[Federal Register Volume 64, Number 201 (Tuesday, October 19, 1999)]
[Notices]
[Pages 56308-56327]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27294]


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DEPARTMENT OF COMMERCE

International Trade Administration
[A-583-832]


Notice of Final Determination of Sales at Less Than Fair Value: 
Dynamic Random Access Memory Semiconductors of One Megabit and Above 
(``DRAMs'') From Taiwan

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

EFFECTIVE DATE: October 19, 1999.

FOR FURTHER INFORMATION CONTACT: Thomas Futtner at (202) 482-3814, 
Alexander Amdur at (202) 482-5346 (Etron), Ronald Trentham at (202) 
482-6320 (MVI), Nova Daly at (202) 482-0989 (Nanya), or John Conniff at 
(202) 482-1009 (Vanguard), Group II, Office 4, Import Administration, 
International Trade Administration, U.S. Department of Commerce, 14th 
Street and Constitution Avenue, N.W., Washington, D.C. 20230.

The Applicable Statute

    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 Uruguay Round 
Agreements Act (``URAA''). In addition, unless otherwise indicated, all 
citations to the Department's regulations are to the regulations at 19 
CFR Part 351 (1998).

Final Determination

    We determine that DRAMs from Taiwan are being, or are likely to be, 
sold in the United States at less than fair value (``LTFV''), as 
provided in section 733 of the Act. The estimated margins of sales at 
LTFV are shown in the ``Suspension of Liquidation'' section of this 
notice.

Case History

    The preliminary determination in this investigation was issued on 
May 21, 1999. See Notice of Preliminary Determination of Sales at Less 
Than Fair Value and Postponement of Final Determination: Dynamic Random 
Access Memory Semiconductors of One Megabit and Above (``DRAMs'') from 
Taiwan, 64 FR 28983 (May 28, 1999) (``Preliminary Determination''). 
Since the preliminary determination, the following events have 
occurred:
    On May 24 and 27, 1999, we received information from the 
petitioner, Micron Technology, on possible circumvention of a future 
antidumping duty order. On June 1, 1999, we received a submission from 
Vanguard International

[[Page 56309]]

Semiconductor Corporation (``Vanguard'') alleging that the Department 
made ministerial errors in the preliminary determination. In response 
to Vanguard's ministerial error allegations, we issued an amended 
preliminary determination on June 11, 1998. See Notice of Amended 
Preliminary Determination of Sales at Less Than Fair Value: Dynamic 
Random Access Memory Semiconductors of One Megabit and Above 
(``DRAMs'') from Taiwan, 64 FR 32480 (June 17, 1999).
    In May and June 1999, we received responses to supplemental 
questionnaires from Mosel-Vitelic, Inc. (``MVI'') and Vanguard.
    In June, July and August, 1999, we verified the sales and cost 
questionnaire responses of Etron Technology, Inc. (``Etron''), MVI, Nan 
Ya Technology Corporation, (``Nanya''), and Vanguard (hereinafter 
``respondents'').
    In July, August, and September 1999, the respondents submitted 
revised sales and cost databases.
    On July 26, 1999, Etron submitted information requested by the 
Department at the sales verification. On August 6 and 9, 1999, the 
Department issued supplemental questionnaires to Etron. On August 18, 
1999, Etron submitted a letter to the Department stating that it would 
not be filing a response to the Department's August 6 and 9, 1999 
supplemental questionnaires, and that it would not allow the 
verification that the Department scheduled at Caltron Technology 
(``Caltron''), Etron's affiliate in the United States.
    The petitioner and the respondents submitted case briefs on 
September 1, 1999 and rebuttal briefs on September 8, 1999. At the 
Department's direction, Etron submitted amended case and rebuttal 
briefs on September 7 and 10, 1999, eliminating new factual information 
that the Department considered untimely. We held a public hearing on 
September 13, 1999.

Amendment to Scope

    The Department is amending the scope of this investigation in order 
to require importers of motherboards that contain removable DRAM memory 
modules to certify to U.S. Customs that such modules will not be 
removed. This amendment follows the precedent set forth in DRAMs from 
the Republic of Korea, Antidumping Duty Order and Amended Final 
Determination, 58 FR 27520 (May 10, 1993) (``DRAMs from Korea Order''), 
and is in response to the petitioner's concerns about the circumvention 
of any antidumping duty order issued in this proceeding. See Comment 1 
in the ``Interested Party Comments'' section of this notice.

Scope of Investigation

    The products covered by this investigation are DRAMs from Taiwan, 
whether assembled or unassembled. Assembled DRAMs include all package 
types. Unassembled DRAMs include processed wafers, uncut die and cut 
die. Processed wafers fabricated in Taiwan, but packaged or assembled 
into finished semiconductors in a third country, are included in the 
scope. Wafers fabricated in a third country and assembled or packaged 
in Taiwan are not included in the scope.
    The scope of this investigation includes memory modules. A memory 
module is a collection of DRAMs, the sole function of which is memory. 
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 DRAMs whether mounted 
or unmounted on a circuit board. Modules that contain other parts that 
are needed to support the function of memory are covered. Only those 
modules that contain additional items that alter the function of the 
module to something other than memory, such as video graphics adapter 
(``VGA'') boards and cards, are not included in the scope. Modules 
containing DRAMs made from wafers fabricated in Taiwan, but either 
assembled or packaged into finished semiconductors in a third country, 
are also included in the scope.
    The scope includes, but is not limited to, video RAM (``VRAM''), 
Windows RAM (``WRAM''), synchronous graphics RAM (``SGRAM''), as well 
as various types of DRAMs, including fast page-mode (``FPM''), extended 
data-out (``EDO''), burst extended data-out (``BEDO''), synchronous 
dynamic RAM (``SDRAMs''), and ``Rambus'' DRAMs (``RDRAMs''). The scope 
of this investigation also includes any future density, packaging or 
assembling of DRAMs. Also included in the scope of this investigation 
are removable memory modules placed on motherboards, with or without a 
central processing unit (CPU), unless the importer of the motherboards 
certifies with Customs that neither it, nor a party related to it or 
under contract to it, will remove the modules from the motherboards 
after importation. The scope of this investigation does not include 
DRAMs or memory modules that are re-imported for repair or replacement.
    The DRAMs subject to this investigation are currently classifiable 
under subheadings 8542.13.80.05 and 8542.13.80.24 through 8542.13.80.34 
of the Harmonized Tariff Schedule of the United States (``HTSUS''). 
Also included in the scope are Taiwanese DRAM modules, described above, 
entered into the United States under subheading 8473.30.10 through 
8473.30.90 of the HTSUS or possibly other HTSUS numbers. 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 investigation (``POI'') is October 1, 1997 to 
September 30, 1998.

Facts Available

    Section 776(a)(2) of the Act provides that ``if an interested party 
or any other person--(A) withholds information that has been requested 
by the administering authority; (B) fails to provide such information 
by the deadlines for the submission of the information or in the form 
and manner requested, subject to subsections (c)(1) and (e) of section 
782; (C) significantly impedes a proceeding under this title; or (D) 
provides such information but the information cannot be verified as 
provided in section 782(i), the administering authority shall, subject 
to section 782(d), use the facts otherwise available in reaching the 
applicable determination under this title.''
    The statute requires that certain conditions be met before the 
Department may resort to the facts available. Where the Department 
determines that a response to a request for information does not comply 
with the request, section 782(d) of the Act provides that the 
Department will so inform the party submitting the response and will, 
to the extent practicable, provide that party the opportunity to remedy 
or explain the deficiency. If the party fails to remedy the deficiency 
within the applicable time limits, the Department may, subject to 
section 782(e), disregard all or part of the original and subsequent 
responses, as appropriate. Briefly, section 782(e) provides that the 
Department ``shall not decline to consider information that is 
submitted by an interested party and is necessary to the determination 
but does not meet all the applicable requirements established by (the 
Department)'' if the information is timely, can be verified, is not so 
incomplete that it cannot be used, and if the interested party acted to 
the best of its ability in providing the information. Where all of 
these conditions are met, and the Department can use the information 
without undue

[[Page 56310]]

difficulties, the statute requires it to do so.
    In addition, section 776(b) of the Act provides that, if the 
Department finds that an interested party ``has failed to cooperate by 
not acting to the best of its ability to comply with a request for 
information,'' the Department may use information that is adverse to 
the interests of the party as the facts otherwise available. Adverse 
inferences are appropriate ``to ensure that the party does not obtain a 
more favorable result by failing to cooperate than if it had cooperated 
fully.'' See Statement of Administrative Action (SAA) accompanying the 
URAA, H.R. Doc. No. 103-316 at 870 (1994).
    Furthermore, ``an affirmative finding of bad faith on the part of 
the respondent is not required before the Department may make an 
adverse inference.'' Antidumping Duties; Countervailing Duties; Final 
Rule, 62 FR 27296, 27340 (May 19, 1997) (``Final Rule''). Section 
776(b) of the Act notes, in addition, that in selecting from among the 
facts available the Department may, subject to the corroboration 
requirements of section 776(c), rely upon information drawn from the 
petition, a final determination in the investigation, or any previous 
administrative review conducted under section 751 (or section 753 for 
countervailing duty cases). Under Section 776(b), in selecting from 
among the facts available, the Department may also rely on any other 
information on the record.
Etron
    Based on our verification and independent research, we have 
determined that Etron withheld a significant amount of information from 
the Department, including information concerning its relationship with 
its U.S. customers. We were also unable to verify certain information 
and found numerous accounting irregularities in Etron's records. We 
have further determined, based on documents obtained from the U.S. 
Customs Service, that Etron provided the Department with altered sales 
documents. Due to the proprietary nature of these issues, for further 
discussion, see Memorandum from Holly Kuga to Bernard Carreau on 
Whether to Determine the Margin of Etron Technology, Inc. for the Final 
Determination Based on the Facts Otherwise Available dated October 12, 
1999 (``Etron FA Memorandum''). Also see Comment 3 in the ``Interested 
Party Comments'' section of this notice.
    After the sales verification in Taiwan, the Department scheduled a 
verification of Etron's U.S. sales affiliate, Caltron. The Department 
also issued additional supplemental questionnaires to Etron to provide 
it with yet another opportunity to explain and clarify the deficiencies 
revealed at verification. After receiving an extension of time to 
answer these questionnaires, and after two extensive conversations with 
the Department regarding these questionnaires,1 Etron 
eventually refused to answer them, and did not allow the verification 
of Caltron.
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    \1\ See Memoranda dated August 11 and August 17, 1999 from 
Alexander Amdur to the File.
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    Because Etron withheld information that had been requested by the 
Department, failed to provide such information in a timely manner, 
significantly impeded this investigation, and provided information 
which cannot be verified, section 776(a)(2) of the Act directs the 
Department, subject to sections 782(d) and (e), to use facts otherwise 
available for Etron in reaching the final determination of this 
investigation.
    In accordance with section 782(d) of the Act, the Department issued 
numerous supplemental questionnaires to Etron regarding its initial 
sales and cost responses. Furthermore, as discussed above, after the 
sales verification in Taiwan, on August 6 and 9, 1999, the Department 
sent to Etron two additional supplemental questionnaires addressing 
certain deficiencies in the company's questionnaire response that the 
Department found at the sales verification. Etron refused to submit a 
response to these questionnaires. Thus, despite numerous opportunities 
granted to Etron to remedy the serious deficiencies in its responses, 
Etron failed to do so within the meaning of section 782(d) of the Act.
    The application of facts available under section 776(a) is also 
subject to the provisions of section 782(e) of the Act regarding 
whether to decline to consider information submitted by the respondent 
despite identified deficiencies. In this case, Etron failed to meet all 
of the requirements enunciated under section 782(e) of the Act. 
Although Etron generally submitted its questionnaire responses by the 
established deadlines, with the exception of the responses to the 
August 6 and 9, 1999 questionnaires, these responses could not be 
properly verified, as required by section 782(e)(2). Furthermore, the 
information that we independently obtained and the results of 
verification demonstrate that Etron's responses are so incomplete that 
they cannot serve as reliable bases for reaching the final 
determination. The gaps in Etron's responses, which the Department 
unsuccessfully attempted to address in the August supplemental 
questionnaires, and Etron's refusal to allow the verification of 
Caltron, all raise serious questions about the reliability and accuracy 
of Etron's entire U.S. sales database. Additionally, Etron failed to 
demonstrate that it has acted to the best of its ability under section 
782(e)(4) of the Act. Etron withheld a significant amount of 
information from the Department, and subsequently completely ceased 
cooperating in this investigation. Furthermore, it also appears that 
Etron attempted to deceive the Department by providing altered 
documents at verification, and by making misleading statements to 
Department officials. Finally, the Department cannot use Etron's 
submitted information without undue difficulties under section 
782(e)(5) of the Act in light of the numerous questions surrounding 
Etron's entire U.S. sales database. For a detailed proprietary 
discussion of these issues, see Etron FA Memorandum. As a result, the 
Department determines that, pursuant to section 776(a) of the Act, the 
use of facts available is appropriate.
    Section 776(b) of the Act provides that adverse inferences may be 
used in selecting from the facts available if a party has failed to 
cooperate by not acting to the best of its ability to comply with a 
request for information. As explained above, and in the Etron FA 
Memorandum; Etron withheld a significant amount of information from the 
Department. Moreover, Etron impeded the Department's efforts to clarify 
information concerning its relationships with its U.S. customers, 
refused verification of its U.S. subsidiary, and provided the 
Department with false information. For these reasons, the Department 
finds that Etron did not act to the best of its ability to provide the 
information requested. Therefore, we have determined to use an adverse 
inference in selecting the facts available to determine Etron's margin.
    As adverse facts available, we have assigned Etron a margin of 69 
percent, the highest margin alleged in the petition,2 as 
stated in the notice of initiation (see Initiation of Antidumping Duty 
Investigation: Dynamic Random Access Memory Semiconductors From Taiwan, 
63 FR 60404 (November 18, 1998) (``Notice of Initiation'')). 
Furthermore, as adverse facts available,

[[Page 56311]]

we applied the 69 percent margin to Etron's reported U.S. prices, and 
using the company's total reported product densities, calculated a 
specific rate for Etron of $0.40 per megabit. We calculated the per 
megabit rate in this manner because we believe that it would be 
inappropriate to base Etron's specific rate on any other margin, 
including a calculated margin, that is lower than 69 percent. 
Furthermore, while we consider Etron's data unreliable, we believe that 
applying the 69 percent margin to Etron's U.S. database is the most 
appropriate means to calculate a facts available per megabit rate for 
this company.
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    \2\ See Antidumping Petition: Dynamic Random Access Memory 
Semiconductors of One Megabit and Above from Taiwan, submitted by 
Micron Technology, Inc., October 22, 1998; and DRAMs from Taiwan: 
Supplement to Petition, November 5, 1998 (which includes 
recalculated margins).
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    Section 776(c) of the Act provides that, when the Department relies 
on secondary information in using the facts otherwise available, it 
must, to the extent practicable, corroborate that information from 
independent sources that are reasonably at its disposal. The SAA 
clarifies that ``corroborate'' means that the Department will satisfy 
itself that the secondary information to be used has probative value 
(see SAA at 870). The SAA also states that independent sources used to 
corroborate may include, for example, published price lists, official 
import statistics and customs data, as well as information obtained 
from interested parties during the particular investigation (see Id.).
    In accordance with section 776(c) of the Act, we sought to 
corroborate the data contained in the petition. We reviewed the 
adequacy and accuracy of the information in the petition during our 
pre-initiation analysis of the petition, to the extent appropriate 
information was available for this purpose (e.g., import statistics and 
foreign market research reports). See Notice of Initiation, 63 FR at 
64041. To further corroborate the information in the petition, for the 
final determination, we reexamined the highest margin in the petition 
in light of information obtained during the investigation to the extent 
it is practicable, and determined it has probative value. For further 
discussion, see Etron FA Memorandum.

Fair Value Comparisons

    To determine whether sales of DRAMs from Taiwan to the United 
States were made at LTFV, we compared the constructed export price 
(``CEP'') to the normal value (``NV''). Our calculations followed the 
methodologies described in the preliminary determination, except as 
noted below and in company-specific analysis memoranda dated October 
12, 1999.
    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 above in the ``Scope of Investigation'' 
section of this notice to be foreign like products for purposes of 
determining appropriate product comparisons to U.S. sales. 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 next most similar foreign 
like product, based on the characteristics listed in Sections B and C 
of the Department's antidumping questionnaire. We made product 
comparisons based on the same characteristics and in the same general 
manner as that outlined in the preliminary determination.

Constructed Export Price

    We used CEP, in accordance with section 772(b) of the Act, for MVI, 
Nanya and Vanguard, when the subject merchandise was first sold in the 
United States by or for the account of the producer or exporter of such 
merchandise, or by a seller affiliated with the producer or exporter, 
to an unaffiliated purchaser. We calculated CEP for MVI, Nanya and 
Vanguard based on the same methodology used in the preliminary 
determination, with the following exceptions:
    We corrected for certain clerical errors found during verification, 
including corrections that MVI, Nanya, and Vanguard identified in their 
responses in the course of preparing for verification.
MVI
    1. We recalculated MVI's reported marine insurance expense by 
allocating the reported expense over the amount of the total DRAM sales 
of MVI's U.S. affiliate, Mosel Vitelic Corporation (``MVC'').
Vanguard
    1. We recalculated Vanguard's reported royalty expense by including 
those royalties which were inappropriately included in sales expenses 
in Vanguard's cost of production (``COP'').
    2. We recalculated Vanguard's reported international freight 
expense by allocating this expense by quantity, as the expense was 
incurred.

Normal Value

    We used the same methodology to calculate NV as that described in 
the preliminary determination, with the following exceptions:
    We corrected for certain clerical errors found during verification, 
including corrections that MVI, Nanya, and Vanguard identified in their 
responses in the course of preparing for verification. For Vanguard, we 
also recalculated its reported sales duty tax using the rates charged 
for this tax by the authorities in Taiwan, and adjusted certain freight 
expenses by attributing these charges only to the sales that incurred 
these expenses.

Cost of Production

    In accordance with section 773(b)(3) of the Act, we calculated a 
quarterly weighted-average 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 (``SG&A'') expenses 
and packing costs. We determined that research and development 
(``R&D'') related to semiconductors benefits all semiconductor 
products, and that allocation of R&D on a product-specific basis was 
not appropriate.
    We relied on the submitted COP except in the following specific 
instances where the submitted costs were not appropriately quantified 
or valued:
MVI
    1. We disallowed MVI's startup adjustment (see comment 14 in the 
``Interested Party Comments'' section of this notice).
    2. We included ProMOS Technologies Inc.'s (``ProMOS's'') R&D 
expenses and G&A expenses in ProMOS's COP (see comment 11 in the 
``Interested Party Comments'' section).
    3. We recalculated ChipMOS Technologies, Inc.'s (``ChipMOS's'') COP 
to include R&D and selling expenses from its 1998 audited financial 
statements.
    4. Pursuant to section 773(f)(3) of the Act, and section 351.407(b) 
of the Department's regulations, we adjusted both ChipMOS's and 
ProMOS's reported costs to the higher of transfer price or COP.
    5. We valued MVI's stock bonus to its employees as of the date the 
shareholders' approval of the stock bonus (see comment 13 in the 
``Interested Party Comments'' section).
    6. We added MVI's non-operating expenses to, and subtracted marine 
insurance from, its total G&A expenses used in the calculation of the 
G&A expense ratio (see comments 17 and 18 in the ``Interested Party 
Comments'' section). We also subtracted MVI's packing expense from the 
unconsolidated cost of goods sold (``COGS'') used in the denominator of 
this calculation.
    7. We combined MVI's reported allocation rates for general and 
product-

[[Page 56312]]

specific R&D to determine one R&D allocation rate to apply to MVI's 
COM.
    8. To make the denominator consistent with the COM to which it is 
applied, we adjusted MVI's financial expense ratio by subtracting 
packing and the stock bonus from the denominator of the allocation 
ratio. We also excluded foreign exchange gains from investments as an 
offset to net consolidated financial expenses from the numerator. See 
Cost Calculation Memorandum for MVI dated October 12, 1999.
Nanya
    1. Pursuant to section 773(f)(2) of the Act, and section 351.407(b) 
of the Department's regulations, for assembly and test services 
performed by affiliates, we used the higher of cost, transfer price, or 
market price.
    2. We adjusted Nanya's reported R&D rate to include all of Nanya's 
semiconductor R&D expenses divided by the company-wide COGS.
    3. We reclassified expenses incurred by Genesis Semiconductor, 
Inc., a U.S. affiliate of Nanya that performs DRAM R&D, as R&D expense.
    4. We adjusted Nanya's reported G&A expense to include certain 
``other revenue'' items and exchange losses. See comments 21 and 22 in 
the ``Interested Party Comments'' section.
    5. We recalculated Nanya's reported production-related royalty 
expense ratio by dividing the total expense incurred by the COGS for 
DRAMs.
    6. Since wafers processed in a country other than Taiwan are not 
subject to this investigation, we have excluded the costs and sales of 
fully-processed wafers purchased from a third country.
    7. We have included interest expenses in the calculation of 
financial expense. See comment 20 in the ``Interested Party Comments'' 
section. See Cost Calculation Memorandum for Nanya dated October 12, 
1999.
Vanguard
    1. We revised the submitted COP to include the cost of obsolete 
materials written off, and the standard cost and ``lower of cost or 
market'' revaluations associated with raw materials and work-in-process 
(``WIP'') inventories (see comments 24 and 25 in the ``Interested Party 
Comments''section ).
    2. We revised COP for back-end (assembly) services performed by an 
affiliate to include selling expenses.
    3. Pursuant to section 773(f)(2) and (3) of the Act, and section 
351.407(b) of the Department's regulations, for DRAM assembly performed 
by an affiliate, we adjusted the reported cost to the highest of cost, 
transfer price, or market price (see comment 26 in the ``Interested 
Party Comments'' section).
    4. We revised the submitted COP to include certain royalty expenses 
which were inappropriately included in selling expenses. See Cost 
Calculation Memorandum for Vanguard dated October 12, 1999.
    We conducted our sales below-cost test in the same manner as that 
described in our preliminary determination. We found that, for MVI, 
Nanya, and Vanguard, for certain models of DRAMs, more than 20 percent 
of the home market sales within an extended period of time were at 
prices less than COP. Further, the prices did not permit the recovery 
of costs within a reasonable period of time. We therefore disregarded 
the below-cost sales and used the remaining sales as the basis for 
determining NV, in accordance with section 773(b)(1). For those U.S. 
sales of DRAMs for which there were no comparable home market sales in 
the ordinary course of trade, we compared CEPs to CV in accordance with 
section 773(a)(4) of the Act.

Constructed Value

    In accordance with section 773(e) of the Act, we calculated CV 
based on the sum of the respondent's cost of materials, fabrication, 
G&A, U.S. packing costs, direct and indirect selling expenses, interest 
expenses, and profit. We relied on the submitted CVs except for the 
specific changes described above in the ``Cost of Production'' section 
of the notice. In accordance with section 773(e)(2)(A) of the Act, we 
based SG&A expenses 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 Taiwan. Where respondents made no home market sales in the ordinary 
course of trade (i.e., all sales failed the cost test), we based profit 
and SG&A expenses on the weighted-average of the profit and SG&A data 
computed for those respondents with home market sales of the foreign 
like product made in the ordinary course of trade in accordance with 
section 773(e)(2)(B)(ii) of the Act.

Price-to-Price and Price-to-CV Comparisons

    We made price-to-price and price-to-CV comparisons using the same 
methodology as that described in the preliminary determination.

Currency Conversion

    As in the preliminary determination, we made currency conversions 
into U.S. dollars based on the exchange rates in effect on the dates of 
the U.S. sales as certified by the Federal Reserve Bank in accordance 
with section 773(A) of the Act.

Interested Party Comments

General Issues
    Comment 1: Certification for Modules on Motherboards. The 
petitioner argues that the respondents have made plans to avoid the 
antidumping duty order to be issued in this case. The petitioner states 
that it previously submitted to the Department news articles from the 
Taiwan press in which the respondents discussed plans to avoid any 
antidumping duty order by shipping subject merchandise to intermediate 
countries for assembly or further processing, including placing memory 
modules on motherboards. The petitioner also notes that the preliminary 
determination in this investigation, as well as the Customs 
instructions issued by the Department after the preliminary 
determination, do not contain the scope language that is standard in 
the DRAMs from Korea antidumping proceeding. Specifically, this scope 
language, as stated in DRAMs from Korea: Amended Final Results of 
Administrative Review, 63 FR 56905, 56907 (October 23, 1998), requires 
importers of motherboards that contain removable memory modules to 
certify to Customs that ``neither it, nor a party related to it or 
under contract to it, will remove the modules from the motherboards 
after importation.'' The petitioner contends that, because Taiwan is 
the world's leading producer of motherboards, it is therefore 
``essential'' that this certification requirement be applied to 
importers of motherboards containing DRAMs from Taiwan.
    No other parties commented in their case or rebuttal briefs with 
respect to this issue.
    DOC Position: We agree with the petitioner's comments regarding the 
potential for circumvention resulting from the importation of DRAMs on 
motherboards. In order to avoid the possibility that an order on DRAMs 
would be evaded in such a manner, the Department will follow the 
precedent, set forth in DRAMs from Korea Order, 58 FR at 27520. As a 
consequence, if a party imports motherboards that contain removable 
DRAMs memory modules, we will require the importer to certify with 
Customs that such modules will not be removed by them, a party under 
contract to them, or a party related to them, after importation. Such 
certification will apply regardless of

[[Page 56313]]

whether the host product contains a CPU.
    Comment 2: CEP Offset. The petitioner argues that, in the 
preliminary determination, the Department failed to perform a level of 
trade analysis based on unadjusted starting prices for CEP sales for 
MVI, Nanya, and Vanguard. The petitioner states that the Department 
analyzed the level of trade of CEP sales based on the level of the 
constructed sale from the exporter to the affiliated importer, i.e., 
the prices after adjustment for U.S. related selling expenses. 
Concurrently, the Department analyzed the level of trade of the home 
market sales based on the unadjusted starting prices of those sales. 
The petitioner states that this methodology conflicts with the 
requirements of the statute and the decisions established in Borden 
Inc. v United States, 4 F. Supp. 2d 1221 CIT 1998) (``Borden'') and 
Micron Technology, Inc. v. United States, 40 F. Supp. 2d 481, 485-86 
(CIT 1999) (``Micron''). The petitioner argues that the Department 
should conduct a level of trade analysis based on unadjusted starting 
prices in both the U.S. and the comparison markets. The petitioner 
states that the results of this analysis will demonstrate that the 
comparison market sales made by MVI, Vanguard, and Nanya were not made 
at a more advanced level of trade than their sales in the U.S., and 
that, therefore, there is no basis for granting either a level of trade 
adjustment or a CEP offset to MVI, Nanya or Vanguard.
    MVI, Nanya, and Vanguard disagree with the petitioner. They state 
that the Department's established practice of analyzing the CEP level 
of trade for purposes of determining whether a CEP offset is warranted 
is consistent with the statute and legislative history. They argue that 
section 773(a)(7)(A) of the Act specifies that a level of trade 
analysis must examine the price difference between the ``constructed'' 
export price (``EP'') and NV, and that any price difference must be due 
to differences in the selling functions and expenses, other than a 
difference for which allowance is otherwise made, i.e., other than the 
selling expenses in the U.S. market that already are deducted. They 
further state, citing Antifriction Bearings (other than Tapered Roller 
Bearings) and Parts Thereof from France, et al., 62 FR 54043, 54055 
(October 17, 1997), that the Department correctly based the CEP level 
of trade on the ``constructed'' price, i.e., on the price in the United 
States after making the CEP deductions.
    DOC Position: The Department agrees with the respondents. We have 
consistently stated that the statute and the SAA support analyzing the 
level of trade of CEP sales at the constructed level, after expenses 
associated with economic activities in the United States have been 
deducted, pursuant to section 772(d) of the Act. In the preamble to our 
proposed regulations, we stated

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

See Antidumping Duties; Countervailing Duties; Notice of Proposed 
Rule Making and Request for Public Comments, 61 FR 7308, 7347 
(February 27, 1996).

    Consistent with the above position, in those cases where a level of 
trade comparison is warranted and possible, the Department normally 
evaluates the level of trade for CEP sales based on the price after 
adjustments are made under section 772(d) of the Act. See, e.g., Large 
Newspaper Printing Presses and Components Thereof, Whether Assembled or 
Unassembled, From Japan: Notice of Final Determination of Sales at Less 
Than Fair Value, 61 FR 38139, 38143 (July 23, 1996). We note that, in 
every case decided under the revised antidumping statute, we have 
consistently adhered to this interpretation of the SAA and of the Act. 
See, e.g., Aramid Fiber Formed of Poly Para-Phenylene Terephthalamide 
from the Netherlands; Preliminary Results of Antidumping Duty 
Administrative Review, 61 FR 15766, 15768 (April 9, 1996); Certain 
Stainless Steel Wire Rods from France; Preliminary Result of 
Antidumping Duty Administrative Review, 61 FR 8915, 8916 (March 6, 
1996); and Antifriction Bearings (Other Than Tapered Roller Bearings) 
and parts Thereof from France, et al., Preliminary Results of 
Antidumping Duty Administrative Review, 61 FR 25713, 35718-23 (July 8, 
1996).
    In this case, in accordance with the above precedent, our 
instructions in the questionnaire issued to respondents stated that 
constructed level of trade should be used. All respondents adequately 
documented the differences in selling functions in the home and in the 
U.S. markets. Therefore, the Department's decision to grant a CEP 
offset to Nanya, MVI, and Vanguard was consistent with the statute and 
the Department's practice, and was supported by substantial evidence on 
the record.
    We disagree with the petitioner's interpretation of Borden and of 
its impact on our current practice. In Borden, the court held that the 
Department's practice to base the level of trade comparisons of CEP 
sales after CEP deductions is an impermissible interpretation of 
section 772(d) of the Act. See Borden, 4 F. Supp. 2d at 1236-38; see 
also Micron, 40 F. Supp. 2d at 485-86. The Department believes, 
however, that its practice is in full compliance with the statute, and 
that the court decision does not contain a persuasive statutory 
analysis. Because Borden is not a final and conclusive decision, the 
Department has continued to follow its normal practice of adjusting CEP 
under section 772(d) of the Act, prior to starting a level of trade 
analysis, as articulated in the regulations at section 351.412. 
Accordingly, consistent with the Preliminary Determination, we will 
continue to analyze the level of trade based on adjusted CEP prices, 
rather than the starting CEP prices.

Company-Specific Issues

A. Etron
    Comment 3: Facts Available. The petitioner argues that the 
Department must determine Etron's dumping margin based on facts 
otherwise available, and apply the highest margin calculated by the 
Department from the information provided in the petition. The 
petitioner states that Etron's actions in this investigation meet all 
the criteria for the application of facts available under section 
776(a)(2) of the Act. The petitioner argues that: (1) Etron withheld 
information originally requested by the Department; (2) Etron refused 
to provide requested information in accordance with the Department's 
supplemental questionnaires; (3) Etron significantly impeded the 
Department's investigation by providing erroneous information and by 
refusing to allow verification of critical information; and (4) the 
Department found that critical aspects of the information that Etron 
did provide were unreliable and unverifiable. The petitioner states 
that, in general, the information on the record

[[Page 56314]]

reveals a web of undisclosed relationships that taints the reliability 
of the U.S. sales data reported by Etron, while the numerous accounting 
irregularities found in Etron's own records undermine the integrity of 
Etron's entire response.
    Specifically, the petitioner argues that Etron failed to disclose 
essential facts concerning its relationship with one of its U.S. 
customers, as required by the Department's questionnaire. The 
petitioner states that information gathered by the Department, in 
combination with Etron's refusal to provide clarifying information in a 
response to a request for information from the Department, establishes 
an undisclosed affiliation between Etron and this customer. The 
petitioner states that this customer appears to be nothing more than a 
shell for Etron's U.S. subsidiary, Caltron, given certain facts, 
including the absence of any proof confirming a separate corporate 
existence for this customer. The petitioner also states that a sample 
sale examined at verification indicates that Etron's transactions with 
this customer were not made on an arm's length basis.
    The petitioner further argues that the information gathered by the 
Department indicating undisclosed affiliations between Etron and its 
customers renders Etron's questionnaire response inherently unreliable. 
The petitioner adds that this unreliability is compounded by Etron's 
refusal to provide critical, clarifying information on these 
relationships, and its refusal to allow verification at its U.S. 
subsidiary, Caltron. The petitioner states that, in particular, the 
evidence that Etron had reported U.S. sales to an affiliate instead of 
sales from the affiliate to the first unrelated customer means that the 
submitted U.S. sales listing is fatally incomplete. To support its 
argument, the petitioner cites to Hot-Rolled Flat-Rolled Carbon-Quality 
Steel Products from Japan, 64 FR 24329, 24367-68 (May 6, 1999) (``Hot-
Rolled Steel from Japan''), in which the Department stated that 
``information possessed by a U.S. affiliate * * * is essential to the 
dumping determination.''
    The petitioner further indicates that the Department's sales 
verification uncovered numerous other discrepancies that by themselves 
justify rejection of Etron's entire questionnaire response. The 
petitioner states that the Department discovered that Etron submitted 
incomplete and erroneous financial statements, and had accounting 
irregularities in its financial statement. Citing Antifriction Bearings 
(Other than Tapered Roller Bearings) from Germany, 56 FR 31692 (July 
11, 1991) (``Bearings from Germany''), the petitioner states that these 
problems jeopardize the integrity of Etron's entire questionnaire 
response. The petitioner also states that Etron employed highly 
irregular procedures and intentionally misleading accounting practices 
in connection with its U.S. sales operations and with respect to Etron 
and its U.S. affiliate, EiC Corporation. The petitioner further states 
that Etron's attempt to report fictitious home market sales prices 
throws additional doubt on the accuracy and completeness of all of its 
reported sales.
    The petitioner also argues that the application of facts available 
is justified in light of other factors, such as Etron's failure to 
report certain purchases in its response, Etron's failure to provide a 
page of its 1998 consolidated financial statement in its response, and 
the Department's inability to reconcile Etron's total DRAMs purchases 
to Etron's financial statement. Citing again Bearings from Germany, the 
petitioner notes that a significant aspect of the Department's 
verification procedures is to reconcile the company's reported data to 
its financial statements. The petitioner adds that the findings at 
verification are more than simple oversights: they demonstrate Etron's 
untruthfulness in responding to direct questions from the Department.
    The petitioner concludes that Etron's actions, including its 
refusal to provide requested information and blocking the verification 
of Caltron Technology, establish that Etron has not cooperated to the 
best of its ability in this investigation and has impeded the 
Department's investigation. The petitioner concludes that the numerous 
errors and omissions in Etron's submitted financial statements and the 
accounting irregularities discovered by the Department at verification 
render Etron's questionnaire response as a whole unreliable and 
unusable.
    The petitioner notes that, in other instances involving similarly 
uncooperative respondents, such as in Welded Carbon Steel Pipes and 
Tubes from Thailand, 62 FR 53808 (October 16, 1997) (``Pipe from 
Thailand''), the Department has imposed total adverse facts available. 
Citing Emulsion Styrene-Butadiene Rubber from Brazil, 64 FR 14683 
(March 29, 1999) (``Rubber from Brazil''), Stainless Steel Bar from 
Spain, 59 FR 66931 (December 28, 1994) (``Bar from Spain''), and 
Circular Welded Non-Alloy Steel from Venezuela, 57 FR 42962 (September 
17, 1992) (``Welded Steel from Venezuela''), the petitioner also notes 
that the Department should base Etron's margin on the highest margin 
listed in the petition in accordance with its standard practice in 
dealing with uncooperative respondents.
    In its rebuttal brief, the petitioner further points out that 
Etron, in its case brief, offers no explanation or justification for: 
evidence of an affiliation between Etron and a U.S. customer; critical 
discrepancies that the Department found at verification in U.S. sales 
documentation; and Etron's refusal to respond to the Department's 
request for supplemental information and to permit verification at 
Caltron. The petitioner also argues that Etron's attempt to minimize 
the numerous errors the Department found at Etron's sales verification 
is not credible, and that these problems confirm the total 
unreliability of Etron's questionnaire data.
    Etron disagrees with the petitioner's claim that the Department 
should apply total adverse facts available to Etron based on the 
highest petition rate. Etron claims that the application of total 
adverse facts available in this case would be improper and 
inappropriate. Specifically, Etron states that it did not report any 
fictitious sales to one of its U.S. customers. Etron maintains that 
various documents on the record demonstrate that Etron had business 
dealings and significant sales with this company. Etron adds that there 
would be no reason for Etron to hide such a small portion of sales and 
jeopardize its overall position in the dumping case.
    Etron further argues that a failure to disclose certain information 
about EiC Corporation is irrelevant because Etron had acknowledged from 
the start of this case that EiC Corporation is an affiliated party. 
Etron claims that there was nothing irregular in its accounting records 
for a sale involving EiC Corporation, and that Etron, due to its 
inexperience, incorrectly identified this sale as a CEP sale.
    Etron argues that the warehouse sales were properly reported and 
verified. Etron further states that the discrepancies between the U.S. 
warehouse sales ledger and the source documents described by the 
Department are readily explained from examination of the relevant sales 
verification exhibit itself.
    Etron notes that the vast majority of the errors in its auditor's 
translation of its financial statement are minor. Etron states that, 
among these errors, the inadvertent submission of the income statement 
of its unconsolidated financial statement as that of its consolidated 
financial statement cannot invalidate an entire record, nor constitute 
a basis for applying total adverse facts available. Furthermore, in

[[Page 56315]]

regards to the incorrect home market prices that Etron reported for 
certain sales, Etron states that the impact of Etron's error is minor 
at most, especially given that Etron provided the Department with both 
the actual and incorrect prices.
    Etron additionally asserts that the Department was able to verify 
Etron's purchases from Vanguard to the relevant accounting documents. 
Etron states that, as it explained and documented at verification, its 
outside auditors had presented an incorrect figure in the financial 
statement for Etron's purchases from Vanguard. Etron also states that 
it reported in the response the details of a purchase that the 
petitioner claims Etron failed to report. Etron further claims that it 
correctly eliminated a U.S. sale from the sales listing.
    Etron further contends that the cases the petitioner cites to 
support its argument that the Department should use total facts 
available to determine Etron's margin present facts different from the 
situation at issue. Etron states that, in Pipe from Thailand, the 
respondent, Saha Thai, refused to provide information relating to what 
parties controlled Saha Thai, and thereby impeded the Department's 
affiliation analysis. Etron states that, in the instant case, the issue 
at hand does not relate to control of Etron itself, and Etron's 
inability to respond to the supplemental questionnaire and participate 
in a U.S. verification does not distort the entire dumping analysis in 
the same manner as in Pipe from Thailand.
    Etron argues that other cases cited by the petitioner (i.e., Rubber 
from Brazil, Stainless Bar from Spain, and Welded Steel from Venezuela) 
involve respondents who refused to allow any verification at all of any 
information. Etron states that, in contrast, it participated in a full 
two weeks of cost and sales verifications in Taiwan, and responded to 
multiple deficiency questionnaires. Etron also states that Static 
Random Access Memory Semiconductors from Taiwan, 63 FR 8909 (February 
23, 1998) (``SRAMs from Taiwan'') is also distinguishable from the 
instant case because, in that case, the Department applied total 
adverse facts available to parties who refused to participate at all in 
the Department's investigation.
    Etron further claims that, if the Department decides that total 
adverse facts available is warranted, it should, consistent with its 
authority and past practice, apply adverse facts available only to the 
volume and value of sales to the U.S. customer at issue. Citing the 
preamble of the Department's regulations (Final Rule, 62 FR at 27340), 
Etron states that the use of adverse inferences in the selection of 
facts available is discretionary, and not mandatory. As such, this 
issue should be decided on a fact and case-specific basis. Etron also 
states that the Department has the authority, as affirmed by the CIT in 
National Steel Corporation v. United States, 870 F. Supp. 1130, 1335 
(CIT 1994), to apply adverse facts available on a partial or total 
basis.
    Etron specifically argues that the only direct implication of any 
failure by Etron to disclose a possible affiliation with a customer 
could only impact sales to that customer. According to Etron, if the 
Department deems it appropriate to apply adverse facts available to 
sales by Caltron, the Department should limit the application of 
adverse facts available to only the volume and value of Caltron's 
sales, which Etron claims were verified by the Department in Taiwan. 
Etron also argues that, in any case, there is no basis for applying 
adverse facts available to the sale involving EiC Corporation.
    Etron contends that the Department has applied partial, rather than 
total, adverse facts available in other similar circumstances. To 
support its position, Etron cites DRAMs from the Republic of Korea, 61 
FR 20216 (May 6, 1996), 64 FR 30481 (June 8, 1999) (``DRAMs from Korea 
1996 and 1999'', respectively), Steel Sheet and Strip in Coils from 
Italy, 64 FR 30750 (June 8, 1999) (``Steel Sheet and Strip from 
Italy''), Industrial Nitrocellulose from the United Kingdom, 59 FR 
66902 (December 28, 1994), Certain Hot-Rolled Carbon Steel Flat 
Products, et al, from Canada, 58 FR 37099, 37100 (July 9, 1993), and 
Hot-Rolled Steel from Japan.
    Citing Antifriction Bearings (Other than Tapered Roller Bearings) 
and Parts Thereof from France, 62 FR 2081, 2088 (January 15, 1997) and 
Extruded Rubber Thread from Malaysia, 63 FR 12752, 12762 (March 16, 
1998) (``Thread from Malaysia''), Etron further states that the 
Department takes into account the respondent's degree of experience in 
antidumping proceedings when determining the extent to which adverse 
facts available should be applied. According to Etron, in the instant 
case, the Department should take into account Etron's lack of 
experience in dumping proceedings when determining what margins to 
impose.
    Etron further contends that, if the Department incorrectly 
determines that it should impose total adverse facts available on 
Etron, the Department should apply the highest calculated rate for any 
respondent in this proceeding, and not the petition rates. Etron states 
that the rates alleged in the petition have not been corroborated, and 
are therefore invalid, given that they were calculated for Nanya and 
Vanguard. Etron also states the petition rates are wildly out of line 
with the rates that the Department calculated in its preliminary 
determination, which are likely to remain the same for the final 
determination. Etron also argues that the petition rates do not reflect 
Etron's true range of margins because Etron sells a significant 
percentage of DRAMs that are high-priced, specialty graphic DRAMs, and 
Etron made a profit during the period of investigation.
    In support of this position, Etron points out that, in D&L Supply 
Co. v. United States, 113 F. 3d 1120, 1223 (Fed. Cir. 1997), Sigma 
Corp. v. United States, 117 F.3d 1401, 1410 (Fed. Cir. 1997), Pulton 
Chain Co., Inc. v. United States, No. 96-12-02877, Slip Op. 97-162 (CIT 
December 2, 1997), Borden, 4 F. Supp. 2d at 1221, and Ferro Union, Inc. 
v. United States, 44 F. Supp.2d 1310 (CIT 1999), the courts have held 
that the Department may not use, as adverse facts available, a rate, 
including a petition rate, that was subsequently determined to be 
invalid. Etron also states that the Department itself, in Melamine 
Institutional Dinnerware from Indonesia, 62 FR 1719, 1720 (January 13, 
1997), determined that uncorroborated petition data for one respondent 
should not be used as the basis for adverse facts available for other 
respondents. Citing Frozen Concentrated Orange Juice from Brazil, 64 FR 
5767, 5768 (February 5, 1999), Etron further argues that the 
Department's standard practice in administrative reviews is to use, as 
adverse facts available, the highest calculated margin for other 
respondents in the proceeding.
    DOC Position: We agree with the petitioner. The record evidence in 
this case amply demonstrates that Etron withheld crucial information 
necessary to substantiate Etron's representations regarding its 
affiliations with its U.S. customers. This, coupled with other 
inconsistencies and irregularities in Etron's database, as well as 
Etron's refusal to undergo a mandatory verification of the information 
requested by the Department, indicate that Etron failed to cooperate to 
the best of its ability under section 776(b) of the Act. Thus, we have 
determined that the application of total adverse facts available is 
warranted. See Etron FA Memo for a detailed evaluation of Etron's 
submissions and the Department's findings.

[[Page 56316]]

    We disagree with Etron that its actions in this proceeding do not 
justify the application of total adverse facts available because Etron 
cooperated to the best of its ability under section 776(b) of the Act. 
As explained in detail in the Etron FA Memo, although the Department 
explicitly requested in the initial questionnaire, supplemental 
questionnaires, and subsequently at verification, that Etron disclose 
all of its affiliations, Etron failed to comply with these repeated 
requests. Following the verification, when Etron's failure to disclose 
all affiliations became apparent, and in light of other irregularities 
and omissions in Etron's responses (see Etron FA Memo), the Department 
issued additional supplemental questionnaires to provide Etron with yet 
another opportunity to explain and clarify these issues. In addition, 
the Department scheduled a verification at Etron's U.S. subsidiary, 
Caltron. As the record reveals, although Etron initially asked for an 
extension to respond to these supplemental questionnaires, it 
eventually refused to answer them in their entirety, and informed the 
Department that it would not undergo the scheduled verification. As a 
result of Etron's actions, the Department was unable to confirm the 
reliability and accuracy of Etron's submissions. In fact, the 
Department's independent efforts to corroborate Etron's affiliations 
revealed that the company indeed provided the Department with false and 
incomplete information. Therefore, as explained in detail in the Etron 
FA Memo, given that the necessary information is not available for 
purposes of reaching the final determination, section 776(a)(2) of the 
Act mandates that the Department apply total facts available to Etron. 
Moreover, because Etron's actions, as described above and in the Etron 
FA Memo, demonstrate that the company failed to cooperate by not acting 
to the best of its ability, section 776(b) authorizes the Department to 
use an adverse inference.
    We disagree with Etron that the facts in the instant case differ 
from those in Pipe from Thailand, where the Department applied total 
adverse facts available. In both cases, the respondents at issue failed 
to disclose essential information concerning affiliations with their 
customers, and the Department discovered information establishing 
affiliation late in the proceeding. We also note that, unlike Pipe from 
Thailand, Etron has not submitted responses to all of the Department's 
questionnaires, while Saha Thai, the respondent in the latter case, 
submitted responses to all of the Department's questionnaires. 
Moreover, Etron refused to allow some verifications scheduled by the 
Department, while in Pipe from Thailand, Saha Thai allowed all 
verifications.
    We further disagree with Etron that this case can be distinguished 
from other cases, such as Rubber from Brazil, Bar from Spain, Welded 
Steel from Venezuela, and SRAMs from Taiwan, where the Department 
applied total adverse facts available to uncooperative respondents. 
Although the Department determined to apply total adverse facts 
available based on the particular facts in each of these cases, each 
respondent failed to cooperate with the Department to the best of its 
ability. For example, in Rubber from Brazil, 64 FR at 14683-84, the 
respondent at issue did not participate in any verification, and in 
SRAMs from Taiwan, 63 FR at 8910-11, the respondents did not respond to 
any of the Department's requests for information. In this case, as 
explained above, Etron simply refused to cooperate with the Department 
by withholding essential information that appeared to be readily at its 
disposal, not to mention its refusal to cure other deficiencies in its 
responses and undergo verification. The totality of facts in this case 
thus demonstrate, as in other cases cited by Etron, that Etron did not 
cooperate to the best of its ability within the meaning of section 
776(b) of the Act.
    We further disagree with Etron that the facts in the instant case 
merit the application of partial adverse facts available only to 
missing or unverified information. Contrary to Etron's position, in the 
cases cited by Etron, the information submitted by respondents was 
usable, and there was no question with respect to the veracity of the 
submissions. For example, in DRAMs from Korea 1999, 64 FR at 30482, 
Steel Sheet and Strip from Italy, 64 FR at 30755, and Hot-Rolled Steel 
from Japan, 64 FR at 24367-69, the Department applied partial adverse 
facts available to certain isolated subsets of U.S. sales, such as 
sales through U.S. affiliates, that respondents failed to report. These 
omissions, unlike Etron's omissions, did not affect the usability of 
the other information submitted by respondents.
    In contrast to other cases involving cooperative respondents, here 
the record demonstrates that, despite our repeated requests, Etron 
purposely withheld information necessary to confirm the reliability of 
its questionnaire responses. Contrary to Etron's assertion, this 
information did not pertain only to a small portion of Etron's U.S. 
sales, but to a large part of Etron's U.S. database, and calls into 
question the veracity of Etron's entire U.S. database. Etron's refusal 
to undergo the U.S. verification at Caltron raises further questions 
with respect to the accuracy of the information and increases the 
Department's concerns that Etron purposely may have provided false 
data. This, in turn, undermines the reliability of Etron's submissions 
as a whole, regardless of whether the company appeared to cooperate 
with the Department during part of the proceeding. See Stainless Steel 
Sheet and Strip in Coils from Germany, 64 FR 30710, 30740 (June 8, 
1999) (during verification, where ``errors are identified in the sample 
transactions, the untested data are presumed to be similarly tainted 
absent satisfactory explanation and quantification on the part of the 
respondent'').
    We agree with Etron that, in determining whether the respondent 
cooperated to the best of its ability, the Department considers the 
general experience of the respondent in antidumping duty proceedings, 
which, in turn, dictates the extent to which facts available should be 
applied. See Thread from Malaysia, 63 FR at 12762. However, the 
deficiencies in Etron's responses, for the most part, have not resulted 
from a lack of experience, but from Etron's willful attempts, as 
discussed above and in the Etron FA Memo, to conceal and withhold 
information from the Department.
    Finally, we disagree with the respondent that the Department may 
not use, as adverse facts available, a rate from the petition, where 
different, company-specific rates are subsequently calculated in the 
LTFV final determination. As explained in the ``Facts Available'' 
section of this notice, when selecting adverse facts available, the 
Department may rely upon, inter alia, secondary information drawn from 
the petition, subject to the corroboration requirements of section 
776(c) of the Act. As explained in detail in the Etron FA Memo, given 
that the information in the petition in this case has probative value, 
we have determined to use, as adverse facts available, the highest 
margin alleged in the petition. Our determination is consistent with 
the Court of Appeals for the Federal Circuit's recent holding that it 
is reasonable for the Department to rely on the petition rate as 
adverse facts available, even though this rate differs from the rates 
calculated in the Department's subsequent LTFV investigation. Such a 
petition rate would not be appropriate only where it has been 
judicially invalidated, which does not apply in the instant case. See

[[Page 56317]]

D&L Supply Co. v. United States, Consol. Court No. 92-06-00424, Slip 
Op. 98-81 (CIT June 22, 1998), aff'd in Guangdong Metals & Minerals v. 
United States, Court Nos. 98-1497, 98-1549, 1999 U.S. App. LEXIS 21650 
(Fed. Cir. Sept. 10, 1999).
    Comment 4: Affiliation Between Etron and Vanguard. The petitioner 
argues that the Department's sales verification report provides 
previously undisclosed facts that confirm the existence of an 
affiliation between Etron and Vanguard. The petitioner states that the 
Department discovered that Etron failed to report certain purchases 
from Vanguard and other companies, which underscores the extent to 
which Etron relied on Vanguard as a source of supply. The petitioner 
further contends that the Etron sales verification report discloses 
additional evidence of the Lu family's extensive, collective control 
over Etron. The petitioner argues that this evidence supports the 
conclusion that C.Y. Lu, as a member of the Lu family, the brother of 
Etron's CEO, and as President of Vanguard, was in a position to 
exercise restraint or direction over Etron. The petitioner additionally 
argues that Etron's purchase of Vanguard stock, and purchase and sale 
of its own stock (which are listed on the page of Etron's 1998 
consolidated financial statement that Etron had failed to submit to the 
Department), further support a finding of affiliation between Etron and 
Vanguard.
    According to Etron, the Department confirmed during verification 
the central elements that the Department relied upon in its preliminary 
determination to demonstrate that Etron and Vanguard are not 
affiliated. Etron states that, contrary to the petitioner's claims, 
certain of Etron's purchases demonstrate the dynamic nature of the 
market, and that Etron is able to purchase products from multiple 
sources. Etron adds that the fact that certain parties owned small 
shareholdings in Etron is irrelevant to the affiliation issue, and no 
information in the verification reports in any way undercuts the 
conclusion that the brother of C.C. Lu, the CEO and Chairman of Etron, 
was not in a position of ``control'' over Vanguard. Etron further 
argues that, simply because a portion of Taiwan Semiconductor 
Manufacturing Company's (``TSMC's'') purchases of Etron stock was made 
in a certain way, rather than entirely on the open market, in no way 
supports a finding of affiliation between Etron and Vanguard, 
particularly since all the transactions took place after the POI.
    Etron finally claims that it was under no obligation to identify a 
certain other company as an affiliated party because this company was 
not involved in the sale or production of the subject merchandise.
    DOC Position: For purposes of the preliminary determination, the 
Department determined that Etron and Vanguard were not affiliated 
within the meaning of section 771(33)(F), given that the Lu family was 
not in a position of legal or operational control over Vanguard. See 
Memorandum on Whether Etron Technology, Inc. and Vanguard International 
Semiconductor Corporation are Affiliated Under Section 771(33) of the 
Act, dated May 21, 1999. At verification, we carefully examined 
Vanguard's corporate and financial records. While family members 
occupied positions in Vanguard and Etron, we found no evidence of the 
Lu family's control over Vanguard's daily operations that would 
contradict our preliminary finding. Accordingly, consistent with our 
preliminary determination, we continue to find that during the POI, no 
member of the Lu family was in a position of legal and operational 
control over Vanguard within the meaning of section 771(33)(F) of the 
Act. See Vanguard's Sales Verification Report at 3-4. We note, however, 
if we issue an order in this case, we intend to reexamine the 
relationship between these two companies in any future administrative 
review.
    Comment 5: Research and Development Expenses. Etron argues that its 
offset to R&D expenses for R&D revenues was in accordance with the 
Department's practice and that the Department erroneously excluded the 
offset in its preliminary determination.
    The petitioner contends that the Department was correct in its 
preliminary determination to deny Etron's offset to its R&D expense for 
revenues received from R&D projects.
    DOC Position: Given that the Department is rejecting Etron's 
reported sales and cost information to calculate Etron's margin, and is 
applying total facts available, the issue of whether the Department 
should allow an offset to Etron's R&D expenses is moot.
    Comment 6: Stock Bonus Distributions to Employees. Etron argues 
that, in its preliminary determination, the Department erroneously 
included the stock bonus provided to employees in Etron's COP.
    The petitioner counters that the Department appropriately included 
Etron's 1998 employee stock bonus and cash payments to supervisors in 
the reported costs in its preliminary determination.
    DOC Position: As with comments 5, the question of how to treat the 
stock distribution to Etron's employees is moot in light of our 
decision to apply total facts available to Etron.
B. MVI
    Comment 7: Collapsing MVI and ProMOS. MVI states that the 
Department's preliminary determination not to collapse MVI and ProMOS 
and to treat ProMOS as a non-producing subcontractor was made in 
contravention of the law, the regulations, and the Department's 
established practice. According to MVI, ProMOS and MVI should be 
collapsed, the major input rule should not apply, and consequently, the 
cost of DRAMs produced at ProMOS should be valued using ProMOS's actual 
COP.
    MVI claims that, under section 351.401(h) of the regulations, the 
Department should treat DRAM semiconductor foundries as producers 
unless the foundry: (1) Does not acquire ownership of the subject 
merchandise, and (2) does not control the relevant sale of the subject 
merchandise. According to MVI, in SRAMs from Taiwan, the Department 
stated that, even though the foundries owned the processed wafer, they 
did not own the crucial SRAM design, and therefore were not 
``producers.'' MVI maintains that this same logic does not apply in 
this case because ProMOS has ownership rights in the proprietary 
designs of the DRAMs it manufactures, similar to the design houses in 
SRAMs from Taiwan. Therefore, MVI contends that ProMOS must be deemed a 
producer of subject merchandise.
    Further, MVI states that, under section 351.401(f)(1) of the 
Department's regulations, the Department must collapse MVI and ProMOS 
because they are: (1) Affiliated producers of subject merchandise; (2) 
they have production facilities in Taiwan for similar or identical 
products that would not require substantial retooling of either 
facility in order to restructure manufacturing priorities; and (3) 
there is a significant potential for the manipulation of price or 
production. According to MVI, because MVI and ProMOS should be 
collapsed and treated as a single entity under the regulations, the 
major input rule is inapplicable to them. Therefore, the Department 
should value ProMOS die using ProMOS's actual costs of production.
    The petitioner states that, under the totality of facts, ProMOS is 
no different from the other semiconductor

[[Page 56318]]

fabricators that the Department has, in other cases, found to be simply 
foundries for the respondents. According to the petitioner, because 
there is no dispute that ProMOS is affiliated with MVI, and because 
there is no dispute that a fabricated wafer is a ``major input'' to a 
finished DRAM, the Department properly used the highest of cost or 
transfer price to determine the cost of DRAM die purchased by MVI from 
ProMOS.
    The petitioner further argues that, if the Department were to find 
that ProMOS is a producer, it must collapse ProMOS and MVI, and 
calculate a single dumping margin, including margins on the sales of 
ProMOS DRAMs made through Siemens. In such a case, the petitioner 
contends that, because MVI did not report the sales through Siemens, 
the Department must make an adverse inference in applying facts 
available, and recommends that the Department should apply to the 
unreported volume of sales made through Siemens the highest individual 
dumping margin calculated for any other sale.
    DOC Position: We disagree with MVI's contention that ProMOS should 
be considered a ``producer'', and that MVI and ProMOS should be 
collapsed for the purposes of the final determination. In response to 
the comments filed by MVI and the petitioner, we have reexamined the 
terms of the agreements between MVI and Siemens, and MVI, Siemens, and 
ProMOS. Based on this analysis, we stand by our preliminary 
determination that ProMOS is not a ``producer'' of the subject 
merchandise within the meaning of section 771(28) of the Act. See 
Preliminary Determination, 64 FR at 28986. Rather, the terms of the 
agreements indicate that ProMOS did not acquire ownership of the 
relevant subject merchandise and did not control the sale of relevant 
subject merchandise. Moreover, ProMOS did not control the sale of any 
merchandise. Therefore, we determine that, under 19 CFR 351.401(h), 
ProMOS served as a subcontractor to MVI and should be treated as such 
in our analysis. See Memorandum on Whether ProMOS Technologies, Inc. 
(``ProMOS'') is a Producer of Subject Merchandise and as Such Should be 
Collapsed with Mosel Vitelic, Inc. (``MVI''), dated October 8. 1999. 
Thus, for the final determination, we have not collapsed MVI and 
ProMOS. We, therefore, have continued to apply the major input rule, 
pursuant to section 773(f)(2) and (3) of the Act and section 351.407(b) 
of the Department's regulations, to MVI's purchase of inputs from 
ProMOS. We note, however, that should we issue an order in this case, 
we intend to revisit this issue if any of the facts of this situation 
change in any future administrative review.
    Comment 8: Unreported Home Market Sales. MVI argues that, if the 
Department concludes that certain sales shipped to destinations within 
Taiwan, and invoiced to North American customers by MVI's U.S. 
affiliate, MVC, should be treated as home market sales, then the 
Department should exclude them from the home market sales listing. MVI 
states that these sales are relatively few in number and were made 
outside the ordinary course of business. MVI also argues that, if the 
Department decides to include these sales in MVI's home market sales 
listing, it should use all of the data from MVC's Verification Exhibit 
22, which contains all the invoices as well as a complete sales 
listing, including adjustments, for these sales.
    The petitioner points out that no documentation was provided by MVC 
at verification indicating that the sales with bill-to addresses in 
North America but ship-to addresses in Taiwan were in fact destined for 
North America. According to petitioner, these sales should have been 
included in the home market database.
    The petitioner argues that, because MVI 's submitted home market 
sales listing is incomplete, and thus not verified, the Department must 
rely on facts available. For this purpose, the petitioner states, the 
Department should add the sales listed in Verification Exhibit 22 to 
the home market sales database, using the listed gross unit price for 
the calculation of normal value. The petitioner claims that, because 
MVI did not submit in its response the transaction-specific data 
required to make adjustments to gross unit price, the unadjusted prices 
must be used as facts available. This, the petitioner maintains, 
represents a measured response that avoids the application of total 
facts available, yet it is a sufficiently adverse consequence for MVI's 
failure to provide a complete and accurate sales listing.
    In rebuttal, MVI argues that the petitioner's suggestion for facts 
available should be rejected because MVC has been a cooperative 
respondent in this investigation and its reporting methodology for U.S. 
sales was fully disclosed and adopted in good faith. Further, MVI 
contends that the petitioner is incorrect in arguing that MVI did not 
submit in its response the transaction-specific data that is required 
to make adjustments to gross unit price. According to MVI, the 
necessary adjustments are allocations that were reported in full in 
MVI's Section B and C responses and supplemental responses of February 
26, 1999 and March 24, 1999, which all were subject to verification.
    DOC Position: We disagree with the petitioner that we should apply 
facts available for these unreported sales. An examination of the 
information collected at verification reveals that MVI should have 
reported these sales, but the amount of the sales in question is 
relatively insignificant, both in terms of quantity and value of MVI's 
total home market sales. Thus, we are disregarding those sales 
discovered during verification because the volume of unreported sales 
is relatively insignificant.
    The Department has, in the past, disregarded sales inadvertently 
omitted from the home market database when such reported sales were of 
insignificant quantity and value. See Final Determination of Sales at 
Less Than Fair Value: Oil Country Tubular Goods from Austria, 60 FR 
33553 (June 28, 1995); Notice of Final Determinations of Sales at Less 
Than Fair Value: Certain Hot-Rolled Carbon Steel Flat Products, Certain 
Cold-Rolled Carbon Steel Flat Products, Certain Corrosion-Resistant 
Carbon Steel Flat Products, and Certain Cut to Length Carbon Steel 
Plate from France, 58 FR 37125 (July 8, 1993).
    Further, based on our analysis of information collected at 
verification, including invoices and sales listing (including 
adjustments), the inclusion of these sales in home market sales 
database would lower MVI's weighted-average dumping margin. Thus, the 
record indicates that the omission of these unreported sales is in 
fact, adverse to MVI's interests. Accordingly, no further adverse 
action is warranted.
    Comment 9: Manufacturing Costs Capitalized in ProMOS's Construction 
in Progress Accounts. MVI argues that the manufacturing costs 
capitalized in ProMOS's construction in progress (``CIP'') accounts 
should not be included in ProMOS's reported production costs. MVI 
states that ProMOS's records are kept in accordance with Taiwanese GAAP 
and reasonably reflect the costs associated with the production of the 
subject merchandise. MVI cites Accounting Principles Board (``APB'') 
Opinion number 4, which calls for the deferral to future accounting 
periods of those costs associated with future revenue. MVI argues that 
the costs booked in ProMOS's CIP accounts are costs associated with the 
testing and approval of production machinery used in the future 
production of various types of DRAM products. MVI argues that these 
costs are therefore related to future

[[Page 56319]]

revenue, and are properly capitalized under both U.S. and Taiwanese 
GAAP. As such, they should not be added to ProMOS's COP. MVI further 
argues that, if the increase in the CIP account for SDRAM DRAM wafers 
is added to ProMOS's COP, then the decrease in the CIP account for EDO 
DRAM products should be subtracted from ProMOS's COP.
    The petitioner argues that it is very unusual for a wafer 
fabrication facility to have large amounts of manufacturing expenses in 
a CIP account. According to the petitioner, even though MVI considers 
its treatment of capitalized expenses reasonable, it makes no attempt 
to show how the capitalization of such unusually large amounts of 
manufacturing expenses is reasonable. The petitioner asserts that it is 
not the increase in the amount of CIP account as a whole that is of 
concern, but rather the capitalization of extraordinarily large amounts 
of non-fixed assets in the CIP account. Also, the petitioner states 
that the Department has incomplete information as to the amount of 
fixed assets in the CIP account for EDO DRAM products. The petitioner 
points out that this was a relatively mature production process by the 
end of the POI, and that much of the equipment for this product should 
have come online during the POI. Thus, even though there is no evidence 
on the record of such, the petitioner indicates that there was probably 
a great increase in the manufacturing CIP for EDO DRAMs over the POI, 
and that the Department should add an amount to ProMOS's EDO production 
costs.
    DOC Position: We agree with MVI that ProMOS's manufacturing costs 
capitalized in its CIP accounts should not be included in full in 
ProMOS's COP for the POI. Section 773(f)(1)(A) of the Act states that 
costs ``shall normally be calculated based on the records of the 
exporter or producer of the merchandise, if such records are kept in 
accordance with the generally accepted accounting principles of the 
exporting country (or the producing country, where appropriate) and 
reasonably reflect the costs associated with production and sale of the 
merchandise.'' In its ordinary books and records, ProMOS capitalized 
manufacturing costs incurred during the testing phase of operations at 
its new production lines. Even though these cost items are normally 
expensed as incurred for commercial operations, Taiwanese GAAP allows 
companies to capitalize these costs to CIP during the testing phase of 
operations. In accordance with its normal books and records and 
Taiwanese GAAP, ProMOS reported only the amortized portion of the 
capitalized costs. We agree with MVI that it was appropriate to report 
only the amortized portion of the manufacturing because the 
capitalization of these expenses during the testing phase of production 
is reasonable and the amortization of these expense reasonably reflects 
the per-unit cost of producing the subject merchandise. In other words, 
deferring some of the testing costs by capitalizing them and only 
reflecting the amortized portion in the per-unit COP through 
depreciation of the associated fixed assets is reasonable.
    We agree with MVI that Taiwanese GAAP requires immediate 
recognition of manufacturing costs in mature production facilities but 
allows for capitalization and amortization of costs for production 
lines still involved in the testing phase of operations. As a result of 
the continuous testing of the SDRAM production line, SDRAM production 
activity during the period in which manufacturing costs were 
capitalized was relatively low when compared to the post-capitalization 
production period activity. In addition, we disagree with the 
petitioner's statement that the capitalized manufacturing costs were 
extraordinarily high. We find that, when compared to the manufacturing 
costs incurred during the testing phase, the manufacturing costs 
incurred and capitalized in aggregate during the test phase appear 
neither extraordinarily high nor unreasonable. See MVI cost 
verification exhibits 17 and 41.
    The SAA at 834 states that ``[t]he exporter or producer will be 
expected to demonstrate that it has historically utilized such 
allocations, particularly with regard to the establishment of 
appropriate amortization and depreciation periods and allowances for 
capital expenditures and other development costs.'' In this case, we 
verified that the company had capitalized and amortized manufacturing 
costs incurred during the test phase of production at its new 
production lines prior to the inception of this case. See MVI cost 
verification exhibit 41. In addition, we note that ProMOS's treatment 
of these manufacturing costs incurred during the test phase of 
production is consistent with the CIT's remand in Micron Technology, 
Inc., v. United States, 893 F. Supp. 21 (CIT 1995). In this case, the 
court stated that, ``to the extent test production and related 
construction provide a benefit to current and future production, such 
costs are properly capitalized and amortized over the periods in which 
the benefits accrue.'' 893 F. Supp. at 25.
    Comment 10: ProMOS's R&D Expenses. MVI argues that the entire 
amount of R&D expenses capitalized in the CIP accounts at the end of 
the POI should not be added to ProMOS's R&D expenses. Instead, MVI 
maintains that only the R&D expenses incurred during the POI should be 
included in the R&D allocation calculation. MVI points out that a 
portion of the R&D expense capitalized prior to the POI was amortized 
during the POI, and it was included in the R&D expense on MVI's 
financial statements. MVI reasons that, given that these R&D costs were 
not actually incurred during the POI, they should not be included in 
the allocation calculation.
    The petitioner argues that no R&D should be deferred in a CIP 
account because capitalizing R&D is distortive of costs. The petitioner 
cites DRAMS from Korea 1999, 64 FR at 30484-85, which states that 
``capitalizing R&D expenditures is distortive of costs.'' The 
petitioner also cites U.S. GAAP which requires ``all R&D costs to be 
expensed in the year incurred,'' as support for its position that no 
R&D be deferred in a CIP account.
    DOC Position: We disagree with both MVI and the petitioner. While 
we agree that R&D costs should be expensed as incurred, the current 
situation is different. As explained in comment 9, ProMOS capitalized 
current manufacturing costs related to testing costs. In this instance, 
ProMOS classified some of these manufacturing costs as R&D incurred 
during the testing phase of operations. Although ProMOS classified 
these costs as R&D, they actually are costs from the testing phase of 
operations. Consistent with our position on the capitalized 
manufacturing costs that ProMOS incurred during the testing phase of 
operations, we consider it appropriate, under Taiwanese GAAP, for 
ProMOS to capitalize and amortize operating costs incurred during this 
testing phase. Following this approach, all testing expenses amortized 
during the POI should be recognized as a POI cost of production, 
regardless of whether it was originally incurred and capitalized prior 
to or during the POI.
    Comment 11: Allocation of ProMOS's R&D expenses. MVI argues that, 
in following the cross-fertilization principle, the Department should 
allocate ProMOS's R&D expenses to all products sold by MVI. MVI cites 
SRAMS from Taiwan, 63 FR at 8925, where the Department concluded that 
``where expenditures benefit more than one product, it is the 
Department's practice to allocate those costs to all of the products 
which are benefitted.'' MVI

[[Page 56320]]

states that, under the cross-fertilization principle, MVI products 
could benefit from ProMOS's R&D expenditures and, therefore, ProMOS's 
R&D expenses should be allocated over all MVI's semiconductor products. 
Furthermore, MVI states that, if the Department continues to allocate 
ProMOS's R&D expenses exclusively to ProMOS's production, then MVI's 
R&D expenses should only be applied to merchandise produced at MVI.
    The petitioner argues that ProMOS's R&D should only be allocated to 
ProMOS, which is consistent with the Department's treatment of ProMOS 
as a subcontractor.
    DOC Position: We agree with the petitioner. ProMOS is an affiliated 
subcontractor of MVI that provides a specific input to MVI for the 
production of subject merchandise. As a subcontractor, ProMOS's R&D 
expenses should be connected with the merchandise ProMOS produced, 
which, in this case, is the input provided to MVI, whereas MVI's R&D 
costs should be allocated to all of the merchandise it produced. 
Moreover, we normally calculate G&A and R&D on an entity-specific 
level, not on a consolidated level. See Notice of Final Determination 
of Sales at Less Than Fair Value: Stainless Steel Round Wire From 
Canada, 64 FR 17324, 17334 (April 9, 1999) (``Stainless Steel Round 
Wire From Canada''). In the present case, respondent's reference to 
SRAMS from Taiwan is not applicable because that case refers to R&D 
cross-fertilization between different semiconductor products produced 
by the same company, and not between semiconductor products of the 
respondent and an affiliated subcontractor supplier, as in this case.
    Comment 12: MVI's R&D expenses. MVI points out that MVC's R&D 
expenses are included in MVI's R&D expenses in its unconsolidated 
financial statements. However, MVC's COGS is not included in MVI's 
unconsolidated financial statements, thereby distorting MVI's R&D 
allocation ratio. MVI states that the numerator and the denominator 
used in the R&D expense allocation should be calculated using data from 
the same companies.
    The petitioner claims that MVI's COGS used in the R&D ratio 
calculation was taken from MVI's financial statements and included the 
cost of products sold by MVI to MVC for resale to the U.S. market. The 
petitioner states that, if the Department were to add MVC's COGS to 
MVI's COGS, it would result in double-counting.
    DOC Position: We agree with the petitioner that MVI's R&D rate 
computation should be based on the R&D costs and the cost of sales 
amounts as reported on MVI's audited financial statements. The fact 
that MVI may have performed some R&D for the benefit of MVC does not 
mean that MVI did not derive any benefit from that R&D. Consistent with 
our position that all semiconductor R&D benefits all semiconductor 
products (see SRAMS from Taiwan, 63 FR at 8925), we computed MVI's R&D 
rate as the ratio of MVI's company-wide R&D over company-wide cost of 
sales. Moreover, we note that MVI's cost of sales as reported on its 
financial statements already includes the cost of sales for those 
products which were sold to MVC and then resold in the U.S. market. See 
MVI cost verification exhibit 15. To include MVC's cost of sales in 
MVI's R&D rate calculation, as MVI argues, would double-count these 
cost of sales.
    Comment 13: Employee Stock Bonuses. MVI states that the employee 
stock bonuses paid by MVI should be valued at the market price of MVI's 
stock on the date of the distribution of the shares. MVI points out 
that the Department's preference is that stocks be valued as of the 
grant date, based on the Financial Accounting Standards Board's 
Statement of Financial Accounting Standard (``SFAS'') No. 123. MVI 
argues that SFAS 123 is not appropriate in this circumstance because 
SFAS 123 applies to stock options awarded as compensation, whereas MVI 
has awarded actual stock shares as compensation. MVI asserts that, with 
stock options, the company has no way of predicting when employees will 
choose to exercise the option. Consequently, the company has no 
immediate way to measure the value of the stock provided. However, in 
this instance, MVI knows the value of the shares provided and the 
actual cost to the company on the day the shares are distributed to the 
employees.
    MVI continues that, even though it is not applicable, SFAS No. 
123's definition of grant date as ``the date on which the employer and 
employee come to a mutual understanding of the terms of a stock-based 
compensation award'' further supports their argument for the use of the 
distribution date. MVI claims that the mutual understanding of the 
value of the employees' profit-sharing bonus does not occur until the 
date on which the stock is issued because the value of the stock is not 
determined until that date.
    MVI states that, in calculating a company's actual costs, the 
Department should use the share distribution costs that best reflects 
the known costs to the company. MVI points out that, in SRAMs from 
Taiwan, 63 FR at 8922, the Department reasoned that the cost of stock 
bonuses to the company ``is foregoing the opportunity to acquire 
capital by issuing or selling those shares to investors at the market 
price.'' MVI argues that, in this case, the opportunity cost is not 
incurred upon the announcement of the bonus, but rather upon the 
distribution of the bonus. Furthermore, MVI states that the employees' 
ownership rights to the shares are vested upon distribution, and not 
upon declaration.
    MVI maintains that if the market value of the stock shares is 
determined by using the value of the shares on the date of declaration, 
the Department should consider the dilution effect of the share 
distribution. MVI states that the actual market value is diminished by 
the quantity of shares issued over shares outstanding. MVI points out 
that MVI's stock value declined as a result of the declaration of the 
stock bonuses, and that the Department should therefore adjust the 
market price used for the valuation of the stock shares by the dilution 
effect of the declaration.
    MVI contends that, if the Department uses the date of the 
shareholder meeting to value employee stock bonuses, the Department 
should calculate an offset to the bonus given that the company did not 
issue shares until the date of distribution. MVI reasons that, if the 
Department attributes a cost to MVI that the company did not incur, 
then the Department should attribute to MVI the corresponding benefit 
that would inure to MVI because of the delay in the distribution of 
shares.
    The petitioner argues that the Department should adhere to the 
policy it adopted in SRAMs from Taiwan and value MVI's stock bonus at 
the fair market value on the date the bonus was authorized. In 
particular, the petitioner cites SRAMs from Taiwan, 63 FR at 8922-23, 
in which the Department stated that ``[a]s 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 date of 
issuance.''
    The petitioner asserts that the terms of MVI's stock bonus were 
clearly settled on the date MVI's shareholders authorized the stock 
bonus and specified the number of shares to distribute. The petitioner 
points out that the number of shares to be distributed was in no sense 
dependent on the

[[Page 56321]]

market value of the stock on the issue date or MVI's number of 
employees. The petitioner states that, using the declaration date is 
supported by the Accounting Principles Board (``APB'') Opinion 25, 
which states that the measurement date is the earliest date on which 
both the number of shares to which an individual employee is entitled 
is known, and the option price is fixed. The petitioner argues that, in 
SRAMs from Taiwan, the Department had to resort to the market value on 
the date of issuance as a reasonable surrogate because the necessary 
information was not available in the record. The petitioner states that 
the opportunity cost forgone by MVI by issuing the stock as 
compensation to employees, rather than by selling it to investors on 
the open market, is better measured by the share value on the 
declaration date, and not the distribution date. The petitioner 
contends that, on the authorization date, the company obligated itself 
to issue a certain number of shares as a bonus to its employees, and 
that number of shares was fixed and did not vary with the fluctuations 
in the market value of the stock. The petitioner claims that MVI's 
examples of the stock bonus's dilution effect are not accurate because 
those examples involve stock splits and dividends, which constitute a 
distribution of additional shares to existing shareholders, and not the 
issuance of additional shares as compensation for services provided to 
the company. The petitioner concludes that MVI's theoretical benefit 
from delaying the issuance of the stock shares to employees would be a 
non-operating investment gain, and would not be allowed as an offset 
had such a gain been realized.
    DOC Position: We agree with the petitioner that the employee stock 
bonuses should be recorded at fair market value on the date of the 
shareholders' approval. Our determination is based on the standards 
prescribed by SFAS 123 along with the precedent set forth in SRAMs from 
Taiwan, 63 FR at 8923. We recognize that Taiwanese GAAP allows stock 
bonuses to be recorded at par value as a reduction in stockholders' 
equity. However, in SRAMS from Taiwan, we determined that the treatment 
of stock bonuses under Taiwanese GAAP is distortive and does not 
reasonably reflect the cost of the subject merchandise, and, 
accordingly, we decided to rely on U.S. GAAP. While the Department 
acknowledges that SFAS 123 primarily addresses stock options, the 
standard actually stipulates that it applies ``to [both] stock options 
and other stock-based compensation arrangements.'' Interpretation and 
Application of Generally Accepted Accounting Principles 1998, by 
Patrick Delaney, et al. (John Wiley and Sons 1998) at 638. Thus, SFAS 
123 would encompass the stock bonuses awarded by MVI to its employees 
and, as such, the shares of stock awarded to employees should be valued 
at fair market value on the grant date.
    We disagree with MVI's claim that a ``mutual understanding'' of the 
value or opportunity cost of the stock bonus is not known until the 
date of distribution. A review of the record clearly indicates that the 
terms of the bonus were outlined in the minutes of the meeting where 
shareholder approval was granted. See MVI cost verification exhibit 47. 
As noted in SRAMs from Taiwan, 63 FR at 8923, SFAS 123 directs that 
``[i]f 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 MVI in the current year was for 
service of the prior year. Under U.S. GAAP, it is appropriate to 
recognize the compensation cost, and thus value the compensation, when 
the stock bonus was granted, which was as of the date of the 
shareholders' approval.
    We also disagree with MVI's argument as to the dilution effect the 
stock bonus will have on market price. There are many complex factors, 
such as investor predictions of future company performance, changes in 
a company's management or changes in a company's business plan, which 
influence the stock market price of a publicly traded company. To 
speculate that there is a direct correlation between the authorization 
of the stock bonus and the market price, which can be quantified in a 
simple mathematical formula, is therefore not reasonable.
    In addition, we disagree with MVI that the company should be 
granted an offset to account for any benefit accrued due to the delay 
in the issuance of the shares to employees. Once shareholder approval 
is obtained, a legal obligation exists requiring immediate recognition. 
There is no indication on the record that MVI derived a benefit from 
the delay in the distribution of the shares. Therefore, in order to 
avoid speculation as to the impact of dilution or the value of any lost 
future benefit, the Department adheres to its previously stated 
practice of using the declaration date for the valuation of stock 
bonuses.
    Comment 14: Startup Adjustment. MVI argues that the Department 
should grant MVI's request for a startup adjustment for the ProMOS 
facility. MVI states that the Department should use the number of 
wafers out and good die out, as well as the number of wafers entering 
production, to determine whether ProMOS reached commercial levels of 
production. MVI asserts that the precedent established in SRAMs from 
Taiwan of determining commercial levels of production based on wafer 
starts during the period is not an accurate measure. MVI claims that, 
during ProMOS's startup period, wafer starts are not relevant to the 
number of units processed because ProMOS used many wafers during the 
POI for engineering and other test purposes that were unrelated to the 
production of finished goods. MVI claims that commercial levels of 
production should be measured by volumes of wafers out, volumes of good 
chips, rated monthly capacity, yields at a commercially feasible level, 
commercial levels of depreciation, and commercial levels of employees. 
MVI contends that it was not until the third quarter of 1998 that 
ProMOS ended its startup period.
    MVI asserts that the Department failed to explain why a relative 
escalation in wafer starts is indicative of commercial levels of 
production, or how this escalation is characteristic of the 
merchandise, producer or industry concerned. MVI provides examples of 
other wafer fabrication facilities' capacity levels during the POI to 
emphasize the point that ProMOS was operating below normal industry 
capacity levels during the POI. Finally, MVI states that the October 
21, 1997 news release declaring commercial availability of 64 Megabit 
(``meg'') DRAMs produced by ProMOS should not be confused with the 
level of commercial production characteristic of the industry. MVI 
explains that the former is indicative of having merchandise, even the 
smallest amount, available for sale; the latter is indicative of having 
reached a particular level of production such that period costs 
reasonably reflect the normal COP.
    The petitioner argues that ProMOS's startup period appears to have 
ended prior to the beginning of the POI. The petitioner cites section 
773(f)(1)(C)(ii) of the Act, which states that ``the statute permits a 
startup adjustment to be made only if: a producer is using new 
production facilities or producing a new product that requires 
substantial new investment, and production levels are limited by 
technical factors associated with the initial phase of commercial 
production.'' The petitioner states that, while ProMOS was using a new 
production facility, any technical factors that may have initially 
limited

[[Page 56322]]

production levels ceased to be at issue in October 1997, when ProMOS 
achieved commercial production levels that are characteristic of the 
DRAM industry.
    The petitioner claims that, in the October 21, 1997 press release, 
ProMOS announces commercial availability of 64 meg DRAMs. In the press 
release, ProMOS held itself out to be a facility producing at self-
proclaimed high volumes, and offering commercial production. It also 
provided to customers detailed information with respect to its full 
product line and price data. This, according to petitioner, indicates 
that ProMOS had surpassed the threshold of initial commercial 
production. The petitioner asserts that the information ProMOS provided 
at verification regarding wafer starts further contradicts MVI's claim 
for a startup adjustment, pointing out that ProMOS's wafer starts 
remained constant throughout most of the POI.
    The petitioner contends that ProMOS's achievement of its rated 
capacity is not the proper benchmark for determining when the startup 
period ends. The petitioner cites the SAA at 836, which states that 
``[t]he attainment of peak production levels will not be the standard 
for identifying the end of the startup period, because the startup 
period may end well before a company achieves optimum capacity 
utilization.''
    The petitioner argues that the number of units going into finished 
goods inventory is not a good measure of the achievement of commercial 
levels of production. The petitioner states that the number of good die 
resulting from the production process reflects not only the output of 
the process but also, and more important, the yield achieved in the 
production process. The petitioner cites SRAMs from Taiwan, 63 FR at 
8930, where the Department focused on a similar product and determined 
the beginning of commercial production levels (and the end of the 
startup period) based on the number of wafer starts, and notes that the 
Department found this represented the best measure of the facility's 
ability to produce at commercial production levels.
    Furthermore, the petitioner notes that in SRAMs from Taiwan, where 
a similar product was examined, the Department, citing the SAA at 836, 
which directs the Department to examine the units processed in 
determining the claimed startup period, rejected respondent's argument 
that the Department examine production yields as a measure of when 
commercial production begins. The petitioner points out that yields 
improve constantly throughout the life cycle of a semiconductor 
product. The petitioner cites the SAA at 836, which directs the 
Department to not extend the startup period so as to cover improvements 
and cost reductions that may occur over the entire life cycle of a 
product.
    The petitioner asserts that the other factors, which MVI claims are 
a measure of commercial production, are without merit. The petitioner 
states that investment in DRAM facilities is ongoing and continues 
beyond the initial startup period. Finally, the petitioner argues that 
the wafer production data for other Taiwanese producers are not 
appropriate measures because fabrication facilities can, and are, 
designed to handle different capacity levels.
    DOC Position: We disagree with MVI that a startup adjustment is 
warranted in this case. Section 773(f)(1)(C)(ii) of the Act authorizes 
adjustments for startup operations ``only where (I) a producer is using 
new production facilities or producing a new product that requires 
substantial additional investment, and (II) production levels are 
limited by technical factors associated with the initial phase of 
production'' (emphasis added). In light of the information contained in 
the administrative record, we consider ProMOS's facilities to be 
``new'' within the meaning of section 773(f)(1)(C)(ii)(I) of the Act 
because the record indicates that these production facilities have been 
built for the purpose of producing DRAM products not produced by MVI's 
other fabrication facility. See January 25, 1999 section A response. 
However, we do not consider ProMOS's production levels to have been 
limited by technical factors associated with the initial phase of 
production during the POI within the meaning of section 
773(f)(1)(C)(ii)(II) of the Act. Section 773(f)(1)(C)(ii) states that 
``the initial phase of commercial production ends at the end of the 
startup period.'' Since, as explained below, the startup period has 
ended, we have determined that any technical factors that may have 
limited ProMOS's production ceased to be an issue when the facility 
reached what we consider to be commercial levels of production in 
October 1997, the beginning of the POI.
    In determining whether commercial levels have been achieved, 
section 773(f)(1)(C)(ii) directs the Department to consider factors 
unrelated to the startup operations that might affect the volume of 
production processed, such as demand, seasonality or business cycles. 
Moreover, the SAA at 836 directs the Department to examine the units 
processed in determining the claimed startup period. In SRAMs from 
Taiwan, 63 FR at 8930, we stated that ``our determination of the 
startup period was based, in a 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.'' Consistent with the SAA and SRAMs from Taiwan, in this case, 
we continue to believe that wafer starts provide the best measure of 
the facility's ability to produce at commercial production levels 
because the increase in wafer starts is indicative of ProMOS's 
resolution of technical problems that had initially restricted 
production. Based on this measure, we have determined that ProMOS 
reached commercial levels of production prior to the start of the POI. 
Due to the proprietary nature of this analysis, see Cost Calculation 
Memorandum for MVI dated October 12, 1999 for a more detailed 
explanation regarding the startup adjustment. Because section 
773(f)(1)(C)(ii) of the Act establishes that both prongs of the test 
must be met before a startup adjustment is warranted, we have denied 
MVI's startup claim.
    We agree with the petitioner's argument that units going into 
finished goods inventory are not a good measure of the achievement of 
commercial levels of production, given that they are more a reflection 
of the quality of the product produced and the yields achieved in the 
production process. In addition, we do not consider a industry-wide 
comparative yield approach appropriate for determining the end of the 
startup period because the respondent may never reach yields comparable 
to other producers. Furthermore, because yields improve constantly 
throughout the life cycle of a semiconductor product, based on yields, 
we might improperly find that some respondents may appear to never 
leave the startup period.
    Additionally, commercial levels of depreciation, number of 
employees, and a commercially feasible yield are not appropriate 
measures of commercial levels of production because they do not measure 
the units processed as mandated by the SAA at 836. The SAA does not 
refer to quality of merchandise produced, the efficiency of production 
operations, or the number of employees, as criteria for measuring the 
length of the startup period. Rather the SAA at 836 relies strictly on 
the number of units processed, rather than output yields, as a primary 
indicator of the end of the startup period.
    Regarding the October 21, 1997, press release, we disagree with 
MVI's statement that commercial availability is indicative of having 
the smallest amount of merchandise available for sale. We agree with 
the petitioner that,

[[Page 56323]]

because the press release provided product line information and pricing 
data, ProMOS held itself out to its customers as a high volume 
producer. This further supports our finding that the startup period 
ended by the beginning of the POI.
    Finally, MVI's comparison of ProMOS's capacity to production data 
of other wafer fabrication facilities is without merit. We agree with 
the petitioner that each fabrication facility is designed to handle 
different capacity levels, which makes such a comparison incongruous. 
Moreover, even if production levels were limited, MVI failed to provide 
the Department with sufficient evidence of technical factors that may 
have limited ProMOS's new facility production levels during the POI.
    Comment 15: Reconciliation Adjustment to ProMOS's Costs. MVI claims 
that ProMOS's costs should not be adjusted for the unreconciled 
difference reported by the Department. MVI explains that, because 
ProMOS is an affiliated producer of subject merchandise, it reported 
ProMOS's actual per-unit costs of manufacturing the subject merchandise 
instead of the transfer price recorded in its normal books and records. 
MVI states that, because the reconciliation assumes that all 
merchandise sold by ProMOS was fabricated in the same quarter in which 
it was sold, the timing difference between products going to ProMOS's 
finished goods inventory and output going to COGS accounts for the 
unreconciled difference reported in the cost verification report.
    The petitioner argues that MVI has not provided a credible 
explanation for the unreconciled difference, and that the Department 
should increase ProMOS's costs by the amount of the unreconciled 
difference. The petitioner points out that MVI speculates that the 
discrepancy may be due to differences between the time a product was 
produced and the time it was sold, but MVI does not provide specific 
explanations identifying the differences. The petitioner asserts that 
ProMOS should have easily been able to show how its costs were 
allocated to subject merchandise, and to the extent that there is a 
discrepancy between the financial statements and the response, the 
amount of the discrepancy should be added to ProMOS's COP.
    DOC Position: We agree with MVI's claim that ProMOS's costs should 
not be adjusted for the unreconciled difference. After reviewing 
certain verification exhibits, we have determined that the reconciling 
difference is eliminated when accounting for different valuations 
between the quarter the input merchandise was produced by ProMOS, and 
the quarter the merchandise was sold by ProMOS. See Cost Calculation 
Memorandum for MVI dated October 12, 1999 for a detailed explanation.
    Comment 16: Back End Costs. MVI states that, in making an 
adjustment for MVI's affiliated back-end (i.e., assembly and test) 
costs, the Department should ensure that the quarterly back-end costs 
and transfer prices of different products within the same control 
number are weight-averaged.
    The petitioner did not comment on this issue.
    DOC Position: We agree with MVI. In calculating the adjustment for 
MVI's affiliated back-end costs, the Department utilized information 
from the verification exhibits and MVI's June 24, 1999 submission to 
ensure that costs for multiple products within the same control number 
were weight-averaged.
    Comment 17: Marine Insurance. MVI states that it double-counted 
marine insurance expenses in its responses. MVI requests that the 
Department adjust the reported G&A expenses to correct for this 
duplication.
    The petitioner did not comment on this issue.
    DOC Position: We agree with MVI that marine insurance expenses have 
been double-counted as both a sales expense in its sales response and 
as a G&A expense in its cost response. For the final determination, the 
Department will deduct the marine insurance amount from MVI's G&A 
expenses to correct for this duplication.
    Comment 18: Non-operating Expenses. MVI states that it is the 
Department's long standing policy not to include non-operating expenses 
that are unrelated to the production of subject merchandise. MVI argues 
that the dormitory depreciation and G&A building depreciation are 
clearly not related to production activities: the dormitory is used for 
housing students, interns, and guests, and the administrative building 
was dedicated to non-subject activities.
    The petitioner asserts that it is appropriate for the Department to 
include MVI's non-operating expenses relating to the production of 
subject merchandise (i.e., depreciation of the G&A building, and 
depreciation relating to the R&D building) to MVI's G&A expenses. The 
petitioner also claims that it is appropriate to include ProMOS's costs 
from the other miscellaneous expenses account that appear to be related 
to the production of subject merchandise.
    DOC Position: In calculating the G&A rate, the Department's 
practice is to include certain expenses and revenues that relate to the 
general operations of the company as a whole, as opposed to including 
only those expenses that directly relate to the production of the 
subject merchandise. See Notice of Final Determination of Sales at Less 
Than Fair Value: Stainless Steel Round Wire from Taiwan, 64 FR 17336, 
17339 (April 9, 1999) (``Wire from Taiwan''); and Notice of Final 
Results and Partial Recission of Antidumping Duty Administrative 
Review: Certain Pasta From Italy, 64 FR 6615, 6627 (February 10, 1999) 
(``Pasta From Italy''). The CIT agreed with the Department that ``G&A 
costs, by definition, are period costs that relate to the company as a 
whole.'' U.S. Steel Group v. United States, 998 F. Supp. 1151 (CIT 
1998). Accordingly, the G&A category covers a diverse range of items. 
Consequently, in determining whether it is appropriate to include or 
exclude a particular item from the G&A calculation, the Department 
reviews the nature of the G&A activity and the relationship between 
this activity and the general operations of the company. See Wire from 
Taiwan, 64 FR at 1733, and Pasta From Italy, 64 FR at 6627. The items 
at issue for both MVI and ProMOS, which include depreciation on the G&A 
and R&D buildings and losses on the sales of fixed assets, relate to 
the general operations of the respective company, and the Department 
has, therefore, included these expenses in MVI's and ProMOS's G&A 
expenses.
    Comment 19: Clerical Errors. MVI notes an error in the Department's 
margin calculation program for the preliminary determination. In the 
cost test portion of the normal value calculation, the margin 
calculation program first attempts to match a given home market sale to 
the COP for that product for the same quarter. If there is no match in 
the COP file for that quarter, the margin calculation program searched 
for a match in the most recent previous quarter and the home market 
sale was designated as made in the earlier quarter. According to MVI, 
the error occurred when, at the end of the cost test, the designation 
was not changed back to the original quarter so that the appropriate 
sales price to sales price comparison could be made.
    The petitioner does not dispute the presence of the error, but 
notes that the same problem exists in the matching of U.S. sales with 
CV.
    DOC Position: We agree with MVI and petitioner and have made the 
necessary changes to the margin calculation program for the final 
determination so that the appropriate comparisons are made. We also 
discovered the same error in Vanguard's margin calculation

[[Page 56324]]

program and have made appropriate changes for the final determination 
so that the appropriate comparisons are made.
C. Nanya
    Comment 20: Interest Income. Nanya states that its consolidated 
financial statement does not specifically address the nature of 
interest income on its income statement. Therefore, the company was 
unable to specifically identify the interest income which was short-
term. As an alternative, Nanya suggests that the Department should 
calculate a short-term rate by comparing Nanya's liquid assets to total 
assets, and apply this ratio to Nanya's total interest income. Citing 
Stainless Steel Sheet and Strip in Coils From the United Kingdom, 64 FR 
30688, 30710 (June 8, 1999) (``Sheet and Strip From the United 
Kingdom''), Nanya states that when a respondent is unable to 
specifically identify short-term interest income, it is the 
Department's practice to offset interest expenses by an amount of 
interest income equivalent to the ratio of current assets to total 
assets, given that the relationship of current assets to total assets 
is representative of the relationship of short-term interest income to 
total interest income.
    The petitioner argues that Nanya's reliance on Sheet and Strip From 
the United Kingdom for the calculation of short-term interest expense 
is misplaced. The petitioner argues that this case did not involve a 
complete failure to verify submitted data. Rather, the respondent in 
that case demonstrated to the Department that it did not have access to 
that company's underlying interest income data. The petitioner argues 
that Nanya has made no claim that it could not obtain access to the 
relevant supporting information to calculate the actual amount of its 
parent's short-term interest income, and that Nanya, instead, 
stonewalled the Department's request for this specific information at 
verification. The petitioner requests that the Department make an 
adverse inference in selecting facts otherwise available regarding 
Nanya's financial expense. The petitioner further requests that the 
Department calculate Nanya's financial expense ratio by using all of 
its reported financial expenses, without any offset for short-term 
interest income.
    DOC Position: We agree with the petitioner that Nanya failed to 
substantiate its claim that some of its interest income on its 
consolidated financial statement was from short-term sources. The 
Department specifically requested, in section VII of the Cost 
Verification Outline, that Nanya demonstrate how it arrived at its 
figures for short-term interest income. Although Nanya was well aware 
of the Department's requests at verification, the company did not 
provide any supporting documentation to substantiate its reported 
figures for short-term interest expense or income. As we noted in 
Nanya's Cost Verification Report at page 18, the company did not submit 
material at verification supporting its claim that some of its interest 
income on its consolidated financial statement was from short-term 
sources, and did not offer the Department supporting documentation for 
any other amounts claimed as financial expense offsets. The Department 
agrees with the petitioner that when a company cannot support the data 
reported in its response, the information is unverified and cannot be 
used to support a determination. Furthermore, we disagree with Nanya 
that Sheet and Strip From the United Kingdom supports its argument. In 
Sheet and Strip From the United Kingdom, the Department agreed to make 
an adjustment to the respondent's interest income figure because the 
respondent demonstrated that it did not have access to its parent 
company's underlying interest income data. Unlike that case, Nanya has 
made no claim that it could not obtain access to the relevant 
supporting information to calculate the actual amount of its parent's 
short-term interest income.
    Given that Nanya was aware of the Department's request prior to 
verification, but did not demonstrate how it arrived at its reported 
figures, we have determined not to grant the short-term offset to its 
financial expenses. Rather, the Department has calculated Nanya's 
financial expense ratio using all of its reported financial expense, 
without any offset for interest income. See Nanya Cost Calculation 
Memorandum dated October 12, 1999. Consequently, the application of 
facts available does not apply because we are not allowing this offset, 
as the petitioner, in any case, requested.
    Comment 21: Exchange Gains and Losses. The petitioner argues that 
Nanya was unable to provide any supporting documentation to verify its 
reported classification of its foreign exchange gains and losses. The 
petitioner believes that, in the context of this verification failure, 
the Department cannot rely on the amounts submitted by Nanya, and must, 
instead, apply facts available. The petitioner further argues that the 
Department should apply certain adverse assumptions concerning the 
nature of the reported foreign exchange gains and losses by treating 
all of Nanya's foreign exchange losses as related to production, and by 
treating all of the reported foreign exchange gains as unrelated to 
production, and not allowing any part of such gains to offset Nanya's 
general expenses.
    Nanya explains that it was unable to demonstrate at verification 
that it correctly distributed the foreign exchange gains and losses to 
the proper cost elements because there was insufficient time to verify 
all elements of Nanya's cost response. Nanya argues that, although the 
Department did not examine Nanya's foreign exchange gains and losses, 
this should not lead the Department to question the validity of Nanya's 
categorization of those items. Nanya states that, even if the 
Department were to resort to facts available for the categorization of 
these items, the application of adverse inferences proposed by the 
petitioner is not justified in light of Nanya's cooperation in this 
proceeding and at verification. Nanya states that, when a party is 
cooperative, the Department will make its determinations by weighing 
the record evidence to determine what is most probative of the issue 
under consideration. See SAA at 869. Therefore, Nanya urges the 
Department that, even if it were necessary for the Department to resort 
to facts available, the most probative and accurate information on the 
record is the categorization of foreign exchange gains and losses 
reported by Nanya in its response.
    DOC Position: We agree with the petitioner that Nanya failed to 
provide documentation substantiating its submitted figures for exchange 
gains and losses to the Department at verification. Sections VI and VII 
of the Nanya Cost Verification Outline specifically requested that 
Nanya provide documents necessary to reconcile the company's reported 
figures for exchange gains and losses, as noted in exhibit 20 of 
Nanya's April 14, 1999 submission. At Nanya's cost verification, the 
Department twice requested that Nanya account for its submitted figures 
for exchange gains and losses. See Nanya Cost Verification Report at 
17-18. Moreover, to provide sufficient time to verify Nanya's cost 
responses, the Department officials agreed to extend the time period 
devoted to address this issue. Despite this opportunity, Nanya failed 
to substantiate, at verification, these reported figures.
    In light of Nanya's failure to support its submitted figures for 
exchange gains and losses, the Department is required to treat these 
figures as unverified and,

[[Page 56325]]

as such, this data cannot be used for purposes of the final 
determination. Therefore, the Department is treating all of Nanya's 
foreign exchange losses as related to production, and all of the 
reported foreign exchange gains as unrelated to production or the 
general activities of the company as a whole, and thus we are not 
allowing any part of such gains to offset Nanya's G&A expenses. For a 
more detailed explanation, see Cost Calculation Memorandum for Nanya 
dated October 12, 1999.
    Comment 22: Other Revenue. The petitioner states that it supports 
the Department's decision in the Preliminary Determination to adjust 
Nanya's reported G&A to exclude certain other revenue items as offsets 
to cost. These other revenue items include: other revenue-over 
estimated, material income, adjustment credits-claims income, gains on 
physical inventory and cash, gains on overseas employees' aids, returns 
on loss on price decline in inventory, and others.
    Nanya disagrees with the petitioner. Nanya believes that excluding 
this revenue would be contrary to the Department's established 
practice, which permits offsets to G&A expenses for certain income 
earned from the company's production operations. As support for its 
position, Nanya cites Circular Welded Non-Alloy Steel Pipe from the 
Republic of Korea; Final Results of Antidumping Duty Administrative 
Review, 63 FR 32832, 32838 (June 16, 1998) (``Circular Welded Pipe from 
Korea'').
    DOC Position: We agree with Nanya that the Department permits 
offsets to G&A expenses for miscellaneous income earned from a 
company's general production operations. As we explained in Circular 
Welded Pipe from Korea, 63 FR at 32832, we permit offsets to G&A 
expenses for income earned from the company's production operations. 
Therefore, we have allowed, in part, the other revenue items listed in 
exhibit 16 of Nanya's April 14, 1999, response as an offset to G&A 
expenses because these revenue items are considered income earned from 
the company's general operations. We note, in particular, that the item 
listed ``return on loss on price decline in inventory'' represents the 
company's normal accounting treatment for the lower of cost or market 
provision adjustment to raw materials, WIP and finished goods 
inventory. In its normal books and records, Nanya includes the lower of 
cost or market write-down of its raw material, WIP and finished goods 
inventories as an element on its income statement and records a 
provision account on its balance sheet. In the following period, when 
items are used in production or are sold, the provision and the 
historical cost of those items are reflected on the income statement of 
that year. Because both raw material and WIP inventories are inputs 
into the cost of manufacturing the subject merchandise, any inventory 
write-downs or recognition of inventory write-down provisions should be 
included in determining the reported costs. See Notice of Final 
Determination of Sales Less Than Fair Value: Stainless Steel Wire Rod 
from Italy, 63 FR 40422, 40430, (July 29, 1998). We did not include the 
write-down of finished goods, which is, conversely, more closely 
associated with the sale of the merchandise rather than the production 
of the merchandise. For the computation of this specific item, we 
included only the provision associated with raw materials and WIP 
inventories. Therefore, we allowed, in part, the other revenue items in 
Nanya's submission as an offset to G&A expenses.
D. Vanguard
    Comment 23: Misreported and Unreported Home Market Sales. The 
petitioner asserts that the Department's discovery of numerous errors 
by Vanguard in the reporting of its home market sales at verification 
warrants an adverse inference in the application of facts otherwise 
available. The petitioner states that, as adverse facts available, the 
Department should leave certain home market sales that, in fact, are 
export sales, in Vanguard's home market database, and use the 
unadjusted gross unit price of these sales in the calculation of NV. 
The petitioner further states that, as adverse facts available, the 
Department should allocate the value of an unreported home market sale 
over all of Vanguard's sales to this customer, which results in an 
increase in the gross unit price of these sales.
    Vanguard refutes the petitioner's argument, stating that the 
Department should not apply facts available because Vanguard may have 
misreported certain sales with ultimate destinations in third countries 
as home market sales. Vanguard states that it reported all sales that 
it shipped to addresses in Taiwan as home market sales. Vanguard states 
that it does not know whether the merchandise shipped to customers in 
Taiwan would be sold domestically or consumed in Taiwan before 
exportation, adding that the sales at issue could have been 
substantially transformed in Taiwan before reshipment. Vanguard further 
argues that it cannot be expected to have investigated all of the 
potential ultimate destinations for its many home market transactions. 
Vanguard states that its cooperation in this investigation does not 
meet the standard for the application of adverse facts available, and 
if the Department determines that certain sales shipped to customers in 
Taiwan should not be designated as home market sales, the Department 
should simply eliminate the sales in question from the home market 
database.
    DOC Position: We agree with Vanguard that Vanguard's misreporting 
of home market sales does not warrant the application of adverse facts 
available. Vanguard's actions in this investigation do not meet any of 
the criteria for the application of facts available under section 
776(a) of the Act. Vanguard simply reported the sales of all 
merchandise that it produced and shipped to customers in Taiwan as home 
market sales, and thereby inadvertently included certain third country 
sales in its database. We also note that, as reported, these sales 
raise Vanguard's dumping rate, a result that appears to support 
Vanguard's claim that the inclusion of these sales was an oversight.
    At verification, the Department discovered that Vanguard knew, or 
should have known, at the time of sale that certain sales that Vanguard 
shipped to customers in Taiwan were ultimately destined, without 
further processing, for customers in third countries (due to the 
proprietary nature of this issue, for further details, see Memorandum 
on Whether Certain Sales that Vanguard International Semiconductor 
Corporation Reported as Home Market Sales are Export Sales dated 
October 12, 1999).
    Section 773(a)(1)(B)(i) of the Act, and section 351.404(c)(i) of 
the Department's regulations, provides that, if the exporting country 
constitutes a viable market, normal value shall be based on the price 
in the exporting country. Since, in this investigation, we are basing 
normal value for Vanguard on the price in the exporting country, 
Taiwan, we are excluding from the calculation of NV those sales that 
Vanguard knew, or should have known, at the time of sale were 
ultimately destined for customers outside of Taiwan and inadvertently 
included in its home market sales database. See Final Determination of 
Sales at Less Than Fair Value: Canned Pineapple Fruit From Thailand, 60 
FR 29553 (June 5, 1995) and Final Determination at Sales at Less than 
Fair Value: Stainless Steel Plate in Coil from Belgium, 64 FR 15476, 
15482 (March 31, 1999) (The Department excluded third country sales 
that the respondent inadvertently included in its home market 
database).

[[Page 56326]]

    We also disagree with the petitioner that we should apply adverse 
facts available to an unreported home market sale. Although Vanguard 
failed to report this sale, even if properly reported, this sale would 
not be used as a match for any of Vanguard's U.S. sales, and has an 
insignificant effect on our calculations.
    We also note that our exclusion of the third country sales from our 
calculation of normal value does not call into question the 
completeness of Vanguard's sales reporting. We verified that Vanguard 
reported all sales that it produced and shipped to destinations in 
Taiwan as home market sales. Vanguard only failed to report two 
insignificant sales of subject merchandise that it purchased from other 
companies, and shipped to customers in Taiwan.
    Comment 24: Lower of Cost or Market. Vanguard contends that its 
inventory adjustment for the lower of cost or market should not be 
included in the company's reported cost of manufacturing. Citing 
Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts 
Thereof from France et al., 62 FR 2081, 2117-18 (Jan. 15, 1997) 
(``Antifriction Bearings from France'') in support of its argument, 
Vanguard presents the adjustment as a ``provisional reduction-in-
inventory value'' in anticipation of lower sales revenues which should 
not be regarded as an actual or realized cost.
    Vanguard states that the lower of cost or market adjustment is 
recorded on an aggregate basis and is not reflected in the unit 
standard costs. Therefore, according to Vanguard, the full cost of 
manufacturing the subject merchandise was reported as products entered 
the finished goods inventory. Vanguard further contends that the 
recognition of the loss in the COGS portion of the income statement 
reflects the loss in value of a balance sheet item, not the occurrence 
of a realized cost. Vanguard stresses that these adjustments are 
``post-production'' and including them in the reported costs would, in 
effect, double-count the costs of manufacturing.
    The petitioner counters that the lower of cost or market 
adjustments excluded from the cost of manufacturing in Antifriction 
Bearings from France were ``not a realized expense, and were not 
reflected in their accounting of costs of goods in inventory.'' The 
petitioner suggests that the inclusion of Vanguard's COGS on its 
financial statements indicates that the adjustment also should be 
included in Vanguard's reported costs. The petitioner argues that the 
revaluation of inventory is an early recognition of the loss the 
company expects to experience on the future sale of the product due to 
the changes in market conditions. The fact that the write-down of 
inventory costs arose ``post-production,'' the petitioner states, does 
not eliminate it as an actual COP.
    DOC Position: We agree in part with the petitioner that the lower 
of cost or market adjustments made by Vanguard during the period of 
investigation should be included in the reported costs. Consistent with 
section 773(f)(1)(A) of the Act, it is the Department's practice to 
rely upon a company's normal books and records where they are prepared 
in accordance with the home country's GAAP and reasonably reflect the 
cost of producing and selling the subject merchandise. We found that 
Vanguard includes, in its normal books and records, the write-downs of 
its raw material, WIP and finished goods inventories as an element of 
its current costs per its financial statements. However, we discovered 
that these adjustments were not reflected in Vanguard's reported costs.
    Additionally, because both raw material and WIP inventories are 
inputs into the cost of manufacturing the subject merchandise, any 
write-downs of these amounts should be included in determining the 
reported costs. See Notice of Final Determination of Sales Less Than 
Fair Value: Stainless Steel Wire Rod from Italy, 63 FR 40422, 40430 
(July 29, 1998). The write-down of finished goods, conversely, is more 
closely associated with the sale of the merchandise, rather than the 
production of the merchandise. When finished goods are written down, 
the merchandise has already been fully manufactured and fully costed in 
the COM statement. The inventory valuation is simply being adjusted to 
reflect a market value which is below COP. Thus, the company is 
currently expensing the anticipated loss in revenues from the future 
sale of these goods. Since the full cost of the finished goods has 
already been included in COM prior to the adjustments, it is 
appropriate to exclude the write-down for finished goods from the 
reported costs. Therefore, for our cost calculations, we included only 
the write-down provision associated with raw materials and WIP 
inventories.
    Comment 25: Standard Cost Revaluation. Vanguard states that the 
standard cost revaluations constitute adjustments to the standard costs 
only and do not affect the actual manufacturing costs recorded on the 
books. Vanguard emphasizes that the manufacturing variance (i.e., 
actual cost less standard cost) absorbs the differences resulting from 
the revalued standards. Because the revaluation adjustment is reflected 
in a more favorable or unfavorable variance being applied to the 
standard costs in obtaining actual costs, Vanguard argues that adding 
the adjustment to the derived actual costs would inflate the cost of 
manufacturing.
    Vanguard acknowledges that, under a standard cost system, the 
inclusion of the standard cost revaluation is necessary to compute the 
actual COGS on the income statement, but maintains that the adjustment 
is not a component of the actual cost of manufacturing. Vanguard 
contends that the standard COGS must be adjusted by both the 
manufacturing variance and the revaluation amount to derive the actual 
COGS. However, Vanguard continues, the revaluations are not adjustments 
to actual costs and including them in the actual cost of manufacturing 
would overstate actual costs.
    The petitioner argues that the standard cost revaluations should be 
included in the reported costs, and points to the fact that the 
revaluation amount appears on Vanguard's financial statements. The 
petitioner further comments that deducting the revaluation amount from 
the COGS to derive the actual cost of manufacturing is in effect saying 
that the costs on the financial statements were overstated to 
Vanguard's shareholders. The petitioner emphasizes that because the 
standard cost revaluations are added to standard COGS in achieving 
actual COGS, these costs constitute an element of actual cost and 
should not be excluded from reported costs. The petitioner concludes 
that, in performing the overall cost reconciliation, the COGS presented 
on Vanguard's financial statements should only be adjusted for changes 
in inventory, costs reported in the sales files, non-subject 
merchandise and ``third-country-only'' sales in arriving at total 
reported costs.
    DOC Position: We agree in part with the petitioner that the 
standard cost revaluation should be included in the reported costs. Due 
to expected cost decreases, Vanguard revalues its standard costs of 
production on a quarterly basis. The new standards are employed not 
only for the current product-specific manufacturing costs, but also for 
revaluation of the raw materials inventories and the WIP and finished 
goods inventories manufactured in previous quarters. Because the new 
standards are utilized in current production, this revaluation has no 
impact on the computation of the variance (i.e., current standard costs 
of manufacturing minus current actual

[[Page 56327]]

costs). Therefore, the production costs incurred currently, which have 
been reported at standard plus variance, result in an actual cost. 
However, current actual manufacturing costs must be adjusted for 
beginning and ending WIP inventory values in deriving a period's COMs. 
Along with raw materials, beginning WIP is essentially a ``raw 
material'' or input into the finished products manufactured during the 
period and, as a result, must be included in the cost of manufacturing 
the goods produced during the POI. This is why there is a 
reconciliation difference between costs reflected on the company's 
audited financial statements and those reported to the Department. 
Based on the record evidence, the ending WIP for each quarter is 
revalued at the beginning of the ensuing quarter. Because WIP and raw 
materials have been ``revalued,'' the values for these inputs are 
incorrectly stated. As noted previously, the restatement of WIP is not 
factored into the variance computation and was not noted elsewhere in 
the submitted costs for COP and CV. Thus, the writedown of WIP and raw 
materials must be included in the respective beginning inventory values 
to result in the actual cost of the inputs consumed (i.e., the 
beginning WIP and raw material inventory amounts). Regarding the 
standard cost revaluation adjustments to the finished goods 
inventories, we agree with Vanguard that these adjustments are made 
post-production and should not be included in the reported costs.
    Comment 26: Use of Higher of Cost or Transfer Price for Affiliated 
Subcontractor. The petitioner states that the Department's rule for 
valuing major inputs from affiliated suppliers at the higher of cost or 
transfer price should be exercised for the transactions involving 
Vanguard's affiliated assembly contractor. Vanguard did not address 
this issue in its briefs.
    DOC Position: We agree with the petitioner that the transactions 
involving Vanguard's affiliated assembly contractor should be reported 
in accordance with the major input rule, pursuant to section 773(f)(3) 
of the Act and section 351.407(b) of the Department's regulations. 
Accordingly, for the final determination, we valued the assembly 
transactions between Vanguard and the affiliated supplier at the 
highest of the transfer price between the affiliates, the affiliated 
supplier's actual COP, or the market price.

Continuation of Suspension of Liquidation

    In accordance with section 735(c)(1)(B) of the Act, we are 
directing the Customs Service to continue to suspend liquidation of all 
entries of subject merchandise from Taiwan that are entered, or 
withdrawn from warehouse, for consumption on or after May 28, 1999 (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:

------------------------------------------------------------------------
                                Weighted-average    Weighted-average per
    Exporter/manufacturer       margin (percent)        megabit rate
------------------------------------------------------------------------
Etron Technology, Inc.......                 69.00                 $0.40
Mosel-Vitelic, Inc..........                 35.58                  0.12
Nan Ya Technology                            14.18                  0.02
 Corporation................
Vanguard International                        8.21                  0.01
 Semiconductor Corp.........
All Others..................                 21.35                  0.04
------------------------------------------------------------------------

Pursuant to section 735(c)(5)(A) of the Act, the Department has 
excluded any 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 issued and published pursuant to sections 
735(d) and 777(i) of the Act.

    Dated: October, 12, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-27294 Filed 10-18-99; 8:45 am]
BILLING CODE 3510-DS-P