66 FR 52097, October 12, 2001 A-580-812 ARP: 5/1/1999 - 12/31/1999 Public Document GIIOIV: PRR MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Bernard T. Carreau Deputy Assistant Secretary for Import Administration SUBJECT: Issues and Decision Memorandum for the Administrative Review of Dynamic Random Access Memory Semiconductors from Korea - 5/1/1999 through 12/31/1999; Final Results Summary We have analyzed the comments and rebuttal comments of interested parties in the 1999 administrative review of the antidumping duty order covering Dynamic Random Access Memory Semiconductors (DRAMs) from Korea. As a result of our analysis, we have made changes from our preliminary results. We recommend that you approve the positions we have developed in the Discussion of the Issues section of this memorandum. Below is the complete list of the issues in this administrative review for which we received comments and rebuttal comments by parties: Comment 1: Offset to Foreign Currency Translation Losses Comment 2: Research and Development (R&D) Comment 3: Cross-Fertilization of R&D Comment 4: Use of Cost of Goods Sold (COGS) to Calculate R&D Ratio Comment 5: Increase in Useful Lives Comment 6: U.S. Antidumping Statute and World Trade Organization (WTO) Antidumping Agreement Comment 7: Post Period of Review (POR) Sales of Subject Merchandise Entered During the POR Comment 8: Offset for Constructed Export Price (CEP) Sales Comment 9: Recalculation of Expenses in Margin Program Comment 10: Calculation of Home Market (HM) Credit Expense Comment 11: CEP Profit Ratio - Calculation of Total Profit Comment 12: U.S. Credit Expense Background On June 7, 2001, the Department of Commerce (the Department) published the Dynamic Random Access Memory Semiconductors of One Megabit or Above From the Republic of Korea: Preliminary Results of Antidumping Duty Administrative Review, 66 FR 30688 (June 7, 2001) (Preliminary Results). Because the order was revoked, effective January 1, 2000, pursuant to the sunset procedures established by the statute, the period of review (POR) is May 1, 1999, through December 31, 1999. The merchandise covered by this order is DRAMs from the Republic of Korea. The review covers two manufacturers, Hyundai Electronics Industries Co., Ltd. and its U.S. sales affiliate Hyundai Electronics America, and LG Semicon Co., Ltd. (LG) and its U.S. sales affiliate LG Semicon America (collectively LG), and six resellers, the G5 Corporation (G5), Kim's Marketing, Jewon Trading (Jewon), Wooyang Industry Co., Ltd. (Wooyang), Jae Won Microelectronics (Jae Won), and Techsan Electronics (Techsan). As discussed in the Preliminary Results, we have collapsed Hyundai and LG into one entity for this review (collectively Hyundai). See Decision Memorandum: Whether to Collapse Hyundai Electronics Industries Co., Ltd. and LG Semicon Co., Ltd. Into a Single Entity, dated May 1, 2001. However, for the purposes of analysis, the Department discusses LG as a separate entity when referring to events that have taken place prior to the collapsing of Hyundai and LG. We invited parties to comment on our preliminary results of review. We received comments on July 9, 2001, from Hyundai and from Micron Technology, Inc. (petitioners). On July 17, 2001, we received rebuttal briefs from petitioners and Hyundai. The Department has conducted this administrative review in accordance with section 751 of the Act of 1930, as amended (the Act). Changes Since the Preliminary Results Since the preliminary results we have made the following change in our calculations: We corrected an error in the CEP offset calculation, see Comment 8. We corrected two errors in the final margin part of the program, see Comment 9. We recalculated HM credit expense, see Comment 10. We recalculated CEP profit ratio, see Comment 11. We recalculated U.S. credit expense, see Comment 12. Discussion of the Issues Comment 1: Offset to Foreign Currency Translation Losses Hyundai argues that the Department erred in rejecting the use of asset revaluation increments (the increase in the value of Hyundai's capital equipment resulting from an independent appraisal) as an offset to deferred foreign currency translation losses. Hyundai states that it revalued its property, plant, and equipment in accordance with the Asset Revaluation Law of Korea and the Korean Generally Accepted Accounting Principles (GAAP). Hyundai states that foreign currency translation losses and the increased value of the assets in won purchased with dollar- denominated debt were the result of the same cause: the rapid devaluation of the won. Hyundai contends it is appropriate to offset deferred foreign currency translation losses by the increase in the value of the fixed assets because the foreign currency translation losses were incurred on loans that were used to purchase those assets. Hyundai contends that its use of the revaluation increment to offset foreign currency translation losses is consistent with the accounting principle of matching related income and expenses, which it notes is a basic tenet that the Department has endorsed in other antidumping proceedings. See Notice of Final Determination of Sales at Less Than Fair Value: Certain Cut-To-Length Carbon-Quality Steel Plate Products from Korea, 64 FR 73196 (December 29, 1999) (Plate from Korea). Hyundai asserts that, in Plate from Korea, 64 FR at 73206, the Department explicitly acknowledged the match between asset revaluation and foreign currency translation losses. Further, Hyundai believes that inclusion of both the restated asset values and the foreign currency translation losses in Hyundai's cost of production (COP) results in a double counting of the impact of exchange rate fluctuations. According to Hyundai, the deferred foreign currency translation losses represent the won increase in principal that Hyundai must pay in order to retire its debt. That principal was converted by Hyundai to depreciable physical assets through the purchase of semiconductor manufacturing equipment. The impact of the won devaluation on the principal, according to Hyundai, is fully reflected in the increase in won asset values and thus flows through the income statement as increased depreciation expenses. Micron argues that respondent's argument does not directly address the point made by the Department in the final results of the sixth review. Micron states that Hyundai adopted a one-way ratchet designed to manipulate its apparent profitability in one year. In particular, Micron notes that when Hyundai experienced significant foreign exchange gains in 1998, it did nothing to revalue its assets. According to Micron, given the distortive nature of the asset revaluation/foreign exchange loss offset practice, the Department appropriately continued to use the sixth review methodology in this review, and it should continue to do so for the final results. Department's Position: We disagree with Hyundai. Fixed assets are revalued because inflation renders meaningless in terms of today's values the historical values in which the assets were originally recorded, and hence their values are adjusted upward. Foreign exchange gains or losses recognize the real cost of having to spend more won to pay back the same dollar value loan. Therefore, we disagree that the foreign exchange losses and the revaluation increment are directly linked and that the offset of these losses by the revaluation increment is appropriate. Section 773(f)(1)(A) of the Act directs the Department to rely "on the records of the exporter or producer of the merchandise, if such records are kept in accordance with the GAAP of the exporting country (or the producing country where appropriate) and reasonably reflect the costs associated with production and sale of the merchandise." Section 773(f)(1)(A) of the Act also states that the Department will consider whether "such allocations have been historically used by the exporter or the producer." Further, as explained in the Statement of Administrative Actions, Uruguay Round Agreements Act, Pub. L. No. 103.465, 103rd Cong. 2d Sess., H. Doc. 103-316, vol. I (1994) (SAA), "[t]he exporter or producer will be expected to demonstrate that it has historically utilized such allocations, particularly with regard to the establishment of appropriate amortization and depreciation periods and allowances for capital expenditures and other development costs." See SAA at 834. Both the fixed asset revaluation increment and the unamortized foreign exchange translation losses were treated as adjustments to the equity section of Hyundai's balance sheets (i.e., did not flow through its income statements) in the ordinary course of business, in accordance with Korean GAAP. (1) For submission purposes, Hyundai excluded both of these items from its reported costs. (2) While we agree with this treatment for the fixed asset revaluation increment, we believe exclusion of the unamortized foreign exchange translation losses is distortive because the revaluation of the fixed assets (i.e., non-monetary assets) does not represent income during the year. In economic terms, the company is in the same position holding the same assets. Likewise, the revaluation of non-monetary liabilities (e.g., equity and capital) does not represent a loss during the fiscal year; rather, it represents the restatement of non-monetary liabilities into current price levels just as was accomplished by the restatement of the fixed assets. See Notice of Final Determination of Sales at Less Than Fair Value: Certain Preserved Mushrooms from Chile, 63 FR 56613, 56621 (October 22, 1998). In other words, the restatement of the book value of a truck into a greater number of (lower value) won does not result in an economic gain since one still only owns the truck. Therefore, we do not include the incremental gain resulting from these revaluations in our antidumping analysis. We include only the depreciation on the revalued asset values in our COP and constructed value (CV) computations since it represents a production expense stated at current price levels. The notion of depreciation expense is to spread the initial cost of acquiring a fixed asset over the useful life of that asset in order to match the resulting expense to the revenues of the corresponding period. A failure to adjust the historical cost basis of the fixed assets for the significant devaluation of the won results in the depreciation recognized in the current year being understated. In order to avoid this understatement, Hyundai revalued its fixed assets during the year and recognized depreciation expense on the higher revalued basis in the ordinary course of business. (3) Accordingly, we have continued to rely on Hyundai's normal books and records by including the increased depreciation expense based on the revalued asset basis, and by not including the fixed asset revaluation increment in the reported costs. The deferred foreign currency translation losses are the result of exchange rate changes on foreign denominated debt. Because loans are monetary assets, the respondent is obligated to pay back the full amount of the loans in the currency in which they are denominated. Thus, when the won loses value in relation to the foreign currency in which the loans are denominated, the loans' year-end balance in won increases, indicating that the debtors will have to pay more won to satisfy the loans (i.e., translation losses). The Department's practice is to include foreign exchange translation gains and losses related to current debt in the COP and CV computations. See, e.g., Notice of Final Determination of Sales at Less Than Fair Value: Fresh Atlantic Salmon From Chile, 63 FR 31411, 31430 (June 9, 1998). It is only because Hyundai has continually changed its method of accounting for its foreign currency translation gains and losses that the issue of amortization arises. In 1997, Hyundai capitalized its long-term translation losses, and amortized the losses over the lives of the corresponding liabilities. In 1998, the unamortized translation losses still remained. The respondent, in its new accounting methodology, simply moved these translation losses to a different part of its balance sheet. While this may be appropriate for Korean financial accounting, for antidumping purposes, this new practice fails to reasonably reflect the cost of producing the subject merchandise: the respondent's new accounting treatment of these translation losses does not change that fact that these translation losses represent an additional cost of financing to the companies, as was recognized by the respondent in its amortization of these translation losses in its own books and records in 1997. The respondent's 1997 treatment of the deferred financial losses is also consistent with the Department's amortization of the respondent's deferred translation gains and losses in the fourth administrative review covering 1996, when Hyundai did not recognize in its income statements any of its deferred translation gains and losses. See Dynamic Random Access Memory Semiconductors of One Megabit or Above From the Republic of Korea: Final Results of Antidumping Duty Administrative Review, Partial Rescission of Administrative Review and Notice of Determination Not to Revoke Order, 63 FR at 50872 (September 23, 1998) (Final Results 1996-1997). The unreasonableness of the respondent's new accounting method for its deferred translation losses in 1998 is further highlighted by the inconsistent way in which it treats its deferred translation gains in that same year. While Hyundai and LG wrote off the deferred translation losses to the equity section of the balance sheet, they continued amortizing the deferred gains (i.e., they reflected the gains on the income statement) in 1999. (4) This inconsistent accounting treatment of deferred translation gains and losses greatly diminishes the impact of the losses, and heightens the impact of the gains. Therefore, consistent with the respondent's practice for both translation losses and gains in 1997 and for deferred translation gains in 1998 and the Department's practice, we have continued to include an amortized portion of the 1997 long-term translation losses in the respondent's COP. Comment 2: R&D Hyundai states that the Department overstated Hyundai's R&D costs by including in such costs product development expenses for future projects that Hyundai had amortized and deferred, in accordance with Korean GAAP. Respondent argues that it submitted R&D costs based on its financial accounting records, which, in turn, were based on Korean GAAP. Hyundai claims that its reported R&D costs were derived from its normal accounting records based on Korean GAAP. Consistent with the International Accounting Standards (IAS), Korean GAAP allows for amortization of product development costs where the beneficiary products can be reasonably expected to have a multi-year life span. The product development costs are amortized over the life of the product. "Deferred" R&D costs are those product development costs that were incurred for future products that have not yet been produced and, therefore, for which there is no current revenue. Such development costs are deferred until production commences, unless there is no reasonable expectation that the expenditures will ever result in commercial benefits. In the latter situation, Hyundai following Korean GAAP and the IAS, expensing those development costs in the current year. Respondent argues that its submitted R&D costs were based on its financial accounting records, which in turn, were based on Korean GAAP. Hyundai further argues that the Department has accepted foreign GAAP principles that capitalize costs where U.S. GAAP would otherwise expense those costs and cites to several cases to support its claim. Hyundai states the Court of International Trade (CIT) in the original investigation in this case found that capitalization of R&D costs under Korean GAAP reasonably reflects the costs of production. See Micron Technology, Inc. v. United States, 893 F. Supp. 21, 29 (CIT 1995) (Micron I). In the case cited by Hyundai, the Department found that amortization of R&D expenses matches production costs to future benefits. Hyundai argues that the record in this case demonstrates Hyundai's development costs also result in imminent and predictable future benefits, thus, it is appropriate for Hyundai to defer and amortize product development costs pursuant to Korean GAAP. Hyundai argues that Korean GAAP's treatment of R&D expenses reasonably reflects the costs of production. According to the respondent, the Department is incorrect in utilizing the methodology used in the sixth review final determination when the Department stated that the "matching principle" cannot be applied to R&D costs because there is a lack of recognizable future benefits, and therefore, the concept of conservatism in accounting dictates that those costs be expensed in the accounting period in which they are incurred. According to Hyundai, the Department relied on the Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards No. 2 (SFAS No. 2). The FASB believes that both R&D costs should be expensed due to the high degree of uncertainty regarding the future benefits of individual R&D projects. According to Hyundai, the International Accounting Standards Committee's (IASC) International Accounting Standard 9 (IAS9) takes a different approach with respect to accounting for R&D costs. Research costs are to be expensed as they are incurred but development costs of a project may be deferred and amortized if five criteria are met. Hyundai states that it meets those five criteria and Korean GAAP follows IAS 9. Additionally, the vast majority of the major industrialized nations follow at least some variant of IAS. Hyundai adds that the Department has been proceeding down a path largely inconsistent with the rest of the world, and the growing weight of accounting opinion. Hyundai urges the Department to accept Korean GAAP as reasonable. Hyundai argues that the fact that Hyundai changed its accounting treatment of R&D expenses several years ago is not a justification for rejecting Hyundai's costs. Hyundai claims that the statute does not prohibit a respondent from changing its accounting practices provided the change is consistent with that country's GAAP and the new methodology does not distort costs. Further, Hyundai states that administrative reviews are wholly independent proceedings, therefore, adjustments to costs in one period cannot subsequently effect every period thereafter. Consequently, the Department should only evaluate whether the accounting methodology used during the current POR accurately reflects the costs of production. Hyundai adds that the Department's position would force a company involved in an antidumping proceeding to never change any of its accounting practices. Micron argues that the Department properly rejected the costs of Hyundai's most recent method of accounting as distortive. Micron claims that the latest set of changes follows a pattern of frequent changes in Hyundai's and LG's accounting treatment of R&D. Micron also claims that the Department's decision is in accordance with the statute, past practice, and CIT precedent. Despite Hyundai's arguments, Micron asserts that section 773(f)(1)(A) of the Act provides that costs shall "normally' be based on the company's records in accordance with local GAAP unless such records do not "reasonably reflect the costs associated with production and sale of the merchandise." In addition, the Uruguay Round Agreements Act and the accompanying SAA instruct the Department to question instances when the foreign producer has deviated from its historical allocations. See SAA at 834. Micron points out that the Department does not defer to a company's records, even when kept in accordance with local GAAP, if its accounting methodologies distort costs. See, e.g., Certain Small Business Telephone Systems and Subassemblies Thereof From Korea, 54 FR 53141, 53149 (December 27, 1989). Micron states that Hyundai's assertion that the Department's determination contradicts Micron I is incorrect. Micron claims that the critical factors distinguishing the circumstances here from the original investigation are Hyundai's frequent changes in accounting methodologies and its deferral of certain costs. Micron submits that the international standards that Hyundai discusses are not inconsistent with the Department's analysis. According to Micron, U.S. GAAP requires that all R&D costs be expensed in the year incurred. IAS 9 requires that costs identified as research be charged to current expenses, but that costs identified as development be capitalized if specified criteria are met, including that the "costs attributable to the product can be separately identified and measured reliably." Micron continues to say if, however, those criteria are not met, development costs should be charged to expense. According to Micron, in this respect IAS 9 is similar to SFAS No. 2, which provides that R&D expenses cannot be matched to revenues because the benefits of R&D cannot be discerned at the time the costs are incurred. In this case, Hyundai did not indicate that it could have associated future revenues and current R&D with any reasonable certainty. Micron claims that, for this reason, the Department's decision is especially appropriate for this particular industry, and for this particular respondent. Department's Position: Section 773(f)(1)(A) of the Act directs the Department to rely "on the records of the exporter or producer of the merchandise, if such records are kept in accordance with the GAAP of the exporting country (or the producing country where appropriate) and reasonably reflect the costs associated with production and sale of the merchandise." Section 773(f)(1)(A) of the Act also states that the Department will consider whether "such allocations have been historically used by the exporter or the producer." Further, as explained in the SAA, "[t]he exporter or producer will be expected to demonstrate that it has historically utilized such allocations, particularly with regard to the establishment of appropriate amortization and depreciation periods and allowances for capital expenditures and other development costs." See SAA at 834. See also, Final Results 1996-1997, 63 FR at 50871. We agree with Hyundai that its method of amortizing and deferring R&D costs is permissible under Korean GAAP, and that its previous method of expensing all current period R&D expenses in the year incurred is also in accordance with Korean GAAP. However, Hyundai's practice of continually changing between these methods distorts the cost calculation in an antidumping analysis. As discussed in the Department's Issues and Decision Memorandum for the Administrative Review of Dynamic Random Access Memory Semiconductors of One Megabit or Above from the Republic of Korea - 5/1/1998 through 4/30/1999; Final Results, dated November 15, 2000, (Decision Memorandum) from the sixth review of this proceeding, Hyundai and LG have repeatedly changed their accounting method for R&D expenses throughout the course of this proceeding (i.e., from capitalizing and amortizing, to expensing in the year incurred, and now back to capitalizing and amortizing). As a result, they recognize 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 the costs of producing the subject merchandise. See Dynamic Random Access Memory Semiconductors of One Megabit or Above From the Republic of Korea; Final Results of Antidumping Duty Administrative Review, 61 FR 20216, 20219 (May 6, 1996) (Final Results 1992-1994) and Micron Technology, Inc. v. United States, 44 F. Supp. 2d 216 (CIT 1999) (Micron II). In the current review period, Hyundai used the accounting methodology, adopted in the fifth administrative review, of capitalizing and amortizing its R&D expenses over five years. As a result, the respondent recognizes (and has reported to the Department) approximately one-fifth of its current year's R&D costs. (5) If it had consistently used this capitalization and amortization method in past years, one-fifth of the R&D expense incurred in each of the previous four years, in addition to the one-fifth of the current year's amount, would be included in the current year's income statement. However, because of inconsistent accounting treatment, in this POR the respondent is recognizing an aberrationally low amount of R&D expenses in the current year. A second methodological issue that further distorts Hyundai's reported costs is its practice of indefinitely deferring certain R&D costs. Apart from R&D costs that are amortized over five years, Hyundai is completely deferring R&D costs for certain long-term projects until it realizes revenues from these projects, or until they foresee no possibility of realizing revenue from these projects. While in the past, the respondents recognized all of this type of R&D expense in the year incurred, under the current methodology, none of this R&D expense is recognized in the current year. Moreover, this methodology is contrary to the principle of conservatism in accounting where an expense is recognized when incurred if the probability of associated revenue is remote or uncertain. Therefore, we find that, for dumping purposes, this methodology does not reasonably reflect the cost of producing the subject merchandise. Hyundai, by continually changing its R&D accounting methodology, is manipulating the magnitude of the R&D expenses that it is recognizing and reporting to the Department in each POR. This switching of methodologies can lead to distortions for antidumping purposes because the fluctuating costs tend to overstate per unit amounts in one period and understate these amounts in other periods. The CIT has noted the distortion that such changes in R&D accounting methodologies can cause. In Micron II (which relates to the first review of this proceeding, when LG switched from amortizing to expensing R&D costs in the current review), the Court ruled that it was distortive for the Department to include in its calculations, as LG included in its own books and records, both the current year's R&D expenses and the unamortized amount of prior years' R&D expenses. See Micron II. In the same manner that the CIT believes that the amount of R&D expenses that LG recognized, and the Department included in its calculations in the first review (i.e., one full current year amount, plus prior capitalized amounts), was overstated, the amount of R&D expenses that Hyundai recognized in the current review (i.e., less than one-fifth of one year's total R&D expense) is understated. The Court, in Micron II, specifically stated that "the object of the cost of production exercise is...to capture...those expenses that reasonably and accurately reflect a respondent's actual production costs for a period of review." See Micron II, 44 F. Supp. 2d at 216. However, by abruptly switching back to amortizing and deferring R&D expenses, Hyundai is not capturing those expenses that reasonably and accurately reflect their actual R&D costs for this POR. As a result of its constantly changing R&D accounting methodologies, its latest method of capitalization of R&D produces a distorted result that does not reasonably reflect the actual cost of producing the subject merchandise. As noted in Hyundai's case brief, the Department did verify how Hyundai recorded its R&D expenditures in the normal course of business. The Department did verify the information that Hyundai presented in its response which was consistent with Korean GAAP. See Verification Report, May 31, 2001. However, the issue is not whether Hyundai's reporting methodology is consistent with Korean GAAP or is the same as was reported to the Department, but whether the change in accounting methodologies is distortive with respect to Hyundai's costs. As stated above, the Department finds that Hyundai's continual changing of its accounting methodologies, regardless of its adherence to Korean GAAP, is distortive. We have therefore determined that it is appropriate to recognize for antidumping purposes all of Hyundai's 1999 R&D expenses in order to reasonably and accurately reflect the company's actual R&D costs for a given year. The Department also believes that, in general, recognizing the current year's R&D expenses is a reasonable method to recognize R&D expenses. This methodology is consistent with both Korean and U.S. GAAP, and is the same methodology that Hyundai had been following prior to the fifth administrative review. Further, we disagree with Hyundai that the Department's decision to reject its R&D accounting methodologies is contrary to the Micron I decision. First, in Micron I, the Court ruled that the Department "failed to articulate a reasoned analysis justifying the departure from its established practice of amortizing those R&D expenses." See Micron I, 893 F. Supp at 28. In contrast, in the present case, the Department has specifically articulated how amortizing and deferring R&D expenses is distortive. Second, the Department's methodology of expensing R&D costs in the year incurred is not a "departure from its established practice." While the Department, prior to the final determination, in the cases cited by Hyundai (i.e., CTVs from Korea, Pipe from Korea, and PET Film), allowed respondents to amortize R&D, the Department, for at least the last six years and throughout the course of this proceeding, has constantly required that respondents recognize R&D expenses in the year incurred. See, e.g., 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 FR 15467, 15472 (March 23, 1993) (Final Determination) (Department rejected amortization of R&D), Final Results 1992-1994, Dynamic Random Access Memory Semiconductors of One Megabit or Above From the Republic of Korea; Final Results of Antidumping Duty Administrative Review, 62 FR 965 (January 7, 1997) (Final Results 1994- 1995), 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 FR 39809 (July 24, 1997) (Final Results 1995-1996), Final Results 1996- 1997, and Dynamic Random Access Memory Semiconductors of One Megabit or Above From the Republic of Korea: Final Results of Antidumping Duty Administrative Review, 65 FR 68976 (November 15, 2000) (Final Results 1998- 1999). See also Notice of Final Determination of Sales at Less Than Fair Value: Static Random Access Memory Semiconductors From Taiwan, 63FR 6909 (February 23, 1998) (SRAMs from Taiwan); Notice of Final Determination of Sales at Less Than Fair Value: Static Random Access Memory Semiconductors From the Republic of Korea, 63 FR 8934 (February 23, 1998) (SRAMs from Korea) (Department accepted expensing of current R&D) and Notice of Final Determination of Sales at Less Than Fair Value: Dynamic Random Access Memory Semiconductors of One Megabit and Above (DRAMs) From Taiwan, 64 FR 56308, 56319 (October 19, 1999) (DRAMs from Taiwan) (Department agreed that "R&D costs should be expensed as incurred"). Third, the facts in Micron I and the present case are different. The Micron I decision concerned only the respondents' amortization of R&D expenses, while the present case also involves the respondent's practice of continually changing how it recognizes R&D expenses. Further, we disagree with Hyundai that the Department would never allow a company to change from expensing any cost to amortizing that cost because of the reduced cost recognized in the transition year. The Department evaluates any such change on a case by case basis. In the present case, as explained above, as a result of the continually changing methodology we found that the reduced R&D costs recognized by Hyundai and LG through the amortization and deferral of their R&D expenses, and resulting allocation of R&D expenses to merchandise, does not reasonably reflect the cost of producing the subject merchandise. Comment 3: Cross-Fertilization of R&D Respondent argues that the Department's R&D calculation improperly included R&D costs for non-memory products. According to respondent, Hyundai utilized its accounting records to calculate an R&D ratio based solely on R&D costs incurred for memory products. Hyundai asserts that the Department verified that Hyundai tracks every R&D expense item based on the individual product to which the R&D project is directed. See Verification Report, at 12. Respondent states that it believes that the Department's decision is based on its belief that there are "cross- fertilization" benefits for companies that undertake R&D in the semiconductor industry. Hyundai states that R&D for non-memory devices does not benefit memory devices because there are fundamental differences in function, design, and production between the two products. Hyundai asserts that memory devices such as SRAMs and DRAMs are standard, generic products, while non-memory devices are produced to meet specific customers' requirements, who often provide the designs. The respondent states that the objective of non- memory R&D is product design and specific end-use applications, while the focus of memory R&D is on die shrinks. Moreover, Hyundai notes that the production volume for non-memory devices is very small while millions of memory devices are produced every month. Hyundai states that the development of non-memory products lags behind the development of memory products. According to Hyundai, while memory products represent the state- of-the-art in semiconductor manufacturing technology, non-memory products depend on more mature manufacturing processes. Consequently, Hyundai argues that R&D projects involving non-memory products do not contribute to the development of cutting edge products like DRAMs, and the money spent on developing application specific circuit designs has no influence in memory production. Hence, according to Hyundai, there is no justification for the Department to include R&D expenses for non-memory products in the calculation of an R&D cost ratio for DRAM products. In rebuttal, Micron argues that the Department properly accounted for the cross-fertilization of semiconductor R&D. According to Micron, since the first administrative review in these proceedings, the Department has determined that semiconductor R&D benefits all semiconductor products, and therefore, a company's total semiconductor R&D expense should be allocated over its total semiconductor production. Micron points out that the Department also adhered to this practice in the antidumping cases involving DRAMs from Taiwan and SRAMs from Taiwan and Korea. See DRAMs from Taiwan; SRAMs from Taiwan, and SRAMs from Korea. Micron asserts that the expert technical advice provided by an independent semiconductor expert, Dr. Murzy Jhabvala, supports the Department's finding regarding cross-fertilization of semiconductor R&D in this industry. Micron maintains that in this review the Department has again followed this approach, based on substantial evidence in support of its conclusion that all semiconductor R&D benefits all semiconductors. Micron contends that the Department's approach in this and its prior determinations is legally sound and supported by the record evidence. According to Micron, the respondents make no new arguments that the Department has not previously considered and rejected. On the facts, Micron argues, respondents again present no new information to rebut the conclusion of the Department's independent expert that there is a significant cross-fertilization in R&D efforts among various semiconductor product lines. Department's Position: We disagree with Hyundai's argument that the Department erred by deciding that semiconductor R&D benefits all semiconductor products. This allocation methodology is fully consistent with the antidumping statute and the R&D calculations we have used throughout the Korean and Taiwan DRAMs and SRAMs proceedings. In SRAMs from Korea, we noted that, as a result of the forward-looking nature of R&D activities, we could not predict every instance where SRAM R&D may influence logic products or where logic R&D may influence SRAM products. As a result, we requested that Dr. Murzy Jhabvala, a semiconductor device engineer at the National Aeronautics and Space Administration with twenty-four years of experience, state his views regarding any potential overlap or cross-fertilization of R&D efforts in the semiconductor industry. In fact, Dr. Jhabvala had identified in another semiconductor proceeding before the Department areas where R&D from one type of semiconductor product influenced another semiconductor product. In a statement prepared for the SRAMs Final Determination, Dr. Jhabvala stated that: SRAMs represent along with DRAMs the culmination of semiconductor research and development. Both families of devices have benefitted from the advances in photo lithographic techniques to print the fine geometries (the state-of-the-art steppers) required for the high density of transistors ....In addition to achieve higher access speeds bipolar (ECL or TTL) output amplifiers are incorporated directly on chip with the CMOS SRAM memory array, a process known as BiCMOS. Further efforts to improve speed have resulted in the combination of the bipolar ECL technology with CMOS technology with silicon on insulator (SOI) technology. Clearly, three distinct areas of semiconductor technology are converging to benefit the SRAM device performance. There are other instances where previous technology and the efforts expended to develop that technology occurs in the SRAM technology. Some examples of these are the use of thin film transistors (TFTs) in SRAMs, advanced metal interconnect systems, anisotropic etching and filling techniques for trenching and planarization (CMP) and implant technology for retrograde wells. See SRAMS from Korea at Comment 3. In SRAMs from Korea, we disagreed with Hyundai's contention that we must follow Hyundai's normal accounting records which categorize R&D expenses by project and product. See SRAMs from Korea, 63 FR at 8940. We disagree with similar contentions from Hyundai in this review. As we have said in the past (see, e.g., Final Results 1996-1997, 63 FR at 50870), we are not bound by the way a company categorizes its costs, R&D projects, or laboratory facilities, or by the company's accounting records that we review at verification if they do not reasonably reflect the costs attributable to production of the subject merchandise. Moreover, the mere fact that R&D projects for memory and non-memory products may be run in different laboratories, the fact that process and product research for memory and non-memory products may be distinguished, and the fact that each of the respondents may account for these R&D projects separately in their respective books and records, does not address the issue of cross- fertilization in semiconductor R&D. The existence of cross-fertilization in semiconductor R&D is the central theme of Dr. Jhabvala's many statements to the Department. Dr. Jhabvala offers various examples in those statements to illustrate that, regardless of the accounting or laboratory arrangements, the research results or developments in the processes and technologies used in the production and development of one semiconductor family can be (and are) used in the production and development of other semiconductor families. Dr. Jhabvala goes so far as to state that it would be "unrealistic to expect researchers to work in complete technical isolation constantly reinventing technology that might already exist." See SRAMs from Korea, at Comment 3. Given these facts, we do not believe that the reported expenses for DRAM R&D projects reasonably reflect the appropriate cost of producing the subject merchandise. As a result, we have continued to allocate all semiconductor R&D expenses over the total semiconductor COGSsold, a methodology which does not overstate costs, but which we believe reasonably and accurately identifies the R&D expenses attributable to subject merchandise. This methodology reflects the Department's long-standing practice where costs benefit more than one product to allocate those costs to all the products which they benefit. See, e.g., SRAMs from Korea, 63 FR at 8940. Contrary to Hyundai's arguments, this methodology results in the calculation of product-specific costs consistent with sections 773(e) and 773(f)(1)(A) of the Act because it includes all relevant R&D rather than just DRAM-specific R&D "account entries," which do not by themselves reflect all costs associated with the production and sale of subject merchandise. Comment 4: Use of COGS to Calculate R&D Ratio Hyundai contends that by calculating Hyundai's R&D ratio as a percentage of COGS rather than as a percentage of cost of manufacturing (COM), the Department overstated Hyundai's per unit R&D cost. Hyundai believes that this is distortive as the Department applied the COGS-based percentage to the COM for each product. Hyundai believes that, under the principle of parallel construction, the denominator that is used to calculate the R&D ratio should be derived on the same basis as the per-unit value to which the ratio is applied. Since the per unit value to which the ratio is applied is the COM, the denominator for the ratio calculation should also be the COM. Hyundai states that the propriety of the Department's practice of using COGS to represent COM depends entirely on the presumption that the COGS during a period reasonably approximates the COM. Hyundai argues that this is not the case in the DRAM industry, in which DRAM product costs decline significantly over the product life cycle. Hyundai states that, in the DRAM industry, the COGS during a period of rapid generational progress is lower than the COM during the same period because the DRAMs that are produced include more costly, higher density products that have not yet been sold. Thus, Hyundai concludes that the R&D ratio is inflated when total current R&D expense ratios are calculated as a percentage of COGS rather than as a percentage of COM and then applied to COM to derive the product-specific cost. Micron believes that the Department did not err in calculating Hyundai's R&D ratio as a percentage of COGS. Micron contends that Hyundai's argument that COM should be used because of the difference between COM and COGS does not apply in this case. In this review period, Micron asserts that the difference between COM and cost of sales is not very large. Citing to Exhibit SS-8 in Hyundai's March 5, 2001 supplemental response. Moreover, Micron states that the record does not provide a basis to evaluate Hyundai's claim, such as semiconductor beginning and ending inventories. Micron urges the Department to retain its standard practice of using COGS. Micron contends that in the preliminary results, the Department followed its past practices in this antidumping proceeding and allocated each company's current R&D spending on semiconductors over all semiconductor products. According to Micron, the Department's R&D calculation in the preliminary results of this review is fully in accord with the statute and established practice in semiconductor cases, and clearly justified by the facts in the record. In addition, the Department should continue its longstanding practice of calculating the R&D percentage on the basis of COGS rather than COM. Department's Position: This is the same issue that Hyundai raised in the final results of both the fifth and sixth administrative review, and we continue to disagree with Hyundai. The R&D expense rate is generated from a respondent's financial statement on the basis of COGS in that financial statement. It represents the amount of R&D incurred during a given period relative to the merchandise sold during that same time period. Unlike the COM, which is tracked through a company's accounting records, the COGS is readily available from its financial statement. The ratio of R&D expenses to COGS is applied to the per-unit COM as a reasonable and predictable means of calculating the per-unit R&D. The antidumping law does not prescribe a specific method for calculating the R&D expense rate. When a statute is silent or ambiguous, the determination of a reasonable and appropriate method is left to the discretion of the Department. Because there is no bright-line definition in the Act of what an R&D expense is or how the R&D expense rate should be calculated, the Department has, over time, developed a consistent and predictable practice for calculating and allocating R&D expenses. This consistent and predictable method is to calculate the R&D ratio by dividing a respondent's R&D expense by the respondent's COGS, and to apply the ratio to the reported COM. See, e.g., Final Determination, at 58 FR at 15470, Final Results 1994-1995, 62 FR at 967, Final Results 1995-1996, 62 FR at 39823 and Final Results 1996-1997, 63 FR at 50870. See also DRAMs from Taiwan, 64 FR at 56312. Like many cost allocation issues that arise during the course of an antidumping proceeding, there may be more than one way to reasonably allocate the costs at issue. This is precisely why we have developed a consistent and predictable approach which is not results-oriented. To allow a respondent to choose between the Department's normal method and an alternative method simply because the outcome of one method is a lower rate, would encourage respondents to adopt a results-oriented approach. That is, parties will only illustrate other methods, as Hyundai has, when it benefits them. Therefore, we have made no changes with respect to this issue, and have continued to calculate Hyundai's R&D rate in accordance with the Department's normal practice. Comment 5: Increase in Useful Lives According to Hyundai, the Department erred in rejecting Hyundai's reported depreciation expense. Hyundai argues that its depreciation as recorded in its books should be accepted because the useful lives were extended based on a report by independent experts, and the depreciation periods were in accordance with Korean GAAP. Hyundai contends that the Department is required to rely on its company records because they are consistent with Korean GAAP and do not distort actual costs. Hyundai relies on section 773(f)(1)(A) of the Act and many other cases, including Stainless Steel Sheet and Strip in Coils from France, 64 FR 30820, 30836 (June 8, 1999). Hyundai contends that it has obtained additional information that demonstrates that the original estimate of the useful lives for some equipment was inaccurate. Hyundai cites to Erasable Programmable Read Only Memories (EPROMs) from Japan, 51 FR 39680 (Oct. 30, 1986), which states that "generally accepted accounting principles which pertain to a change in the estimated useful life apply to situations where . . . additional information has been obtained as to make the original estimate inaccurate." Hyundai asserts that an appraiser, after analyzing the physical condition of Hyundai's equipment and comparing the useful life experience of Hyundai's equipment with that of other semiconductor manufacturers, concluded that Hyundai had underestimated the actual useful lives of certain pieces of equipment. Therefore, Hyundai concludes that this additional information warrants a change in the estimated useful lives. Hyundai states that the facts in the current case parallel those in Final Determination of Sales at Less Than Fair Value: Oil Country Tubular Goods from Mexico, 60 FR 33567, 33573 (June 28, 1995), where the Department accepted the restatement of the useful life of the respondent's assets because the useful life of the assets was determined by an independent appraiser in accordance with Mexican GAAP. Hyundai contends that, contrary to the Department's assertions, Hyundai's restatement of the useful lives of its assets was not distortive, but rather that it made its depreciation schedules more accurate. Hyundai also states that the Department incorrectly concluded that Hyundai distorted the useful lives of its assets because Hyundai diverged from the company's past experience. Hyundai asserts that the independent appraisers carefully selected new useful lives to match the actual economic life of each category of assets based on the historical experience of actual use. According to Hyundai, where equipment was not actually being used for a longer period of time, the appraisers did not change its useful life. This was the case even where, as in the case of wafer fabrication equipment, it would have benefitted Hyundai by reducing its depreciation expenses. Hyundai acknowledges that it has broken with its own past practice, but asserts that its revaluation of the useful lives of its assets is fully consistent with the common practice of the global semiconductor industry. Hyundai lists companies such as Samsung, Micron, and Infineon and their revaluation of the useful lives of their machinery and equipment using a three to five year useful life assumption to illustrate its contention that there is a common practice of revaluation that is not calculated to reduce depreciation expenses for antidumping purposes. Hyundai characterizes as misleading the Department's statement that in 1998, in some instances, Hyundai adopted useful lives greater than fifty percent longer than the previous useful lives. Hyundai asserts that this occurred only in a few instances. According to Hyundai, the actual impact on Hyundai's overall depreciation expense was minimal because the useful lives of most equipment was extended by much less than fifty percent, and there was no change in the useful lives of the most costly equipment used in manufacturing DRAMs. Hyundai contends that the Department's rejection of its increased useful lives is inconsistent with the Department's decision to increase Hyundai's depreciation expense. Hyundai argues that the Department should either use or reject both the extended useful lives and the increased valuation of Hyundai's assets because the information came from the same appraisers' report. Hyundai characterizes the appraiser's reevaluation of Hyundai's useful asset lives and values as inextricably linked; Korean semiconductor manufacturers revalued both to more accurately gauge the useful lives of their equipment because the won devaluation made replacing equipment more costly. Micron argues that the Department appropriately adjusted depreciation expenses to use pre-1998 useful lives. Micron believes that it is not necessary for the Department to find that a company has changed its accounting methodology for antidumping purposes in order to conclude that the change distorts the cost calculation. Micron asserts that companies revalue assets and change the useful lives of existing assets based on how well the DRAM market is doing rather than any changes in how long equipment is being used. Also, Micron contends that Korean GAAP is sufficiently permissive that companies can be in conformity no matter what they did. Micron characterizes Hyundai's change in useful lives as a part of a pattern of accounting changes designed to make the company appear more profitable than it otherwise would be. Micron states that the Department correctly concluded that Hyundai's latest change in accounting practice, coming on top of a less extreme extension of useful lives made two years earlier, did not provide a reasonable reflection of the costs associated with the production of the merchandise under review. Micron states that adjusting Hyundai's depreciation expenses to reflect pre-1998 useful lives was appropriate, and consistent with the Department's adjustments to Hyundai's R&D and foreign exchange loss expenses. Micron urges that the Department continue to adjust Hyundai's depreciation expenses for the final results. Department's Position: Our practice, pursuant to section 773(f)(1)(A) of the Act and the SAA at 834, is to use those accounting methods and practices that respondents have historically used. Hyundai, in 1998, changed the useful lives of its assets for the second time since 1996. See Final Results 1996-1997, 63 FR at 50871. The Department accepted the respondent's 1996 adjustment to useful lives because those new useful lives reflected common practice within the semiconductor industry and the respondents' own practice. As we stated, "[i]t is common practice within the semiconductor industry to depreciate machinery and equipment using a three-to five-year useful-life assumption. Respondents change...does not deviate from this three to five year band." See Id. In contrast, the respondents' latest change to the useful lives of their assets now deviates from this common practice in the semiconductor industry, as the revised useful lives are greater than five years, and in some cases, significantly greater than five years. This change also deviates from the respondents' own historical practice, as semiconductor manufacturers, of depreciating their machinery and equipment in a three-to-five-year band. See Id. Although the useful lives adopted by the respondents were based on those lives recommended by an independent appraiser, the appraiser's recommendations do not reflect either the practice of the semiconductor industry on the whole, or the historical practice of Hyundai. Furthermore, we have no reason to believe that the common practice in the semiconductor industry regarding the useful lives for depreciation purposes has changed since 1998, when the Department accepted the respondents' previous change in useful lives. Therefore, since the new useful lives adopted by the respondent distorts costs for dumping purposes, we adjusted Hyundai's depreciation expense using the pre- 1998 useful lives. We also disagree with the respondent that the facts in this case directly parallel those in OCTG from Mexico. In OCTG from Mexico, 60 FR at 33573, the Department made no adjustment for the useful life of the assets because there was no evidence that the lives used in the depreciation calculation were overstated. In the present case, for the reasons stated above, we found that many of the revised useful lives were overstated. We further disagree with Hyundai that it is inappropriate to accept the revaluation of its assets, but not the change in the useful lives of certain assets, because both changes resulted from the same appraiser's report. The revaluation of the assets and the change in the useful lives are two completely separate events that were based on separate parts of the appraiser's report. (6) The revaluation of the assets resulted from the reappraisal of Hyundai's assets subsequent to the recent devaluation of the won. As depreciation enables companies to spread large expenditures on purchases of machinery and equipment over multiple years, adjusting the historical cost basis of fixed assets for the devaluation of the won results in the depreciation recognized in the current year not being understated. On the other hand, the change in useful lives was based on a completely separate analysis in the appraiser's report that, as we explained above, does not reflect the semiconductor industry or Hyundai's own, historical practice. In accordance with section 773(f)(1)(A) of the Act, we based depreciation on the revalued assets as recorded in Hyundai's records because the revaluation was in accordance with Korean GAAP, and the resulting depreciation reasonably reflected the cost of producing the subject merchandise in post-devaluation Korea. We also based depreciation, in accordance with section 773(f)(1)(A) of the Act, on the pre-1998 useful lives employed by Hyundai because, as explained above, we believe that the useful lives adopted in 1999, and the resulting depreciation, are distortive. Comment 6: U.S. Antidumping Statute and WTO Antidumping Agreement Hyundai argues that the Department's decision to reject some of its submitted costs violates the U.S. antidumping statute and the WTO Antidumping Agreement. Hyundai states that sections 773(b)(3) and 773(f)(1) of the Act requires the Department to examine and calculate a particular exporter's cost of manufacture (COM) to determine actual costs as accurately as possible. Also, Hyundai argues Congress intended section 773(f)(1) of the Act to reflect Article 2.2.1.1 of the GATT 1994 Antidumping Agreement, which precludes governments from using arbitrary profit and cost figures. Instead, the respondent argues that member countries are required to use the records of exporters/producers as long as those records are not distortive. Micron states that the Department's decision to reject some of Hyundai's costs is consistent with the WTO Antidumping Agreement, the U.S. antidumping law, and Department practice. According to the petitioner, the SAA makes it clear that the Department can, and should, adjust a respondent's costs when it determines that the costs as reported, even when based on the company's audited financial statements, are distortive. Further, the SAA specifies that the Department should consider whether the company has historically used the reported allocations, and it should take into consideration U.S. GAAP. Department's Position: We agree with petitioner. The Act directs the Department to rely "on the records of the exporter or producer of the merchandise, if such records are kept in accordance with the GAAP of the exporting country (or the producing country where appropriate) and reasonably reflect the costs associated with production and sale of the merchandise." Section 773(f)(1)(A) of the Act also states that the Department will consider whether "such allocations have been historically used by the exporter or the producer." Further, as explained in the SAA, "[t]he exporter or producer will be expected to demonstrate that it has historically utilized such allocations, particularly with regard to the establishment of appropriate amortization and depreciation periods and allowances for capital expenditures and other development costs." See SAA at 834. See also, Final Results 1996-1997, 63 FR at 50871. We agree with Hyundai that its reported costs of production are calculated in a manner permissible under Korean GAAP, and that its previous method of calculating its costs of production is also in accordance with Korean GAAP. However, Hyundai's practice of continually changing between these methods distorts the cost calculation in an antidumping analysis. The issue is not whether Hyundai's reporting methodology is consistent with Korean GAAP, but whether the change in accounting methodologies is distortive as to Hyundai's costs. As stated in the previous review, the Department finds that Hyundai's continual changing of its accounting methodologies, regardless of its adherence to Korean GAAP, is distortive. See Decision Memorandum at Comment 9. As demonstrated above, the Department's treatment of Hyundai's submitted costs of production is consistent with the U.S. law, which is fully consistent with all WTO requirements. For purposes of this administrative review, therefore, the Department need not consider respondent's arguments further concerning implementation by the United States of its obligations under the WTO Antidumping Agreement. For a further discussion of this issue, please see Comment 2. Comment 7: Post-POR Sales of Subject Merchandise Entered During POR Hyundai states that the Department failed to utilize the correct universe of HM sales and accompanying costs in its preliminary results because of a programming error. Hyundai contends that the Department's practice is to mirror the universe of HM sales with the U.S. sales database, plus two "shoulder periods" that comprise that comprise 90 days before the earliest U.S. sale and 60 days after the latest U.S. sale. Hyundai argues that the HM sales database must be extended past the truncated POR to match the U.S. sales database, which contains sales for a 12-month period. Micron objects to any expansion of the date range for the HM sales database, contending that Hyundai has disguised a methodological issue as a clerical error. Micron contends that the Department departed without explanation from its long-standing practice of calculating dumping margins for CEP transactions based on the sales made during the POR, rather than sales of goods entered during the POR. Micron states that the Department adopted this practice because of the practical difficulties inherent in relying upon entries in CEP transactions. The difficulties, according to Micron, include tying sales to specific entries and the extended time lag between entry and sales. Micron states that the CIT has upheld the Department's practice, recognizing that "dumping on sales made during the review period is representative of dumping on entries made during the review period." Ad Hoc Comm. Of Southern California Producers of Gray Portland Cement v. United States, 914 F. Supp. 535, 544 n.7 (CIT 1995); NSK Ltd. v. United States, 825 F. Supp. 315, 320 (CIT 1993). Furthermore, Micron states that the courts have upheld the Department's practice even when information on entries was available in a given review. Ad Hoc Comm., 914 F. Supp. At 544. Finally, Micron states that the Department has examined CEP sales, not entries of merchandise sold after the POR in another case which was also truncated by a sunset revocation. See Preliminary Results of Antidumping Duty Administrative Review; Aramid Fiber Formed of Poly Para- Phenylene Terephthalamide from the Netherlands, 66 FR 13879 (March 8, 2001) (Aramid Fiber). Hyundai distinguishes the present case from Aramid Fiber. In the Aramid Fiber case, the Department relied on CEP sales rather than entries to calculate the dumping margin, even in a final review that had been similarly truncated by a sunset revocation. Hyundai distinguishes the present case by stating that the parties did not contest this issue in the proceeding and that there appears to be no deliberate discussion of this issue at all. Hyundai asserts that, in the preliminary results, the Department correctly calculated Hyundai's dumping margin using US sales of subject merchandise for DRAMs entered during the POR, but which had "dates of sale" after the end of the POR. Hyundai asserts that the Department has discretion on a case-by-case basis, to review either entries or sales, depending on which of these provides a more accurate rate. See Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof From Japan; Final Results of Antidumping Duty Administrative Reviews, 56 FR 31754 (July 11, 1991) (AFBs from Japan). Hyundai contends that the Department has stated that its "regulations permit a review of either entries or sales." See Silicon Metal from Brazil; Final Results of Antidumping Duty Administration Review, 61 FR 46763, 46765 (September 5, 1996). Also, Hyundai notes that the preamble to the Department's regulations states that the Department has discretion to "base a review on sales of merchandise entered during the POR, rather than on sales that occurred during the period of review." Preamble, at 27314. Micron argues that switching methodologies between reviews will lead to inconsistent and distorted results. Micron contends that Hyundai's proposed methodology of calculating margins based on a mix of all sales made during the POR plus certain sales made after the POR departs from the consistent approach used by the Department for all previous reviews, and thereby distorts the calculation. Micron states that Hyundai's proposed approach is neither a sales-based nor an entry-based approach but an amalgam of the two. Micron asserts that Hyundai is proposing that the Department base its calculation on a mix of 1) all sales made during the May 1 to December 31, 1999 POR, including an unknown volume of merchandise entered prior to May 1, 1999 and sold during the POR and 2) a select group of sales made after December 31, 1999 that can be tied to entries made before that date. Hyundai asserts that the facts of its situation justify the Department's use of the sales database of CEP sales of subject merchandise entered prior to the POR. Hyundai points out that the relevant factors for determining whether or not to base a review on entries are set forth in the Department's regulations, and include: 1) whether sales may be "missed" in previous or current reviews, and 2) whether sales and entries have been "linked" in prior or future reviews. Antidumping Duties; Countervailing Duties, Final Rule, 62 FR 27296, 27314 (May 19, 1997). In the instant case, Hyundai states that it had provided the necessary linkage of sales to entries by tying all U.S. POR entries to post-POR sales using a first-in-first-out methodology. Also, Hyundai asserts that the Department will not miss any of Hyundai's U.S. sales in the future because this is the last administrative review that will be conducted under the AD order. Hyundai states that the petitioner's suggested approach would eliminate these sales from the margin, thereby causing them to be "missed" and distorting the margin. In light of the fact that this review is the last review of the proceeding, Hyundai points out that excluding sales made after the POR would ensure that they are never part of any margin calculation, even though the subject merchandise entered during the POR. Accordingly, Hyundai states that including these sales would ensure accuracy in calculating the dumping margins and prevent any distortions. Micron asserts that Hyundai's methodology of matching post-POR sales to POR entries is unreliable and flawed. Micron contends that Hyundai's methodology does not allow the Department to trace each entry of subject merchandise made during the POR to a particular sale or sales of that same merchandise to unaffiliated customers. Micron objects to the inventory listing submitted by Hyundai because it is incomplete and internally inconsistent. Furthermore, according to Micron, Hyundai continued to apply to all reported sales the average selling expenses calculated for the May to December 1999 POR. Thus, Micron urges the Department to exclude from its analysis sales made after the end of the POR. In response to the petitioner's critique of Hyundai's first-in-first-out methodology, Hyundai states that the Department performed a thorough verification of its data and methodology and that its methodology captures almost 100 percent of its inventory. Hyundai admits that the sales made from January to April 2000 exceeds beginning inventory but that in no way undermines the reliability of its submitted information. Hyundai rejects Micron's assertion that some of Hyundai's inventory remained unsold on April 30, 2000, as misleading. According to Hyundai, the vast majority of the December 31, 1999 inventory had been sold by April 30, 2000. To account for the remaining unsold inventory, would require a sales data base after April 30, 2000, a period outside the original POR. Hyundai objects to Micron's methodology which would prohibit it from accounting for the inventory sales if even a single unit remained in inventory. Hyundai also rejects Micron's assertion that some expenses were based on a different period of time as a basis for rejecting the underlying sales that were entered into the United States during the POR. Hyundai states that the Department can use the expense ratio from the earlier time period, or the current period because the difference is minimal. Micron rejects Hyundai's claim that an inherent imbalance between duties calculated and duties collected would occur if the calculations exclude entries of goods. Micron states that many factors contribute to the difference between duties calculated and duties collected, such as whether inventories and sales are rising or falling from one POR to the next, and whether dumping margins are higher or lower from one review to the next. Micron states that Hyundai has failed to show that a consistent application of a sales-based approach causes any distortion in general, nor on the facts of this record. Thus, Micron urges the Department to continue to use a sales-based method in the final review. Department's Position: We agree with Micron that the Department should adhere to its normal approach and calculate the dumping margin for US sales using sales made during the POR, and not include sales made after the POR. It is the Department's practice to calculate dumping margins for CEP sales made after importation based on the sales actually made during the POR, and we have consistently applied this practice throughout this proceeding. We note that the courts have upheld the Department's practice even when the information could be obtained in a given review. See Ad Hoc Comm. Of Southern California Producers of Grey Portland Cement v. United States, 914 F. Supp. 535, 544 n. 7 (CIT 1995). See also American Silicon Tech. v. United States, Slip Op. 99-34 (CIT 1999). The Department's standard approach is even-handed, and applies whether the respondent has a surge or a fall-off in entries of subject merchandise during the last period of review. See Aramid Fiber. While there was no explicit discussion of the entry date versus sale date issue in Aramid Fiber, it illustrates standard Department practice. To diverge from standard Department practice would suggest a results-oriented approach. There is no compelling evidence to cause the Department to deviate from its normal methodology. Therefore, we have included only the CEP sales that were made during the period of review, for purposes of these final results. We also note that the correct universe of HM sales was used in the Preliminary Results. Although Hyundai presented this argument as a clerical error, we are categorizing it as a methodological issue. We agree with Hyundai's assertion that the Department's practice is to use a universe of HM sales starting 90 days before the earliest U.S. sale through the period 60 days after the latest U.S. sale in order to match U.S. sales with the most contemporaneous identical or similar HM sale. Therefore, for these final results we have used the reported 12 months of HM sales that we used in the preliminary results because these sales were made within the POR and the contemporaneity windows. Comment 8: CEP Offset for CEP Sales According to Hyundai, the Department should correct an error in the CEP offset calculation portion of the programming. Hyundai states that the CEP offset was erroneously set to zero in the Department's preliminary results. Micron did not comment on this issue. Department's Position: We agree with Hyundai's clerical error allegation and have made the appropriate corrections to the CEP offset portion of the computer program. See Final Results Calculation Memorandum dated October 5, 2001. Comment 9: Recalculation of Expenses in Margin Program Micron claims that in its calculation of two expenses, the Department failed to convert a sum of total value to a per-unit amount in the margin part of the program. Micron states that the program creates sums for six data fields, rather than a weighted average. Furthermore, the fields were not converted to a per-unit average later on in the program. Hyundai did not comment on this issue. Department's Position: We agree with Micron's clerical error allegation and have made the appropriate corrections to the expenses in the margin program. See Final Results Calculation Memorandum dated October 5, 2001. Comment 10: Calculation of HM Credit Expense Hyundai asserts that the Department erroneously recalculated HM credit expense, net of discounts. Hyundai states that the Department further erred by not using the recomputed HM credit. According to Hyundai, its submitted databases already provided the credit expense net of discounts, and no recalculation was needed. Micron did not comment on this issue. Department's Position: We agree with Hyundai's clerical error allegation and have made the appropriate corrections to the Department's HM credit expense portion of the computer program. See Final Results Calculation Memorandum dated October 5, 2001. Comment 11: CEP Profit Ratio - Calculation of Total Profit Hyundai states that, in the preliminary results, the Department erroneously computed the total revenue for HM sales (for the purpose of the CEP profit ratio) using gross price, rather than gross price net of discounts. Micron did not comment on this issue. Department's Position: We agree with Hyundai's clerical error allegation and have made the appropriate corrections to the CEP profit ratio portion of the computer program. See Final Results Calculation Memorandum dated October 5, 2001. Comment 12: U.S. Credit Expense Hyundai states that, in the preliminary results, the Department erroneously recalculated the U.S. credit expense using an incorrect interest rate, rather than the interest rate used in Hyundai's database. Micron did not comment on this issue. Department's Position: We agree with Hyundai's clerical error allegation and have made the appropriate corrections to the Department's U.S. credit expense calculation in the computer program. See Final Results Calculation Memorandum dated October 5, 2001. Recommendation Based on our analysis of the comments received, we recommend adopting all of the above positions and adjusting all related margin calculations accordingly. If these recommendations are accepted, we will publish the final results of review and the final weighted-average dumping margins for all reviewed firms in the Federal Register. Agree Disagree ____________________________ Faryar Shrizad Assistant Secretary for Import Administration ____________________________ (Date) ____________________________________________________________________ footnotes: 1. See Hyundai's and LG's 1999 financial statements in Hyundai's October 17, 2000, Exhibit 16, and March 5, 2001, Exhibit 1, responses respectively. 2. See Id. 3. See Id. 4. See Id. 5. See Questionnaire Response, Hyundai, Section D, October 17, 2001. 6. See Hyundai's March 5, 2001, submission, Exhibit 11.