FINAL RESULTS OF REDETERMINATION
The Department of Commerce ("the Department") has prepared these final results of redetermination ("Redetermination") consistent with Section 129 of the Uruguay Round Agreements Act ("URAA"). This Redetermination concerns the Department's revocation finding in the final results of the third administrative review of the antidumping duty ("AD") order on Dynamic Random Access Memory Semiconductors Of One Megabit Or Above ("DRAMs") From Korea. Consistent with Section 129 of the URAA, we have issued a new revocation finding under 19 CFR 351.222(b), as amended.
On July 24, 1997, the Department issued the final results of the third administrative review of the AD order on DRAMs from Korea, covering the period May 1, 1995 through April 30, 1996, in which the Department considered the respondents' request that the Department revoke the order, in part, under 19 CFR 353.25(a)(1996) (the precursor to 19 CFR 351.222(b)). See Notice of Final Results of Antidumping Administrative Review: Dynamic Random Access Memory Semiconductors of One Megabit or Above from the Republic of Korea, 62 FR 39809 (July 24, 1997) ("Final Results"). This regulation provided that the Department may revoke an order, in whole or in part, if (1) producers and/or exporters have sold subject merchandise at not less than normal value for three consecutive years; and (2) the Secretary concluded that it is not likely that those producers and/or exporters will in the future sell subject merchandise at not less than normal value. Applying this regulation in the Final Results, the Department did not revoke the order because the second criterion had not been met.
On January 29, 1999, a panel established by the Dispute Settlement Body ("DSB") of the World Trade Organization ("WTO") determined that the "not likely" standard contained in 19 CFR 353.25(a)(2) was inconsistent with the United States' obligations under Article 11.2 of the WTO Antidumping Agreement. See United States - Anti-Dumping Duty on DRAMs of One Megabit or Above from Korea, WT/DS99/R, adopted March 19, 1999 ("Panel Report"). The Panel also determined that the Final Results, which is based (in part) on the "not likely" standard contained in 19 CFR 353.25(a)(2), is thereby also inconsistent with the United States' obligations under Article 11.2 of the WTO Antidumping Agreement. The Panel recommended that the United States "bring section 353.25(a)(2)(ii) of the DOC regulations, and the Final Results Third Review, into conformity with its obligations under Article 11.2 of the AD Agreement." The DSB adopted the Panel Report on March 19, 1999. On April 15, 1999, the United States announced its intention to implement the recommendations and rulings of the DSB.
On September 22, 1999, the Department published in the Federal Register a final regulation amending 19 CFR 351.222(b) (see Amended Regulation Concerning the Revocation of Antidumping and Countervailing Duty Orders, 64 FR 51236 (September 22, 1999) ("Final Regulation"). On August 2, 1999, the United States Trade Representative's Office requested that the Department, consistent with Section 129 of the URAA, issue a redetermination of the Final Results under 19 CFR 351.222(b), as amended.
On October 15, 1999, we released our Draft Final Results of Redetermination in the Third Administrative Review of the Antidumping Duty Order on Dynamic Random Access Memory Semiconductors of One Megabit or above from Korea Consistent With Section 129 of the Uruguay Round Agreements Act ("Draft Redetermination") for comment. On October 22, 1999, we received comments on the Draft Redetermination from the Government of the Republic of Korea ("GOK"), the petitioner, Micron Technology, Inc. ("Micron"), and the respondents, LG Semicon, Ltd. ("LGS"), Hyundai Electronics Industries Co., Ltd. ("Hyundai"). On October 26, 1999, we received rebuttal comments from Micron and LGS. Upon consideration of the comments, our Redetermination remains unchanged from our Draft Redetermination.
Section 751(d)(1) of the Tariff Act of 1930, as amended ("the Act") provides that the Department "may revoke" an antidumping duty order, in whole or in part, after conducting an appropriate review. 19 U.S.C. §1675(d)(1) (1995). The Department's regulations implement this provision. Section 351.222(b) (19 CFR 351.222(b)), as amended, provides that the Secretary, in determining whether to revoke an order, will consider: (1) whether one or more exporters or producers covered by the order have sold the merchandise at not less than normal value for a period of at least three consecutive years; (2) whether the exporters or producers agree in writing to their immediate reinstatement in the order, as long as any exporter or producer is subject to the order, if the Secretary concludes that the exporter or producer, subsequent to the revocation, sold the merchandise at less than normal value; and (3) whether the continued application of the order is otherwise necessary to offset dumping. If the Secretary, based on these criteria, determines that the revocation of the antidumping duty order is warranted, the Secretary will revoke the order.
In this case, the first two elements for revocation have been met. The Department found that LGS and Hyundai, the respondents, did not sell at less than foreign market value in the first and second reviews under this order. Also, in this administrative review, the respondents were found not to have made sales at less than normal value. Further, both respondents have certified to their immediate reinstatement in the order pursuant to the second criterion noted above. Accordingly, the remaining substantive issue with respect to revocation is whether the continued application of the order is otherwise necessary to offset dumping.
As the Department explained in the preamble to the proposed and final rule amending 19 CFR 351.222(b), the Department will fully consider all evidence placed in the record relevant to the necessity of the antidumping order. Consistent with this statement, evidence relevant to the likelihood of future dumping will be considered relevant to the "necessity" of an order. Accordingly, the Department may consider factors such as trends in prices and costs, investment, currency movements, production capacity, as well as all other market and economic factors relevant to a particular case. Proposed Regulation Concerning the Revocation of Antidumping Duty Orders, 64 FR 29818, 29820 (June 3, 1999) and Final Regulation, 64 FR 51236, 51239. See also Brass Sheet and Strip from Germany, 61 FR 49727, 49730 (September 23, 1996); Frozen Concentrated Orange Juice from Brazil, 56 FR 52510, 52511 (October 21, 1991); and Titanium Sponge from Japan, 53 FR 26099, 26100 (July 11, 1988) for examples of the factors considered in prior cases relating to the likelihood of future dumping.
Pursuant to the Department's regulations, the Department will retain this order only if the Department is satisfied, based upon substantial, positive evidence, that the continued application of the order is necessary to offset dumping. The Department considered all publicly available data and information placed on the record by all parties (including data regarding the January 1997 through April 1997 time period, which respondents characterize as a market upturn) during the course of the third administrative review. While we based our conclusions in this Redetermination on evidence contained in the existing record of the third review, we reevaluated this evidence in light of the Department's revised standard for revocation. We do not deem it appropriate to solicit new factual information from the parties as the purpose of this Redetermination is to gauge whether revocation would have been appropriate based upon the record evidence at the time the Department issued the Final Results had we applied a WTO-consistent standard. Therefore, the following analysis is based on market conditions as they existed at the time of our third review final results- July 1997- and references to future expectations of market conditions are to the future as it would have appeared in July 1997. As we fully explain below, the Department concludes, based on the reevaluation of record evidence, that the continued application of the dumping order was necessary to offset dumping.
We note that, in our analysis, pursuant to 19 CFR 351.222(b), as amended, we considered the same factors relevant to the likelihood of future dumping (e.g., trends in prices and costs, investment, currency movements, and production capacity) as we considered in the Final Results. Furthermore, as discussed above, since we did not solicit new factual information for this Redetermination, we considered the same factual information that was available for our analysis in the Final Results. Consequently, our analysis in this Redetermination often parallels our analysis in the Final Results. However, in this Redetermination, we applied our analysis to the new revocation standard in 19 CFR 351.222(b), as amended.
On the basis of our examination of the information on the record, we continue to find the following: (1) the DRAM market was in a slump as of July 1997 (when the Final Results was signed and published), with steep price declines in the DRAM market beginning in January 1996 and with forecasts of continued price declines; (2) the downturn resulted in declines of sales and revenues in the DRAM market, growth in inventories of DRAMs, and the existence of significant oversupplies of DRAMs; (3) the Korean respondents and other DRAM producers continued to increase DRAM production during the downturn; (4) the Korean respondents would have likely continued to maintain a substantial presence in the U.S. market during various phases of the business cycle (including periods of significant price decline) due to the Korean's substantial capacity and large demand in the U.S.; and (5) based on the information on the record, Korean pricing in the United States appeared, according to price trends, to be at or near normal value, indicating that only a slight downward movement in U.S. price following the third period of review would likely result in dumping margins. These points reflect the necessity of the order to offset dumping and are discussed in more detail below.
The DRAM industry is highly cyclical, market prices for DRAMs are generally lower during periods of downturn and there is a history of dumping in the DRAM industry during such periods. For instance, various foreign producers were found to have dumped during the downturn in the mid-1980s (see Dynamic Random Access Memory Devices from Japan, 51 FR 15943 (April 29, 1986)), and the Korean respondents in this proceeding were found to have dumped in the less than fair value investigation during 1991-1992, the last period (as of July 1997) when there was a significant downturn in the DRAM industry. It is therefore reasonable to conclude that an examination of the selling activities and pricing practices of respondents during such downturn periods will provide the Department with a reasonable indication as to whether the continued application of the dumping order is necessary to offset dumping. We find the January through December 1996 period to be especially relevant because it corresponded with a significant downturn in the DRAM industry, it occurred since the order has been in place, and it took place, in part, immediately following the period of review covered by the Final Results.
The United States is part of the world's largest market for DRAMs, and has considerable potential for growth. Given the importance of the this market, the respondents would have been likely to continue to maintain a significant presence in the U. S. market during various phases of the business cycle. This conclusion is supported by the fact that DRAM producers, including the respondents, have historically been found to have dumped in the United States during downturns.
During the 1996 downturn, industry revenues significantly declined. For instance, according to Electronic Buyers News, total worldwide market revenue plunged 38% to $25.13 billion in 1996. Both Hyundai and LGS reported large decreases in revenues in their 1996 publicly available financial statements. Prices in late June 1997 were still lower than in the years preceding the 1996 market downturn, during which the respondents were found not to be dumping. Furthermore, prices had, in fact, decreased in the latest data available for the record. According to Dataquest ("The Semiconductor DQ MONDAY Report", Issue 24, June 23, 1997, and Issue 25, June 30, 1997) the spot market price for the 1Mx16 EDO DRAM decreased from the $7.45 to $8.09 range on June 13 to the $6.30 to $6.85 range on June 27. Similarly, the price for the higher-density 64M DRAM continued to fall. In fact, the average price for a 64M DRAM, as of July 1997, was in the mid $40 range, down from $55 earlier that year. In sum, although the DRAM market stabilized somewhat by July 1997, prices continued to fluctuate and a large degree of uncertainty remained about the direction of the market.
We find a pattern of deteriorating market conditions that often give rise to dumping in the respondents' own pricing. This finding is based on the following evidence: (1) The respondents' own sales and cost data indicate that there was a considerable number of home market sales made at prices below cost of production ("COP") during the two months immediately following the close of the third administrative review; (2) the lowest point of the downturn, in terms of DRAM pricing and other market conditions, did not occur until after mid-1996 (well after the end of the third administrative review period); and (3) publicly available spot market pricing data, when compared with the respondent's cost data (extrapolated to a future point in time), indicate that LGS and Hyundai may have made U.S. sales at prices below COP during 1996. In addition, we find that the respondents made several changes to their costs in the period immediately following the third review period, including changes in depreciation and foreign exchange loss write-offs. For a complete analysis, see the Memorandum to the File from Tom Futtner to Jeffrey P. Bialos, dated July 16, 1997, on file in room B-099 of the main Commerce building.
The respondents' data indicate that products were sold in the home market at prices below the COP during May and June of 1996, the two months immediately following the end of the third review period. According to the Department's questionnaire for the third review, the respondents were required to report costs and sales for May and June of 1996 to ensure that the
proper cost test and contemporaneous sales comparisons could be performed. These data demonstrate that, as the downturn in the DRAM market worsened, the sales made below cost for both respondents increased in these two months. We note that, according to the Department's cost test methodology, these below cost sales were not sufficient in number for the Department to reject them as a basis for determining normal value in the third review. We also note that whether either respondent made home market sales at prices below the COP during the two months immediately following the close of the third review period in and of itself does not demonstrate that dumping occurred. However, in light of the market conditions during the downturn and the fact that the months actually examined during the POR did not include the lowest point in the downturn, we find that the existence of below-cost sales during May and June of 1996 suggests that, as the DRAM market worsened, the number of below-cost sales increased following the end of the third review period. As prices in the DRAM market fell, a significant number of sales were made below cost.
The petitioner took the respondent's actual reported costs for the third administrative review and projected these costs through the year using the same rate of decline experienced in the industry during 1995. Given that costs typically decline over time in the DRAM industry, we find the petitioner's approach to estimating the respondents' COP to be reasonable.
We recognize that the petitioner based its analysis upon average U.S. spot market prices instead of contract prices. However, it appears that contract prices generally follow the same pricing patterns as spot market prices. The record demonstrates that contract prices to original equipment manufacturer ("OEM") customers, which are negotiated on a quarterly basis, follow the direction of prices on the spot market. Thus, according to our record, changes in prices to OEM customers simply lagged behind spot prices. There is even evidence on the record indicating that the actual contract prices were sometimes lower than the average spot prices presented in the petitioner's analysis. In fact, even into 1997, prices to OEM customers remained depressed, and below spot market prices, even as the spot market prices began to show some increase.
Furthermore, the record is clear that the prices used by the petitioner, which were compiled by Lehman Brothers, were similar to other pricing data submitted on the record, including the pricing data obtained from the American Integrated Chip Exchange (AICE) and Dataquest. We also note that petitioner's pricing data generally followed the same downward trend of other pricing data on the record, including the AICE data noted above. In fact, all pricing data on the record followed the same downward trend throughout 1996, whether they were based on a simple average or not.
We note that Korean DRAM producers import machinery and equipment and many raw materials. In fact, both respondents recorded large foreign exchange losses for fiscal year 1996. Therefore, the depreciation of the won may have actually tended to increase the respondents' COP, making them more likely to dump in the United States. At the very least, we find no basis in the record to conclude that this exchange rate depreciation entirely favored the respondents.
The record further demonstrates that supply exceeded demand during 1996 and most of 1997. While there were conflicting reports as to whether respondents were actually decreasing their DRAM production levels during the 1996 downturn period, prices fell substantially during 1996 and, by July 1997, had not yet fully stabilized. In addition, although the respondents made public announcements regarding cut-backs in DRAM production, and, as a result, it appears that DRAMs prices increased, it is unclear, based on the information on the record, how much of an effect this had on the overall supply of DRAMs. Similarly, it was uncertain how long it was going to be before production returned to previous levels in anticipation of increased demand in the marketplace. According to Electronic Buyer's News (January 27, 1997, Issue 1042), an upturn in demand in October 1996, triggered a simultaneous increase in production. As a result, the DRAM market was inundated, and prices were driven down in December 1996 to one of the lowest levels during the downturn. According to Dataquest (see "When Will the DRAM Market Turn?", February 3, 1997), supply was expected to moderate throughout 1997, but it could be 1998 before supply would come into balance with demand. The price and cost analysis above contributed to the conclusion that it was likely that respondents would dump in the future and the continued application of the order was necessary to offset dumping.
During the course of the third review, LGS submitted what it claimed were actual price and cost data for the second half of 1996. Our review of this information, however, indicates that there are serious questions whether the reported costs were understated due to significant changes in LGS' depreciation schedule and write-offs of foreign exchange losses. Publicly available data indicate that, for their 1996 financial statements, both LGS and Hyundai changed the useful life of fixed assets from three years to five years. However, it is unclear exactly to what extent this change reduced the reported costs. Similarly it is unclear how the reported costs were affected by the losses on foreign exchange. Moreover, the fact that LGS failed to identify these adjustments to its costs significantly reduces the reliability of the information. We are uncertain whether LGS made other adjustments to its reported costs.
We note that the WTO Panel, in its January 29, 1999 report, considered whether the Department reasonably concluded that the cost data submitted by LGS for the second half of 1996 did not reasonably reflect the costs associated with the production and sale of DRAMs. The Panel concluded that the Department's concerns with this data were reasonable in that an objective and impartial investigating authority could have reached the same conclusion. See Panel Report at paras. 6.71-6.73.
In its case brief Hyundai presented a detailed econometric study conducted by Dr. Kenneth Flamm, Senior Fellow of the Brookings Institution, which concluded that Hyundai's prices would exceed its cost of production "by a comfortable margin" in all scenarios considered.
However, the cost portion of the Flamm study was based on several questionable premises including the assumption of certain "best case scenario" production yields and rates. In particular, optimistic capacity rates are not realistic in a time when major producers, Hyundai included, have announced major cutbacks in the production of DRAMs. Furthermore, as the Flamm study itself points out, the capacity scenario is based on the assumption that DRAM demand would continue to strengthen. However, market conditions as of July 1997, did not support this assumption. According to the AICE's Bulletin for the Day (June 13th), activity in the U.S. market continued to be slow. Similarly, according to Dataquest ("The Semiconductor DQ Monday Report", Issue 24, June 23, 1997), there continued to be a "serious oversupply or inventory excess" in the DRAM market. Also, shifts in demand due to technology are difficult to predict. For instance, the study does not mention the rate at which the supply of competing 64M DRAMs could have been expected to expand, and put downward pressure on the prices for the 16M generation. In addition, apart from the data concerning the 1996 downturn, as discussed above, our analysis indicates that market conditions in the DRAM industry, as of July 1997, remained volatile. As stated previously, while the plunge in prices began to stabilize somewhat in early 1997, more recent data indicated that prices were headed downward again. For example, according to publicly available data, the average U.S. price for a 16M DRAM fell from approximately $18.00 in May 1996 to approximately $7.00 in December 1996. According to Dataquest, the price for the 16M, as of June 30, 1997, was approximately $6.50. This represents a 64 percent decline in prices between the end of the third period of review (April 30, 1996) and June 1997. Since DRAMs are a commodity product, it is reasonable to expect that the respondents would match prevailing market prices in the United States.
We note that the WTO Panel considered this analysis and concluded that it was reasonable for an objective and unbiased investigating authority to reach these conclusions. See Panel Report at paras. 6.66-6.70.
Given these circumstances, during the period of time immediately following the third period of review, we find that it would have been difficult for the Korean respondents to remain competitive without selling DRAMs at less than normal value. As noted above, the history of the DRAM industry is one of dumping in periods of significant downturn. Most of the first three consecutive review periods, in which the respondents did not dump, was characterized by an expanding DRAM market. DRAMs prices stabilized in mid-1992, and the industry experienced growth until late 1995. This third review period ended in April 1996, and there was a continuing decline in global prices from that time until at least July 1997. Further, we note that the price decline in 1996 was more severe than in prior downturns. These market trends, as well as a comparison of U.S. market prices to Korean costs and projections of Korean costs, indicate that it was likely that respondents would have dumped in the post April 1996 period (i.e., a period of continuing industry downturn) in the absence of the order. For these reasons, based on the evidence on the record, the Department finds that the continued application of the dumping order is necessary to offset dumping. Therefore, we have determined not to revoke the antidumping duty order on DRAMs from Korea.
The GOK argues that the Draft Redetermination failed to contain any new analysis and was not based on 'substantial, positive evidence' that the order is necessary to offset dumping. Rather, the GOK contends that the Draft Redetermination, like the Final Results, was based on conjecture and supposition. Thus, the GOK concludes that the Department failed to properly implement the findings of the Panel. The GOK states that basing the Redetermination on 'appearances' that 'indicate' or 'suggest' that something might or might not occur is not substantial, positive evidence. The GOK further argues that the Department's analysis is merely an attempt to gather together support for a pre-ordained conclusion. The GOK contends that the Department dismisses certain evidence - specifically, announced production cutbacks - to enhance its own position while relying on that same evidence to undercut respondents' arguments. The GOK requests that the Department conduct a proper reexamination in accordance with the Panel Report, and revoke the order on DRAMs from Korea.
We disagree with the GOK's contention that the Department failed to properly implement the rulings of the WTO Panel. During the WTO dispute settlement proceedings, the GOK argued that the absence of present dumping necessitated the termination of an antidumping duty order. The Panel rejected this argument and made clear that the Department was entitled to conduct a prospective analysis when considering whether an antidumping duty order was warranted pursuant to Article 11.2 of the AD Agreement. See Panel Report at paras. 6.24-6.29. Moreover, the Panel recognized "that the certainty inherent to such a prospective analysis could be conceivably somewhat less than that attached to purely retrospective analysis, reflecting the simple fact that analysis involving prediction can scarcely aspire to a standard of inevitability." Id. at para. 6.43. Thus, to the extent that the Redetermination contains an element of speculation, as alleged by the GOK, we conclude that this merely reflects the nature of a predictive analysis.
Nonetheless, as the Panel made clear, the determinations which arise from a prospective analysis must still be based upon a foundation of positive evidence. In developing this Redetermination, the Department did not solicit new evidence and determined that it was appropriate to base the Redetermination on the record evidence developed during the third administrative review. This record was extensive as all parties submitted voluminous data and argument regarding the issue of revocation. The GOK does not challenge this decision, nor has the GOK requested that the Department examine additional or new evidence relevant to the necessity of the antidumping duty order on DRAMs from Korea. As described above, the record evidence upon which the Department relied demonstrated, inter alia, that there were steep declines in price, sales and revenues in the DRAMs market after the end of the third POR, and an oversupply of DRAMs. Based upon such positive evidence indicating that it was likely that dumping would recur following the third POR, the Department has appropriately concluded that the continued application of the antidumping duty order on DRAMs is necessary to offset dumping.
The fact that the Department's Redetermination and the Final Results appear similar in their analyses does not reflect a failure to implement the Panel's findings, as alleged by the GOK. Instead, the parallel analyses, as acknowledged in the Draft Redetermination, arise from the fact that (1) the evidence considered in the third review and this Redetermination is identical; and (2) the Department conducted a prospective analysis on whether there would be a recurrence of dumping in both the third review and this Redetermination. The Panel, while requiring a revised standard to which the Department will apply record evidence, did not indicate whether the existing record evidence would satisfy such a new standard.
With respect to the GOK's specific contention regarding the Department's use of evidence of announced production cutbacks, we believe that our use of this evidence is appropriate. We specifically acknowledged in the Draft Redetermination that the respondents' announced production cutbacks led to an apparent increase in DRAMs prices (evidence which favors the respondents), but we were not able to determine, based on the information on the record, what effect these cutbacks had on the overall supply in the DRAMs market. Moreover, evidence of production cutbacks, submitted by Hyundai, undermines the optimistic assumption about capacity contained in Dr. Flamm's study, which was also submitted by Hyundai.
Micron states that the Draft Redetermination appropriately applied 19 CFR 351.222(b), as amended, to the record of the administrative review, and that the Department's conclusions in the Draft Redetermination were well reasoned and well supported. Micron emphasizes that the percentage of home market sales below cost made by both respondents dramatically increased between January and June 1996. Micron states that, although the sales below cost in May and June 1996, the two months immediately following the period of review at issue, were not sufficient in number to be rejected as the basis for normal value in the third review, the revocation analysis must focus on the likelihood that dumping will recur after this period of review. Micron stresses that, in this context, the very sharp change in the percentage of below-cost sales in the two months immediately following the period of review at issue indicates that the respondents may have already resumed dumping in those two months. Micron notes that, in a subsequent review, these sales would be considered in combination with sales in the following months of the next period of review, when DRAM prices continued to decline. Micron points out that in DRAMs from Korea: Final Results of Administrative Review, 63 FR 50867 (September 23, 1998) ("Final Results Fourth Review"), the final results of the subsequent review, the Department actually disregarded the respondents' sales below cost in those two months, and found above de minimis dumping margins for both respondents.
LGS argues that the existence of "isolated" below-cost home market sales is "meaningless" as an indicator of the existence of dumping or even the likelihood of future dumping. LGS contends that, under section 773(b)(1) of the Act, the Department would not disregard the below-cost sales at issue; and even in the circumstances where the Department, pursuant to section 773(b)(1), disregards below-cost sales, that would not, by itself, indicate that there has been any dumping. Rather, LGS states, the Department can only determine dumping through the price to price and/or price to constructed value comparisons under 19 CFR 353.406 and 353.405, respectively. LGS states that, in prior cases (e.g., Silicon Metal from Brazil, 62 FR 42795, 42762 (August 8, 1997), PET Film from Korea, 62 FR 10527,10529 (March 7, 1997), and Certain Welded Stainless Steel Pipe form Taiwan, 62 FR 27296, 27361 (May 19, 1997), and Static Random Access Memory Semiconductors from Taiwan, 63 FR 8909, 8930 (February 23, 1998), and in prior reviews of the DRAMs AD order (i.e., DRAMs from Korea, 60 FR at 47149, 47151 (September 11, 1995) (preliminary results of first review), 61 FR 20216, 20217, 20222 (May 6, 1996) (final results), 61 FR 36029, 36031 (July 9, 1996) (preliminary results of second review) and 62 FR 965, 968 (final results)), the Department has recognized that below-cost sales, taken alone, do not indicate that dumping has occurred. LGS, citing to the Final Results, 62 FR at 39817 and 39824, further states that, to the extent that LGS's May and June 1996 home market sales were used as the basis for comparison to U.S. sales, the Department found, and explicitly acknowledged, that no dumping had occurred.
LGS, citing to Steel Wire Rope from Korea, 62 FR 17171 (April 9, 1997), also argues that the Department, in the revocation context, has stated that below-cost home market sales do not support a finding that future dumping is likely. LGS contends that, in the similar manner, its sales below cost in the home market do not support the Department's finding that LGS is likely to sell at prices less than fair value in the future. LGS further claims that the Department's statement in the Final Results, 62 FR at 39817, that LGS's May and June 1996 below-cost home market sales "[are] suggestive of deteriorating market conditions that often give rise to dumping" is not supportable in light of the WTO Panel's ruling to use 'substantial, positive evidence,' while the existence of such "isolated" below-cost sales is not even "lawfully 'suggestive'" of future dumping.
LGS also disputes Micron's assertion that the May and June 1996 home market data are relevant to 'the months after the third review period.' LGS states that the only relevant sales and costs for the subsequent review period are those for the entire period of review, and LGS, in the sales and cost data it provided to the Department, demonstrated that it sold above fair value during that period. LGS further maintains that the Department must disregard the evidence introduced by Micron regarding the Department's actual results of review for that period, since this Redetermination is limited to the record that was before the Department at the time of the original determination. In any case, LGS, citing to Final Results Fourth Review, 63 FR at 50867, states that the Department calculated a margin for LGS in the fourth review that was based on sales by LGS to a third country customer who illegally diverted the merchandise into the United States, while LGS's own sales to the United States had a dumping margin of zero.
We agree with Micron in part, and with LGS in part. As Micron points out, our revocation analysis focuses on the likelihood that dumping will recur after the period of review at issue. Furthermore, as LGS points out, and as we noted above, whether LGS (or Hyundai) made home market sales at prices below the COP during the two months immediately following the close of the third review period in and of itself does not demonstrate that dumping occurred. We also agree with LGS that, standing alone, below-cost home market sales made over a limited time period cannot amount to substantial evidence that a respondent will engage in future dumping. See, e.g., Steel Wire Rope from Korea, 62 FR at 17174. However, as we also noted above, and as we stated in the Final Results, in light of the market conditions during the downturn and the fact that the months actually examined during the POR did not include the lowest point in the downturn, we find that the existence of below-cost sales during May and June of 1996 suggests that, as the DRAM market worsened, the number of below-cost sales would increase following the end of the third period of review. This finding contributed to our conclusion that it was likely that respondents would have dumped in the post-April 1996 period in the absence of the order, and the continued application of the order was necessary to offset dumping.
We note that LGS's comments regarding a statement in the Final Results, 62 FR at 39817 (i.e., that below cost sales are suggestive of deteriorating market conditions that often give rise to dumping), are not compelling. This statement was part of an overall discussion, similar to our discussion above, of how below-cost sales, in light of other market conditions, are suggestive of future dumping. See Final Results, 62 FR at 39817. In regard to LGS's analysis using its own sales and cost data, we find, for the reasons stated above, that LGS's submitted cost data is unreliable. We also repeat that the Panel concluded that the Department's concerns with this cost data are reasonable. See Panel Report at paras. 6.71-6.73.
Finally, Micron's reference to the final results of the fourth review, as well as LGS's own references to the results of the fourth review, are not relevant for the purposes of this Redetermination because the Department issued these results subsequent to the issuance of the Final Results. The facts developed in subsequent reviews are not part of the record upon which the Department is basing its decision in the Redetermination.
Hyundai argues that the Draft Redetermination repeats the "flawed" analysis that was found by the WTO Panel to have "violated" the WTO Antidumping Agreement. LGS, citing to the Panel Report at 651, also argues that the WTO Panel specifically ruled that the Department's operation of the not likely criterion effectively violated the AD Agreement, and that the Department has ignored the Panel's determination by readopting its prior decision without significant change.
Micron asserts that both Hyundai and LGS "fundamentally misconstrue" the basis of the WTO Panel's decision. Micron, citing to the Panel Report at paragraph 6.50, states that the Panel was concerned that the 'not likely' criterion of the Department's (former) revocation regulation could allow the Department to deny revocation without a finding based on positive evidence that the continued application of the order was necessary to offset dumping. Micron maintains that the Panel did not indicate that the evidence in the record of the third review would not support a positive finding under a revised standard. Micron further maintains that the Department, in the Draft Redetermination, has made an affirmative finding based on positive evidence that the Panel indicated would be consistent with the United States' obligation under Article 11.2 of the Antidumping Agreement.
As we discussed above (see Comment 1), our conclusions in this Redetermination derive from a prospective analysis of whether dumping will recur in the future based upon a factual record that is identical to that which was considered for the Final Results. Neither Hyundai nor LGS has suggested that the Department consider additional evidence. Moreover, the WTO Panel explicitly affirmed the Department's authority to conduct the prospective analysis described above. Therefore, the sole remaining issue is whether substantial, positive evidence supports the Department's determination that the antidumping duty order on DRAMs from Korea is necessary to offset dumping. In this regard, we agree with Micron that the Panel did not indicate that the record evidence for the third review would not support a positive finding consistent with Article 11.2 of the AD Agreement, and that reaching the same conclusion as the Final Results does not suggest that we "ignored" the panel's findings. As we have discussed, substantial, positive evidence supports our conclusion that the continued application of the antidumping duty order is necessary to offset dumping.
Hyundai contends that the Department has failed to give full consideration to all of the evidence on the record relevant to the issue of whether continuation of the order is necessary to offset dumping. Hyundai states that evidence that it provided on rising DRAM prices and conditions of declining supply and rising demand in the DRAMs market shows that Hyundai would have no incentive to dump if the order were revoked. Hyundai further argues that the Department relied on invalid price and cost data, and that the Department erred in concluding that Hyundai may have been dumping at the end of the period of review. Hyundai states that the petitioner's analysis, on which the Department based its finding, is unreliable because it uses spot prices instead of contract prices. Hyundai also contends that, even under the Department's assumptions, Hyundai's price for DRAMs does not fall below cost when cost and price are compared on an equal basis, and the proper exchange rates are used. Hyundai further contends that the Department erred in rejecting certain assumptions in Dr. Flamm's study on the Korean producers' production capacity, and inconsistently accepted information about planned cutbacks to undermine this study, but dismissed such information when analyzing the condition of the market.
In addition, Hyundai argues that the Department failed to consider that Hyundai had invested $1.4 billion to build a DRAM wafer fabrication facility in Eugene, Oregon, which, according to Hyundai, would reduce the need to import the subject merchandise and the economic incentive to dump in the future. In support of this argument, Hyundai cites to Preliminary Results of Full Sunset Review: Brass Sheet and Strip From the Netherlands, 64 FR 46637, 46641 (August 26, 1999) ("Brass Sheet and Strip"), in which the Department found that the respondent's investment in a U.S. plant made it far less likely that the respondent would dump if the order were revoked.
Micron argues that Hyundai largely repeats the arguments made in its April 18, 1997 case brief to the Department, which have been previously rejected by the Department in the Final Results, by the U.S. Court of International Trade ("CIT") in its ruling on the Final Results,(1) and by the Panel Report. Micron states that Hyundai ignores the pricing and market data for calendar year 1996, and for 1997, up through the date of the Final Results, all of which the Department appropriately considered in the Draft Redetermination. Micron states that, in particular, the falling prices in June and July 1997, as noted by the Department, show a renewed downward price trend. Micron further argues that Hyundai ignores the evidence of oversupply in the DRAM market in the latter half of 1996 that continued into June and July 1997. Micron contends that all of this data is the proper focus for the Department's revocation decision, and combined with other record evidence, demonstrates the likelihood that respondents had already resumed dumping in the months immediately following the end of the third review period.
Micron also contends the relevant issue is not, as Hyundai claims, whether Hyundai was dumping 'at the end of the period of review,' but whether the continued decline in prices after April 1996 made it likely that Hyundai would renew dumping. Micron states that record evidence shows a strong likelihood that Hyundai made sales below costs in the second half of 1996.
Micron also disputes Hyundai's factual assertions about the price and cost data used by the Department, and states that the evidence on which Hyundai relies is both distorted and incomplete. Micron specifically argues that the Department, as upheld by the Panel Report at paragraphs 6.66 to 6.70, correctly determined that Dr. Flamm's study was unusable. Micron further notes that Hyundai itself made inconsistent representations to the Department concerning its production cutbacks.
Micron further argues that a finding of dumping does not require any finding of intent to dump on the part of the producer or exporter, but rather depends solely on an objective review of the pricing practices of the respondent. In any case, Micron notes that, since Hyundai's U.S. facility would not begin mass production until some time in 1998, Hyundai would have every incentive to dump until such time. Micron also notes that, while this facility may decrease Hyundai's need to import, it has no bearing on the prices of those DRAMs that Hyundai does import. Finally, Micron states that the final results of the fourth review, in which the Department found that both Hyundai and LGS had renewed dumping, are of greater direct relevance than the Department's preliminary determination in Brass Sheet and Strip.
We disagree with Hyundai. We fully considered all of the record evidence, including evidence provided by Hyundai, relevant to the issue of whether the continuation of the order is necessary is offset dumping. We differ with the conclusions that Hyundai draws from this evidence about the state of the DRAMs market in 1997. First, it was not clear that DRAMs prices were rising in 1997. As noted by Micron, prices in the DRAMs market as of July 1997 were continuing to fluctuate. Indeed, one of the reports provided by Hyundai notes that "[t]he momentum and market psychology can still shift back in the opposite direction." See De Dios & Associates, The DRAM Market Advisor, February 5, 1997, at 2. Second, supply in the DRAM market was not conclusively declining. Industry reports from 1997 state that "excess supplies" of certain products were expected to persist, and that the Korean producers themselves were "building inventories." See Electronic Buyer's News, DRAM Price Skid Reaches 64-M Parts, April 28, 1997 and Goldman, Sachs, & Co. Investment Report, April 14, 1997.
We also believe that the price and cost data that the Department used in its analysis was valid. This analysis properly relied on spot prices. As we noted above, according to our record, changes in prices to original equipment manufacturer customers (i.e., changes in contract prices) simply lagged behind spot prices, and record evidence indicates that actual contract prices were sometimes lower than spot prices. Furthermore, we believe that Hyundai's own analysis of its prices and costs is flawed. Due to the proprietary nature of Hyundai's analysis, for further details, see Memorandum to the File from Tom Futtner to Jeffrey P. Bialos, dated July 16, 1997.
In regards to Dr. Flamm's study, we believe we appropriately questioned optimistic assumptions in the study about production capacity. As noted above, the study's capacity scenario is based on the incorrect assumption that DRAM demand would continue to strengthen, and does not take into consideration Hyundai's own announcement of its planned cutbacks. See also Comment 1.
We agree with Hyundai that the Department did not discuss Hyundai's investment in a DRAM fabrication facility in Oregon in the analysis for this Redetermination. However, there is no evidence on the record to indicate that Hyundai would stop, or even decrease, shipments to the United States after this facility came on line. Furthermore, we agree with Micron that, even if Hyundai decreased such shipments due to this facility, Hyundai did not expect this facility to begin mass production until 1998, a year and a half after the period of review at issue. We also agree with Micron that this facility has no bearing on Hyundai's prices of Korean DRAMs exported to the United States, and whether such DRAMs are sold below normal value (i.e., the price that Hyundai sells Korean DRAMs in Korea) or Hyundai's COP. Thus, the investment in this facility bears no reflection on the recurrence of dumping between the end of the third POR and the time the Hyundai's U.S. facility came on line. Therefore, we conclude that Hyundai's investment in this facility would not necessarily reduce Hyundai's economic incentive to dump in the future.
We note that Brass Sheet and Strip is a determination in a sunset review made pursuant to sections 751(c) and 752 of the Act, and is therefore not relevant to this determination made pursuant to section 751(d)(1) of the Act.
LGS contends that the Department's revised revocation regulation does not implement the ruling of the WTO Panel and lacks guidance to parties seeking revocation. LGS also argues that the Department failed to "seriously" reconsider its determination in light of the new revocation standard, and that the record evidence does not support the Department's decision that the continued application of the order is necessary to offset dumping. LGS states that its record of fair value pricing demonstrated that it would not sell at not less than fair value in any future downturn. LGS also states that such factors as its minor stake in the U.S. DRAM market, OEM customer bases, and high capacity utilization and low inventories provided it with no economic incentive to sell at dumped prices. LGS further points out that sharply improving conditions in the DRAM market, the Department's own analysis, and LGS's own price and cost data, demonstrate that its prices were, and would continue to be, above normal value.
Micron argues that LGS's factual arguments have been all previously considered and rejected by the Department. Micron specifically points out that LGS's de minimis dumping margins during the first three review periods coincided with stable DRAM market prices, while LGS dumped in periods of market downturns, including the period of the original investigation. Micron claims that the 1996-1997 market downturn provided "every possible 'economic incentive'" for LGS to sell at dumped prices in order to maintain its substantial U.S. sales to its OEM customers. Micron further states that the Department's analysis indicated that LGS may have made U.S. sales below cost in 1996, and that the Department appropriately raised serious questions about the accuracy of LGS's own cost analysis.
We disagree with LGS that the Department failed to "seriously" reconsider its determination in light of the new revocation standard. The Department reconsidered all of the record evidence, and applied our analysis to the new revocation standard in 19 CFR 351.222(b), as amended. Although LGS takes issue with the content of the amended regulation, the purpose of this Redetermination is to issue a new revocation finding under the amended regulation. The Department responded fully to the arguments (including arguments submitted by LGS) regarding the revised revocation standard during the rulemaking proceeding, and we need not revisit this issue for purposes of the Redetermination. We believe that the amended regulation properly implements the United States' obligations under Article 11.2 of the AD Agreement.
We further disagree with LGS that the evidence that it cites demonstrates that the continued application of the antidumping order was not necessary to offset dumping. First, while we considered LGS's record of fair value pricing under 19 CFR 351.222(b)(2)(i)(A), we must independently examine whether other record evidence indicates that the continued application of the antidumping duty order is otherwise necessary to offset dumping. See 19 CFR 351.222(b)(2)(i)(C). Second, we disagree with LGS that it has a minor stake in the U.S. DRAM market, and therefore, would have no incentive to dump to ride out a downturn in this market. The United States is the world's largest market for DRAMs and is therefore vital for all DRAMs manufacturers, regardless of size. Furthermore, in absolute terms, the value of LGS's U.S. sales during the period of review was significant. Third, even though LGS has an OEM customer base, as noted above, in 1997, OEM prices, like spot market prices, were unstable, and in many cases, dropped below spot market prices. Fourth, the record shows that LGS's pricing above normal value was not sustainable, as DRAMs prices continued to decline between May and December 1996 (in some cases, by as much as sixty percent), and market volatility continued well into 1997. We also continue to note that LGS's submitted cost data is unreliable, and that the WTO Panel concluded that the Department's concerns with this cost data are reasonable. See Panel Report at paras. 6.71-6.73.
For the reasons stated above, based on the evidence on the record, the Department finds that the continued application of the dumping order was necessary to offset dumping. Therefore, we have determined not to revoke the antidumping duty order on DRAMs from Korea.
Robert S. LaRussa
for Import Administration