65 FR 68976 November 15, 2000
                                                     A-580-812
                                                     ARP: 5/1/98-4/30/99
                                                     Public Document
                                                     Group II, Office 4: 
                                                     JC/AGA

MEMORANDUM TO: Richard W. Moreland
               Acting Assistant Secretary
                 for Import Administration

FROM:          Holly A. Kuga
               Acting Deputy Assistant Secretary
                 for Import Administration


SUBJECT:       Issues and Decision Memorandum for the Administrative 
               Review of Dynamic Random Access Memory Semiconductors 
               of One Megabit or Above from the Republic of Korea - 
               5/1/1998 through 4/30/1999; Final Results


Summary

We have analyzed the comments and rebuttals of interested parties in the
1998/99 administrative review of the antidumping duty order comments
covering dynamic random access memory semiconductors of one megabit or
above ("DRAMs") from the Republic of Korea. As a result of our analysis,
we have made changes from our preliminary results. We recommend that you
approve the positions we have developed in the Discussion of the Issues
section of this memorandum. Below is the complete list of the issues in
this administrative review for which we received comments and rebuttal
comments from parties:

Currency Conversions 
Calculation of Foreign Currency Transaction Gains 
Offset to Foreign Currency Translation Losses 
Calculation of Foreign Currency Translation Gains 
Allocation of Foreign Currency Translation Gains and Losses 
Foreign Exchange Translation Losses in Construction in Progress ("CIP")
Account 
Offset for Long-Term Interest Income 
Unspecified Foreign Exchange Gains and Losses 
Research and Development ("R&D") 
Cross-Fertilization of R&D 
Use of Cost of Goods Sold ("COGS") to Calculate R&D Ratio 
Calculation of LG Semicon America's ("LG") R&D Ratio 
Calculation of LG's General and Administrative Expense ("G&A") Ratio 
Increase in Useful Lives 
Adjustment to Depreciation for LG 
Programming Error in LG's Depreciation Adjustment 
Adjustment for Special Depreciation for LG 
Level of Trade ("LOT")/Constructed Export Price ("CEP") Offset 
LG's Interest Expense 
Calculation of CEP Profit for LG 
Correction of LG's Concordance Program 
Overstatement of LG's Duty Assessment Rate 


Background

On June 6, 2000, the Department of Commerce (the "Department") published
the preliminary results of administrative review of the antidumping duty
order on DRAMs from the Republic of Korea. See Dynamic Random Access
Memory Semiconductors of One Megabit or Above From the Republic of Korea:
Preliminary Results of Antidumping Duty Administrative Review and Notice
of Intent Not To Revoke Order in Part, 65 FR 35886 (June 6, 2000)
("Preliminary Results"). The merchandise covered by this order are DRAMs
from the Republic of Korea. The review covers two manufacturers, Hyundai
Electronics Industries Co., Ltd. and its U.S. sales affiliate Hyundai
Electronics America (collectively "Hyundai"), and LG Semicon Co., Ltd. and
its U.S. sales affiliate LG Semicon America (collectively "LG"), and four
exporters, G5 Corporation ("G5"), Kim's Marketing, Jewon Trading
("Jewon"), and Wooyang Industry Co., Ltd. ("Wooyang"). The period of
review ("POR") is May 1, 1998, through April 30, 1999. We invited parties
to comment on our preliminary results of review. On September 5, 2000, we
received case briefs from Micron Technology, Inc. ("Micron"), the
petitioner, Hyundai, and LG. On September 12, 2000, we received rebuttal
briefs from Micron, Hyundai, and LG. The petitioner requested a public
hearing on June 12, 2000, and a public hearing was held on September 20,
2000.

The Department has conducted this administrative review in accordance
with section 751 of the Act.

Changes Since the Preliminary Results

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

1. We used the exchange rate in effect on the dates of sale of Hyundai's
local letter of credit home market sales to calculate a won-denominated
price to use in the cost test, see Comment 1.

2. We recalculated Hyundai's interest expense by recalculating the amount
of foreign currency transaction gains, and foreign translation gains and
losses, that we included in the interest expense rate calculation, see
Comments 2 and 5.

3. We adjusted Hyundai's and LG's depreciation expense to account for the
double-counting of translation gains and losses transferred from the CIP
account and included in the interest expense rate calculation, see Comment
6.

4. We recalculated LG's R&D ratio, see Comment 11.

5. We recalculated LG's G&A ratio, see Comment 12.

6. We recalculated LG's R&D, G&A, and interest expense ratios to account
for the Department's adjustment to depreciation, see Comment 14.

7. We adjusted LG's previously expensed special depreciation, see Comment
15.

8. We recalculated CEP profit for LG, see Comment 17.

9. We corrected an error in LG's concordance programming, see Comment 18.

10. We corrected the calculation of the duty assessment rate in LG's
margin calculation program, see Comment 19.


Discussion of the Issues

Comment 1: Currency Conversion

Hyundai argues that the Department used the wrong exchange rate for
calculating the price of dollar-denominated local letter of credit sales.
Hyundai states that the Department mistakenly believed that a number of
dollar sales made through local letters of credit were sales priced in won
rather than in dollars. This mistake, Hyundai contends, led the Department
to convert the sales to won based on the rate of exchange on the date of
payment, rather than on the date of the sale.

Hyundai states that section 773A(a) of the Act and section 351.415(a) of
the Department's regulations provide that currencies will be converted
using the rate of exchange on the date of sale of the subject merchandise.
Hyundai also states that, in previous administrative reviews, the
Department considered these transactions to be dollar-denominated sales
and converted all sales in dollars to won based on the exchange rate in
effect on the date of sale. Hyundai argues that, by converting won to
dollars on the date of payment instead of the date of sale, the Department
calculated an improper foreign exchange loss on these sales. Hyundai also
contends that if these sales were made in won, then the date of sale
should be based on the date of payment, and not the date of invoice, since
the won amount was not determined until the bank credited Hyundai's
account in won. 

Micron argues that, since Hyundai's books are stated in won, the
Department appropriately used the won payment price for local letter of
credit home market sales. Micron further contends that the most
appropriate exchange rate is the one in effect at the time that Hyundai's
bank account is credited in won. Micron contends that Hyundai's reference
to section 351.415(a) of the Department's regulations is misplaced, as
this regulation provides for converting foreign currencies into dollars
for price comparisons in the margin calculation using the rate of exchange
on the date of the U.S. sale.

Micron disagrees with Hyundai's suggestion that, if the date of payment
were to determine the exchange rate, then it must also determine the date
of sale. Micron argues that the price and terms of sale were fixed by the
time that the invoice was issued. Micron also states that, if the date of
payment was the date of sale, then Hyundai almost certainly did not
include in its home market sales file all of the sales invoiced prior to
the POR, but paid for during the POR. 

DOC Position:

After further reviewing the sales documentation for local letter of
credit sales in verification exhibits 12 and 13, we have determined that
Hyundai's local letter of credit sales were made in dollars, and not in
won, as we had preliminarily determined. All of the sales documentation in
verification exhibits 12 and 13 contain prices denominated in dollars. In
addition, as Hyundai notes in its brief, these local letters of credit
sales are similar to conventional letters of credit export sales, in which
the price is denominated in dollars, and the bank credits the seller's
account in local currency (in this case, won) at the exchange rate on the
date the account is credited. Although Hyundai maintains its books in won,
this practice is a function of Korean law and not of the currency in which
all of its sales are denominated. 

We also agree with Hyundai that, since these sales were priced in
dollars, for purposes of the cost test, the equivalent price in won for
these sales should be calculated using the exchange rate in effect on the
date of sale of each of these transactions. As Micron notes, section
351.415(a) of Department's regulations does not specifically apply to this
situation, as this regulation solely provides for converting foreign
currencies into dollars on the date of the U.S. sale for purposes of the
margin calculation. However, since the prices of the home market sales at
issue were set in dollars on the date of sale (i.e., the invoice date),
and not the date of payment, the equivalent won price of these sales is
that price which is based on the exchange rate in effect on the date of
sale.

Additionally, for any of the home market sales at issue that pass the
cost test, we will use Hyundai's original reported prices in dollars in
the margin calculation. Otherwise, reconverting the converted won prices
(from the cost test) back to dollars for the margin calculation using a
second exchange rate, the rate in effect on the date of the applicable
U.S. sale, could inadvertently distort the calculation of normal value
("NV").

Comment 2: Calculation of Foreign Currency Transaction Gains

Hyundai claims that the Department understated the amount of its foreign
currency transaction gains on debt, and thus overstated Hyundai's
financing costs. Hyundai claims that, in the March 6, 2000, supplemental
questionnaire, the Department asked Hyundai to report all foreign exchange
gains and losses by source, but that the Department specifically
instructed Hyundai not to separate transaction gains and losses from
translation gains and losses. Thus, when calculating the foreign currency
transaction gains on debt, the Department should have subtracted total
foreign currency translation gains on debt from total foreign currency
gains on debt. However, Hyundai argues that the Department subtracted a
figure greater than total foreign currency translation gains on debt from
total foreign currency gains on debt to derive total foreign currency
transaction gains on debt. Hyundai contends that the Department subtracted
both total foreign currency translation gains on debts and foreign
currency translation gains which are unrelated to debt, from total foreign
currency gains on debt. Hyundai further contends that, as a result, the
Department understated its foreign currency transaction gains and thus,
overstated net financing cost.

Micron did not comment on this issue.

DOC Position:

We agree with Hyundai that we understated Hyundai's foreign currency
transaction gains on debt and, thus, we overstated Hyundai's net financing
cost. We reviewed Exhibit DSS-10 of Hyundai's March 15, 2000, response, in
which Hyundai reported its consolidated exchange gains, by source
(including those generated by long-term debt), and linked this Exhibit to
verification exhibit 8, which provides a breakdown of Hyundai's foreign
translation gains by source, and to the translation and transaction gains
reported on Hyundai's consolidated financial statement. Based on this
reconciliation, we determined that we inadvertently subtracted foreign
currency translation gains that are unrelated to debt from total foreign
currency gains on debt, thus, understating Hyundai's foreign currency
transaction gains on debt and overstating Hyundai's net interest expense.
Therefore, we recalculated the foreign currency transaction gains on debt
by subtracting only the foreign currency translation gains on debt from
the total reported foreign exchange gains on debt; and also recalculated
the net interest expense by including the corrected amount of foreign
currency transaction gains on debt. For further details, see Hyundai Final
Results Calculation Memorandum dated November 3, 2000.

Comment 3: Offset to Foreign Currency Translation Losses

Hyundai and LG argue that the Department erred in not allowing asset
revaluation increments to be used as an offset to deferred foreign
currency translation losses. Hyundai and LG state that foreign currency
translation losses and the increased value of the assets in won purchased
with dollar-denominated debt were the result of the same cause: the rapid
devaluation of the won. The respondents contend that it is appropriate,
and reasonably reflects costs, to offset deferred foreign currency
translation losses by the increase in the value of the fixed assets
because the foreign currency translation losses were incurred on loans
that were used to purchase those assets. 

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

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

LG also argues that, in an analogous case, the Court of International
Trade ("CIT"), in Laclede Steel Co. v. United States, 18 CIT 965, 975
(1994), upheld the Department's use of depreciation expenses on a revalued
basis because such an increase was balanced by a decrease in financing
expenses. LG states that, in a similar manner, the Department would "skew"
LG's COP if the Department were to continue to accept the increased
depreciation resulting from revaluation, while rejecting the decrease in
financing costs that resulted from the asset revaluation. Additionally, LG
challenges the accuracy of a statement in the Preliminary Results
regarding when it experienced and recognized translation gains and losses
on its liabilities.

Hyundai states that the use of the revaluation increment to offset
deferred foreign currency translation losses is not a novel Korean
accounting practice that was adopted as a result of the recent won
devaluation, but rather, is a part of the Korean Asset Revaluation Law
enacted in 1963. 

Micron argues that the Department was correct in disallowing Hyundai's
offset of unrealized foreign exchange translation losses with the asset
revaluation increment. Micron argues that the respondents' treatment of
foreign exchange losses is both inconsistent and distortive. 

Micron argues that the revaluation of assets and offsetting unrealized
foreign exchange translation losses with the asset revaluation increment
is a distortive practice that, under the Statement of Administrative
Action ("SAA"), does not reasonably reflect the cost associated with the
production and sale of the merchandise. Regarding asset revaluation,
Micron argues that such a revaluation would not normally be allowed under
U.S. generally accepted accounting principles ("GAAP") because asset
valuation must be based on historical cost; any other basis for
revaluation introduces speculation. Micron also contends that offsetting
of the foreign exchange translation losses with the asset revaluation
increment prevents any future recognition of foreign currency losses.
Micron notes that, under U.S. GAAP, similar incomes and expenses must be
matched, and companies would not be able to offset foreign currency losses
that would have an income statement effect with gains from the revaluation
of assets. Micron also points out that such actions have been roundly
criticized even within Korea as being distortive.

Micron disagrees with Hyundai and LG that the CIT's and Department's
decisions in Laclede Steel Co. v. United States and Plate from Korea do
not contradict the Department's position on this issue. Micron states that
both determinations involve the CIT and Department finding that asset
revaluation was accurate for depreciation purposes, while neither
determination involved offsetting a revaluation increment against foreign
exchange losses.

DOC Position:

We disagree with Hyundai and LG. Fixed assets are revalued because
inflation renders meaningless in terms of today's values the historical
values in which the assets were originally recorded, and hence their
values are adjusted upward. Foreign exchange gains or losses recognize the
real cost of being required to spend a changed amount of more won to pay
back the same dollar value loan. Therefore, we disagree that the foreign
exchange losses and the revaluation increment are directly linked and that
the offset of these losses by the revaluation increment is appropriate. 

Section 773(f)(1)(A) of the Act directs the Department to rely "on the
records of the exporter or producer of the merchandise, if such records
are kept in accordance with the GAAP of the exporting country (or the
producing country where appropriate) and reasonably reflect the costs
associated with production and sale of the merchandise." Section
773(f)(1)(A) of the Act also states that the Department will consider
whether "such allocations have been historically used by the exporter or
the producer." Further, as explained in the SAA, "[t]he exporter or
producer will be expected to demonstrate that it has historically utilized
such allocations, particularly with regard to the establishment of
appropriate amortization and depreciation periods and allowances for
capital expenditures and other development costs." See SAA at 834.

Both the fixed asset revaluation increment and the unamortized foreign
exchange translation losses were treated as adjustments to the equity
section of both Hyundai and LG's balance sheets (i.e., did not flow
through their income statements) in the ordinary course of business, in
accordance with Korean GAAP.(1) For submission purposes, Hyundai and LG
excluded both of these items from their reported costs.(2) While we agree
with this treatment for the fixed asset revaluation increment, we believe
exclusion of the unamortized foreign exchange translation losses is
distortive.

The revaluation of the fixed assets (i.e., non-monetary assets) does not
represent income during the year. In economic terms, the company is in the
same position holding the same assets. Likewise, the revaluation of
nonmonetary liabilities (e.g., equity and capital) does not represent a
loss during the fiscal year; rather, it represents the restatement of
nonmonetary liabilities into current price levels just as the restatement
of the fixed assets accomplished. See Notice of Final Determination of
Sales at Less Than Fair Value: Certain Preserved Mushrooms from Chile, 63
FR 56613, 56621 (October 22, 1998). In other words, the restatement of the
book value of a truck into a greater number of (lower value) won does not
result in an economic gain since one still only owns a truck. Therefore, 
we do not include the incremental gain resulting from these revaluations 
in our antidumping analysis. We include only the depreciation on the
revalued 
asset values in our COP and CV computations since they represent the
expense 
stated at current price levels.

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

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

In 1997, both companies capitalized their long-term translation losses,
and amortized the losses over the lives of the corresponding
liabilities.(4) 
In 1998, the unamortized translation losses still remained. The
respondents, 
in their new accounting methodology, simply moved these translation losses 
to a different part of their balance sheet.(5) While this may be
appropriate 
for Korean financial accounting, for antidumping purposes, this new
practice 
fails to reasonably reflect the cost of producing the subject merchandise: 
the respondents' new accounting treatment of these translation losses does 
not change that fact that these translation losses represent an additional 
cost of financing to the companies, as was recognized by the respondents
in 
their amortization of these translation losses in their own books and
records 
in 1997. The respondents' 1997 treatment of the deferred financial losses 
is also consistent with the Department's amortization of the respondents' 
deferred translation gains and losses in the fourth administrative review 
covering 1996, when both Hyundai and LG did not recognize in their income 
statements any of their deferred translation gains and losses. See Dynamic 
Random Access Memory Semiconductors of One Megabit or Above From the
Republic 
of Korea: Final Results of Antidumping Duty Administrative Review, Partial 
Rescission of Administrative Review and Notice of Determination Not to
Revoke 
Order, 63 FR at 50872 (September 23, 1998) ("Final Results 1996-1997"). 

The unreasonableness of the respondents' new accounting method for their
deferred translation losses in 1998 is further highlighted by the
inconsistent way in which they treat their deferred translation gains in
that same year. While the respondents wrote off the deferred translation
losses to the equity section of the balance sheet, they continued
amortizing the deferred gains (i.e., they reflected the gains on the
income statement) in 1998.(6) This inconsistent accounting treatment of
deferred translation gains and losses greatly diminishes the impact of the
losses, and heightens the impact of the gains.(7) We therefore continued,
consistent with the respondents' practice for both translation losses and
gains in 1997 and for deferred translation gains in 1998, and the
Department's practice, to include an amortized portion of the 1997 long-
term translation losses in the respondents' COP (see comment 5 below
regarding the methodology for amortizing Hyundai's 1997 long-term
translation losses). 

Comment 4: Calculation of Foreign Currency Translation Gains

Hyundai and LG argue that the Department erred in disallowing their full
recognition of 1998 foreign currency translation gains. In the Preliminary
Results, the Department rejected both Hyundai and LG's full recognition of
1998 foreign currency translation gains, and instead reallocated such
gains over the average outstanding life of the loans that generated the
gains. Hyundai and LG dispute the Department's rejection and argue that
their decision to recognize 1998 translation gains fully in 1998 is
consistent with Korean GAAP, which provides that foreign currency
translation gains and losses associated with normal exchange rate
fluctuations be recognized in the year in which they are generated.
Hyundai and LG point out that, while in 1997, the Korean SEC deemed
currency fluctuations to be "substantial," and thus authorized companies
to defer translation gains and losses associated with long-term monetary
assets and liabilities, in 1998, the SEC did not deem foreign currency
fluctuations to be "substantial," and thus required companies to return to
the standard practice of reporting all such gains and losses in the year
that they were generated. Hyundai, citing Micron Technology, Inc. v.
United States, 893 F. Supp. 21, 33 (CIT, 1995) ("Micron I") also argues
that it is appropriate to recognize foreign currency translation gains or
losses in the current year if they offset gains or losses from prior years.

Micron responds that it is better not to extend the amortization of
losses and gains indefinitely. Micron contends that, if the Department
allows Hyundai and LG to recognize all currency gains in 1998, then the
Department should also recognize all outstanding foreign currency losses
(including those offset by the revaluation increment) in 1998, and "start
out with a clean slate in 1999." Further, if the Department recognizes all
such losses and gains, Micron contends that Hyundai's comment regarding
the calculation of the average life of foreign currency loans becomes moot
(see comment 5).

DOC Position:

We disagree with all parties that we should make any changes with respect
to this issue from the preliminary results. In 1998, Hyundai and LG made
several changes to how they accounted for their foreign currency
translation gains and losses. As discussed above, the respondents wrote
off their deferred foreign currency translation losses to the equity
section on the balance sheet. Additionally, the respondents expensed all
of their 1998 long-term foreign currency translation gains and losses,
while in the previous year, they had amortized such gains and losses over
the lives of the corresponding liabilities. Although consistent with
Korean GAAP, this latter change represents an inconsistent treatment of
the same costs, and distorts the respondents' reported cost of production.

In order to reasonably reflect the cost of producing the subject
merchandise, and to be consistent with the respondents' own and the
Department's historical treatment of long-term translation gains and
losses, we consider it appropriate, as we did in the Preliminary Results,
to amortize all long-term translation gains and losses over the life of
the corresponding liabilities. This methodology establishes one standard
methodology for recognizing long-term translation gains and losses,
regardless of the year that they were incurred, and neutralizes the effect
of the respondents' numerous changes in accounting for such gains and
losses. This treatment is also consistent with Hyundai's and LG's
accounting treatment of the 1997 long-term translation gains and losses,
and is the same method that the Department followed in the fourth
administrative review covering 1996, when both Hyundai and LG did not
recognize in their income statements any of their long-term translation
gains and losses. See Final Results 1996-1997, 63 FR at 50872.

We agree with Hyundai that it may be reasonable to recognize foreign
currency translation gains or losses in the current year if they offset
gains or losses from prior years and if such gains or losses are treated
consistently from year to year. In this case, we believe that it is
distortive to amortize translation gains and losses one year, and then
expense such gains and losses in full the next year, especially if as was
experienced in Korea, a currency lost significant value one year, and then
recovered much of its lost value in the ensuing year. Changing
methodologies in this manner can unduly emphasize one year's experience of
gains or losses over another year's experience, and distort the COP. 

Comment 5: Allocation of Foreign Currency Translation Gains and Losses

Hyundai argues that, if the Department persists in rejecting its reported
treatment of foreign currency translation gains and losses, then the
Department must allocate foreign currency gains and losses on loans based
on the balance of outstanding loans in the year in which the deferred
gains and losses are recognized. Hyundai states that, in the current
review, the Department has spread the deferred gains and losses on loans
from 1996 and 1997 over the average remaining period for loans outstanding
as of the end of year 1998. In contrast, in the fifth administrative
review, the Department accepted Hyundai's schedule for apportioning
deferred 1997 translation gains and losses on loans based on the actual
life of the liabilities that gave rise to those gains and losses. Hyundai
claims that if the Department continually changes the period of allocation
from year to year, and then applies the new period to the original pool of
deferred costs, the sum of the amortized amounts over several years would
almost certainly not equal the original total cost pool. Further, this
approach would result in the amount of costs allocated in any given year
dependent upon the structure of the current loan portfolio, rather than
the historic portfolio that generated the original losses. 

Hyundai also claims that the Department's methodology to amortize the
total foreign currency gains and losses on loans generated in 1998 is
deficient. Hyundai states that the Department calculated the average
remaining life of outstanding loans as of the end of 1998 by dividing the
total pool of exchange gains on loans recognized in 1998 by the total
amortized in that year. Hyundai claims that this methodology does not
accurately capture the weighted average remaining life of the outstanding
loans because it is based on the amount to be amortized for only one year,
while the amortization amounts vary substantially from year to year. 

Hyundai urges the Department to use the gains and losses for each year as
recorded at the bottom of the respective amortization schedules for the
loans outstanding in 1997 and 1998. If the Department decides to continue
to calculate the average life of the loans based on one year of the
amortization schedules, Hyundai argues that the Department must apply this
method separately for foreign currency translation gains and losses
recognized in 1997 and 1998. 

Micron did not comment on this issue, except in its general reference to
this issue in comment 4 above.

DOC Position:

We agree with Hyundai that the amortization schedules for the translation
gains and losses on loans from 1997 and 1998 more accurately represent the
amount of such gains and losses than the Department's calculation of such
gains and losses.(8) These schedules(9) record the exact amounts of the
1997 and 1998 translation gains and losses from Hyundai's long-term
liabilities that Hyundai would have recognized on its income statement in
1998 had it continued to amortize these translation gains and losses,
based on the actual life of the liabilities that gave rise to those gains
and losses. We therefore recalculated Hyundai's interest expense by using
the amounts of 1997 and 1998 long-term translation gains and losses
recorded for 1998 in the respective amortization schedules. 

As Hyundai points out, the Department also preliminarily calculated the
amortized amount of translation losses on long-term liabilities from 1996
based on the average remaining life of the 1998 loans.(10) However,
Hyundai does not propose any method for amortizing these losses, and the
record for this case does not contain an amortization schedule for the
1996 losses. We therefore amortized the total 1996 deferred translation
losses based on the average life of the corresponding liabilities in 1996
that gave rise to the 1996 gains and losses, as the Department did in the
fourth administrative review. This methodology is consistent with
Hyundai's suggested method for amortizing of the 1997 and 1998 translation
gains and losses, as the amortization schedules that we used for these
gains and losses are also based on the actual life of the corresponding
liabilities that gave rise to the corresponding gains and losses. 

Due to the proprietary nature of these issues, for further details, see
Hyundai Final Results Calculation Memorandum dated November 3, 2000.

Comment 6: Foreign Exchange Translation Losses in CIP Account

Hyundai contends that the Department erred by removing deferred foreign
exchange losses from the CIP account. Hyundai contends that its
capitalization of foreign exchange translation losses is appropriate, and
that the Department's methodology is distortive because it results in
double counting of these costs. 

Hyundai states that both U.S. and Korean GAAP provide for the
capitalization of interest associated with the purchase of assets that are
not yet in operation. Hyundai then contends that the Department treats
foreign exchange translation losses that are associated with loans as
interest expenses. Hyundai concludes that it follows that foreign exchange
translation losses related to borrowing for CIP should be considered to be
a CIP expense, just as the interest costs are classified as CIP. 

Hyundai disagrees with the Department's rationale for making this
adjustment. In the Preliminary Results, the Department stated that
capitalization was inappropriate because "the gains and losses generated
by the same debt are amortized over different periods." Preliminary
Results, 64 FR at 35890. Hyundai finds this argument inconsistent with the
principle that interest costs (including foreign exchange gains and
losses) associated with construction in progress incurred in the current
year should be amortized over the life of the physical assets (rather than
the life of the loans) because the borrowing costs are an integral part of
the cost of acquiring the assets. Hyundai stresses that, consistent with
the matching principle, the period over which these costs are captured
should be the useful life of the equipment. Hyundai contends that it
follows that if the recognition period for the interest expense conforms
to the physical life of the assets, so too can the recognition period for
the directly associated exchange gains and losses. 

Hyundai argues that the movement of the 1996 and 1997 deferred foreign
exchange losses from CIP to the pool of deferred losses allocable in 1998
is especially distortive in this case, as it leads to substantial double-
counting of costs. In 1998, some of the deferred foreign currency
translation losses that were included in CIP in 1996 and 1997 were
reclassified to operating assets and began to be depreciated as part of
the total cost of those assets. Hyundai states that since the Department
based its revised depreciation expenses on Hyundai's reported costs, the
reclassified translation gains and losses were already included by the
Department in its calculation of deprecation expenses. 

Hyundai believes that if the Department continues to include foreign
currency gains and losses transferred to CIP, it should amortize the
portion in CIP on a yearly basis using the same proportions allocated in
each year for non-CIP gains and losses. 

LG also claims that the Department double counted certain gains and
losses in calculating the amounts that would have been included in LG's
COP in 1998 if LG had continued to use its previous methodology of
amortizing foreign exchange translation gains and losses over the lives of
the relevant loans. According to LG, in calculating 1997 deferred gains
and losses, the Department included a portion of the foreign currency
translation gains and losses related to the acquisition costs of fixed
assets in 1997. However, LG alleges that these gains and losses were not
included in the 1997 deferred translation amounts (and thus were not
offset in 1998 by the asset revaluation increment), but rather were
included in the acquisition cost of fixed assets, which are depreciated
over useful lives of those fixed assets. Thus, LG argues that the
appropriate 1998 amortization of these amounts is already included in LG's
COP, as part of depreciation, and the Department double counted these
amounts when it amortized them again for inclusion in interest expense.

Micron states that the Department was correct in removing deferred
foreign exchange losses from Hyundai and LG's CIP accounts and instead
including them in the deferred losses allocable in 1998. Micron contends
that neither Hyundai nor LG offered any justification for placing large,
and seemingly arbitrary, amounts of losses into the CIP accounts. Micron
affirms that including these amounts in the Department's calculations does
result in a measure of double counting. However, Micron asserts, the
amount is not as much as Hyundai and LG implies, because a substantial
portion of the losses added to equipment in the CIP account was still in
the CIP account at the end of 1998, and this is an issue that can be dealt
within a subsequent review.

DOC Position: 

As we stated in the Preliminary Results, the Department considers it
distortive to amortize translation gains and losses generated by the same
debt over different periods (the life of the corresponding debt, and for
the part capitalized to CIP, the life of physical assets). Preliminary
Results, 65 FR at 35890. This inconsistent treatment results in gains and
losses generated by the same debt being recognized at different times
(i.e., at the different times the debt begins to be amortized). Our
position in this case parallels our position in Plate from Korea. In Plate
from Korea, 64 FR at 73204-5, the respondent, Dongkuk Steel Mill ("DSM"),
amortized certain translation gains over the life of loans, and amortized
certain translation losses (some of which resulted from the same debt as
the gains at issue) over the life of fixed assets. As in the present case,
the Department considered DSM's amortization of the translation gains and
losses from the same debt over different periods to be distortive. 

In regards to how to account for these items in our calculations, we
agree with Hyundai that we should amortize the portion of translation
gains and losses on debt in CIP on a yearly basis using the same
proportions allocated in each year for non-CIP translation gains and
losses. This methodology is consistent with the methodology of using the
amortization schedules for the 1997 and 1998 translation gains and losses
on debt that we have adopted for the final results. See comment 5. We also
agree with Hyundai and LG that this adjustment, in general, could lead to
double-counting of costs, as it results in separately including
translation gains and losses in interest expense that are partly already
included as part of depreciation expense. For Hyundai, we adjusted the
depreciation expense to account for the translation gains and losses that
we transferred from the CIP account and included in the interest expense
calculation.(11) With regard to LG, we adjusted the interest expense by
excluding those translation gains and losses related to the acquisition
costs of fixed assets in 1997. For further details, see Hyundai Final
Results Calculation Memorandum dated November 3, 2000, and LG Final
Results Calculation Memorandum dated November 3, 2000. 

Comment 7: Offset for Long-Term Interest Income 

Hyundai contends that the Department erred in denying an offset for
interest income earned on restricted deposits for funding severance
payments. Hyundai states that the Department, as a general matter, grants
adjustments for interest income that is earned on compensating deposits
because this income is related to current operations. Hyundai argues that,
since the severance payments are a component of the cost of labor, and the
interest income earned on the deposits at issue is therefore directly
related to current operations, the interest income should be allowed as an
offset to total financing expenses. Hyundai further contends that this
income cannot be characterized as "income from investment activities,"
which, according to Hyundai, is the only rationale stated by the
Department for rejecting some forms of interest income, such as that
earned on long-term financial instruments. 

Micron believes that the Department appropriately denied the offset for
interest income earned on restricted deposits, as it did in the fifth
administrative review. Micron states that such restricted income is not
related to the company's current operations, and that Hyundai has stated
nothing new that would warrant any other conclusion.

DOC Position:

We agree with Micron. This is the same issue that Hyundai raised in the
final results of the fifth administrative review. In those final results,
we stated the following:

...we agree with Micron that the severance insurance deposits are long-
term investments that represent Hyundai's funding of accrued severance
benefits. These severance insurance deposits are simply a source of funds
from which Hyundai funds severance benefits, and are only held by Hyundai
as restricted deposits to allow Hyundai to claim a tax deduction. Dynamic
Random Access Memory Semiconductors of One Megabit or Above From the
Republic of Korea: Final Results of Antidumping Duty Administrative Review
and Determination Not To Revoke the Order in Part, 64 FR at 69707
(December 14, 1999) (Final Results 1997-1998).

In the current review, the facts are identical. The deposits at issue are
long-term investments, and the income from these deposits is income from
investment activities that is not related to current operations. Hyundai
chose to use these particular deposits to fund severance benefits, and
also elected to hold these funds as restricted deposits.(12) In general,
just because Hyundai uses particular deposits to fund severance benefits
(or any other expense) does not mean that those deposits are necessarily
related to current operations. We therefore have made no change with
respect to this issue.


Comment 8: Unspecified Foreign Exchange Gains and Losses

Hyundai contends that the Department miscalculated its G&A expense rate
by excluding "unspecified" foreign currency gains and losses.
Specifically, Hyundai argues that the Department should not have excluded
those gains and losses identified by Hyundai in its response as "Others."
Hyundai states that it is Department policy that all foreign exchange
gains and losses that result from transactions related to a company's
manufacturing operations (other than debt) are captured in the G&A rate
calculation, while gains and losses generated by accounts receivable are
excluded. Hyundai states that the gains and losses in the column
identified as "Others" are gains and losses other than those that it
identified as being generated by accounts receivable, accounts payable, or
debt and thus, there is no basis for the Department's exclusion of the
gains and losses from the "Others" category when calculating the G&A rate. 

Micron states that since Hyundai did not specify the nature of the
"other" foreign currency gains and losses, the Department was correct in
excluding the entry in its calculations. Micron notes that section
351.401(b)(1) of the Department's regulations states that the "interested
party that is in possession of the relevant information has the burden of
establishing to the satisfaction of the Secretary the amount and nature of
a particular adjustment." However, Micron contends that Hyundai never
explained the source of the "other" gains and losses, but simply states
that they do not derive from accounts receivable, accounts payable, or
debt, and thus must be included. 

DOC Position:

We agree with Micron. During this administrative review, the Department
requested in its March 5, 2000, supplemental questionnaire that Hyundai
complete a schedule for its 1998 foreign currency exchange gains and
losses that included categories for those gains and losses generated by
account receivables, accounts payables, and debt, and a category for
"other" gains and losses. In addition, the Department requested that
Hyundai specify and describe each item under the "other" category. In
Exhibit 9 of its March 15, 2000, response, Hyundai provided the requested
schedule, but did not specify or describe the gains and losses listed
under the "other" category. Since we had no information on the nature of
the gains and losses listed under the "other" category, it is not
appropriate, in this case, to include either these gains or losses in the
reported costs.

We note that the foreign currency exchange gains at issue, if included,
would serve as an offset to Hyundai's costs. In general, the burden of
proof to substantiate and document such an adjustment is on the respondent
making a claim for an offset. See, e.g., Timken Company v. United States,
673 F. Supp. 495, 513 (CIT 1987); and Gray Portland Cement and Clinker
from Japan; Final Results of Antidumping Duty Administrative Review, 60 FR
43761, 43767 (August 23, 1995). In the present case, since Hyundai did not
substantiate this claimed offset, we did not include it in our
calculations. 

Comment 9: R&D

Hyundai argues that the Department erred in rejecting its accounting
methodology for the amortization and deferral of R&D expenses. Hyundai
states that Section 773(f)(1)(a) of the Act provides that the Department
normally will calculate costs based on a company's records if the records
are kept in accordance with generally accepted accounting principles of
the exporting country and reasonably reflect the costs associated with
producing the merchandise. Hyundai believes that the preference under U.S.
law for exporting country GAAP as the basis for measuring costs follows
directly from Article 2.2.1.1 of the WTO Antidumping Agreement. According
to Hyundai, the Department has followed this direction in numerous cases,
e.g., Steel Wire Rod from Canada, 63 FR 9182 (February 24, 1998). Hyundai
contends that the Department may deviate from using a company's data that
is consistent with GAAP only when the reported costs do not "reasonably
reflect" the actual costs of producing the merchandise subject to review. 
Hyundai maintains that amortization and deferral of R&D expense is
consistent with Korean GAAP and international accounting standards, and it
more accurately matches costs with related income than U.S. GAAP. Hyundai
states that its treatment of R&D under Korean GAAP has been upheld by the
CIT. Hyundai believes that its change from expensing to amortizing and
deferring R&D expense does not distort the company's costs, and in fact
provides a more accurate presentation of the company's actual costs. 

Hyundai cites a number of past Department investigations and reviews
where it says that the Department allowed for the amortization of R&D,
including Color Television Receivers from Korea, 53 FR 24982 (July 1,
1988), Certain Welded Stainless Steel Pipe from the Republic of Korea, 57
FR 53693 (November 12, 1992), and Polyethylene Terephthalate Film, Sheet,
and Strip from the Republic of Korea , 56 FR 16305 (April 22, 1991)("PET
Film"). 

Hyundai argues that the CIT has rejected the approach of the Department
regarding this issue. In Micron I, Hyundai argues that the Court pointed
out that the Department applies the accounting principles of the home
country if it is satisfied that those principles reasonably reflect all of
the costs associated with production of the subject merchandise. Hyundai
states that the Court then cited eight investigations wherein the
Department amortized R&D costs related to subject merchandise rather than
expensing such costs in the year incurred. Hyundai alleges that the Court
rejected the Department's attempt to distinguish those cases on the
grounds that the products at issue did not have the same inherent
technological characteristics as semiconductors. Hyundai quoted the Court
as stating "[t]his distinction is patently false. Defendant fails to
acknowledge that in two previous semiconductor cases, i.e., EPROMs from
Japan and 64K DRAMs from Japan, the Department specifically endorsed
capitalization and amortization of R&D expenses." Hyundai states that the
Court then went on to hold that Korean GAAP provides a reasonable and non-
distortive treatment of R&D costs. 

Hyundai maintains that its record demonstrates that Hyundai's R&D
expenses are devoted to the development of new generations of commercial
products, and that the introduction of these future generations is both
imminent and predictable. In what Hyundai states is a paraphrase of the
PET Film decision, expenditures for DRAM R&D in one period will benefit
future periods by providing sales revenues for improved DRAM products, and
thus that it is appropriate to defer and amortize R&D expense. 

Hyundai argues that its treatment of R&D in Korean GAAP is consistent
with international accounting standards established by the International
Accounting Standards Committee ("IASC"). Specific to this case, Hyundai
argues that Korean GAAP conforms to the principles of International
Accounting Standard ("IAS") No. 9 where deferral and amortization are
intended too more accurately match costs with products that benefit from
those expenditures. 

Hyundai claims that amortization of R&D is particularly appropriate for
the DRAM industry. According to Hyundai, the appropriateness of matching
R&D expenses to the products benefitting from the expenses is well
recognized by leading accounting authorities. Moreover, Hyundai claims
that the SAA specifically endorses the concept of allocating R&D costs
over future production as well as current production in order to match the
expenditures with the production that benefits from the expenditures.
Hyundai states that R&D expenditures for DRAMs are not speculative
ventures, but rather efforts to produce higher density DRAMs and other
advanced semiconductor products. Hyundai characterizes its R&D projects as
clearly feasible and consistent with the history of development of
semiconductor products. 

Furthermore, Hyundai states that its change of methodology from expensing
an R&D cost in the year in which it was incurred does not create a
distortion. While the Department claimed that this change in practice was
in itself distortive, Hyundai claims that the mere fact that Hyundai
adopted a different methodology in an earlier period in no way detracts
from the validity of the methodology. While Hyundai quotes the Department
as saying that "as a result of their recent changes to amortizing and
deferring R&D expenses, Hyundai and LG are not capturing those expenses
that reasonably and accurately reflect their actual R&D costs for this
POR," Hyundai replies that the statute does not prohibit a respondent from
changing its accounting practices as long as the change is consistent with
the GAAP of the exporting country and the new methodology does not distort
actual costs. Thus, Hyundai believes that the issue is whether the change
results in the adoption of a new methodology that more accurately reflects
the cost of producing the subject merchandise. Hyundai asserts that its
new methodology meets that test. 

Hyundai states that amortization and deferral of R&D better reflect the
actual costs of producing DRAMs than expensing R&D because amortization
and deferral match the cost of R&D with the products that benefit from the
R&D. Moreover, Hyundai believes its methodology is supported by accounting
experts, complies with international accounting standards, is consistent
with the methodology followed in most industrialized countries, and
complies with Korean GAAP. 

LG notes that its reported R&D expenses are based on the amounts recorded
in its books and reflected in its audited financial statements, without
alteration. LG states that the Department verified that LG reported
amortized R&D amounts in accordance with its normal accounting practice,
and verified that the projects for which amortization was deferred were
related to future products of which there was no current production and
thus no current revenue.

According to LG, the Department's decision to disregard LG's amortization
and deferral of R&D costs is directly contrary to the CIT's decision on
this issue in Micron I, where the Court ordered the Department to
recalculate R&D using the amortized amounts recorded by the Korean DRAM
manufacturers in their normal accounting. Id. at 28-29. The Court found
that "Korean GAAP provides for a reasonable allocation of the R&D costs
associated with production of the subject DRAMs. Commerce's argument fails
to establish otherwise." Id. at 29. LG maintains that the Court explicitly
found that the three too five-year amortization period allowed by Korean
GAAP was more reasonable than the Department's expensing methodology,
which the Court found to be distortive because it guarantees that R&D
costs will not be allocated over the commercial life of the product. Id.
LG argues that the Court's logic, moreover, applies with equal force to
the deferral of certain R&D expenses until the related projects achieve
commercial realization, a methodology that allows R&D costs to be
allocated over the commercial life of the product. Likewise, LG contends
that the Department's decision is inconsistent with the CIT's decision in
Micron Technology, Inc. v. United States, 23 CIT ___, Slip op. 99-51 (June
16, 1999) ("Micron II"). 

LG alleges that contrary to the Department's criticism of its change in
accounting methodologies in the Preliminary Results, LG's R&D expense is
lower in 1998 purely as a result of the transition in methodologies from
expensing to amortizing. According to LG, under the Department's logic, a
company would never be able to change from expensing a cost to amortizing
that cost, because the cost in the first few years after the transition
would always be reduced from prior years as a result of the transition.

In rebuttal, Micron states that throughout the 1990's, LG and Hyundai
went from first amortizing R&D, then to expensing R&D, then back to
amortizing R&D and then most recently, to completely deferring R&D. As
found by the Department in the fifth review, while Korean GAAP can
accommodate all such methods, U.S. GAAP requires all R&D costs to be
recognized and expensed in the year incurred. Micron cites the
Department's R&D Memorandum in the fifth review and notes that the
principle of "matching" of expenses to revenues cannot be applied to R&D
costs because of the "general lack of discernible future benefits at the
time costs are incurred, and that because of this lack of discernible
benefits, the immediate recognition principle of expense recognition
should apply." See June 1, 1999, Memorandum to Holly Kuga, Re Whether to
Accept the Reported Research & Development Expenses of Hyundai Electronics
Co., Ltd. and LG Semicon, Ltd., in the 1997-98 Review ("R&D Memorandum").

Citing the Financial Accounting Standards Board ("FASB"), Micron states
that by using Hyundai and LG's method, a company might never reflect the
costs of research and development. Hyundai and LG could potentially never
realize any revenue from a particular project and never recognize any of
the R&D expense from that project as long as they arbitrarily foresee any
"possibility of realizing revenue." Moreover, as the FASB states, "[a]
direct relationship between research and development costs and specific
future revenue generally has not been demonstrated." It is thus difficult,
if not impossible, to link R&D costs to any subsequent revenue arising
from those costs in a reasonable manner.

Micron contends that Hyundai and LG are wrong in stating that the
Department's arguments are legally incorrect. The Act states that costs
shall "normally" be based on the company's records in accordance with
local GAAP unless such records do not "reasonably reflect the costs
associated with production and sale of the merchandise." Micron states
that the issue is not whether the Department allows R&D to be expensed or
amortized, but rather, whether a company's own financial records should
always provide the basis for calculating costs in an antidumping
proceeding. Micron uses Notice of Final Determination of Sales at Less
Than Fair Value: Structural Steel Beams From South Korea, 65 FR 41437
(July 5, 2000) ("Structural Steel Beams from Korea") as an example of the
Department's practice. In that case the respondent, Inchon, had expensed
R&D from 1994-1996, but began amortizing/capitalizing these expenses in
1997. Inchon argued that its accounting records were in accordance with
Korean GAAP and there was no record evidence demonstrating that its change
was distortive. Micron noted that although the Department stated that
Inchon method of amortizing and deferring R&D costs was permissible under
Korean GAAP, as was the previous methods are used in the preceding
reviews, the Department determined that the change may distort the
Department's cost calculation in an antidumping analysis.

Micron also disagrees with the assertion that the Department's decision
contradicts Micron I. The court did not rule that the Department must
amortize R&D costs, nor did it rule that Korean GAAP reasonably reflects
R&D costs. It ruled that the Department had "failed to articulate a
reasoned analysis in support of its decision." Micron states that the
Department's decision in the preliminary results did not have to do with
how R&D was conducted or its expected benefits, but how the changes in
accounting affected the respondents' profitability.

Micron states that Hyundai is wrong that the Department's decision is
inconsistent with IASC. Micron argues that IAS section 9 is similar to
FASB 2 which states that expenses cannot be matched to revenues because
the benefits of R&D cannot be discerned at the time the costs are incurred.

DOC Position:

Section 773(f)(1)(A) of the Act directs the Department to rely "on the
records of the exporter or producer of the merchandise, if such records
are kept in accordance with the GAAP of the exporting country (or the
producing country where appropriate) and reasonably reflect the costs
associated with production and sale of the merchandise." Section
773(f)(1)(A) of the Act also states that the Department will consider
whether "such allocations have been historically used by the exporter or
the producer." Further, as explained in the SAA, "[t]he exporter or
producer will be expected to demonstrate that it has historically utilized
such allocations, particularly with regard to the establishment of
appropriate amortization and depreciation periods and allowances for
capital expenditures and other development costs." See SAA at 834. See
also, Final Results 1996-1997, 63 FR at 50871.

We agree with Hyundai and LG that their method of amortizing and
deferring R&D costs is permissible under Korean GAAP, and that their
previous method of expensing all current period R&D expenses in the year
incurred is also in accordance with Korean GAAP. However, Hyundai's and
LG's practice of continually changing between these methods distorts the
cost calculation in an antidumping analysis. As explained in the
Department's R&D Memorandum from the fifth review of this proceeding,
Hyundai and LG have repeatedly changed their accounting method for R&D
expenses throughout the course of these proceedings (i.e., from
capitalizing and amortizing, to expensing in the year incurred, and now
back to capitalizing and amortizing). See LG Questionnaire Response
November 15, 1999 and Hyundai Questionnaire Response, November 15, 1999.
As a result, the respondents recognize, in relation to amounts that would
be recognized if either method was constantly applied, aberrationally high
amounts of R&D expense in some years, and aberrationally low amounts of
R&D expense in other years, that do not reasonably reflect the costs of
producing the subject merchandise. For example, in the first
administrative review of this proceeding, LG changed its method for
recognizing R&D expenses from capitalizing and amortizing R&D expenses
more than five years to expensing in full in the current year. See Dynamic
Random Access Memory Semiconductors of One Megabit or Above From the
Republic of Korea; Final Results of Antidumping Duty Administrative
Review, 61 FR 20216, 20219 (May 6, 1996) ("Final Results 1992-1994") and
Micron II. In that year, LG recognized, in addition to its current year
R&D expense, R&D expenses from its balance sheet which it had capitalized
in prior years (as part of its capitalizing and amortizing methodology)
and not yet amortized and recognized on its income statement.
Consequently, in that year, LG recognized the full amount of R&D expenses
incurred in that current year (under its expensing methodology) as well as
all of the previously unamortized and unrecognized amounts of R&D expenses
remaining on its balance sheet from prior years. LG thus recognized in
that year significantly higher than normal amounts of R&D expenses than it
would have under the consistent application of either methodology.

In the current review period, Hyundai and LG used the accounting
methodology, adopted in the fifth administrative review, of capitalizing
and amortizing their R&D expense over five years. As a result, the
respondents recognize (and have reported to the Department) approximately
one-fifth of their current year's R&D costs. If they had consistently used
this capitalization and amortization method in past years, one-fifth of
the R&D expense incurred in each of the previous four years, in addition
to the one-fifth of the current year's amount, would be included in the
current year's income statement. Questionnaire Response LG, Semicon, and
Hyundai, Section D, November 15, 1999. However, because of inconsistent
accounting treatment, the respondents are recognizing an aberrationally
low amount of R&D expenses. 

A second methodology that further distorts Hyundai's and LG's reported
costs is their practice of indefinitely deferring certain R&D costs. Apart
from R&D costs that are amortized over five years, Hyundai and LG are
completely deferring R&D costs for certain long-term projects until they
realize revenues from these projects, or until they foresee no possibility
of realizing revenue from these projects. While in the past the
respondents recognized all of this type of R&D expense in the year
incurred, under the current methodology, none of this R&D expense is
recognized in the current year. Moreover, this methodology is contrary to
the principle of conservatism in accounting where an expense is recognized
when incurred if the probability of associated revenue is remote or
uncertain. Therefore, we find that, for dumping purposes, this methodology
does not reasonably reflect the cost of producing the subject merchandise. 

Hyundai and LG, by continually changing their R&D accounting
methodologies, are manipulating the magnitude of the R&D expenses that
they are recognizing and reporting to the Department. This switching of
methodologies can lead to distortions for antidumping purposes because the
fluctuating costs tend to overstate per unit amounts in one period and
understate these amounts in other periods. The CIT has noted the
distortion that such changes in R&D accounting methodologies can cause. In
Micron II (which relates to the first review of this proceeding, when LG
switched from amortizing to expensing R&D costs in the current review),
the Court ruled that it was distortive for the Department to include in
its calculations, as LG included in its own books and records, both the
current year's R&D expenses and the unamortized amount of prior years' R&D
expenses. See Micron II. In the same manner that the CIT believes that the
amount of R&D expenses that LG recognized, and the Department included in
its calculations in the first review (i.e., one full current year amount,
plus prior capitalized amounts), was overstated, the amount of R&D
expenses that Hyundai and LG recognized in the current review (i.e., less
than one-fifth of one year's total R&D expense) is understated.

The Court, in Micron II, specifically stated that "the object of the cost
of production exercise is...to capture...those expenses that reasonably
and accurately reflect a respondent's actual production costs for a period
of review." See Micron II, at 6. However, by abruptly switching to
amortizing and deferring R&D expenses, Hyundai and LG are not capturing
those expenses that reasonably and accurately reflect their actual R&D
costs for this POR. As a result of their constantly changing R&D
accounting methodologies, their latest method of capitalization of R&D
produces a distorted and meaningless (for the cost of production exercise)
result that does not reasonably reflect the actual cost of producing the
subject merchandise.

As noted in LG's case brief, the Department did verify how LG recorded
its R&D expenditures in the normal course of business. The Department did
verify the information that LG presented in its response, which was
consistent with Korean GAAP. See LG Semicon Verification Report, May 15,
2000. However, the issue is not whether LG's reporting methodology is
consistent with Korean GAAP or is the same as was reported to the
Department, but whether the change in accounting methodologies is
distortive as to LG's costs. As stated above, the Department finds that
LG's continual changing of its accounting methodologies, regardless of its
adherence to Korean GAAP, is distortive.

We have therefore determined that is appropriate to recognize for
antidumping purposes all of Hyundai's and LG's 1998 R&D expenses in order
to reasonably and accurately reflect their actual R&D costs for a given
year. See LG Semicon Co., Ltd.: Calculations for the Preliminary Results
of the Sixth Administrative Review of the Antidumping Duty Order on DRAMs
from Korea, May 30, 2000, and Hyundai Electronics Industries Co., Ltd.:
Calculations for the Preliminary Results of the Sixth Administrative
Review of the Antidumping Duty Order on DRAMs from Korea, May 30, 2000.
The Department also believes that, in general, recognizing the current
year's R&D expenses is a reasonable method to recognize R&D expenses. This
methodology is consistent with both Korean and U.S. GAAP, and is the same
methodology that Hyundai and LG have been following prior to the fifth
administrative review.

We disagree with Hyundai that the SAA at 835 (on non-recurring costs)
specifically supports Hyundai's argument that the SAA prefers the
amortization of R&D expenses. The SAA at 835 states that the Department
associates expenditures with all production benefitting from the
expenditure, and gives R&D costs as an example of an expenditure that
Commerce may allocate over current and future production. In some limited
instances, consistent with the SAA at 835, it may be appropriate to
allocate certain R&D costs for items that have alternative future uses (and
benefits) over future production. The Department, in specific reference
to the section of the SAA at issue, stated in the preamble to its final
regulations that "the allocation of nonrecurring costs, such as R&D costs,
for purposes of computing COP and CV is dependent on case-specific
factors." Antidumping Duties; Countervailing Duties; Final Rule, 62 FR
27296, 27362 (May 19, 1997) ("Final Rule"). Moreover, in its proposed
rules, the Department, also in reference to the SAA at 835, specifically
stated that:

...there is no guarantee that...[R&D]...costs, if incurred to develop a
new product or production process, would hold any future benefit to a
company. To the contrary, after many months of costly research, a
manufacturer could find its new product technologically useless due to the
efforts of its competitors. In that case, the amounts incurred for R&D
would not benefit the producer in terms of future product sales. Under
these circumstances, the R&D expenditures must be recognized as a expense
in the year incurred rather than amortized to some future periods.

See Antidumping Duties; Countervailing Duties; Notice of Proposed Rule
Making and Request for Public Comments, 61 FR 7308, 7342 (February 27,
1996) ("Proposed Rule") (emphasis added).

We also disagree with Hyundai that it has demonstrated, pursuant to the
SAA, that it has historically utilized its current R&D accounting
methodologies. While both Hyundai and LG previously amortized R&D, they
have not done so consistently, and for the last several years have been
expensing R&D currently. 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 (January 7, 1997) ("Final Results 1994-
1995") (final results of second review); Notice of Final Results of
Antidumping Duty Administrative Review 
and Determination Not To Revoke Order in Part: Dynamic Random Access
Memory Semiconductors of One Megabyte or Above From the Republic of Korea,
62 FR 39809 (July 24, 1997) ("Final Results 1995-1996") (final results of
third review), and Final Results 1996-1997. Moreover, there is no evidence
on the record that LG or Hyundai (prior to 1996) ever completely deferred
R&D expenses. Additionally, the SAA at 834 is not, as Hyundai claims,
directed at changes in depreciation, but only discusses depreciation as an
example of how a company's records might not fairly allocate costs.

We disagree with both Hyundai and LG that the Department's decision to
reject their R&D accounting methodologies is contrary to the Micron I
decision. First, in Micron I, the Court ruled that the Department "failed
to articulate a reasoned analysis justifying the departure from its
established practice of amortizing those R&D expenses." See Micron I at
28. In contrast, in the present case, the Department has specifically
articulated how amortizing and deferring R&D expenses is distortive.
Second, the Department's methodology of expensing R&D is not a "departure
from its established practice." The Department's established practice is
to expense semiconductor R&D in the year incurred. While the Department,
prior to the final determination, in the cases cited by Hyundai and LG
(i.e., CTVs from Korea, Pipe from Korea, and PET Film), allowed
respondents to amortize R&D, the Department, for at least the last six
years and throughout the course of this proceeding, has constantly
required that respondents recognize R&D expenses in the year incurred.
See, e.g., Final Determination, 58 FR at 15472 (Department rejected
amortization of R&D), Final Results 1992-1994, Final Results 1994-1995,
Final Results 1995-1996), and Final Results 1996-1997. See also Notice of
Final Determination of Sales at Less Than Fair Value: Static Random Access
Memory Semiconductors From Taiwan, 63FR 6909 (February 23, 1998) ("SRAMs
from Taiwan"); Notice of Final Determination of Sales at Less Than Fair
Value: Static Random Access Memory Semiconductors From the Republic of
Korea, 63 FR 8934 (February 23, 1998) ("SRAMs from Korea") (Department
accepted expensing of R&D currently) and Notice of Final Determination of
Sales at Less Than Fair Value: Dynamic Random Access Memory Semiconductors
of One Megabit and Above ("DRAMs") From Taiwan, 64 FR 56308, 56319
(October 19, 1999)("DRAMs from Taiwan") (Department agreed that "R&D costs
should be expensed as incurred"). Third, the facts in Micron I and the
present case are different. The Micron I decision concerned only the
respondents' amortization of R&D expenses, while the present case also
involves the respondents' practice of continually changing how they
recognize R&D expenses.

Hyundai's citation to Steel Wire Rod from Canada also is misplaced. Steel
Wire Rod from Canada, 63 FR at 9187, concerned the amortization of certain
costs relating to a furnace conversion, and not the amortization and
deferral of R&D costs, as in the present case.

Further, we disagree with LG that the Department would never allow a
company to change from expensing any cost to amortizing that cost because
of the reduced cost recognized in the transition year. The Department
evaluates any such change on a case by case basis. In the present case, as
explained above, as a result of the continually changing methodology we
found that the reduced R&D cost recognized by Hyundai and LG through the
amortization and deferral of their R&D expenses, and resulting allocation
of R&D expenses to merchandise, does not reasonably reflect the cost of
producing the subject merchandise.

Comment 10: Cross-Fertilization of R&D

Hyundai believes that the Department erred by disregarding the R&D
expense incurred specifically by Hyundai for memory products and instead
including the cost of R&D performed for non-memory products in the cost of
Hyundai's DRAMs. Hyundai states that the Department's long-standing
practice has been to calculate R&D expense on the most product-specific
basis possible, and to exclude those R&D expenses that do not relate to
the production of non-subject merchandise. 

Hyundai asserts that the Department deviated from its normal R&D
calculation methodology in the investigation of DRAMs from Korea on the
theory that "the benefits from the results of R&D, even if intended to
advance the design or manufacture of a specific product, provide an
intrinsic benefit to other semiconductor products." See Final
Determination of Sales at Less Than Fair Value: Dynamic Random Access
Memory Semiconductors of One Megabit and Above from the Republic of Korea,
58 FR 15467, 15472 (March 23, 1993).("Final Determination for Korean
DRAMs"). However, according to Hyundai, in Micron I, the Court reversed
the Department's decision in the DRAMs investigation because it was
unsupported by substantial evidence. 

Hyundai, does not contest the Department's position that all R&D for
memory semiconductor projects, including SRAMs, benefits DRAMs. Hyundai
believes that the Court ruling in Micron I applies to the instant case as
well. Hyundai argues that there is no "abundance of corroborating
evidence" to support the Department's cross fertilization theory. Rather,
Hyundai argues that the evidence demonstrates that there is no cross-
fertilization. 

However, Hyundai states that R&D for non-memory devices does not benefit
memory devices because of the fundamental differences in function, design,
and production. Hyundai claims that the objective of non-memory R&D is
product design and specific end-use application, while the focus of memory
R&D is on die shrinks. Hyundai also states that the production volume for
non-memory devices is very small while millions of memory devices are
produced every month. 

Hyundai concludes by arguing that DRAM production is unlikely to benefit
from R&D performed for non-memory semiconductors and that Hyundai's
production of DRAMs has not benefitted from R&D performed by Hyundai for
non-memory semiconductors. Moreover, Hyundai feels that the record
contains ample evidence to allow the Department to calculate product-
specific R&D expenses while lacking any evidence to support inclusion of
non-memory R&D expenses. 

LG argues that the Department's statutory mandate is to calculate a
respondent's actual costs, including R&D, for subject merchandise based on
the records of that company. The Department has applied its longstanding
requirement for product specific R&D costs without distinction in many
previous cases, including semiconductor cases, e.g., 64K Dynamic Random
Access Memory Components (64K DRAMs) From Japan, 51 FR 159 (April 29,
1986).

LG alleges that based on these facts and legal principles, the CIT
reversed the Department's "cross-fertilization" R&D methodology in the
Final Determination for Korean DRAMs , holding that the Department's
"sweeping...determination" to ignore LG's product-specific R&D costs could
not "rest on intuitive appeal alone; rather, the factual premise upon
which the Department bases its choice of methodology must be supported by
substantial evidence on the record." See Micron I at 27-28. According to
LG, the Court contrasted the Department's "mere speculation" in support of
its position with LG's "ample citation to verified record evidence tending
to show that the subject merchandise did not derive an intrinsic benefit
from R&D related to other semiconductor products." Id. at 28. Concluding
that "neither Commerce nor Micron adequately addresses this substantial
evidence supporting respondents' position," the Court ordered the
Department to recalculate LG's R&D on a product-specific basis. Id. LG
contends that nothing has changed in this review that would justify a
different result.

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

Micron contends that the Department's approach in this and its prior
determinations is legally sound and supported by the record evidence.
According to Micron, the respondents make no new arguments that the
Department has not previously considered and rejected. On the facts,
Micron argues, respondents again present no new information to rebut the
conclusion of the Department's independent expert that there is a
significant cross-fertilization in R&D efforts among various semiconductor
product lines. 

Micron states that in their case briefs respondents, argue, variously,
that the referenced evidence of cross-fertilization is insufficient to
support the Department's conclusion; that the Department's approach is
inconsistent with its "long-standing practice" in other cases of
calculating a "product-specific" R&D expense which excludes costs that are
not related to the subject merchandise; and that a "product-specific"
allocation is required because respondents maintain accounting records
that would allow an allocation based on narrower product lines. According
to Micron, all of these arguments were made, and specifically rejected, in
the Department's final results for the fifth review under this order, and
should be rejected once again.

DOC Position:

We disagree with Hyundai's and LG's argument that the Department erred in
including the cost of R&D performed for non-memory and non-DRAM
semiconductor products, respectively, in the cost of their DRAMs. This
allocation methodology is fully consistent with the antidumping statute
and the R&D calculations we have used throughout the Korean and Taiwan
DRAMs and SRAMs proceedings.

In SRAMs from Korea, we noted that, as a result of the forward-looking
nature of R&D activities, we could not predict every instance where SRAM
R&D may influence logic products or where logic R&D may influence SRAM
products. As a result, we requested that Dr. Murzy 
Jhabvala, a semiconductor device engineer at the National Aeronautics and
Space Administration with twenty-four years of experience, state his views
regarding any potential overlap or cross-fertilization of R&D efforts in
the semiconductor industry. In fact, Dr. Jhabvala had 
identified in another semiconductor proceeding before the Department
areas where R&D from one type of semiconductor product influenced another
semiconductor product. In a statement prepared for the SRAMs Final
Determination, Dr. Jhabvala stated that:

SRAMs represent along with DRAMs the culmination of semiconductor
research and development. Both families of devices have benefitted from
the advances in photo lithographic techniques to print the fine geometries
(the state-of-the-art steppers) required for the high density of
transistors....In addition to achieve higher access speeds bipolar (ECL or
TTL) output amplifiers are incorporated directly on chip with the CMOS
SRAM memory array, a process known as BiCMOS. Further efforts to improve
speed have resulted in the combination of the bipolar ECL technology with
CMOS technology with silicon on insulator (SOI) technology.

Clearly, three distinct areas of semiconductor technology are converging
to benefit the SRAM device performance. There are other instances where
previous technology and the efforts expended to develop that technology
occurs in the SRAM technology. Some examples of these are the use of thin
film transistors (TFTs) in SRAMs, advanced metal interconnect systems,
anisotropic etching and filling techniques for trenching and planarization
(CMP) and implant technology for retrograde wells.

See September 8, 1997, Memorandum from Murzy Jhabvala to U.S. Department
of Commerce regarding "Cross Fertilization of Research and Development of
Semiconductor Memory Devices" ("September 1997 Jhabvala Memo").

In SRAMs from Korea, we disagreed with Hyundai's contention that we must
follow Hyundai's normal accounting records which categorize R&D expenses
by project and product. See SRAMs from Korea, 63 FR at 8940. We disagree
with similar contentions from LG and Hyundai in this review. As we have
said in the past (see, e.g., Final Results 1996-1997, 63 FR at 50870), we
are not bound by the way a company categorizes its costs, R&D projects, or
laboratory facilities, or by the company's accounting records that we
review at verification if they do not reasonably reflect the costs
attributable to production of the subject merchandise. Moreover, the mere
fact that R&D projects for memory and non-memory products may be run in
different laboratories, the fact that process and product research for
memory and non-memory products may be distinguished, and the fact that
each of the respondents may account for these R&D projects separately in
their respective books and records, does not address the issue of cross-
fertilization in semiconductor R&D. The existence of cross-fertilization
in semiconductor R&D is the central theme of Dr. Jhabvala's many
statements to the Department. Dr. Jhabvala offers various examples in
those statements to illustrate that, regardless of the accounting or 
laboratory arrangements, the research results or developments in the
processes and technologies used in the production and development of one
semiconductor family can be (and are) used in the production and
development of other semiconductor families. Dr. Jhabvala goes so far 
as to state that it would be "unrealistic to expect researchers to work
in complete technical isolation constantly reinventing technology that
might already exist." See September 1997 Jhabvala Memo. Given these facts,
we do not believe that the reported expenses for DRAM R&D projects
reasonably reflect the appropriate cost of producing the subject
merchandise. As a result, we have continued to allocate all semiconductor
R&D expenses over the total semiconductor cost of goods 
sold, a methodology which does not overstate costs, but which we believe
reasonably and accurately identifies the R&D expenses attributable to
subject merchandise.

This methodology reflects the Department's long-standing practice where
costs benefit more than one product to allocate those costs to all the
products which they benefit. See, e.g., SRAMs from Korea, 63 FR at 8940.
Contrary to LG and Hyundai's arguments, this methodology results in the
calculation of product-specific costs consistent with sections 773(e) and
773(f)(1)(A) of the Act because it includes all relevant R&D rather than
just DRAM-specific R&D "account entries", which do not by themselves
reflect all costs associated with the production and sale of subject
merchandise.

Comment 11: Use of COGS to Calculate R&D Ratio
Hyundai claims that the Department erred in calculating Hyundai's R&D
ratio as a percentage of COGS rather than as a percentage of COM. Hyundai
believes that this is distortive as the Department applied the COGS-based
percentage to the COM for each product. Hyundai believes that, under the
principle of parallel construction, the denominator that is used to
calculate the R&D ratio should be the same basis as the per unit value to
which the ratio is applied. Since the per unit value to which the ratio is
applied is the COM, the denominator for the ratio calculation should also
be the COM.

Hyundai states that the Department endorsed the principle of parallel
construction in DRAMs from Taiwan, 64 FR 56308, 56312 (October 19, 1999)
and Live Cattle from Canada, 64 FR 56738, 56775 (October 21, 1999) in
calculating the denominator for the G&A and financial expense rate
calculations. Hyundai also points out that the Department recognized the
principle of parallel construction in the Preliminary Results by adjusting
Hyundai's G&A, financial expense, and R&D calculation to make Hyundai's
COM consistent with the COGS. Hyundai argues that if it is appropriate to
adjust the COGS to align it more closely to the COM when COGS is used as
the denominator for a ratio calculation, then it is more accurate and
appropriate to use COM itself as the denominator. 

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

Micron believes that the Department correctly calculated Hyundai's R&D
expense rate when it allocated all Hyundai semiconductor R&D over its
semiconductor COGS. Micron 
contends that, like G&A expenses, R&D expenses are incurred for the
products sold during a period, rather than the products manufactured
during that period. Micron argues that in the current review period the
difference between semiconductor COM and cost of sales is not very large.
Further, Micron states that there is nothing in the record that provides a
basis to evaluate Hyundai's claim, such as semiconductor beginning and
ending inventories.

DOC Position:

This is the same issue that Hyundai raised in the final results of the
fifth administrative review, and we continue to disagree with Hyundai. The
antidumping law does not prescribe a specific method for calculating the
R&D expense rate. When a statute is silent or ambiguous, the determination
of a reasonable and appropriate method is left to the discretion of the
Department. Because there is no bright-line definition in the Act of what
a R&D expense is or how the R&D expense rate should be calculated, the
Department has, over time, developed a consistent and predictable practice
for calculating and allocating R&D expenses. This consistent and
predictable method is to calculate the R&D ratio by dividing a
respondent's R&D expense by the respondent's COGS, and to apply the ratio
to the reported COM. See, e.g., Final Determination of Sales at Less than
Fair Value: Dynamic Random Access Memory Semiconductors of One Megabit and
Above from Korea, 58 FR 15467, 15470 (March 23, 1993), DRAMs from Korea:
Final Results of Antidumping Duty Administrative Review, 62 FR 965, 967
(January 7, 1997), DRAMs from Korea, 62 FR 39809, 39823 (July 24, 1997),
and DRAMs from Korea, 63 FR 50867, 50870 (September 23, 1998). See also
DRAMs from Taiwan, 64 FR at 56312. We also note that the R&D expense rate
is generated from a respondents financial statement on the basis of COGS
in that financial statement.

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

Comment 12: Calculation of LG's R&D Ratio

LG contends that if the Department in the final results continues to
adjust LG's reported R&D in accordance with the methodology outlined in
the preliminary results notice, then it should correct two clerical errors
in the calculation of that adjustment.

First, according to LG, the Department stated in the preliminary results
that it intended to "recognize for antidumping purposes all of Hyundai's
and LG's 1998 current R&D costs incurred." See Preliminary Results at
35890. However, LG claims that, in making this adjustment, the Department
included not only all R&D incurred by LG in 1998, but also all R&D
incurred by LG in 1997.

Second, the Department made an adjustment to the denominator of the R&D
ratio for packing expense. LG contends that rather than using packing
expense for 1998, which should correspond to 1998 COGS, the Department
used packing expense for the 18-month period January 1998 through June
1999.

Micron did not comment on this issue.

DOC Position:

We agree with LG with regard to both clerical error allegations and have
made the appropriate corrections to the Department's R&D ratio
calculation. See LG Final Results Calculation Memorandum dated November 3,
2000.

Comment 13: Calculation of LG's G&A Ratio

In the preliminary results, the Department made several adjustments to
LG's reported G&A expense rate. According to LG, in the final results, the
Department should correct a minor calculation error made in these
adjustments.

Specifically, as noted with regard to R&D expense, the Department made an
adjustment to the denominator of the G&A expense ratio for packing
expense. LG maintains that rather than using packing expenses for 1998,
which would correspond to 1998 cost of sales, the Department used packing
expense for the 18-month period January 1998 through June 1999.

Micron did not comment on this issue.

DOC Position:

We agree with LG's clerical error allegation and have made the
appropriate corrections to the Department's G&A expense ratio. See LG
Final Results Calculation Memorandum dated November 3, 2000.

Comment 14: Increase in Useful Lives

Hyundai and LG argue that the Department overstated their depreciation
costs by rejecting both companies' increases in the useful lives of
certain assets. Hyundai and LG assert that the revision, in accordance
with Korean GAAP, was based upon an objective and independent evaluation
by independent appraisers. They state that the useful lives that were
established by the appraisers were consistent with Hyundai and LG's
operating experience, and the operating experience of other Korean
semiconductor manufacturers. Both Hyundai and LG point out that the useful
lives of only certain equipment and other assets were increased, while
many others were left unchanged. They believe that this selectivity
employed in appraising the useful lives of assets helped ensure that the
revisions more accurately reflect the actual lives of the assets. 

Both Hyundai and LG cite a number of cases, including Certain Cut-to-
Length Carbon Steel Plate Products from Korea, 64 FR 73196, 73206
(December 29, 1999), that they claim demonstrate that the Department's
criterion for rejecting or accepting restatements in the useful lives of
assets is whether the restatement is distortive. Both Hyundai and LG claim
that, in the current review, the Department has failed to demonstrate any
specific instance where Hyundai and LG's restatements were distortive or
unreasonable. Both companies also state that the facts in the current case
parallel those in Oil Country Tubular Goods from Mexico, 60 FR 33567,
33573 (June 28, 1995), where the Department accepted the restatement of
the useful life of the respondent's assets because the useful life of the
assets was determined by an independent appraiser in accordance with
Mexican GAAP. 

Hyundai and LG also claim that the Department exaggerated the magnitude
of the restatement of the useful lives. Hyundai claimed that extending the
useful lives of certain assets by at least fifty percent only had a
minimal impact on its total depreciation expense. LG further states that
it extended the useful lives of only a small percentage of its assets by
at least fifty percent, and that, in any case, the relevant issue is not
the magnitude of the increase but the reasonableness of the increase. 

Both Hyundai and LG argue that when the Department commented in its
Preliminary Results that it "does not consider it appropriate for
respondents to dramatically change the useful lives of their assets for
antidumping purposes," the Department was asserting that Hyundai and LG
were changing the useful lives of its assets for the purpose of obtaining
a favorable result in the antidumping proceeding. Hyundai states that
there is no foundation for the assertion that the restatement of useful
lives was motivated by antidumping considerations. In addition, LG
believes that the Department may not dismiss these changes simply because
they are changes, but must address LG's revised useful lives on their
merits. 

Moreover, Hyundai notes that the Department based its calculation of
depreciation on Hyundai's increased valuation of its assets. Hyundai feels
if it is appropriate to rely upon the appraisers' report for the purpose
of calculating Hyundai's depreciation expense, the Department must equally
rely upon these same appraisers' report for the purpose of establishing
the useful lives that form the basis for the depreciation expense.
Conversely, Hyundai feels that if the Department rejects the extension of
the useful lives, fairness and consistency require that it should also
disregard the increased valuation of Hyundai's assets for the purpose of
calculating depreciation, and that it should calculate depreciation on the
basis of the previous valuation.

Micron agrees with the Department's rejection of Hyundai's and LG's
changes in the useful lives of certain assets. Micron allows that, taken
in isolation, a company's change in useful lives might be appropriate;
however, Micron contends that, when such adjustments are part of a pattern
of accounting changes designed to make a company appear financially
healthier than it otherwise would appear, it is incumbent upon the
Department to take such a pattern into consideration. Micron argues that
Hyundai and LG have continually adjusted their depreciation costs on the
basis of the health of their company and the DRAM market as a whole,
rather than on the basis of the actual life of the companies' assets. 

Regarding the Department's statement that it "does not consider it
appropriate for respondents to dramatically change the useful lives of
their assets for antidumping purposes," Micron believes that it is
unnecessary for the Department to find that a company has changed its
accounting methodology for "antidumping purposes." Micron believes that
there are other compelling reasons for altering the useful lives of
assets, such as increasing profits (or reducing losses), especially since
Korean GAAP is sufficiently permissive that a company could be in
conformity with local GAAP, regardless of what it did.


DOC Position:

As we stated in the preliminary results, our practice, pursuant to
section 773(f)(1)(A) of the Act and the SAA at 834, is to use those
accounting methods and practices that respondents have historically used.
Hyundai and LG, in 1998, changed the useful lives of their assets for the
second time since 1996. The Department accepted the respondents' 1996
adjustment to useful lives because those new useful lives reflected common
practice within the semiconductor industry and the respondents' own
practice. As we stated, "[i]t is common practice within the semiconductor
industry to depreciate machinery and equipment using a three-to five-year
useful-life assumption. Respondents change...does not deviate from this
three to five year band." See Final Results 1996-1997, 63 FR 50867, 50871.
In contrast, the respondents' latest change to the useful lives of their
assets now deviates from this common practice in the semiconductor
industry, as the revised useful lives are greater than five years, and in
some cases, significantly greater than five years. This change also
deviates from the respondents' own historical practice, as semiconductor
manufacturers, of depreciating their machinery and equipment in a three-to-
five-year band. See Id. Although the useful lives adopted by the
respondents were based on those lives recommended by an independent
appraiser,(13) the appraiser's recommendations do not reflect either the
practice of the semiconductor industry on the whole, or the historical
practice of Hyundai and LG. Furthermore, we have no reason to believe that
the common practice in the semiconductor industry regarding the useful
lives for depreciation purposes has changed since 1998, when the
Department accepted the respondents' previous change in useful lives.
Therefore, since the new useful lives adopted by the respondents are not
reasonable, we adjusted Hyundai's and LG's depreciation expense using the
pre-1998 useful lives. 

We also disagree with the respondents that the facts in this case
directly parallel those in OCTG from Mexico. In OCTG from Mexico, 60 FR
33567, 33573, the Department made no adjustment for the useful life of the
assets because there was no evidence that the lives used in the
depreciation calculation were overstated. In the present case, for the
reasons stated above, we found that many of the revised useful lives were
overstated.

We further disagree with Hyundai that it is inappropriate to accept the
revaluation of its assets but not the change in the useful lives of
certain assets, since both changes resulted from the same appraiser's
report. The revaluation of the assets and the change in the useful lives
are two completely separate events that were based on separate parts of
the appraiser's report.(14) The revaluation of the assets resulted from
the reappraisal of Hyundai's assets subsequent to the recent devaluation
of the won. As depreciation enables companies to spread large expenditures
on purchases of machinery and equipment over multiple years, adjusting the
historical cost basis of fixed assets for the devaluation of the won
results in the depreciation deferred to future years not being understated
in constant currency terms. On the other hand, the change in useful lives
was based on a completely separate analysis in the appraiser's report
that, as we explained above, does not reflect the semiconductor industry
or Hyundai's own, historical practice. In accordance with section
773(f)(1)(A) of the Act, we based depreciation on the revalued assets as
recorded in Hyundai's records because the revaluation was in accordance
with Korean GAAP, and the resulting depreciation reasonably reflected the
cost of producing the subject merchandise in post-devaluation Korea. We
also based depreciation, in accordance with 773(f)(1)(A) of the Act, on
the pre-1998 useful lives employed by Hyundai because, as explained above,
we believe that the useful lives adopted in 1998, and the resulting
depreciation, are distortive.

In regards to the Department's statement about the respondents' change in
useful lives for "antidumping purposes," the Department did not intend to
attribute any motivation to the respondents' methodological change.
Rather, the Department simply was referring to the use of the revised
useful lives in the costs submitted to the Department for purposes of
calculating a dumping margin.

Comment 15: Adjustment to Depreciation for LG

LG contends that if the Department, in the final results, continues to
adjust LG's reported depreciation in accordance with the methodology
outlined in the preliminary results notice, then it should revise the COGS
figures used to calculate LG's R&D, G&A, and interest expense ratios to
reflect the adjustment to depreciation.

LG states that the R&D, G&A, and interest expense ratios are applied to
the COM of each product. According to LG, in the preliminary results,
although the Department revised the COM of each product to reflect its
revision of LG's depreciation, the Department did not revise the
calculation of the expense ratios applied to COM. Therefore, LG argues
that R&D, G&A, and interest expenses were distorted because the
calculation of the expense ratios (in particular, 1998 COGS, which is the
denominator of each ratio) did not reflect the Department's adjustment to
depreciation.

Micron did not comment on this issue.

DOC Position:

We agree with LG and for these final results we have adjusted LG's COGS
in the calculation of R&D, G&A, and interest expense by the total 1998
adjustment to depreciation. See LG Final Results Calculation Memorandum
dated November 3, 2000.

Comment 16: Programming Error in LG's Depreciation Adjustment

Micron maintains that a clerical error caused LG's depreciation
adjustment to be incorrectly entered into the Department's margin
calculation program. According to Micron, the Department's preliminary
calculation memorandum provided the factors to be used to recalculate LG's
depreciation. See LG Semicon Co., Ltd.- Calculations for the Preliminary
Results of the Sixth Administrative Review of the Antidumping Duty Order
on DRAMs from Korea ("LG's Preliminary Calculation Memo"). However, Micron
maintains that the Department's margin calculation program does not
fulfill the intent conveyed in LG's Preliminary Calculation Memo. Micron
explains that for three lines in the margin calculation program, the
correct adjustment factor should be 1/ (book depreciation as a percentage
of total depreciation).

In rebuttal, LG states that it has no quarrel with Micron's suggested
programming but maintains as it did in its case brief that its revised
useful lives reasonably reflect the costs associated with the production
and sale of subject merchandise. As discussed previously, LG contends that
the Department should accept LG's reported depreciation without revision.
See Comment 14.

DOC Position:

We agree with Micron that the Department's preliminary margin calculation
program contains errors with regard to LG's depreciation adjustment. These
errors have been corrected for these final results.

Comment 17: Adjustment for Special Depreciation for LG 

LG claims that in order to avoid double counting of depreciation expense
for assets purchased before January 1, 1995, the Department should deduct
the special depreciation amount that the Department previously expensed
from the depreciation amount recorded in LG's books and reported in its
questionnaire response. LG notes that the Department made an adjustment
for previously expensed special depreciation for Hyundai in the
preliminary results but failed to make this adjustment for LG. See
Preliminary Results, at 35,891.

Micron did not comment on this issue.

DOC Position:

We agree with LG and have made an adjustment for special depreciation for
these final results. See LG Final Results Calculation Memorandum dated
November 3, 2000.

Comment 18: LOT/CEP Offset

Micron argues that in two recent decisions the CIT held that the
Department must perform its LOT analysis based on unadjusted starting
prices both for the U.S. sales used to calculate CEP as well as the home
market sales used to calculate NV. See Borden, Inc. v. United States, 22
CIT __, 4 F. Supp. 2d 1221 (1998) ("Borden"); Micron Technology, Inc. v.
United States, 23 CIT __, 40 F. Supp. 2d 481, 485-86 (1999). According to
Micron, in the Preliminary Results, the Department failed to do this, and
instead analyzed the LOT of the home market sales based on the unadjusted
starting prices of those sales, while analyzing the LOT of the U.S. sales
based on the "level of the constructed sale from the exporter to the
[affiliated] importer," i.e., the prices after adjustment for U.S.-related
selling expenses. 

Using this analysis, Micron contends, the Department determined, for both
Hyundai and LG, that the home market and U.S. sales were made at different
LOTs. In the absence of sales at more than one LOT in the comparison
market, the Department found it could not quantify a LOT adjustment, and
granted a CEP offset adjustment to Hyundai and LG. See id. Micron states
that the Department declines to follow Borden on the grounds that it "is
not a final decision." See Level of Trade Memorandum, dated May 27, 2000.
However, Micron argues that as the Borden and Micron decisions both
establish, the Department's current practice is in conflict with the
requirements of the statute. Micron maintains that when the Department
conducts a corrected LOT analysis, based on unadjusted starting prices in
both the U.S. and the comparison markets, it will find that the comparison
market sales made by Hyundai and LG were not made at a more advanced LOT
than their sales in the United States, and therefore there is no basis for
granting either a LOT adjustment or a CEP offset.

Hyundai argues that the Department has ruled that Hyundai has been
entitled to a CEP offset in each administrative review and argues that
there are no factual reasons why the Department should reverse its long-
standing practice. The Department has consistently ruled that the LOT of
CEP sales must be based on the adjusted CEP price, not on the CEP starting
price as advocated by Micron. See Final Results 1997-1998. Hyundai argues
that Petitioner's reliance on Borden is based on an incorrect
interpretation of the statute. The court in Borden stated that the
adjustments to CEP must be disregarded in defining the LOT of the CEP for
purposes of the offset. However, the adjustments authorized under section
772(b) are an integral part of the definition of the statute and must be
adhered to when determining the adjusted CEP price for comparisons and
conducting the LOT analysis. Hyundai alleges that the adoption of the
court's reasoning in the Borden case would result in an unfair and
distorted price comparison that is contrary to Congressional intent.

Hyundai argues that it has established that there is a difference between
the LOT in the home market and the CEP LOT. All of Hyundai's U.S. sales
are on a CEP basis and its home market sales are at a more advanced stage
of distribution than the CEP sales. Therefore, a CEP offset is appropriate
under the provisions of the statute. 

LG asserts that the Department correctly made a CEP offset. LG also
maintains that the Department should not apply the Borden case to the
instant review. According to LG, the court mistakenly held that the
Department's adjustments to CEP starting prices (by removing certain
expenses) are inconsistent with section 773(a)(7) of the Act. LG claims
that the court believed that such adjustments distort the LOT analysis and
that this "pre-adjustment" creates an automatic CEP offset in addition to
any CEP offset or LOT adjustment made after a comparison of adjusted CEP
to HM price. LG contends that the Department's methodology does not create
a "pre-adjustment" and correctly removes from the starting U.S. price only
those expenses related to the resale transaction between the U.S.
affiliate and the unaffiliated U.S. customer. 

DOC Position: 

The Department agrees with Hyundai and LG. We have consistently stated
that the statute and the SAA support analyzing the LOT of CEP sales at the
constructed level after expenses associated with economic activities in
the United States have been deducted, pursuant to section 772(d) of the
Act. In the preamble to our proposed regulations, we stated:

With respect to the identification of levels of trade, some commentators
argued that, consistent with past practice, the Department should base
level of trade on the starting price for both export price EP and CEP
sales ... The Department believes that this proposal is not supported by
the SAA. If the starting price is used for all U.S. sales, the
Department's ability to make meaningful comparisons at the same level of
trade (or appropriate adjustments for differences in levels of trade)
would be severely undermined in cases involving CEP sales. As noted by
other commentators, using the starting price to determine the level of
trade of both types of U.S. sales would result in a finding of different
levels of trade for an EP sale and a CEP sale adjusted to a price that
reflected the same selling functions. Accordingly, the regulations specify
that the level of trade analyzed for EP sales is that of the starting
price, and for CEP sales it is the constructed level of trade of the price
after the deduction of U.S. selling expenses and profit. See Proposed
Rule, 61 FR at 7347.

Consistent with the above position, in those cases where a LOT comparison
is warranted and possible, the Department normally evaluates the LOT for
CEP sales based on the price after adjustments are made under section
772(d) of the Act. See, e.g., Large Newspaper Printing Presses and
Components Thereof, Whether Assembled or Unassembled, From Japan: Notice
of Final Determination of Sales at Less Than Fair Value, 61 FR 38139,
38143 (July 23, 1996). We note that, in every case decided under the
revised antidumping statute, we have consistently adhered to this
interpretation of the SAA and of the Act. See, e.g., Aramid Fiber Formed
of Poly Para-Phenylene Terephthalamide from the Netherlands; Preliminary
Results of Antidumping Duty Administrative Review, 61 FR 15766, 15768
(April 9, 1996); Certain Stainless Steel Wire Rods from France;
Preliminary Result of Antidumping Duty Administrative Review, 61 FR 8915,
8916 (March 6, 1996); and Antifriction Bearings (Other Than Tapered Roller
Bearings) and parts Thereof from France, et. al.; Preliminary Results of
Antidumping Duty Administrative Review, 61 FR 25713, 35718-23 (July 8,
1996).

In this case, in accordance with the precedent cited above, our
instructions in the questionnaire issued to respondents stated that the
LOT for CEP sales would be evaluated after adjustments were made to the
CEP starting price in accordance with section 772(d). All respondents
adequately documented the differences in selling functions in the home and
in the U.S. markets. Therefore, the Department's decision to grant a CEP
offset to Hyundai and LG, after Commerce determined that there were
differences in LOTs, that data available do not 

provide an appropriate basis to determine a LOT adjustment, and that the
NV LOT was more remote than the comparable U.S. sale, was consistent with
the statute and the Department's practice, and was supported by
substantial evidence on the record.

We disagree with Micron's interpretation of Borden and of its impact on
our current practice. In Borden, the Court held that the Department's
practice to base the LOT comparisons of CEP sales after CEP deductions for
economic activity in the United States is an impermissible interpretation
of section 772(d) of the Act. See Borden, at 1236-38 ; see also Micron, 40
F. Supp. 2d at 485-86. The Department believes, however, that its practice
is in full compliance with the statute. Because Borden is not a final and
conclusive decision, the Department has continued to follow its normal
practice of adjusting CEP under section 772(d) of the Act, prior to
starting a LOT analysis, as articulated in the regulations at section
351.412. See Borden v. United States, appeal docketed, Federal Circuit
Consol. Appeal Nos. 99-1575, -1576. Accordingly, consistent with the
Preliminary Results, we will continue to analyze the LOT based on adjusted
CEP sales, rather than the starting CEP price.

Comment 19: LG's Interest Expense

Micron requests that the Department use LG's unconsolidated financial
statements to calculate the company's financial expense ratio. Micron
states that the consolidated statement includes the results of Zenith
Electronics Company ("Zenith"), a failing U.S. company whose results would
not be included under U.S. GAAP. Micron believes that the use of LG's
unconsolidated financial statement will more accurately capture LG's true
financial expense.

Micron argues that under U.S. GAAP, Zenith would not have been
consolidated with LG Semicon as it is less than 50 percent owned by LG.
Under Korean GAAP, Zenith was apparently consolidated pursuant to an
exception to the general rule. LG uses these consolidated financial
statements as the basis for calculating its financial expense ratio, and
used Zenith's cost of sales to greatly increase the denomination while
only slightly increasing the numerator.

Under U.S. GAAP, consolidation of financial statements is required when
the parent company owns more than 50 percent of the voting shares of the
subsidiary. Korean GAAP also has the same principles, however with the
exception that if no company has controlling interest, the largest
shareholder among the same group of companies that own more than 30
percent of the company may be considered to be the controlling company.
Korean GAAP also provides that a subsidiary should be excluded from
consolidation when the subsidiary company is being liquidated, or has been
declared bankrupt by a court.

Micron states that while the Department generally uses consolidated
financial statements as the basis for calculating the financial expense
ration, it has made exceptions. Micron argues that, for purposes of its
financial expense calculation, LG has used its 38 percent ownership in
Zenith to give it 100 percent of Zenith's cost of sales. Micron argues
that because of this fact, the Department should not include Zenith's cost
of sales with LG's cost of sales, because it significantly dilutes the
effect of the very substantial financing burden that LG undertook to build
its DRAM fabrication facilities.

LG argues that Micron's request ignores the Department's use of audited
consolidated financial statements from previous reviews. Since the initial
investigation, LG has reported financing expense based on its
unconsolidated financial statements. In the fourth review the Department
rejected LG's approach and recalculated LG Semicon's consolidated
financial statements. In conformity with the Department's decision, LG in
the fifth review and in the instant review reported interests expense
based on its audited consolidated financial statements.

LG argues that its inclusion of Zenith within its consolidated financial
statements, is not an exception to Korean GAAP, but rather a rule. The
consolidated financial statements include Zenith's financial statements,
such that any losses incurred by Zenith are reflected. Additionally the
auditors approved LG's consolidated statements because of this fact.

LG also argues that it is not the Department's practice to reject
consolidated financial statements for discretionary reasons. In Final
Determination for Korean DRAMs, 58 FR at 15475, and Notice of Final
Results and Partial Rescission of Antidumping Duty Administrative Review:
Certain Pasta From Turkey, 63 FR 68429, 68435 (December 11, 1998)
("Certain Pasta from Turkey"), the consolidated financial statements were
rejected either because they were not audited or because of internal
errors within the statements. LG argues that it is the Department's
consistent practice to always use the consolidated financial statements in
which the interest expense must be calculated on the basis of the
consolidated financial statement. LG argues that Micron's request that the
Department calculate interest expense based on LG's unconsolidated
financial statements is neither warranted by the facts nor justified by
the law.

DOC Position

We agree with the respondent. For purposes of calculating a financial
expense ratio, it is the Department's practice to use a company's
consolidated financial statements, rather than unconsolidated financial
statements. In Final Results of Antidumping Duty Administrative Review:
Silicon Metal From Brazil, 63 FR 6899, 6906 (February 11, 1998) ("Silicon
Metal from Brazil"), the Department stated,

This practice recognizes two facts; (1) The fungible nature of invested
capital resources such as debt and equity of the controlling entity within
a consolidated group of companies, and (2) the controlling entity within a
consolidated group has the power to determine the capital structure of
each member with its group.(15)

Greater than 50 percent equity ownership is not the only instance in
which, under Korean GAAP, a subsidiary can and should be consolidated. For
example, it is enough for Company A and/or their subsidiaries (including
the subsidiaries of their subsidiaries) as a group to own more than 30
percent of the total outstanding capital stock of Company B and as a group
hold the largest voting rights of that company in order to be required
(subject to certain exceptions) to 
include Company B in Company A's consolidated financial statement.(16) In
essence, if a company controls more than 30 percent of a company's stock
and is the largest shareholder, as is the case with LG and Zenith, under
Korean GAAP the two companies are consolidated. The auditors of LG's
consolidated statements, as the respondent stated, approved the
consolidated financial statements with the inclusion of Zenith because it
was compliant within the rules of Korean GAAP. 

Furthermore, the Department in the fourth review of DRAMs from Korea
rejected LG's financial expense using a unconsolidated, rather than
consolidated financial statement on the basis that the unconsolidated
statement did not accurately capture LG's true financial expense. LG in
the subsequent review, and in this instant review, reported interest
expense based on its audited consolidated financial statements. Finally,
there is no allegation, nor is their any evidence on the record that the
consolidated financial statements of LG have not been audited, as was the
case with the initial investigation of Final Determination for Korean
DRAMs, nor were there any critical computation flaws which would render
them invalid as was the case with Certain Pasta from Turkey. Therefore, we
are rejecting the petitioner's request to use LG's unconsolidated, rather
than their consolidated financial statements for the instant review.

Comment 20: Calculation of CEP Profit for LG
LG claims that in its calculation of total profit in the CEP profit
calculation, the Department understated total home market costs by failing
to multiply the costs by the quantity sold for all home market sales.

Micron did not comment on this issue.
DOC Position:

We agree with LG and have corrected this error in the Department's margin
calculation program. See LG Final Results Calculation Memorandum dated
November 3, 2000.

Comment 21: Correction of LG's Concordance Programming

According to LG, the Department should correct an error in the
concordance programming to reflect LG's 17-digit control numbers. LG
states that its control numbers are designed to enable the Department to
determine the most similar comparison product based on the arithmetic
difference between the control numbers. LG explains that the first digit
of its control number represents whether the product is a DRAM or module
(or off-spec). There is language in the Department's concordance program
to ensure that products in which the first digit is different are not
compared. However, LG maintains that the Department's concordance program
does not reflect LG's use of 17-digit control numbers.

Micron did not comment on this issue.

DOC Position:

We agree with LG that the Department's concordance program does not
reflect LG's use of 17-digit control numbers and we have made a correction
to the concordance program for these final results. See LG Final Results
Calculation Memorandum dated November 3, 2000.

Comment 22: Overstatement of LG's Duty Assessment Rate

LG states that due to a computer programming error, the Department's duty
assessment rate by importer is significantly overstated. LG argues that
the Department's computer program erroneously bases the denominators in
the assessment rate and per-unit assessment calculation on the total
entered value and quantity of only those sales with margins. According to
LG, the denominators should be based on the total entered value and
quantity of all sales, not just those sales with margins.
Micron did not comment on this issue.

DOC Position:

We agree with LG and have made appropriate changes for these final
results. See LG Final Results Calculation Memorandum dated November 3,
2000.

Recommendation

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



AGREE__________ DISAGREE__________



____________________________

Richard W. Moreland
Acting Assistant Secretary
  for Import Administration

____________________________
(Date) 


__________________________________________________________________________
footnotes:


1. See Hyundai's and LG's 1998 financial statements in their November 15,
1999, responses. 

2. See Hyundai's and LG's November 15, 1999, section D responses. 

3. See Hyundai's and LG's 1998 financial statements in their November 15,
1999, responses. 

4. See page 5 of Hyundai's March 15, 2000, response and page 4 of LG's
March 21, 2000, response for a discussion of the respondents' accounting
policies on long-term translation losses. 

5. See Hyundai's and LG's financial statements in their November 15,
1999, responses. 

6. See Hyundai's and LG's 1998 financial statements in their November 15,
1999, responses. 

7. In addition, as discussed below in comment 4, the respondents, as
shown in their 1998 financial statements, further exaggerated the impact
of their translation gains in general in 1998 by including in full all of
their 1998 translation gains (including some gains generated by the same
loans that generated the translation losses in 1997) on their income
statements. 

8. To be precise, the translation gains and losses at issue are those
that the Department reamortized in the preliminary calculations based on
the average life of the 1998 loans. The Department also included other
translation gains and losses in its preliminary calculations, and Hyundai,
except as noted in its other comments, does not dispute these other gains
and losses. 

9. See cost verification exhibit 2 of the fifth administrative review
(incorporated by reference in the Hyundai Calculation Memorandum for the
Preliminary Results dated May 30, 2000) for the amortization schedule of
translation gains and losses from 1997, and Korea verification exhibit 8
of the current administrative review for the amortization schedules of
translation gains and losses from 1998. 

10. Hyundai also claims that we calculated the amortized amount of
translation gains on the 1996 loans in the same manner. In fact, we
included in our preliminary calculations the exact amortized amount of
such gains that Hyundai itself expensed in 1998, and will continue to do
so for the final results. 

11. We note that we transferred from the CIP account those translation
gains and losses that Hyundai capitalized in the CIP account in 1997 and
1998, and not in 1996 and 1997, as Hyundai claims. 

12. See page 16 of Hyundai's February 22, 2000, response. 

13. See page D-12 of Hyundai's November 15, 1999, response, and page D-11
of LG's November 15, 1999, response. 

14. See Exhibit 23 of Hyundai's March 15, 2000, response for excerpts
from the appraiser's report. 

15. Silicon Metal from Brazil, 63 FR 6906. 

16. Osini, Gould, McAllister, Parikh, "World Accounting", Matthew Bender
& Co., Inc., New York, 1999, Volume 3, Chapter ROK.30[2].