                          Slip Op. 04-37

           UNITED STATES COURT OF INTERNATIONAL TRADE

            BEFORE: RICHARD W. GOLDBERG, SENIOR JUDGE



HYUNDAI ELECTRONICS INDUSTRIES
CO., LTD. and HYUNDAI
ELECTRONICS AMERICA, INC.,

                 Plaintiffs,

          v.                        PUBLIC VERSION

UNITED STATES,                      Cons. Court No. 00-01-00027

                 Defendant,

          and

MICRON TECHNOLOGY, INC.

                 Defendant-
                 Intervenor.

[Plaintiffs’ motion for judgment on agency record is granted in
part and denied in part.]

                                             Date: April 16, 2004

Willkie, Farr, & Gallagher (Christopher A. Dunn, James P.
Durling, and Daniel L. Porter) for plaintiff Hyundai Electronics.

Kaye, Scholer, Fierman, Hays & Handler LLP (Raymond Paretzky) for
plaintiff LG Semicon.

Peter D. Keisler, Assistant Attorney General, David M. Cohen,
Director, Patricia McCarthy, Assistant Director, Commercial
Litigation Branch, Civil Division, United States Department of
Justice (Kenneth S. Kessler); Patrick V. Gallagher, Jr., of
counsel, Office of the Chief Counsel for Import Administration,
United States Department of Commerce, for defendant United
States.

Hale & Dorr (Michael D. Esch and Gilbert D. Kaplan) for
defendant-intervenor Micron Technology, Inc.
Cons. Court No. 00-01-00027                                   Page 2



                               OPINION

GOLDBERG, Senior Judge:   In this consolidated action, Hyundai

Electronics Industries Co., Ltd. and Hyundai Electronics America,

Inc. (collectively “Hyundai”) challenges the final results of the

Department of Commerce’s (“Commerce”) fifth administrative review

regarding Dynamic Random Access Memory semiconductors of one

megabit or above (“DRAMs”) from the Republic of Korea covering

the period of May 1, 1997 through April 30, 1998.     See Dynamic

Random Access Memory Semiconductors of One Megabit Or Above from

the Republic of Korea, 64 Fed. Reg. 69694 (Dec. 14, 1999) (“Final

Results”).   At issue in this case are DRAMs produced by LG

Semicon Co., Ltd. (“LG Semicon”)1 and Hyundai.   For the reasons

that follow, the Court sustains in part and reverses and remands

in part the Final Results.    The Court has jurisdiction over this

matter pursuant to 28 U.S.C. § 1581(c).


                           I. BACKGROUND

     On May 10, 1993, Commerce published the antidumping duty

order on DRAMs from the Republic of Korea.    See Dynamic Random



     1
       After the fifth adminstrative review was completed,
respondent Hyundai acquired respondents LG Semicon Co., Ltd. and
LG Semicon America, Inc. (collectively “LG Semicon”). Hyundai
challenges the Final Results as they pertain to LG Semicon and
Hyundai. In this opinion, Hyundai-as-successor-in-interest-to-LG
Semicon is referred to as LG Semicon.
Cons. Court No. 00-01-00027                                 Page 3

Access Semiconductors of One Megabit or Above from the Republic

of Korea, 58 Fed. Reg. 27520 (May 10, 1993).    In response to a

request by Defendant-Intervenor Micron Technology, Inc.

(“Micron”), a domestic producer of DRAMs, Commerce initiated the

fifth administrative review of the antidumping order on June 29,

1998.    See Initiation of Antidumping and Countervailing Duty

Administrative Reviews and Requests for Revocations in Part, 65

Fed. Reg. 35188 (June 29, 1998).

     On June 8, 1999, Commerce published the preliminary results

for the fifth administrative review.     See Dynamic Random Access

Memory Semiconductors of One Megabit or Above From the Republic

of Korea: Preliminary Results of the Antidumping Administrative

Review and Notice of Intent Not to Revoke Order, 64 Fed. Reg.

30481 (June 8, 1999) (“Preliminary Results”).    Commerce applied

partial adverse facts available in calculating the dumping margin

for LG Semicon because it found that it had reported as

third-country sales “a substantial number of U.S. sales that it

knew or should have known were U.S. sales,” and concluded that LG

Semicon “failed to cooperate to the best of its ability.”     Id. at

30482.

     Commerce published the Final Results on December 14, 1999.

Commerce determined that in selling DRAMs to customers in Germany

and Mexico, LG Semicon knew or should have known that the

ultimate destination of the products was the United States.      See
Cons. Court No. 00-01-00027                                      Page 4

Final Results, 64 Fed. Reg. at 69717.     Further, Commerce

concluded that LG Semicon failed to cooperate to the best of its

ability by failing to report the sales to customers in Germany

and Mexico as U.S. sales and also because of the inadequacy of

the information supplied.     See id. at 69696.   As a result,

Commerce based the final dumping margin on total adverse facts

available.   See id.   Using total adverse facts available for LG

Semicon, Commerce applied the highest rate calculated in the

Final Results, which was the margin for Hyundai.      See id.

     In addition, Commerce recalculated the research and

development (“R&D”) expenses for LG Semicon and Hyundai.         See id.

Commerce recalculated these expenses because of alleged

distortions due to changes in LG Semicon and Hyundai’s accounting

methodologies.   See id. at 69699.   Previously, the companies had

expensed R&D costs in the year incurred, but in the period of the

fifth review they switched to capitalizing the costs.      See id.

Commerce achieved its recalculation by allocating R&D expenses of

all semiconductors produced by LG Semicon and Hyundai over the

total semiconductor cost of goods sold.     See id. at 69702.



                       II. STANDARD OF REVIEW

     The Court must sustain the Final Results unless it is

“unsupported by substantial evidence on the record, or otherwise

not in accordance with law.”    19 U.S.C. § 1516a(b)(1)(B).      To
Cons. Court No. 00-01-00027                                   Page 5

determine whether Commerce’s construction of the statutes is in

accordance with law, the Court looks to Chevron U.S.A., Inc. v.

Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).      It

is only if the Court concludes that “Congress either had no

intent on the matter, or that Congress’s purpose and intent

regarding the matter is ultimately unclear,” that the Court will

defer to Commerce’s construction under Chevron.     Timex V.I., Inc.

v. United States, 157 F.3d 879, 881 (Fed. Cir. 1998).    In

addition, “[s]tatutory interpretations articulated by Commerce

during its antidumping proceedings are entitled to judicial

deference under Chevron.”     Pesquera Mares Australes Ltda. v.

United States, 266 F.3d 1372, 1382 (Fed. Cir. 2001) (interpreting

United States v. Mead, 533 U.S. 218 (2001)).    Accordingly, the

Court will not substitute “its own construction of a statutory

provision for a reasonable interpretation made by [Commerce].”

IPSCO, Inc. v. United States, 965 F.2d 1056, 1061 (Fed. Cir.

1992).



                            III. DISCUSSION

A.   Commerce’s Treatment of LG Semicon DRAMs Sold Through
     Germany

     LG Semicon challenges the treatment of sales to a customer

in Germany that Commerce determined entered the United States.

     On September 14, 1999, three weeks before the scheduled

final determination, Commerce placed a memorandum on the record
Cons. Court No. 00-01-00027                                  Page 6

regarding information about sales made by LG Semicon to [

     ] (“the customer”).   See Brief of Plaintiffs Hyundai

Electronics Indus. Co., Ltd. and Hyundai Electronics America,

Inc. in Support of Plaintiffs’ Motion for Judgment Upon the

Agency Record (“Pl. LG Semicon’s Br.”) at 6; Appendix to Pl. LG

Semicon’s Br. (“Pl. LG Semicon’s Br. App.”), C.R. 53 (Commerce

Memorandum Regarding LG Semicon’s Sales to Germany).2    The memo

indicated that the German subsidiary of [                 ] (“the

customer’s German subsidiary”), after purchasing DRAMs from LG

Semicon, shipped them to its manufacturing facility in Puerto

Rico (“the customer’s Puerto Rican manufacturing facility”).      It

noted that within days of LG Semicon’s sale of DRAMs to the

customer’s German subsidiary, a significant amount of DRAMs

entered the United States via the customer.   See Pl. LG Semicon’s

Br. App., C.R. 53 at 2.

     The memo contained information regarding Commerce’s receipt

of an e-mail on January 4, 1999.   See Pl. LG Semicon’s Br. App.,

C.R. 53, Ex. 1.   The e-mail, sent by a former employee of LG

Semicon, stated that LG Semicon was “knowingly and willfully”

dumping DRAMs into the United States by shipping DRAMs to the

customer’s German subsidiary, which would then ship the DRAMs to

the customer’s Puerto Rican manufacturing facility.     See id.   The



     2
       Citations to the administrative record include references
to proprietary documents (“C.R.”) and public documents (“P.R.”).
Cons. Court No. 00-01-00027                                Page 7

e-mail also alleged that LG Semicon sold DRAMs to Germany in

order to evade U.S. dumping duties and that LG Semicon’s senior

management both knew and approved of these sales.   See id.

     The memo also disclosed for the first time information

regarding Commerce’s meeting with Mark Vecchiarelli, another

former employee of LG Semicon.   See Pl. LG Semicon’s Br. App.,

C.R. 53, Ex. 4; C.R. 63 (Commerce Memorandum Explaining and

Attaching Draft and Final Versions of Exhibit 4 to Commerce’s

09/13/1999 Memorandum).   In this meeting, Vecchiarelli informed

Commerce that LG Semicon sold DRAMs to the customer’s German

subsidiary with the knowledge that the ultimate destination for

the DRAMs was the customer’s Puerto Rican manufacturing facility.

See Pl. LG Semicon’s Br. App., C.R. 53 at 2.


     1.   Commerce’s Determination that LG Semicon Knew or Should
          Have Known that DRAMs It Sold Were Destined for the
          United States Is Supported by Substantial Evidence.

     Commerce applies a “knowledge test” to determine whether a

foreign producer knew or should have known, at the time of sale,

that subject merchandise was destined for the United States.      See

Wonderful Chemical Indus., Ltd. v. United States, 27 CIT __, __,

259 F. Supp. 2d 1273, 1279 (2003); LG Semicon Co., Ltd. v. United

States, 23 CIT 1074, 1077 (1999).   Commerce’s test is consistent

with Congressional intent, as demonstrated by the Statement of

Administrative Action accompanying the Trade Agreements Act of

1979, which provides: “if the producer knew or had reason to know
Cons. Court No. 00-01-00027                                  Page 8

the goods were for sale to an unrelated U.S. buyer . . . the

producer’s sales prices will be used as ‘purchase price’ to be

compared with that producer’s foreign market value.”    H.R. Doc.

No. 96-153; see also LG Semicon, 23 CIT at 1077.     The knowledge

test does not require Commerce to prove that the producer had

actual knowledge, as such a requirement would “eviscerate the

acknowledged standard.”   Allegheny Ludlum Corp. v. United States,

24 CIT 1424, 1434-35, 215 F. Supp. 2d 1322, 1332 (2000); see also

Wonderful Chemical, 27 CIT at __, 259 F. Supp. 2d at 1279.3

     LG Semicon claims that Commerce’s decision was based solely

on the statement made by Vecchiarelli.     See Pl. LG Semicon’s Br.

at 22.   LG Semicon contends that Vecchiarelli’s statement is not

truthful and accurate.    See id. at 23.   LG Semicon argues that


     3
       LG Semicon’s selective use of passages from certain
decisions misleadingly suggests both directly and indirectly that
actual knowledge is the proper standard. See, e.g., NSK Ltd. v.
United States, 21 CIT 617, 645-46, 969 F. Supp. 34, 61 (1997),
aff’d in part, 190 F.3d 1321, 1333-35 (Fed. Cir. 1999); INA
Walzager Schaeffler KG v. United States, 21 CIT 110, 123, 957 F.
Supp. 251, 263 (1997), aff’d, 180 F.3d 1370 (Fed. Cir. 1999);
Tapered Roller Bearings and Parts Thereof, Finished and
Unfinished, From the People’s Republic Of China; Final Results of
Antidumping Duty Administrative Reviews, 62 Fed. Reg. 61276 (Nov.
17, 1997) (“Tapered Roller Bearings”). For example, LG Semicon
quotes language from Tapered Roller Bearings, in which Commerce
states “[l]acking evidence of actual knowledge that particular
sales were destined for the United States, we cannot assume such
knowledge, regardless of general knowledge that some merchandise
was intended for exportation to the United States. Pl. LG
Semicon’s Br. at 13 (quoting Tapered Roller Bearings, 62 Fed.
Reg. at 61291 (emphasis added)). Here, LG Semicon underscores
the words “actual knowledge.” This Court has rejected this
understanding of the knowledge test. See LG Semicon, 23 CIT at
1077-79.
Cons. Court No. 00-01-00027                                   Page 9

even assuming that Vecchiarelli’s statement was truthful and

accurate, his statement still fails to establish LG Semicon’s

knowledge that particular sales to the customer’s German

subsidiary were destined for the United States.    See id.    LG

Semicon suggests that Vecchiarelli’s statement exaggerated the

scope of his role in the contested transactions.   See id.

Vecchiarelli maintained that he “was responsible for servicing

all of the semiconductor requirements of [                   ] upon a

worldwide basis,” and “was responsible for the pricing and supply

decisions for all sales worldwide to [                ].”

Defendant’s Memorandum in Opposition to Plaintiff's Motion for

Judgment Upon the Agency Record (“Def.’s Mem. in Opp’n”) at 11;

Appendix to Def.’s Mem. in Opp’n (“Def.’s Mem. in Opp’n App.”),

C.R. 54 (Letter from DOC re declaration attached to unreported

sales memo) at ¶ 2.   LG Semicon argues that “he was not

personally involved in filling individual orders placed by [        ]

overseas locations with LG Semicon’s overseas subsidiaries.”       See

Pl. LG Semicon’s Br. at 23.   LG Semicon derives this conclusion

from statements made by Vecchiarelli’s successor, Mr. Pizarev,

describing the scope of his authority as LG Semicon’s Global

Accounts Manager for the customer.4


     4
       Pizarev stated that “I did not have authority to deal with
[         ] abroad. These [     ] were dealt with by LG’s
regional people. Thus, for example, LG staff in Germany dealt
with [    ] German [   ]. . . for these sales, [        ] in
Germany would have talked directly to LG Germany to place orders
Cons. Court No. 00-01-00027                                 Page 10

     The Court finds that Commerce had substantial evidence

indicating that it was within the ambit of Vecchiarelli’s

employment to know that the DRAMs sold by LG Semicon’s German

affiliate (“LG-Germany”) to the customer’s German subsidiary were

destined for the customer’s Puerto Rican manufacturing facility.

At the very least, Vecchiarelli was in a position to be aware of

the transactions between LG Semicon and the customer.

Vecchiarelli regularly briefed LG Semicon corporate officials

about the status of the customer’s account, including the pricing

and supply arrangements that he arranged with the customer, thus

suggesting that Vecchiarelli knew the price, volume, and

destination for LG Semicon DRAMs at the time of their sale.      See

Def.’s Mem. in Opp’n App., C.R. 54 at 2, ¶ 3.   Additionally,

there was documentation submitted at verification that repeatedly

listed Vecchiarelli as the World Wide Sales Manager and provided

information regarding the product needs for the customer’s Puerto

Rican manufacturing facility.   See Def.’s Mem. in Opp’n App.,

C.R. 51 (Verification Report of LG Semicon), Ex. 69 at 1, 4, 48.

A statement made by Y.S. Yin, LG Semicon’s General Manager for


for the products that it needed.” See Pl. LG Semicon’s Br. at
23-24; see Pl. LG Semicon’s Br. App., C.R. 64 (LG Semicon’s
Submission of Factual Information Regarding LG Semicon’s Sales to
Germany) at ¶ 5. Pizarev also stated that Vecchiarelli never
informed him about any arranged shipments from LG Semicon’s
German affiliate (“LG-Germany”) to the customer’s German
subsidiary for further resale to the customer’s Puerto Rican
manufacturing facility. See Pl. LG Semicon’s Br. at 24 n.17; Pl.
LG Semicon’s Br. App., C.R. 64 at ¶ 8.
Cons. Court No. 00-01-00027                                  Page 11

Global Accounts, confirms Vecchiarelli’s position and

responsibilities as Global Accounts Manager for the customer.

See Def.’s Mem. in Opp’n App., C.R. 51 at 6.    Furthermore, even

assuming that Vecchiarelli was not in a position to know the

specific whereabouts of each DRAM sold, there is substantial

evidence indicating that he had specific knowledge that the

ultimate destination of the DRAMs sold by LG-Germany to the

customer’s German subsidiary was the customer’s Puerto Rican

manufacturing facility.    Vecchiarelli expressly stated that he

established a sales channel to ensure the customer’s access to LG

Semicon DRAMs “because LG’s pricing structure included a floor

price and I was not permitted to sell DRAMs to the United States

through LGSA below this floor price.”    Def.’s Mem. in Opp’n App.,

C.R. 54 at 3-4, ¶ 5.   Vecchiarelli also indicated that “[t]o

[his] knowledge, [                 ] did not subcontract, anywhere

in the world, the production of memory modules using the discrete

DRAMs LG sold to [                 ].”   See Def.’s Mem. in Opp’n

App., C.R. 54 at 4, ¶ 6.    Vecchiarelli asserted that he knew that

any sale of discrete DRAMs to a division of the customer was

intended for the customer’s Puerto Rican manufacturing facility.

See Def.’s Mem. in Opp’n App., C.R. 53 at 2.

     LG Semicon maintains that the prices of DRAMs sold to the

customer’s German subsidiary were not lower than the prices of

DRAMs sold to the customer’s Puerto Rican manufacturing facility,
Cons. Court No. 00-01-00027                                      Page 12

thus negating the necessity for the sales channel.       See Pl. LG

Semcicon’s Br. at 24.   Additionally, LG Semicon offers several

statements made by the customer in support of its argument that

Vecchiarelli had no way of knowing the ultimate destination of

the DRAMs was the United States.    In these statements, the

customer indicated that its [            ] did not just purchase

DRAMs for the customer’s Puerto Rican manufacturing facility but

for its other manufacturing operations or their contract

manufacturers all over Europe.     See Pl. LG Semicon’s Br. App.,

C.R. 65 (Letter from LG Semicon’s Customer to Commerce Regarding

its Purchases of DRAMs from LG Semicon) at 2-3.      The customer

also maintained that its Puerto Rican manufacturing facility was

not its only entity that used discrete DRAMs.       See id.

Furthermore, the customer stated that it did not inform its

sources of the ultimate destination of their products and that

Vecchiarelli would not know the ultimate destination of the DRAMs

that its German subsidiary purchased.     See id.

     The Court finds that LG Semicon’s assertion that the sales

price to the customer’s German subsidiary was higher than the

U.S. sales price is neither supported by the record nor material

to Vecchiarelli’s establishment of the sales channel.         Even

assuming that the price was higher, it is irrelevant to the fact

that Vecchiarelli established the sales channel to avoid

reporting these sales as U.S. sales.    The information and
Cons. Court No. 00-01-00027                                   Page 13

statements made by the customer fail to convince the Court that

Vecchiarelli did not know that the DRAMs sold to the customer’s

German subsidiary were intended for the United States.    In light

of Vecchiarelli’s position and responsibilities, his detailed

statements of an established sales channel, and the lack of

specific evidence suggesting that the customer’s Puerto Rican

manufacturing facility was not the sole destination for discrete

DRAMs, the Court finds that Vecchiarelli’s testimony supports

Commerce’s determination that LG Semicon knew or should have

known that its DRAMs were destined for the United States.


     2.    Customs’ Data Corroborate Vecchiarelli’s Statement.

     Commerce determined that data from the United States Customs

Service (“Customs”) that it placed upon the record corroborate

Vecchiarelli’s statement.     See Final Results, 64 Fed. Reg. at

69696.    Commerce claims that the Customs data support the

existence of the sales channel that Vecchiarelli stated that he

constructed.    See Def.’s Mem. in Opp’n at 15.

     Commerce notes that after LG-Germany made sales to the

customer’s German subsidiary, a significant portion of the DRAMs

arrived in the United States within days of the initial sale by

LG-Germany.    See id.   Commerce claims that these entries

frequently consisted of the identical quality and value of DRAMs

reported on the sales invoices from LG-Germany to the customer’s
Cons. Court No. 00-01-00027                                    Page 14

German subsidiary.5    Commerce further claims that the data

indicated that numerous other transactions, involving shipments

of the exact quantity and value by LG-Germany to the customer’s

German subsidiary, arrived within days to the customer’s Puerto

Rican manufacturing facility via the customer’s German

subsidiary.     See Def.’s Mem. in Opp’n App., C.R. 61 (Revision to

unreported sales data and excerpts from Customs unreported sales

data) at 3b.    Additionally, Commerce notes that when it randomly

selected several invoices, it found out that not only were the

DRAMs manufactured by LG Semicon, but that these samples

possessed the exact same configurations that Vecchiarelli

described in his statement.     See Def.’s Mem. in Opp’n App., C.R.

61 at 3c;, C.R. 50 (DOC verification report re LG Semicon DRAMs

sales).   Finally, Commerce asserts that the focus of the

examination was not to prove that every DRAM sold by LG-Germany

to the customer’s German subsidiary entered the United States,

but rather to independently test the accuracy of Vecchiarelli’s

statement.     See Def.’s Mem. in Opp’n at 16.




     5
       Commerce offers the following examples: (1) on May 6,
1997, LG-Germany sold [         ] DRAMs to the customer’s German
subsidiary for $[          ]; (2) on May 12, 1997, the customer
entered [        ] DRAMs for $[          ]; (3) on June 18, 1997,
LG-Germany sold [       ] DRAMs to the customer’s German
subsidiary for $[        ]; and (4) on June 19, 1997, the customer
entered [      ] DRAMs for $[         ]. Def.’s Mem. in Opp’n
App., C.R. 61 at Ex. 36, C.R. 78 (DOC unreported sales memorandum
(Germany)) at 4.
Cons. Court No. 00-01-00027                                  Page 15

     The Court finds Commerce’s reliance on this corroborating

evidence reasonable.   The Customs data sufficiently corroborate

Vecchiarelli’s assertions, thereby supporting a finding that LG

Semicon knew or should have known that the DRAMs sold to the

customer’s German subsidiary were destined for the United States.

     Accordingly, the Court holds that Vechiarelli’s statement

and corroborating Customs data constitute substantial evidence to

support Commerce’s determination that LG Semicon knew or should

have known that its DRAMs were destined for the United States.



B.   Commerce Did Not Violate LG Semicon’s Right to a Fair and
     Honest Proceeding.

     LG Semicon alleges that Commerce’s administrative review was

not a “fair and honest” proceeding.   See Plaintiffs’ Memorandum

of Points and Authorities in Support of Count Nine (“Pls. Mem. in

Supp. of Count Nine”) at 5.   LG Semicon argues that Commerce

failed to remain impartial by “(1) not providing the parties

adequate opportunity to rebut harmful allegations, actions which

violated the statutory provision governing ex parte

communications; and (2) failing to consider exculpatory

evidence.”   Id.

     “[A]n importer may be entitled to procedural due process

regarding the resolution of disputed facts involved in a case of

foreign commerce when the importer faces a deprivation of ‘life,

liberty, or property’ by the Federal Government.”     NEC Corp. v.
Cons. Court No. 00-01-00027                                   Page 16

United States, 151 F.3d 1361, 1370 (Fed. Cir. 1998).      The parties

involved in an antidumping proceeding are entitled to a fair and

honest process.     See id.   Furthermore, “the right to an impartial

decision maker is unquestionably an aspect of procedural due

process.”    Id.   The notion of transparency is fundamental to an

antidumping proceeding, including access to information on which

decisions are based.     See S. Rep. No. 96-249 at 41, 98; Statement

of Administrative Action accompanying the Uruguay Round

Agreements Act, H.R. Doc. 103-316 (1994).


     1.     Commerce Did Not Violate the Ex Parte Meetings Statute.

     LG Semicon alleges that Commerce failed to timely disclose

ex parte meetings, thereby denying them a meaningful opportunity

to respond to the allegations made during these respective

meetings.    See Pls. Mem. in Supp. of Count Nine at 5.

     19 U.S.C. § 1677f(a)(3) governs ex parte meetings, providing

that:

     (3) The administering authority and the Commission
     shall maintain a record of any ex parte meeting between
     --
     (A) interested parties or other persons providing
        factual information in connection with a proceeding,
        and
     (B) the person charged with making the determination,
        or any person charged with making a final
        recommendation to that person, in connection with
        that proceeding, if information relating to that
        proceeding was presented or discussed at such
        meeting. The record of such an ex parte meeting
        shall include the identity of the persons present at
        the meeting, the date, time and place of the
        meeting, and a summary of the matters discussed or
Cons. Court No. 00-01-00027                                   Page 17

          submitted. The record of the ex parte meeting shall
          be included in the record of the proceeding.

19 U.S.C. § 1677f(a)(3).


     Section 1677f(a)(3) requires that memoranda of ex parte

meetings submitted on the record must include a summary of the

discussion and the information submitted.     See Nippon Steel Corp.

v. United States, 24 CIT 1158, 1164, 118 F. Supp. 2d 1366, 1373

(2000).    A failure to timely notify a party of ex parte meetings

deprives the party a full opportunity to respond, thus violating

procedural due process.    Id. at 1374.

     a.     Commerce’s Receipt of an E-Mail Message from a Former
            LG Semicon Employee Does Not Constitute an Ex Parte
            Meeting.

     LG Semicon argues that the January 4, 1999 e-mail message

from a former employee of LG Semicon falls within the statutory

definition of an ex parte meeting.    Pls. Mem. in Supp. of Count

Nine at 7; Plaintiffs’ Reply Brief Concerning Count Nine of the

Amended Complaint (“Pls. Reply Br. Concerning Count Nine”) at 5-

7.   LG Semicon draws an analogy between e-mail messages and phone

calls, the latter of which have been recognized as an ex parte

meeting.    See F.LLI De Cecco Di Fillipo Fara San Martino S.P.A.

v. United States, 21 CIT 1124, 980 F. Supp. 485 (1997); Pls.

Reply Br. Concerning Count Nine at 7.     In light of the plain

language of the statute, the Court concludes that the e-mail does

not constitute an ex parte meeting.     Section 1677f(a)(3)
Cons. Court No. 00-01-00027                                   Page 18

explicitly refers to ex parte meetings (emphasis added).      Unlike

a telephone call, which LG Semicon claims is comparable to an e-

mail, the unsolicited e-mail message in this case was a one-way

communication.   This negates any facially reasonable notion that

a meeting occurred.    Accordingly, Commerce’s handling of the e-

mail did not violate LG Semicon’s procedural due process.

     b.    Commerce’s Placement of its Meeting with Vecchiarelli
           on the Record Within Eighteen Days Does Not Constitute
           a Violation of LG Semicon’s Procedural Due Process.

     Commerce interviewed Vecchiarelli on August 27, 1999.

Commerce placed this information on the record on September 14,

1999, 18 days later.    See Pls. Mem. in Supp. of Count Nine at 8;

Pl. LG Semicon’s Br. App., C.R. 53, Ex. 4.   LG Semicon claims

that by waiting 18 days, Commerce sought to “maximize the element

of surprise.”    See Pls. Reply Br. Concerning Count Nine at 9.   LG

Semicon argues that this was contrary to Nippon Steel, which held

that memoranda must be “drafted expeditiously in all cases,

reviewed by a person in attendance at the meeting and placed in

the record as soon as possible.”   24 CIT at 1166, 118 F. Supp. 2d

at 1374.   In sum, according to LG Semicon, Commerce “did not

provide an adequate opportunity for Plaintiffs to inspect the ex

parte communication, seek clarification and/or provide rebutting

information.”    See Pls. Mem. in Supp. of Count Nine at 8.

     The Court finds that Commerce provided LG Semicon with

adequate opportunity to respond.   Section 1677f(a)(3) does not
Cons. Court No. 00-01-00027                                  Page 19

provide a specific time frame in which Commerce must put

information on the record.    Commerce is only required to have

timely memoranda drafted and filed in order for parties to view

them at a useful point during the proceeding.     See Nippon Steel,

24 CIT at 1165, 118 F. Supp. 2d at 1373.    The instant case is

distinguishable from Nippon Steel, where Commerce was found to

have violated § 1677f(a)(3) when it placed one ex parte

memorandum on the record on or about the day of the final

determination.    See Nippon Steel, 24 CIT at 1163-66, 118 F. Supp.

2d at 1372-74.    Here, the Court finds that the disclosure of the

ex parte meeting within 18 days of the actual meeting was timely,

as long as it provided LG Semicon with a meaningful opportunity

to respond.

     In regards to LG Semicon’s ability to respond, the Court

finds that the three weeks afforded to LG Semicon to submit

factual information and comments on the contested issues was

sufficient.    Commerce afforded LG Semicon several opportunities

to comment.    After the initial disclosure of Vecchiarelli’s

allegations, Commerce gave LG Semicon until October 4, 1999 to

submit factual information, a total of 21 days.     See Pl. LG

Semicon’s Br. App., P.R. 157 (LG Semicon’s Request for an

Extension of Time to Respond to Commerce’s 09/13/1999

Memorandum).    After LG Semicon requested an extension, Commerce

permitted LG Semicon to submit this information on October 7,
Cons. Court No. 00-01-00027                                   Page 20

1999.   On October 7, 1999, LG Semicon submitted factual

information to rebut Vecchiarelli’s allegations.      See Pl. LG

Semicon’s Br. App., C.R. 64 (LG Semicon’s Submission of Factual

Information Regarding LG Semicon’s Sales to Germany).

Furthermore, LG Semicon filed its case brief on October 21, 1999,

which included challenges to the e-mail and Vecchiarelli’s

statements.   See Pl. LG Semicon’s Br. App., C.R. 67 at 87-115.

LG Semicon also raised these same contentions during a public

hearing on November 4, 1999.     See Pl. LG Semicon’s Br. App., P.R.

178 (Public Hearing Transcript) at 6, 25-31, 131-32.     In sum,

Commerce gave LG Semicon over three weeks to submit its initial

comments and information.     This included two separate extensions

that in total extended Commerce’s initial deadline by two weeks.

Accordingly, the Court concludes that Commerce provided LG

Semicon with a meaningful opportunity to respond.


2.   Commerce Did Not Ignore Exculpatory Evidence.

     LG Semicon argues that Commerce did not act as an impartial

decision maker by consciously ignoring exculpatory evidence.       LG

Semicon maintains that Commerce’s refusal to consider and confirm

this evidence was evident throughout the investigation.      See Pls.

Mem. in Supp. of Count Nine at 9.

     First, LG Semicon points to Commerce’s failure to question

LG Semicon senior officials about the diversion of LG Semicon’s

German sales to the United States.     See id.   LG Semicon suggests
Cons. Court No. 00-01-00027                                   Page 21

that this questioning was essential because both the January 4,

1999 e-mail and Vecchiarelli’s statement alleged that senior

management knew of the diverted sales, and actual or constructive

knowledge is a necessary requirement for Commerce’s

determination.   See id. at 9-10.    LG Semicon notes that even

though Commerce failed to specifically question these officials

during the April 1999 verification period, Commerce continued to

make various requests for information and documents motivated by

the allegations contained within the e-mail.      See id. at 10.

Furthermore, LG Semicon argues that Commerce never directly asked

for information regarding LG Semicon’s German sales.      See id.    It

claims that it was Commerce’s responsibility to disclose the

subject of the investigation so that LG Semicon could provide the

appropriate information.     Id.   LG Semicon argues that had it

known about the e-mail, verification would have been the proper

time for it to answer questions and present exculpatory evidence.

See id.

      Second, LG Semicon notes that Commerce failed to take the

opportunity to view documents and evidence at LG-Germany, the

site that LG Semicon felt had the most relevant information.        See

id.   LG Semicon asserts that because the alleged diversion

started in Germany, certainly LG-Germany contained useful

information and documents.     Id. at 11.
Cons. Court No. 00-01-00027                                  Page 22

      Third, LG Semicon takes issue with Commerce’s refusal to

speak with the customer regarding the alleged sales channel.      See

id.   Specifically, LG Semicon points out that a letter sent by

the customer to Commerce contained several statements that

directly contradicted Vecchiarelli’s statement.   LG Semicon

argues that Commerce’s failure to respond to an offer of

assistance by the customer and its disregard for the contents of

the customer’s letter demonstrate Commerce’s lack of

impartiality.   See id. at 11-12.

      The Court finds that Commerce did not fail to remain

impartial in its proceedings by refusing to consider exculpatory

evidence.   Commerce is afforded broad discretion in the manner in

which it conducts antidumping proceedings.   See Torrington Co. v.

United States, 25 CIT __, __, 146 F. Supp. 2d 845, 897 (2001)

(“Commerce enjoys wide latitude in its verification

procedures.”); Union Camp Corp. v. United States, 23 CIT 264,

283, 53 F. Supp. 2d 1310, 1328 (1999) (Commerce, in weighing the

competing interests of efficient investigations and accurate

fact-finding, must make choices of administrative practice and

procedure).   Here, Commerce did not clearly act outside the

bounds of its discretion in conducting verification.   See Hontex

Enter., Inc. v. United States, 27 CIT __, __, 248 F. Supp. 2d

1323, 1335 (2003) (finding that Commerce’s decision in an

antidumping proceeding not to question the owners of the company
Cons. Court No. 00-01-00027                                     Page 23

about their knowledge of an employee’s actions was not unfair,

especially since the plaintiffs had an opportunity to comment on

the matter at a later point).     Notwithstanding the issue of

whether it was within Commerce’s discretion not to question LG

Semicon senior officials, it is clear that Commerce did in fact

question these officials.     LG Semicon officials, including Yin,

gave statements to Commerce indicating their belief that “all

sales made to the United States by LG Semicon are processed

through LG Semicon’s U.S. affiliate, LGSA.”    Def.’s Mem. in Opp’n

App., C.R. 50 (DOC verification report re LG Semicon DRAMs sales)

at 6.   These assertions were considered by Commerce against

Vechiarelli’s assertions to the contrary.     See Defendant’s

Supplemental Memorandum In Opposition to Plaintiffs’ Motion for

Judgment Upon the Agency Record at 16.

     Commerce also properly exercised its discretion in its

decision not to investigate LG-Germany.    As a result of LG

Semicon’s insistence that its U.S. affiliate, LGSA, was the only

entity responsible for U.S. sales, it was reasonable for Commerce

to believe that it had all the relevant information.    Likewise,

an investigation of the German facility was not necessary because

Commerce already had Vecchiarelli’s statement and LG Semicon’s

sales data as evidence.     LG Semicon had an adequate opportunity

to submit relevant information regarding LG-Germany but failed to

avail itself of this opportunity.
Cons. Court No. 00-01-00027                                  Page 24

     Finally, Commerce acted within the bounds of its discretion

when it chose not to pursue further contact with the customer

involved in the present matter.   Commerce afforded the customer

the opportunity to submit information and comments, and the

customer availed itself of this opportunity.   Thereafter,

Commerce reasonably decided that it was not necessary to discuss

anything further.   As there is a presumption that Commerce has

considered all evidence on the record, LG Semicon has failed to

provide any evidence that overcomes this presumption.   See

Fujitsu Ltd. v. United States, 23 CIT 46, 50 n.5, 36 F. Supp. 2d

394, 398 n.5 (1999).

     Accordingly, the Court holds that Commerce did not fail to

disclose ex parte meetings nor fail to consider exculpatory

evidence.



C.   Commerce Erred in Applying Total Adverse Facts Available to
     LG Semicon’s Entire U.S. Sales Database.

     LG Semicon challenges Commerce’s application of total

adverse facts available to LG Semicon’s entire U.S. sales

database.   Commerce used total adverse facts available because of

undisclosed sales to [                  ] German subsidiary, see

supra III(1), in addition to undisclosed sales to [

                       ] (“the unaffiliated Mexican customer”)

that were ultimately destined for the United States.
Cons. Court No. 00-01-00027                                 Page 25

     Commerce is required to consider information submitted by a

party only if:

     (1) the information is submitted by the deadline
     established for its submission, (2) the information
     can be verified, (3) the information is not so
     incomplete that it cannot serve as a reliable basis for
     reaching the applicable determination, (4) the
     interested party has demonstrated that it acted to the
     best of its ability in providing the information and
     meeting the requirements . . ., and (5) the information
     can be used without undue difficulties.

19 U.S.C. § 1677m(e).


     19 U.S.C. § 1677e(a) provides that Commerce is required to

use facts otherwise available if:

          (2) an interested party or any other person–
               (A) withholds information that has been
     requested by the administrating authority or the
     Commission under this subtitle,
               (B) fails to provide such information by the
     deadlines for the submission of the information or in
     the form and manner requested . . .
               (C) significantly impedes a proceeding under
     this subtitle, or
               (D) provides such information but the
     information cannot be verified . . . .

19 U.S.C. § 1677e(a).

     Furthermore, if Commerce 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, Commerce has the

discretion to “use an inference that is adverse to the interests

of that party in selecting from among the facts otherwise

available.”   19 U.S.C. § 1677e(b).   If Commerce concludes that a

party’s response to a request for information did not comply with
Cons. Court No. 00-01-00027                                   Page 26

its request, then Commerce must notify the party of this

deficiency and provide them with an opportunity to remedy or

explain the deficiency.   19 U.S.C. § 1677m(d).

     Commerce maintains that use of facts available was proper

because LG Semicon failed to provide information or complete

responses to Commerce’s requests as required by § 1677e(a) and

that an adverse inference was justified because LG Semicon failed

to act to the best of its ability as required by § 1677e(b).      See

Def.’s Mem. in Opp’n at 22.    Even though Commerce provided LG

Semicon with several opportunities to remedy or explain

deficiencies in regards to its U.S. sales as required under §

1677m(d), Commerce asserts that LG Semicon chose to “treat these

sales as third country sales in spite of the record evidence to

the contrary.”   Id. at 24.   Commerce maintains that the burden is

on the respondent to submit accurate information, and even if

Commerce has information on the record that can correct the

error, a respondent cannot expect Commerce to correct the

information or guarantee its accuracy.    See id.; see also

Mannesmannrohren-Werke AG v. United States, 24 CIT 1082, 1097,

120 F. Supp. 2d 1075, 1087 (2000) (“Mannesmannrohren II”) ([I]t

is [the respondent’s] burden to respond to Commerce’s

questionnaires and to develop the record.”).   Furthermore,

Commerce asserts that the information submitted by LG Semicon did

not meet the statutory requirements set forth in § 1677m(e).
Cons. Court No. 00-01-00027                                    Page 27

     Commerce’s justification for using adverse facts for the

Mexican sales revolves around LG Semicon’s decision to claim that

these sales were third country sales.    LG Semicon submitted to

Commerce computer sales listings for sales to the unaffiliated

Mexican customer.    See Pl. LG Semicon’s Br. App., C.R. 15 (LG

Semicon’s Second Supplemental Questionnaire Response) at App. SS-

8.   Commerce claims that it did not calculate them as U.S. sales

because LG Semicon insisted that these sales were not U.S. sales,

in spite of evidence on the record indicating that LG Semicon

knew or should have known that the destination of these sales was

the United States.    See Def.’s Mem. in Opp’n at 19, 25-28.

According to Commerce, LG Semicon’s submission of the Mexican

sales was untimely because Commerce chose not to verify the

information due to LG Semicon reporting the sales as third

country sales.    See id. at 25.   Commerce notes that “LG Semicon

submitted U.S. expense information only in the alternative, and

never admitted during the administrative proceeding that the

sales . . . were sales ultimately destined for the United

States.”   Id.   Additionally, Commerce contends that the “U.S.

sales information was so incomplete that it could not be used

without undue difficulties and the use of facts available.”       Id.

at 27.   Finally, Commerce points out that the “unreported”

Mexican sales, when combined with the “unreported” German sales,

represented approximately [   ] percent of LG Semicon’s U.S.
Cons. Court No. 00-01-00027                                  Page 28

sales.   See id. at 25.   Because such a substantial portion of LG

Semicon’s U.S. sales were unreported and unverified, Commerce

argues that LG Semicon’s response was substantially incomplete

and an unreliable basis for determining its dumping margin.     See

id. at 25-26.   Commerce asserts that because the sales issue in

the fifth administrative review was identical to the fourth

administrative review, in which Commerce determined that LG

Semicon knew or should have known that these sales were diverted

to the United States, LG Semicon’s insistence that these sales

were third country sales rendered the information untimely,

unusable, and unverifiable.    See id. at 25-28.

     With respect to the sales to the unaffiliated Mexican

customer, the Court finds that Commerce not only failed to meet

the requisite finding for adverse facts available, but also

failed to demonstrate the need to apply facts otherwise

available.   The application of adverse facts available requires a

finding that “an interested party has failed to cooperate by not

acting to the best of its ability.”    Mannesmannrohren-Werke v.

United States, 23 CIT 826, 838, 77 F. Supp. 2d 1302, 1313 (1999)

(“Mannesmannrohren I”).    It is “not sufficient for Commerce to

simply assert this legal standard as its conclusion or repeat its

finding concerning the need for facts available.”    Id.

     Commerce erred in concluding that LG Semicon’s insistence

that the sales to the unaffiliated Mexican customer were third
Cons. Court No. 00-01-00027                                   Page 29

country sales rendered the data untimely, unusable, and

unverifiable.    At the beginning of the fifth administrative

review, LG Semicon notified Commerce that it planned to treat

these sales as third country sales, although Commerce had

determined otherwise in the fourth review.     This Court’s

disposition of the fourth administrative review in LG Semicon v.

United States, 23 CIT 1074 (1999) was issued on December 30,

1999, 16 days after the Final Results were issued on December 14,

1999.   It is indisputable that LG Semicon timely submitted

computer sales listings and subsequently amended its submission

in response to further information placed by Commerce upon the

record.   See Def.’s Mem. in Opp’n at 19.    Although Commerce is

not required to verify each piece of information, Commerce may

not arbitrarily disregard timely-submitted information.       See AL

Tech Specialty Steel Corp. v. United States, 20 CIT 1344, 1353-

54, 947 F. Supp. 510, 519 (1996) (“Commerce cannot apply . . .

time limits arbitrarily or capriciously by refusing to accept

information submitted before the applicable deadline.”).       Because

the U.S. sales were subject to verification, it was unreasonable

for Commerce not to consider the sales to the unaffiliated

Mexican customer at verification solely because the information

would have been irrelevant if these sales were deemed to be third

country sales.    Furthermore, even if Commerce found LG Semicon’s

response and explanations to its questionnaires unsatisfactory,
Cons. Court No. 00-01-00027                                  Page 30

it was still required to use LG Semicon’s information if §

1677m(e)’s requirements were met.   Mannesmannrohren I, 23 CIT at

838, 77 F. Supp. 2d at 1313; Borden, Inc. v. United States, 22

CIT 233, 262-63, 4 F. Supp. 2d 1221, 1245-46 (1998).

     With respect to the German sales, the Court holds that

Commerce’s use of adverse facts available is supported by

substantial evidence.   As discussed above, Commerce established

that LG Semicon knew or should have known that DRAMs sold to the

customer’s German subsidiary were destined for the U.S. market.

As LG Semicon did not submit these sales to Commerce as U.S.

sales, the Court finds that Commerce did not err in concluding

that LG Semicon did not act to the best of its ability to comply

with its requests for information regarding the German sales,

thus justifying use of adverse facts available under § 1677e(b).

     Since the Court has determined that Commerce erred in using

adverse facts available for the sales to the unaffiliated Mexican

customer, use of total adverse facts available is not warranted.

Accordingly, the Court remands to Commerce on this issue with

instructions to recalculate LG Semicon’s dumping margin using the

sales data submitted by LG Semicon for the Mexican sales and

using adverse facts available only for LG Semicon’s sales to the

customer’s German subsidiary.



D.   Commerce’s Treatment of LG Semicon’s and Hyundai’s Research
     and Development Costs
Cons. Court No. 00-01-00027                                  Page 31


     LG Semicon and Hyundai challenge two aspects of Commerce’s

treatment of their research and development costs used in

constructing the cost of production.    The two issues are (1)

whether Commerce was reasonable in incorporating Plaintiffs’ R&D

costs for all semiconductor production based on cross-

fertilization; and (2) whether Commerce properly rejected

Plaintiffs’ accounting methodology for R&D costs.     Hyundai makes

three additional R&D claims separately from LG Semicon.    The

Court will now address each of these R&D-related claims.


     1.     Commerce’s Decision Not to Calculate Costs On a
            Product-Specific Basis Is Not Supported By Substantial
            Evidence.

     In the Final Results, Commerce’s calculation of R&D costs

incorporated R&D costs of all semiconductor products, instead of

costs applicable only to subject merchandise.    64 Fed. Reg. at

69702.    19 U.S.C. § 1677b(f)(1)(A) provides that:

            Costs shall 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 . . . and reasonably reflect the
            costs associated with the production and sale of
            the merchandise. The administering authority
            shall consider all available evidence on the
            proper allocation of costs.

     LG Semicon and Hyundai argue that Commerce erred by

including R&D costs for all semiconductor products in calculating

their respective costs of production.    They contend that Commerce
Cons. Court No. 00-01-00027                                  Page 32

improperly deviated from its practice of calculating costs on the

most product-specific basis available based on the level of

detail in a company’s accounting records.   LG Semicon argues that

because it maintained “accurate and fully verified records” that

listed product expenses according to particular products,

including DRAMs, Commerce should only include R&D costs

associated with producing DRAMs in LG Semicon’s cost of

production.   See Pl. LG Semicon’s Br. at 41.   Hyundai argues that

since its accounting records distinguish between memory and non-

memory products, its cost of production should only include R&D

costs linked to production of its memory products.    See

Memorandum of Points and Authorities in Support of Motion by

Plaintiffs Hyundai Electronics Industries Co., Ltd. and Hyundai

Electronics America for Judgment on the Agency Record   (“Pl.

Hyundai’s Br.”) at 33.

     Commerce and Micron maintain that there are intrinsic

benefits that occur between R&D expenditures on non-subject

merchandise and production of subject merchandise, and therefore

R&D costs for non-subject merchandise should be included in the

cost of production analyses.   Commerce contends that R&D cross-

fertilization occurs in the semiconductor industry based on the

findings of its expert, Dr. Murzy Jhabvala, Chief Engineer,

Instrument Technology Center, National Aeronautics and Space

Administration - Goddard Space Flight Center.
Cons. Court No. 00-01-00027                                   Page 33

      In the Final Results, Commerce determined that “DRAM-

specific R&D account entries do not by themselves reflect all

costs associated with the production and sale of subject

merchandise.”    64 Fed. Reg. at 69702.   According to Commerce, it

followed a “long-standing practice, where costs benefit more than

one product, to allocate these costs to all the products which

they benefit.”    Id.   This Court has held that it is appropriate

to include R&D expenditures for non-subject merchandise in

calculating the cost of producing the subject merchandise if

substantial evidence supports such a determination.     Micron

Tech., Inc. v. United States, 19 CIT 829, 832, 893 F. Supp. 21,

27 (1995).

      LG Semicon offers verified records that show product-

specific R&D costs at each of its laboratories demonstrating non-

DRAM R&D efforts do not benefit the production of DRAMs.      See Pl.

LG Semicon’s Br. App., C.R. 49 (Commerce’s Cost Verification

Report for LG Semicon), Ex. 8.    Similarly, Hyundai offers

evidence in the form of questionnaire responses showing that its

R&D costs are separated into memory and non-memory categories.

See Appendix to Pl. Hyundai’s Br. (“Pl. Hyundai’s Br. App.”) at

18.   Plaintiffs also submit the opinions of three experts that

explain how cross-fertilization of R&D expenditures within the

semiconductor industry is limited or non-existent.     See Appendix

to Pl. LG Semicon’s Reply Br. (“Pl. LG Semicon’s Reply Br.
Cons. Court No. 00-01-00027                                  Page 34

App.”), P.R. 56.   Plaintiffs have submitted substantial evidence

to demonstrate why R&D expenses for non-subject merchandise

should not be applied to subject merchandise.   See Micron, 19 CIT

at 832, 893 F. Supp. at 28 (describing substantial evidence as

“ample citation to verified record evidence that the subject

merchandise did not derive an intrinsic benefit from R&D related

to other semiconductor products”).

     In arguing that cross-fertilization occurs between DRAMs and

non-DRAM merchandise with respect to R&D costs in this case,

Commerce relies on the expert opinion of Jhabvala.     According to

Jhabvala, “SRAMs represent along with DRAMs the culmination of

semiconductor research and development.   Both families of devices

have benefitted from the advances in photolithographic techniques

. . . . Clearly, three distinct areas of semiconductor technology

are converging to benefit the SRAM device performance.”     See

Final Results, 64 Fed. Reg. at 69701 (citing September 8, 1997

Memorandum from Murzy Jhabvala to U.S. Department of Commerce,

Sept. 8, 1997).

     Jhabvala’s opinion is based upon his research for a prior

antidumping investigation regarding SRAMs.   See id.    However,

DRAMs, and not SRAMs, are the focus of this review.     Id. at

69694.   Moreover, the plaintiffs in the prior SRAM investigation

do not overlap with Plaintiffs in this investigation.    In fact,

Jhabvala had no direct contact or experience with Plaintiffs’
Cons. Court No. 00-01-00027                                  Page 35

practices during this review.    See Def.’s Mem. in Opp’n at 33.

Therefore, because the evidence submitted by Commerce concerns

different products and different parties to that of the current

review, the Court finds that Commerce has not offered substantial

evidence for the Court to sustain Commerce’s determination on the

theory of cross-fertilization.

     Accordingly, the Court remands this issue to Commerce to

provide additional information specifically pointing to the

effect of non-subject merchandise R&D on the R&D for the subject

merchandise, or alternatively, recalculating R&D costs on the

most product-specific basis possible for both LG Semicon and

Hyundai.


     2.    Commerce’s Rejection of Plaintiffs’ Method of
           Accounting for R&D Expenses is Not Supported by
           Substantial Evidence.

     Commerce included all R&D costs incurred during the fifth

administrative review in determining the R&D expenses for LG

Semicon and Hyundai.   Final Results, 64 Fed. Reg. at 69700.

Plaintiffs disagree with Commerce’s rejection of their accounting

methodology in calculating R&D expenses for the cost of

production.

     Specifically, LG Semicon and Hyundai maintain that

amortization of R&D costs over five years and the deferral of

certain R&D costs until relevant revenue from those R&D

expenditures is first realized are reasonable accounting
Cons. Court No. 00-01-00027                                   Page 36

practices, and in accordance with the generally accepted

accounting principles (“GAAP”) of the exporting country, South

Korea.   Final Results, 64 Fed. Reg. at 69699.   Under 19 U.S.C. §

1677b(f)(1)(A), the cost of production calculation should follow

GAAP of the exporting country.

     While Commerce does not disagree that the accounting

methodology is in accordance with Korean GAAP, Commerce finds

that the cost of production calculations for the companies have

been distorted for this period of review because of the switch to

the practice of amortization and deferral from the practice of

expensing all R&D costs incurred during a period.    Final Results,

64 Fed. Reg. at 69699.   Although this Court has previously

recognized amortization of R&D costs as an “established

practice,” Commerce may also enjoy judicial deference when

abandoning an established practice if there is reasoned analysis

behind Commerce’s decision.   Micron, 19 CIT at 833, 893 F. Supp.

at 28.

     Here, Commerce argues that this is not the first time that

LG Semicon and Hyundai have changed accounting methodologies.6


     6
       In 1991, both LG Semicon and Hyundai amortized R&D costs.
Preliminary Results, 64 Fed. Reg. at 30485. LG Semicon switched
to expensing full R&D costs in the year incurred in its 1993
financial statements. Id. Hyundai also switched to expensing
R&D costs in the year incurred sometime between 1991 and 1996.
Id. In 1997, LG Semicon and Hyundai changed again to amortizing
R&D costs. Id. In addition, Hyundai began deferring costs on
long-term R&D projects in 1996, and LG Semicon followed suit in
1997. Id.
Cons. Court No. 00-01-00027                                  Page 37

According to Commerce, Plaintiffs’ practice of “continually

changing” methodologies produces “aberrationally high amounts of

R&D expense in some years, and aberrationally low amounts of R&D

expense in other years, that do not reasonably reflect

[production] costs.”     Final Results, 64 Fed. Reg. at 69699.

However, Plaintiffs’ previous changes in accounting methodology

are not relevant in this case as the Court is concerned with the

actions of the parties with respect to their R&D costs only for

this period of review.    Moreover, Commerce rules out any

implication of deliberate manipulation to artificially lower

costs by Plaintiffs through their switch in accounting

methodologies.   Def.’s Mem. in Opp’n at 36.

     Commerce also points out that the inadvertent result of the

change in accounting practice allows LG Semicon and Hyundai to

recognize less than one-fifth of the current year’s R&D costs as

a result of the change in methodology.     Final Results, 64 Fed.

Reg. at 69699.   However, in switching from expensing to

amortization, a difference in costs will likely occur, as

amortization by definition permits the allocation of costs over

the market life of the product,7 while expensing costs during the

period incurred necessarily implies a one-time charge.



     7
       See BLACK’S LAW DICTIONARY (7th ed. 1999). Amortization is
defined as the “act . . . of apportioning the initial cost of a
usually intangible asset . . . over the asset’s useful life.”
Id.
Cons. Court No. 00-01-00027                                  Page 38

     In evaluating Plaintiffs’ cost allocations, Commerce shall

also consider whether the accounting methodology has been

historically used by the exporter or producer, particularly for

establishing appropriate amortization and depreciation periods.

See 19 U.S.C. § 1677b(f)(1)(A).   While LG Semicon and Hyundai

have no immediate historical basis for their preference in

amortizing R&D expenses, both companies have amortized R&D costs

in the past.   In addition, this Court found in Micron that the

amortization period afforded by Korean GAAP of three to five

years is generally consistent with the actual DRAM life cycle of

three and one-half to four years.   Micron, 19 CIT at 834, 893 F.

Supp. at 29.

     In addition to switching to amortization during the review

period, Plaintiffs adopted the practice of indefinitely deferring

the costs of R&D projects that were not linked to any current

production or revenue.   Commerce claims that the practice of

indefinite deferral of R&D costs is inconsistent with the

conservatism principle in accounting.   Final Results, 64 Fed.

Reg. at 69699.   Conservatism in accounting calls for the

recognition of expenses when incurred if the probability of

associated revenue is remote or uncertain.   Id.

     Plaintiffs point out that their methodology, which is in

accordance with Korean GAAP, does follow the principle of

conservatism in accounting.   Under Article 70.5 of Korean GAAP,
Cons. Court No. 00-01-00027                                   Page 39

any unamortized balance remaining for R&D costs will be expensed

immediately if the possibility of realizing revenue from a

specific R&D project becomes remote.    Pl. Hyundai’s Br. at 27.

     Only R&D costs that are related to the production and

revenue of the subject merchandise for the review period should

be included in Commerce’s calculations.    See 19 U.S.C. §

1677b(f)(1)(A).   Thus, if R&D expenditures for long-term projects

affect the production and revenues for subject merchandise for

the review period, those costs should be allocated into the cost

of production calculation.    Commerce has not provided specific

evidence on the record to show that R&D costs that are currently

deferred actually affect production and revenue for this review

period.

     Accordingly, the Court remands to Commerce to provide

specific evidence regarding how Plaintiffs’ actual R&D costs for

this period of review are not reasonably accounted for in its

amortized R&D costs.   The Court also instructs Commerce to

provide additional information and to present substantial

evidence on the record showing how R&D costs for long-term

projects might affect current projects for this review period

with respect to deferral.


     3.   Commerce’s Calculation of Hyundai’s R&D Cost Allocation
          Ratio Is Reasonable.
Cons. Court No. 00-01-00027                                Page 40

     To determine Hyundai’s R&D expenses, Commerce calculated the

company’s R&D allocation ratio by dividing R&D expenses for

semiconductors by the cost of semiconductors sold (“COGS”) to

arrive at a per unit cost of R&D.   This formulation of the R&D

allocation ratio has been used consistently by Commerce in the

past.   See Notice of Final Determination of Sales at Less Than

Fair Value: Dynamic Random Access Memory Semiconductors of One

Megabit and Above From Taiwan, 64 Fed. Reg. 56308, 56311-12 (Oct.

19, 1999); Dynamic Random Access Memory Semiconductors of One

Megabit or Above From the Republic of Korea: Final Results of

Antidumping Duty Administrative, Partial Rescission of

Administrative Review and Notice of Determination Not to Revoke

Order, 63 Fed. Reg. 50867, 50870 (Sept. 23, 1998); Notice of

Final Results of Antidumping Duty Administrative Review and

Determination Not to Revoke Order in Part: Dynamic Random Access

Memory Semiconductors of One Megabyte or Above from the Republic

of Korea, 62 Fed. Reg. 39809, 39823 (Jul. 24, 1997); and 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, 15470 (Mar. 23, 1993).

Commerce then multiplied the R&D allocation ratio by the cost of

semiconductors manufactured (“COM”) to determine the R&D expenses

for semiconductors.
Cons. Court No. 00-01-00027                                   Page 41

     Hyundai argues that COM instead of COGS should be used in

the denominator of the R&D allocation ratio.    Differences, if

any, between cost of manufacturing and cost of goods sold should

generally be “random,” since the cost of goods sold should be a

reasonable approximation of the cost of manufacturing.       See Pl.

Hyundai’s Br. at 37-38.    However, Hyundai points out the

difference between COGS and COM in this proceeding is not random,

but inherent to the DRAM industry in general, as each new

generation of DRAMs is more costly to produce than the prior

generation due to a consistent trend towards higher density

products.   Id.

     The fact that the use of COGS might reflect historical

production costs rather than account for cost increases during

the period of review is not reason alone to reject a COGS-based

approach to calculating costs.     See AIMCOR, Alabama Silicon, Inc.

v. United States, 18 CIT 1106, 1116, 871 F. Supp. 455, 463-64

(1994).   Moreover, Hyundai has not provided sufficient evidence

to show that the extent of the difference between COGS and COM is

systematic in nature.     See, e.g., Camargo Correa Metais. S.A. v.

United States, 21 CIT 1249, 1255-56 (1997) (explaining systematic

difference between COGS and COM can occur when historical figures

used in COGS may not take into account the rapidly rising costs

used to calculate COM during a period of extreme hyperinflation).

Hyundai provides data to indicate a constant relationship between
Cons. Court No. 00-01-00027                                  Page 42

manufacturing costs and the cost of goods sold for the accounting

periods of 1995, 1996, 1997, and the first half of 1998 to show

that COM is higher than COGS for the company.   See Pl. Hyundai’s

App. 25.   The limited data, however, indicates that the

differences between the figures are still reasonably close

approximations of each other, except for the accounting period of

1997, which happens to overlap with the period of this review.

     Accordingly, the Court finds that Commerce reasonably

applied COGS to the R&D allocation ratio.


     4.    Hyundai Does Not Provide Sufficient Evidence of Double
           Counting by Commerce.

     In determining Hyundai’s total R&D costs, Commerce included

costs incurred by Hyundai Electronics Industries Co., Ltd.

(“Hyundai International”) for certain long-term R&D projects in

addition to expenses incurred by Hyundai Electronics America,

Inc. (“Hyundai America”), a subsidiary, for work performed for

Hyundai International on a portion of the same R&D projects.

Hyundai argues that Hyundai International reimbursed Hyundai

America for this R&D work, and therefore the inclusion by

Commerce of the costs incurred by Hyundai America should not be

counted at all.

     Commerce recognizes that Hyundai America received payments

from Hyundai International for certain R&D projects.   See Def.’s

Mem. in Opp’n at 39.   However, Hyundai does not provide evidence
Cons. Court No. 00-01-00027                                    Page 43

of its own records verifying that Hyundai International actually

made the payments to Hyundai America.    See id. at 39.     Hyundai,

as plaintiff and possessor of the necessary documents, bears the

burden of producing the evidence to provide an accurate record in

the antidumping investigation.    See Ta Chen Stainless Steel Pipe,

Inc. v. United States, 298 F.3d 1330, 1336 (Fed. Cir. 2002)

(quoting Zenith Elecs. Corp. v. United States, 988 F.2d 1573,

1583 (Fed. Cir. 1993)).    Accordingly, without evidence on the

record to determine otherwise, the Court affirms Commerce’s

determination in the Final Results on this issue.


     5.   Commerce’s Treatment of Hyundai’s Interest Earned on
          Severance Deposits Is Reasonable.

     In the Final Results, Commerce included the cost of

severance payments in Hyundai’s labor cost, but did not use the

interest income generated from the severance payments as an

offset to interest expense.    See 64 Fed. Reg. at 69707.    Hyundai

argues that this interest income should be treated as an offset.

See Pl. Hyundai’s Br. at 44.

     Hyundai contends that the interest income at issue is

generated from severance deposits that the company is required to

maintain with insurance companies to finance current severance

and retirement payments.    See Pl. Hyundai’s Br. at 43.

Furthermore, Hyundai explains that it has chosen to deposit the
Cons. Court No. 00-01-00027                                    Page 44

full amount of severance benefits with the insurance companies in

order to qualify for tax benefits.     Id.

     Interest income will be treated as an offset if there is a

showing that the interest income is related to the “general

operations” of the firm.     Timken Co. v. United States, 18 CIT 1,

9, 852 F. Supp. 1040, 1048 (1994).    Although the income does not

have to relate specifically to production of subject merchandise,

the interest income should be related to the ordinary operations

of the firm.   See id. at 7, 852 F. Supp. at 1046.    Interest

income generated from loans and short-term deposits that was

“temporarily free” until used to fund the company’s business

qualifies as an offset.     Id. at 10, 852 F. Supp. at 1049.

Interest income generated from investment activity is generally

not allowed as an offset.     NTN Bearing Corp. of America v. United

States, 19 CIT 1221, 1237, 905 F. Supp. 1083, 1096 (1995)

(Commerce may disallow an offset because no distinction was made

between interest income generated from investment activity and

manufacturing operations).    However, interest income may be

treated as an offset where there is sufficient evidence that the

interest income from long-term investment is related to the

current operations of a company.     Gulf States Tube Div. of Quanex

Corp. v. United States, 21 CIT 1013, 1038, 981 F. Supp. 630, 651

(1997).
Cons. Court No. 00-01-00027                                  Page 45

     In the Final Results, Commerce decided not to treat the

interest income generated from the severance benefits as an

offset, but did offset interest income earned on collateral

deposited with the Korea Development Bank.     64 Fed. Reg. at

69707.   The funds deposited with the Korea Development Bank were

a prerequisite for Hyundai to receive loans for its business

operations, and accordingly, Commerce concluded that the interest

income generated was tied to specific loans related to the

general operations of the company.   In addition, the interest

income from the Korea Development Bank deposits served to lower

the effective interest rate from banks, thereby decreasing the

financing costs of current operations.   Id.

     Hyundai fails to adequately explain how interest income

earned on deposits of severance payments is directly related to

current operations.   Commerce may treat short-term interest

income generated from payroll-related accounts as an offset

because the funds are part of working capital accounts necessary

for current operations.   See Notice of Final Determination of

Sales at Less than Fair Value: Certain Preserved Mushrooms from

India, 63 Fed. Reg. 72246, 72252 (Dec. 31, 1998).     However,

payroll expenses do not necessarily include severance pay.       See

Holland v. Burlington Industries, Inc., 772 F.2d 1140, 1146 (4th

Cir. 1985) (distinguishing between severance pay as an “employee

welfare benefit plan” available only after termination of
Cons. Court No. 00-01-00027                                  Page 46

employment and payroll as “general asset compensation during

employment”); Matter of Hughes-Bechtol, Inc., 117 BR 890, 902

(Bankr. S.D. Ohio 1990) (explaining “normal gross payroll

includes vacation . . . and other group benefits, but excludes

severance”).     Unlike the funds deposited by Hyundai with the

Korea Development Bank that were a requirement to receive loans

for business operations, Hyundai chose to deposit the full amount

of the severance benefits with the insurance companies in order

to receive the maximum benefits of a tax deduction.     See Pl.

Hyundai’s Br. at 43.    In light of this reasoning, the Court finds

Commerce’s position that severance insurance deposits are long-

term investments not tied to current operations was not arbitrary

or capricious.

     Accordingly, the Court affirms Commerce’s decision not to

treat income interest generated from severance deposits as an

offset to Hyundai’s interest expense.



                            IV. CONCLUSION

     For the aforementioned reasons, the Final Results are

sustained in part and reversed and remanded in part.

Accordingly, Plaintiffs’ motion for judgment on the agency record

is granted in part and denied in part.

     A separate order will be issued accordingly.
Cons. Court No. 00-01-00027                              Page 47


                               /s/ Richard W. Goldberg

                               Richard W. Goldberg
                               Senior Judge

Date:     April 16, 2004
          New York, New York
