Dynamic Random Access Memory Semiconductors from the Republic of Korea: Preliminary Results of Countervailing Duty Administrative Review, 54523-54537 [E5-4891]

Agencies

• DEPARTMENT OF COMMERCE
• International Trade Administration

[Federal Register Volume 70, Number 178 (Thursday, September 15, 2005)]
[Notices]
[Pages 54523-54537]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-4891]


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DEPARTMENT OF COMMERCE

International Trade Administration

[C-580-851]


Dynamic Random Access Memory Semiconductors from the Republic of 
Korea: Preliminary Results of Countervailing Duty Administrative Review

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.
SUMMARY: The Department of Commerce is conducting an administrative 
review of the countervailing duty order on dynamic random access memory 
semiconductors from the Republic of Korea for the period April 7, 2003, 
through December 31, 2003. We preliminarily find that certain 
producers/exporters under review received countervailable subsidies 
during the period of review. If the final results remain the same as 
these preliminary results, we will instruct U.S. Customs and Border 
Protection (``CBP'') to assess countervailing duties as detailed in the 
``Preliminary Results of Review'' section of this notice.
    Interested parties are invited to comment on these preliminary 
results (see the ``Public Comment'' section of this notice, below).

EFFECTIVE DATE: September 15, 2005.

FOR FURTHER INFORMATION CONTACT: Daniel J. Alexy, Cole Kyle, Natalie 
Kempkey or Marc Rivitz, Office of Antidumping/Countervailing Duty 
Operations, Office 1, Import Administration, U.S. Department of 
Commerce, Room 3069, 14th Street and Constitution Avenue, NW., 
Washington, DC 20230; telephone: (202) 482-1540, (202) 482-1503, (202) 
482-1698 or (202) 482-1382, respectively.

SUPPLEMENTARY INFORMATION:

Case History

    On August 11, 2003, the Department of Commerce (``the Department'') 
published a countervailing duty order on dynamic random access memory 
semiconductors (``DRAMS'') from the Republic of Korea (``ROK''). See 
Notice of Countervailing Duty Order: Dynamic Random Access Memory 
Semiconductors from the Republic of Korea, 68 FR 47546 (August 11, 
2003) (``CVD Order''). On August 3, 2004, the Department published a 
notice of ``Opportunity to Request Administrative Review'' for this 
countervailing duty order. On August 31, 2004, we received requests for 
review from Hynix Semiconductor, Inc. (``Hynix''), Infineon 
Technologies North America Corp., and Micron Technology, Inc. 
(``Micron''). In accordance with 19 CFR 351.221(c)(1)(i) (2004), we 
published a notice of initiation of the review on September 22, 2004. 
See Initiation of Antidumping and Countervailing Duty Administrative 
Reviews and Request for Revocation in Part, 69 FR 56745 (September 22, 
2004) (``Initiation Notice'').
    On October 19, 2004, we issued countervailing duty questionnaires 
to the Government of the Republic of Korea (``GOK'') and Hynix 
(formerly, Hyundai Electronics Industries Co., Ltd. (``HEI''). We 
received responses to these questionnaires in December 2004.
    On November 30, 2004, we initiated an investigation of new subsidy 
allegations within the context of the first administrative review of 
the countervailing duty order on DRAMS from Korea. See New Subsidy 
Allegations Memorandum from Ryan Langan to Susan Kuhbach, dated 
November 30, 2004, available at the Central Records Unit (``CRU''), 
Room B-099 of the main Department building.
    On March 25, 2005, we published a postponement of the preliminary 
results in this review until August 31, 2005. See Dynamic Random Access 
Memory Semiconductors from the Republic of Korea: Extension of Time 
Limit for Preliminary Results of Countervailing Duty Review, 70 FR 
15293 (March 25, 2005).
    We issued supplemental questionnaires to the GOK and Hynix in May 
and June 2005, and received responses to these supplemental 
questionnaires in June and July 2005. Hynix and Micron submitted pre-
preliminary results comments and rebuttal comments in July and August 
2005.

Scope of the Order

    The products covered by this order are DRAMS from the Republic of 
Korea, whether assembled or unassembled. Assembled DRAMS include all 
package types. Unassembled DRAMS include processed wafers, uncut die, 
and cut die. Processed wafers fabricated in the ROK, but assembled into 
finished semiconductors outside the ROK are also included in the scope. 
Processed wafers fabricated outside the ROK and assembled into finished 
semiconductors in the ROK are not included in the scope.
    The scope of this order additionally includes memory modules 
containing DRAMS from the ROK. A memory module is a collection of 
DRAMS, the sole function of which is memory. Memory modules include 
single in-line processing modules, single in-line memory modules, dual 
in-line memory modules, small outline dual in-line memory modules, 
Rambus in-line memory modules, and memory cards or other collections of 
DRAMS, whether unmounted or mounted on a circuit board. Modules that 
contain other parts that are needed to support the function of memory 
are covered. Only those modules that contain additional items which 
alter the function of the module to something other than memory, such 
as video graphics adapter boards and cards, are not included in the 
scope. This order also covers future DRAMS module types.
    The scope of this order additionally includes, but is not limited 
to, video random access memory and synchronous graphics random access 
memory, as well as various types of DRAMS, including fast page-mode, 
extended data-out, burst extended data-out, synchronous dynamic RAM, 
Rambus DRAM, and Double Data Rate DRAM. The scope also includes any 
future density, packaging, or assembling of DRAMS. Also included in the 
scope of this order are removable memory modules placed on 
motherboards, with or without a central processing unit, unless the 
importer of the motherboards certifies with CBP that neither it, nor a 
party related to it or under contract to it, will remove the modules 
from the motherboards after importation. The scope of this order does 
not include DRAMS or memory modules that are re-imported for repair or 
replacement.
    The DRAMS subject to this order are currently classifiable under 
subheadings 8542.21.8005 and 8542.21.8020 through 8542.21.8030 of the 
Harmonized Tariff Schedule of the United States (``HTSUS''). The memory 
modules containing DRAMS from the ROK, described above, are currently 
classifiable under subheadings 8473.30.10.40 or 8473.30.10.80 of the 
HTSUS. Removable memory modules

[[Page 54524]]

placed on motherboards are classifiable under subheadings 8471.50.0085, 
8517.30.5000, 8517.50.1000, 8517.50.5000, 8517.50.9000, 8517.90.3400, 
8517.90.3600, 8517.90.3800, 8517.90.4400, and 8543.89.9600 of the 
HTSUS.

Scope Rulings

    On December 29, 2004, the Department received a request from Cisco 
Systems, Inc. (``Cisco''), to determine whether removable memory 
modules placed on motherboards that are imported for repair or 
refurbishment are within the scope of the CVD Order. The Department 
initiated a scope inquiry pursuant to 19 CFR 351.225(e) on February 4, 
2005. On June 16, 2005, the Department issued a preliminary scope 
ruling, finding that removable memory modules placed on motherboards 
that are imported for repair or refurbishment are within the scope of 
the CVD Order. See Preliminary Scope Ruling Memorandum from Julie H. 
Santoboni to Barbara E. Tillman, dated June 16, 2005. On July 5, 2005, 
and July 22, 2005, comments on the preliminary scope ruling were 
received from Cisco. On July 6, 2005, and July 15, 2005, comments were 
received from Micron. The final ruling is currently pending.

Period of Review

    The period for which we are measuring subsidies, i.e., the period 
of review (``POR''), is April 7, 2003, through December 31, 2003.

Changes in Ownership

    Effective June 30, 2003, the Department adopted a new methodology 
for analyzing privatizations in the countervailing duty context. See 
Notice of Final Modification of Agency Practice Under Section 123 of 
the Uruguay Round Agreements Act, 68 FR 37125 (June 23, 2003) 
(``Modification Notice''). The Department's new methodology is based on 
a rebuttable ``baseline'' presumption that non-recurring, allocable 
subsidies continue to benefit the subsidy recipient throughout the 
allocation period (which normally corresponds to the average useful 
life (``AUL'') of the recipient's assets). However, an interested party 
may rebut this baseline presumption by demonstrating that, during the 
allocation period, a change in ownership occurred in which the former 
owner sold all or substantially all of a company or its assets, 
retaining no control of the company or its assets, and that the sale 
was an arm's-length transaction for fair market value.
    The Modification Notice explicitly addresses full privatizations, 
noting that the Department would not make a decision at that time as to 
whether the new methodology would also be applied to other types of 
ownership changes and factual scenarios, such as partial privatizations 
or private-to-private sales.  68 FR at 37136. However, starting with 
Certain Pasta from Italy, Final Results of the Fifth Countervailing 
Duty Administrative Review, 67 FR 52452 (August 6, 2002), we applied 
this methodology to a private-to-private sale of a company (or its 
assets) as well.
    According to Hynix, in 2002, six different Hynix creditors that 
converted Hynix debt to equity as part of the October 2001 
restructuring of the company, as well as Pusan Bank, sold all of that 
equity on the open market. Hynix reports that these shares accounted 
for 13.8 percent of Hynix outstanding shares as of the end of 2002, and 
17.1 percent of the equity created as a result of Hynix's October 2001 
restructuring plan. Hynix argues that the sale of this equity 
constitutes a change in ownership that rebuts the Department's baseline 
presumption that alleged non-recurring subsidies continue to benefit 
the recipient over the allocation period.
    We preliminarily find that the percentage of ownership transferred 
as a result of the sale of these shares does not constitute a sale of 
all or ``substantially all'' of the company or its assets. Therefore, 
we find that Hynix has not rebutted the baseline presumption that the 
non-recurring, allocable subsidies received prior to the sale of the 
equity continue to benefit the company throughout the allocation 
period.

Subsidies Valuation Information

Allocation Period

    Pursuant to 19 CFR 351.524(b), non-recurring subsidies are 
allocated over a period corresponding to the AUL of the renewable 
physical assets used to produce the subject merchandise. Section 
351.524(d)(2) of the Department's regulations creates a rebuttable 
presumption that the AUL will be taken from the U.S. Internal Revenue 
Service's 1977 Class Life Asset Depreciation Range System (the ``IRS 
Tables''). For DRAMS, the IRS Tables prescribe an AUL of five years. 
During this review, none of the of the interested parties disputed this 
allocation period. Therefore, we continue to allocate non-recurring 
benefits over the five-year AUL.

Discount Rates and Benchmarks for Loans

Long-Term Rates

    For loans that were found countervailable in the investigation and 
which continued to be outstanding during the POR, we have used the same 
benchmarks that we used in the investigation.
    For outstanding long-term loans that originated after the period of 
investigation, i.e., since June 30, 2002, we have used an 
uncreditworthy benchmark calculated in accordance with 19 CFR 
351.505(a)(3)(iii). See ``Creditworthiness'' infra. For the commercial 
interest rate charged to creditworthy borrowers required for the 
formula, we used the rate for AA-three-year won-denominated corporate 
bonds as reported by the Bank of Korea (``BOK''). For Hynix's foreign 
currency-dominated loans, we used lending rates as reported by the 
International Monetary Fund's (``IMF'') International Financial 
Statistics Yearbook. For the term of the debt, we used 5 years because 
all of the non-recurring subsidies examined were allocated over a 5-
year period.

Short-Term Loans

    For short-term loans, we utilized the money market rates reported 
in the IMF's International Financial Statistics Yearbook. However, for 
countries (or currencies) for which a money market rate was not 
reported, we utilized the lending rate.

Equityworthiness

    As discussed below, some of Hynix's debt was converted to equity as 
part of the December 2002 restructuring. The petitioner alleged that 
Hynix was unequityworthy at the time of these debt/equity conversions 
and that the entire infusion should be treated as a countervailable 
grant.
    Section 771(5)(E)(I) of the Tariff Act of 1930, as amended, 
effective January 1, 1995, by the Uruguay Round Agreements Act (``the 
Act''), and 19 CFR 351.507 state that, in the case of a government-
provided equity infusion, a benefit is conferred if the investment 
decision is inconsistent with the usual investment practice of private 
investors. According to 19 CFR 351.507, the first step in determining 
whether an equity investment decision is inconsistent with the usual 
investment practice of private investors is examining whether, at the 
time of the infusion, there was a market price for similar, newly-
issued equity. If so, the Department will consider an equity infusion 
to be inconsistent with the usual investment practice of private

[[Page 54525]]

investors if the price paid by the government for newly-issued shares 
is greater than the price paid by private investors for the same, or 
similar, newly-issued shares.
    Where actual private investor prices are not available, pursuant to 
19 CFR 351.507(a)(3)(i), the Department will determine whether the firm 
funded by the government-provided infusion was equityworthy or 
unequityworthy at the time of the equity infusion.
    In making the equityworthiness determination, pursuant to 19 CFR 
351.507(a)(4), the Department will normally determine that a firm is 
equityworthy if, from the perspective of a reasonable private investor 
examining the firm at the time the government-provided equity infusion 
was made, the firm showed an ability to generate a reasonable rate of 
return within a reasonable time. To do so, the Department normally 
examines the following factors:
    (A) objective analyses of the future financial prospects of the 
recipient firm, (B) current and past indicators of the firm's financial 
health, (C) rates of return on equity in the three years prior to the 
government equity infusion, and (D) equity investment in the firm by 
private investors.
    The Department's regulations further stipulate that the Department 
will ``normally require from the respondents the information and 
analysis completed prior to the infusion, upon which the government 
based its decision to provide the equity infusion.'' 19 CFR 
351.507(a)(4)(ii). Absent an analysis containing information typically 
examined by potential private investors considering an equity 
investment, the Department will normally determine that the equity 
infusion provides a countervailable benefit. This is because, before 
making a significant equity infusion, it is the usual investment 
practice of private investors to evaluate the potential risk versus the 
expected return using the most objective criteria and information 
available.
    The Department examined the circumstances leading up to Hynix's 
December 2002 restructuring. This restructuring resulted in the 
refinancing of some debt and the conversion of other debt to equity.
    Shortly after Hynix's October 2001 restructuring package was 
adopted, Hynix's Corporate Restructuring Promotion Act Creditors' 
Council established a Special Committee for Corporate Restructuring 
(``Restructuring Committee'') that would more closely monitor Hynix' 
situation and fashion recommendations for enhancing the Council 
members' recovery of their investment. The Restructuring Committee was 
a sub-group of Hynix' principal creditors and outside consultants. The 
Restructuring Committee had explored the possibility of either securing 
a strategic alliance with other manufacturers in the DRAMS industry or 
selling Hynix.
    On December 3, 2001, the Restructuring Committee initiated 
negotiations with Micron Technologies to sell Hynix's memory division 
and a stake in Hynix's non-memory operations. Although the Creditors' 
Council approved a Memorandum of Understanding (``MOU'') between the 
two companies, Hynix's Board of Directors ultimately rejected the MOU, 
largely due to concerns over the fate of Hynix's non-memory division. 
See Hynix's December 17, 2004, Questionnaire Response at III-14-15.
    Following this decision by Hynix's Board, the Restructuring 
Committee continued its evaluation of Hynix's operations and the 
measures necessary to preserve the creditors' existing investment in 
the company and to position the company and/or its assets for future 
sale. Id. at III-15. Pursuant to this endeavor, the Korea Exchange 
Bank, Hynix's lead bank, retained Deutsche Bank (``DB'') and Morgan 
Stanley Dean Witter (``MSDW'') in May 2002 on behalf of the Creditors' 
Council.
    Additionally, Arthur D. Little (``ADL'') was retained in May 2002 
to assist DB in reviewing the outlook for the semiconductor market, 
Hynix's business portfolio, technical and marketing competitiveness, 
and Hynix's restructuring plan. Also, Deloitte and Touche (``DT'') was 
brought in as an independent accountant to perform a new appraisal of 
Hynix's liquidation value. In addition, De Dios & Associates provided 
DB with semiconductor market and price projections, and benchmarking. 
The final product of DB's analysis was the November 2002 report (``DB 
Report '') and recommendations. Id. at III-15-16.
    The DB Report outlined three basic courses of: (1) liquidation, (2) 
sale of Hynix's memory operations, or (3) continued commitment to a 
turnaround of the company. Regardless of the option chosen, DB 
concluded that a financial restructuring in the immediate term was 
necessary to allow time for the exploration and pursuit of these three 
options because otherwise, Hynix would run out of cash in the first 
quarter of 2003 given its balance sheet and operating plan at that 
time. Ultimately, because of the uncertainty surrounding the timing and 
duration of a liquidation process or a sale of memory assets, which 
could affect actual recovery for the creditors, the DB Report 
recommended sequential action, focusing first on a new financial 
restructuring of the company, followed by parallel pursuits of a 
turnaround of the company and a sale of its memory operations. 
Liquidation was proposed only as a fall-back option. In addition to 
this basic recommendation, the DB Report provided a more detailed 
financial restructuring plan. Id. at III-16-17.
    Based on the DB analysis and proposed restructuring plan, the 
Restructuring Committee requested the approval of the full Creditors' 
Council to move ahead with the DB Plan. Id. at III-17. According to 
Hynix, the plan was adopted by the Creditors' Council on December 30, 
2002, as the best means of maximizing loan recovery and increasing 
shareholders' value. Under the terms of the restructuring, the 
Restructuring Committee would continue to search for prospective buyers 
of Hynix's noncompetitive and memory business units. Hynix would 
continue a self-rescue plan as outlined by DB, with regular reports 
provided to the creditors on the performance of that plan. Finally, the 
creditors would engage in a new round of debt restructuring, focusing 
on a new debt-to-equity conversion and the restructuring and 
rescheduling of interest payments on remaining debt. Id.
    The debt/equity swap was effected as part of a restructuring plan 
by DB, and reflected in a November 2002 report by DB (``DB Report''), 
prepared at the behest of KEB and pursuant to the Restructuring 
Committee's goal of preserving existing investment in Hynix, and 
repositioning the company for possible future sale. Under the terms of 
the restructuring, half of the value of unsecured debt held by the 
creditors was converted to equity or to bonds convertible to equity. 
Specifically, 1,849,156 million won of the debt was converted to common 
stock and 12,393 million won was converted to convertible bonds. One 
creditor, C&H Capital, exercised its appraisal rights under the CRPA 
rather than sign on to the new restructuring. Id. at III-17-18.
    On April 15, 2003, Hynix issued 193,904,000 common shares to those 
creditors who elected in the December 2002 restructuring to convert the 
debt owed to equity.
    On August 8, 2003, certain of the bonds received with the December 
2002 restructuring were converted to equity. For the remaining 
convertible bonds, the bondholders are required to exercise the 
conversion rights between July 15, 2003 and December 24, 2006. Id. at 
III-18.

[[Page 54526]]

    The remaining debt was refinanced on December 30, 2002, extending 
its maturity until December 31, 2006. In addition, some prospective 
interest was scheduled to be converted into principal. Specifically, it 
was determined that interest would be paid at a rate of 3.5 percent, 
according to the existing (pre-restructuring) payment schedule of the 
debt instrument in question. Any interest owed in excess of 3.5 percent 
would convert into principal at the end of each semi-annual period. A 
maturity date of December 31, 2006, was set for this interest to be 
converted to principal, in line with the extended maturity on the 
refinanced debt. Interest on this new principal was set at 6 percent 
per annum, to be paid on a quarterly basis. Id.
    The DB Report projected a favorable turnaround for Hynix following 
the proposed restructuring. However, that turnaround was predicated on 
optimistic assumptions about the market and the company, which were not 
shared by other independent analyses in the record. In addition, prior 
to and during the restructuring, independent analyses raised strong 
concerns about Hynix's viability and future survival. While the DB 
Report forecast Hynix to be nearly debt-free by 2006, it was predicated 
upon certain predictions regarding DRAM prices and capital 
expenditures, and it was not certain that these scenarios would come to 
pass.
    The Petitioner provided additional analyst reports to bolster its 
claim that Hynix's stability and future were precarious.
     ``We do not foresee the company returning to profit within 
our forecast period (to 2004). Also, large net losses should continue 
to eat away at retained earnings, diminishing book value. Hynix is 
technically bankrupt, kept alive only through debt restructuring 
programs.'' Also, ``If Hynix obtains a significant bailout package and 
increases production, we believe that the market is likely to be 
oversupplied in 2003.'' Morgan Stanley Hynix Semiconductor Equity 
Research (September 25, 2002), at Petitioner's September 27, 2004, 
submission, at Exhibit 15.
     ``We are increasingly concerned about Hynix's dismal 
earnings prospects. We are cutting 02-03 estimates into deficit 
territory as cost improvements and supply growth is constrained by lack 
of investment in the process technology upgrade. Moreover, the sharp 
decline prices coupled with weakening demand for sync DRAM pose risk of 
amounting losses. We reiterate our sell rating on the stock.'' Merrill 
Lynch: Hynix Semiconductor, Inc: Comment (September 27, 2002), at 
Petitioner's April 25, 2005, Factual Information Submission (``FIS''), 
at Volume 44, Exhibit A-12.
    ``Unfortunately, the bad news is that the company is over a 
generation behind in shrink technology compared to market leaders due 
to lack of capex in the past two years'' and ``...the risks of dilution 
from a debt-to-equity swap and write-down plans present a negative 
investment case. We maintain our sell recommendation.'' Merrill Lynch: 
Hynix Semiconductor, Inc: Comment (November 27, 2002), at Petitioner's 
April 25, 2005, FIS, at Volume 44, Exhibit A-13.
     ``Creditors cannot afford to nurse the company back to 
health. Hynix is technically bankrupt, kept alive only through debt 
restructuring programs. Whatever the outcome, the message is clear to 
investors: Hynix is not an investment grade company.'' Morgan Stanley 
Hynix Semiconductor Equity Research (February 13, 2003), at 
Petitioner's September 27, 2004, submission, at Exhibit 10.
    As these statements indicate, the DB report ran counter to the 
prevailing wisdom at the time of the debt to equity conversions, namely 
that Hynix was not an investment grade company.
    In addition, it is noteworthy that DB was retained by KEB, in its 
capacity as Hynix's lead bank. The Department has previously found that 
the KEB acted in accordance with the GOK's policy objectives and that 
the GOK has significant influence over the bank's lending decisions. 
See Investigation Decision Memorandum at 56. Our prior finding and the 
GOK's continued high level of ownership in the KEB call into question 
the independence of the bank from the GOK's policy regarding Hynix. 
During the POR, the GOK remained the bank's single largest shareholder. 
The Petitioner also claims that the GOK influenced the final 
conclusions that were presented to the Creditor's Council. According to 
Petitioner, ``the original restructuring plan endorsed by DB called for 
dividing and selling the company. Apparently, however, that was not the 
answer that the GOK was looking for...Another source reported that `the 
government and the creditors group altered the original plan.' '' See 
Petitioners's Pre-Preliminary Comments on the Hynix Bailout, July 21, 
2004, at 41. For these reasons, we do not find that the conclusions of 
the DB Report are completely independent, market-based assessments and, 
at the very least, should be scrutinized given the lack of outside 
investors or other corroborating projections from additional third-
party financial analyst reports.
    The Department has preliminarily determined that all but one of the 
creditors participating in the debt to equity conversions resulting 
from the December 2002 restructuring package were either government 
authorities or were entrusted or directed by the government to provide 
financial contributions to Hynix.
    For the one creditor that we have preliminarily found was not 
directed by the GOK in connection with the Hynix restructuring during 
the POR, we must consider whether the price paid by this creditor for 
the equity constitutes a private investor price for the purposes of 
assessing whether the other creditors' decision to swap their debt for 
equity was consistent with the private investor standards in 19 CFR 
351.507 and section 771(5)(E)(i) of the Act.
    In the investigation, the Department looked at a similarly-situated 
creditor, Citibank. We found that the value of the equity acquired by 
Citibank in the October 2001 restructuring was insignificant within the 
meaning of 19 CFR351.507(a)(2)(iii). See Investigation Decision 
Memorandum at 90. See, also, Preamble at 65373 (citing to Small 
Diameter Circular Seamless Carbon and Alloy Steel Standard, Line and 
Pressure Pipe from Italy, 60 FR 31992, 31994 (June 19, 1995)). 
Moreover, the Department also found that Citibank's participation was 
small relative to the total value of debt converted to equity by GOK-
owned, controlled, or directed banks. See Investigative Decision 
Memorandum at 90.
    In this review, we find that the value of the equity acquired by 
the creditor in question in connection with the December 2002 
restructuring was similarly insignificant and small in comparison with 
that of the GOK-owned, controlled or directed banks combined. 
Consequently, the Department has preliminarily determined that the 
price paid by this creditor cannot serve as a benchmark for the 
purposes set forth under 19 CFR 351.507. Therefore, since there were no 
other private investor prices relevant to the December 2002 debt-for-
equity swap, we next examined other indicators of Hynix's 
equityworthiness, pursuant to 19 CFR 351.507(a)(4).
    As articulated further in the creditworthiness section below, 
current and past indicators showed the company to be in poor financial 
health. Hynix's profitability, solvency, liquidity and repayment 
capabilities were dire for the three years leading up to the December 
2002 restructuring and continuing through the POR. Its net

[[Page 54527]]

profit margin, return on equity, and return on assets were all negative 
during this period. The debt-to-equity, current and quick ratios all 
demonstrate that Hynix was in danger of not being able to make all of 
its payments. This situation necessitated multiple debt restructurings. 
Given the overall economic situation of the firm and the DRAM industry, 
Hynix was hard pressed to find independent private investors. Moreover, 
the multiple debt restructurings resulted in Hynix being owned 
primarily by its creditor banks.
    Based upon these factors, we preliminarily find that Hynix was 
unequityworthy at the time of the initiation and implementation of the 
December 2002 restructuring process through 2003.

Creditworthiness

    The examination of creditworthiness is an attempt to determine if 
the company in question could obtain long-term financing from 
conventional commercial sources. See 19 CFR 351.505(a)(4). According to 
19 CFR 351.505(a)(4)(I), the Department will generally consider a firm 
to be uncreditworthy if, based on information available at the time of 
the government-provided loan, the firm could not have obtained long-
term loans from conventional commercial sources. In making this 
determination, according to 19 CFR 351.505(a)(4)(i), the Department 
normally examines the following four types of information: (1) the 
receipt by the firm of comparable commercial long-term loans, (2) 
present and past indicators of the firm's financial health, (3) present 
and past indicators of the firm's ability to meet its costs and fixed 
financial obligations with its cash flow, and (4) evidence of the 
firm's future financial position.
    In the case of firms not owned by the government, the receipt by 
the firm of comparable long-term commercial loans, unaccompanied by a 
government-provided guarantee (either explicit or implicit), will 
normally constitute dispositive evidence that the firm is not 
uncreditworthy. See 19 CFR 351.505(a)(4)(ii). However, according to the 
Preamble to the Department's regulations, in situations where a company 
has taken out a single commercial bank loan for a relatively small 
amount, where a loan has unusual aspects, or where we consider a 
commercial loan to be covered by an implicit government guarantee, we 
may not view the commercial loan(s) in question to be dispositive of a 
firm's creditworthiness. See Countervailing Duties: Final Rule, 63 FR 
65348, 65367 (November 28, 1998) (``Preamble'').
    The Department examined Hynix's performance from January 1, 2000, 
to June 30, 2002, in the investigation and found the company to be 
uncreditworthy. According to record evidence, Hynix did not obtain any 
new medium-term or long-term credit during the period July 1, 2002, 
through December 31, 2003. See Hynix's June 1, 2005, Supplemental 
Questionnaire Response at 20, 51. The only ``fresh'' loans resulted 
from the conversion of excess interest amounts, above 3.5 percent, from 
prior loans. Thus, these loans would not be dispositive of Hynix's 
creditworthiness. See Hynix's December 17, 2004, Questionnaire Response 
at 18-20.
    We note that a creditor found not to be entrusted or directed by 
the GOK participated in the December 2002 debt restructuring. Our 
preliminary finding that credit extended by this lender does not 
constitute a comparable commercial long-term loan within the meaning of 
19 CFR 351.505(a)(4)(i)(A) is addressed in a separate memorandum 
because of the proprietary nature of the analysis.
    Pursuant to 19 CFR 351.505(a)(4)(i), we next examined present and 
past indicators of Hynix's financial health, its ability to meet its 
costs and fixed financial obligations with its cash flow, and various 
projections of Hynix's future financial position. In accordance with 
the Department's usual practice, we conducted the examination on a 
year-by-year basis, for the years 2002 and 2003. See Preamble, 63 FR at 
65367; see also Calculation Memorandum. We also reviewed, from 
information on the record, projections by market watchers of Hynix's 
future performance, contemporaneous with the December 2002 debt 
restructuring.
    Hynix's financial record generally indicated poor financial 
performance and inadequate current assets to cover the company's 
current liabilities. Specifically, Hynix's current and quick ratios 
were both below 1.0 for each year under consideration for the review, 
indicating poor ability by the company to cover current liabilities 
with current assets. Hynix's times-interest-earned ratios--which show 
the extent to which pre-tax income covers interest expense, and which 
creditors closely monitor to gauge exposure to the risk of default--
were negative in 2001, 2002 and 2003, due to pre-tax losses. Hynix's 
net profit margins, as well as its return on assets and return on 
equity ratios, showed progressive deterioration: barely positive in 
1999 and turning negative from 2000 through 2003. Finally, Hynix's cash 
flow to current debt and cash flow to total liabilities ratios, which 
indicate a company's bankruptcy risk, were extremely weak during the 
same period. These ratios were actually negative in 2001, in the single 
digits in 2002, and only modestly improved in 2003. Hynix's prolonged 
inability to generate sufficient cash flow was problematic and not 
indicative of a creditworthy company. See Calculation Memorandum.
    Next, we examined the record for independent expert analyses 
regarding Hynix's future financial prospects. MSDW analyst reports in 
2002 and 2003 expressed doubt as to Hynix's prospects for independent 
survival without additional help from its creditors. In March 2002, 
MSDW cautioned that the then current rebound in DRAMS prices was not 
enough for Hynix to compete globally on a stand-alone basis without the 
support of creditors. See Morgan Stanley Hynix Semiconductor Equity 
Research (March 7, 2002), at Petitioner's April 25, 2005, FIS, at 
Volume 46, Exhibit 274.
    In September 2002, MSDW stated that, ``Hynix's chances of 
independent survival appear limited without more help from creditors'' 
and ``whatever the outcome, the message is clear to investors: Hynix is 
not an investment grade company.'' Morgan Stanley Hynix Semiconductor 
Equity Research (September 25, 2002), at Petitioner's September 27, 
2004, submission, at Exhibit 9. MSDW postulated three possible outcomes 
for Hynix: (1) liquidation at a rock-bottom price, (2) continued 
operation with a deterioration of Hynix's market position, and (3) 
another bailout with partial debt forgiveness, debt restructuring, and 
a debt-to-equity swap. Another concern was Hynix's lack of investment 
in technology and other capital expenditures during the POR, which MSDW 
projected could erode its future competitiveness. See Morgan Stanley 
Hynix Semiconductor Equity Research (February 13, 2003), at 
Petitioner's September 27, 2004, submission, at Exhibit 10.
    We note that DB's November 2002 Report, as discussed more fully in 
the equityworthiness section above, presented a more positive outlook 
for Hynix's future financial performance. According to the DB Report, 
Hynix would be debt-free by 2006, assuming that the company 
successfully implemented its technology roadmap, capital expenditure 
plan, and that DRAMS prices recovered by 2005/2006. See Hynix's July 
11, 2005, Questionnaire Response, Exhibit 23; see also Hynix's December 
17, 2004 Questionnaire Response, Exhibit 14, 18. However, as also noted 
in the equityworthiness section above, these

[[Page 54528]]

assumptions were not shared by other independent analyses on the record 
and not consistent with the indications from Hynix's past performance.
    On the basis of these considerations, we preliminarily find that 
Hynix was uncreditworthy in 2002 and 2003. Consequently, we have used 
an uncreditworthy benchmark rate in calculating the benefit from loans 
received during this time period, and we have used an uncreditworthy 
discount rate in calculating any non-recurring benefits received by 
Hynix that were allocable to the POR.

Analysis of Programs

I. Programs Preliminarily Determined to Confer Subsidies During the POR

Entrustment or Direction and Other Financial Assistance

    In the investigation, the Department determined that Hynix received 
financial contributions from Korean banks that had been entrusted or 
directed by the GOK. We reached this determination on the basis of a 
two-part test: First, we determined that the GOK had in place a 
governmental policy to support Hynix's financial restructuring to 
prevent to the company's failure. Second, we found that the GOK acted 
upon that policy through a pattern of practices to entrust or direct 
Hynix's creditors to provide financial contributions to Hynix. See 
Investigation Decision Memorandum at 47-61. We also found that ``this 
policy and pattern of practices continued throughout the entire 
restructuring process through its logical conclusion.'' Id.
    The petitioner has alleged that an additional financial 
restructuring in December 2002 reflects a continuation of the 
government's policy to prevent Hynix's failure and that the GOK again 
entrusted or directed Hynix's creditors. For that restructuring, 
Hynix's creditors converted 1,856,771 million won of outstanding debt 
into equity, extended the maturities on 3,293.2 billion won of debt, 
and converted interest due into new long-term loans. See ``Hynix 
Semiconductors Inc.: Notes To Non-Consolidated Financial Statements,'' 
at numbered paragraph 14, available at Micron's ``Submission Of 
Rebuttal Factual Information,'' June 20, 2005, Volume 1, Tab 13, at 39-
40.
    As in the investigation, the question in this proceeding is whether 
the GOK entrusted or directed Hynix's creditors to provide financial 
contributions to Hynix, within the meaning of section 771(5)(B)(iii) of 
the Act.\1\ Government entrustment or direction to provide a financial 
contribution constitutes a subsidy when providing the contribution 
would normally be vested in the government and the practice does not 
differ in substance from practices normally followed by governments. 
See section 771(5)(B)(iii) of the Act.
---------------------------------------------------------------------------

    \1\ In evaluating the petitioner's allegation regarding the 
December 2002 restructuring, we continued to distinguish between 
those banks found to be ``government authorities'' within the 
meaning of section 771(5)(B) the Act, and banks found to be 
``entrusted or directed'' by the GOK, within the meaning of section 
771(5)(B)(iii) of the Act. See Investigation Decision Memorandum at 
13-17. No new evidence or changed circumstances exist that would 
lead us to revisit our prior determination that the Korean 
Development Bank (``KDB'') and other ``specialized'' banks are 
government authorities and that the financial contributions made by 
these entities fall within section 771(5)(B)(i) of the Act. For all 
other financial institutions, we continued to evaluate whether the 
financial contributions they made to Hynix as part of the December 
2002 restructuring were entrusted or directed by the GOK in 
accordance with section 771(5)(B)(iii) of the Act.
---------------------------------------------------------------------------

    The contributions in this case are loans and equity infusions. The 
provision of such contributions falls within section 771(5)(D) of the 
Act and therefore would normally be vested in the government, and the 
practice does not differ in substance from practices normally followed 
by governments. Entrustment or direction occurs when a government gives 
responsibility to, commits the execution of a task to, or exercises 
authority over, a private entity. Government actions which entail 
pressuring, exerting influence, guiding, ordering, regulating, or 
delegating vis-a-vis a private entity are indicative of entrustment or 
direction. Moreover, these actions need not be explicit. Rather, the 
government entrustment or direction can also be implicit or informal. 
Additionally, when a government executes its policy by operating 
through a private entity, or when a government causes a private entity 
to act consistently with that policy, there is entrustment or direction 
by the government. Evidence of entrustment or direction need not be 
explicit but, rather, entrustment or direction can be inferred from 
circumstantial evidence.
    In examining the evidence on the record, we are mindful that we 
must evaluate carefully all possible explanations for the actions taken 
by Hynix's creditors, and that our conclusions must be made on the 
basis of the totality of the record facts. As we have noted, above, it 
is appropriate in cases involving government entrustment or direction 
to reach conclusions based on inferences from circumstantial evidence. 
Indeed, as in the investigation, much of the information regarding the 
GOK's involvement in the December 2002 Hynix restructuring is 
circumstantial in nature. Moreover, the probative value of such 
circumstantial evidence can be enhanced where the parties are found to 
be secretive or evasive with respect to information that is relevant 
and responsive to the investigating authority's analysis. This has been 
the case in this administrative review. Specifically, record evidence 
indicates that the GOK and Hynix's creditors were overly careful not to 
discuss publically their communications regarding Hynix because they 
feared potential trade remedy cases. Additionally, as discussed more 
fully, below, we are troubled by numerous instances during the course 
of this review, in which the GOK did not provide all of the information 
requested by the Department , including information that was later 
revealed in submissions by the petitioner. Such instances hinder our 
ability to fairly conduct a complete and accurate analysis of all of 
the evidence relevant for reaching a decision. Nonetheless, we 
preliminarily find on the basis of substantial record evidence that the 
GOK entrusted or directed Hynix's creditors to provide financial 
contributions to Hynix. We also find that it is appropriate to treat 
the circumstantial evidence in support of this conclusion as highly 
probative in light of the GOK's inadequate responses and the 
secretiveness under which the GOK and Hynix's creditors were operating 
at the time of the restructuring.
    Hynix and the GOK claim that Hynix's creditors acted independently 
of the government and on a commercial basis when they provided new 
financial contributions to Hynix in connection with the December 2002 
restructuring. We disagree. As we explain in detail, below, record 
evidence demonstrates that the GOK's policy to prevent Hynix's failure 
continued after the period of investigation. Record evidence also shows 
incontrovertibly that at the time of the December 2002 restructuring, 
Hynix was once again in dire financial straits and that the company 
desperately needed new financial assistance from its creditors in order 
to survive as a viable entity. Direct and indirect record evidence 
further demonstrates that the GOK entrusted or directed Hynix's 
creditors to provide that assistance.\2\ At

[[Page 54529]]

the time of the December 2002 restructuring, GOK-owned or controlled 
banks dominated the Creditor's Council, giving the GOK the means to 
effectuate its policy toward Hynix and allowing it to set the terms of 
the restructuring. Although Hynix and the GOK argue that the creditors 
were merely acting upon the plan devised by its financial advisors, 
record evidence shows that independent financial analysts not 
associated with Hynix or its creditors reached very different 
conclusions and issued consistent warnings about the company's 
viability. This evidence demonstrates that Hynix's condition was so 
dire that no commercially motivated actor would have invested in or 
made loans to Hynix at the time of the December 2002 restructuring. The 
absence of a compelling commercial rationale to provide more financial 
assistance to Hynix provides further evidence that the role of the GOK 
was critical in bringing about the December 2002 bailout.
---------------------------------------------------------------------------

    \2\ This finding does not apply to Creditor X, a foreign-owned 
creditor holding a small amount of Hynix's debt. For further 
discussion on the role of this bank in the restructuring, see the 
``Equityworthiness'' and ``Creditworthiness'' sections of this 
notice.
---------------------------------------------------------------------------

    The evidence on the record demonstrates that the GOK continued to 
worry that Hynix's collapse could have a damaging effect on the Korean 
economy, even after the last major bailout was completed in October 
2001, and that the GOK was taking steps to deal with the company. In 
early 2002, after the company's merger negotiations with Micron, the 
U.S. DRAMS producer and petitioner in this case, ended in failure, the 
government again expressed its concern about the fate of Hynix. For 
example, after the merger talks with Micron ended, the Deputy Prime 
Minister stated that the government would soon reveal its position on 
how to handle Hynix. See ``Government Started to Establish a Counter 
Plan for the Handling of Hynix,'' Maeil Business Newspaper (May 1, 
2002) {English Translation{time} , Petitioner's April 25, 2005, FIS at 
45-189. Shortly thereafter, the Deputy Prime Minister stated in a radio 
program interview that ``the government is encouraging creditors group 
to swiftly handle Hynix.'' ``Encouraging Swift Handling Of Hynix' 
Deputy Prime Minister Yoonchol Chon,'' HANKOOK Economy (May 5, 2002) 
{English Translation{time} , Petitioner's April 25, 2005, FIS at 45-
182. On the same day, the Deputy Prime Minister was quoted as saying 
that ``{w{time} riting off Hynix's debt would also be considered as 
fresh financial assistance'' and that Hynix's creditors and the FSC 
should come up with a speedy resolution to the breakdown of the Hynix-
Micron deal to minimize any negative impact on the economy. See 
``Creditors won't offer new loans to Hynix: Jeon,'' Korea Herald (May 
5, 2002), Petitioner's April 25, 2005, FIS at 45-187. The article added 
that the government was planning a ``Financial Policy Coordination 
Meeting'' to discuss Hynix's fate, which would be attended by Finance 
and Economy Vice Minister Yoon Jin-shik, FSC Vice-Chairman Yoo Ji chang 
and Bank of Korea Deputy Governor Park chul. Id.
    The government's ability to control the fate of Hynix became 
apparent in additional press reports from that time which noted that 
the head of the United Liberal Democratic Party, Kim Jong-pil, while 
visiting a Hynix plant in Cheongju, told Hynix labor union leaders they 
had ''. . .earned the promise from Vice Prime Minister and Minister of 
Finance and Economy that the government will not sell Hynix within the 
next six months.'' ``Hynix, cannot sell within the year after all,'' 
Financial News (June 12, 2002) {English Translation{time} , 
Petitioner's April 25, 2005, FIS at 45-163; see also ``Hynix Not To Be 
Sold Within 6 Months,'' Maeil Business Newspaper (May 29, 2002) 
{English Translation{time} , Petitioner's April 25, 2005, FIS at 45-172 
(``. . . secured a promise that Hynix will not be sold in the next six 
months.'').
    In its July 25, 2002, report to the National Assembly, the Ministry 
of Finance and Economy stated that it would prepare a structural 
adjustment plan for Hynix around the end of July based on due diligence 
underway at the time. See Report Materials for the Committee of Finance 
and Economy: Current Economic Situations and Pending Issues, (July 25, 
2002) {English Translation{time} , Petitioner's April 25, 2005, FIS at 
44-B-9. In September 2002, Vice Finance Minister Yoon Jin-Shik ``called 
on creditor banks of the cash-strapped Hynix Semiconductor to swiftly 
decide on the fate of the world's third largest chipmaker.'' The Vice 
Finance Minister was quoted as saying that ``{c{time} reditors will 
have to find a solution to Hynix as soon as possible to minimize an 
adverse impact (of the collapse of a proposed [sic] deal with Mircon 
Technology) on the economy.'' ``Creditors Urged to Swiftly Decide on 
Hynix's Future,'' Korea Times (September 19, 2002), Petitioner's April 
25, 2005, FIS at 45-134.
    In November 2002, on the eve of the presidential election and just 
before the December 2002 restructuring, the GOK was severely criticized 
by Korea's Grand National Party (``GNP'') which had completed a report 
in the National Assembly regarding the GOK's mismanagement of public 
funds in recent years. See Special Committee on Parliamentary 
Inspection of Public Fund Administration: Public Fund Mismanagement 
Investigation Report (November 2002) {English Translation{time} , 
Petitioner's April 25, 2005, FIS at 54-100. A section of this report, 
entitled ``Why is the Dae-Jung Kim Administration so Preoccupied With 
the Bailout of Hyundai?,'' addressed the restructuring of Hynix, 
stating that the Dae-jung Kim Administration:
    {F{time} orced financial institutions to extend 24.4 trillion 
{won{time}  in loans to the Hyundai Group, and mobilized government-
invested banks and other government-funded or invested institutions 
which are run with taxpayers' money, to extend 11.5 trillion won to the 
Hyundai Group. This resulted in the injection of the astronomical 
amount of 33.6 trillion won in total thus far, since the Hyundai 
Group's liquidity crisis in May 2000 (excluding the matching portion 
from the Korea Development Bank).
    Id. at 100. This report further notes that, by saving the failing 
company, the GOK was ``injecting money into bottomless pits'' and 
should account for the total amount of public funds being provided to 
the Hyundai Group. Indeed, the GNP concluded that the government was 
wasting astronomical sums of money on failed companies, including 
Hynix, and that the Korean taxpayers had suffered the consequences. Id. 
at 104.
    Immediately following the GNP report, the Financial Times reported 
in December 2002, that ``{w{time} ith 13,000 people directly employed 
by Hynix and a further 600,000 suppliers and family members dependent 
on the company, bankruptcy would have been politically damaging to the 
government ahead of this month's presidential election.'' See 
``Pressure builds on Seoul over Hynix: Creditors are contemplating a 
third multi-billion dollar bail-out of the troubled chip maker amid 
mounting protest, says Andrew Ward,'' Financial Times (December 9, 
2002), Petitioner's April 25, 2005, FIS at 45-93. Only one week after 
the December 2002 restructuring had been finalized, another report 
noted that an economic ministers' meeting, attended by President Dae-
Jung Kim and Deputy Prime Minister Yoon Cheol Jeon, was held at the 
Blue House to set out ``plans for the year 2003 economy.'' At this 
meeting, GOK officials stated that they would ``try to conclude dealing 
with insolvent companies including Hanbo Steel and Hynix Semiconductor 
as soon as possible.'' ``2 or 3 New Urban Areas to be Developed in the 
Capital City Area ... Potential Locations to be Selected in the 1st 
Half of the Year,'' Donga Daily (January 9, 2003), available at 
Micron's

[[Page 54530]]

``Submission of Rebuttal Factual Information, July 21, 2005, at Tab 31.
    These reports evidence undiminished support by the GOK for Hynix, 
motivated by its concern about the effect that the company's failure 
would have on the Korean economy. These reports also attest to the 
high-level involvement of GOK officials in the process leading up to 
the December 2002 restructuring. We also note that there is no evidence 
on the record that suggests the GOK's policies with respect to Hynix 
came to an abrupt end after the October 2001 restructuring. Rather, as 
we noted during the investigation, the government's goal was to ensure 
Hynix's viability as an ongoing concern. The October 2001 restructuring 
did not bring about this goal. Rather, as became apparent during 2002, 
especially after the merger negotiations with Micron ended, Hynix again 
found itself in dire need of additional financial assistance from its 
creditors, without which the company would have failed.\3\
---------------------------------------------------------------------------

    \3\ For further discussion of Hynix's financial condition during 
the period leading up to the December 2002 restructuring, see the 
``Equityworthiness'' and ``Creditworthiness'' sections of this 
notice, above.
---------------------------------------------------------------------------

    By December 2002, Hynix once again faced the prospect of financial 
collapse. The GOK, however, had little difficulty effectuating its goal 
of preventing the company's failure, in part because the GOK-owned or 
controlled banks dominated the company's Creditors' Council. At the 
time of the December 2002 restructuring, the creditors which were 
either government entities or in which the GOK held the largest or a 
majority share accounted for over 80 percent of the voting rights in 
the Creditors' Council, measured by a banks' exposure to Hynix. 
Although government ownership by itself is not sufficient to result in 
a finding that a financial institution is a government entity, the high 
level of ownership by the government in Hynix's creditors gave it the 
ability to exercise substantial influence over the activities of these 
entities, including their lending decisions with regard to Hynix.
    The GOK claims in its questionnaire responses that it does not 
intervene in the internal management and decision-making processes of 
financial institutions. See GOK's June 1, 2005, Questionnaire Response 
at 5. The GOK also reported, however, that, in ``important instances,'' 
it exercised its shareholder voting rights through its government 
entity banks (e.g., KDIC). Id. at 31-33. Such ``important instances'' 
included, appointment and dismissal of directors or auditors, 
alteration of the ceiling of directors' remuneration, appointment of 
senior officers, exemption of directors' and auditors' indemnity 
responsibility to the shareholders, disposal of all assets of the bank, 
application for bankruptcy and liquidation by the bank, capital 
reductions, issuance of new shares, and mergers with related companies. 
See GOK's July 11, 2005, Questionnaire Response at 12-15. Given the 
significance of these ``instances,'' the Department finds that the GOK 
exercised substantial influence over those banks in which it retained 
ownership during the POR.
    Furthermore, the record evidence from secondary sources contradicts 
the GOK's claim that it did not interfere in internal bank affairs. For 
instance, one report noted that if ``some argue that there are 
government-directed banking practice and parachute appointments, a 
counter argument that {sic{time}  `Why are you against the exercise of 
stockholder's right?' is presented.'' However, the report continues, 
the problem is that ``the government's exercise of shareholder's rights 
is politically motivated rather than by business considerations.'' 
``{Government-Directed Banking Practices{time}  Do Bank Officers 
{Belong to{time}  the Government?,'' Maeil Business Newspaper (May 21, 
2002) {English Translation{time} , Petitioner's April 25, 2005, FIS at 
45-175. The article also reports that ``7 out of 10 commercial banks 
are essentially under government management'' and that it became 
``reasonable for the government, as the majority shareholder, to sway 
the appointment of the Chairman of the bank.'' Id. Further, the article 
explained that ``strong influence of former officials appointed {as 
bank officials{time}  after serving in the Ministry of Finance and 
Economy, and the Financial Supervisory Committee, {is{time}  enabling 
the connection for the government-directed banking practices. . . .'' 
Id.
    Another report cited the observations of Lee Phil-sang, the Dean of 
the Korea University's Business School, who noted that by ``. . 
.injecting large sums of public funds, the government nationalized 
banks and kept a firm grip on financial institutions via the Financial 
Supervisor Commission,'' and that ``{o{time} ut of ten existing 
commercial banks, the government is the major shareholder of seven 
banks. . .'' ``Soundness of Financial Sector Still Remains Remote,'' 
The Korea Times (September 2, 2002), Petitioner's April 25, 2005, FIS 
at 54-117. The article goes on to say that the ``government has 
publicly declared it will not intervene in bank management, even when 
it is the major shareholder, but whenever there is a major shakeup, 
such as the election of a CEO, the government has been known to exert 
pressure.'' Id. This observation is corroborated by reports from 
various other sources that the EXIM Bank and the BOK, which are 
shareholders in Korean Exchange Bank (``KEB''),\4\ influenced the 
Presidential Candidate Recommendation Committee's recommendation of 
Kang Won Lee as KEB president, that the FSC's decision to remove the 
president of Kookmin was likely due to his opposition to Hynix's 
restructurings, and that officials at the KEB and Chohung Bank 
(``CHB'') resigned following a dispute with the GOK over the 
appointment of bank officers.\5\
---------------------------------------------------------------------------

    \4\ As discussed in more detail below, the KEB was the lead 
creditor in the Hynix Creditors' Council.
    \5\ See ``About the Case of Korea Exchange Bank,'' Money Today 
(May 13, 2002) ``English Translation'', Petitioner's April 25, 2005, 
FIS at 48-50; ``Revival of Government-Directed Banking'' Munwha Ilbo 
(September 13, 2004) {English Translation{time} , Petitioner's April 
25, 2005, FIS at 44-B-15; ``Analysis: S. Korea's battle with bank,'' 
United Press International (January 3, 2005), Petitioner's April 25, 
2005, FIS at 54-111; ``{Government-Directed Banking Practices{time}  
Do Bank Officers {Belong to{time}  the Government?,'' Maeil Business 
Newspaper (May 21, 2002) {English Translation{time} , Petitioner's 
April 25, 2005, FIS at 45-175.
---------------------------------------------------------------------------

    Further corroboration of similar significant interference by the 
GOK is provided in another news article, which reported that any GOK 
denials regarding its involvement in Hynix's restructurings ``is merely 
a rhetorical remark for public consumption,'' and that whenever banks 
``. . .shy away from providing support, the government has talked to 
them, or even twisted their arms, to bring support for Hynix.'' 
``Hynix, will it really survive?,'' www.kyunghyang.com (February 18, 
2003) {English Translation{time} , Petitioner's April 25, 2005, FIS at 
21-B-51.
    In a separate article, Maeil Business Newspaper quoted a current 
officer of a city bank as saying that ``the government always made a 
telephone call when the bank tried to process an insolvent corporation 
through bankruptcy, asking {the{time}  bank's cooperation in 
consideration of employment issues and bankruptcy of subcontractors,'' 
and that ``the most typical of such a case would be the new financial 
support extended to Hynix Semiconductors.'' ``Revival of the new 
government-controlled finance? Giving oral instruction without written 
document to dodge responsibilities,'' Maeil Business Newspaper (March 
31, 2003) {English Translation{time} , Petitioner's April 25, 2005, FIS 
at 47-B-23. The article further reported that, according to bank 
officers, such telephone calls were not mere suggestions, explaining 
that once ``they receive oral instructions

[[Page 54531]]

from the government agencies, banks have no choice but to comply.'' Id. 
One bank officer reportedly stated that ``banks cannot decline the 
government's instructions because not complying with the government's 
orders can lead to many disadvantages under the situation.'' Id.
    As may be expected, evidence of the government's influence in the 
lending decisions of banks tends to come from indirect sources. This is 
especially the case where, as here, the government is concerned about 
potential trade actions taken against the subsidized company. However, 
in this case, the record also contains direct evidence of government 
involvement in the lending decisions of Hynix's creditors. For 
instance, in order to gain listing in the U.S. stock market, Woori Bank 
(``Woori''),\6\ a GOK-owned or controlled bank, filed a disclosure with 
the U.S. Securities and Exchange Commission (``SEC'') that very frankly 
describes the GOK's practices with respect to the banking sector. See 
Form 20-F: Registration Statement: Woori Finance Holdings Co., Ltd. 
(September 25, 2003), available at Micron's ``Submission of Rebuttal 
Factual Information, July 21, 2005, at Tab 46 at 26-27. Such filings 
are subject to stringent transparency rules designed to protect 
investors, and the veracity of the accompanying statements entails 
serious litigation and liability risk for the company. Therefore, we 
consider these SEC filings to be highly probative evidence.
---------------------------------------------------------------------------

    \6\ As of December 2002, Woori Bank was a wholly-owned 
subsidiary of Woori Financial Group. See GOK's June 1, 2005 
Supplemental Questionnaire Response at 29. Woori Financial Group is 
registered with the U.S. SEC as ``Woori Finance Holdings Co., Ltd.'' 
Woori Bank's financial disclosures are consolidated within the 
filing by Woori Finance Holdings Co., Ltd. Hereafter, the entities 
may be referred to interchangeably as ``Woori.''
---------------------------------------------------------------------------

    Woori's Form 20-F explains the risks related to GOK ownership and 
control of the bank, particularly the risks involved in governmental 
pressure to lend to certain industries. The filing states: Risks 
relating to government control. The KDIC,\7\ which is our controlling 
shareholder, is controlled by the Korean government and could cause us 
to take actions or pursue policy objectives that may be against your 
interests. The Korean government, through the KDIC, currently owns 
86.8% of our outstanding common stock. So long as the Korean government 
remains our controlling stockholder, it will have the ability to cause 
us to take actions or pursue policy objectives that may conflict with 
the interests of our other stockholders. For example, in order to 
further its public policy goals, the Korean government could request 
that we participate with respect to a takeover of a troubled financial 
institution or encourage us to provide financial support to particular 
entities or sectors. Such actions or others that are not consistent 
with maximizing our profits or the value of our common stock may have 
an adverse impact on our results of operations and financial condition 
and may cause the price of our common stock and ADSs to decline. . . .
---------------------------------------------------------------------------

    \7\ Korea Deposit Insurance Corporation.
---------------------------------------------------------------------------

    Risks relating to government regulation. The Korean government 
promotes lending and financial support by the Korean financial industry 
to certain types of borrowers as a matter of policy, which financial 
institutions, including us, may decide to follow. Through its policy 
guidelines and recommendations, the Korean government has promoted and, 
as a matter of policy, may continue to attempt to promote lending by 
the Korean financial industry to particular types of borrowers. For 
example, the Korean government has in the past announced policy 
guidelines requesting financial institutions to participate in remedial 
programs for troubled corporate borrowers, as well as policies 
identifying sectors of the economy it wishes to promote and making low 
interest funding available to financial institutions that lend to these 
sectors. The government has in this manner encouraged low-income 
mortgage lending and lending to small- and medium-sized enterprises and 
technology companies. We expect that all loans or credits made pursuant 
to these government policies will be reviewed in accordance wit