Hyundai Elecs. Indus. Co. v. United States

Slip Op. 04-37
UNITED STATES COURT OF INTERNATIONAL TRADE
BEFORE: RICHARD W. GOLDBERG, SENIOR JUDGE
HYUNDAI ELECTRONICS INDUSTRIES
CO., LTD. and HYUNDAI
ELECTRONICS AMERICA, INC.,
Plaintiffs,
v. PUBLIC VERSION
UNITED STATES, Cons. Court No. 00-01-00027
Defendant,
and
MICRON TECHNOLOGY, INC.
Defendant-
Intervenor.
[Plaintiffs’ motion for judgment on agency record is granted in
part and denied in part.]
Date: April 16, 2004
Willkie, Farr, & Gallagher (Christopher A. Dunn, James P.
Durling, and Daniel L. Porter) for plaintiff Hyundai Electronics.
Kaye, Scholer, Fierman, Hays & Handler LLP (Raymond Paretzky) for
plaintiff LG Semicon.
Peter D. Keisler, Assistant Attorney General, David M. Cohen,
Director, Patricia McCarthy, Assistant Director, Commercial
Litigation Branch, Civil Division, United States Department of
Justice (Kenneth S. Kessler); Patrick V. Gallagher, Jr., of
counsel, Office of the Chief Counsel for Import Administration,
United States Department of Commerce, for defendant United
States.
Hale & Dorr (Michael D. Esch and Gilbert D. Kaplan) for
defendant-intervenor Micron Technology, Inc.
Cons. Court No. 00-01-00027 Page 2
OPINION
GOLDBERG, Senior Judge: In this consolidated action, Hyundai
Electronics Industries Co., Ltd. and Hyundai Electronics America,
Inc. (collectively “Hyundai”) challenges the final results of the
Department of Commerce’s (“Commerce”) fifth administrative review
regarding Dynamic Random Access Memory semiconductors of one
megabit or above (“DRAMs”) from the Republic of Korea covering
the period of May 1, 1997 through April 30, 1998. See Dynamic
Random Access Memory Semiconductors of One Megabit Or Above from
the Republic of Korea, 64 Fed. Reg. 69694 (Dec. 14, 1999) (“Final
Results”). At issue in this case are DRAMs produced by LG
Semicon Co., Ltd. (“LG Semicon”)1 and Hyundai. For the reasons
that follow, the Court sustains in part and reverses and remands
in part the Final Results. The Court has jurisdiction over this
matter pursuant to 28 U.S.C. § 1581(c).
I. BACKGROUND
On May 10, 1993, Commerce published the antidumping duty
order on DRAMs from the Republic of Korea. See Dynamic Random
1
After the fifth adminstrative review was completed,
respondent Hyundai acquired respondents LG Semicon Co., Ltd. and
LG Semicon America, Inc. (collectively “LG Semicon”). Hyundai
challenges the Final Results as they pertain to LG Semicon and
Hyundai. In this opinion, Hyundai-as-successor-in-interest-to-LG
Semicon is referred to as LG Semicon.
Cons. Court No. 00-01-00027 Page 3
Access Semiconductors of One Megabit or Above from the Republic
of Korea, 58 Fed. Reg. 27520 (May 10, 1993). In response to a
request by Defendant-Intervenor Micron Technology, Inc.
(“Micron”), a domestic producer of DRAMs, Commerce initiated the
fifth administrative review of the antidumping order on June 29,
1998. See Initiation of Antidumping and Countervailing Duty
Administrative Reviews and Requests for Revocations in Part, 65
Fed. Reg. 35188 (June 29, 1998).
On June 8, 1999, Commerce published the preliminary results
for the fifth administrative review. See Dynamic Random Access
Memory Semiconductors of One Megabit or Above From the Republic
of Korea: Preliminary Results of the Antidumping Administrative
Review and Notice of Intent Not to Revoke Order, 64 Fed. Reg.
30481 (June 8, 1999) (“Preliminary Results”). Commerce applied
partial adverse facts available in calculating the dumping margin
for LG Semicon because it found that it had reported as
third-country sales “a substantial number of U.S. sales that it
knew or should have known were U.S. sales,” and concluded that LG
Semicon “failed to cooperate to the best of its ability.” Id. at
30482.
Commerce published the Final Results on December 14, 1999.
Commerce determined that in selling DRAMs to customers in Germany
and Mexico, LG Semicon knew or should have known that the
ultimate destination of the products was the United States. See
Cons. Court No. 00-01-00027 Page 4
Final Results, 64 Fed. Reg. at 69717. Further, Commerce
concluded that LG Semicon failed to cooperate to the best of its
ability by failing to report the sales to customers in Germany
and Mexico as U.S. sales and also because of the inadequacy of
the information supplied. See id. at 69696. As a result,
Commerce based the final dumping margin on total adverse facts
available. See id. Using total adverse facts available for LG
Semicon, Commerce applied the highest rate calculated in the
Final Results, which was the margin for Hyundai. See id.
In addition, Commerce recalculated the research and
development (“R&D”) expenses for LG Semicon and Hyundai. See id.
Commerce recalculated these expenses because of alleged
distortions due to changes in LG Semicon and Hyundai’s accounting
methodologies. See id. at 69699. Previously, the companies had
expensed R&D costs in the year incurred, but in the period of the
fifth review they switched to capitalizing the costs. See id.
Commerce achieved its recalculation by allocating R&D expenses of
all semiconductors produced by LG Semicon and Hyundai over the
total semiconductor cost of goods sold. See id. at 69702.
II. STANDARD OF REVIEW
The Court must sustain the Final Results unless it is
“unsupported by substantial evidence on the record, or otherwise
not in accordance with law.” 19 U.S.C. § 1516a(b)(1)(B). To
Cons. Court No. 00-01-00027 Page 5
determine whether Commerce’s construction of the statutes is in
accordance with law, the Court looks to Chevron U.S.A., Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). It
is only if the Court concludes that “Congress either had no
intent on the matter, or that Congress’s purpose and intent
regarding the matter is ultimately unclear,” that the Court will
defer to Commerce’s construction under Chevron. Timex V.I., Inc.
v. United States, 157 F.3d 879, 881 (Fed. Cir. 1998). In
addition, “[s]tatutory interpretations articulated by Commerce
during its antidumping proceedings are entitled to judicial
deference under Chevron.” Pesquera Mares Australes Ltda. v.
United States, 266 F.3d 1372, 1382 (Fed. Cir. 2001) (interpreting
United States v. Mead, 533 U.S. 218 (2001)). Accordingly, the
Court will not substitute “its own construction of a statutory
provision for a reasonable interpretation made by [Commerce].”
IPSCO, Inc. v. United States, 965 F.2d 1056, 1061 (Fed. Cir.
1992).
III. DISCUSSION
A. Commerce’s Treatment of LG Semicon DRAMs Sold Through
Germany
LG Semicon challenges the treatment of sales to a customer
in Germany that Commerce determined entered the United States.
On September 14, 1999, three weeks before the scheduled
final determination, Commerce placed a memorandum on the record
Cons. Court No. 00-01-00027 Page 6
regarding information about sales made by LG Semicon to [
] (“the customer”). See Brief of Plaintiffs Hyundai
Electronics Indus. Co., Ltd. and Hyundai Electronics America,
Inc. in Support of Plaintiffs’ Motion for Judgment Upon the
Agency Record (“Pl. LG Semicon’s Br.”) at 6; Appendix to Pl. LG
Semicon’s Br. (“Pl. LG Semicon’s Br. App.”), C.R. 53 (Commerce
Memorandum Regarding LG Semicon’s Sales to Germany).2 The memo
indicated that the German subsidiary of [ ] (“the
customer’s German subsidiary”), after purchasing DRAMs from LG
Semicon, shipped them to its manufacturing facility in Puerto
Rico (“the customer’s Puerto Rican manufacturing facility”). It
noted that within days of LG Semicon’s sale of DRAMs to the
customer’s German subsidiary, a significant amount of DRAMs
entered the United States via the customer. See Pl. LG Semicon’s
Br. App., C.R. 53 at 2.
The memo contained information regarding Commerce’s receipt
of an e-mail on January 4, 1999. See Pl. LG Semicon’s Br. App.,
C.R. 53, Ex. 1. The e-mail, sent by a former employee of LG
Semicon, stated that LG Semicon was “knowingly and willfully”
dumping DRAMs into the United States by shipping DRAMs to the
customer’s German subsidiary, which would then ship the DRAMs to
the customer’s Puerto Rican manufacturing facility. See id. The
2
Citations to the administrative record include references
to proprietary documents (“C.R.”) and public documents (“P.R.”).
Cons. Court No. 00-01-00027 Page 7
e-mail also alleged that LG Semicon sold DRAMs to Germany in
order to evade U.S. dumping duties and that LG Semicon’s senior
management both knew and approved of these sales. See id.The memo also disclosed for the first time information
regarding Commerce’s meeting with Mark Vecchiarelli, another
former employee of LG Semicon. See Pl. LG Semicon’s Br. App.,
C.R. 53, Ex. 4; C.R. 63 (Commerce Memorandum Explaining and
Attaching Draft and Final Versions of Exhibit 4 to Commerce’s
09/13/1999 Memorandum). In this meeting, Vecchiarelli informed
Commerce that LG Semicon sold DRAMs to the customer’s German
subsidiary with the knowledge that the ultimate destination for
the DRAMs was the customer’s Puerto Rican manufacturing facility.
See Pl. LG Semicon’s Br. App., C.R. 53 at 2.
1. Commerce’s Determination that LG Semicon Knew or Should
Have Known that DRAMs It Sold Were Destined for the
United States Is Supported by Substantial Evidence.
Commerce applies a “knowledge test” to determine whether a
foreign producer knew or should have known, at the time of sale,
that subject merchandise was destined for the United States. See
Wonderful Chemical Indus., Ltd. v. United States, 27 CIT __, __,
259 F. Supp. 2d 1273, 1279 (2003); LG Semicon Co., Ltd. v. United
States, 23 CIT 1074, 1077 (1999). Commerce’s test is consistent
with Congressional intent, as demonstrated by the Statement of
Administrative Action accompanying the Trade Agreements Act of
1979, which provides: “if the producer knew or had reason to know
Cons. Court No. 00-01-00027 Page 8
the goods were for sale to an unrelated U.S. buyer . . . the
producer’s sales prices will be used as ‘purchase price’ to be
compared with that producer’s foreign market value.” H.R. Doc.
No. 96-153; see also LG Semicon, 23 CIT at 1077. The knowledge
test does not require Commerce to prove that the producer had
actual knowledge, as such a requirement would “eviscerate the
acknowledged standard.” Allegheny Ludlum Corp. v. United States,
24 CIT 1424, 1434-35, 215 F. Supp. 2d 1322, 1332 (2000); see also
Wonderful Chemical, 27 CIT at __, 259 F. Supp. 2d at 1279.3
LG Semicon claims that Commerce’s decision was based solely
on the statement made by Vecchiarelli. See Pl. LG Semicon’s Br.
at 22. LG Semicon contends that Vecchiarelli’s statement is not
truthful and accurate. See id. at 23. LG Semicon argues that
3
LG Semicon’s selective use of passages from certain
decisions misleadingly suggests both directly and indirectly that
actual knowledge is the proper standard. See, e.g., NSK Ltd. v.
United States, 21 CIT 617, 645-46, 969 F. Supp. 34, 61 (1997),
aff’d in part, 190 F.3d 1321, 1333-35 (Fed. Cir. 1999); INA
Walzager Schaeffler KG v. United States, 21 CIT 110, 123, 957 F.
Supp. 251, 263 (1997), aff’d, 180 F.3d 1370 (Fed. Cir. 1999);
Tapered Roller Bearings and Parts Thereof, Finished and
Unfinished, From the People’s Republic Of China; Final Results of
Antidumping Duty Administrative Reviews, 62 Fed. Reg. 61276 (Nov.
17, 1997) (“Tapered Roller Bearings”). For example, LG Semicon
quotes language from Tapered Roller Bearings, in which Commerce
states “[l]acking evidence of actual knowledge that particular
sales were destined for the United States, we cannot assume such
knowledge, regardless of general knowledge that some merchandise
was intended for exportation to the United States. Pl. LG
Semicon’s Br. at 13 (quoting Tapered Roller Bearings, 62 Fed.
Reg. at 61291 (emphasis added)). Here, LG Semicon underscores
the words “actual knowledge.” This Court has rejected this
understanding of the knowledge test. See LG Semicon, 23 CIT at
1077-79.
Cons. Court No. 00-01-00027 Page 9
even assuming that Vecchiarelli’s statement was truthful and
accurate, his statement still fails to establish LG Semicon’s
knowledge that particular sales to the customer’s German
subsidiary were destined for the United States. See id. LG
Semicon suggests that Vecchiarelli’s statement exaggerated the
scope of his role in the contested transactions. See id.
Vecchiarelli maintained that he “was responsible for servicing
all of the semiconductor requirements of [ ] upon a
worldwide basis,” and “was responsible for the pricing and supply
decisions for all sales worldwide to [ ].”
Defendant’s Memorandum in Opposition to Plaintiff's Motion for
Judgment Upon the Agency Record (“Def.’s Mem. in Opp’n”) at 11;
Appendix to Def.’s Mem. in Opp’n (“Def.’s Mem. in Opp’n App.”),
C.R. 54 (Letter from DOC re declaration attached to unreported
sales memo) at ¶ 2. LG Semicon argues that “he was not
personally involved in filling individual orders placed by [ ]
overseas locations with LG Semicon’s overseas subsidiaries.” See
Pl. LG Semicon’s Br. at 23. LG Semicon derives this conclusion
from statements made by Vecchiarelli’s successor, Mr. Pizarev,
describing the scope of his authority as LG Semicon’s Global
Accounts Manager for the customer.4
4
Pizarev stated that “I did not have authority to deal with
[ ] abroad. These [ ] were dealt with by LG’s
regional people. Thus, for example, LG staff in Germany dealt
with [ ] German [ ]. . . for these sales, [ ] in
Germany would have talked directly to LG Germany to place orders
Cons. Court No. 00-01-00027 Page 10
The Court finds that Commerce had substantial evidence
indicating that it was within the ambit of Vecchiarelli’s
employment to know that the DRAMs sold by LG Semicon’s German
affiliate (“LG-Germany”) to the customer’s German subsidiary were
destined for the customer’s Puerto Rican manufacturing facility.
At the very least, Vecchiarelli was in a position to be aware of
the transactions between LG Semicon and the customer.
Vecchiarelli regularly briefed LG Semicon corporate officials
about the status of the customer’s account, including the pricing
and supply arrangements that he arranged with the customer, thus
suggesting that Vecchiarelli knew the price, volume, and
destination for LG Semicon DRAMs at the time of their sale. See
Def.’s Mem. in Opp’n App., C.R. 54 at 2, ¶ 3. Additionally,
there was documentation submitted at verification that repeatedly
listed Vecchiarelli as the World Wide Sales Manager and provided
information regarding the product needs for the customer’s Puerto
Rican manufacturing facility. See Def.’s Mem. in Opp’n App.,
C.R. 51 (Verification Report of LG Semicon), Ex. 69 at 1, 4, 48.
A statement made by Y.S. Yin, LG Semicon’s General Manager for
for the products that it needed.” See Pl. LG Semicon’s Br. at
23-24; see Pl. LG Semicon’s Br. App., C.R. 64 (LG Semicon’s
Submission of Factual Information Regarding LG Semicon’s Sales to
Germany) at ¶ 5. Pizarev also stated that Vecchiarelli never
informed him about any arranged shipments from LG Semicon’s
German affiliate (“LG-Germany”) to the customer’s German
subsidiary for further resale to the customer’s Puerto Rican
manufacturing facility. See Pl. LG Semicon’s Br. at 24 n.17; Pl.
LG Semicon’s Br. App., C.R. 64 at ¶ 8.
Cons. Court No. 00-01-00027 Page 11
Global Accounts, confirms Vecchiarelli’s position and
responsibilities as Global Accounts Manager for the customer.
See Def.’s Mem. in Opp’n App., C.R. 51 at 6. Furthermore, even
assuming that Vecchiarelli was not in a position to know the
specific whereabouts of each DRAM sold, there is substantial
evidence indicating that he had specific knowledge that the
ultimate destination of the DRAMs sold by LG-Germany to the
customer’s German subsidiary was the customer’s Puerto Rican
manufacturing facility. Vecchiarelli expressly stated that he
established a sales channel to ensure the customer’s access to LG
Semicon DRAMs “because LG’s pricing structure included a floor
price and I was not permitted to sell DRAMs to the United States
through LGSA below this floor price.” Def.’s Mem. in Opp’n App.,
C.R. 54 at 3-4, ¶ 5. Vecchiarelli also indicated that “[t]o
[his] knowledge, [ ] did not subcontract, anywhere
in the world, the production of memory modules using the discrete
DRAMs LG sold to [ ].” See Def.’s Mem. in Opp’n
App., C.R. 54 at 4, ¶ 6. Vecchiarelli asserted that he knew that
any sale of discrete DRAMs to a division of the customer was
intended for the customer’s Puerto Rican manufacturing facility.
See Def.’s Mem. in Opp’n App., C.R. 53 at 2.
LG Semicon maintains that the prices of DRAMs sold to the
customer’s German subsidiary were not lower than the prices of
DRAMs sold to the customer’s Puerto Rican manufacturing facility,
Cons. Court No. 00-01-00027 Page 12
thus negating the necessity for the sales channel. See Pl. LG
Semcicon’s Br. at 24. Additionally, LG Semicon offers several
statements made by the customer in support of its argument that
Vecchiarelli had no way of knowing the ultimate destination of
the DRAMs was the United States. In these statements, the
customer indicated that its [ ] did not just purchase
DRAMs for the customer’s Puerto Rican manufacturing facility but
for its other manufacturing operations or their contract
manufacturers all over Europe. See Pl. LG Semicon’s Br. App.,
C.R. 65 (Letter from LG Semicon’s Customer to Commerce Regarding
its Purchases of DRAMs from LG Semicon) at 2-3. The customer
also maintained that its Puerto Rican manufacturing facility was
not its only entity that used discrete DRAMs. See id.
Furthermore, the customer stated that it did not inform its
sources of the ultimate destination of their products and that
Vecchiarelli would not know the ultimate destination of the DRAMs
that its German subsidiary purchased. See id.
The Court finds that LG Semicon’s assertion that the sales
price to the customer’s German subsidiary was higher than the
U.S. sales price is neither supported by the record nor material
to Vecchiarelli’s establishment of the sales channel. Even
assuming that the price was higher, it is irrelevant to the fact
that Vecchiarelli established the sales channel to avoid
reporting these sales as U.S. sales. The information and
Cons. Court No. 00-01-00027 Page 13
statements made by the customer fail to convince the Court that
Vecchiarelli did not know that the DRAMs sold to the customer’s
German subsidiary were intended for the United States. In light
of Vecchiarelli’s position and responsibilities, his detailed
statements of an established sales channel, and the lack of
specific evidence suggesting that the customer’s Puerto Rican
manufacturing facility was not the sole destination for discrete
DRAMs, the Court finds that Vecchiarelli’s testimony supports
Commerce’s determination that LG Semicon knew or should have
known that its DRAMs were destined for the United States.
2. Customs’ Data Corroborate Vecchiarelli’s Statement.
Commerce determined that data from the United States Customs
Service (“Customs”) that it placed upon the record corroborate
Vecchiarelli’s statement. See Final Results, 64 Fed. Reg. at
69696. Commerce claims that the Customs data support the
existence of the sales channel that Vecchiarelli stated that he
constructed. See Def.’s Mem. in Opp’n at 15.
Commerce notes that after LG-Germany made sales to the
customer’s German subsidiary, a significant portion of the DRAMs
arrived in the United States within days of the initial sale by
LG-Germany. See id. Commerce claims that these entries
frequently consisted of the identical quality and value of DRAMs
reported on the sales invoices from LG-Germany to the customer’s
Cons. Court No. 00-01-00027 Page 14
German subsidiary.5 Commerce further claims that the data
indicated that numerous other transactions, involving shipments
of the exact quantity and value by LG-Germany to the customer’s
German subsidiary, arrived within days to the customer’s Puerto
Rican manufacturing facility via the customer’s German
subsidiary. See Def.’s Mem. in Opp’n App., C.R. 61 (Revision to
unreported sales data and excerpts from Customs unreported sales
data) at 3b. Additionally, Commerce notes that when it randomly
selected several invoices, it found out that not only were the
DRAMs manufactured by LG Semicon, but that these samples
possessed the exact same configurations that Vecchiarelli
described in his statement. See Def.’s Mem. in Opp’n App., C.R.
61 at 3c;, C.R. 50 (DOC verification report re LG Semicon DRAMs
sales). Finally, Commerce asserts that the focus of the
examination was not to prove that every DRAM sold by LG-Germany
to the customer’s German subsidiary entered the United States,
but rather to independently test the accuracy of Vecchiarelli’s
statement. See Def.’s Mem. in Opp’n at 16.
5
Commerce offers the following examples: (1) on May 6,
1997, LG-Germany sold [ ] DRAMs to the customer’s German
subsidiary for $[ ]; (2) on May 12, 1997, the customer
entered [ ] DRAMs for $[ ]; (3) on June 18, 1997,
LG-Germany sold [ ] DRAMs to the customer’s German
subsidiary for $[ ]; and (4) on June 19, 1997, the customer
entered [ ] DRAMs for $[ ]. Def.’s Mem. in Opp’n
App., C.R. 61 at Ex. 36, C.R. 78 (DOC unreported sales memorandum
(Germany)) at 4.
Cons. Court No. 00-01-00027 Page 15
The Court finds Commerce’s reliance on this corroborating
evidence reasonable. The Customs data sufficiently corroborate
Vecchiarelli’s assertions, thereby supporting a finding that LG
Semicon knew or should have known that the DRAMs sold to the
customer’s German subsidiary were destined for the United States.
Accordingly, the Court holds that Vechiarelli’s statement
and corroborating Customs data constitute substantial evidence to
support Commerce’s determination that LG Semicon knew or should
have known that its DRAMs were destined for the United States.
B. Commerce Did Not Violate LG Semicon’s Right to a Fair and
Honest Proceeding.
LG Semicon alleges that Commerce’s administrative review was
not a “fair and honest” proceeding. See Plaintiffs’ Memorandum
of Points and Authorities in Support of Count Nine (“Pls. Mem. in
Supp. of Count Nine”) at 5. LG Semicon argues that Commerce
failed to remain impartial by “(1) not providing the parties
adequate opportunity to rebut harmful allegations, actions which
violated the statutory provision governing ex parte
communications; and (2) failing to consider exculpatory
evidence.” Id.
“[A]n importer may be entitled to procedural due process
regarding the resolution of disputed facts involved in a case of
foreign commerce when the importer faces a deprivation of ‘life,
liberty, or property’ by the Federal Government.” NEC Corp. v.
Cons. Court No. 00-01-00027 Page 16
United States, 151 F.3d 1361, 1370 (Fed. Cir. 1998). The parties
involved in an antidumping proceeding are entitled to a fair and
honest process. See id. Furthermore, “the right to an impartial
decision maker is unquestionably an aspect of procedural due
process.” Id. The notion of transparency is fundamental to an
antidumping proceeding, including access to information on which
decisions are based. See S. Rep. No. 96-249 at 41, 98; Statement
of Administrative Action accompanying the Uruguay Round
Agreements Act, H.R. Doc. 103-316 (1994).
1. Commerce Did Not Violate the Ex Parte Meetings Statute.
LG Semicon alleges that Commerce failed to timely disclose
ex parte meetings, thereby denying them a meaningful opportunity
to respond to the allegations made during these respective
meetings. See Pls. Mem. in Supp. of Count Nine at 5.
19 U.S.C. § 1677f(a)(3) governs ex parte meetings, providing
that:
(3) The administering authority and the Commission
shall maintain a record of any ex parte meeting between
--
(A) interested parties or other persons providing
factual information in connection with a proceeding,
and
(B) the person charged with making the determination,
or any person charged with making a final
recommendation to that person, in connection with
that proceeding, if information relating to that
proceeding was presented or discussed at such
meeting. The record of such an ex parte meeting
shall include the identity of the persons present at
the meeting, the date, time and place of the
meeting, and a summary of the matters discussed or
Cons. Court No. 00-01-00027 Page 17
submitted. The record of the ex parte meeting shall
be included in the record of the proceeding.
19 U.S.C. § 1677f(a)(3).
Section 1677f(a)(3) requires that memoranda of ex parte
meetings submitted on the record must include a summary of the
discussion and the information submitted. See Nippon Steel Corp.
v. United States, 24 CIT 1158, 1164, 118 F. Supp. 2d 1366, 1373
(2000). A failure to timely notify a party of ex parte meetings
deprives the party a full opportunity to respond, thus violating
procedural due process. Id. at 1374.
a. Commerce’s Receipt of an E-Mail Message from a Former
LG Semicon Employee Does Not Constitute an Ex Parte
Meeting.
LG Semicon argues that the January 4, 1999 e-mail message
from a former employee of LG Semicon falls within the statutory
definition of an ex parte meeting. Pls. Mem. in Supp. of Count
Nine at 7; Plaintiffs’ Reply Brief Concerning Count Nine of the
Amended Complaint (“Pls. Reply Br. Concerning Count Nine”) at 5-
7. LG Semicon draws an analogy between e-mail messages and phone
calls, the latter of which have been recognized as an ex parte
meeting. See F.LLI De Cecco Di Fillipo Fara San Martino S.P.A.
v. United States, 21 CIT 1124, 980 F. Supp. 485 (1997); Pls.
Reply Br. Concerning Count Nine at 7. In light of the plain
language of the statute, the Court concludes that the e-mail does
not constitute an ex parte meeting. Section 1677f(a)(3)
Cons. Court No. 00-01-00027 Page 18
explicitly refers to ex parte meetings (emphasis added). Unlike
a telephone call, which LG Semicon claims is comparable to an e-
mail, the unsolicited e-mail message in this case was a one-way
communication. This negates any facially reasonable notion that
a meeting occurred. Accordingly, Commerce’s handling of the e-
mail did not violate LG Semicon’s procedural due process.
b. Commerce’s Placement of its Meeting with Vecchiarelli
on the Record Within Eighteen Days Does Not Constitute
a Violation of LG Semicon’s Procedural Due Process.
Commerce interviewed Vecchiarelli on August 27, 1999.
Commerce placed this information on the record on September 14,
1999, 18 days later. See Pls. Mem. in Supp. of Count Nine at 8;
Pl. LG Semicon’s Br. App., C.R. 53, Ex. 4. LG Semicon claims
that by waiting 18 days, Commerce sought to “maximize the element
of surprise.” See Pls. Reply Br. Concerning Count Nine at 9. LG
Semicon argues that this was contrary to Nippon Steel, which held
that memoranda must be “drafted expeditiously in all cases,
reviewed by a person in attendance at the meeting and placed in
the record as soon as possible.” 24 CIT at 1166, 118 F. Supp. 2d
at 1374. In sum, according to LG Semicon, Commerce “did not
provide an adequate opportunity for Plaintiffs to inspect the ex
parte communication, seek clarification and/or provide rebutting
information.” See Pls. Mem. in Supp. of Count Nine at 8.
The Court finds that Commerce provided LG Semicon with
adequate opportunity to respond. Section 1677f(a)(3) does not
Cons. Court No. 00-01-00027 Page 19
provide a specific time frame in which Commerce must put
information on the record. Commerce is only required to have
timely memoranda drafted and filed in order for parties to view
them at a useful point during the proceeding. See Nippon Steel,
24 CIT at 1165, 118 F. Supp. 2d at 1373. The instant case is
distinguishable from Nippon Steel, where Commerce was found to
have violated § 1677f(a)(3) when it placed one ex parte
memorandum on the record on or about the day of the final
determination. See Nippon Steel, 24 CIT at 1163-66, 118 F. Supp.
2d at 1372-74. Here, the Court finds that the disclosure of the
ex parte meeting within 18 days of the actual meeting was timely,
as long as it provided LG Semicon with a meaningful opportunity
to respond.
In regards to LG Semicon’s ability to respond, the Court
finds that the three weeks afforded to LG Semicon to submit
factual information and comments on the contested issues was
sufficient. Commerce afforded LG Semicon several opportunities
to comment. After the initial disclosure of Vecchiarelli’s
allegations, Commerce gave LG Semicon until October 4, 1999 to
submit factual information, a total of 21 days. See Pl. LG
Semicon’s Br. App., P.R. 157 (LG Semicon’s Request for an
Extension of Time to Respond to Commerce’s 09/13/1999
Memorandum). After LG Semicon requested an extension, Commerce
permitted LG Semicon to submit this information on October 7,
Cons. Court No. 00-01-00027 Page 20
1999. On October 7, 1999, LG Semicon submitted factual
information to rebut Vecchiarelli’s allegations. See Pl. LG
Semicon’s Br. App., C.R. 64 (LG Semicon’s Submission of Factual
Information Regarding LG Semicon’s Sales to Germany).
Furthermore, LG Semicon filed its case brief on October 21, 1999,
which included challenges to the e-mail and Vecchiarelli’s
statements. See Pl. LG Semicon’s Br. App., C.R. 67 at 87-115.
LG Semicon also raised these same contentions during a public
hearing on November 4, 1999. See Pl. LG Semicon’s Br. App., P.R.
178 (Public Hearing Transcript) at 6, 25-31, 131-32. In sum,
Commerce gave LG Semicon over three weeks to submit its initial
comments and information. This included two separate extensions
that in total extended Commerce’s initial deadline by two weeks.
Accordingly, the Court concludes that Commerce provided LG
Semicon with a meaningful opportunity to respond.
2. Commerce Did Not Ignore Exculpatory Evidence.
LG Semicon argues that Commerce did not act as an impartial
decision maker by consciously ignoring exculpatory evidence. LG
Semicon maintains that Commerce’s refusal to consider and confirm
this evidence was evident throughout the investigation. See Pls.
Mem. in Supp. of Count Nine at 9.
First, LG Semicon points to Commerce’s failure to question
LG Semicon senior officials about the diversion of LG Semicon’s
German sales to the United States. See id. LG Semicon suggests
Cons. Court No. 00-01-00027 Page 21
that this questioning was essential because both the January 4,
1999 e-mail and Vecchiarelli’s statement alleged that senior
management knew of the diverted sales, and actual or constructive
knowledge is a necessary requirement for Commerce’s
determination. See id. at 9-10. LG Semicon notes that even
though Commerce failed to specifically question these officials
during the April 1999 verification period, Commerce continued to
make various requests for information and documents motivated by
the allegations contained within the e-mail. See id. at 10.
Furthermore, LG Semicon argues that Commerce never directly asked
for information regarding LG Semicon’s German sales. See id. It
claims that it was Commerce’s responsibility to disclose the
subject of the investigation so that LG Semicon could provide the
appropriate information. Id. LG Semicon argues that had it
known about the e-mail, verification would have been the proper
time for it to answer questions and present exculpatory evidence.
See id.
Second, LG Semicon notes that Commerce failed to take the
opportunity to view documents and evidence at LG-Germany, the
site that LG Semicon felt had the most relevant information. See
id. LG Semicon asserts that because the alleged diversion
started in Germany, certainly LG-Germany contained useful
information and documents. Id. at 11.
Cons. Court No. 00-01-00027 Page 22
Third, LG Semicon takes issue with Commerce’s refusal to
speak with the customer regarding the alleged sales channel. See
id. Specifically, LG Semicon points out that a letter sent by
the customer to Commerce contained several statements that
directly contradicted Vecchiarelli’s statement. LG Semicon
argues that Commerce’s failure to respond to an offer of
assistance by the customer and its disregard for the contents of
the customer’s letter demonstrate Commerce’s lack of
impartiality. See id. at 11-12.
The Court finds that Commerce did not fail to remain
impartial in its proceedings by refusing to consider exculpatory
evidence. Commerce is afforded broad discretion in the manner in
which it conducts antidumping proceedings. See Torrington Co. v.
United States, 25 CIT __, __, 146 F. Supp. 2d 845, 897 (2001)
(“Commerce enjoys wide latitude in its verification
procedures.”); Union Camp Corp. v. United States, 23 CIT 264,
283, 53 F. Supp. 2d 1310, 1328 (1999) (Commerce, in weighing the
competing interests of efficient investigations and accurate
fact-finding, must make choices of administrative practice and
procedure). Here, Commerce did not clearly act outside the
bounds of its discretion in conducting verification. See Hontex
Enter., Inc. v. United States, 27 CIT __, __, 248 F. Supp. 2d
1323, 1335 (2003) (finding that Commerce’s decision in an
antidumping proceeding not to question the owners of the company
Cons. Court No. 00-01-00027 Page 23
about their knowledge of an employee’s actions was not unfair,
especially since the plaintiffs had an opportunity to comment on
the matter at a later point). Notwithstanding the issue of
whether it was within Commerce’s discretion not to question LG
Semicon senior officials, it is clear that Commerce did in fact
question these officials. LG Semicon officials, including Yin,
gave statements to Commerce indicating their belief that “all
sales made to the United States by LG Semicon are processed
through LG Semicon’s U.S. affiliate, LGSA.” Def.’s Mem. in Opp’n
App., C.R. 50 (DOC verification report re LG Semicon DRAMs sales)
at 6. These assertions were considered by Commerce against
Vechiarelli’s assertions to the contrary. See Defendant’s
Supplemental Memorandum In Opposition to Plaintiffs’ Motion for
Judgment Upon the Agency Record at 16.
Commerce also properly exercised its discretion in its
decision not to investigate LG-Germany. As a result of LG
Semicon’s insistence that its U.S. affiliate, LGSA, was the only
entity responsible for U.S. sales, it was reasonable for Commerce
to believe that it had all the relevant information. Likewise,
an investigation of the German facility was not necessary because
Commerce already had Vecchiarelli’s statement and LG Semicon’s
sales data as evidence. LG Semicon had an adequate opportunity
to submit relevant information regarding LG-Germany but failed to
avail itself of this opportunity.
Cons. Court No. 00-01-00027 Page 24
Finally, Commerce acted within the bounds of its discretion
when it chose not to pursue further contact with the customer
involved in the present matter. Commerce afforded the customer
the opportunity to submit information and comments, and the
customer availed itself of this opportunity. Thereafter,
Commerce reasonably decided that it was not necessary to discuss
anything further. As there is a presumption that Commerce has
considered all evidence on the record, LG Semicon has failed to
provide any evidence that overcomes this presumption. See
Fujitsu Ltd. v. United States, 23 CIT 46, 50 n.5, 36 F. Supp. 2d
394, 398 n.5 (1999).
Accordingly, the Court holds that Commerce did not fail to
disclose ex parte meetings nor fail to consider exculpatory
evidence.
C. Commerce Erred in Applying Total Adverse Facts Available to
LG Semicon’s Entire U.S. Sales Database.
LG Semicon challenges Commerce’s application of total
adverse facts available to LG Semicon’s entire U.S. sales
database. Commerce used total adverse facts available because of
undisclosed sales to [ ] German subsidiary, see
supra III(1), in addition to undisclosed sales to [
] (“the unaffiliated Mexican customer”)
that were ultimately destined for the United States.
Cons. Court No. 00-01-00027 Page 25
Commerce is required to consider information submitted by a
party only if:
(1) the information is submitted by the deadline
established for its submission, (2) the information
can be verified, (3) the information is not so
incomplete that it cannot serve as a reliable basis for
reaching the applicable determination, (4) the
interested party has demonstrated that it acted to the
best of its ability in providing the information and
meeting the requirements . . ., and (5) the information
can be used without undue difficulties.
19 U.S.C. § 1677m(e).
19 U.S.C. § 1677e(a) provides that Commerce is required to
use facts otherwise available if:
(2) an interested party or any other person–
(A) withholds information that has been
requested by the administrating authority or the
Commission under this subtitle,
(B) fails to provide such information by the
deadlines for the submission of the information or in
the form and manner requested . . .
(C) significantly impedes a proceeding under
this subtitle, or
(D) provides such information but the
information cannot be verified . . . .
19 U.S.C. § 1677e(a).
Furthermore, if Commerce finds that an interested party has
failed to cooperate by not acting to the best of its ability to
comply with a request for information, Commerce has the
discretion to “use an inference that is adverse to the interests
of that party in selecting from among the facts otherwise
available.” 19 U.S.C. § 1677e(b). If Commerce concludes that a
party’s response to a request for information did not comply with
Cons. Court No. 00-01-00027 Page 26
its request, then Commerce must notify the party of this
deficiency and provide them with an opportunity to remedy or
explain the deficiency. 19 U.S.C. § 1677m(d).
Commerce maintains that use of facts available was proper
because LG Semicon failed to provide information or complete
responses to Commerce’s requests as required by § 1677e(a) and
that an adverse inference was justified because LG Semicon failed
to act to the best of its ability as required by § 1677e(b). See
Def.’s Mem. in Opp’n at 22. Even though Commerce provided LG
Semicon with several opportunities to remedy or explain
deficiencies in regards to its U.S. sales as required under §
1677m(d), Commerce asserts that LG Semicon chose to “treat these
sales as third country sales in spite of the record evidence to
the contrary.” Id. at 24. Commerce maintains that the burden is
on the respondent to submit accurate information, and even if
Commerce has information on the record that can correct the
error, a respondent cannot expect Commerce to correct the
information or guarantee its accuracy. See id.; see also
Mannesmannrohren-Werke AG v. United States, 24 CIT 1082, 1097,
120 F. Supp. 2d 1075, 1087 (2000) (“Mannesmannrohren II”) ([I]t
is [the respondent’s] burden to respond to Commerce’s
questionnaires and to develop the record.”). Furthermore,
Commerce asserts that the information submitted by LG Semicon did
not meet the statutory requirements set forth in § 1677m(e).
Cons. Court No. 00-01-00027 Page 27
Commerce’s justification for using adverse facts for the
Mexican sales revolves around LG Semicon’s decision to claim that
these sales were third country sales. LG Semicon submitted to
Commerce computer sales listings for sales to the unaffiliated
Mexican customer. See Pl. LG Semicon’s Br. App., C.R. 15 (LG
Semicon’s Second Supplemental Questionnaire Response) at App. SS-
8. Commerce claims that it did not calculate them as U.S. sales
because LG Semicon insisted that these sales were not U.S. sales,
in spite of evidence on the record indicating that LG Semicon
knew or should have known that the destination of these sales was
the United States. See Def.’s Mem. in Opp’n at 19, 25-28.
According to Commerce, LG Semicon’s submission of the Mexican
sales was untimely because Commerce chose not to verify the
information due to LG Semicon reporting the sales as third
country sales. See id. at 25. Commerce notes that “LG Semicon
submitted U.S. expense information only in the alternative, and
never admitted during the administrative proceeding that the
sales . . . were sales ultimately destined for the United
States.” Id. Additionally, Commerce contends that the “U.S.
sales information was so incomplete that it could not be used
without undue difficulties and the use of facts available.” Id.
at 27. Finally, Commerce points out that the “unreported”
Mexican sales, when combined with the “unreported” German sales,
represented approximately [ ] percent of LG Semicon’s U.S.
Cons. Court No. 00-01-00027 Page 28
sales. See id. at 25. Because such a substantial portion of LG
Semicon’s U.S. sales were unreported and unverified, Commerce
argues that LG Semicon’s response was substantially incomplete
and an unreliable basis for determining its dumping margin. See
id. at 25-26. Commerce asserts that because the sales issue in
the fifth administrative review was identical to the fourth
administrative review, in which Commerce determined that LG
Semicon knew or should have known that these sales were diverted
to the United States, LG Semicon’s insistence that these sales
were third country sales rendered the information untimely,
unusable, and unverifiable. See id. at 25-28.
With respect to the sales to the unaffiliated Mexican
customer, the Court finds that Commerce not only failed to meet
the requisite finding for adverse facts available, but also
failed to demonstrate the need to apply facts otherwise
available. The application of adverse facts available requires a
finding that “an interested party has failed to cooperate by not
acting to the best of its ability.” Mannesmannrohren-Werke v.
United States, 23 CIT 826, 838, 77 F. Supp. 2d 1302, 1313 (1999)
(“Mannesmannrohren I”). It is “not sufficient for Commerce to
simply assert this legal standard as its conclusion or repeat its
finding concerning the need for facts available.” Id.Commerce erred in concluding that LG Semicon’s insistence
that the sales to the unaffiliated Mexican customer were third
Cons. Court No. 00-01-00027 Page 29
country sales rendered the data untimely, unusable, and
unverifiable. At the beginning of the fifth administrative
review, LG Semicon notified Commerce that it planned to treat
these sales as third country sales, although Commerce had
determined otherwise in the fourth review. This Court’s
disposition of the fourth administrative review in LG Semicon v.
United States, 23 CIT 1074 (1999) was issued on December 30,
1999, 16 days after the Final Results were issued on December 14,
1999. It is indisputable that LG Semicon timely submitted
computer sales listings and subsequently amended its submission
in response to further information placed by Commerce upon the
record. See Def.’s Mem. in Opp’n at 19. Although Commerce is
not required to verify each piece of information, Commerce may
not arbitrarily disregard timely-submitted information. See AL
Tech Specialty Steel Corp. v. United States, 20 CIT 1344, 1353-
54, 947 F. Supp. 510, 519 (1996) (“Commerce cannot apply . . .
time limits arbitrarily or capriciously by refusing to accept
information submitted before the applicable deadline.”). Because
the U.S. sales were subject to verification, it was unreasonable
for Commerce not to consider the sales to the unaffiliated
Mexican customer at verification solely because the information
would have been irrelevant if these sales were deemed to be third
country sales. Furthermore, even if Commerce found LG Semicon’s
response and explanations to its questionnaires unsatisfactory,
Cons. Court No. 00-01-00027 Page 30
it was still required to use LG Semicon’s information if §
1677m(e)’s requirements were met. Mannesmannrohren I, 23 CIT at
838, 77 F. Supp. 2d at 1313; Borden, Inc. v. United States, 22
CIT 233, 262-63, 4 F. Supp. 2d 1221, 1245-46 (1998).
With respect to the German sales, the Court holds that
Commerce’s use of adverse facts available is supported by
substantial evidence. As discussed above, Commerce established
that LG Semicon knew or should have known that DRAMs sold to the
customer’s German subsidiary were destined for the U.S. market.
As LG Semicon did not submit these sales to Commerce as U.S.
sales, the Court finds that Commerce did not err in concluding
that LG Semicon did not act to the best of its ability to comply
with its requests for information regarding the German sales,
thus justifying use of adverse facts available under § 1677e(b).
Since the Court has determined that Commerce erred in using
adverse facts available for the sales to the unaffiliated Mexican
customer, use of total adverse facts available is not warranted.
Accordingly, the Court remands to Commerce on this issue with
instructions to recalculate LG Semicon’s dumping margin using the
sales data submitted by LG Semicon for the Mexican sales and
using adverse facts available only for LG Semicon’s sales to the
customer’s German subsidiary.
D. Commerce’s Treatment of LG Semicon’s and Hyundai’s Research
and Development Costs
Cons. Court No. 00-01-00027 Page 31
LG Semicon and Hyundai challenge two aspects of Commerce’s
treatment of their research and development costs used in
constructing the cost of production. The two issues are (1)
whether Commerce was reasonable in incorporating Plaintiffs’ R&D
costs for all semiconductor production based on cross-
fertilization; and (2) whether Commerce properly rejected
Plaintiffs’ accounting methodology for R&D costs. Hyundai makes
three additional R&D claims separately from LG Semicon. The
Court will now address each of these R&D-related claims.
1. Commerce’s Decision Not to Calculate Costs On a
Product-Specific Basis Is Not Supported By Substantial
Evidence.
In the Final Results, Commerce’s calculation of R&D costs
incorporated R&D costs of all semiconductor products, instead of
costs applicable only to subject merchandise. 64 Fed. Reg. at
69702. 19 U.S.C. § 1677b(f)(1)(A) provides that:
Costs shall be calculated based on the records of
the exporter or producer of the merchandise, if
such records are kept in accordance with the
generally accepted accounting principles of the
exporting country . . . and reasonably reflect the
costs associated with the production and sale of
the merchandise. The administering authority
shall consider all available evidence on the
proper allocation of costs.
LG Semicon and Hyundai argue that Commerce erred by
including R&D costs for all semiconductor products in calculating
their respective costs of production. They contend that Commerce
Cons. Court No. 00-01-00027 Page 32
improperly deviated from its practice of calculating costs on the
most product-specific basis available based on the level of
detail in a company’s accounting records. LG Semicon argues that
because it maintained “accurate and fully verified records” that
listed product expenses according to particular products,
including DRAMs, Commerce should only include R&D costs
associated with producing DRAMs in LG Semicon’s cost of
production. See Pl. LG Semicon’s Br. at 41. Hyundai argues that
since its accounting records distinguish between memory and non-
memory products, its cost of production should only include R&D
costs linked to production of its memory products. See
Memorandum of Points and Authorities in Support of Motion by
Plaintiffs Hyundai Electronics Industries Co., Ltd. and Hyundai
Electronics America for Judgment on the Agency Record (“Pl.
Hyundai’s Br.”) at 33.
Commerce and Micron maintain that there are intrinsic
benefits that occur between R&D expenditures on non-subject
merchandise and production of subject merchandise, and therefore
R&D costs for non-subject merchandise should be included in the
cost of production analyses. Commerce contends that R&D cross-
fertilization occurs in the semiconductor industry based on the
findings of its expert, Dr. Murzy Jhabvala, Chief Engineer,
Instrument Technology Center, National Aeronautics and Space
Administration - Goddard Space Flight Center.
Cons. Court No. 00-01-00027 Page 33
In the Final Results, Commerce determined that “DRAM-
specific R&D account entries do not by themselves reflect all
costs associated with the production and sale of subject
merchandise.” 64 Fed. Reg. at 69702. According to Commerce, it
followed a “long-standing practice, where costs benefit more than
one product, to allocate these costs to all the products which
they benefit.” Id. This Court has held that it is appropriate
to include R&D expenditures for non-subject merchandise in
calculating the cost of producing the subject merchandise if
substantial evidence supports such a determination. Micron
Tech., Inc. v. United States, 19 CIT 829, 832, 893 F. Supp. 21,
27 (1995).
LG Semicon offers verified records that show product-
specific R&D costs at each of its laboratories demonstrating non-
DRAM R&D efforts do not benefit the production of DRAMs. See Pl.
LG Semicon’s Br. App., C.R. 49 (Commerce’s Cost Verification
Report for LG Semicon), Ex. 8. Similarly, Hyundai offers
evidence in the form of questionnaire responses showing that its
R&D costs are separated into memory and non-memory categories.
See Appendix to Pl. Hyundai’s Br. (“Pl. Hyundai’s Br. App.”) at
18. Plaintiffs also submit the opinions of three experts that
explain how cross-fertilization of R&D expenditures within the
semiconductor industry is limited or non-existent. See Appendix
to Pl. LG Semicon’s Reply Br. (“Pl. LG Semicon’s Reply Br.
Cons. Court No. 00-01-00027 Page 34
App.”), P.R. 56. Plaintiffs have submitted substantial evidence
to demonstrate why R&D expenses for non-subject merchandise
should not be applied to subject merchandise. See Micron, 19 CIT
at 832, 893 F. Supp. at 28 (describing substantial evidence as
“ample citation to verified record evidence that the subject
merchandise did not derive an intrinsic benefit from R&D related
to other semiconductor products”).
In arguing that cross-fertilization occurs between DRAMs and
non-DRAM merchandise with respect to R&D costs in this case,
Commerce relies on the expert opinion of Jhabvala. According to
Jhabvala, “SRAMs represent along with DRAMs the culmination of
semiconductor research and development. Both families of devices
have benefitted from the advances in photolithographic techniques
. . . . Clearly, three distinct areas of semiconductor technology
are converging to benefit the SRAM device performance.” See
Final Results, 64 Fed. Reg. at 69701 (citing September 8, 1997
Memorandum from Murzy Jhabvala to U.S. Department of Commerce,
Sept. 8, 1997).
Jhabvala’s opinion is based upon his research for a prior
antidumping investigation regarding SRAMs. See id. However,
DRAMs, and not SRAMs, are the focus of this review. Id. at
69694. Moreover, the plaintiffs in the prior SRAM investigation
do not overlap with Plaintiffs in this investigation. In fact,
Jhabvala had no direct contact or experience with Plaintiffs’
Cons. Court No. 00-01-00027 Page 35
practices during this review. See Def.’s Mem. in Opp’n at 33.
Therefore, because the evidence submitted by Commerce concerns
different products and different parties to that of the current
review, the Court finds that Commerce has not offered substantial
evidence for the Court to sustain Commerce’s determination on the
theory of cross-fertilization.
Accordingly, the Court remands this issue to Commerce to
provide additional information specifically pointing to the
effect of non-subject merchandise R&D on the R&D for the subject
merchandise, or alternatively, recalculating R&D costs on the
most product-specific basis possible for both LG Semicon and
Hyundai.
2. Commerce’s Rejection of Plaintiffs’ Method of
Accounting for R&D Expenses is Not Supported by
Substantial Evidence.
Commerce included all R&D costs incurred during the fifth
administrative review in determining the R&D expenses for LG
Semicon and Hyundai. Final Results, 64 Fed. Reg. at 69700.
Plaintiffs disagree with Commerce’s rejection of their accounting
methodology in calculating R&D expenses for the cost of
production.
Specifically, LG Semicon and Hyundai maintain that
amortization of R&D costs over five years and the deferral of
certain R&D costs until relevant revenue from those R&D
expenditures is first realized are reasonable accounting
Cons. Court No. 00-01-00027 Page 36
practices, and in accordance with the generally accepted
accounting principles (“GAAP”) of the exporting country, South
Korea. Final Results, 64 Fed. Reg. at 69699. Under 19 U.S.C. §
1677b(f)(1)(A), the cost of production calculation should follow
GAAP of the exporting country.
While Commerce does not disagree that the accounting
methodology is in accordance with Korean GAAP, Commerce finds
that the cost of production calculations for the companies have
been distorted for this period of review because of the switch to
the practice of amortization and deferral from the practice of
expensing all R&D costs incurred during a period. Final Results,
64 Fed. Reg. at 69699. Although this Court has previously
recognized amortization of R&D costs as an “established
practice,” Commerce may also enjoy judicial deference when
abandoning an established practice if there is reasoned analysis
behind Commerce’s decision. Micron, 19 CIT at 833, 893 F. Supp.
at 28.
Here, Commerce argues that this is not the first time that
LG Semicon and Hyundai have changed accounting methodologies.6
6
In 1991, both LG Semicon and Hyundai amortized R&D costs.
Preliminary Results, 64 Fed. Reg. at 30485. LG Semicon switched
to expensing full R&D costs in the year incurred in its 1993
financial statements. Id. Hyundai also switched to expensing
R&D costs in the year incurred sometime between 1991 and 1996.
Id. In 1997, LG Semicon and Hyundai changed again to amortizing
R&D costs. Id. In addition, Hyundai began deferring costs on
long-term R&D projects in 1996, and LG Semicon followed suit in
1997. Id.
Cons. Court No. 00-01-00027 Page 37
According to Commerce, Plaintiffs’ practice of “continually
changing” methodologies produces “aberrationally high amounts of
R&D expense in some years, and aberrationally low amounts of R&D
expense in other years, that do not reasonably reflect
[production] costs.” Final Results, 64 Fed. Reg. at 69699.
However, Plaintiffs’ previous changes in accounting methodology
are not relevant in this case as the Court is concerned with the
actions of the parties with respect to their R&D costs only for
this period of review. Moreover, Commerce rules out any
implication of deliberate manipulation to artificially lower
costs by Plaintiffs through their switch in accounting
methodologies. Def.’s Mem. in Opp’n at 36.
Commerce also points out that the inadvertent result of the
change in accounting practice allows LG Semicon and Hyundai to
recognize less than one-fifth of the current year’s R&D costs as
a result of the change in methodology. Final Results, 64 Fed.
Reg. at 69699. However, in switching from expensing to
amortization, a difference in costs will likely occur, as
amortization by definition permits the allocation of costs over
the market life of the product,7 while expensing costs during the
period incurred necessarily implies a one-time charge.
7
See BLACK’S LAW DICTIONARY (7th ed. 1999). Amortization is
defined as the “act . . . of apportioning the initial cost of a
usually intangible asset . . . over the asset’s useful life.”
Id.
Cons. Court No. 00-01-00027 Page 38
In evaluating Plaintiffs’ cost allocations, Commerce shall
also consider whether the accounting methodology has been
historically used by the exporter or producer, particularly for
establishing appropriate amortization and depreciation periods.
See 19 U.S.C. § 1677b(f)(1)(A). While LG Semicon and Hyundai
have no immediate historical basis for their preference in
amortizing R&D expenses, both companies have amortized R&D costs
in the past. In addition, this Court found in Micron that the
amortization period afforded by Korean GAAP of three to five
years is generally consistent with the actual DRAM life cycle of
three and one-half to four years. Micron, 19 CIT at 834, 893 F.
Supp. at 29.
In addition to switching to amortization during the review
period, Plaintiffs adopted the practice of indefinitely deferring
the costs of R&D projects that were not linked to any current
production or revenue. Commerce claims that the practice of
indefinite deferral of R&D costs is inconsistent with the
conservatism principle in accounting. Final Results, 64 Fed.
Reg. at 69699. Conservatism in accounting calls for the
recognition of expenses when incurred if the probability of
associated revenue is remote or uncertain. Id.
Plaintiffs point out that their methodology, which is in
accordance with Korean GAAP, does follow the principle of
conservatism in accounting. Under Article 70.5 of Korean GAAP,
Cons. Court No. 00-01-00027 Page 39
any unamortized balance remaining for R&D costs will be expensed
immediately if the possibility of realizing revenue from a
specific R&D project becomes remote. Pl. Hyundai’s Br. at 27.
Only R&D costs that are related to the production and
revenue of the subject merchandise for the review period should
be included in Commerce’s calculations. See 19 U.S.C. §
1677b(f)(1)(A). Thus, if R&D expenditures for long-term projects
affect the production and revenues for subject merchandise for
the review period, those costs should be allocated into the cost
of production calculation. Commerce has not provided specific
evidence on the record to show that R&D costs that are currently
deferred actually affect production and revenue for this review
period.
Accordingly, the Court remands to Commerce to provide
specific evidence regarding how Plaintiffs’ actual R&D costs for
this period of review are not reasonably accounted for in its
amortized R&D costs. The Court also instructs Commerce to
provide additional information and to present substantial
evidence on the record showing how R&D costs for long-term
projects might affect current projects for this review period
with respect to deferral.
3. Commerce’s Calculation of Hyundai’s R&D Cost Allocation
Ratio Is Reasonable.
Cons. Court No. 00-01-00027 Page 40
To determine Hyundai’s R&D expenses, Commerce calculated the
company’s R&D allocation ratio by dividing R&D expenses for
semiconductors by the cost of semiconductors sold (“COGS”) to
arrive at a per unit cost of R&D. This formulation of the R&D
allocation ratio has been used consistently by Commerce in the
past. See Notice of Final Determination of Sales at Less Than
Fair Value: Dynamic Random Access Memory Semiconductors of One
Megabit and Above From Taiwan, 64 Fed. Reg. 56308, 56311-12 (Oct.
19, 1999); Dynamic Random Access Memory Semiconductors of One
Megabit or Above From the Republic of Korea: Final Results of
Antidumping Duty Administrative, Partial Rescission of
Administrative Review and Notice of Determination Not to Revoke
Order, 63 Fed. Reg. 50867, 50870 (Sept. 23, 1998); Notice of
Final Results of Antidumping Duty Administrative Review and
Determination Not to Revoke Order in Part: Dynamic Random Access
Memory Semiconductors of One Megabyte or Above from the Republic
of Korea, 62 Fed. Reg. 39809, 39823 (Jul. 24, 1997); and Final
Determination of Sales at Less Than Fair Value: Dynamic Random
Access Memory Semiconductors of One Megabit and Above From the
Republic of Korea, 58 Fed. Reg. 15467, 15470 (Mar. 23, 1993).
Commerce then multiplied the R&D allocation ratio by the cost of
semiconductors manufactured (“COM”) to determine the R&D expenses
for semiconductors.
Cons. Court No. 00-01-00027 Page 41
Hyundai argues that COM instead of COGS should be used in
the denominator of the R&D allocation ratio. Differences, if
any, between cost of manufacturing and cost of goods sold should
generally be “random,” since the cost of goods sold should be a
reasonable approximation of the cost of manufacturing. See Pl.
Hyundai’s Br. at 37-38. However, Hyundai points out the
difference between COGS and COM in this proceeding is not random,
but inherent to the DRAM industry in general, as each new
generation of DRAMs is more costly to produce than the prior
generation due to a consistent trend towards higher density
products. Id.The fact that the use of COGS might reflect historical
production costs rather than account for cost increases during
the period of review is not reason alone to reject a COGS-based
approach to calculating costs. See AIMCOR, Alabama Silicon, Inc.
v. United States, 18 CIT 1106, 1116, 871 F. Supp. 455, 463-64
(1994). Moreover, Hyundai has not provided sufficient evidence
to show that the extent of the difference between COGS and COM is
systematic in nature. See, e.g., Camargo Correa Metais. S.A. v.
United States, 21 CIT 1249, 1255-56 (1997) (explaining systematic
difference between COGS and COM can occur when historical figures
used in COGS may not take into account the rapidly rising costs
used to calculate COM during a period of extreme hyperinflation).
Hyundai provides data to indicate a constant relationship between
Cons. Court No. 00-01-00027 Page 42
manufacturing costs and the cost of goods sold for the accounting
periods of 1995, 1996, 1997, and the first half of 1998 to show
that COM is higher than COGS for the company. See Pl. Hyundai’s
App. 25. The limited data, however, indicates that the
differences between the figures are still reasonably close
approximations of each other, except for the accounting period of
1997, which happens to overlap with the period of this review.
Accordingly, the Court finds that Commerce reasonably
applied COGS to the R&D allocation ratio.
4. Hyundai Does Not Provide Sufficient Evidence of Double
Counting by Commerce.
In determining Hyundai’s total R&D costs, Commerce included
costs incurred by Hyundai Electronics Industries Co., Ltd.
(“Hyundai International”) for certain long-term R&D projects in
addition to expenses incurred by Hyundai Electronics America,
Inc. (“Hyundai America”), a subsidiary, for work performed for
Hyundai International on a portion of the same R&D projects.
Hyundai argues that Hyundai International reimbursed Hyundai
America for this R&D work, and therefore the inclusion by
Commerce of the costs incurred by Hyundai America should not be
counted at all.
Commerce recognizes that Hyundai America received payments
from Hyundai International for certain R&D projects. See Def.’s
Mem. in Opp’n at 39. However, Hyundai does not provide evidence
Cons. Court No. 00-01-00027 Page 43
of its own records verifying that Hyundai International actually
made the payments to Hyundai America. See id. at 39. Hyundai,
as plaintiff and possessor of the necessary documents, bears the
burden of producing the evidence to provide an accurate record in
the antidumping investigation. See Ta Chen Stainless Steel Pipe,
Inc. v. United States, 298 F.3d 1330, 1336 (Fed. Cir. 2002)
(quoting Zenith Elecs. Corp. v. United States, 988 F.2d 1573,
1583 (Fed. Cir. 1993)). Accordingly, without evidence on the
record to determine otherwise, the Court affirms Commerce’s
determination in the Final Results on this issue.
5. Commerce’s Treatment of Hyundai’s Interest Earned on
Severance Deposits Is Reasonable.
In the Final Results, Commerce included the cost of
severance payments in Hyundai’s labor cost, but did not use the
interest income generated from the severance payments as an
offset to interest expense. See 64 Fed. Reg. at 69707. Hyundai
argues that this interest income should be treated as an offset.
See Pl. Hyundai’s Br. at 44.
Hyundai contends that the interest income at issue is
generated from severance deposits that the company is required to
maintain with insurance companies to finance current severance
and retirement payments. See Pl. Hyundai’s Br. at 43.
Furthermore, Hyundai explains that it has chosen to deposit the
Cons. Court No. 00-01-00027 Page 44
full amount of severance benefits with the insurance companies in
order to qualify for tax benefits. Id.
Interest income will be treated as an offset if there is a
showing that the interest income is related to the “general
operations” of the firm. Timken Co. v. United States, 18 CIT 1,
9, 852 F. Supp. 1040, 1048 (1994). Although the income does not
have to relate specifically to production of subject merchandise,
the interest income should be related to the ordinary operations
of the firm. See id. at 7, 852 F. Supp. at 1046. Interest
income generated from loans and short-term deposits that was
“temporarily free” until used to fund the company’s business
qualifies as an offset. Id. at 10, 852 F. Supp. at 1049.
Interest income generated from investment activity is generally
not allowed as an offset. NTN Bearing Corp. of America v. United
States, 19 CIT 1221, 1237, 905 F. Supp. 1083, 1096 (1995)
(Commerce may disallow an offset because no distinction was made
between interest income generated from investment activity and
manufacturing operations). However, interest income may be
treated as an offset where there is sufficient evidence that the
interest income from long-term investment is related to the
current operations of a company. Gulf States Tube Div. of Quanex
Corp. v. United States, 21 CIT 1013, 1038, 981 F. Supp. 630, 651
(1997).
Cons. Court No. 00-01-00027 Page 45
In the Final Results, Commerce decided not to treat the
interest income generated from the severance benefits as an
offset, but did offset interest income earned on collateral
deposited with the Korea Development Bank. 64 Fed. Reg. at
69707. The funds deposited with the Korea Development Bank were
a prerequisite for Hyundai to receive loans for its business
operations, and accordingly, Commerce concluded that the interest
income generated was tied to specific loans related to the
general operations of the company. In addition, the interest
income from the Korea Development Bank deposits served to lower
the effective interest rate from banks, thereby decreasing the
financing costs of current operations. Id.
Hyundai fails to adequately explain how interest income
earned on deposits of severance payments is directly related to
current operations. Commerce may treat short-term interest
income generated from payroll-related accounts as an offset
because the funds are part of working capital accounts necessary
for current operations. See Notice of Final Determination of
Sales at Less than Fair Value: Certain Preserved Mushrooms from
India, 63 Fed. Reg. 72246, 72252 (Dec. 31, 1998). However,
payroll expenses do not necessarily include severance pay. See
Holland v. Burlington Industries, Inc., 772 F.2d 1140, 1146 (4th
Cir. 1985) (distinguishing between severance pay as an “employee
welfare benefit plan” available only after termination of
Cons. Court No. 00-01-00027 Page 46
employment and payroll as “general asset compensation during
employment”); Matter of Hughes-Bechtol, Inc., 117 BR 890, 902
(Bankr. S.D. Ohio 1990) (explaining “normal gross payroll
includes vacation . . . and other group benefits, but excludes
severance”). Unlike the funds deposited by Hyundai with the
Korea Development Bank that were a requirement to receive loans
for business operations, Hyundai chose to deposit the full amount
of the severance benefits with the insurance companies in order
to receive the maximum benefits of a tax deduction. See Pl.
Hyundai’s Br. at 43. In light of this reasoning, the Court finds
Commerce’s position that severance insurance deposits are long-
term investments not tied to current operations was not arbitrary
or capricious.
Accordingly, the Court affirms Commerce’s decision not to
treat income interest generated from severance deposits as an
offset to Hyundai’s interest expense.
IV. CONCLUSION
For the aforementioned reasons, the Final Results are
sustained in part and reversed and remanded in part.
Accordingly, Plaintiffs’ motion for judgment on the agency record
is granted in part and denied in part.
A separate order will be issued accordingly.
Cons. Court No. 00-01-00027 Page 47
/s/ Richard W. Goldberg
Richard W. Goldberg
Senior Judge
Date: April 16, 2004
New York, New York