E. Claims under Articles 2, 6 and 17 of the AD Agreement

1. Failure to Verify Information from the US, and Failure to Consider Fairly and Objectively Respondents' Information and Data

a) Claim Raised by Korea

1.383 Korea claims that in analyzing the "no likelihood/not likely" criterion for revocation, the United States violated its obligations under and the standards set forth in Articles 2.2.1.1, 6.6 and 17.6(i) of the AD Agreement. The following are Korea's argument in support of that claim:

1.384 In analyzing the "no likelihood/not likely" criterion, the United States violated its obligations under and the standards set forth in Articles 2.2.1.1, 6.6 and 17.6(i) of the AD Agreement.

1.385 Article 17.6(i) states in relevant part:

1.386 The United States: (i) improperly established the facts; and (ii) evaluated the facts in a biased and non-objective manner. Thus, the Panel should find that the United States violated the standards for review set forth at Article 17.6.

1.387 Article 6.6 states in relevant part:

1.388 The United States violated its obligation under Article 6.6 because it failed to satisfy itself as to the accuracy of data supplied by Petitioner. Indeed, the United States uncritically accepted and relied on Petitioners' data without taking any action to confirm that it was accurate.

1.389 Article 2.2.1.1 states in relevant part:

1.390 The United States disregarded cost data prepared by Respondents which were in accordance with generally accepted accounting principles of Korea and accurately reflected costs, thereby violating its obligation under Article 2.2.1.1.

1.391 To support its decision regarding the likelihood of dumping in the future, the United States disregarded a valid econometric study on DRAM cost and pricing and Respondent-specific cost and pricing data²⁷⁶ and relied instead on irrelevant spot market pricing and speculative assumptions of future costs supplied by Petitioner.²⁷⁷ Also, the DOC disregarded Respondents' data collection proposal, apparently assuming (incorrectly) that it had no bearing on the likelihood issue.

1.392 The US divided its analysis of the revocation issue into four topics:

• Pricing Trends in the DRAM Industry;
• Inventory Levels;
• Petitioner's Allegation that LG Semicon and Hyundai Were Dumping in 1996; and
• Whether Korean DRAM Producers Can Remain Competitive in the US Market Without Dumping.²⁷⁸

As discussed in detail below, in analyzing each of these four topics, the DOC chose Petitioner's position over Respondents'. In doing so, the DOC unfairly disregarded actual Respondent-specific price and cost data and embraced Petitioner's irrelevant data, broad-brush allegations and unfounded theories.

(i) Pricing Trends in the DRAM Industry.

1.393 The DOC analyzed pricing trends in the spot market and disregarded the actual price data submitted by Respondents. However, as Respondents demonstrated to the DOC during the Third Review, Respondents rely primarily on long-term contracts, not the spot market.²⁷⁹ Moreover, the DOC's analysis did not even acknowledge the fact that the cost of producing 16 megabit DRAMs (indeed of producing any DRAM)²⁸⁰ has decreased dramatically because of die shrinkage and yield improvements.²⁸¹ The DOC concluded its analysis of this topic by indicating that "although the DRAM market has stabilized somewhat, prices continue to fluctuate and a large degree of uncertainty about the direction of the market remains."²⁸² That statement is hardly indicative of a fair and objective determination of future dumping by Respondents. Obviously, DRAM prices fluctuate--this is a commodity market, after all. However, just as important and inexorable, DRAM costs fall. There is no indication on the record that DRAM prices fell or will fall faster or for a more sustained period than DRAM costs. On the other hand, the record does contain an econometric study regarding Respondents' cost trends which concludes that Respondents will not dump in the future. The DOC summarily rejected this report.²⁸³ The DOC's conclusion reflecting an axiom of commodity markets--"prices fluctuate"--would not be an adequate basis for a decision not to revoke were it standing alone, much less here, where the record contains contrary empirical data and a valid econometric study.

(ii) Inventory Levels.

1.394 In discussing whether inventory levels would increase or decrease,²⁸⁴ the DOC acknowledged that Respondents publicly had announced DRAM production cutbacks "and it appears that the market has reacted with higher prices." However, it then concluded erroneously that "it is unclear how much of an effect this will have on the overall supply of DRAMs."²⁸⁵ It should have been obvious to the DOC that, in this commodity market, if prices were to rise and demand did not, then production and inventory would have been cut. There is no credible evidence on the record that production did not decrease just as Respondents stated. Inventory levels naturally decreased and prices rose in response to these production and inventory decreases.

1.395 The DOC refused to revoke the order even though Respondents' data were not refuted. The DOC failed to apply basic economic supply and demand theories or to distinguish between Respondents' facts and the US petitioner's unfounded assertions.

(iii) Petitioner's Allegations that LG Semicon and Hyundai Were Dumping in 1996.

1.396 The DOC employed unreliable extrapolations and suppositions and irrelevant spot market pricing, and ignored Respondents' verified actual costs, en route to determining that Respondents did not satisfy the "no likelihood/not likely" criterion for revocation because they may have dumped in 1996. Even while agreeing with Respondents that an allegation concerning sales at below COP largely was irrelevant for purposes of detecting dumping in the post-review period, the United States relied on that irrelevant data to find that future possible market conditions (also based largely on irrelevant spot-market pricing) produced a "pattern [that] is suggestive of deteriorating market conditions that often give rise to dumping."²⁸⁶ The DOC's use of irrelevant data to "suggest" that dumping may occur directly contravenes the mandate of Article 17.6 of the AD Agreement, which requires Members to base determinations on an objective and fair analysis of facts, not speculation and conjecture.

1.397 In addition, in analyzing whether Respondents had dumped in 1996, the DOC relied on unverified data from Micron, while rejecting verified data supplied by Respondents. Micron's "data" consisted of news articles and research reports regarding the state of the industry, including spot market prices. The data were not verified (and were not specific or, even, germane to either Respondent). Respondents, in contrast, submitted actual cost and price data for the period. The DOC verified the data for that part of 1996 that was within the period of review. These data and Respondents' actual cost and price data demonstrated, conclusively, that Respondents were not dumping in 1996. The DOC's failure to treat properly Respondents' actual cost and price data, and acceptance of Petitioner's data, violates Articles 2.2.1.1 and 6.6, respectively, of the AD Agreement. Moreover, the DOC's treatment of these data violates the standard of Article 17.6 of the AD Agreement, which requires Members to base determinations on an objective and fair analysis of facts.

(iv) Whether Korean DRAM Producers Can Remain Competitive in the US Market Without Dumping.

1.398 In the DOC's Final Results, it stated that "[i]n sum, the current condition of the DRAM market and the data on the record supports a conclusion that the not likely criterion for revocation has not been satisfied."²⁸⁷ The DOC also unreasonably claimed that "Respondents have been unable to demonstrate . . . that the decline in costs kept up with the rapid rate of decline in prices during the second half of 1996."²⁸⁸

1.399 This is inaccurate. The record evidence--including the economic analyses of Dr. Flamm and Law & Economics Consulting Group--establishes that Korean DRAM manufacturers have not dumped and will not dump in the future. In addition, Respondents provided actual cost and price data to refute Micron's unfounded speculation and conjecture. As Respondents pointed out in the Review, costs decrease rapidly in the DRAM industry and prior cost decreases were sufficient to ensure that Respondents did not dump in the relevant examination periods, which included significant downturns. Moreover, Respondents demonstrated in numerous ways that they had no economic incentive to dump in the US market.

For example:

Hyundai

LG Semicon

1.400 In addition, each company submitted detailed economic studies demonstrating that it had no economic incentive to dump.²⁹¹

1.401 Respondents have not dumped; Respondents have no reason to dump in the United States; and the record data verified that they will not dump in the future. Therefore, the DOC's analysis of this topic and its conclusion that Respondents' inability "to demonstrate" precludes revocation is not indicative of Respondents' data or the state of the market." It is unreasonable, conclusory and unsupported by the facts.

1.402 In addition, in analyzing whether Respondents could remain competitive without dumping (as was the case in analyzing whether Respondents had dumped in 1996--see paragraph 4.74), the DOC relied on unverified data from Micron, while rejecting verified data supplied by Respondents. The DOC's reliance on unverified, non-germane data rather than Respondents' verified data violates Article 6.6 of the AD Agreement, which requires Members to "satisfy themselves as to the accuracy" of data submitted and relied upon to support a finding. It also violates the standard of Article 17.6 of the AD Agreement, which requires Members to base determinations on an objective and fair analysis of facts.

1.403 Korea, in response to a question from the Panel,²⁹² subsequently clarified its claim under Article 17 as follows:

1.404 Korea's claim is that when the Panel examines the conduct of the United States, applying the standards of review at Article 17.6, the Panel should find that:

• the DOC's establishment of the facts was improper;
• the DOC's evaluation of the facts was biased and not objective; and
• the US interpretations of various provisions of the AD Agreement are impermissible.

1.405 As a result of these findings, the Panel then should make appropriate recommendations and suggestions to the US Government. Use of the word "violated" in a few instances in Korea's first submission was meant as a shorthand reference to this point. Korea does not take the position that the United States "violated" Article 17.6 in the same sense that it violated Articles 2, 5.8, 6, 11.1 and 11.2 of the AD Agreement and Articles I, VI and X of the General Agreement.

b)Response by the United States

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

1.407 Korea attacks the DOC's analysis of the DRAM market and Respondents' selling activities during and after the lowest point in the 1996 market downturn. According to Korea, the DOC based its determination not to revoke "on unverified information from the US petitioner and on mere conjecture, and by failing to consider fairly and objectively Respondents' information and data." The DOC's analysis, Korea insists, "is nothing more than a transparent effort . . . to substantiate its groundless conclusion." Korea even accuses the United States of a "pattern of bias [that] is pervasive."

1.408 These allegations are without merit.

To continue with Pricing Trends in the DRAM Industry

²⁷⁶ See Case Brief of Hyundai, Exhibits 2 and 3, Case No. A-580-812 (21 April 1997) (Ex. ROK-35).

²⁷⁷ Notice of Final Results of Anti-dumping Duty Administrative Review and Determination Not to Revoke Order in Part; DRAMs from Korea, 62 Fed. Reg. 39809, 39814-39819 (24 July 1997) (Ex. ROK-3).

²⁷⁸ Id.

²⁷⁹ Case Brief of Hyundai, Case No. A-580-812 (21 April 1997) at 14 (Ex. ROK-35); Notice of Final Results of Anti-dumping Duty Administrative Review and Determination Not to Revoke Order in Part; DRAMs from Korea, 62 Fed. Reg. 39809, 39817 (24 July 1997) (Ex. ROK-3). Generally, in a declining market, spot market prices will be lower than previously negotiated long-term contracts. Therefore, an analysis between spot prices and cost unfairly disadvantaged Respondents, which sold primarily pursuant to long-term contracts.

²⁸⁰ Shipments of 16 megabit DRAMs in the United States more than doubled between 1995 and 1996 and were the major density category in 1997.

²⁸¹ The shrinkage and yield improvements inherently drive costs down. Costs are important because, as DRAMs are a commodity product with high value and low transportation costs, unitary worldwide pricing precludes a finding of dumping based on price-to-price analyses. However, when pricing falls below cost there are certain scenarios where dumping may occur. See Article 2.2 of the AD Agreement.

²⁸² Notice of Final Results of Anti-dumping Duty Administrative Review and Determination Not to Revoke Order in Part; DRAMs from Korea, 62 Fed. Reg. 39809, 39817 (24 July 1997) (emphasis added by Korea) (Ex. ROK-3).

²⁸³ Case Brief of Hyundai, Exhibit 2, Case No. A-580-812 (21 April 1997) (Ex. ROK-35); Notice of Final Results of Anti-dumping Duty Administrative Review and Determination Not to Revoke Order in Part; DRAMs from Korea, 62 Fed. Reg. 39809, 39818 (24 July 1997) (Ex. ROK-3).

²⁸⁴ In theory, large inventory overhangs will either depress prices by their very existence or will depress prices once the inventory is released.

²⁸⁵ Notice of Final Results of Anti-dumping Duty Administrative Review and Determination Not to Revoke Order in Part; DRAMs from Korea, 62 Fed. Reg. 39809, 39817 (24 July 1997) (Ex. ROK-3).

²⁸⁶ Id.

²⁸⁷ Id. at 39819.

²⁸⁸ Id.

²⁸⁹ See Case Brief of Hyundai, Case No. A-580-812 (21 April 1997) at 16 and 26-27 (Ex. ROK-35).

²⁹⁰ See Case Brief of LG Semicon, Case No. A-580-812 (21 April 1997) at 16-61 (Ex. ROK-2); Rebuttal Brief of LG Semicon Co., Ltd., Case No. A-580-812 (30 April 1997) at 8-20 (Ex. ROK-39).

²⁹¹ See Exs. ROK-39, ROK-30 and ROK-35.

²⁹² The Panel recalls that the question was: "Korea argues that the United States has violated certain substantive obligations under Article 17.6 of the AD Agreement. Could Korea please explain the nature of that violation in concrete terms?"