[Federal Register Volume 63, Number 35 (Monday, February 23, 1998)]
[Notices]
[Pages 8909-8933]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4360]


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DEPARTMENT OF COMMERCE

International Trade Administration
[A-583-827]


Notice of Final Determination of Sales at Less Than Fair Value: 
Static Random Access Memory Semiconductors From Taiwan

AGENCY: Import Administration, International Trade Administration, U.S. 
Department of Commerce.

EFFECTIVE DATE: February 23, 1998.

FOR FURTHER INFORMATION CONTACT: Shawn Thompson at (202) 482-1776, or 
David Genovese at (202) 482-0498,

[[Page 8910]]

Import Administration, International Trade Administration, U.S. 
Department of Commerce, 14th Street and Constitution Avenue, N.W., 
Washington, D.C. 20230.

Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the Tariff Act of 
1930, as amended (the Act), are references to the provisions effective 
January 1, 1995, the effective date of the amendments made to the Act 
by the Uruguay Round Agreements Act (URAA). In addition, unless 
otherwise indicated, all citations to the Department's regulations are 
to the regulations codified at 19 CFR Part 353 (April 1, 1996).

Final Determination

    We determine that static random access memory semiconductors 
(SRAMs) from Taiwan are being sold in the United States at less than 
fair value (LTFV), as provided in section 735 of the Act. The estimated 
margins are shown in the ``Suspension of Liquidation'' section of this 
notice.

Case History

    Since the preliminary determination in this investigation on 
September 23, 1997 (see Notice of Preliminary Determination of Sales at 
Less Than Fair Value and Postponement of Final Determination: Static 
Random Access Memory Semiconductors from Taiwan, 62 FR 51442 (Oct. 1, 
1997)), the following events have occurred:
    In September 1997, we issued supplemental questionnaires to 
Integrated Silicon Solution Inc. (ISSI) and United Microelectronics 
Corporation (UMC). We received responses to these questionnaires in 
October 1997.
    On October 14, 1997, Taiwan Semiconductor Manufacturing Company 
Ltd. (TSMC) requested that the Department reconsider its preliminary 
determination to exclude TSMC as a respondent in this investigation. On 
October 29, 1997, we informed TSMC that we were not altering our 
decision and that we would not verify the information submitted by 
TSMC. For further discussion of this issue, see the memorandum to the 
file from James Maeder, dated October 29, 1997, and Comment 4 in the 
``Interested Party Comments'' section of this notice.
    On October 15, 1997, a U.S.-based producer of subject merchandise, 
Galvantech, Inc. (Galvantech), requested that the Department accept and 
verify a questionnaire response from it. On October 22, 1997, we denied 
Galvantech's request. For further discussion, see Comment 3 in the 
``Interested Party Comments'' section of this notice.
    On October 17, 1997, an interested party in this investigation, 
Texas Instruments-Acer Incorporated (TI-Acer), claimed that it had not 
received the antidumping duty questionnaire issued to it in April 1997. 
Thus, TI-Acer requested that the Department make no final determination 
for it on the basis of facts available. On October 22, 1997, we 
provided TI-Acer with a copy of the courier's delivery record which 
indicated that TI-Acer had, in fact, received the questionnaire.
    In October and November 1997, we verified the questionnaire 
responses of the following respondents: Alliance Semiconductor Corp. 
(Alliance), ISSI, UMC, and Winbond Electronics Corporation (Winbond).
    In November and December 1997, the respondents submitted revised 
sales databases at the Department's request. In addition, Alliance, 
ISSI and UMC submitted revised cost databases.
    On November 19, 1997, TI-Acer submitted its case brief in which it 
reiterated its assertion that it did not receive a questionnaire. On 
December 9, 1997, we provided TI-Acer with an additional copy of the 
courier's delivery record demonstrating that the questionnaire had been 
received by a TI-Acer official. TI-Acer responded to this letter on 
December 18, 1997. For further discussion, see Comment 5 in the 
``Interested Party Comments'' section of this notice.
    The petitioner (i.e., Micron Technology, Inc.), the four 
respondents, Galvantech, and TSMC submitted case briefs on December 23 
and 24, 1997, and rebuttal briefs on January 7 and 8, 1998. In 
addition, five interested parties, Compaq Computer Corporation 
(Compaq), Cypress Semiconductor Corporation (Cypress), Digital 
Equipment Corporation (Digital), Integrated Device Technology (IDT), 
and Motorola Inc. (Motorola) submitted rebuttal briefs on January 7, 
1998.
    On January 7, 1998, the authorities on Taiwan submitted comments on 
the appropriate treatment of stock distributions to company employees. 
The petitioner responded to these comments on January 12, 1998. The 
Department held a public hearing on January 13, 1998.

Scope of Investigation

    The products covered by this investigation are synchronous, 
asynchronous, and specialty SRAMs from Taiwan, whether assembled or 
unassembled. Assembled SRAMs include all package types. Unassembled 
SRAMs include processed wafers or die, uncut die and cut die. Processed 
wafers produced in Taiwan, but packaged, or assembled into memory 
modules, in a third country, are included in the scope; processed 
wafers produced in a third country and assembled or packaged in Taiwan 
are not included in the scope.
    The scope of this investigation includes modules containing SRAMs. 
Such modules include single in-line processing modules (SIPs), single 
in-line memory modules (SIMMs), dual in-line memory modules (DIMMs), 
memory cards, or other collections of SRAMs, whether unmounted or 
mounted on a circuit board.
    We have determined that the scope of this investigation does not 
include SRAMs that are physically integrated with other components of a 
motherboard in such a manner as to constitute one inseparable amalgam 
(i.e., SRAMs soldered onto motherboards). For a detailed discussion of 
our determination on this issue, see Comment 2 in the ``Interested 
Party Comments'' section of this notice and the memorandum to Louis 
Apple from the Team dated February 13, 1998.
    The SRAMs within the scope of this investigation are currently 
classifiable under the subheadings 8542.13.8037 through 8542.13.8049, 
8473.30.10 through 8473.30.90, and 8542.13.8005 of the Harmonized 
Tariff Schedule of the United States (HTSUS). Although the HTSUS 
subheadings are provided for convenience and customs purposes, the 
written description of the scope of this investigation is dispositive.

Period of Investigation

    The period of this investigation (POI) for all respondents is 
January 1, 1996, through December 31, 1996.

Facts Available

    Three interested parties in this investigation, Advanced 
Microelectronics Products Inc. (Advanced Microelectronics), Best 
Integrated Technology, Inc. (BIT), and TI-Acer, failed to provide 
timely responses to the Department's requests for information. 
Specifically, Advanced Microelectronics and BIT did not respond at all 
to the Department's questionnaire issued in April 1997, while TI-Acer 
provided a partial response five months after the due date.
    TI-Acer informed the Department after the preliminary determination 
that it had not received the questionnaire. Moreover, TI-Acer asserted 
that it is not a producer of subject merchandise. As such, TI-Acer 
argued that it should not be assigned a margin based on facts 
available. However, because there is evidence on the record which

[[Page 8911]]

demonstrates that the questionnaire was delivered to TI-Acer's offices 
in Taiwan and that a TI-Acer company official actually signed for this 
document, and because TI-Acer filed its partial response five months 
after the original due date, we do not find TI-Acer's arguments 
persuasive. For further discussion, see Comment 5 in the ``Interested 
Party Comments'' section of this notice, below.
    Section 776(a)(2) of the Act provides that if an interested party 
1) withholds information that has been requested by the Department, 2) 
fails to provide such information in a timely manner or in the form or 
manner requested, 3) significantly impedes a determination under the 
antidumping statute, or 4) provides such information but the 
information cannot be verified, the Department shall, subject to 
subsections 782(c)(1) and (e) of the Act, use facts otherwise available 
in reaching the applicable determination. Because Advanced 
Microelectronics, BIT, and TI-Acer failed to respond to the 
Department's questionnaire in a timely manner and because subsections 
(c)(1) and (e) do not apply with respect to these companies, we must 
use facts otherwise available to calculate their dumping margins.
    Section 776(b) of the Act provides that adverse inferences may be 
used when a party has failed to cooperate by not acting to the best of 
its ability to comply with requests for information. See also Statement 
of Administrative Action accompanying the URAA, H.R. Rep. No. 316, 103d 
Cong., 2d Sess. 870 (SAA). The failure of Advanced Microelectronics, 
BIT, and TI-Acer to reply to the Department's questionnaire or to 
provide a satisfactory explanation of their conduct demonstrates that 
they have failed to act to the best of their ability in this 
investigation. Thus, the Department has determined that, in selecting 
among the facts otherwise available to these companies, an adverse 
inference is warranted.
    In accordance with our standard practice, as adverse facts 
available, we are assigning to Advanced Microelectronics, BIT, and TI-
Acer the higher of: 1) the highest margin stated in the notice of 
initiation; or 2) the highest margin calculated for any respondent in 
this investigation. In this case, this margin is 113.85 percent, which 
is the highest margin stated in the notice of initiation.
    Section 776(c) of the Act provides that, when the Department relies 
on secondary information (such as the petition) in using the facts 
otherwise available, it must, to the extent practicable, corroborate 
that information from independent sources that are reasonably at its 
disposal. When analyzing the petition, the Department reviewed all of 
the data the petitioner relied upon in calculating the estimated 
dumping margins, and adjusted those calculations where necessary. See 
Initiation Checklist, dated March 17, 1997. These estimated dumping 
margins were based on a comparison of constructed value (CV) to U.S. 
price, the latter of which was based on price quotations offered by two 
companies in Taiwan. The estimated dumping margins, as recalculated by 
the Department, ranged from 93.54 to 113.85 percent. For purposes of 
corroboration, the Department re-examined the price information 
provided in the petition in light of information developed during the 
investigation and found that it has probative value. See the memorandum 
to Louis Apple from the Team dated September 23, 1997, for a detailed 
explanation of corroboration of the information in the petition.

Time Period for Cost and Price Comparisons

    Section 777A(d) of the Act states that in an investigation, the 
Department will compare the weighted average of the normal values to 
the weighted average of the export prices or constructed export prices. 
Generally, the Department will compare sales and conduct the sales 
below cost test using annual averages. However, where prices have moved 
significantly over the course of the POI, it has been the Department's 
practice to use shorter time periods. See, e.g., Final Determination of 
Sales at Less Than Fair Value: Erasable Programmable Read Only Memories 
(EPROMs) from Japan, 51 FR 39680, 39682 (Oct. 30, 1986) (EPROMs from 
Japan), Final Determination of Sales at Less Than Fair Value: Dynamic 
Random Access Memory Semiconductors of One Megabit and Above From the 
Republic of Korea, 58 FR 15467, 15476 (Mar. 23, 1993) (DRAMs from 
Korea).
    We invited comments from interested parties regarding this issue. 
An analysis of these comments revealed that the petitioner and three of 
the four respondents agreed that the SRAM market experienced a 
significant and consistent price and cost decline during the POI. 
Accordingly, in recognition of the significant and consistent price 
decline in the SRAM market during the POI, the Department has compared 
prices and conducted the sales below cost test using quarterly data 
1. See Comment 10 in the ``Interested Party Comments'' of 
this notice for further discussion.
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    \1\  In accordance with section 773(b)(2)(D) of the Act, we 
conducted the recovery of cost test using annual cost data.
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Fair Value Comparisons

    To determine whether sales of SRAMs from Taiwan to the United 
States were made at less than fair value, we compared the EP or CEP, as 
appropriate, to the Normal Value (NV), as described in the ``Export 
Price and Constructed Export Price'' and ``Normal Value'' sections of 
this notice, below. In accordance with section 777A(d)(1)(A)(i) of the 
Act, we calculated weighted-average EPs and CEPs for comparison to 
weighted-average NVs.
    In order to determine whether we should base price-averaging groups 
on customer types, we conducted an analysis of the prices submitted by 
the respondents. This analysis does not indicate that there was a 
consistent and uniform difference in prices between customer types. 
Accordingly, we have not based price comparisons on customer types.
    On January 8, 1998, the Court of Appeals of the Federal Circuit 
issued a decision in Cemex v. United States, 1998 WL 3626 (Fed. Cir.). 
In that case, based on the pre-URAA version of the Act, the Court 
discussed the appropriateness of using CV as the basis for foreign 
market value when the Department finds home market sales to be outside 
the ordinary course of trade. This issue was not raised by any party in 
this proceeding. However the URAA amended the definition of sales 
outside the ``ordinary course of trade'' to include sales below cost. 
See section 771(15) of the Act. Because the Court's decision was issued 
so close to the deadline for completing this investigation, we have not 
had sufficient time to evaluate and apply the decision to the facts of 
this post-URAA case. For these reasons, we have determined to continue 
to apply our policy regarding the use of CV when we have disregarded 
below-cost sales from the calculation of normal value.
    Consequently, in making our comparisons, in accordance with section 
771(16) of the Act, we considered all products sold in the home market 
fitting the description specified in the ``Scope of Investigation'' 
section of this notice, above, to be foreign like products for purposes 
of determining appropriate product comparisons to U.S. sales. Regarding

[[Page 8912]]

ISSI and UMC, where there were no sales of identical merchandise in the 
home market to compare to U.S. sales, we compared U.S. sales to the 
most similar foreign like product, based on the characteristics listed 
in Sections B and C of the Department's antidumping questionnaire. 
Regarding Winbond, we were unable to make price-to-price comparisons 
involving non-identical products because Winbond did not provide 
reliable difference in merchandise (difmer) information. Therefore, we 
based the margin for U.S. products with no corresponding identical home 
market match on facts available. As facts available, we used the 
highest non-aberrant margin calculated for any of Winbond's other U.S. 
sales. See Comment 25 in the ``Interested Party Comments'' section of 
this notice for further discussion. Regarding Alliance, because we 
found no home market sales at prices above the COP, we made no price-
to-price comparisons. See the ``Normal Value'' section of this notice, 
below, for further discussion.
    Moreover, Alliance and ISSI did not report certain costs of 
production which were contemporaneous (i.e., in the same or a prior 
quarter) with their U.S. sales, and ISSI did not report cost or difmer 
information for one product sold in the United States. Because there is 
insufficient information on the record to calculate a margin for these 
products, we based the margin for them on facts available. As facts 
available, we used the highest non-aberrant margin calculated for any 
of that respondent's other sales. For further discussion, see Comment 7 
in the ``Interested Party Comments'' section of this notice.

Level of Trade and Constructed Export Price Offset

    In the preliminary determination, the Department determined that 
there was sufficient evidence on the record to justify a CEP offset for 
each of the four respondents. We found no evidence at verification to 
warrant a change from that preliminary determination. Accordingly, we 
have made a CEP offset for each of the respondents in this final 
determination. For further discussion, see Comment 6 in the 
``Interested Party Comments'' section of this notice and the memorandum 
to the file from the Team, dated February 13, 1998.

Export Price and Constructed Export Price

    For UMC and Winbond, we used the EP methodology, in accordance with 
section 772(a) of the Act, when the subject merchandise was sold 
directly to the first unaffiliated purchaser in the United States prior 
to importation and the CEP methodology was not otherwise indicated.
    In addition, for all companies, where sales to the first 
unaffiliated purchaser took place after importation into the United 
States, we used CEP methodology, in accordance with section 772(b) of 
the Act.
    We made the following company-specific adjustments:
A. Alliance
    We calculated CEP based on packed, FOB U.S. warehouse prices to 
unaffiliated purchasers in the United States. We adjusted gross unit 
price for billing adjustments and freight revenue. We made deductions, 
where appropriate, for discounts. We also made deductions for 
international freight (including air freight and U.S. Customs 
merchandise processing fees) and U.S. inland freight to the customer, 
where appropriate, pursuant to section 772(c)(2)(A) of the Act.
    In accordance with section 772(d) of the Act, we made additional 
deductions for commissions, warranty and credit expenses, indirect 
selling expenses, inventory carrying costs, U.S. repacking expenses and 
U.S. further manufacturing costs.
    Pursuant to section 772(d)(3) of the Act, gross unit price was 
further reduced by an amount for profit, to arrive at CEP.
    With regard to modules which were further-manufactured in the 
United States, we have based CEP on the net price of the modules rather 
than the net price of the individual SRAMs included in the modules.
B. ISSI
    We calculated CEP based on packed, FOB U.S. warehouse prices to 
unaffiliated purchasers in the United States. We made deductions from 
the gross unit price, where appropriate, for discounts. We also made 
deductions for foreign inland freight, pre-sale warehousing expenses, 
foreign and U.S. inland insurance, foreign brokerage and handling, and 
international freight (including air freight, U.S. customs merchandise 
processing fees, and U.S. inland freight to ISSI's U.S. office), where 
appropriate, pursuant to section 772(c)(2)(A) of the Act.
    In accordance with section 772(d) of the Act, we made additional 
deductions for commissions, credit expenses, indirect selling expenses, 
inventory carrying costs, and U.S. repacking expenses. Regarding credit 
expenses, we found that ISSI had not received either full or partial 
payment for certain sales as of the date of verification. Consequently, 
we used the last day of ISSI's U.S. sales verification as the date of 
payment for any unpaid amount and recalculated credit expenses 
accordingly. For further discussion, see Comment 11 in the ``Interested 
Party Comments'' section of this notice.
    Pursuant to section 772(d)(3) of the Act, gross unit price was 
further reduced by an amount for profit, to arrive at CEP.
C. UMC
    We calculated EP and CEP based on packed, FOB prices to 
unaffiliated purchasers in the United States. We adjusted the gross 
unit price for billing adjustments and freight charges. We made 
deductions from the gross unit price, where appropriate, for discounts. 
We also made deductions for foreign inland freight, foreign brokerage 
and handling, and international freight, where appropriate, pursuant to 
section 772(c)(2)(A) of the Act.
    We made additional deductions from CEP, in accordance with section 
772(d) of the Act, for commissions, warranty and credit expenses, 
indirect selling expenses, and inventory carrying costs. Regarding 
credit expenses, we found that UMC had not received payment for certain 
sales as of the date of verification. Consequently, we used the last 
day of UMC's U.S. sales verification as the date of payment for those 
sales and recalculated credit expenses accordingly.
    Pursuant to section 772(d)(3) of the Act, gross unit price was 
further reduced by an amount for profit, to arrive at CEP.
D. Winbond
    We calculated EP and CEP based on packed, FOB or delivered prices 
to unaffiliated purchasers in the United States. We made deductions 
from the gross unit price, where appropriate, for discounts. We also 
made deductions for foreign inland freight, pre-sale warehousing 
expenses, foreign inland insurance, foreign brokerage and handling, 
international freight (including air freight, U.S. inland freight from 
the port to Winbond's U.S. warehouse, and U.S. brokerage and handling 
fees), international insurance, U.S. Customs merchandise processing 
fees, and U.S. inland freight to customer, where appropriate, pursuant 
to section 772(c)(2)(A) of the Act.
    We made additional deductions from CEP, in accordance with section 
772(d) of the Act, for commissions, credit expenses, advertising 
expenses, warranty expenses, technical service expenses, indirect 
selling expenses,

[[Page 8913]]

inventory carrying costs, and U.S. repacking expenses.
    Pursuant to section 772(d)(3) of the Act, gross unit price was 
further reduced by an amount for profit, to arrive at CEP.

Normal Value

    In order to determine whether there was a sufficient volume of 
sales in the home market to serve as a viable basis for calculating NV 
(i.e., the aggregate volume of home market sales of the foreign like 
product is greater than five percent of the aggregate volume of U.S. 
sales), we compared each respondent's volume of home market sales of 
the foreign like product to the volume of U.S. sales of the subject 
merchandise, in accordance with section 773(a)(1)(C)(i) of the Act. 
Because each respondent's aggregate volume of home market sales of the 
foreign like product was greater than five percent of its aggregate 
volume of U.S. sales for the subject merchandise, we determined that 
there was a sufficient volume of home market sales.
    Because UMC and Winbond reported home market sales to affiliated 
parties, as defined by section 771(4)(B) of the Act, during the POI, we 
tested these sales to ensure that the affiliated party sales were made 
at ``arm's-length'' prices, in accordance with our practice. (See 
Notice of Final Determination of Sales at Less Than Fair Value: Certain 
Cold-Rolled Carbon Steel Flat Products from Argentina, 58 FR 37062, 
37077 (Appendix II) (July 9, 1993).) To conduct this test, we compared 
the gross unit prices of sales to affiliated and unaffiliated customers 
net of all movement charges, discounts, rebates, and packing, where 
appropriate. Based on the results of that test, we disregarded sales 
from UMC and Winbond to their affiliated parties when they were not 
made at ``arm's-length'' prices.
    Based on the cost allegation contained in the petition, the 
Department found reasonable grounds to believe or suspect that sales in 
the home market were made at prices below the cost of producing the 
merchandise, in accordance with section 773(b)(1) of the Act. As a 
result, the Department initiated an investigation to determine whether 
the respondents made home market sales during the POI at prices below 
their respective COPs, within the meaning of section 773(b) of the Act.
    We calculated the COP based on the sum of each respondent's cost of 
materials and fabrication for the foreign like product, plus amounts 
for selling, general, and administrative expenses (SG&A) and packing 
costs, in accordance with section 773(b)(3) of the Act. General 
expenses include items such as research and development (R&D) expenses, 
and interest expenses.
    Where possible, we used the respondents' reported weighted-average 
COPs for each quarter of the POI, adjusted as discussed below. In cases 
where there was no production within the same quarter as a given sale, 
we referred to the most recent prior quarter for which costs had been 
reported. In cases where there was no cost reported for either the same 
quarter as the sale, or a prior quarter, we based the margin for those 
sales of the products in question on facts available. See Comment 7 in 
the ``Interested Party Comments'' of this notice for further 
discussion.
    We compared the weighted-average quarterly COP figures to home 
market prices of the foreign like product, less any applicable movement 
charges and discounts, as required under section 773(b) of the Act, in 
order to determine whether these sales had been made at prices below 
their respective COPs.
    In determining whether to disregard home market sales made at 
prices below the COP, we examined: (1) whether, within an extended 
period of time, such sales were made in substantial quantities; and (2) 
whether such sales were made at prices which permitted the recovery of 
all costs within a reasonable period of time in the ordinary course of 
trade.
    Where 20 percent or more of a respondent's sales of a given foreign 
like product were made at prices below the COP, we found that the 
below-cost sales of that model were made in ``substantial quantities'' 
within an extended period of time, in accordance with section 
773(b)(2)(B) and (C) of the Act. To determine whether prices were such 
as to provide for recovery of costs within a reasonable period of time, 
we tested whether the prices which were below the per-unit COP at the 
time of the sale were above the weighted-average per-unit COP for the 
POI, in accordance with section 773(b)(2)(D) of the Act. If such sales 
were found to be below the weighted-average per-unit COP for the POI, 
we disregarded them in determining NV.
    In accordance with section 773(e) of the Act, we calculated CV 
based on the sum of each respondent's cost of materials, fabrication 
costs, SG&A, profit, and U.S. packing costs. In accordance with section 
773(e)(2)(A) of the Act, we based SG&A and profit on the amounts 
incurred and realized by each respondent in connection with the 
production and sale of the foreign like product in the ordinary course 
of trade, for consumption in the foreign country. Where respondents 
made no home market sales in the ordinary course of trade (i.e., all 
sales were found to be below cost), we based SG&A and profit on one of 
the alternatives under section 773(e)(2)(B) of the Act. Specifically, 
we based SG&A and profit on the weighted-average of the SG&A and profit 
computed for those respondents with home market sales of the foreign 
like product made in the ordinary course of trade. For further 
discussion, see Comment 11 in the ``Interested Party Comments'' section 
of this notice.
    Company-specific calculations are discussed below.
A. Alliance
    We relied on the reported per-unit COPs and CVs except as follows.
    1. For COP, we revised the reported R&D expenses to allocate total 
annual semiconductor R&D expenses over total annual semiconductor cost 
of sales (see Comment 9).
    2. For CV, we based SG&A and profit on the weighted-average SG&A 
and profit experience of the three other respondents (see Comment 11).
    Because all of Alliance's home market sales were made at prices 
below the COP, we based NV on CV. In addition to the adjustments to CV 
reported above, in accordance with section 773(a)(7)(B) of the Act, we 
granted a CEP offset adjustment and reduced CV by the amount of weight-
averaged home market indirect selling expenses and commissions incurred 
by those respondents with sales above the COP up to the amount of 
indirect expenses which were deducted from the starting price under 
section 772(d)(1)(D) of the Act.
B. ISSI
    We relied on the reported per-unit COPs and CVs except as follows.
    1. We revised the reported R&D expenses to allocate total annual 
semiconductor R&D expenses over total annual semiconductor cost of 
sales (see Comment 9). Additionally, we offset R&D expenses with R&D 
revenue (see Comment 16).
    2. We revised the reported general and administrative (G&A) expense 
ratio to include physical inventory loss and loss from disposal of 
property, plant and equipment (see Comment 14) and to eliminate the 
double counting of marine insurance (see Comment 15).
    3. We revised the cost of sales denominator used for the G&A and 
R&D expense ratios by using the cost of sales from the audited income 
statement.
    For those comparison products for which there were sales made at 
prices

[[Page 8914]]

above the COP, we based NV on delivered prices to home market 
customers. We made deductions for discounts, foreign inland freight, 
and insurance, where appropriate, pursuant to section 773(a)(6)(B) of 
the Act. We also made circumstance-of-sale adjustments for credit 
expenses and bank charges, pursuant to section 773(a)(6)(C)(iii) of the 
Act.
    We deducted home market indirect selling expenses, including 
inventory carrying costs and other indirect selling expenses, up to the 
amount of indirect selling expenses incurred on U.S. sales, in 
accordance with section 773(a)(7)(B) of the Act. In addition, we 
deducted home market packing costs and added U.S. packing costs, in 
accordance with section 773(a)(6) of the Act. Where appropriate, we 
made adjustments to NV to account for differences in physical 
characteristics of the merchandise, in accordance with section 
773(a)(6)(C)(ii) of the Act and 19 CFR section 353.57. Where 
applicable, in accordance with 19 CFR section 353.56(b)(1), we offset 
any commission paid on a U.S. sale by reducing the NV by any home 
market commissions and indirect selling expenses remaining after the 
deduction for the CEP offset, up to the amount of the U.S. commission.
    Where NV was based on CV, we deducted from CV the weighted-average 
home market direct selling expenses. In accordance with section 
773(a)(7)(B) of the Act, we granted a CEP offset adjustment and reduced 
NV by the amount of commissions and indirect selling expenses incurred 
by ISSI in Taiwan on sales of SRAMs in Taiwan, up to the amount of 
commissions and indirect selling expenses incurred on U.S. sales which 
were deducted from the starting price.
C. UMC
    We relied on the reported per-unit COPs and CVs except as follows.
    1. We increased the cost of manufacturing (COM) to include the 
market value of bonuses paid to directors, supervisors, and employees 
(see Comment 8).
    2. We revised the reported costs for wafers supplied by an 
affiliated party to reflect the COP of the affiliate and the startup 
adjustment claimed by UMC (see Comment 20).
    3. We revised the reported R&D expenses to allocate total annual 
semiconductor R&D expenses over total annual semiconductor cost of 
sales (see Comment 9).
    4. We removed from G&A foreign exchange gains and losses generated 
by accounts receivable and another source.
    5. We added bonuses to the cost of sales used in the denominator in 
the G&A, R&D and interest expense ratios.
    For those comparison products where there were sales made at prices 
above the COP, we based NV on delivered and FOB prices to home market 
customers. For home market price-to-EP comparisons, we adjusted the 
gross unit price for billing adjustments, where appropriate. We made 
deductions, where appropriate, for discounts, export duties, and 
foreign inland freight, in accordance with section 773(a)(6)(B) of the 
Act. Pursuant to section 773(a)(6)(C)(iii) of the Act and 19 CFR 
section 353.56(a)(2), we made circumstance-of-sale adjustments, where 
appropriate, for differences in warranty and credit expenses. We did 
not allow an adjustment for home market commissions because we 
determined that they were not made at ``arm's length.'' See the 
memorandum to Louis Apple from the Team dated September 23, 1997, for a 
detailed explanation.
    For home market price-to-CEP comparisons, we adjusted the gross 
unit price for billing adjustments, where appropriate. We made 
deductions, where appropriate, for discounts, export duties, and 
foreign inland freight, pursuant to section 773(a)(6)(B) of the Act. We 
also made deductions for warranty and credit expenses. We deducted home 
market indirect selling expenses, including inventory carrying costs 
and other indirect selling expenses, up to the amount of indirect 
selling expenses incurred on U.S. sales, in accordance with section 
773(a)(7)(B) of the Act. Where applicable, in accordance with 19 CFR 
section 353.56(b), we offset any commission paid on a U.S. sale by 
reducing the NV by any home market indirect selling expenses remaining 
after the deduction for the CEP offset, up to the amount of the U.S. 
commission.
    For all price-to-price comparisons, we deducted home market packing 
costs and added U.S. packing costs, in accordance with section 
773(a)(6) of the Act. In addition, where appropriate, we made 
adjustments to NV to account for differences in physical 
characteristics of the merchandise, in accordance with 773(a)(6)(C)(ii) 
of the Act and 19 CFR section 353.57.
    Where CV was compared to EP, we made circumstance-of-sale 
adjustments, where appropriate, for credit and warranty expenses and 
U.S. commissions in accordance with sections 773(a)(6)(C)(iii) and 
(a)(8) of the Act. In accordance with 19 CFR section 353.56(b)(i), we 
reduced NV by the amount of indirect selling expenses incurred by UMC 
in Taiwan on sales of SRAMs in Taiwan, up to the amount of U.S. 
commissions.
    Where CV was compared to CEP, we made circumstance-of sale 
adjustments, where appropriate, for credit and warranty expenses. We 
also deducted indirect selling expenses, up to the amount of 
commissions and indirect selling expenses incurred on U.S. sales, in 
accordance with 773(a)(7)(B) of the Act.
D. Winbond
    We relied on the reported per-unit COPs and CVs except as follows.
    1. We increased the COM to include the market value of bonuses paid 
to directors, supervisors, and employees (see Comment 8).
    2. We revised the reported R&D expenses to allocate total annual 
semiconductor R&D expenses over total annual semiconductor cost of 
sales (see Comment 9).
    3. We adjusted G&A expenses to include the unrecovered fire loss 
(see Comment 27), bank charges, and other miscellaneous expenses. 
Additionally, we excluded foreign exchange gains and losses on sales 
transactions.
    4. We added bonuses to the cost of sales used in the denominators 
in the G&A, R&D and interest expense ratios (see Comment 28).
    5. We increased Winbond's second quarter COM to include an 
unreconciled difference between its accounting records and its reported 
costs (see Comment 24).
    6. We revised the COM for two products to reflect the standard cost 
and variance at the time of production.
    Furthermore, we found at verification that, for all products, 
Winbond had misclassified certain variable overhead costs as fixed 
overhead. Because we do not have sufficient data on the record to 
appropriately reclassify these costs, we are unable to make difmer 
adjustments based on Winbond's reported variable costs. Therefore, we 
based the margin for all sales requiring a difmer adjustment on facts 
available. For further discussion, see Comment 25 in the ``Interested 
Party Comments'' section of this notice.
    Regarding EP sales, because there were no identical comparison 
products sold in the home market at prices above the COP, we made no EP 
to home market price or EP to CV comparisons. Regarding CEP, for those 
identical comparison products for which there were sales made at prices 
above the COP, we based NV on delivered prices to home market 
customers. We made deductions from gross unit price for discounts, 
import duties and development fees paid on sales to

[[Page 8915]]

customers outside of duty free zones. We deducted home market movement 
charges including pre-sale warehouse expenses, foreign inland freight, 
brokerage and handling charges, and inland insurance, where 
appropriate, in accordance with section 773(a)(6)(B) of the Act. We 
also made circumstance-of-sale adjustments for credit expenses (offset 
by the interest revenue actually received by the respondent), direct 
advertising expenses, warranty expenses, and post-sale payments to a 
third-party customer, pursuant to section 773(a)(6)(C)(iii) of the Act. 
We made no separate adjustment for technical service expenses, as they 
were included as part of R&D expenses. See Comment 30.
    We deducted home market indirect selling expenses, including 
inventory carrying costs and other indirect selling expenses, up to the 
amount of indirect selling expenses incurred on U.S. sales, in 
accordance with section 773(a)(7)(B) of the Act. Where applicable, in 
accordance with 19 CFR section 353.56(b), we offset any commission paid 
on a U.S. sale by reducing the NV by any home market indirect selling 
expenses remaining after the deduction for the CEP offset, up to the 
amount of the U.S. commission. In addition, we deducted home market 
packing costs and added U.S. packing costs, in accordance with section 
773(a)(6) of the Act.
    Where CV was compared to CEP, we deducted from CV the weighted-
average home market direct selling expenses. In accordance with section 
773(a)(7)(B) of the Act, we granted a CEP offset adjustment and reduced 
normal value by the amount of indirect selling expenses, including 
inventory carrying costs and other indirect selling expenses, up to the 
amount of indirect selling expenses incurred on U.S. sales which were 
deducted from the starting price.

Currency Conversion

    We made currency conversions into U.S. dollars based on the 
official exchange rates in effect on the dates of the U.S. sales as 
certified by the Federal Reserve Bank. Section 773A(a) of the Act 
directs the Department to use a daily exchange rate in order to convert 
foreign currencies into U.S. dollars unless the daily rate involves a 
fluctuation. It is the Department's practice to find that a fluctuation 
exists when the daily exchange rate differs from the benchmark rate by 
2.25 percent. The benchmark is defined as the moving average of rates 
for the past 40 business days. When we determine that a fluctuation 
exists, we substitute the benchmark rate for the daily rate, in 
accordance with established practice. Further, section 773A(b) directs 
the Department to allow a 60-day adjustment period when a currency has 
undergone a sustained movement. A sustained movement has occurred when 
the weekly average of actual daily rates exceeds the weekly average of 
benchmark rates by more than five percent for eight consecutive weeks. 
See Change in Policy Regarding Currency Conversions, 61 FR 9434 (March 
8, 1996). Such an adjustment period is required only when a foreign 
currency is appreciating against the U.S. dollar. The use of an 
adjustment period was not warranted in this case because the New Taiwan 
Dollar did not undergo a sustained movement.

Verification

    As provided in section 782(i) of the Act, we verified the 
information submitted by the respondents for use in our final 
determination. We used standard verification procedures, including 
examination of relevant accounting and production records and original 
source documents provided by the respondents.

Interested Party Comments

General Issues
Comment 1: U.S. Companies as Producers

    Alliance, ISSI, and Galvantech argue that, as U.S. producers of 
subject merchandise, they should be excluded from this investigation. 
Specifically, these companies contend that: 1) the Department has found 
that the design is the essential component of the SRAMs under 
investigation; and 2) because their designs are developed in the United 
States, the SRAMs incorporating these designs are necessarily of U.S. 
origin.
    Furthermore, Alliance, ISSI, and Galvantech maintain that the 
decision on origin of the subject merchandise set forth in the current 
scope definition (i.e., where the wafer is produced) clearly conflicts 
with the Department's preliminary decision on who constitutes the 
producer in this case (i.e., who controls the design). These companies 
state that continuing to define what constitutes subject merchandise by 
the origin of the wafer would lead to the treatment of U.S. companies 
as foreign producers, even when their home market is indisputably the 
United States and they have no foreign facilities. According to these 
companies, this result is contrary to the plain language of the dumping 
law, which was intended to reach foreign, not U.S., producers.
    Alliance argues that the Department should harmonize its respondent 
and scope determinations by narrowly amending the scope of the case to 
exclude SRAMs from Taiwan that are imported by a U.S. design company 
that: 1) designed the chips in the United States; 2) controlled their 
production from the United States; and 3) either will use them itself 
or will market them from the United States. Alliance contends that this 
exclusion would not create a loophole that would diminish the 
effectiveness of any order in this case, because firms meeting the 
above requirements would add significant value in the United States.
    According to the petitioner, Alliance, ISSI, and Galvantech have 
confused the Department's practice on two separate issues: 1) 
determining country of origin for dumping purposes; and 2) selecting 
the proper producer and exporter. The petitioner notes that, in past 
semiconductor cases, the Department has consistently based country of 
origin for dumping purposes on the place of wafer fabrication. 
Moreover, the petitioner states that the Department has not hesitated 
to include U.S. companies as respondents provided, as here, the 
elements of the Department's test for tolling are satisfied. As support 
for this contention, the petitioner cites several cases including 
Notice of Final Determination of Sales at Less Than Fair Value: 
Polyvinyl Alcohol from Taiwan, 61 FR 14064 (Mar. 29, 1996) (PVA from 
Taiwan) and Notice of Final Determination of Sales at Less Than Fair 
Value: Ferrovanadium and Nitrided Vanadium from the Russian Federation, 
60 FR 27957 (May 26, 1995) (Ferrovanadium from Russia).
    According to the petitioner, the Department dealt with an identical 
issue in the 1993-1994 administrative reviews of the antidumping duty 
orders on carbon steel flat products. Specifically, the petitioner 
cites a December 1994 memorandum issued in those cases, where the 
Department stated that ``the choice of respondent would be based on the 
party which controls the sale of the subject merchandise, including 
U.S. parties which subcontract part of the production process in a 
foreign country . . .'' See ``Discussion Memorandum: A Proposed 
Alternative to Current Tolling Methodology in the Current Antidumping 
(AD) Reviews of Carbon Steel Flat Products'' from Joseph A. Spetrini, 
Deputy Assistant Secretary for Compliance to Susan G. Esserman, 
Assistant Secretary for Import Administration, dated December 12,

[[Page 8916]]

1994. The petitioner further notes that the analysis in those cases was 
consistent with the current regulation on tolling, which states that 
the Department will not consider a subcontractor to be the manufacturer 
or producer, regardless of the proportion of production attributable to 
the subcontracted operation or the location of the subcontractor or 
owner of the goods. See 19 CFR section 351.401(h).

DOC Position

    We agree with the petitioner. The Department's current policy on 
subcontracted operations is to consider as the manufacturer the entity 
which controls the production and sale of the subject merchandise. See, 
e.g., Notice of Final Determination of Sales at Less Than Fair Value. 
Certain Forged Stainless Steel Flanges from India, 58 FR 68853, 68855 
(Dec. 29, 1993) (Flanges from India). Although the new regulations are 
not in effect for purposes of this case, they codify this practice. 
According to 19 CFR 351.401(h), the Department--

 * * * will not consider a toller or subcontractor to be a 
manufacturer or producer where the toller or subcontractor does not 
acquire ownership, and does not control the relevant sale, of the 
subject merchandise or foreign like product.

Nowhere in either our practice or in this regulation is there a 
prohibition against selecting U.S. companies as producers, nor is this 
the first case where we have treated U.S. companies as such. 
2 Indeed, we note that Alliance agreed with our respondent 
selection analysis at the public hearing in this case, when it stated 
that U.S. companies can be respondents in dumping cases if their 
products are within the scope. See page 92 of the transcript of the 
public hearing, dated January 22, 1998. Because the U.S. design houses 
control the production of the subject merchandise, as well as its 
ultimate sale, we find that they are the appropriate respondents here. 
See the memorandum to Louis Apple from the Team, dated September 23, 
1997, regarding Treatment of Foundry Sales and the Elimination of TSMC 
as a Respondent for a more detailed analysis concerning this issue.
---------------------------------------------------------------------------

    \2\ See, e.g., PVA from Taiwan.
---------------------------------------------------------------------------

    Regarding the respondents' arguments on the country of origin of 
their products, we disagree that the design alone confers origin. At 
the design stage, the SRAMs in question are merely ideas, not physical 
products (i.e., merchandise). These designs do not become actual 
merchandise until they are translated onto wafers. As such, while the 
design may be the essential component in the finished product, the 
design itself is not merchandise.
    Consistent with our past practice, we find that the place of wafer 
fabrication is determinative as to country of origin. See, e.g., DRAMs 
from Korea. Because the wafers in question are fabricated in Taiwan, we 
find that they constitute subject merchandise within the meaning of the 
Act. Consequently, we are continuing to treat them as such for purposes 
of the final determination.

Comment 2: Scope of the Investigation

    The petitioner argues that the Department should clarify that the 
scope of the order on SRAMs from Taiwan includes the SRAM content of 
motherboards for personal computers. The petitioner contends that if 
SRAMs incorporated on motherboards are not included in the scope of the 
order, the respondents will shift a significant volume of SRAMs into 
the production of motherboards in Taiwan that are destined for the 
United States, thereby avoiding paying duties on the SRAMs.
    In addition, argues the petitioner, while motherboards viewed as a 
whole may be considered to fall within a class or kind of merchandise 
separate from SRAMs, the placement of SRAMs on a motherboard does not 
diminish their separate identity or function, and should not insulate 
them from antidumping duties. The petitioner contends that its position 
is supported by: 1) the Department's practice regarding combined or 
aggregated products; 2) analogous principles of Customs Service 
classification; and 3) the Department's inherent authority to craft an 
antidumping order that forestalls potential circumvention of an order.
    The petitioner also argues that the Customs Service can administer, 
without undue difficulty, an antidumping duty order that covers SRAMs 
carried on non-subject merchandise.
    At the public hearing held by the Department, the petitioner 
asserted that there are fundamental differences between the scope 
language in DRAMs from Korea and the scope language in this 
investigation that distinguish the two cases. The petitioner first 
argues that the scope language in DRAMs from Korea ``said that the 
modules had to be limited to where the function of the board was 
memory. That limitation does not exist in this case.'' See the 
transcript of the public hearing, dated January 22, 1998, at page 162. 
The petitioner further argues that ``[i]n the DRAM case, it says that 
`modules which contain additional items which alter the function of the 
module to something other than memory are not covered modules.' That's 
a fundamental difference between these two scopes that was very 
carefully written and very carefully put into the scope of these two 
cases.'' See the hearing transcript at page 163.
    IDT and Cypress agree with the petitioner, arguing that SRAMs on a 
motherboard are no less SRAMs than those imported separately and that 
the Department's failure to cover such imports would provide an 
incentive to foreign SRAM producers to shift their sales to motherboard 
producers in Taiwan and elsewhere.
    Alliance, ISSI, UMC, Winbond, Motorola, Compaq, and Digital oppose 
the petitioner's position. Alliance, Compaq, and Digital argue that the 
petitioner's circumvention concerns are unfounded. They note that the 
Department determined in DRAMs from Korea that DRAMs physically 
integrated with the other components of a motherboard in a manner that 
made them part of an inseparable amalgam posed no circumvention risk 
and that the same holds true in this case.
    In addition, Alliance, Compaq, Digital, UMC, and Winbond argue 
that, contrary to the petitioner's assertion, SRAMs affixed to a 
motherboard do not retain their separate functional identities. Rather, 
explains Alliance, SRAMs are integrated onto motherboards by soldering, 
are interconnected with other motherboard elements by intricate 
electronic circuitry, and become part of a complex electronic 
processing unit representing an inseparable amalgam constituting a 
different class or kind of merchandise that is outside the scope of the 
investigation.
    Finally, UMC, Compaq and Digital argue that the petitioner's 
proposal is unworkable from an administrative standpoint, since it 
would require motherboard manufacturers to track all SRAMs placed in 
every motherboard throughout the world. Compaq and Digital note that 
they cannot determine the value of Taiwan SRAMs incorporated in a 
particular motherboard. In addition, ISSI, Compaq, and Digital argue 
that the petitioner's proposal would be unadministrable by the Customs 
Service because the SRAM content of a motherboard cannot be determined 
by physical inspection and also because the petitioner has provided no 
realistic proposition as to how the Customs Service might carry out the 
petitioner's proposal on an entry-by-entry basis, given the enormous 
volume of trade in motherboards.
    With regard to the petitioner's assertion that the scope of the 
language

[[Page 8917]]

in DRAMs from Korea is fundamentally different from the scope language 
in this investigation, Compaq and Digital argue that the language is 
quite similar and that there is no ``doubt that literally the language 
in this Notice of Investigation and in the preliminary referred to 
certain modules, and those are memory modules, not any kind of board on 
which other elements are stuffed.'' See the hearing transcript at page 
172.

DOC Position

    We disagree with the petitioner. The petitioner's argument that the 
scope of the investigation as defined in the preliminary determination 
should be interpreted to encompass the SRAM content of motherboards is 
unpersuasive for three basic reasons. First, the SRAM content of 
motherboards (when affixed to the motherboard) was not expressly or 
implicitly referenced in the scope language used in this investigation. 
Second, just as we found in the investigation of DRAMs from Korea, the 
petitioner's claims about potential circumvention of the order with 
SRAMs soldered onto motherboards are inseparable. Third, it is not 
appropriate for an antidumping duty order to cover the input content of 
a downstream product. As the Department found in DRAMs from Korea, a 
case in which a nearly identical proposal was rejected by the 
Department, when a DRAM is physically integrated with a motherboard, it 
becomes a component part of the motherboard (an inseparable amalgam). 
As there has been no request to include motherboards within the scope 
of this investigation, the SRAM content of motherboards (when 
physically integrated with the motherboard) cannot be covered.
    As to the first point, we disagree with the petitioner's assertion 
that the differences between the scope language in DRAMs From Korea and 
the language in this case are so fundamental that the differences can 
be interpreted to mean that SRAMs soldered onto motherboards are 
included within the scope of this investigation. The SRAM scope 
language relied upon by the petitioner includes within the scope of 
this investigation ``other collection[s] of SRAMs;'' as the petitioner 
notes in its argument, this refers specifically to modules whether 
mounted or unmounted on a circuit board. There is similar scope 
language in DRAMs From Korea. In that case, we interpreted the language 
as not extending to modules which contain additional items which alter 
the function of the module to something other than memory. Such an 
interpretation, applied to this case, indicates clearly that the SRAM 
content of motherboards is not within the scope of this investigation.
    We found in DRAMs From Korea that memory boards whose sole function 
was memory were included within the definition of memory modules; 
however, we further concluded that other boards, such as video graphic 
adapter boards and cards were not included because they contained 
additional items which altered the function of the modules to something 
other than memory. Consequently, at the time of the final 
determination, we added language to the DRAMs From Korea scope in order 
that these other, enhanced, boards be specifically excluded. Since the 
issue of such enhanced boards was not raised in this case, we did not 
find it necessary to include an express exclusion for such products. 
Thus, the absence of such language should not be interpreted to permit 
the inclusion of products which do not fall under the rubric of ``other 
collections of SRAMs.''
    As to the second point, the petitioner argued in DRAMs from Korea 
that unremovable DRAMs on motherboards should be included in the scope 
of the order to counter the potential for circumvention of the order. 
We stated in our determination that we considered it ``infeasible that 
a party would import motherboards with the intention of removing the 
integrated DRAM content and, therefore, consider it unreasonable to 
expect that any order arising from this investigation could be evaded 
in such a fashion.'' See the memorandum to Joseph Spetrini from Richard 
Moreland, dated March 15, 1993, at page 13, attached as Exhibit 1 to 
Winbond's submission of January 7, 1998. We find it equally infeasible 
that an importer would import SRAMs soldered onto a motherboard for the 
sole purpose of removing those SRAMs for individual resale thereby 
circumventing the antidumping duty order.
    As to the third point, our statute does not provide a basis for 
assessing duties on the input content of a downstream product. See 
Senate Rep. 100-71, 100th Congress, 1st Sess. 98 (1987) (in which the 
report notes both the general rule and the ``major input'' exception, 
which applies only in an investigation or review of a downstream 
product). Thus, where an SRAM loses its separate identity by being 
incorporated into a downstream product, and where the investigation 
covers SRAMs but does not cover the downstream product, there can be no 
basis for assessing duties against the SRAMs incorporated in the 
downstream product.
    For a more detailed discussion regarding this issue, see the 
memorandum to Louis Apple from the Team, dated February 13, 1998.

Comment 3: Selection of Dumping Margin for Galvantech

    Galvantech argues that, if the Department does not exclude its 
products from the scope of the investigation, the Department should 
assign Galvantech the margin calculated for ISSI for purposes of the 
final determination. According to Galvantech, 19 U.S.C. Sec. 1677(e) 
requires the Department to determine an importer's margin based on the 
most reliable information available. Galvantech asserts that, in this 
case, ISSI's margin is the most reliable information applicable to 
Galvantech because both companies fabricate wafers using the same 
foundry under similar foundry agreements. Galvantech asserts that the 
all others rate is less reliable because it does not contain any 
information related to either Galvantech or its foundry.
    The petitioner asserts that Galvantech is not entitled to ISSI's 
margin as facts available. According to the petitioner, Galvantech 
provides no compelling reason for the Department to abandon its 
standard practice in this investigation and assign one individual 
respondent's rate to a non-participating producer. The petitioner notes 
that, because Galvantech neither submitted a questionnaire response nor 
participated in verification, the Department has no basis to determine 
that Galvantech is more similarly situated to ISSI than to Alliance, 
another design house without a fabrication facility (i.e., ``fabless'') 
that received a preliminary dumping margin which exceeded the all 
others rate.

DOC Position

    We agree with the petitioner that Galvantech should not be assigned 
ISSI's margin. The Department's practice in this area is to assign the 
all others rate to any company not specifically investigated in a 
proceeding. See, e.g., Notice of Final Determination of Sales at Less 
Than Fair Value: Certain Steel Concrete Reinforcing Bars from Turkey, 
62 FR 9737, 9742 (Mar. 4, 1997) (Rebar from Turkey). Consistent with 
this practice, we have assigned Galvantech the all others rate because 
it was not a respondent in this investigation.
    We note that the all others rate is not intended to set the rate at 
which antidumping duties are ultimately assessed on entries of subject 
merchandise. Rather, the all others rate merely establishes the level 
of antidumping duty deposits required on future entries. Prior to the 
time that

[[Page 8918]]

actual duty assessments are made, each exporter, importer or producer 
of subject merchandise has the right to request that the Department 
conduct an administrative review of its actual entries and determine 
its dumping liability on a company-specific basis. In the event that an 
antidumping duty order is issued in this case, Galvantech will have an 
opportunity to request such an administrative review.

Comment 4: Exclusion of TSMC as a Respondent

    TSMC argues that the decision to exclude it as a respondent in this 
investigation is not supported by evidence on the record, and is 
contrary to applicable laws, regulations, precedent, and requirements 
for procedural fairness.
    Specifically, TSMC cites 19 CFR section 351.401(h),\3\ stating that 
TSMC qualifies as both a manufacturer and an interested party because 
evidence on the record establishes that TSMC acquires ownership of the 
subject merchandise and that design houses do not control TSMC's sales 
of subject merchandise.\4\
---------------------------------------------------------------------------

    \3\ TSMC cites to the new regulations as a codification of 
current Department practice.
    \4\ TSMC considers the relevant sale to be its sale of SRAM 
wafers to its design house customers in the United States and 
Taiwan. However, the Department preliminarily determined that the 
relevant sale in a foundry agreement is the ultimate sale of SRAMs 
made by the design house.
---------------------------------------------------------------------------

    In addition, TSMC contends that the Department based its decision 
on erroneous information, including the following: (1) design houses 
perform all of the R&D for SRAMs; (2) design houses tell the foundries 
what and how much to produce; (3) TSMC has no right to sell wafers to 
any party other than the design house unless it fails to pay for the 
wafers; (4) design houses own and provide masks for the production 
process; and (5) masks are considered to be inputs into the production 
of SRAMs. TSMC argues that it is a proper respondent because it 
performs all process R&D, freely negotiates production quantities and 
types, freely contracts to supply merchandise exclusively to particular 
design houses, and makes and maintains possession of virtually all 
masks used in its fabrication facilities (also known as ``fabs''). 
Moreover, TSMC characterizes masks as equipment used in the wafer 
fabrication process, rather than raw material inputs.
    TSMC also states that, based on the facts on the record and the 
Department's practice of granting manufacturer status to, and 
calculating individual margins for, producers that manufacture and sell 
custom-made products, it should be considered the producer of the 
subject merchandise. TSMC cites the following cases in support of its 
position: Flanges from India, Notice of Final Determination of Sales at 
Less Than Fair Value: Engineered Process Gas Turbo-Compressor Systems, 
Whether Assembled or Unassembled, and Whether Complete or Incomplete, 
from Japan, 62 FR 24394 (May 5, 1997), Antifriction Bearings (Other 
Than Tapered Roller Bearings) and Parts Thereof from France, Germany, 
Italy, Japan, Singapore, and the United Kingdom: Final Results of 
Antidumping Duty Administrative Reviews, 54 FR 18992, 19012 (May 3, 
1989) (AFBs), Antifriction Bearings (Other Than Tapered Roller 
Bearings) and Parts Thereof from France, Germany, Italy, Japan, 
Singapore, and the United Kingdom: Final Results of Antidumping Duty 
Administrative Reviews, 62 FR 2081 (Jan. 15, 1997), Certain Corrosion-
Resistant Carbon Steel Flat Products and Certain Cut-to-Length Carbon 
Steel Plate from Canada: Preliminary Results of Antidumping Duty 
Administrative Reviews, 61 FR 51891 (Oct. 4, 1996), Notice of Final 
Determination of Sales at Less Than Fair Value: Large Newspaper 
Printing Presses and Components Thereof, Whether Assembled or 
Unassembled, from Japan, 61 FR 38139 (July 23, 1996), Mechanical 
Transfer Presses from Japan; Final Results of Antidumping 
Administrative Review, 62 FR 11820 (Mar. 13, 1997), and Large Power 
Transformers from Japan; Final Results of Antidumping Duty 
Administrative Review, 56 FR 29215 (June 26, 1991). In addition, TSMC 
cites Sweaters Wholly or in Chief Weight of Man-Made Fiber from Taiwan; 
Final Results of Changed Circumstances Antidumping Duty Administrative 
Review, 58 FR 32644 (June 11, 1993), claiming that, as in that case, 
the Department should grant TSMC manufacturer status because it bought 
raw materials used to produce subject merchandise, controlled the 
process of manufacture, and performed processing on the subject 
merchandise.
    TSMC claims that, by making the decision to exclude it at the 
preliminary determination and, therefore, to not verify it, the 
Department denied any meaningful opportunity for TSMC to present its 
case. Finally, TSMC argues that, if the Department upholds its decision 
that the design house is the producer of the subject merchandise, the 
Department should also find that TSMC's products (i.e., SRAM wafers) 
are of U.S. origin. Accordingly, TSMC argues that the Department should 
exclude its wafers from the scope of the investigation.
    The petitioner states that the Department properly excluded TSMC as 
a respondent for the following reasons: (1) the Department properly 
determined that TSMC is not a proper producer or exporter based on 
applicable law and regulations regarding ``tolling''; (2) the 
Department's decision is fully grounded in the record with respect to 
each element of an affirmative finding of tolling between TSMC and its 
design houses; (3) the cases cited by TSMC are distinguishable from the 
instant case, as described in the memorandum to Louis Apple from the 
Team, dated September 23, 1997; and (4) TSMC was afforded due process 
not only because the memorandum to Louis Apple from the Team, dated May 
15, 1997, regarding respondent selection, implied that TSMC would not 
be considered a proper respondent if all of its sales were made through 
foundry agreements, but also because all interested parties were given 
an opportunity to comment on this issue after the preliminary 
determination.

DOC Position

    We agree with the petitioner. The preliminary determination to 
exclude TSMC as a respondent in this investigation was made after 
taking into account the evidence on the record, and was in accordance 
with applicable law, regulations, and precedent. Regarding TSMC's claim 
that the Department based its decision on erroneous information, we 
continue to reach the central conclusions set forth in our decision 
memorandum on this issue. See the memorandum to Louis Apple from the 
Team, dated September 23, 1997, regarding Treatment of Foundry Sales 
and the Elimination of TSMC as a Respondent. As we stated in this 
memorandum,

    Regarding control over production in this case, after reviewing 
and analyzing the information submitted by respondents, including 
the contracts between the design houses and the foundries, we 
believe that the entity controlling the wafer design in effect 
controls production in the SRAMs industry. The design house performs 
all of the research and development for the SRAM that is to be 
produced. It produces, or arranges and pays for the production of, 
the design mask. At all stages of production, it retains ownership 
of the design and design mask. The design house then subcontracts 
the production of processed wafers with a foundry and provides the 
foundry with the design mask. It tells the foundry what and how much 
to make. The foundry agrees to dedicate a certain amount of its 
production capacity to the production of the processed wafers for 
the design house. The foundry has no right to sell those wafers to 
any party other than the design house unless the design house fails 
to pay for the wafers. Once the design house takes possession of the 
processed

[[Page 8919]]

wafers, it arranges for the subsequent steps in the production 
process. The design of the processed wafer is not only an important 
part of the finished product, it is a substantial element of 
production and imparts the essential features of the product. The 
design defines the ultimate characteristics and performance of the 
subject merchandise and delineates the purposes for which it can be 
used. The foundries manufactured processed SRAMs wafers using the 
proprietary designs of the design houses during the POI. As such, 
they did not control the production of the wafers in question, but 
merely translated the design of other companies into actual 
products.

    We agree with TSMC that there are certain factual errors in the 
memorandum of September 23, 1997, but disagree as to the significance 
of these errors. With regard to the first alleged ``error'' identified 
by TSMC, we agree that the process R&D is performed by the foundry, but 
note that the design houses are responsible for all product-related R&D 
as well as the proprietary designs. These steps impart the essential 
features of the product and define its ultimate characteristics and 
performance. With regard to the second alleged ``error,'' we agree that 
the production quantities and types are negotiated between the foundry 
and the design houses; this fact neither supports nor undermines a 
finding that the design houses are the producers of the subject 
merchandise. With regard to the third alleged ``error,'' we note that 
TSMC does not dispute the finding that the foundry has no right to sell 
wafers to any party other than the design house unless the design house 
fails to pay for the wafers. With regard to the fourth alleged 
``error,'' while it may be true that the masks are produced and 
retained for a limited time by the foundry, the party that provides the 
design imparts the essential features of both the mask and the product; 
indeed, the design house controls the use of the mask just as much as 
it controls the use of the finished product (in that TSMC is obligated 
at some point to destroy the mask to prevent unauthorized reuse). With 
regard to the fifth alleged ``error,'' we do not find the 
characterization of the masks as either ``inputs'' or ``equipment'' to 
be a relevant distinction in this case.
    With regard to TSMC's argument that this case is analogous to cases 
in which the Department has found the manufacturer of a ``custom-made'' 
product to be the producer, we note that the decision memorandum 
concluded with the finding that ``[t]he design of the processed wafer 
is not only an important part of the finished product, it is a 
substantial element of production and imparts the essential features of 
the product. The design defines the ultimate characteristics and 
performance of the subject merchandise and delineates the purposes for 
which it can be used.'' This case is not analogous to cases in which 
the purchaser merely provides product specifications to the 
manufacturer. Moreover, we find unpersuasive TSMC's reference to AFBs. 
The issue discussed by the Department in the cited portion of the 
notice was whether certain custom-designed bearings were within the 
scope of the investigation. The Department did not discuss the question 
of whether the bearing designer, as opposed to the bearing 
manufacturer, should be considered to be the respondent.
    Finally, with regard to TSMC's argument that its wafers should not 
be covered by the scope of the investigation, we find that these wafers 
constitute subject merchandise. As subject merchandise, we find that 
they are properly included in the scope. For further discussion, see 
Comment 1, above.

Comment 5: Facts Available for TI-Acer

    For the preliminary determination, the Department assigned TI-Acer 
a margin based on adverse facts available because it did not respond to 
the antidumping questionnaire. TI-Acer argues that the Department 
should not assign it a dumping margin based on adverse facts available 
because TI-Acer has no record of receiving the questionnaire. Rather, 
TI-Acer asserts that the Department should apply the all others rate, 
consistent with both previous legal decisions and the Department's 
treatment of other companies in this investigation. (See Queen's 
Flowers de Colombia v. United States, Slip Op. 97-120 (CIT Aug. 25, 
1997) (Queen's Flowers), where the Court of International Trade found 
that the use of facts available was unwarranted when a respondent did 
not receive the questionnaire, and the Department's preliminary 
determination in this investigation, where the Department applied the 
all others rate to a company that could not be located.) TI-Acer claims 
that it should be subject to the all others rate because it is not a 
producer of subject merchandise and section 735(c)(1)(B)(i)(II) of the 
Act states that the all others rate is applied to all exporters and 
producers not individually investigated.

DOC Position

    We disagree with TI-Acer's assertion that the Department should 
assign it the all others rate. In Queen's Flowers, the Department found 
that the application of facts available was unwarranted because the 
questionnaire was delivered to the wrong address. However, in this case 
the questionnaire was sent to TI-Acer's correct address and, according 
to records obtained from the courier, was accepted by TI-Acer. See the 
Department's letters addressed to TI-Acer dated October 22 and December 
9, 1997.
    Regarding TI-Acer's assertion that it should be assigned the all 
others rate under section 735(c)(1)(B)(i)(II) of the Act because it was 
not individually investigated, we note that our investigation of TI-
Acer began with the issuance of the questionnaire. Because TI-Acer did 
not file a timely questionnaire response, we were unable to determine 
that it was not a significant producer or exporter of subject 
merchandise and, consequently, to determine that it did not warrant 
individual investigation. For this reason, we found that TI-Acer failed 
to act to the best of its ability and applied adverse facts available 
to it for the preliminary determination. Since the time of the 
preliminary determination we have not received any information which 
would cause us to change this decision. Accordingly, we have assigned a 
dumping margin to this company based on adverse facts available for 
purposes of the final determination. This margin, 113.85 percent, is 
the highest margin stated in the notice of initiation.

Comment 6: CEP Offset

    The petitioner contends that the Department should make no CEP 
offset adjustment for any respondent for purposes of the final 
determination. The petitioner asserts that the Department's practice of 
determining the number and comparability of levels of trade after 
making all adjustments to CEP, but before adjusting NV, makes CEP 
offsets virtually automatic. According to the petitioner, under both 
the plain terms of the statute and the intent of Congress, such 
adjustments should be the exception, not the rule. The petitioner notes 
that it raised the same argument in another case and that the issue is 
being litigated. See Dynamic Random Access Memory Semiconductors of One 
Megabit or Above From the Republic of Korea; Final Results of 
Antidumping Duty Administrative Review, 62 FR 965 (Jan. 7, 1997) (1994-
1995 DRAMs Review).
    In addition to this general argument, the petitioner asserts that 
the Department specifically erred in granting a CEP offset adjustment 
to UMC because UMC neither requested an adjustment nor demonstrated 
that it was entitled to one. According to the

[[Page 8920]]

petitioner, the Department's practice is to require respondents to 
affirmatively request adjustments in their favor and to demonstrate 
entitlement for these adjustments. As support for this position, the 
petitioner cites Mechanical Transfer Presses From Japan; Final Results 
of Antidumping Administrative Review, 61 FR 52910 (Oct. 9, 1996) 
(Mechanical Transfer Presses) and Cold-Rolled Carbon Steel Flat 
Products from the Netherlands; Final Results of Antidumping 
Administrative Review, 62 FR 18476 (April 15, 1997) (Cold-Rolled Carbon 
Steel Flat Products).
    The respondents disagree, noting that the statute requires that a 
level of trade analysis be performed only after adjustment is made for 
U.S. selling expenses. See 19 U.S.C. Sec. 1677b(a)(7)(A). The 
respondents further state that the Department's practice in this area 
is both clear and consistent with the statute. As support for this 
proposition, the respondents cite the 1994-1995 DRAMs Review, where the 
Department stated that the level of trade will be evaluated based on 
the price after adjustments are made under section 772(d) of the Act. 
The respondents maintain that there is nothing new in the law or the 
facts of this investigation to suggest that the Department should 
reexamine its practice of beginning its level of trade analysis after 
adjusting for U.S. expenses.
    The respondents further assert that the Department properly 
interpreted its statutory mandate by granting CEP offset adjustments in 
this case. Specifically, the respondents assert that they have 
supported their claims for these adjustments in their questionnaire 
responses and the Department verified the basis for these claims.
    Regarding the offset granted to UMC, UMC argues that nothing in the 
statute imposes an obligation on a respondent to claim a CEP offset. 
Nonetheless, UMC states that it effectively asked the Department for 
the equivalent of an offset when it requested that the Department find 
two levels of trade in the home market and the United States.
    Moreover, UMC asserts that the cases cited by the petitioner (i.e., 
Mechanical Transfer Presses and Cold-Rolled Carbon Steel Flat Products) 
do not apply here, as the former involved a company which submitted no 
information showing a difference in selling functions and the latter 
involved a company which made inconsistent statements involving level 
of trade in its questionnaire responses. UMC states that, since the 
beginning of the case, it has consistently provided information showing 
that it qualifies for a CEP offset. Consequently, UMC states that the 
statute leaves the Department with no choice but to grant one.

DOC Position

    We agree with the respondents. As we stated in the 1994-1995 DRAMs 
Review, the Department has--

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

The Department's practice in this area is clear. Accordingly, 
consistent with this practice, we performed our level of trade analysis 
only after adjusting for selling expenses deducted from CEP starting 
price pursuant to section 772(d) of the Act. Based on our analysis, we 
determined that each respondent sold SRAMs during the POI at a level of 
trade in the home market which was different, and more advanced, than 
the level of trade at which it sold SRAMs in the United States.
    Because there is insufficient information on the record to make a 
level of trade adjustment for any respondent in this case, we have 
granted a CEP offset adjustment for purposes of the final 
determination, in accordance with section 773(a)(7)(B) of the Act. Each 
of the respondents, including UMC, provided sufficient data to justify 
this adjustment,

Comment 7: Use of Production Costs Incurred After the Quarter of Sale

    The petitioner argues that the Department should compare home 
market sales with quarterly costs for the same or a prior quarter when 
performing the cost test, rather than using costs incurred in 
subsequent quarters. The petitioner asserts that use of actual 
production costs is particularly important in this case, because the 
Department found that there was a significant and consistent price and 
cost decline which requires the use of quarterly data. The petitioner 
contends that the Department should use facts available for those sales 
where the respondents have not provided actual cost data. As facts 
available, the petitioner argues that the Department should use the 
weighted-average dumping margin calculated for all other sales by that 
respondent.
    ISSI does not dispute the use of quarterly costs incurred in the 
same or a prior quarter as the quarter of sale. However, ISSI contends 
that, when those costs are not on the record, the Department should use 
either: (1) The reported costs from the closest subsequent quarter in 
which production occurred (i.e., the methodology employed in the 
preliminary determination); or (2) the weighted-average margin 
calculated for ISSI's other sales. According to ISSI, the latter 
methodology is the Department's practice when adverse facts available 
is not warranted.
    Alliance argues that the petitioner's arguments do not apply, 
because it supplied all of the data requested by the Department.

DOC Position

    We agree with the petitioner, in part. We requested that all 
respondents provide cost data in the same quarter as the quarter of 
their home market and U.S. sales, or, when production did not occur in 
that quarter, to provide cost data for the most recent prior quarter in 
which production did occur. UMC and Winbond complied with these 
requests. Accordingly, we have used their cost data for purposes of the 
final determination. However, Alliance and ISSI did not submit 
production costs on this basis for a small number of products. 
Moreover, ISSI did not report production costs at all for one product. 
Because we afforded respondents the opportunity to report their actual 
costs for these products and Alliance and ISSI failed to do so, we have 
based the dumping margins for the associated sales on facts available.
    Regarding Alliance, as facts available, we have used the weighted-
average dumping margin calculated for all of Alliance's other sales. We 
have determined that this methodology is appropriate, given that, after 
the preliminary determination, Alliance was not given an express 
opportunity (unlike the other respondents, including ISSI) to provide 
the necessary data.
    Regarding ISSI, we have determined that, contrary to the 
petitioner's neutral facts available methodology, an adverse assumption 
is appropriate. Because ISSI

[[Page 8921]]

has not explained why it was unable to provide the requested data, we 
find that ISSI has failed to cooperate to the best of its ability in 
complying with our requests for this information. Accordingly, as 
adverse facts available, we have used the highest non-aberrant margin 
calculated for any of ISSI's other U.S. sales, consistent with our 
treatment of ISSI's unreported costs in the preliminary determination.

Comment 8: Cash and Stock Bonus Distributions to Directors, 
Supervisors, and Employees

    UMC and Winbond argue that cash and shares of company stock given 
to their employees are distributions of profits that should not be 
included in the calculations of COP or CV. These respondents argue that 
these distributions are not recorded on their audited financial 
statements as an expense, but as direct reductions to retained 
earnings. In addition, Winbond argues that its distributions are paid 
out of post-tax earnings and are, therefore, not tax-deductible. The 
respondents note that section 773(f)(1)(A) of the Act states that COP 
and CV shall normally be calculated based on the books and records of 
the exporter or producer of the merchandise if such records are kept in 
accordance with the generally accepted accounting principles (GAAP) of 
the exporting country, and if such records reasonably reflect the costs 
associated with the production of the merchandise under investigation. 
The respondents claim that these requirements are met by their 
consistent treatment of these stock distributions as reductions to 
retained earnings, in accordance with Taiwan GAAP.
    The respondents argue that the distributions are analogous to 
dividends, which the Department has previously excluded from COP and 
CV. Specifically, Winbond maintains that, as with dividends, the 
company shareholders alone have the ability to authorize these 
payments. In support of its position, Winbond presented a letter from 
its Taiwanese attorneys which argues that cash and stock distributions 
to employees are treated as equivalent to dividends. Winbond also 
claims that English versions of its financial statements refer to the 
employee stock distributions as ``bonus shares'' in a short-hand, 
casual manner, which is factually inaccurate and prejudicial. Winbond 
argues that readers of its financial statements understand that such 
distributions are actually a transfer of wealth from shareholders to 
employees. Winbond also presented a letter from its auditing firm which 
stated that the distributions were issued from equity, rather than 
company capital, and, as such, are more akin to preferred stock than 
bonuses under U.S. GAAP.
    Winbond argues that the Department has consistently held that 
payments made by a company on behalf of its owners are not costs of 
production, even if they are carried on the company's books. In support 
of its position, Winbond cites to Final Determination of Sales at Less 
Than Fair Value: Fresh Cut Roses from Colombia, 60 FR 6980, 7000 (Feb. 
6, 1995) (Colombian Roses) and Final Determination of Sales at Less 
Than Fair Value: Fresh Kiwifruit from New Zealand, 57 FR 13695, 13704 
(April 17, 1992) (New Zealand Kiwifruit). Winbond also cites to Final 
Determination of Sales at Less Than Fair Value: Oil Country Tubular 
Goods from Austria, 60 FR 33551, 33557 (June 28, 1995) (Austrian OCTG), 
claiming that the bonus distributions are similar to dividends which 
were recorded in the equity section of the balance sheet rather than on 
the income statement.
    Likewise, UMC argues that the recipients of its distributions are 
in a similar position to shareholders who receive dividends. UMC notes 
that the value of company stock varies with its performance and the 
recipients of distributions and dividends both share the economic risk 
the company faces. UMC argues that company stock distributed to 
employees represents a conveyance of ownership rights, and thus these 
distributions are more akin to dividends than to the cash distributed 
as bonuses to employees in Porcelain-on-Steel Cookware from Mexico: 
Notice of Final Results of Antidumping Duty Administrative Review, 62 
FR 25908, 25914 (May 12, 1997) (Mexican Cookware).
    The respondents claim that treating employee stock distributions as 
a cost of production would be contrary to Department practice. UMC 
cites Notice of Final Results of Antidumping Duty Administrative 
Review: Ferrosilicon from Brazil, 62 FR 43504, 43511 (August 14, 1997) 
(Ferrosilicon from Brazil), where the Department treated ``social 
contributions'' for employees as a type of federal income tax and 
excluded the costs from the calculation of G&A expenses. Similarly, 
Winbond cites the Department's treatment of the enterprise tax in Final 
Determination of Sales at Less Than Fair Value: High Information 
Content Flat Panel Display Screen and Glass Therefor from Japan, 56 FR 
32376, 32392 (July 16, 1991) (Flat Panel Displays from Japan), where 
the tax was levied on the basis of corporate income and unrelated to 
the COP.
    Finally, the respondents argue that, should the Department decide 
to include employee stock distributions in COP and CV, the stock should 
be valued at par rather than at market value. The respondents claim 
that the par value more accurately reflects the cost of the 
transaction, as reflected in their accounting records. However, UMC 
asserts that, if the Department uses market value, it should discount 
the value of the distributions for associated risk factors because to 
do otherwise would overstate their value. Finally, arguing that the 
Department's calculation was incorrect under U.S. GAAP, Winbond 
presented a calculation prepared by its auditors setting forth their 
calculation of the market value of the distributions.
    The authorities on Taiwan argue that the record in this case 
provides substantial evidence that stock distributions bear no 
relationship to production costs and have been properly classified as 
adjustments to retained earnings. The authorities on Taiwan state that 
this evidence includes: (1) A clear record of prior accounting 
treatment; (2) the fact that the existence and amount of stock 
distributions are ultimately controlled by shareholders; (3) the fact 
that stock bonuses are not tax deductible; and (4) the fact that the 
market value of the stock can and has fluctuated significantly.
    The petitioner argues that the Department correctly classified the 
stock distributions in question as bonuses and properly included them 
in COP and CV. The petitioner points out that the Department's 
questionnaire requires respondents to report all compensation to 
employees, including bonuses. Moreover, the petitioner argues that, not 
only does U.S. GAAP prohibit companies from excluding stock bonuses 
from the income statement, but also excluding a significant portion of 
employee remuneration from the cost calculation fails to reasonably 
reflect the costs associated with the production of subject 
merchandise. Therefore, according to the petitioner, it is appropriate 
for the Department to adjust the costs as recorded in the respondents' 
normal books and records.
    The petitioner points to an article prepared by ING Barings in 
March 1996 which states that net margins for some Taiwan electronics 
corporations ``are deceptively high * * * due to the way employee bonus 
shares are distributed and the way accounting is treated.'' See the 
petitioner's letter dated September 3, 1997. According to the 
petitioner, the ING Barings report notes that the Taiwan GAAP treatment 
of such

[[Page 8922]]

bonuses permits companies to retain key employees while giving the 
appearance of high profitability, and characterizes such bonuses as a 
hidden cost not reflected in the income statement.
    The petitioner asserts that the respondents' arguments regarding 
the control and authorization of bonuses by company shareholders are 
irrelevant and that such arguments do not change the fact that these 
amounts represent a cost of labor. The petitioner claims that stock and 
cash payments represent compensation by UMC and Winbond to their 
employees because they are paid in return for work performed for the 
company. The petitioner notes that U.S. GAAP states that, with regard 
to stock options, ``Employees provide services to the entity--not 
directly to the individual stockholders--as consideration for their 
options * * * To omit such costs would give a misleading picture of the 
entity's financial performance.'' See Statement of Financial Accounting 
Standards (SFAS) No. 123, issued by the Financial Accounting Standards 
Board (FASB) in October 1995, at paragraph 90.
    The petitioner argues that the Department has previously found that 
payments to employees, in whatever form, are a part of the compensation 
paid to employees and should be treated no differently than salaries or 
other employee benefits because they flow directly to a factor of 
production. See Mexican Cookware. The petitioner claims that the 
Department did not conclude in Mexican Cookware that if the bonuses had 
been made in the form of stock then they should be excluded from cost, 
despite the respondents' arguments to the contrary.
    According to the petitioner, stock bonuses should be included in 
COP and CV at the market value. The petitioner argues that the par 
value of stock is purely nominal, with no relationship to the stock's 
actual value. The petitioner notes that the par value of stock for all 
companies in Taiwan is set at NT$10 and that the use of par value 
ignores the economic substance of the transaction. The petitioner 
points out that U.S. GAAP rejects the use of par value and instead 
requires that bonuses be recorded at the market value on the date the 
stock or stock option is granted.

DOC Position

    We agree with the petitioner. The amounts distributed by UMC and 
Winbond to their directors, supervisors, and employees, whether in the 
form of stock or cash, represent compensation for services which the 
individual has provided to the company. Therefore, in accordance with 
section 773(f)(1)(A) of the Act, we have determined that it is 
appropriate to include these amounts in the calculation of COP and CV.
    We acknowledge that the respondents' treatment of these 
distributions as reductions to equity is in accordance with Taiwan 
GAAP. However, we find that this treatment is contrary to the 
requirements of section 773(f)(1)(A) of the Act, as it does not 
reasonably reflect the respondents' cost of production, because the 
stock transferred to employees in exchange for their labor is a cost to 
the company that is not reflected in the reported COPs and CVs.
    Specifically, we disagree with the respondents' classification of 
these payments as dividends. First, we note that they are identified on 
the respondents' English version audited financial statements as 
bonuses. Second, we note that the distribution arrangement is set forth 
in each company's articles of incorporation, is known to the 
individuals that seek employment at UMC or Winbond and is considered by 
each company's management when setting wage and salary 
levels.5
---------------------------------------------------------------------------

    \5\ For example, UMC announces on its Internet home page, under 
the heading of ``Employment opportunities--Compensation'' that a 
``fixed portion of surplus profit is passed to employees as either 
cash or UMC shares.'' Winbond announces on its home page that its 
compensation and benefits include ``holiday bonuses'' and ``profit 
sharing.''
---------------------------------------------------------------------------

    Authorization by the stockholders does not mean that the 
distributions are not a cost to the company; we note that the company 
is foregoing the opportunity to acquire capital by issuing or selling 
those shares to investors at the market price. The economic substance 
of the distributions is that the directors, supervisors and employees 
have performed services for the company and the stock and cash 
distributions are provided to them as additional compensation for their 
services. Under U.S. GAAP, these distributions would be reported as an 
expense on the income statement and not as a deduction from retained 
earnings.
    We disagree with the respondents' claims that the inclusion of 
these amounts in COP and CV contradicts Department's normal practice 
and is contrary to our findings in Mexican Cookware. The Department 
addressed the issue of profit-sharing in Mexican Cookware, where 
profit-sharing was accounted for in a similar manner. In Mexican 
Cookware we stated that profit-sharing is distinct from dividends in 
that the profit-sharing distributions represent a legal obligation to a 
productive factor in the manufacturing process and not a distribution 
to the owners of the company. Dividends paid to shareholders would not 
be considered a cost by the Department. In Mexican Cookware, as in this 
case, the distributions were to employees in exchange for their 
services on behalf of the company. It is irrelevant that company 
employees who receive stock bonuses obtain ownership rights and will 
thereafter share an economic risk with other shareholders.
    Furthermore, we disagree with Winbond's interpretation of the 
Department's practice, as presented in Colombian Roses, New Zealand 
Kiwifruit, and Austrian OCTG. In Colombian Roses, the amounts paid out 
by the respondent were excluded because the recipient of the payments 
did not perform any service for the company. In the instant case, 
however, the stock distributions made by UMC and Winbond are 
compensation to company employees for their services. Similarly, in New 
Zealand Kiwifruit the Department excluded from COP costs which were 
determined to be the owner's personal expenses. Contrary to Winbond's 
claim, the New Zealand Kiwifruit decision does not indicate that the 
Department excluded costs which were recorded in the respondent's 
accounting records. Finally, we note that Austrian OCTG supports the 
Department's decision in this case, because in Austrian OCTG the 
Department noted that ``profit sharing plans are directly related to 
wages and salaries. Profit distributions to employees are treated in a 
manner similar to bonuses * * * these mandatory payments represent 
compensation to the employees for their efforts in the production of 
merchandise and the administration of the company.'' The same 
circumstances exist here and our treatment of employee stock 
distributions is entirely consistent with the decision made in Austrian 
OCTG. Finally, regarding Winbond's attempts to compare its stock 
distributions to the dividends paid out in Austrian OCTG, we note that 
stock distributions can be easily distinguished from dividends, as 
discussed in Mexican Cookware. 
    We find that the respondents' cites to Ferrosilicon from Brazil and 
Flat Panel Displays from Japan are equally misplaced. In those cases 
the amounts were charges by the government to the company, rather than 
amounts authorized by the board of directors and paid by the company to 
its employees.
    Regarding the respondents' claim that we should value the stock 
distributions at par value (which reflects the amount at which they are 
recorded in the

[[Page 8923]]

companies' financial statements), we disagree. Because the par value of 
company stock in Taiwan is set under the Company Law at NT$10 for each 
company, we find that the stock's par value does not represent the 
value of the distribution to the employees. As described in 
Intermediate Accounting (8th Edition, Kieso & Weygandt, 1995) at 739, 
par value ``has but one real significance; it establishes the maximum 
responsibility of a stockholder in the event of insolvency or other 
involuntary dissolution. Par value is thus not `value' in the ordinary 
sense of word.''
    We agree with the petitioner that these distributions should be 
valued at fair market value. Under U.S. GAAP, as directed by the FASB 
in SFAS No. 123, shares of stock awarded to employees should be valued 
at the fair value of the stock at the grant date. The SFAS also directs 
that, ``If an award is for past services, the related compensation cost 
shall be recognized in the period in which it is granted.'' In the 
instant case, the stock distributed by UMC and Winbond in the current 
year was for service of the prior year. Under U.S. GAAP, it is 
appropriate to recognize the compensation cost in the period when it 
was granted. Therefore, the stock bonus granted during 1996 for 1995 
service should be recognized as a cost during 1996.
    As to the determination of fair market value, because the employee 
stock bonuses were authorized by UMC and Winbond shareholders at the 
annual shareholders' meetings, our preference would be to value the 
stock at the market price on those dates. However, since the dates of 
those meetings are not on the case record, we have valued the stock 
distributions on the dates of issuance. This is a reasonable surrogate 
because employees do not receive the stock until the date of issuance 
and, thus, the value of what they are receiving is not fixed until that 
date. We note that using the closing stock price on the date of 
issuance accounts for market risk associated with the distribution. We 
disagree with the calculation prepared by Winbond's auditors because 
that calculation incorrectly values Winbond stock at the company's 
fiscal year end, rather than the grant date specified under U.S. GAAP.
    We also disagree with the arguments raised by the authorities on 
Taiwan. The record supports the Department's determination that the 
cash and stock distributions represent compensation to directors, 
supervisors, and employees and, therefore, they are a cost within the 
meaning of section 773(f)(1)(A) of the Act, despite the accounting 
treatment prescribed by Taiwan GAAP. We acknowledge the existence of 
the specific items that the government of Taiwan points to as evidence, 
but we disagree with the government of Taiwan's conclusion that these 
items support the exclusion of the cash and stock distributions from 
the respondents' COP and CV.

Comment 9: Research and Development Expenses

    Each of the four respondents argues that the Department improperly 
allocated semiconductor R&D expenses to all semiconductor products in 
the preliminary determination.
    Alliance claims that such an allocation is inappropriate because 
companies without fabrication facilities, such as Alliance, engage in 
R&D for circuit design of new products, rather than in the process R&D 
pursued by companies that fabricate SRAM wafers. Alliance refers to a 
letter from Professor Bruce A. Wooley which states that, ``[I]n the 
case of circuit design techniques there is virtually no cross-
fertilization among various classes of memories.'' See exhibit one of 
Alliance's submission dated September 15, 1997. Alliance claims that 
the articles proffered by the petitioner to support its claim that R&D 
conducted in one area benefits other areas mainly relate to process 
technology which may benefit a variety of products and to the 
incorporation of separate designs on a single chip; they do not address 
whether design technology from one type of memory product benefits the 
design of another. Alliance argues that both its verified R&D 
information and the fact that the company separates product-specific 
R&D for accounting purposes demonstrate that the R&D conducted by 
Alliance is product-specific design R&D, which does not benefit all 
products. Alliance argues that, if the Department determines that 
cross-fertilization of design R&D among memory products does occur, it 
should still not aggregate product-specific R&D for logic products with 
product-specific R&D for memory products.
    In addition, argues Alliance, if the Department allocates R&D 
expenses over all SRAM products, it should calculate the R&D expense 
factor using the costs incurred during the POI, rather than the 
company's fiscal year. Alliance claims that the Department's intention 
in the preliminary determination was to ``allocate the total amount of 
semiconductor R&D for the POI over the total cost of sales of 
semiconductor products sold during the POI, using an annual ratio.'' 
Alliance argues that the Department incorrectly calculated its R&D 
ratio using data from its fiscal year, rather than the expenses 
incurred during the POI.
    ISSI claims that the methodology followed by the Department in 
previous cases where it allocated all semiconductor R&D expenses to all 
semiconductor products does not apply to ISSI because it is a non-
integrated, U.S.-owned and controlled, fabless semiconductor producer. 
See e.g., Dynamic Random Access Memory Semiconductors from Korea: Final 
Results of Antidumping Duty Administrative Review, 61 FR, 20216, 20217 
(May 6, 1996). ISSI asserts that the Department should accept its R&D 
expense allocation methodology because ISSI performs largely design R&D 
which, unlike process R&D, is specific to a given product category and 
has no application or benefit to other product groups. ISSI notes that 
it separated and allocated design R&D expenses into the distinct, non-
overlapping product areas of volatile memory (i.e., DRAMs and SRAMs), 
non-volatile memory, and logic.
    UMC argues that the Department should allocate process and design 
R&D only for memory products to SRAMs, not total semiconductor R&D to 
all semiconductors. UMC contends that, while it may be appropriate to 
allocate process R&D across all semiconductor products in some 
instances, it is not appropriate to use this methodology with product-
specific design R&D. Moreover, UMC argues that the Department's 
practice is to use product-specific costs and cites to the Court of 
International Trade's decision in Micron Technology, Inc. v. U.S. 893 
F. Supp. 21, 27 (CIT, 1995) (Micron Technology). UMC argues that the 
CIT stated in Micron Technology that R&D costs may not be allocated on 
an aggregate basis unless there is substantial evidence demonstrating 
that the subject merchandise benefits from R&D expenditures earmarked 
for non-subject merchandise. UMC states that, in this case, there is no 
credible evidence on the record demonstrating that the subject 
merchandise benefits from non-subject R&D (i.e., there are no specific 
instances on the record of cross-fertilization of R&D across product 
lines). In addition, UMC claims that a number of detailed statements on 
the record by semiconductor experts unanimously conclude that there is 
virtually no benefit accruing to memory products from R&D performed on 
non-memory products.
    Furthermore, argues UMC, the Department should differentiate the 
Taiwan SRAM industry from its Korean counterpart, in that most Korean 
firms

[[Page 8924]]

are highly integrated, while much of the Taiwan industry consists of 
segmented production. UMC argues that product design R&D is far more 
likely to lead to cross-fertilization among products when it is 
performed by an integrated firm rather than by a non-integrated firm. 
Accordingly, UMC argues that a finding of cross-fertilization of R&D in 
the Korean industry may have little or no application here. Moreover, 
UMC maintains that in its accounting records it segregates process R&D 
from product design R&D which relates only to specific types of 
integrated circuits. UMC claims that there is no cross-fertilization 
between its R&D for SRAM product design and R&D for product design for 
other types of integrated circuit devices. UMC argues that, if the 
Department determines that design R&D costs for non-subject merchandise 
do, in fact, cross-fertilize SRAM design R&D, then a distinction must 
be drawn between design R&D for memory and design R&D for non-memory 
(i.e., logic) products.
    Winbond asserts that the Department's R&D allocation at the 
preliminary determination significantly overstated its COP. According 
to Winbond, its other product lines have an entirely different 
engineering focus and are segregated from Winbond's SRAM R&D activities 
both organizationally and in its accounting system. Winbond asserts 
that it tracks in its accounting records all R&D expenses by category, 
such as product design or process R&D, and further by product type and 
project.
    Winbond argues that the antidumping law requires the use of 
product-specific costs. Winbond argues further that, as a legal matter, 
there is no evidence on the record to overcome the verified fact that 
cross-fertilization does not occur at Winbond. Winbond contends that 
the allocation of R&D on a company-wide basis fails to account for the 
fluctuation of logic R&D and the stability of SRAM R&D. In addition, 
Winbond notes that the focus of logic product R&D is the end product's 
specific function, whereas SRAM R&D focuses on the reduction in cell 
size, a completely different and more discrete goal. Moreover, Winbond 
asserts that it is unreasonable to include Winbond's logic product R&D 
costs in the allocation factor since R&D spending on logic products was 
vastly higher in 1996 than R&D spending for SRAMs.
    The petitioner agrees with the Department's treatment of R&D 
expenses in its preliminary determination. The petitioner argues that 
contrary to ISSI's and Alliance's assertions, the allocation 
methodology used in Korean DRAMs applies in this case. The petitioner 
states that the respondents fail to appreciate that in Korean DRAMs, 
process R&D was considered to be part of overhead and that only product 
R&D of the type incurred by ISSI and Alliance was at issue. 
Furthermore, in Korean DRAMs, the Department allocated all product 
semiconductor R&D over all semiconductor production.
    The petitioner criticizes the letters submitted on behalf of the 
respondents, stating that each is entitled to no more weight on the 
basis of their credentials than are those submitted on behalf of the 
petitioner or the Department. The petitioner claims that information on 
the record, such as the expert testimony of Mr. Cloud of Micron and Dr. 
Murzy Jhabvala of the National Aeronautics and Space Administration 
(NASA), as well as numerous magazine articles, supports its claim that 
cross-fertilization occurs among R&D projects conducted for various 
semiconductor products. The petitioner notes that ISSI itself allocated 
SRAM and DRAM R&D over memory cost of sales, thereby implicitly 
assuming cross-fertilization of SRAM and DRAM R&D.
    In addition, the petitioner maintains that the Department's 
methodology was appropriate because R&D is supported by revenues from 
the complete range of products sold, not solely by the revenues of a 
particular product on which an R&D project is focused. Accordingly, the 
petitioner argues, it is most appropriate to allocate all semiconductor 
R&D over the base that sustains it (i.e., over all semiconductor 
production). Moreover, the petitioner argues that the respondents' 
maintenance of product-specific accounting categorization by project 
does not prove that R&D conducted for one type of semiconductor cannot 
benefit the development of another type.

DOC Position

    We agree with the petitioner. We find that there is cross-
fertilization of scientific ideas between the R&D activities of 
semiconductor products. Processing advancements for one semiconductor 
product can benefit other types of semiconductor products (including 
logic and memory). Furthermore, design improvements, although 
undertaken for a specific product, can, and often do, become 
incorporated into the design of other semiconductors, whether they are 
logic or memory devices. We find that it is appropriate to allocate the 
cost of all semiconductor R&D to all semiconductor products, given that 
scientific ideas developed in one semiconductor area can be and have 
been utilized in the development of other semiconductor products. 
Therefore, for purposes of the final determination, we have calculated 
R&D for SRAMs using the ratio of total semiconductor R&D to total 
semiconductor cost of sales for the annual period that most closely 
corresponds to the POI.
    Due to the forward-looking nature of R&D activities, the Department 
cannot identify every instance where SRAM R&D may influence logic 
products or where logic R&D may influence SRAM products, but the 
Department's own expert has identified areas where R&D from one type of 
semiconductor product has influenced another semiconductor product. Dr. 
Murzy Jhabvala, a semiconductor device engineer at NASA with twenty-
four years of experience, was invited by the Department to express his 
views regarding cross-fertilization of R&D efforts in the semiconductor 
industry. He has stated that ``it is reasonable and realistic to 
contend that R&D from one area (e.g., bipolar) applies and benefits R&D 
efforts in another area (e.g., MOS memory).'' Dr. Jhabvala went on to 
state that--

SRAMs represent along with DRAMs the culmination of semiconductor 
research and development. Both families of devices have benefitted 
from the advances in photolithographic techniques to print the fine 
geometries (the state-of-the-art steppers) required for the high 
density of transistors. . . . Clearly, three distinct areas of 
semiconductor technology are converging to benefit the SRAM device 
performance. There are other instances where previous technology and 
the efforts expended to develop that technology occurs in the SRAM 
technology. Some examples of these are the use of thin film 
transistors (TFTs) in SRAMs, advanced metal interconnect systems, 
anisotropic etching and filling techniques for trenching and 
planarization (CMP) and implant technology for retrograde wells.

See memo from Peter Scholl to the file dated September 16, 1997, 
placing letters from Dr. Jhabvala on the record.6
---------------------------------------------------------------------------

    \6\ In letters dated January 23 and 28, 1998, the respondents 
expressed concern that the Department might consider information 
from the Korean SRAM record or a memorandum from Dr. Jhabvala placed 
on the record on January 15, 1998, (i.e., after the public hearing 
in this case) which the parties did not have any opportunity to 
comment upon. We agree that the parties have not had an opportunity 
to comment upon this memorandum. Therefore, we have not considered 
it or any information on the Korean SRAMs record in our final 
determination. We note that we have quoted from Dr. Jhabvala's pre-
verification comments on the record in this case.
---------------------------------------------------------------------------

    The Department has also identified through published magazine 
articles examples of cross-fertilization in the semiconductor industry. 
See, e.g., ``A 250-MHz Skewed-Clock Pipelined Data

[[Page 8925]]

Buffer,'' Institute of Electrical and Electronics Engineers Journal of 
Solid State Circuits, March 1996; and ``A 1-Mb 2 Tr/b Nonvolatile CAM 
Based on Flash Memory Technologies,'' Institute of Electrical and 
Electronics Engineers Journal of Solid State Circuits, November 1996. 
We also noted numerous published articles in the Institute of 
Electrical and Electronics Engineers Journal of Solid State Circuits 
which described how significant advancements in the advanced 
semiconductor integrated circuit (ASIC)/logic product area have had 
important ramifications for chip design in the memory areas. The 
articles described how multilayer metal design development categorized 
as logic/ASIC R&D will permit companies to build chips that are 
smaller, faster and more power-efficient. The articles concluded that 
the research will be used in the future to improve microprocessors, 
memory and mixed-signal devices. As an example, one article entitled 
``The Challenges of Embedded DRAM in ASICs: A Manufacturing Economics 
Point of View,'' Dataquest Interactive, August 25, 1997, discussed the 
technical challenges of embedding memory into ASICs, which illustrated 
the overlap in design and process technology between logic and memory 
circuits. This article noted on page two that ``[b]oth the fast SRAM 
and the `pseudo-DRAM' structures are actually subsets of the process 
flow for advanced logic, so designing and constructing SLI ASICs are a 
natural extension and do not really add much to the per-wafer cost of 
the process.'' The articles were attached as exhibits to the letter 
submitted by the petitioner on October 15, 1997.
    We reviewed the views of the respondents' expert on this subject 
and found them to be of less probative value than the cases cited 
above, as the published articles refute Dr. Wooley's assertion that 
there is no cross-fertilization among circuit design techniques. In 
fact, Dr. Wooley, writing on behalf of ISSI, agrees that there can be 
cross-fertilization in the development of process technologies among 
various classes of memories. This assertion also refutes the other 
respondents' claims that there is no cross-fertilization in the 
development of process technologies.
    Moreover, contrary to the respondents' assertion, the methodology 
we are applying does calculate product-specific costs. Where 
expenditures benefit more than one product, it is the Department's 
practice to allocate those costs to all the products which are 
benefitted. Therefore, as semiconductor R&D benefits all semiconductor 
products, we have allocated semiconductor R&D to all semiconductor 
products.
    We also disagree with the respondents' assertion that the 
methodology employed by the Department should be based on respondents' 
normal accounting records. While we do not disagree that each R&D 
project is accounted for separately in each of the respondents' 
respective books and records, we note that the existence of separate 
accounting records does not necessarily preclude the phenomenon of 
cross-fertilization of scientific ideas. Since accounting records do 
not address the critical issue of whether ideas from research in one 
area benefit another area, we do not find this argument persuasive.
    We also found unpersuasive the following arguments presented by 
respondents: (1) That SRAMs are a mature product that cannot benefit 
from R&D performed in other areas; (2) that logic R&D is more complex 
than memory R&D (3) that logic R&D is unique to an application; and 
(4) that logic R&D involves high level architecture and functionality 
which is different from SRAM R&D (which focuses on shrinking cell size, 
increasing capacity and efficiency). The record shows that the primary 
focus for SRAM and DRAM R&D is reducing die size and increasing speed, 
which will benefit from the metal multilayer design R&D being conducted 
in connection with logic/ASIC products. Moreover, the issue is not 
whether application-specific design R&D for logic products can be used 
for SRAMs, but rather whether what is learned from logic/ASIC product 
R&D can be used to improve SRAM performance. We also disagree with 
Winbond's arguments that, since it has more logic product lines than 
memory product lines, more employees for logic R&D than SRAM R&D and 
proportionally more expenses for the logic product line than the SRAM 
product line, it follows that no logic R&D should be assigned to SRAMs. 
When applied to the cost of manufacturing, the ratio of total 
semiconductor R&D to the total semiconductor cost of sales results in 
proportional amounts of R&D for each specific product. Our methodology 
assigns R&D costs to products in proportion to the amount sold during 
the period. If 75 percent of the cost of products sold were logic 
products then logic products would receive 75 percent of the R&D costs 
incurred during the period. This in no way assigns SRAMs an 
unreasonable portion of R&D costs.
    Based on the foregoing, for purposes of the final determination, we 
have calculated R&D for SRAMs using the ratio of total semiconductor 
R&D to total semiconductor cost of sales for the annual period that 
most closely corresponds to the POI.

Company-Specific Issues

A. Alliance
Comment 10: Time Period for Cost and Price Comparisons

    In the preliminary determination, the Department compared prices 
and conducted the sales below cost test using quarterly data. Alliance 
argues that for the final determination the Department should compare 
prices and conduct the sales below cost test using annual data. 
Alliance gives three reasons in support of its argument.
    First, Alliance argues that there is no regulatory requirement that 
the Department compare prices and costs on a quarterly basis and that 
it is clearly envisioned that the Department will use annual averages 
unless there is a strong reason to do otherwise. Alliance argues that, 
in this case, there is no such reason. Moreover, Alliance argues, while 
the Department has used quarterly data in some previous semiconductor 
cases, the Department has recognized that it must apply the most 
reasonable methodology for each respondent based upon its price and 
cost trends. Alliance cites to DRAMs From Korea at 15476, where the 
Department used monthly averages for one respondent and POI averages 
for another.
    Second, Alliance argues that its structure as a fabless company 
that subcontracts various phases of SRAM production makes the use of 
annual costs appropriate. Alliance states that integrated producers 
have large fixed costs that tend to mute changes in total costs from 
one quarter to another and that they tend to have declining costs over 
time due to the learning curve. By contrast, argues Alliance, its costs 
of production consist almost completely of variable costs, which vary 
greatly from quarter to quarter according to volume and other factors. 
Moreover, Alliance maintains that, because its costs consist primarily 
of payments to subcontractors, they do not steadily trend downward over 
time.
    Third, Alliance argues that the Department has established that, 
where cost or pricing factors vary erratically from quarter to quarter, 
it is more appropriate to use annual comparisons to smooth out the 
aberrational results. In support of this argument, Alliance cites to a 
number of cases, including Color Television Receivers From the Republic 
of Korea; Final Results of Antidumping

[[Page 8926]]

Duty Administrative Review, 55 FR 26225, 26228 (June 27, 1990), Final 
Determination of Sales at Less Than Fair Value; Color Picture Tubes 
From Canada, 52 FR 44161, 44167 (Nov. 18, 1987), Final Determination of 
Sales at Less Than Fair Value; Color Picture Tubes From Japan, 52 FR 
44171, 44182 (Nov. 18, 1987), and Final Determination of Sales at Less 
Than Fair Value; Sweaters Wholly or In Chief Weight of Man-Made Fiber 
From Taiwan, 55 FR 34585, 34598 (Aug. 23, 1990).
    Moreover, Alliance also notes that the Department often uses annual 
averages in seasonal industries to avoid magnifying the impact of costs 
that vary from quarter to quarter. Alliance cites to Grey Portland 
Cement and Clinker From Mexico; Final Results of Antidumping Duty 
Administrative Review, 58 FR 47253, 47255 (Sept. 8, 1993), and Circular 
Welded Non-Alloy Steel Pipe and Tube From Mexico; Final Results of 
Antidumping Duty Administrative Review, 62 FR 37014, 37020 (July 10, 
1997), in support of this contention.
    Accordingly, Alliance argues that, given the extreme variability of 
its prices and costs in different quarters, it is more reasonable for 
the Department to use annual, rather than quarterly, figures for 
Alliance, regardless of whether prices declined in general over the 
POI.
    Finally, Alliance notes that the Department's statement in its 
preliminary determination that ``all parties agree'' that there was ``a 
significant and consistent price decline during the POI'' is false. 
Alliance contends that its position has always been that its costs and 
prices during the POI were marked by aberrational, short-term price or 
cost fluctuations.
    The petitioner argues that the Department's decision to use 
quarterly rather than annual averages was both in accordance with the 
regulations and based on an established dynamic in the semiconductor 
industry--that costs and prices generally decline from quarter to 
quarter. According to the petitioner, all of the parties in this 
investigation except Alliance have accepted this principle. The 
petitioner contends that the Department is not obligated to deviate 
from a rational, well-established industry benchmark simply on the 
basis that a particular respondent prefers an alternative approach that 
may lower its margin. The petitioner notes that declining market prices 
affect all of the respondents (including Alliance) and that, therefore, 
the Department's approach at the preliminary determination was fair and 
reasonable.
    With regard to Alliance's argument that, as a fabless company, its 
costs are mostly variable, and hence vary more than the costs of 
integrated producers, which are mostly fixed, the petitioner notes that 
ISSI, another fabless company, did not share Alliance's views. The 
petitioner states that the Department's decision was based on an 
established consensus regarding declining market prices and that this 
phenomenon affected the behavior of all of the respondents (including 
Alliance), as well as the petitioner. The petitioner further states 
that basing the Department's decision on such a broad phenomenon of 
market behavior is an eminently fair and reasonable approach, and that 
the Department acted well within its discretion.
    In addition, the petitioner notes that none of the cases cited by 
Alliance to demonstrate that the Department uses annual comparisons 
when costs or prices vary from quarter to quarter involve the 
semiconductor industry, which tends to exhibit discernible price and 
cost declines. Rather, the petitioner notes that many of the cases 
Alliance cites involve industries impacted by seasonal price or cost 
fluctuations, patterns not present in the semiconductor industry.

DOC Position

    We disagree with Alliance. The Department's practice is to 
calculate weighted-averages over a shorter period of time when normal 
values, export prices, or constructed export prices have moved 
significantly over the POI. See, e.g., EPROMs from Japan and DRAMs from 
Korea; see also 19 CFR section 351.414(d)(3) of the Department's new 
regulations. In this case, demand for SRAMs decreased dramatically 
during the POI, causing worldwide SRAM prices to decrease dramatically. 
As SRAM producers, all respondents, including Alliance, were directly 
affected by this decrease in prices, whether they were fabless or 
integrated producers. Moreover, while Alliance may not have agreed with 
the other respondents that there was a significant and consistent price 
decline during the POI, Alliance concedes that there was a ``worldwide 
drop in demand and falling prices that occurred in 1996'' for SRAMs. 
See Alliance's submission of December 23, 1997, at page 47.
    In addition, none of the cases cited by Alliance involve instances 
in which prices and cost were declining over the POI. Rather, they 
focus on instances where the Department used annual averages to smooth 
out quarterly or seasonal fluctuations in costs. Moreover, none of 
those cases involved the semiconductor industry, which, as the 
Department has recognized through its practice of using shorter 
averaging periods, is subject to declining prices and costs. Indeed, 
Alliance fails adequately to distinguish the cases relied on by the 
Department at the preliminary determination (i.e., EPROMs from Japan 
and DRAMs from Korea) from the facts in this case. Alliance does cite 
to DRAMs from Korea to argue that the Department recognizes that it 
must apply the methodology that makes the most sense for each 
respondent, based upon its price and cost trends. However, in that 
case, the Department determined that it was more appropriate to use 
monthly weighted-average prices for foreign market value (i.e., normal 
value) for one respondent since those averages were more representative 
of its pricing than POI averages. See DRAMs from Korea, comment 29. 
Similarly, in this case, given the significant decrease in the price of 
SRAMs that occurred throughout the POI, we have determined that 
quarterly averages result in a more accurate comparison of pricing 
behavior during the POI than do annual averages.
    Accordingly, we made quarterly weighted-average price and cost 
comparisons for all respondents, including Alliance, for the final 
determination.

Comment 11: General Expenses and Profit for Constructed Value

    Alliance argues that the methodology employed by the Department to 
calculate Alliance's CV value at the preliminary determination was 
contrary to the letter and intent of the statute. Alliance notes that 
the statue provides three alternatives for determining SG&A and profit 
when a respondent's own data may not be used and argues that the lack 
of a hierarchy implies that the chosen methodology should produce the 
most accurate and fair result possible. Alliance claims that, because 
it has cooperated fully in this investigation, the Department's 
selected methodology should not be adverse in nature.
    Alliance argues that the Department's use of the weighted-average 
SG&A expenses of the other three respondents to calculate CV is 
unreasonable. Alliance claims that the statute requires the use of 
actual SG&A expense data, that such data is available for Alliance, and 
that this data was verified by the Department.
    Alliance argues that the fact that all of its home market sales 
were found to be below cost does not suggest that its SG&A expenses 
would have been higher

[[Page 8927]]

had these sales been above cost. Alliance argues that its cost data was 
considered acceptable for purposes of the below-cost test and should 
also be accepted for purposes of calculating CV. Alliance claims that 
the costs incurred by UMC and Winbond are very different from its own 
SG&A expenses because they perform more steps in the SRAM production 
process, including wafer fabrication, and have a larger corporate 
bureaucracy to manage those facilities. Additionally, Alliance argues 
that its R&D activities are for product development alone, while UMC 
and Winbond have both product and process R&D activities. Alliance 
argues that the process R&D costs reported by other respondents are 
part of their cost of manufacturing and that these costs would already 
be included in the price paid by Alliance for wafers, since it does not 
have its own wafer fabrication facilities. Alliance argues that, if the 
Department calculates Alliance's R&D expenses using cost data from the 
other Taiwan respondents, it should also exclude that portion of R&D 
expenses incurred on behalf of wafer fabrication process developments 
since Alliance's costs would not include such activities.
    Alliance also claims that the Department's use of the weighted-
average profit rate of the other three respondents to calculate CV is 
likewise unreasonable. According to Alliance, the rationale behind 
basing profit on the data of other respondents appears to be that the 
other respondents are similarly situated and that their profits reflect 
those which Alliance would earn in the home market if its sales were 
made in the ordinary course of trade. However, Alliance claims that 
neither the results of its relatively few sales to its developing 
Taiwan export market, nor the profits of Taiwan producers operating in 
their own home market, are indicative of Alliance's normal profit 
experience. Moreover, Alliance claims that the profit rate assigned by 
the Department includes the profits of two companies, UMC and Winbond, 
which have entirely different cost structures. Alliance argues that the 
foundry operations of UMC and Winbond involve high fixed costs, whereas 
Alliance's costs are largely variable. Alliance maintains that basing 
its profit rate on the experience of UMC and Winbond, both of which 
fabricate their own SRAM wafers, has the effect of double-counting 
profit; UMC and Winbond earn a higher profit because their costs do not 
include the profit markup that Alliance, a fabless producer, must pay 
for fabricated wafers. Finally, Alliance argues that its costs are 
based on accounting under U.S. GAAP, while UMC and Winbond follow 
Taiwan GAAP. Accordingly, Alliance claims that the only reasonable 
method for determining CV profit is to use the profit of either its own 
SRAM product line or the overall company, for the fiscal year ending 
March 30, 1996. Alliance argues that both of these approaches would be 
consistent with the Department's methodology, contemporaneous to the 
POI, and reasonably specific to subject merchandise.
    The petitioner argues that the Department is not required to 
justify the methodology selected for determining Alliance's SG&A 
expenses and profit as the most reasonable alternative. The petitioner 
claims that the statute clearly indicates a preference for the 
Department to base SG&A expenses and profit, if possible, on amounts 
normally incurred or realized on above-cost home market sales. 
Moreover, the petitioner maintains that the statute intends for CV 
profit to correspond to normal rates of profit for the respondent or 
industry in the comparison foreign market and that Alliance's suggested 
methodology fails to meet this requirement. Specifically, the 
petitioner notes that Alliance's overall company profits result from 
sales to all markets, with the United States representing Alliance's 
dominant market.
    According to the petitioner, there is no evidence that the 
differences in corporate strategy identified by Alliance render the 
other companies' profit rates unrepresentative of Taiwan SRAM producers 
in the context of this case. Moreover, the petitioner claims that 
Alliance has not suggested any means to establish that a profit rate 
that includes the integrated producers' profits somehow ``double-
counts'' profits. Consequently, the petitioner argues that it is proper 
to include all types of SRAM producers in the calculation of the 
weighted-average profit rate. Finally, the petitioner notes that 
Alliance's 1996 fiscal year data only overlaps with three months of the 
POI and, thus, is only marginally contemporaneous.
    The petitioner argues that Alliance's arguments regarding the 
methodology to be used for SG&A expenses depend on the assertion that 
Alliance would have incurred the same level of expenses on its home 
market sales irrespective of whether those sales were made at prices 
above or below COP. The petitioner contends that such an argument flies 
in the face of the statutory scheme, which directs the Department to 
use SG&A expenses for sales made in the ordinary course of trade. 
Moreover, the petitioner claims that Alliance's argument is flawed 
because it allocates its reported home market indirect selling expenses 
among semiconductor products on the basis of sales revenue. The 
petitioner notes that, if Alliance's home market sales had been made at 
significantly higher prices, then the allocated selling expenses would 
have been proportionately increased.

DOC Position

    We disagree with Alliance, in part. Pursuant to section 
773(e)(2)(A) of the Act, the Department will calculate SG&A expenses 
and profit based on the actual amounts incurred and realized by the 
company in connection with the production and sale of the foreign like 
product, in the ordinary course of trade, for consumption in the home 
market. Where a respondent's own SG&A expense and profit data are not 
available, section 773(e)(2)(B) of the Act provides the Department with 
three alternatives for calculating CV. In the instant case, Alliance's 
own SG&A expense and profit data may not be used because all of its 
home market sales failed the cost test, and hence, pursuant to section 
771(15) of the Act, are not sales in the ordinary course of trade.
    For purposes of the preliminary determination, we calculated 
Alliance's CV using the alternative methodology described in section 
773(e)(2)(B)(ii) of the Act. This approach involved basing SG&A 
expenses and profit on the weighted-average data of the other three 
respondents. Because R&D expenses are included in general expenses, we 
also based R&D expenses on the same methodology used to determine SG&A 
expenses.
    For our final determination, we have considered several 
alternatives which are available for calculating Alliance's CV under 
section 773(e)(2)(B) of the Act, including the methodology used for the 
preliminary determination and the alternatives proposed by Alliance. 
The SAA at 840 (170) indicates that the Act does not establish a 
hierarchy or preference among the alternatives under section 
773(e)(2)(B) of the Act and that the selection of an alternative will 
be made on a case-by-case basis. The methodology which we used for the 
preliminary determination is one of the three alternatives provided for 
in the Act and provides a reasonable basis on which to base SG&A 
expenses and profit for Alliance's CV.
    As discussed below, Alliance's proposed alternatives have 
significant flaws that make them less desirable choices for use as 
Alliance's SG&A expenses and profit. The method we used in the 
preliminary determination provides a reasonable methodology on

[[Page 8928]]

which to base Alliance's SG&A expenses and profit. Accordingly, we have 
used this approach for calculating Alliance's CV for the final 
determination because it reflects the experience of the other Taiwanese 
SRAM producers. Although we recognize that there may be differences in 
organizational structure and strategy among the respondents, the 
differences identified by Alliance do not preclude us from choosing one 
of the alternatives provided for in the Act.
    We believe that the methodologies offered by Alliance for 
calculating profit have significant flaws. First, with respect to 
Alliance's suggestion that the Department use Alliance's own SRAM 
product line data for the fiscal year ended March 31, 1996, we verified 
cost and price information for the three months of this period, January 
through March 1996, that fell within the POI and found significant 
quantities of below-cost sales. Based on these findings, we have no 
reason to believe that the amounts reported by Alliance as SRAM profits 
for the March 31, 1996, fiscal year would provide a reasonable measure 
of profit due to the fact that the figure includes a number of sales 
known to be outside the ordinary course of trade, as well as 
significant potential for other such sales during the first nine months 
of the fiscal year. Moreover, data is available for the profit 
calculation that is more contemporaneous than the respondent's proposed 
period. Second, with respect to Alliance's suggestion that we base 
profit on its overall operations for the fiscal year ended March 31, 
1996, this data includes sales to markets other than the home market. 
In addition, this data includes sales of products which are outside the 
general category of SRAMs. Again, we have data that is more 
contemporaneous than the data offered under this proposal.
    We disagree with Alliance's assertion that the Department should 
use its SG&A expenses for the calculation of CV. The Act directs the 
Department to use an alternative methodology for these expenses when a 
respondent's actual data are not available. As stated above, Alliance 
did not make any home market SRAM sales in the ordinary course of trade 
and therefore its actual data may not be used.
    With respect to Alliance's argument regarding our treatment of 
process R&D expenses, we believe that including these expenses in the 
weighted-average SG&A rate calculated for our final determination would 
double count the actual amount of the expense. Process R&D costs would 
normally be accounted for as part of the cost of the wafer which 
Alliance purchases from its supplier. Thus, for our final 
determination, we have excluded process R&D expenses from Alliance's 
SG&A expenses.
B. ISSI
Comment 12: Commission Expenses

    According to the petitioner, the Department discovered at 
verification that ISSI failed to report commission expenses on sales to 
its U.S. distributor customers. The petitioner maintains that the 
Department should base the amount of the commissions for these 
customers on facts available because the information presented at 
verification was not a minor correction. As facts available, the 
petitioner argues that the Department should use the highest commission 
rate paid on sales to any other customer.
    ISSI contends that its failure to report distributor commissions 
was a ministerial error of small magnitude. Specifically, ISSI asserts 
that these commissions: 1) represent only a fraction of the total 
commissions paid; 2) are recorded in a different manner in its 
accounting system; and 3) were thoroughly verified by the Department. 
Moreover, ISSI argues that it is a cooperative respondent that has done 
nothing in this investigation that would justify adverse inferences. As 
such, ISSI contends that the Department should use the commission 
expense data on the record for purposes of the final determination.

DOC Position

    We agree with ISSI. We find that ISSI's failure to report 
commissions on sales to distributor customers was the result of an 
inadvertent error which was minor in nature. Because it is the 
Department's practice to accept such minor corrections arising from 
verification, we have used ISSI's verified commission rate for purposes 
of the final determination. See, e.g., Rebar from Turkey and Notice of 
Final Determination of Sales at Less Than Fair Value: Bicycles From the 
People's Republic of China, 61 FR 19026, 19044 (April 30, 1996) 
(Bicycles from the PRC).

Comment 13: Date of Payment

    The Department noted at verification that ISSI had not received 
full or partial payment for a small number of U.S. sales. According to 
ISSI, the Department should assign these sales the average payment 
period for ISSI's other U.S. sales, rather than using the date of the 
final determination. Alternatively, ISSI asserts that the Department 
should calculate a weighted-average payment date for each sale where 
partial payment was received, using both the date of the partial 
payment and the date of verification. ISSI argues that to use the date 
of the final determination would be inappropriate because to do so 
would be to make the adverse assumption that its outstanding 
receivables have not been collected.
    The petitioner asserts that the Department's standard practice in 
situations involving unpaid sales is to calculate the credit period 
using the date of the final determination as a proxy for the actual 
date of payment. See Final Determination of Sales at Less Than Fair 
Value: Stainless Steel Wire Rods From France, 58 FR 68865 (Dec. 29, 
1993). According to the petitioner, the Department should follow its 
standard practice in this case because ISSI has provided no compelling 
reason to depart from it. Specifically, the petitioner notes that ISSI 
has provided no reason to assume that the payments in question will be 
received prior to the final determination. Indeed, the petitioner 
maintains, it is equally likely that payment will be received after 
this date. Moreover, the petitioner asserts that, given the long time 
since the end of the POI, it is unclear that using the date of the 
final determination represents an adverse inference.
    Regarding ISSI's suggestion that the Department use an average 
payment period, the petitioner asserts that this method would be no 
more accurate. The petitioner notes that the sales in question have 
unusually long payment periods which would be excluded entirely from 
the calculation of the average.

DOC Position

    The Department's recent practice regarding this issue has been to 
use the last day of verification as the date of payment for all unpaid 
sales. See Brass Sheet and Strip from Sweden; Final Results of 
Antidumping Administrative Review 60 FR 3617, 3620 (Jan. 18, 1995). 
Accordingly, we have used the last day of ISSI's U.S. verification as 
the date of payment for all unpaid transactions or portions thereof.

Comment 14: Non-operating expenses

    The petitioner argues that the Department should include non-
operating expenses incurred by ISSI-Taiwan in the calculation of ISSI's 
G&A expense. The petitioner argues that failure to include these 
expenses in ISSI's total G&A expenses conflicts with the Department's 
established practice concerning the classification of such expenses and 
results in a distortion of the reported cost of production for ISSI.
    ISSI does not dispute that the Department should capture the loss 
on

[[Page 8929]]

disposal of property, plant and equipment and physical inventory loss, 
but argues that the cost should be included as part of financial 
expense. ISSI stated that the expenses were classified with other non-
operating expenses in its audited records. Therefore, ISSI contends 
that the Department should follow its normal practice of adhering to a 
firm's recording of costs in its financial statements, in accordance 
with the GAAP of its home country, when such principles are not 
distortive.

DOC Position

    We agree with the petitioner that these expenses should be included 
in the calculation of ISSI's total G&A expenses. We disagree with the 
respondent that these expenses should be classified as financial 
expenses because disposal of property, plant, and equipment and 
physical inventory losses relate to the general activities of the 
company and not to financing activities. See Notice of Final 
Determination of Sales at Less Than Fair Value: Small Diameter Circular 
Seamless Carbon and Alloy Steel, Standard Line and Pressure Pipe From 
Italy, 60 FR 31981, 31989 (June 19, 1995). Inclusion of these expenses 
in financing expense would not reasonably reflect the costs associated 
with the production of the merchandise. Accordingly, we have adjusted 
the G&A expense ratio to include these items.

Comment 15: Double-Counting of Marine Insurance Expenses

    According to ISSI, the Department discovered during verification 
that ISSI reported marine insurance expenses both as part of G&A and as 
a separate movement expense in its U.S. sales listing. ISSI asserts 
that the Department should reduce G&A by the amount of these expenses 
in order to avoid double-counting.
    The petitioner disagrees, stating that the burden is on the 
respondent to submit accurate information. According to the petitioner, 
the discovery of this error at verification indicates that ISSI's 
response may contain additional errors which were not discovered due to 
the limited time available at verification. Consequently, the 
petitioner asserts that the Department should make no adjustment to G&A 
for purposes of the final determination because it is unable to adjust 
for the undetected inaccuracies in ISSI's response.

DOC Position

    The Department conducted thorough verifications of ISSI's sales and 
cost data. Based on these verifications, we have deemed the 
respondent's data to be reliable for use in the final determination. We 
do not believe that these data contain material inaccuracies, as the 
petitioner suggests.
    Because it is the Department's practice to correct minor errors 
found during the course of verification (see, e.g., Rebar From Turkey 
and Bicycles From the PRC), we have made the appropriate correction to 
ISSI's G&A expenses for purposes of the final determination.

Comment 16: Offset to R&D Expenses

    ISSI argues that the Department should include an offset for R&D 
revenue in its calculation of ISSI's R&D expense.

DOC Position

    We agree with ISSI that the R&D revenue should be included as an 
offset in the R&D expense ratio calculation, because the corresponding 
costs are included in ISSI's R&D expense. Consequently, we have granted 
this offset for purposes of the final determination.
C. UMC
Comment 17: Calculation of the CV Profit Rate

    UMC argues that the Department erred in its choice of methodology 
for the computation of profit in calculating CV. UMC explains that the 
Department computed UMC's CV profit by first calculating a profit 
percentage for each home market transaction in the ordinary course of 
trade, then weight-averaging the percentages by quantity to determine 
the overall CV profit rate. UMC argues that this methodology was a 
departure from the Department's normal practice of calculating a CV 
profit rate based on the total revenue and total cost of home market 
sales transacted in the ordinary course of trade. In support of its 
position, UMC cites to Certain Stainless Steel Wire Rods from France: 
Final Results of Antidumping Duty Administrative Review, 62 Fed. Reg. 
7206, 7209-7210 (Feb. 18, 1997) (SSWR from France) and Certain Hot-
Rolled Lead and Bismuth Carbon Steel Products from the United Kingdom: 
Final Results of Antidumping Duty Administrative Review, 61 Fed. Reg. 
56514, 56514 (Nov. 1, 1996) (Lead and Bismuth from the U.K.). UMC 
contends that in Lead and Bismuth from the U.K. the Department 
recognized that weight-averaging individual profit percentages by 
quantity introduces serious distortions into the calculation of CV 
profit.
    The petitioner argues that the methodology used at the preliminary 
determination does not produce a serious distortion of the CV profit in 
this case. The petitioner contends that use of this methodology is 
appropriate, because a small number of expensive-to-produce, low profit 
sales of higher-density SRAMs will not artificially pull down the 
overall profit rate that applies to the large majority of sales. Thus, 
the petitioner argues that this methodology more realistically 
calculates a per-unit profit rate that is applied to all CV sales 
comparisons.

DOC Position

    We agree with UMC. It is the Department's normal practice to divide 
total home market profits by total home market costs when calculating 
the profit ratio. As noted in SSWR from France and Lead and Bismuth 
from the U.K., the methodology employed by the Department in the 
preliminary determination has the effect of distorting the respondent's 
CV profit rate. Accordingly, for the final determination, we calculated 
profit based on total home market profits and total home market costs 
for sales made in the ordinary course of trade.
    Moreover, because CV profit was calculated in the same fashion for 
ISSI at the preliminary determination, we have also made the 
corresponding change to ISSI's calculations.

Comment 18: Substantial Quantities Test

    UMC argues that the Department made an error in performing the 
substantial quantities portion of the sales below cost test. UMC 
maintains that, in a case where quarterly costs are used, sales can 
only be disregarded if: (1) the sale price is below the quarterly 
average cost; (2) the sale price is below the annual average cost; and 
(3) the quantity of such sales meets the substantial quantities 
threshold of 20 percent on a product-specific basis. UMC alleges that 
the Department failed to correctly apply the third part of this test. 
Specifically, UMC states that the Department conducted the substantial 
quantities test only on an annual average cost basis when in fact it 
should have conducted the test on an annual average cost and quarterly 
average cost basis.
    According to the petitioner, UMC's assertion that the Department is 
required, under section 773(b)(1) of the Act, to examine the volume of 
sales against the 20 percent threshold on the basis of the volume of 
sales made in each quarter is without merit. The petitioner states that 
section 773(b)(2)(C)(i) of the Act provides that the substantial 
quantities test is satisfied

[[Page 8930]]

if the volume of such sales represents 20 percent or more of the volume 
of sales under consideration for the determination of normal value. The 
petitioner notes that section 773(b)(2)(B) of the Act provides that the 
term ``extended period of time'' means a period that is normally one 
year, but not less than six months. Thus, argues the petitioner, the 
Department correctly determined that a given product was below cost in 
substantial quantities if the volume of below cost sales was at least 
20 percent of the volume during the twelve-month POI.

DOC Position

    We agree with the petitioner. Section 773(b) of the Act states that 
the Department will disregard sales made at less than the cost of 
production if such sales were made within an extended period of time in 
substantial quantities (see section 773(b)(1)(A)). The Act defines 
``extended period of time'' as normally one year but not less than six 
months (see section 773(b)(2)(B) of the Act). Because the Act states 
that ``an extended period of time'' can not be less than six months, we 
cannot follow UMC's recommendation and perform the substantial 
quantities test on a quarterly basis.
    Accordingly, we have made no changes to the substantial quantities 
test for purposes of the final determination.

Comment 19: Startup Adjustment

    UMC claims that the Department should continue the approach taken 
in its preliminary determination in accepting its claimed startup 
adjustment, because it has met the threshold criteria. According to 
UMC, the technical factors limiting production at its affiliate's new 
facility included process qualification to qualify both new equipment 
technology and new process technology. Additionally, UMC notes that the 
startup period involved the qualification of individual products and 
the fine tuning of new equipment to allow it to work efficiently with 
the existing equipment.
    UMC claims that a company will not meet its practicable level of 
operations until the fab has achieved the level of ``cleanness'' to 
operate properly (which requires a certain amount of time) and it also 
has achieved a critical mass of product qualifications. UMC argues that 
the initial product qualification phase, which involves test runs and 
evaluations to build a stable of products that the new fab is qualified 
to produce, is a significant technical factor which impedes production 
during the startup phase.
    Although UMC's claimed startup adjustment reflects a startup period 
that does not include the entire year, UMC argues that the new fab was 
actually in a startup phase at least through the end of 1996. UMC bases 
its claim on the quantity of wafer starts and wafers out in relation to 
the quantity of wafers processed in May 1997 and at the time of the 
cost verification. UMC notes that low product yields are one of a 
number of factors that the Department can consider as evidence of the 
extent to which technical factors affect production levels. UMC also 
argues that, although the same number of production processes were 
available for sale to customers in December 1996 as were in place in 
June of that year, the number available at September 1997 demonstrates 
that the company was still in startup mode at the end of 1996 and that 
the startup adjustment claimed is conservative.
    The petitioner asserts that UMC's request for a startup adjustment 
should be denied since UMC failed to demonstrate that its production 
levels were limited by technical factors. The petitioner acknowledges 
that the product qualification process contributed to UMC's low 
production levels, but claims that the qualification process does not 
represent a ``technical difficulty.'' The petitioner argues that the 
statute directs the Department to ``consider factors unrelated to 
startup operations that might affect the volume of production 
processed, such as demand, seasonality, or business cycles'' in 
determining whether commercial production levels have been achieved. 
See section 773(f)(1)(C)(ii) of the Act. The petitioner claims that 
customer demand was the only factor that may have limited production 
volumes and points out that demand is not a technical factor. The 
petitioner notes that the SAA at 836 (166) states that ``to determine 
when a company reaches commercial production levels, Commerce will 
consider first the actual production experience of the merchandise in 
question. Production levels will be measured based on units 
processed.'' The petitioner claims that yields improve continually 
throughout a product's life cycle beyond the point at which commercial 
production can be said to have begun and thus yields are irrelevant to 
the startup analysis. Finally, the petitioner argues that, even if 
technical factors did limit production to some extent, commercial 
production at the new facility began sooner than claimed by UMC.

DOC Position

    We have accepted UMC's claimed startup adjustment. UMC produced 
subject merchandise during the POI using SRAM wafers obtained from its 
affiliate's new facility and provided the Department with a number of 
technical factors that limited the new facility's production levels, 
including the development of process parameters, cleaning of the 
fabrication facility, and installation, adjustment, calibration, and 
testing of new equipment. These technical factors appear to have 
restricted production of SRAM wafers through the startup period, after 
which time the new facility achieved commercial production levels that 
are characteristic of the producer. Although UMC claims that product 
qualification represents another technical factor that limited 
production levels during the startup period, we agree with the 
petitioner that this process is a normal part of operations that is 
often performed for new products the company plans to produce. 
Moreover, it does not appear that product qualification, which involved 
UMC's producing small quantities of products for customer approval 
while bringing the new facility up to normal levels of production, 
represents a technical difficulty that resulted in the underutilization 
of the facility.
    While we agree with UMC that production yields may indicate the 
existence of technical factors that limited production output, the SAA 
at 836 (166) directs us to examine the units processed in determining 
the claimed startup period. Accordingly, our determination of the 
startup period was based, in large part, on a review of the wafer 
starts at the new facility during the POI, which represents the best 
measure of the facility's ability to produce at commercial production 
levels. We concluded that the number of wafer starts during the startup 
period did not meet commercial production levels that are 
characteristic of the producer. Consequently, we determined that the 
claimed startup period did, in fact, end when commercial production 
reached a level that was characteristic of UMC's non-startup 
experience.
    While the petitioner argues that an absence of customer demand may 
have contributed to the low production levels during the claimed 
startup period, evidence on the record suggests that the demand for the 
type of SRAM wafers produced at the new facility was as high during the 
claimed startup period as it was during the remainder of the POI. 
Moreover, even if demand had been greater during the claimed startup 
period, there is no evidence that UMC could have more quickly achieved 
production levels at the new facility that are characteristic of the 
producer, merchandise, or industry.


[[Page 8931]]


Comment 20: Calculation of Credit Expense

    UMC argues that the Department incorrectly computed UMC's imputed 
credit expense adjustment using a 365 day year. In its response, UMC 
reported its imputed credit expense based on a 360 day year. UMC 
alleges that the Department's computation of UMC's imputed credit 
expense based on a 365 day year was inconsistent with section 
773(f)(1)(A) of the Act and the Department's longstanding practice as 
outlined in the Import Administration Antidumping Manual ((1994) 
Chapter 8, p. 36).

DOC Position

    We disagree with UMC. Section 773(f)(1)(A) of the Act directs the 
Department to calculate costs based on the records of the exporter or 
producer of the merchandise. The expense in question, however, is an 
imputed expense which is not kept by UMC in its records. Thus, we note 
that UMC does not record imputed credit expense in its accounting 
system based on a 360 day year. The Department is not required to 
compute this expense based on 360 days, instead of the standard 365, 
merely because UMC chose to report it in that manner in its 
submissions.
    In addition, we note that UMC itself was inconsistent in its credit 
calculations, in that it calculated its accounts receivable turnover 
rate using a 365 day year. Accordingly, for the final determination, we 
have continued to calculate UMC's imputed credit expense using a 365 
day year.

Comment 21: Ministerial Errors Acknowledged by the Department

    UMC notes that in its memorandum of October 20, 1997, the 
Department acknowledged that it made several ministerial errors in the 
calculations performed at the preliminary determination for UMC. UMC 
requests that the Department correct these ministerial errors in its 
final determination.

DOC Position

    We agree. We have made the appropriate corrections for purposes of 
the final determination.
D. Winbond
Comment 22: Treatment of Winbond's EP sales

    Winbond argues that its EP transactions were outside the ordinary 
course of trade and should be disregarded for purposes of the final 
determination. Winbond cites to Final Determination of Sales at Less 
Than Fair Value: Coated Groundwood Paper from France, 56 FR 56380 (Nov. 
4, 1991) (Coated Groundwood Paper) and Colombian Roses at 7004 as 
instances where the Department disregarded U.S. sales when the volume 
of such sales was insignificant or when the sales were atypical and not 
part of the respondent's ordinary business practice. Including such 
sales, according to Winbond, has the potential to undermine the 
fairness of the dumping comparisons.
    According to the petitioner, the term ``outside the ordinary course 
of trade'' applies only to home market sales, and, nonetheless, Winbond 
has not demonstrated that its EP sales are outside the ordinary course 
of trade. The petitioner asserts that, although it is true that the 
Department may disregard certain U.S. sales if the volume of such sales 
is insignificant, Winbond has not demonstrated that these particular 
sales were low volume sales. Furthermore, the petitioner maintains that 
Winbond has not established, as required in Colombian Roses, that the 
inclusion of these sales would undermine the fairness of the 
comparison. The petitioner states that the Department should use its 
discretionary authority and retain Winbond's EP sales.

DOC Position

    We agree with the petitioner. Although the ordinary course of trade 
provision does not apply to U.S. transactions, the Department does have 
the discretion to exclude U.S. sales from its analysis. See, e.g., 
Coated Groundwood Paper and Colombian Roses. However, there is no 
requirement in either the Act or the regulations that we do so merely 
because there are small quantities of a particular type of sale. In 
this case, Winbond has no provided compelling reason to disregard its 
EP sales. Accordingly, we have used them for purposes of the final 
determination.

Comment 23: Reliance on Winbond's Cost Data

    According to the petitioner, the cost verification report raises 
substantial questions regarding the overall reliability of Winbond's 
cost response. Specifically, the petitioner argues that: (1) Winbond 
failed to provide the reconciliation between its reported total cost of 
manufacturing and the costs in its cost accounting system, as requested 
in the cost verification outline; and (2) Winbond first revealed at the 
cost verification that, contrary to the explicit questionnaire 
instructions, not only had it reported sales quantities rather than 
production quantities, but it also was unable to provide the requested 
production quantity data at verification. The petitioner argues that, 
due to these limitations, the Department should consider using partial 
facts available in calculating Winbond's COP and CV.
    Winbond argues that it was cooperative and that the Department 
successfully verified the overall reliability of its submitted sales 
and cost data, including the requested reconciliations. Winbond argues 
that it successfully reconciled its total reported COM to its total 
costs in its accounting system and that the importance of certain 
reconciling amounts has been over-emphasized. Winbond maintains that it 
was entirely appropriate to report sales quantities rather than 
production quantities, because, if it had used the finished goods input 
quantity, it would have overstated production volumes and distorted 
costs.

DOC Position

    We agree with the petitioner, in part. We agree that the 
unsubstantiated reconciling item found at verification should be 
included in the cost for that quarter and we have done so. Not only did 
we request in the verification agenda that Winbond reconcile the total 
costs in its cost accounting system to total COM reported on its cost 
tapes, but we also requested numerous times during the verification 
process that Winbond reconcile its costs. We compared the submitted 
costs to the costs recorded in Winbond's normal books and records and 
found the difference noted above. Although Winbond attempted to explain 
this difference, it was unable to provide requested documentation 
(e.g., invoices) to support its assertion.
    However, we disagree with the petitioner that the sales quantities 
reported in the COP and CV data warrant an adjustment to Winbond's 
reported per-unit COPs and CVs. Because the variances Winbond applied 
to its standard costs were correctly calculated using production 
quantities, Winbond's per-unit COPs and CVs were not affected by the 
incorrect quantities. Consequently, we have not adjusted COP or CV to 
account for the quantity difference. For further discussion, see the 
memorandum to Louis Apple from the Team, dated February 13, 1998.

Comment 24: Winbond's Difmer Adjustment

    Winbond argues that the Department should accept its submitted 
difmer data without adjustment, because these difmer data were 
appropriate and classified in accordance with its cost accounting 
system. Winbond argues that, contrary to statements in the Department's 
cost verification report, it

[[Page 8932]]

could only report its fixed costs based on uniform budgeted ratios and 
that such ratios were the most valid and manageable approach for 
segregating cost elements. Winbond argues that its methodology 
separates the cost elements and does not significantly alter the amount 
of the difmer adjustment. Moreover, Winbond states that the vast 
majority of its U.S. sales had identical matches in the home market, 
making the distinction between variable and fixed costs less important 
than in cases involving more comparisons with similar merchandise.

DOC Position

    We disagree. Although Winbond's accounting system classifies all 
costs other than direct materials and labor as fixed costs, at 
verification we were able to calculate the depreciation expense for 
specific products from Winbond's standard cost sheets. A comparison of 
the depreciation expense calculated at verification to those reported 
by Winbond shows that the reported depreciation amounts, and therefore 
the difmer data, were not accurate.
    Because the reported difmer data cannot be relied upon, we have 
based the margin for all U.S. sales without an identical home market 
match on adverse facts available. As adverse facts available, we have 
selected the highest non-aberrant margin from the price-to-price or 
price-to-CV comparisons which were performed for Winbond. In selecting 
this margin, we sought a margin that is sufficiently adverse so as to 
effectuate the statutory purposes of the adverse facts available rule 
to induce respondents to provide the Department with complete and 
accurate information in a timely manner. We also sought a margin that 
is indicative of Winbond's customary selling practices and is 
rationally related to the transactions to which the adverse facts 
available are being applied. To that end, we selected a margin for 
sales of a product that involved a substantial commercial quantity and 
fell within the mainstream of Winbond's transactions based on quantity. 
Finally, we found nothing on the record to indicate that the sales of 
the product we selected were not transacted in a normal manner.

Comment 25: Use of Annual Profit for CV

    Winbond claims that the Department should have used quarterly, 
rather than annual, profit in calculating CV. Winbond asserts that 
using annual profit creates the same distortions that the Department 
tried to avoid by using quarterly price and cost comparisons. Winbond 
cites to page 843 of the SAA which indicates that, when CV is used for 
normal value and ``costs are rapidly changing, it may be appropriate to 
use shorter periods, such as quarters or months, which may allow a more 
appropriate association of costs with sales prices.'' Winbond claims 
that the Department's use of annual profit in conjunction with 
quarterly cost and sales data overstates profit significantly in the 
down-market periods.
    The petitioner argues that an annual profit rate is appropriate 
because it reflects not only the quarterly cost of manufacture but also 
those annual, often non-recurring costs such as G&A, interest and 
selling expenses, which must be calculated on an annual basis to ensure 
that all such costs are captured in the COP. The petitioner notes that 
neither the statute nor the SAA specifies the period over which profit 
should be calculated.
    Moreover, the petitioner asserts that the use of quarterly averages 
to capture the lower profits in quarters where more sales are made 
below cost, as suggested by Winbond, could lead to the use of a zero 
profit rate if all of the respondent's sales in a given quarter were 
below cost. This approach, according to the petitioner, is contrary to 
the clear statutory intent that the Department include a positive 
profit figure for CV.

DOC Position

    We agree with the petitioner. The Department applies the average 
profit rate for the POI or period of review (POR) even when the cost 
calculation period is less than a year. See, e.g., 1994-1995 DRAMs 
Review, Certain Fresh Cut Flowers From Colombia; Final Results and 
Partial Rescission of Antidumping Duty Administrative Review, 62 FR 
53287, 53295 (Oct. 14, 1997) and Silicon Metal from Brazil; Final 
Results of Antidumping Duty Administration Review, 61 FR 46763, 46774 
(Sept. 5, 1996).
    We disagree with Winbond that the use of annual profit distorts the 
analysis. First, a difference between the quarterly profits and the 
annual average profit does not automatically mean that a distortion 
exists. In fact, there is no evidence on the record that indicates such 
a distortion. Second, profit remains a function of the relationship 
between price and cost, regardless of whether there is a downward trend 
of prices or a stable period of prices and costs. The parties commented 
on matching sales on a quarterly basis (see the ``Time Period for Cost 
and Price Comparisons'' section of this notice, above). In their 
comments, the parties indicated that both prices and costs generally 
decreased during the POI. The profit figures used by the Department 
measure the weighted-average amount by which prices exceeded costs. 
Third, the use of annual profit mitigates fluctuations in profits and, 
therefore, represents a truer picture of profit.
    Furthermore, we disagree that the SAA at page 843 (173) provides 
any guidance. The SAA indicates that ``shorter periods may allow for a 
more appropriate association of costs with sales prices,'' but is 
silent as to the profit to be added to those costs.

Comment 26: Unrecoverable Fire Loss Expenses

    Winbond argues that the Department distorted its G&A expenses by 
including expenses associated with a fire at an incomplete facility 
which is now being reconstructed to produce DRAMs. Winbond argues that 
it recorded the unrecovered portion of the fire loss as a non-operating 
expense; that the facility was not operational; and that, therefore, 
the costs associated with the fire are not relevant to the COP and CV 
of subject merchandise. Winbond asserts that, even if the Department 
were to conclude that the fire loss was related to 1996 SRAM 
production, the costs should be excluded from G&A because they were 
extraordinary.
    The petitioner argues that the Department correctly included 
Winbond's unrecovered portion of the fire loss in Winbond's cost of 
production. The petitioner argues that Winbond's assertion that the 
facility was not being constructed to produce the subject merchandise 
is contrary to strong evidence on the record. The petitioner cites two 
published articles which state that the facility was constructed for 
the production of SRAMs. The petitioner argues that the unrecoverable 
fire loss was appropriately included in G&A because, under Winbond's 
own standard accounting practice, the uncompensated fire loss was 
recorded as a current cost. The petitioner argues further that the 
Department has included in COP and CV losses which were not reimbursed 
by insurance. See Final Determination of Sales at Less Than Fair Value: 
Fresh and Chilled Atlantic Salmon from Norway, 56 FR 7661, 7670 (Hofa 
Comment 5) (Feb. 15, 1991) (Salmon from Norway).

DOC Position

    We agree with the petitioner. The uncompensated fire loss should be 
included in Winbond's G&A expense for this period because the expense 
incurred (i.e., the capital) relates to the company as a whole. The 
fact that

[[Page 8933]]

Winbond is reconstructing the facility to produce DRAMs is irrelevant.
    Moreover, we disagree with Winbond's assertion that the fire was an 
extraordinary event. Winbond has offered no support for this assertion. 
Moreover, evidence on the record contradicts this claim. Fires at 
semiconductor production facilities have been neither unusual nor 
infrequent. Specifically, we note that fires occurred at the following 
semiconductor facilities during the past 16 months: (1) United 
Integrated Circuits Company, January 1998; (2) Advanced 
Microelectronics, November 1997; (3) United Integrated Circuits 
Company, October 1997; (4) Charted Semiconductor Manufacturing Pte. 
Ltd., September 1997; and (5) Winbond, October 1996. Thus, we are 
unconvinced that the fire at Winbond's facility was an extraordinary 
event. As in other cases, we are including the unrecovered or uninsured 
portion of loss as a G&A expense. See e.g., Salmon from Norway.

Comment 27: Denominator for G&A and Interest Expense

    Winbond argues that the Department erred by not revising the 
denominator used to calculate its G&A, R&D and interest expense rates 
to reflect the bonuses and royalties which were added to COM.

DOC Position

    We agree. In the preliminary determination, we increased Winbond's 
reported COM to include bonuses and royalty expenses. However, we 
failed to revise the denominator used to calculate Winbond's G&A and 
interest expense rates which we applied to the revised COM. We have 
made the appropriate correction for purposes of the final 
determination.

Comment 28: Net Interest Expense

    Winbond argues that the Department failed to account for its actual 
net interest income in the preliminary determination. Winbond argues 
that the Department deprived it of the benefit of its actual net 
interest income, and, thus, overstated its COP and CV. Winbond asserts 
that the statute does not require the Department to disregard cost 
offsets merely because the results benefit the respondent.
    The petitioner argues that there is no basis for the Department to 
allow Winbond to offset its actual production costs with net financial 
income. The petitioner argues that the Department followed its long-
standing practice by treating Winbond's negative financial cost as 
zero.

DOC Position

    We agree with the petitioner. It is the Department's normal 
practice to allow short-term interest income to offset financial costs 
up to the amount of such financial costs. See Porcelain on Steel 
Cookware from Mexico; Final Results of Antidumping Duty Administrative 
Review, 61 FR 54616, 54621 (Oct. 21, 1996). Using total short-term 
interest income to reduce production costs, as suggested by Winbond, 
would permit companies with large short-term investment activity to 
sell their products below COP. The application of excess interest 
income to production costs would distort a company's actual costs. When 
calculating COP and CV, the Department includes interest earned on 
working capital, not interest earned on long-term financing activities. 
See Final Results of Antidumping Duty Administrative Review: Porcelain 
on Steel Cookware from Mexico, 60 FR 2378, 2379, (Jan. 9, 1995); Final 
Results of Antidumping Duty Administrative Review: Porcelain on Steel 
Cookware from Mexico, 58 FR 43327, 43332, (Aug. 16, 1993); Final 
Determination of Sales at Less Than Fair Value: Steel Wire Rope from 
Korea, 58 FR 11029, 11038, (Feb. 23, 1993); and Final Results of 
Antidumping Duty Administrative Review: Frozen Concentrated Orange 
Juice from Brazil, 55 FR 26721, (June 29, 1990).

Comment 29: Royalty Payments and Technical Services

    Winbond argues that in the preliminary dumping analysis the 
Department double-counted its royalty and technical service expenses.

DOC Position

    We agree. We double counted these expenses at the preliminary 
determination by adding both the royalty and the revised total R&D 
(which included both the royalty and technical service expenses) in COP 
and CV. Consequently, we have corrected this error for purposes of the 
final determination.

Continuation of Suspension of Liquidation

    In accordance with section 733(d)(1) and 735(c)(4)(B) of the Act, 
we are directing the Customs Service to continue to suspend liquidation 
of all entries of SRAMs from Taiwan, that are entered, or withdrawn 
from warehouse, for consumption on or after October 1, 1997 (the date 
of publication of the preliminary determination in the Federal 
Register). The Customs Service shall continue to require a cash deposit 
or posting of a bond equal to the estimated amount by which the normal 
value exceeds the U.S. price as shown below. These suspension of 
liquidation instructions will remain in effect until further notice. 
The weighted-average dumping margins are as follows:

------------------------------------------------------------------------
                                                                Margin  
               Manufacturer/producer/exporter                 percentage
------------------------------------------------------------------------
Advanced Microelectronics...................................     113.85 
Alliance....................................................      50.58 
BIT.........................................................     113.85 
ISSI........................................................       7.59 
TI-Acer.....................................................     113.85 
UMC.........................................................      93.87 
Winbond.....................................................     102.88 
All Others..................................................      41.98 
------------------------------------------------------------------------

    Pursuant to section 735(c)(5)(A) of the Act, the Department has 
excluded the margins determined entirely under section 776 of the Act 
from the calculation of the ``All Others Rate.''

ITC Notification

    In accordance with section 735(d) of the Act, we have notified the 
International Trade Commission (ITC) of our determination. As our final 
determination is affirmative, the ITC will, within 45 days, determine 
whether these imports are materially injuring, or threaten material 
injury to, the U.S. industry. If the ITC determines that material 
injury, or threat of material injury does not exist, the proceeding 
will be terminated and all securities posted will be refunded or 
canceled. If the ITC determines that such injury does exist, the 
Department will issue an antidumping duty order directing Customs 
officials to assess antidumping duties on all imports of the subject 
merchandise entered for consumption on or after the effective date of 
the suspension of liquidation.
    This determination is published pursuant to section 735(d) of the 
Act.

    Dated: February 13, 1998.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 98-4360 Filed 2-20-98; 8:45 am]
BILLING CODE 3510-DS-P