventory losses relate to the general activities of the
company and not to financing activities. See Notice of Final
Determination of Sales at Less Than Fair Value: Small Diameter Circular
Seamless Carbon and Alloy Steel, Standard Line and Pressure Pipe From
Italy, 60 FR 31981, 31989 (June 19, 1995). Inclusion of these expenses
in financing expense would not reasonably reflect the costs associated
with the production of the merchandise. Accordingly, we have adjusted
the G&A expense ratio to include these items.
Comment 15: Double-Counting of Marine Insurance Expenses
According to ISSI, the Department discovered during verification
that ISSI reported marine insurance expenses both as part of G&A and as
a separate movement expense in its U.S. sales listing. ISSI asserts
that the Department should reduce G&A by the amount of these expenses
in order to avoid double-counting.
The petitioner disagrees, stating that the burden is on the
respondent to submit accurate information. According to the petitioner,
the discovery of this error at verification indicates that ISSI's
response may contain additional errors which were not discovered due to
the limited time available at verification. Consequently, the
petitioner asserts that the Department should make no adjustment to G&A
for purposes of the final determination because it is unable to adjust
for the undetected inaccuracies in ISSI's response.
DOC Position
The Department conducted thorough verifications of ISSI's sales and
cost data. Based on these verifications, we have deemed the
respondent's data to be reliable for use in the final determination. We
do not believe that these data contain material inaccuracies, as the
petitioner suggests.
Because it is the Department's practice to correct minor errors
found during the course of verification (see, e.g., Rebar From Turkey
and Bicycles From the PRC), we have made the appropriate correction to
ISSI's G&A expenses for purposes of the final determination.
Comment 16: Offset to R&D Expenses
ISSI argues that the Department should include an offset for R&D
revenue in its calculation of ISSI's R&D expense.
DOC Position
We agree with ISSI that the R&D revenue should be included as an
offset in the R&D expense ratio calculation, because the corresponding
costs are included in ISSI's R&D expense. Consequently, we have granted
this offset for purposes of the final determination.
C. UMC
Comment 17: Calculation of the CV Profit Rate
UMC argues that the Department erred in its choice of methodology
for the computation of profit in calculating CV. UMC explains that the
Department computed UMC's CV profit by first calculating a profit
percentage for each home market transaction in the ordinary course of
trade, then weight-averaging the percentages by quantity to determine
the overall CV profit rate. UMC argues that this methodology was a
departure from the Department's normal practice of calculating a CV
profit rate based on the total revenue and total cost of home market
sales transacted in the ordinary course of trade. In support of its
position, UMC cites to Certain Stainless Steel Wire Rods from France:
Final Results of Antidumping Duty Administrative Review, 62 Fed. Reg.
7206, 7209-7210 (Feb. 18, 1997) (SSWR from France) and Certain Hot-
Rolled Lead and Bismuth Carbon Steel Products from the United Kingdom:
Final Results of Antidumping Duty Administrative Review, 61 Fed. Reg.
56514, 56514 (Nov. 1, 1996) (Lead and Bismuth from the U.K.). UMC
contends that in Lead and Bismuth from the U.K. the Department
recognized that weight-averaging individual profit percentages by
quantity introduces serious distortions into the calculation of CV
profit.
The petitioner argues that the methodology used at the preliminary
determination does not produce a serious distortion of the CV profit in
this case. The petitioner contends that use of this methodology is
appropriate, because a small number of expensive-to-produce, low profit
sales of higher-density SRAMs will not artificially pull down the
overall profit rate that applies to the large majority of sales. Thus,
the petitioner argues that this methodology more realistically
calculates a per-unit profit rate that is applied to all CV sales
comparisons.
DOC Position
We agree with UMC. It is the Department's normal practice to divide
total home market profits by total home market costs when calculating
the profit ratio. As noted in SSWR from France and Lead and Bismuth
from the U.K., the methodology employed by the Department in the
preliminary determination has the effect of distorting the respondent's
CV profit rate. Accordingly, for the final determination, we calculated
profit based on total home market profits and total home market costs
for sales made in the ordinary course of trade.
Moreover, because CV profit was calculated in the same fashion for
ISSI at the preliminary determination, we have also made the
corresponding change to ISSI's calculations.
Comment 18: Substantial Quantities Test
UMC argues that the Department made an error in performing the
substantial quantities portion of the sales below cost test. UMC
maintains that, in a case where quarterly costs are used, sales can
only be disregarded if: (1) the sale price is below the quarterly
average cost; (2) the sale price is below the annual average cost; and
(3) the quantity of such sales meets the substantial quantities
threshold of 20 percent on a product-specific basis. UMC alleges that
the Department failed to correctly apply the third part of this test.
Specifically, UMC states that the Department conducted the substantial
quantities test only on an annual average cost basis when in fact it
should have conducted the test on an annual average cost and quarterly
average cost basis.
According to the petitioner, UMC's assertion that the Department is
required, under section 773(b)(1) of the Act, to examine the volume of
sales against the 20 percent threshold on the basis of the volume of
sales made in each quarter is without merit. The petitioner states that
section 773(b)(2)(C)(i) of the Act provides that the substantial
quantities test is satisfied
[[Page 8930]]
if the volume of such sales represents 20 percent or more of the volume
of sales under consideration for the determination of normal value. The
petitioner notes that section 773(b)(2)(B) of the Act provides that the
term ``extended period of time'' means a period that is normally one
year, but not less than six months. Thus, argues the petitioner, the
Department correctly determined that a given product was below cost in
substantial quantities if the volume of below cost sales was at least
20 percent of the volume during the twelve-month POI.
DOC Position
We agree with the petitioner. Section 773(b) of the Act states that
the Department will disregard sales made at less than the cost of
production if such sales were made within an extended period of time in
substantial quantities (see section 773(b)(1)(A)). The Act defines
``extended period of time'' as normally one year but not less than six
months (see section 773(b)(2)(B) of the Act). Because the Act states
that ``an extended period of time'' can not be less than six months, we
cannot follow UMC's recommendation and perform the substantial
quantities test on a quarterly basis.
Accordingly, we have made no changes to the substantial quantities
test for purposes of the final determination.
Comment 19: Startup Adjustment
UMC claims that the Department should continue the approach taken
in its preliminary determination in accepting its claimed startup
adjustment, because it has met the threshold criteria. According to
UMC, the technical factors limiting production at its affiliate's new
facility included process qualification to qualify both new equipment
technology and new process technology. Additionally, UMC notes that the
startup period involved the qualification of individual products and
the fine tuning of new equipment to allow it to work efficiently with
the existing equipment.
UMC claims that a company will not meet its practicable level of
operations until the fab has achieved the level of ``cleanness'' to
operate properly (which requires a certain amount of time) and it also
has achieved a critical mass of product qualifications. UMC argues that
the initial product qualification phase, which involves test runs and
evaluations to build a stable of products that the new fab is qualified
to produce, is a significant technical factor which impedes production
during the startup phase.
Although UMC's claimed startup adjustment reflects a startup period
that does not include the entire year, UMC argues that the new fab was
actually in a startup phase at least through the end of 1996. UMC bases
its claim on the quantity of wafer starts and wafers out in relation to
the quantity of wafers processed in May 1997 and at the time of the
cost verification. UMC notes that low product yields are one of a
number of factors that the Department can consider as evidence of the
extent to which technical factors affect production levels. UMC also
argues that, although the same number of production processes were
available for sale to customers in December 1996 as were in place in
June of that year, the number available at September 1997 demonstrates
that the company was still in startup mode at the end of 1996 and that
the startup adjustment claimed is conservative.
The petitioner asserts that UMC's request for a startup adjustment
should be denied since UMC failed to demonstrate that its production
levels were limited by technical factors. The petitioner acknowledges
that the product qualification process contributed to UMC's low
production levels, but claims that the qualification process does not
represent a ``technical difficulty.'' The petitioner argues that the
statute directs the Department to ``consider factors unrelated to
startup operations that might affect the volume of production
processed, such as demand, seasonality, or business cycles'' in
determining whether commercial production levels have been achieved.
See section 773(f)(1)(C)(ii) of the Act. The petitioner claims that
customer demand was the only factor that may have limited production
volumes and points out that demand is not a technical factor. The
petitioner notes that the SAA at 836 (166) states that ``to determine
when a company reaches commercial production levels, Commerce will
consider first the actual production experience of the merchandise in
question. Production levels will be measured based on units
processed.'' The petitioner claims that yields improve continually
throughout a product's life cycle beyond the point at which commercial
production can be said to have begun and thus yields are irrelevant to
the startup analysis. Finally, the petitioner argues that, even if
technical factors did limit production to some extent, commercial
production at the new facility began sooner than claimed by UMC.
DOC Position
We have accepted UMC's claimed startup adjustment. UMC produced
subject merchandise during the POI using SRAM wafers obtained from its
affiliate's new facility and provided the Department with a number of
technical factors that limited the new facility's production levels,
including the development of process parameters, cleaning of the
fabrication facility, and installation, adjustment, calibration, and
testing of new equipment. These technical factors appear to have
restricted production of SRAM wafers through the startup period, after
which time the new facility achieved commercial production levels that
are characteristic of the producer. Although UMC claims that product
qualification represents another technical factor that limited
production levels during the startup period, we agree with the
petitioner that this process is a normal part of operations that is
often performed for new products the company plans to produce.
Moreover, it does not appear that product qualification, which involved
UMC's producing small quantities of products for customer approval
while bringing the new facility up to normal levels of production,
represents a technical difficulty that resulted in the underutilization
of the facility.
While we agree with UMC that production yields may indicate the
existence of technical factors that limited production output, the SAA
at 836 (166) directs us to examine the units processed in determining
the claimed startup period. Accordingly, our determination of the
startup period was based, in 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. We concluded that the number of wafer starts during the startup
period did not meet commercial production levels that are
characteristic of the producer. Consequently, we determined that the
claimed startup period did, in fact, end when commercial production
reached a level that was characteristic of UMC's non-startup
experience.
While the petitioner argues that an absence of customer demand may
have contributed to the low production levels during the claimed
startup period, evidence on the record suggests that the demand for the
type of SRAM wafers produced at the new facility was as high during the
claimed startup period as it was during the remainder of the POI.
Moreover, even if demand had been greater during the claimed startup
period, there is no evidence that UMC could have more quickly achieved
production levels at the new facility that are characteristic of the
producer, merchandise, or industry.
[[Page 8931]]
Comment 20: Calculation of Credit Expense
UMC argues that the Department incorrectly computed UMC's imputed
credit expense adjustment using a 365 day year. In its response, UMC
reported its imputed credit expense based on a 360 day year. UMC
alleges that the Department's computation of UMC's imputed credit
expense based on a 365 day year was inconsistent with section
773(f)(1)(A) of the Act and the Department's longstanding practice as
outlined in the Import Administration Antidumping Manual ((1994)
Chapter 8, p. 36).
DOC Position
We disagree with UMC. Section 773(f)(1)(A) of the Act directs the
Department to calculate costs based on the records of the exporter or
producer of the merchandise. The expense in question, however, is an
imputed expense which is not kept by UMC in its records. Thus, we note
that UMC does not record imputed credit expense in its accounting
system based on a 360 day year. The Department is not required to
compute this expense based on 360 days, instead of the standard 365,
merely because UMC chose to report it in that manner in its
submissions.
In addition, we note that UMC itself was inconsistent in its credit
calculations, in that it calculated its accounts receivable turnover
rate using a 365 day year. Accordingly, for the final determination, we
have continued to calculate UMC's imputed credit expense using a 365
day year.
Comment 21: Ministerial Errors Acknowledged by the Department
UMC notes that in its memorandum of October 20, 1997, the
Department acknowledged that it made several ministerial errors in the
calculations performed at the preliminary determination for UMC. UMC
requests that the Department correct these ministerial errors in its
final determination.
DOC Position
We agree. We have made the appropriate corrections for purposes of
the final determination.
D. Winbond
Comment 22: Treatment of Winbond's EP sales
Winbond argues that its EP transactions were outside the ordinary
course of trade and should be disregarded for purposes of the final
determination. Winbond cites to Final Determination of Sales at Less
Than Fair Value: Coated Groundwood Paper from France, 56 FR 56380 (Nov.
4, 1991) (Coated Groundwood Paper) and Colombian Roses at 7004 as
instances where the Department disregarded U.S. sales when the volume
of such sales was insignificant or when the sales were atypical and not
part of the respondent's ordinary business practice. Including such
sales, according to Winbond, has the potential to undermine the
fairness of the dumping comparisons.
According to the petitioner, the term ``outside the ordinary course
of trade'' applies only to home market sales, and, nonetheless, Winbond
has not demonstrated that its EP sales are outside the ordinary course
of trade. The petitioner asserts that, although it is true that the
Department may disregard certain U.S. sales if the volume of such sales
is insignificant, Winbond has not demonstrated that these particular
sales were low volume sales. Furthermore, the petitioner maintains that
Winbond has not established, as required in Colombian Roses, that the
inclusion of these sales would undermine the fairness of the
comparison. The petitioner states that the Department should use its
discretionary authority and retain Winbond's EP sales.
DOC Position
We agree with the petitioner. Although the ordinary course of trade
provision does not apply to U.S. transactions, the Department does have
the discretion to exclude U.S. sales from its analysis. See, e.g.,
Coated Groundwood Paper and Colombian Roses. However, there is no
requirement in either the Act or the regulations that we do so merely
because there are small quantities of a particular type of sale. In
this case, Winbond has no provided compelling reason to disregard its
EP sales. Accordingly, we have used them for purposes of the final
determination.
Comment 23: Reliance on Winbond's Cost Data
According to the petitioner, the cost verification report raises
substantial questions regarding the overall reliability of Winbond's
cost response. Specifically, the petitioner argues that: (1) Winbond
failed to provide the reconciliation between its reported total cost of
manufacturing and the costs in its cost accounting system, as requested
in the cost verification outline; and (2) Winbond first revealed at the
cost verification that, contrary to the explicit questionnaire
instructions, not only had it reported sales quantities rather than
production quantities, but it also was unable to provide the requested
production quantity data at verification. The petitioner argues that,
due to these limitations, the Department should consider using partial
facts available in calculating Winbond's COP and CV.
Winbond argues that it was cooperative and that the Department
successfully verified the overall reliability of its submitted sales
and cost data, including the requested reconciliations. Winbond argues
that it successfully reconciled its total reported COM to its total
costs in its accounting system and that the importance of certain
reconciling amounts has been over-emphasized. Winbond maintains that it
was entirely appropriate to report sales quantities rather than
production quantities, because, if it had used the finished goods input
quantity, it would have overstated production volumes and distorted
costs.
DOC Position
We agree with the petitioner, in part. We agree that the
unsubstantiated reconciling item found at verification should be
included in the cost for that quarter and we have done so. Not only did
we request in the verification agenda that Winbond reconcile the total
costs in its cost accounting system to total COM reported on its cost
tapes, but we also requested numerous times during the verification
process that Winbond reconcile its costs. We compared the submitted
costs to the costs recorded in Winbond's normal books and records and
found the difference noted above. Although Winbond attempted to explain
this difference, it was unable to provide requested documentation
(e.g., invoices) to support its assertion.
However, we disagree with the petitioner that the sales quantities
reported in the COP and CV data warrant an adjustment to Winbond's
reported per-unit COPs and CVs. Because the variances Winbond applied
to its standard costs were correctly calculated using production
quantities, Winbond's per-unit COPs and CVs were not affected by the
incorrect quantities. Consequently, we have not adjusted COP or CV to
account for the quantity difference. For further discussion, see the
memorandum to Louis Apple from the Team, dated February 13, 1998.
Comment 24: Winbond's Difmer Adjustment
Winbond argues that the Department should accept its submitted
difmer data without adjustment, because these difmer data were
appropriate and classified in accordance with its cost accounting
system. Winbond argues that, contrary to statements in the Department's
cost verification report, it
[[Page 8932]]
could only report its fixed costs based on uniform budgeted ratios and
that such ratios were the most valid and manageable approach for
segregating cost elements. Winbond argues that its methodology
separates the cost elements and does not significantly alter the amount
of the difmer adjustment. Moreover, Winbond states that the vast
majority of its U.S. sales had identical matches in the home market,
making the distinction between variable and fixed costs less important
than in cases involving more comparisons with similar merchandise.
DOC Position
We disagree. Although Winbond's accounting system classifies all
costs other than direct materials and labor as fixed costs, at
verification we were able to calculate the depreciation expense for
specific products from Winbond's standard cost sheets. A comparison of
the depreciation expense calculated at verification to those reported
by Winbond shows that the reported depreciation amounts, and therefore
the difmer data, were not accurate.
Because the reported difmer data cannot be relied upon, we have
based the margin for all U.S. sales without an identical home market
match on adverse facts available. As adverse facts available, we have
selected the highest non-aberrant margin from the price-to-price or
price-to-CV comparisons which were performed for Winbond. In selecting
this margin, we sought a margin that is sufficiently adverse so as to
effectuate the statutory purposes of the adverse facts available rule
to induce respondents to provide the Department with complete and
accurate information in a timely manner. We also sought a margin that
is indicative of Winbond's customary selling practices and is
rationally related to the transactions to which the adverse facts
available are being applied. To that end, we selected a margin for
sales of a product that involved a substantial commercial quantity and
fell within the mainstream of Winbond's transactions based on quantity.
Finally, we found nothing on the record to indicate that the sales of
the product we selected were not transacted in a normal manner.
Comment 25: Use of Annual Profit for CV
Winbond claims that the Department should have used quarterly,
rather than annual, profit in calculating CV. Winbond asserts that
using annual profit creates the same distortions that the Department
tried to avoid by using quarterly price and cost comparisons. Winbond
cites to page 843 of the SAA which indicates that, when CV is used for
normal value and ``costs are rapidly changing, it may be appropriate to
use shorter periods, such as quarters or months, which may allow a more
appropriate association of costs with sales prices.'' Winbond claims
that the Department's use of annual profit in conjunction with
quarterly cost and sales data overstates profit significantly in the
down-market periods.
The petitioner argues that an annual profit rate is appropriate
because it reflects not only the quarterly cost of manufacture but also
those annual, often non-recurring costs such as G&A, interest and
selling expenses, which must be calculated on an annual basis to ensure
that all such costs are captured in the COP. The petitioner notes that
neither the statute nor the SAA specifies the period over which profit
should be calculated.
Moreover, the petitioner asserts that the use of quarterly averages
to capture the lower profits in quarters where more sales are made
below cost, as suggested by Winbond, could lead to the use of a zero
profit rate if all of the respondent's sales in a given quarter were
below cost. This approach, according to the petitioner, is contrary to
the clear statutory intent that the Department include a positive
profit figure for CV.
DOC Position
We agree with the petitioner. The Department applies the average
profit rate for the POI or period of review (POR) even when the cost
calculation period is less than a year. See, e.g., 1994-1995 DRAMs
Review, Certain Fresh Cut Flowers From Colombia; Final Results and
Partial Rescission of Antidumping Duty Administrative Review, 62 FR
53287, 53295 (Oct. 14, 1997) and Silicon Metal from Brazil; Final
Results of Antidumping Duty Administration Review, 61 FR 46763, 46774
(Sept. 5, 1996).
We disagree with Winbond that the use of annual profit distorts the
analysis. First, a difference between the quarterly profits and the
annual average profit does not automatically mean that a distortion
exists. In fact, there is no evidence on the record that indicates such
a distortion. Second, profit remains a function of the relationship
between price and cost, regardless of whether there is a downward trend
of prices or a stable period of prices and costs. The parties commented
on matching sales on a quarterly basis (see the ``Time Period for Cost
and Price Comparisons'' section of this notice, above). In their
comments, the parties indicated that both prices and costs generally
decreased during the POI. The profit figures used by the Department
measure the weighted-average amount by which prices exceeded costs.
Third, the use of annual profit mitigates fluctuations in profits and,
therefore, represents a truer picture of profit.
Furthermore, we disagree that the SAA at page 843 (173) provides
any guidance. The SAA indicates that ``shorter periods may allow for a
more appropriate association of costs with sales prices,'' but is
silent as to the profit to be added to those costs.
Comment 26: Unrecoverable Fire Loss Expenses
Winbond argues that the Department distorted its G&A expenses by
including expenses associated with a fire at an incomplete facility
which is now being reconstructed to produce DRAMs. Winbond argues that
it recorded the unrecovered portion of the fire loss as a non-operating
expense; that the facility was not operational; and that, therefore,
the costs associated with the fire are not relevant to the COP and CV
of subject merchandise. Winbond asserts that, even if the Department
were to conclude that the fire loss was related to 1996 SRAM
production, the costs should be excluded from G&A because they were
extraordinary.
The petitioner argues that the Department correctly included
Winbond's unrecovered portion of the fire loss in Winbond's cost of
production. The petitioner argues that Winbond's assertion that the
facility was not being constructed to produce the subject merchandise
is contrary to strong evidence on the record. The petitioner cites two
published articles which state that the facility was constructed for
the production of SRAMs. The petitioner argues that the unrecoverable
fire loss was appropriately included in G&A because, under Winbond's
own standard accounting practice, the uncompensated fire loss was
recorded as a current cost. The petitioner argues further that the
Department has included in COP and CV losses which were not reimbursed
by insurance. See Final Determination of Sales at Less Than Fair Value:
Fresh and Chilled Atlantic Salmon from Norway, 56 FR 7661, 7670 (Hofa
Comment 5) (Feb. 15, 1991) (Salmon from Norway).
DOC Position
We agree with the petitioner. The uncompensated fire loss should be
included in Winbond's G&A expense for this period because the expense
incurred (i.e., the capital) relates to the company as a whole. The
fact that
[[Page 8933]]
Winbond is reconstructing the facility to produce DRAMs is irrelevant.
Moreover, we disagree with Winbond's assertion that the fire was an
extraordinary event. Winbond has offered no support for this assertion.
Moreover, evidence on the record contradicts this claim. Fires at
semiconductor production facilities have been neither unusual nor
infrequent. Specifically, we note that fires occurred at the following
semiconductor facilities during the past 16 months: (1) United
Integrated Circuits Company, January 1998; (2) Advanced
Microelectronics, November 1997; (3) United Integrated Circuits
Company, October 1997; (4) Charted Semiconductor Manufacturing Pte.
Ltd., September 1997; and (5) Winbond, October 1996. Thus, we are
unconvinced that the fire at Winbond's facility was an extraordinary
event. As in other cases, we are including the unrecovered or uninsured
portion of loss as a G&A expense. See e.g., Salmon from Norway.
Comment 27: Denominator for G&A and Interest Expense
Winbond argues that the Department erred by not revising the
denominator used to calculate its G&A, R&D and interest expense rates
to reflect the bonuses and royalties which were added to COM.
DOC Position
We agree. In the preliminary determination, we increased Winbond's
reported COM to include bonuses and royalty expenses. However, we
failed to revise the denominator used to calculate Winbond's G&A and
interest expense rates which we applied to the revised COM. We have
made the appropriate correction for purposes of the final
determination.
Comment 28: Net Interest Expense
Winbond argues that the Department failed to account for its actual
net interest income in the preliminary determination. Winbond argues
that the Department deprived it of the benefit of its actual net
interest income, and, thus, overstated its COP and CV. Winbond asserts
that the statute does not require the Department to disregard cost
offsets merely because the results benefit the respondent.
The petitioner argues that there is no basis for the Department to
allow Winbond to offset its actual production costs with net financial
income. The petitioner argues that the Department followed its long-
standing practice by treating Winbond's negative financial cost as
zero.
DOC Position
We agree with the petitioner. It is the Department's normal
practice to allow short-term interest income to offset financial costs
up to the amount of such financial costs. See Porcelain on Steel
Cookware from Mexico; Final Results of Antidumping Duty Administrative
Review, 61 FR 54616, 54621 (Oct. 21, 1996). Using total short-term
interest income to reduce production costs, as suggested by Winbond,
would permit companies with large short-term investment activity to
sell their products below COP. The application of excess interest
income to production costs would distort a company's actual costs. When
calculating COP and CV, the Department includes interest earned on
working capital, not interest earned on long-term financing activities.
See Final Results of Antidumping Duty Administrative Review: Porcelain
on Steel Cookware from Mexico, 60 FR 2378, 2379, (Jan. 9, 1995); Final
Results of Antidumping Duty Administrative Review: Porcelain on Steel
Cookware from Mexico, 58 FR 43327, 43332, (Aug. 16, 1993); Final
Determination of Sales at Less Than Fair Value: Steel Wire Rope from
Korea, 58 FR 11029, 11038, (Feb. 23, 1993); and Final Results of
Antidumping Duty Administrative Review: Frozen Concentrated Orange
Juice from Brazil, 55 FR 26721, (June 29, 1990).
Comment 29: Royalty Payments and Technical Services
Winbond argues that in the preliminary dumping analysis the
Department double-counted its royalty and technical service expenses.
DOC Position
We agree. We double counted these expenses at the preliminary
determination by adding both the royalty and the revised total R&D
(which included both the royalty and technical service expenses) in COP
and CV. Consequently, we have corrected this error for purposes of the
final determination.
Continuation of Suspension of Liquidation
In accordance with section 733(d)(1) and 735(c)(4)(B) of the Act,
we are directing the Customs Service to continue to suspend liquidation
of all entries of SRAMs from Taiwan, that are entered, or withdrawn
from warehouse, for consumption on or after October 1, 1997 (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:
------------------------------------------------------------------------
Margin
Manufacturer/producer/exporter percentage
------------------------------------------------------------------------
Advanced Microelectronics................................... 113.85
Alliance.................................................... 50.58
BIT......................................................... 113.85
ISSI........................................................ 7.59
TI-Acer..................................................... 113.85
UMC......................................................... 93.87
Winbond..................................................... 102.88
All Others.................................................. 41.98
------------------------------------------------------------------------
Pursuant to section 735(c)(5)(A) of the Act, the Department has
excluded the 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 published pursuant to section 735(d) of the
Act.
Dated: February 13, 1998.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 98-4360 Filed 2-20-98; 8:45 am]
BILLING CODE 3510-DS-P
