5. Impossibility to Meet the DOC's Revocation Standard

a) Claim Raised by Korea

1.263 Korea claims that the DOC's revocation standard was impossible to meet in this proceeding and, thus, both on its face and as applied, is inconsistent with Article 11 of the AD. The following are Korea's arguments in support of this claim.

1.264 Article 11.1 of the AD Agreement requires Members to apply anti-dumping duties only for as long as they are "necessary to counteract dumping which is causing injury." Article 11.2 of the AD Agreement requires that, if "the anti-dumping duty is no longer warranted, it shall be terminated immediately." In the Third Administrative Review (the Review), the United States failed to determine objectively and fairly "whether the continued imposition of the duty is necessary to offset dumping.¹⁷¹ Therefore, the United States violated its obligations under the AD Agreement. The DOC attempted to camouflage its departure from its normal revocation practice (in which it revokes solely on the basis of three years of no dumping, plus a promise not to dump in the future) and imposed a subjective and unnecessary "no likelihood/not likely" requirement, based on speculation and conjecture of future dumping, that was impossible for Respondents to satisfy.

1.265 The DOC erroneously supported its departure from its normal revocation practice by declaring that DRAM producers routinely dump during cyclical downturns.¹⁷² As precedents for its "conclusion," the DOC cited the antidumping proceedings against the Japanese DRAM producers in the mid-1980's¹⁷³ and against the Korean DRAM producers in 1992.¹⁷⁴ The DOC supported its reliance on these past proceedings by surmising that, because DRAMs are commodity products, any company from any country is likely to dump in any cyclical downturn. On this basis, the DOC concluded that it must examine a downturn period and determine that Respondents would not dump in that period, before it could revoke the order.¹⁷⁵

1.266 All of the parties accept that the DRAM industry is characterized by upturns and downturns. However, as Respondents established during the many phases of the proceeding, prices of imports in economic downturns are not necessarily "dumped" prices. Indeed, during the last two severe downturns in the DRAM market, the DOC found that neither Respondent had dumped. The first downturn occurred during 1993, a period which the First Administrative Review covered. As Figure 1¹⁷⁶ shows, the book-to-bill ratio¹⁷⁷ consistently declined during 1993. Yet, the DOC found that Respondents were not dumping. The second downturn occurred in late 1995 and early 1996, during the period of the Third Administrative Review. Again, the book-to-bill ratio declined (even more precipitously than in 1993). Yet, still, the DOC found Respondents had not dumped. Thus, contrary to its conclusions en route to denying revocation in the Third Annual Review, the DOC, itself, previously had found that Respondents had not dumped during a variety of market conditions, including the last two cyclical downturns.

1.267 The explanation for the DOC's findings of no dumping during the previous two downturns is quite simple. DRAM production costs constantly decrease and, thus, downward price pressure, whether due to "supply/demand cyclicality" or another cause, does not inexorably lead to dumping, as the DOC claims in the Final Results.¹⁷⁸

1.268 By determining that a future downturn must be examined because of an alleged history in the DRAM industry of dumping during cyclical downturns, and coupling this with the "no likelihood/not likely" criterion, the DOC set an impossible, completely subjective standard for revocation. Moreover, to make this determination, the Department used speculative price and cost scenarios proffered by the U.S. petitioner of what might occur in the future. An authority will always find that dumping may occur in the future if the variables of its analysis are biased by speculation and conjecture masquerading as data proffered by a petitioner. The DOC's use of this test of whether dumping may occur in the future if certain economic variables might be realized was an unnecessary and unsupported exercise leading to a foregone conclusion.

1.269 In addition, the DOC's reliance on the earlier Japanese and Korean DRAM dumping cases to establish the necessity for conducting a speculative analysis in a cyclical downturn was biased and unsound. The economic conditions, analytical variables and results of the earlier Japanese and Korean DRAM investigations are dissimilar. Thus, the Japanese investigation is not analogous and, in any case, this proceeding is about Korean DRAM manufacturers, not Japanese DRAM manufacturers.

1.270 First, in the DRAMs from Japan investigation, the DOC found that all of the respondents had dumped.¹⁷⁹ In contrast, as discussed above, in the 1992 DRAMs from Korea investigation, the largest producer, Samsung Electronics, was excluded from the investigation because it was found not to have dumped (Samsung accounted for over 70 percent of Korea's imports). Second, in contrast to the DRAMs from Japan investigation, where the "all others" margin was 39.68 percent, the "all others" margin in the DRAMs from Korea case was only 4.55 percent.¹⁸⁰ Third, although the DOC found that the Japanese producers had dumped in a cyclical downturn, the DOC has found that the Korean DRAM manufacturers have not dumped during cyclical downturns. Finally, the two Korean DRAM manufacturers remaining subject to the anti-dumping duty order have not dumped in three consecutive administrative reviews and have filed with the DOC the requisite statement affirming that they will not dump in the future (and will submit to reinstatement in the order if they do).

1.271 Because there was no reliable evidence on the record that Korean DRAM manufacturers will dump in the next downturn or any future downturns, the DOC's premise for departing from its normal revocation practice of examining historical data to make its "likelihood" determination is unsupported and an abuse of discretion. Even if one assumes that the DOC's examination of whether there is a likelihood of dumping in the future by Korean DRAM manufacturers was acceptable under Article 11 (it was not), the examination should be based on actual verified data on the record - no dumping or insignificant margins in the investigation, no dumping by the two remaining Respondents for three consecutive years and a pledge not to dump in the future.

1.272 The AD Agreement envisions a decision-making process based on fact, not speculation. The facts in this case indicate that the Korean manufacturers have not dumped since the investigation and that the two Respondents remaining in the investigation have a multi-year record of trading at or above normal value. These two Respondents have provided the statements required by the DOC that they will not dump in the future and will submit to reinstatement in the order if they do. This pledge and the empirical data before the DOC clearly indicate that the DOC was required to revoke the order. The DOC's failure to do so violates Article 11 of the AD Agreement.

1.273 In deciding not to revoke the duty, the DOC focused on the period immediately following the Third Administrative Review and rejected Respondents' requests that it examine a more recent - and therefore more relevant - period (assuming, for the sake of argument, that it should conduct such an analysis in the first place).¹⁸¹ As Respondents pointed out during the Third Administrative Review :

1.274 The Department failed to correct this deficiency in its Final Results¹⁸³. It violated Article 11.2 by failing to conduct a forward-looking analysis (assuming, for the sake of argument, it was not simply required to revoke the order).

b) Response by the United States

1.275 The following are the United States' arguments in response to Korea's claim:

1.276 Korea tries to convince this Panel that: (i) downturns in the DRAM market occurred during the first and third administrative reviews; (ii) respondents were found not to be dumping during these periods; therefore, (iii) the Department erred when it determined that market downturns "inexorably" lead to dumping. This flaw in the DOC's thinking, Korea argues, also led to a legal standard for revocation that allegedly is impossible for producers in cyclical industries to meet. For the following reasons, these arguments are without merit and should be rejected by the Panel.

1.277 To begin with, the periods covered by the first and third reviews (i.e., 1993 to 1995) were, as discussed above, unusually robust.¹⁸⁴ According to every important measure (e.g., prices, revenues, and profits), the DRAM industry was not in a "downturn" during this time period. Korea stumbles on this point because it appears to focus exclusively on "book-to-bill"data prepared by the U.S. Semiconductor Industry Association ("SIA"). However, evidence on the record establishes that the SIA stopped publishing this data around the end of 1996 because its utility to market forecasters was limited.¹⁸⁵

1.278 Secondly, Korea ignores the lag that tends to exist between highs and lows in the book-to-bill ratio, and turning points in sales growth. Put another way, even if the book-to-bill ratio is an accurate indicator of market cycles for DRAMs, Korea overlooks the fact that a downturn in the market may not manifest itself for many months following a low point in the book-to-bill ratio. For example, according to data compiled by Merrill Lynch (which covers all semiconductors and not just DRAMs), the lowest point in the 1990-1991 downturn occurred in April of 1990, eight months after the low point in the book-to-bill ratio.¹⁸⁶ The same phenomenon manifested itself in the 1996 downturn. There, the low point in the book-to-bill ratio occurred in April of 1996, but the downturn in the market did not reach its lowest point until December of 1996 - eight months after the period covered by the third administrative review.¹⁸⁷

1.279 Lastly, the DOC did not determine that downturns in the DRAM market "inexorably" lead to dumping. The United States agrees with Korea's claim that the "prices of imports in economic downturns are not necessarily 'dumped' prices."¹⁸⁸

1.280 The DOC also did not apply a legal standard for revocation that is "impossible" for producers in cyclical industries to meet. First of all, the administrative determination being challenged in this case did not cover any product or any industry other than DRAMs from Korea. Thus, broad statements about the alleged implications of this case for other markets that may or may not be "cyclical" in nature are without foundation.

1.281 Secondly, the DOC did not presume that dumping occurred during the 1996 downturn. The agency engaged in a painstaking analysis of voluminous data on the administrative record and only then did it determine that "dumping may have taken place during the 1996 downturn."¹⁸⁹ In a different case, involving a different cyclical industry, such evidence may not exist and the DOC may find that a resumption of dumping would not be likely if the order in question were revoked.

1.282 Lastly, the fundamental flaw in Korea's claim is perhaps best captured by the simple fact that the DOC has revoked anti-dumping duty orders covering producers within cyclical industries. Examples of such cases include Carbon Steel Bars and Structural Shapes From Canada, 51 Fed. Reg. 41364, 41364 (1986) (Ex. USA-28), and Steel Reinforcing Bars From Canada; Final Results of Antidumping Duty Administrative Review and Revocation in Part, 51 Fed. Reg. 6775, 6775 (1986) (Ex. USA-29). The DOC has also revoked anti-dumping duty orders that covered products within "seasonal" industries. See, e.g., Certain Fresh Cut Flowers From Colombia; Final Results of Antidumping Duty Administrative Review, and Notice of Revocation of Order (in Part), 59 Fed. Reg. 15159, 15167 (1994) ("Flowers from Colombia") (Ex. USA-30); Frozen Concentrated Orange Juice From Brazil; Final Results and Termination In Part Of Antidumping Duty Administrative Review; Revocation In Part of Antidumping Duty Order, 56 Fed. Reg. 52510, 52511 (1991) ("FCOJ From Brazil") (Ex. USA-31). In both instances, prices, costs, and sales vary widely over the course of the business or seasonal cycle.¹⁹⁰

6. Certification Regarding Future Dumping

a) Claim Raised by Korea

1.283 Korea claims that by imposing a revocation requirement on exporters to certify that they will not dump in the future the United States violates Article 11 of the AD Agreement. The following are Korea's arguments in support of this claim.

1.284 The United States has maintained the anti-dumping duties even though it has failed to meet the requirements of Paragraphs 1 and 2 of Article 11 for maintaining an order. The United States' violation does not end here, however. The United States refused Respondents' direct request to revoke the duties in spite of the fact that, in addition to three years without dumping (and thus no injury due to dumping), the two companies formally certified that they would not dump in the future, and agreed to the immediate reinstatement of the duties in the event that they resumed dumping.¹⁹¹

1.285 This is an abuse of discretion and violates US obligations under Article 11 of the AD Agreement. First, the limited authority granted Members under Article 11 to impose and maintain anti-dumping duties does not extend so far as to permit a Member to impose a certification requirement for revocation.

1.286 Second, the certification requirement of the US revocation regime¹⁹² requires a Respondent to forgo its right under Paragraph 2 of Article 11 to an injury finding. If the DOC concludes that the Respondent has resumed dumping, the US Government does not conduct any injury analysis, but simply reinstates its collection of deposits or duties. This violates Paragraph 2 of Article 11 of the AD Agreement, which requires Members to impose duties only where dumping exists and is causing injury and obliges Members to conduct investigations of dumping and injury before imposing (or maintaining) any duty.

1.287 Far from complying with Article 11, the US regime is so biased that even where, as here, the responding companies have not dumped for three years and have agreed to allow the US Government to re-impose the duties on a moment's notice, the United States nonetheless refused to revoke the duties. Moreover, before it will even consider revocation, the US regime requires a Respondent to forgo rights granted under Article 11. These are violations of Article 11 of the AD Agreement.

b) Response by the United States

1.288 The following are the United States' arguments in response to Korea's claim:

1.289 None of the parties involved in this dispute, including Korea, deny that Respondents had several options under United States law when it came to revocation of the anti-dumping duty order on DRAMs from Korea. For example, they could have pursued a "changed circumstances" review before the DOC and/or the ITC pursuant to section 751(b) of the Act.¹⁹³ Either or both of these options could have led to the revocation of the order. Instead, Respondents chose to proceed under section 353.25(a) of the DOC's regulations.

1.290 One of the criteria the DOC is required to consider when deciding whether to revoke an anti-dumping order under section 353.25 is whether the Respondents at issue have "agree[d] in writing to their immediate reinstatement in the order ... if the Secretary concludes under � 353.22(f) [of the DOC's regulations] that the producer or reseller, subsequent to the revocation, sold the merchandise at less than foreign market value."¹⁹⁴ In the instant case, Hyundai and LG Semicon voluntarily submitted the appropriate certifications,¹⁹⁵ which were, in turn, accepted by the DOC.

1.291 Before this Panel, Korea argues that Article 11 does not "permit a Member to impose a certification requirement for revocation." According to Korea, the certification provided for in section 353.25 of the DOC's regulations is an "abuse of discretion" because it allows the United States to impose duties "on a moment's notice" without a new finding of injury. For the following reasons, Korea's comments lack merit.

1.292 In the nearly twenty years since section 353.25 has been in existence (in one form or another), the DOC has never used the certification provision to reinstate an anti-dumping order. Hence, Korea's sweeping declarations about "bias" and an "abuse of discretion" lack any foundation in fact. These claims also ignore the principle, that discretionary legislation which permits, but does not require, administrative agencies to promulgate WTO-inconsistent regulations, does not, as such, violate GATT 1994 or any of the covered agreements.¹⁹⁶ A complaining party must show that the agency actually took WTO-inconsistent action.¹⁹⁷ In the instant case, that proof is lacking.

1.293 Secondly, Korea ignores the explicit language in section 353.25 which requires a finding of dumping under section 353.22(f) of the DOC's regulations before reinstatement may occur. Paragraph (f) in section 353.22 describes the standards and procedures associated with a changed circumstances review pursuant to section 751(b) of the Act.¹⁹⁸ Thus, far from permitting duties to be re-imposed "on a moment's notice," the DOC's regulations prescribe a review on the record in accordance with the United States' established anti-dumping methodology.

1.294 Finally, Korea argues that the certification provided for in section 353.25 of the DOC's regulations is contrary to Article 11 because paragraph 2 requires Members to "conduct investigations of dumping and injury before imposing (or maintaining) any duty." In point of fact, the obligation to conduct investigations of dumping and injury before imposing (or maintaining) an anti-dumping duty is found in Articles 1 and 5 of the AD Agreement. Article 11 says nothing about conducting dumping or injury investigations.

1.295 More importantly, Article 11.2 establishes a broad based standard under which revocation is warranted if national investigating authorities determine that an order is no longer "necessary to offset dumping." Article 11 does not prescribe the specific factors that an investigating authority must consider when determining whether anti-dumping duties are "warranted." It also does not prescribe the specific procedural steps that must be followed when conducting a review under Article 11.2. Within this framework, the certification provision in the DOC's regulations is a permissible exercise of the United States' legitimate interest in ensuring that relief to those domestic industries that have been adversely affected by dumping is not withdrawn earlier than is "necessary."

1.296 The United States, in response to a question from the Panel,¹⁹⁹ further argued as follows:

1.297 Section 353.25(a) conditions the reinstatement of duties upon a finding of dumping under section 353.22(f) of the DOC's regulations. Section 353.22(f) sets forth in full the rights and obligations attendant to a review under section 751(b) of the Act (i.e., a "changed circumstances" review). Among the rights and obligations contained in section 353.22(f) is the opportunity for "notice and comment." In other words, section 353.22(f) guarantees to every interested party, inter alia, the right to review and comment upon the DOC's determination. This process, from start to finish, typically takes between six and nine months to complete. If one adds to this the time between revocation (or "termination") of the anti-dumping duty order and the initiation of a review pursuant to the reinstatement provision in section 353.25(a), a year or more may have passed before duties are once again applied to the Respondent that resumed dumping merchandise subject to the order.

1.298 The "not likely" criterion performs, therefore, an important function. It seeks to provide some assurance to the DOC that the Respondent which has stopped dumping for at least three years (section 353.25(a)(2)(i)), and agreed to reinstatement in the order if it resumes dumping (section 353.25(a)(2)(iii)), will not dump during the period immediately after revocation (section 353.25(a)(2)(ii)). It is not a perfect system. No investigating authority, including the DOC, can ever be completely certain that an exporter will not resume injurious dumping the minute an order is lifted. However, it is a "permissible" approach, within the meaning of Article 17.6(ii) of the AD Agreement, which seeks to ensure that the anti-dumping relief obtained by the injured domestic industry is terminated only when it is no longer warranted.²⁰⁰

To continue with Need for Injury Finding

¹⁷¹ Anti-Dumping Agreement, Article 11.2.

¹⁷² Notice of Final Results of Antidumping Duty Administrative Review and Determination Not to Revoke Order in Part; DRAMs from Korea, 62 Fed. Reg. 39809, 39810 (24 July 1997) (Ex. ROK-3).

¹⁷³ See, e.g., 64K Dynamic Random Access Memory Components (64K DRAMs) from Japan; Final Determination of Sales at Less than Fair Market Value, 51 Fed. Reg. 15943 (29 April 1986) (64K DRAMs from Japan) (Ex. ROK-53).

¹⁷⁴ Final Determination of Sales at Less than Fair Value: Dynamic Random Access Memory Semiconductors of One Megabit and Above from the Republic of Korea, 58 Fed. Reg. 15467 (23 March 1993) (Ex. ROK-9).

¹⁷⁵ Notice of Final Results of Antidumping Duty Administrative Review and Determination Not to Revoke Order in Part; DRAMs from Korea, 62 Fed. Reg. 39809, 39810 (24 July 1997) (Ex. ROK-3).

¹⁷⁶ See Case Brief of LG Semicon, Case No. A-580-812 (21 April 1997) at 19 (Ex. ROK-2).

¹⁷⁷ The book-to-bill ratio is a measure designed by the U.S. Semiconductor Industry Association and used by market experts to track market cyclicality. It represents the value, month by month, of new orders (book) to deliveries (bill).

¹⁷⁸ See 62 Fed. Reg. 39809, 39810 and 39817 (24 July 1997) (Ex. ROK-3).

¹⁷⁹ See, e.g., Dynamic Random Access Memory Semiconductors of 256 Kilobits and Above from Japan: Preliminary Determination of Sales at Less Than Fair Value, 51 Fed. Reg. 9475, 9477 (19 March 1986) (DRAMs from Japan) (Ex. ROK-54).

¹⁸⁰ "All others" rates are generally representative of the average dumping margins for an investigation. The actual average dumping margin for the investigation is less than two percent when Samsung's de minimis margin of 0.22% is included. A peculiar twist of "all others" calculations omits zero or de minimis margins from the "all others" rate calculation. Therefore, even though each Respondent's dumping margin decreased when the Department amended its final results, the "all others" rate increased. A more realistic comparison would include Samsung's results and would yield an "all others" or average rate of less than two percent. Thus, in DRAMs from Korea, the weighted average margin for all Respondents met the current de minimis standard of the Anti-Dumping Agreement.

¹⁸¹ See 62 Fed.Reg. 39809, 39813-14 (24 July 1997) (Ex. ROK-3).

¹⁸² Case Brief of Hyundai, Case No. A-580-812 (21 April 1997) at 17 (Ex. ROK - 35).

¹⁸³ See 62 Fed.Reg. 39809, 39813-14 (24 July 1997) (Ex.ROK-3).

¹⁸⁴ See Case Brief of LG Semicon, Ex. B (Paine Webber) ("1993-1995 boom period") (Ex. USA-15).

¹⁸⁵ LGS Ltr.-1, Ex. 1 (Lawrence Fisher, Index of Demand for Chips Soars to High for This Year, N.Y. Times, 12 Nov. 1996, at D11) (Ex. USA-21).

¹⁸⁶ Case Brief of LG Semicon, Ex. B (Merrill Lynch) (Ex. USA-15).

¹⁸⁷ Id.

¹⁸⁸ Indeed, the DOC determined that Samsung did not dump DRAMs in the United States during the 1990-91 downturn.

¹⁸⁹ Final Results Third Review, 62 Fed. Reg. at 39814 & 39817 (Ex. USA-1). Later in the notice, the DOC expanded on this conclusion:

¹⁹¹ See 62 Fed. Reg. 39809 (24 July 1997) (Ex. ROK-3).

¹⁹² 19 C.F.R. � 353.25(a)(2)(iii) (1996).

¹⁹³ Section 751(d) of the Act provides that an order may be revoked following a "changed circumstances" review pursuant to section 751(b) of the Act. 19 U.S.C. � 1675(d)(1) (1997) (Ex. USA-19).

¹⁹⁴ 19 C.F.R. � 353.25(a)(2) (1997) (Ex. USA-24).

¹⁹⁵ Final Results Third Review, 62 Fed. Reg. at 39810 (Ex. USA-1).

¹⁹⁶ See generally GATT, Analytical Index: Guide to GATT Law and Practice, Updated 6th Edition (1995), 645-48.

¹⁹⁷ Id.

¹⁹⁸ 19 C.F.R. � 353.22(f) (1997) (Ex. USA-24).

¹⁹⁹ The Panel recalls that the question was: "Could the United States explain the purpose of the certification requirement, whereby respondents agree to their immediate reinstatement in an anti-dumping order if they dump subsequent to revocation. If respondents agree to their immediate reinstatement in the order, why is it necessary to determine whether or not it is 'not likely' that respondents will dump in the future?"

²⁰⁰ Moreover, the DOC has never reinstated an anti-dumping order pursuant to section 353.25(a)(iii) of its regulations. Therefore, as a practical matter, the "not likely" criterion and the reinstatement requirement are not redundant.