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United States - Anti-Dumping Duty on Dynamic Random Access Memory Semiconductors (DRAMS) of one Megabit or Above from Korea
Report of the Panel
b) Response by the United States
1.363 The United States made the following arguments in response to Korea's submission:
1.365 The first commercial shipment of a DRAM occurred in 1971.236 Back then, the technology was primarily 16 kilobits ("K"). By 1990, the technology was transitioning from its fifth generation (4 megabits ("Meg")) to its sixth (16 Meg).237
1.366 As technology and industry standards have matured, DRAMs have become a commodity product.238 Thus, customers tend to distinguish between products primarily on the basis of price. During significant downturns in the market, the pressure on prices can become acute, forcing producers/resellers to price aggressively in order to stay competitive and maintain their customer base.239 An examination of historical data on DRAM pricing reveals that foreign producers often dump (i.e., sell at "less than normal value" within the meaning of the AD Agreement) during significant market downturns. For example, various producers were found to have dumped DRAMs in the United States during the dramatic downturn that occurred in the mid-1980s.240
1.367 The DRAM industry experienced another, although milder, downturn in 1990 which lasted well into 1991.241 Faced with what it believed were injurious imports at unfair prices, Micron, a U.S. manufacturer of DRAMs, filed an anti-dumping petition on behalf of the U.S. industry covering imports of DRAMs from Korea. The petition, which was properly filed with the DOC and the Commission, alleged that Korean manufacturers were dumping DRAMs in the United States.242 The petition also contained information which indicated that unfairly priced imports from Korea were causing material injury to the DRAM industry in the United States.243
1.368 Both the ITC and the DOC conducted investigations into the allegations presented by Micron. Hyundai and LG Semicon participated in those investigations.244 The DOC's investigation examined a six-month period in accordance with section 353.42(b)(1) of its regulations (19 C.F.R. § 353.42(b)(1) (1991)) which began on 1 November 1991.245
1.369 In its final determination published on 23 March 1993, the DOC found that Hyundai and LG Semicon had been making less-than-normal-value sales in the United States. For Hyundai, the DOC determined a dumping margin of 11.16 percent.246 For LG Semicon, the margin was 4.97 percent.247 An affirmative injury determination by the ITC led to the publication of an anti-dumping duty order on 10 May 1993.248
1.370 In 1994 and 1995, during the anniversary months of the order, the DOC received requests from the respondents to conduct administrative reviews of the order in accordance with section 751(a) of the Tariff Act of 1930, as amended ("the Act").249 The request made in 1994 covered sales between 1 May 1993 and 30 April 1994. The request made in 1995 covered the twelve months ending 1 May 1995.
1.371 Contrary to Korea's assertion, the 1993-1995 period was a good one for DRAM producers. "DRAMs prices stabilized in mid-1992, and the industry experienced growth until late 1995."250 Some industry observers have even described 1995 as "incredibl[y]" good.251 Indeed, the economic consultant retained by Hyundai, Kenneth Flamm (author of the "Flamm Study"), characterized 1993-95 as an "unusual period of relatively stable prices"252 and at one point marveled at its "unprecedented string of near zero or slightly positive price changes."253 Within this environment, Hyundai and LG Semicon were able to ship to the United States without dumping.254 Accordingly, they were not levied any duties on their DRAM imports and the cash deposit rate for future shipments was set at zero.255
1.372 The 1995-1996 period was the subject of a request for an administrative review by respondents on 29 and 31 May 1996.256 In addition, the DOC was asked by LG Semicon and Hyundai to revoke (in part) the order on DRAMs from Korea pursuant to section 353.25(a)(2) of its regulations. That regulation provided the DOC with the authority to revoke an order, in part, whenever:
(i) One or more producers or resellers covered by the order have sold the merchandise at not less than foreign market value for a period of at least three consecutive years; (ii) It is not likely that those persons will in the future sell the merchandise at less than foreign market value; and (iii) ... the producers or resellers agree in writing to their immediate reinstatement in the order ... if the Secretary concludes under § 353.22(f) that the producer or reseller, subsequent to the revocation, sold the merchandise at less than foreign market value.
19 C.F.R. § 353.25 (a)(2) (1997) (Ex. USA-24).257
1.373 As a result of respondents' request, the DOC initiated a review pursuant to section 751(a) of the Act on 25 June 1996.258 During the review, the DOC compiled an extensive factual record which contained, in the words of Korea, "reams of current data regarding pricing trends, inventory levels and various other aspects of market conditions for DRAMs." The DOC issued the preliminary results of its third review on 18 March 1997.259 In the notice, the DOC informed the respondents of its intention not to revoke the order pursuant to section 353.25. In particular, the DOC determined that the administrative record "does not support a conclusion at this time that there is no likelihood of future dumping by the Korean respondents."260
1.374 At the heart of the DOC's decision was evidence of a dramatic decline in DRAM prices throughout 1996 that was more severe than the market downturn in 1990-91261 and only "a little less severe" than the one in 1985-86.262 This downturn in the market caused U.S. and Korean producers to experience double-digit percentage declines in revenue on sales of DRAMS.263 Exacerbating the situation was the willingness of certain producers at this time to increase production and liquidate inventories of finished goods.264 As the DOC explained in its notice:
(1) The DRAM market is in a year-long downturn, with steep price declines in the DRAM market beginning in January 1996 and continued price declines forecasted; (2) the downturn has resulted in declines of sales and revenues in the DRAM market, growth in DRAM inventories, and the existence of significant DRAM oversupply; (3) the Korean respondents and other DRAM producers have continued to increase DRAM production during the downturn (which may further depress prices during such an oversupply period); (4) the Korean respondents will likely continue to maintain a substantial presence in the U.S. market during various phases of the business cycle (including periods of significant price decline) in light of substantial Korean capacity and large U.S. demand; and (5) based on the information on the record, Korean pricing in the United States appears, according to price trends, to be at or near normal value, indicating that only a slight downward movement in U.S. price will likely result in dumping margins.
Preliminary Results Third Review, 62 Fed. Reg. at 12796 (Ex. USA-20)
1.375 The DOC did not, however, view the 1996 market downturn in isolation. Instead, it analyzed all of the evidence on the record which bore on the likelihood issue. Thus, in addition to respondents' three years of no dumping, the DOC considered, inter alia, pricing practices and trends in prior market downturns. When it did this, the DOC discovered that there was a history of dumping in the United States during downturns in the DRAM market. In summarizing its conclusions, the DOC stated, in part:
Given these circumstances, we preliminarily find that it would be difficult for the Korean respondents to remain competitive without selling DRAMs at less than normal value. The history of the DRAM industry is one of dumping in periods of significant downturn. ...While Korean respondents did not dump in the three consecutive review periods, most of this period was marked by an expanding DRAM market. ...This third review period ended in April 1996, and there has been a continuing decline in global prices since that time. Further, we note that the price decline in 1996 was more severe than in prior downturns. ... For these reasons, we preliminarily find that there is no basis to conclude that there is no likelihood of future dumping by LGS and Hyundai
Id. at 12796-97 (Ex. USA-20).
1.376 "Case briefs," which commented on the DOC's preliminary results, were filed by respondents and Micron on 18 April 1997. "Rebuttal briefs" were filed by the parties on 29 April 1997. On 5 May 1997, the DOC held a public hearing at which respondents and Micron presented oral arguments.
1.377 In their comments on the preliminary results, respondents did not argue that the DOC's revocation standards or procedures were contrary to the AD Agreement. In fact, Hyundai stated just the opposite -- it acknowledged that United States law was "within the letter and spirit of Article 11."265 Instead, respondents argued, inter alia, that the DOC's use of the phrase "no likelihood" distorted the regulatory standard and allegedly forced them to prove the impossible -- that the likelihood of future dumping was "almost zero."266 Respondents also maintained that the DOC ignored data which supported a "not likely" determination. In particular, they pointed to (i) their lack of dumping between the 1991 and 1996 market downturns, and (ii) record evidence which, they believed, showed a dramatic improvement in the market by the end of 1996 that was characterized by decreases in production, increases in demand, and rising prices for DRAMs in the United States.267
1.378 In its final determination published on 24 July 1997, the DOC once again found that Hyundai and LG Semicon had not sold DRAMs in the United States at less than normal value during the period covered by the third review (i.e., 1 May 1995 through 30 April 1996).268 The agency also reaffirmed its preliminary finding that the evidence on the record of the review did not support a finding that a resumption of dumping was not likely under section 353.25(a)(2) of the regulations.269 In making this determination, the DOC emphasized several points it had made in its preliminary determination. First, the DOC discussed the cyclical nature of the DRAM industry and the pricing practices of DRAM producers during market downturns:
1.379 Next, the DOC addressed its findings regarding respondents' pricing practices and production levels during the market downturn that began toward the end of the third review period and continued throughout 1996 and into 1997:
. . according to Electronic Buyers News, total worldwide market revenue plunged 38% to $25.13 billion in 1996. Both Hyundai and LGS reported dramatic decreases in revenues in their 1996 publicly available financial statements. . . . Although we agree with the respondents that DRAM prices have recovered somewhat during 1997, prices fell significantly during the 1996 downturn. In any case, it appears that pricing in the DRAM market has not yet fully recovered. Current prices are still lower than in the years preceding the 1996 market downturn, years in which the respondents were found not to be dumping. Furthermore, prices have, in fact, decreased recently . . . the average price for a 64M DRAM is now in the mid $40 range, down from $55 earlier this year.
* * *
In regard to inventory levels and the supply of DRAMs, the record demonstrates that supply exceeded demand during 1996 and thus far in 1997 ... . [I]t is uncertain how long it will be before production returns to previous levels in anticipation of increased demand in the marketplace. According to Electronic Buyer's News (January 27, 1997, Issue 1042), an upturn in demand in October, 1996, triggered a simultaneous increase in production . As a result, the DRAM market was glutted, driving prices down in December, 1996 to one of the lowest levels during the downturn.271
1.380 At this point, the DOC turned its attention to evidence on the record concerning the possibility of sales at less than normal value in the United States. In particular, the agency summarized the company-specific data submitted by respondents as part of the third administrative review (i.e., data up to, and including, April 30, 1996) and the data received or obtained by the DOC regarding subsequent periods:
...(1) The respondents' own sales and cost data indicate that there were a substantial number of home market sales made at prices below COP during the two months immediately following the close of the third administrative review, (2) the lowest point of the downturn, in terms of DRAM pricing and other market conditions, did not occur until after mid-1996 (well after the end of the third administrative review period); (3) publicly available spot market pricing data, when viewed in conjunction with the respondent's cost data, extrapolated to a future point in time, indicate that LGS and Hyundai may have made U.S. sales at prices below COP during 1996; (4) respondent's own pricing data indicate that [their] contract prices generally follow the same pricing patterns as spot market prices ... . [I]n light of the market conditions during the downturn and the fact that the months actually examined during the POR [period of review] did not include the lowest point in the downturn, we find that the existence of below-cost sales during May and June of 1996 suggests that the number of below-cost sales increased following the end of the third review period as the DRAM market worsened. As prices in the DRAM market fell, a substantial number of sales were made below cost. This pattern is suggestive of deteriorating market conditions that often give rise to dumping.272
1.381 Lastly, after discussing LG Semicon's assertion that it has no economic incentive to dump in the United States,273 the DOC addressed respondents' argument that they did not dump subsequent to the third review period because their production costs were declining as fast as prices were falling:
Historical data support the premise that both costs and prices of any given generation of DRAM will decline over time. What respondents have been unable to demonstrate, however, is that the decline in costs kept up with the rapid rate of decline in prices during the second half of 1996.274
1.382 As a result of the DOC's final determination, it did not revoke the anti-dumping order. However, entries covered by the challenged review were not assessed (or levied) anti-dumping duties and the cash deposit rate for subsequent entries (i.e., entries made after 30 April 1996) of respondents' merchandise was set at zero.275
To continue with Claims under Articles 2, 6 and 17 of the AD Agreement
234 Final Results Third Review, 62 Fed. Reg. at 39809 (Ex. USA-1)
236 Case Brief of Hyundai, 21 Apr. 1997, Ex. 2 at 4 (Ex. USA-12).
237 Case Brief of Hyundai, Ex. 2 at 16-17.
238 Final Results Third Review, 62 Fed. Reg. at 39810 (Ex. USA-1).
239 Final Results Third Review, 62 Fed. Reg. at 39810 (Ex. USA-1); see also Charts from Agency Analyst to File at 34-35 (hereinafter "Prelim. Analysis") (Ex. USA-13). During upturns in the market, prices stabilize or rise. The length and intensity of these business "cycles" is influenced by a variety of factors, including customer demand, overall economic growth, and technological developments. A similar phenomenon occurs in the agricultural industry where "seasonal" cycles are influenced by a variety of factors, including weather and crop disease. See Letter from LG Semicon Co., Ltd. and LG Semicon America, Inc. to Secretary of Commerce, 15 Jan. 1997, at 13-14 (hereinafter "LGS Ltr.-2") (Ex. USA-14)
Korea concedes that DRAMs is a cyclical industry. The "cyclicality" of the industry was also a point repeatedly made by the respondents before the DOC in the underlying administrative proceeding. See, e.g., Case Brief of LG Semicon, 21 Apr. 1997, at 16-17 (Ex. USA-15).
240 See, e.g., 64K Dynamic Random Access Memory Components (64K DRAM's) From Japan: Final Determination of Sales at Less Than Fair Value, 51 Fed. Reg. 15943 (1986) (Ex. USA-16); Case Brief of LG Semicon, Ex. B (VLSI Research ) (Ex. USA-15).
241 Prelim. Analysis at 27 & 34 (Ex. USA-13); Case Brief of LG Semicon, Ex. B (Merrill Lynch) (Ex. USA-15).
242 Initiation of Antidumping Duty Investigation: Dynamic Random Access Memory Semiconductors of One Megabit and Above From the Republic of Korea, 57 Fed. Reg. 21231 (1992) (Ex. USA-17).
244 See, e.g., DRAM LTFV, 58 Fed. Reg. 15467 (Ex. USA-4).
246 DRAM Order, 58 Fed. Reg. 27520 (Ex. USA-2). This amount was subsequently reduced to 5.18 percent as a result of municipal judicial proceedings in Micron Technology, Inc. v. United States, 893 F. Supp. 21 (Ct. Int'l Trade 1995) (Ex. USA-18).
247 DRAM Order, 58 Fed. Reg. at 27520 (Ex. USA-2).
248 Id. As the United States noted above, Samsung eventually was found not to be dumping during the period covered by the DOC's original investigation. Therefore, it was (and is) excluded from the anti-dumping order..
249 19 U.S.C. § 1675 (Ex. USA-19).
250 Dynamic Random Access Memory Semiconductors of One Megabit or Above from the Republic of Korea; Preliminary Results of Antidumping Duty Administrative Review and Notice of Intent Not to Revoke Order, 62 Fed. Reg. 12794, 12796-97 (1997) (hereinafter "Preliminary Results Third Review") (Ex. USA-20).
251 See, e.g., Letter from LG Semicon Co., Ltd. and LG Semicon America, Inc. to Secretary of Commerce, 2 Jan. 1997 (hereinafter "LGS Ltr.-1"), at App. 1 (article on history of semiconductors by T. J. Rodgers for Austin American-Statesman) (Ex. USA-21).
252 LG Semicon Case Br., Ex. B (VLSI Research) (Ex. USA-15); Hyundai Case Br., Ex. 2 at 5 and Fig. 3 ("Flamm Study") (Ex. USA-12).
253 Id. at 5.
254 Dynamic Random Access Memory Semiconductors of One Megabit or Above From the Republic of Korea; Final Results of Antidumping Duty Administrative Review, 61 Fed. Reg. 20216 (1996) (final results first review) (hereinafter "First Review") (Ex. USA-22); Dynamic Random Access Memory Semiconductors of One Megabit or Above From the Republic of Korea; Final Results of Antidumping Duty Administrative Review, 62 Fed. Reg. 965 (1997) (final results second review) (Ex. USA-23). The First Review was amended on October 2, 1996. See Dynamic Random Access Memory Semiconductors From the Republic of Korea; Amended Final Results of Antidumping Duty Administrative Review, 61 Fed. Reg. 51410 (1996).
255 Under United States law and practice, anti-dumping duty orders, in and of themselves, do not result in the levying (or "assessment") of anti-dumping duties. They also do not, as a rule, delay the entry of imports into the United States. The only thing the United States Customs Service typically holds are the entry documents and a cash deposit or bond covering the potential liability for anti-dumping duties. On the anniversary month of every order, the DOC publishes a notice in the Federal Register which reminds interested parties (including foreign exporters) of their right to request an "administrative review" pursuant to section 751(a) of the Act. In an administrative review, the DOC calculates the anti-dumping duties actually owed for merchandise exported to the United States during the previous twelve months and sets the deposit rate for estimated duties that might be owed on future entries. 19 U.S.C. § 1675 (Ex. USA-19). Because the actual duties levied may exceed or fall short of the deposits or bonds posted at the time of entry, the Customs Service either collects additional money or refunds the excess (with interest). 19 U.S.C. § 1677g (Ex. USA-19).
256 Preliminary Results Third Review, 62 Fed. Reg. at 12795 (Ex. USA-20). A request was also received from Micron. Id.
257 The URAA revised certain terminology in the Act, including substituting the term "normal value" for "foreign market value." However, because the instant review was initiated prior to the date the DOC's new regulations took effect on 1 July 1997, the 1996 regulations were still controlling and are, therefore, cited herein unless otherwise noted. These regulations used the previous terminology.
258 Initiation of Antidumping and Countervailing Duty Administrative Reviews and Requests for Revocation in Part, 61 Fed. Reg. 32771 (1996) (Ex. USA-25). The challenged administrative review was conducted pursuant to the Act, as amended by the Uruguay Round Agreements Act ("URAA"). Uruguay Round Agreements Act, Pub. L. No. 103-465, tit. II, 108 Stat. 4808, 4842 (1994).
259 Preliminary Results Third Review, 62 Fed. Reg. 12794 (Ex. USA-20).
260 Id. at 12796.
261 Case Brief of LG Semicon, Ex. B (Merrill Lynch) (Ex. USA-15).
262 Case Brief of Hyundai, Ex. 2 at 5 (conclusion of Dr. Flamm) (Ex. USA-12); but see Preliminary Results Third Review, 62 Fed. Reg. at 12797 (Ex. USA-20). Whether the 1996 downturn was more or less severe than prior downturns is unimportant. What is important is that the 1996 downturn was not unlike prior downturns and during those periods (including the milder one in 1990-91), DRAM producers were found to be dumping.
263 DRAMs from Korea: Micron's Third Review Rebuttal Brief, 30 Apr. 1997, Ex. 7 (hereinafter "Micron Rebuttal Brief") (Ex. USA-26); Case Brief of LG Semicon, Ex. B (VLSI Research ) (Ex. USA-15).
264 Prelim. Analysis at 24, 28, & 29 (Ex. USA-13); Case Brief of LG Semicon, Ex. B (Merrill Lynch: "With no recession, the more rapid decline was clearly a massive inventory correction. That is why it fell so quickly.") (Ex. USA-15).
265 See, e.g., Case Brief of Hyundai, at 5 (Ex. USA-12).
266 Final Results Third Review, 62 Fed. Reg. at 39812 (Ex. USA-1).
267 Id. at 39814-16.
268 Id. at 39824.
269 Id. at 39810, 39811, & 39816.
270 Id. at 39810.
271 Id. at 39816-17.
272 Id. at 39817 (emphasis added).
273 The relevant portion of the notice states:
Id. at 39819.
275 These entries are, in fact, the subject of an administrative review initiated by the DOC on 19 June 1997. As part of this review, respondents have renewed their requests for revocation pursuant to section 353.25(a) of the DOC's regulations. See Dynamic Random Access Memory Semiconductors of One Megabit or Above From Korea; Preliminary Results of Antidumping Duty Administrative Review and Notice of Intent not to Revoke Order, 63 Fed. Reg. 11411 (9 Mar. 1998) (Ex. USA-27).