Dynamic Random Access Memory Semiconductors from the Republic of Korea: Preliminary Results of Countervailing Duty Administrative Review, 46192-46199 [E6-13167]

Agencies

• DEPARTMENT OF COMMERCE
• International Trade Administration

[Federal Register Volume 71, Number 155 (Friday, August 11, 2006)]
[Notices]
[Pages 46192-46199]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-13167]


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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 January 1, 
2004, through December 31, 2004. We preliminarily find that Hynix 
Semiconductor, Inc. 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: August 11, 2006.

FOR FURTHER INFORMATION CONTACT: Steve Williams and Andrew McAllister , 
Office of Antidumping/Countervailing Duty Operations, Office 1, Import 
Administration, International Trade Administration, U.S. Department of 
Commerce, Room 3069, 14th Street and Constitution Avenue, N.W., 
Washington, D.C. 20230; telephone: (202) 482- 4619 or (202) 482-1174, 
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 1, 2005, the Department published a 
notice of ``Opportunity to Request Administrative Review'' for this 
countervailing duty order. On August 30, 2005, we received a request 
for review from the petitioner, Micron Technology, Inc. (``Micron''). 
On August 31, 2005, we received a request from Hynix Semiconductor, 
Inc. (``Hynix''). In accordance with 19 CFR 351.221(c)(1)(i) (2004), we 
published a notice of initiation of the review on September 28, 2005. 
See Initiation of Antidumping and Countervailing Duty Administrative 
Reviews and Request for Revocation in Part, 70 FR 56631 (September 28, 
2005) (``Initiation Notice'').
    On November 2, 2005, we issued countervailing duty questionnaires 
to the Government of the Republic of Korea (``GOK'') and Hynix. We 
received responses to these questionnaires in December 2005. Micron 
submitted comments on Hynix's questionnaire responses in January 2006. 
In March 2006, we issued supplemental questionnaires to the GOK and 
Hynix, and we received responses to these supplemental questionnaires 
in April 2006.
    On January 12, 2006, we received a new subsidies allegation from 
Micron. On April 26, 2006, Micron submitted a supplement to its January 
12, 2006, new subsidies allegation. On June 8, 2006, we initiated an 
investigation of two of the five new subsidies that Micron alleged in 
this administrative review. See New Subsidy Allegations Memorandum, 
dated June 8, 2006, available in the Central Records Unit (``CRU''), 
Room B-099 of the main Department building.
    On April 25, 2006, we published a postponement of the preliminary 
results in this review until August 7, 2006. See Dynamic Random Access 
Memory Semiconductors from the Republic of Korea: Extension of Time 
Limit for Preliminary Results of Countervailing Duty Review, 71 FR 
23898 (April 25, 2006).
    In June 2006, we issued supplemental questionnaires to the GOK and 
Hynix regarding the new subsidies alleged by Micron. We received 
responses to the supplemental questionnaires on June 30, 2006. On July 
13, 2006, Micron submitted pre-preliminary comments and a separate 
compilation of rebuttal factual information. On July 18, 2006, Hynix 
responded to Micron's July 13,

[[Page 46193]]

2006 submissions. On July 21, 2006, Micron submitted comments on the 
GOK and Hynix's supplemental questionnaire responses. On July 26, 2006, 
we issued another supplemental questionnaire to Hynix, and we received 
Hynix's response on August 2, 2006.

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 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 January 12, 2006, the Department issued a final scope ruling, 
finding that removable memory modules placed on motherboards that are 
imported for repair or refurbishment are not within the scope of the 
CVD Order provided that the importer certifies that it will destroy any 
memory modules that are removed for repair or refurbishment. See Final 
Scope Ruling Memorandum from Stephen J. Claeys to David M. Spooner, 
dated January 12, 2006

Period of Review

    The period for which we are measuring subsidies, i.e., the period 
of review (``POR''), is January 1, 2004, through December 31, 2004.

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.
    Hynix's ownership changed during the AUL period as a result of 
debt-to-equity conversions in October 2001, and December 2002, and 
various asset sales. However, Hynix has not rebutted the Department's 
baseline presumption that the non-recurring, allocable subsidies 
received prior to the equity conversions and asset sales continue to 
benefit the company throughout the allocation period. See Hynix's March 
30, 2006 supplemental questionnaire response (``Hynix SQNR'') at 4. See 
also Dynamic Random Access Memory Semiconductors from the Republic of 
Korea: Preliminary Results of Countervailing Duty Administrative 
Review, 70 FR 54523, 54524 (September 15, 2005) (``AR1 Preliminary 
Results'').

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 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

    For loans that we found countervailable in the investigation or in 
the first administrative review, and which continued to be outstanding 
during the POR, we have used the benchmarks used in the first 
administrative review (these are described below).

Long-Term Rates

    For long-term, won-denominated loans originating in 1986 through 
1995, we used the average interest rate for three-year corporate bonds 
as reported by the Bank of Korea or the International Monetary Fund 
(``IMF''). For long-term, won-denominated fixed-rate loans originating 
in 1996

[[Page 46194]]

through 1999, we used an annual weighted-average of the rates on 
Hynix's corporate bonds, which were not specifically related to any 
countervailable financing. We did not use the rates on Hynix's 
corporate bonds for 2000-2003 for any calculations because Hynix either 
did not obtain bonds or obtained bonds through countervailable debt 
restructurings during those years.
    For U.S. dollar-denominated loans, we relied on the lending rates 
as reported in the IMF's International Financial Statistics Yearbook.
    For the years in which we previously determined Hynix to be 
uncreditworthy (2000 through 2003), we used the formula described in 19 
CFR 351.505(a)(3)(iii) to determine the benchmark interest rate. For 
the probability of default by an uncreditworthy company, we used the 
average cumulative default rates reported for the Caa- to C- rated 
category of companies as published in Moody's Investors Service, 
``Historical Default Rates of Corporate Bond Issuers, 1920-1997'' 
(February 1998). For the probability of default by a creditworthy 
company, we used the cumulative default rates for investment grade 
bonds as published in Moody's Investor Services: ``Statistical Tables 
of Default Rates and Recovery Rates'' (February 1998). For the 
commercial interest rates charged to creditworthy borrowers, we used 
the rates for won-denominated corporate bonds as reported by the BOK 
and the U.S. dollar lending rates published by the IMF for each year.

Short-Term Loans

    Consistent with the methodology used in the first administrative 
review, we use the money market rates as reported in the IMF's 
International Financial Statistics Yearbook for short-term interest 
rates. For countries (or currencies) for which a money market rate was 
not reported, we are utilizing the lending rate from the same source.

Creditworthiness

    We have not analyzed Hynix's creditworthiness for 2004.

Analysis of Programs

I. Programs Previously Determined to Confer Subsidies

    We examined the following programs determined to confer subsidies 
in the investigation and first administrative review, and preliminarily 
find that Hynix continued to receive benefits under these programs 
during the POR.

A. GOK Entrustment or Direction Prior to 2004

    In the investigation, the Department determined that the GOK 
entrusted or directed creditor banks to participate in financial 
restructuring programs, and to provide credit and other funds to Hynix, 
in order to assist Hynix through its financial difficulties. The 
financial assistance provided to Hynix by its creditors took various 
forms, including new loans, convertible and other bonds, extensions of 
maturities and interest rate reductions on existing debt (which we 
treated as new loans), Documents Against Acceptance (``D/A'') 
financing, usance financing, overdraft lines of credit, debt 
forgiveness, and debt-for-equity swaps. The Department determined that 
these were financial contributions that constituted countervailable 
subsidies during the POI.
    In the first administrative review, the Department found that the 
GOK continued to entrust or direct Hynix's creditors to provide 
financial assistance to Hynix throughout 2002 and 2003. The financial 
assistance provided to Hynix during this period included the December 
2002 debt-for-equity swaps and the extensions of maturities and/or 
interest rate deductions on existing debt.
    In an administrative review, we do not revisit the validity of past 
findings unless new factual information or evidence of changed 
circumstances has been placed on the record of the proceeding that 
would compel us to reconsider those findings. See e.g., Certain Pasta 
from Italy: Preliminary Results and Partial Rescission of Seventh 
Countervailing Duty Administrative Review, 69 FR 45676 (July 30, 2004), 
affirmed in Certain Pasta From Italy: Final Results of Seventh 
Countervailing Duty Administrative Review, 69 FR 70657 (December 7, 
2004). No such new information has been presented in this review and, 
thus, we preliminarily find that a re-examination of the Department's 
findings in the investigation and first administrative review is 
unwarranted.
    Therefore, we are including in our benefit calculation the 
financial contributions countervailed in the investigation and in the 
first administrative review: bonds, debt-to-equity swaps, debt 
forgiveness, and long-term debt outstanding during the POR. In 
calculating the benefit, we have followed the same methodology used in 
the first administrative review.
    Because we found Hynix to be unequityworthy at the time of the 
debt-for-equity swaps in 2001 and 2002, we have treated the full amount 
swapped as grants and allocated the benefit over the five-year AUL. See 
19 CFR 351.507(a)(6) and (c). We used a discount rate that reflects our 
finding that Hynix was uncreditworthy at the time of the debt-to-equity 
conversions. For the loans, we have followed the methodology described 
at 19 CFR 351.505(c) using the benchmarks described in the ``Subsidies 
Valuation Information'' section of this notice.
    We divided benefits from the various financial contributions by 
Hynix's POR sales to calculate a countervailable subsidy rate of 31.79 
percent ad valorem for the POR.

B. Operation G-7/HAN Program

    Implemented under the Framework on Science and Technology Act, the 
Operation G-7/HAN Program (``G-7/HAN Program'') began in 1992 and ended 
in 2001. The purpose of this program was to raise the GOK's technology 
standards to the level of the G-7 countries. The Department found that 
the G7/HAN Program ended in 2001. See Investigation Decision Memorandum 
at 25. However, during the POR, Hynix had outstanding interest-free 
loans that it had previously received under this program. See Hynix' 
December 22, 2005, Questionnaire Response at 19 and Exhibit 12. The 
Operation G-7/Han Program was found to provide countervailable 
subsidies in the investigation. No new evidence has been provided that 
would lead us to reconsider our earlier finding. Therefore, we have 
calculated a benefit for these loans.
    To calculate the benefit of these loans during the POR, we compared 
the interest actually paid on the loans during the POR to what Hynix 
would have paid under the benchmark described in the ``Subsidy 
Valuation Information'' section of this notice. We then divided the 
total benefit by Hynix's total sales of subject merchandise for the POR 
to calculate the countervailable subsidy. On this basis, we 
preliminarily determine that countervailable benefits of 0.07 percent 
ad valorem existed for Hynix.

C. 21st Century Frontier R&D Program

    The 21st Century Frontier R&D Program (``21st Century Program'') 
was established in 1999 with a structure and governing regulatory 
framework similar to those of the G-7/HAN Program, and for a similar 
purpose, i.e., to promote greater competitiveness in science and 
technology. The 21st Century program provides long-term interest-free 
loans in the form of matching funds. Repayment of program funds is made 
in

[[Page 46195]]

the form of ``technology usance fees'' upon completion of the project, 
pursuant to a schedule established under a technology execution, or 
implementation contract.
    Hynix reported that it had loans from this program outstanding 
during the POR. See Hynix's December 22, 2005, Questionnaire Response 
at Exhibits 12 and 13.
    In the investigation, we determined that this program conferred a 
countervailable benefit on Hynix. No new evidence has been provided 
that would lead us to reconsider our earlier finding. Therefore, we 
have calculated a benefit for these loans.
    To calculate the benefit of these loans during the POR, we compared 
the interest actually paid on the loans during the POR to what Hynix 
would have paid under the benchmark described in the ``Subsidy 
Valuation Information'' section of this notice. We then divided the 
total benefit by Hynix's total sales in the POR to calculate the 
countervailable subsidy rate. On this basis, we calculated a 
preliminarily subsidy rate of less than 0.005 percent ad valorem for 
this program and, therefore, we did not include this program in our 
preliminary net countervailing duty rate, which is consistent with our 
past practice. See e.g., Notice of Preliminary Results of 
Countervailing Duty Review: Certain Softwood Lumber Products from 
Canada, 70 FR 33088, 33091 (June 7, 2005).

II. Programs Preliminarily Determined to Not Confer Subsidies During 
the POR

A. GOK Entrustment or Direction of Debt Reductions

    In the investigation and the first administrative review, the 
Department determined that Hynix received countervailable subsidies 
from creditors that were entrusted or directed by the GOK to provide 
Hynix with financial support in the form of loans, debt-to-equity 
conversions and debt forgiveness. We reached these determinations 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 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 
Issues and Decision Memorandum for the Final Determination in the 
Countervailing Duty Investigation of Dynamic Random Access Memory 
Semiconductors from the Republic of Korea, June 16, 2003 
(``Investigation Decision Memorandum'') at 47-61 and Issues and 
Decision Memorandum for the Final Results in the First Administrative 
Review of the Countervailing Duty Order on Dynamic Random Access Memory 
Semiconductors from the Republic of Korea, March 14, 2006 (``AR1 
Decision Memorandum'') at 5-10. We also found that ``this policy and 
pattern of practices continued throughout the entire restructuring 
process through its logical conclusion.'' See Investigation Decision 
Memorandum at 47-61. These findings covered the period through 2003.
    According to Micron, the GOK's ``policy to prevent Hynix's failure 
continued unabated beyond the original investigation into the first and 
second periods of review,'' and the GOK acted to ensure that Hynix's 
corporate and financial restructurings were carried out by Hynix's 
creditors during 2004. See Micron's January 12, 2005 submission at 13-
15. As such, Micron contends, the GOK entrusted or directed Hynix's 
creditors to facilitate the sale of Hynix's assets, such as its System 
IC unit, by providing acquisition financing and by forgiving portions 
of Hynix's debt before and after the System IC sale.
    The Department declined to investigate the alleged subsidies 
conferred by the sales of Hynix's assets in 2003 and 2004, but is 
investigating the alleged debt forgiveness that occurred before and 
after the System IC sale. See New Subsidy Allegations Memorandum, dated 
June 8, 2006. Specifically, the alleged subsidies that we are 
investigating in this review involve debt that was reduced as part of 
the following financial transactions: 1) Tranche A of the acquisition 
financing for the sale of the System IC unit to MagnaChip Semiconductor 
LLC (``MagnaChip''); 2) the October 2004 Cash Buyout (``CBO''); and 3) 
the December 2004 CBO. According to Micron, Hynix's creditors were 
entrusted or directed by the GOK to forgive debt as part of each of 
these financial transactions.
    As in the investigation and the first administrative review, the 
question before the Department in this segment of the proceeding is 
whether the GOK entrusted or directed Hynix's creditors to provide 
financial contributions to Hynix in 2004, within the meaning of section 
771(5)(B)(iii) of the Tariff Act of 1930, as amended (``the Act''). To 
answer that question, we applied the two-part test that we used in the 
investigation and first administrative review to determine whether the 
GOK entrusted or directed creditors to reduce Hynix's debt in 2004. As 
such, the focus of our analysis has been to determine whether the 
record evidence demonstrates that the GOK maintained its policy to save 
Hynix and that a pattern of GOK practices to implement such a policy 
existed during the period of review (i.e., calendar year 2004).
    In the final results of the first administrative review, the 
Department found that the nexus of Hynix's poor financial condition in 
2002, the GOK's involvement in various solutions to Hynix's financial 
woes (including the possible sale of Hynix to Micron), the GOK's 
dominance of the Creditors' Council (through its ownership and control 
of various member-creditors), GOK threats towards Hynix's creditors, 
and various statements made by high-ranking GOK officials with respect 
to dealing with Hynix's troubles, among other things, demonstrated that 
the GOK entrusted or directed Hynix's creditors to participate in the 
December 2002 financial restructuring. See AR1 Decision Memorandum at 
5-10 and Comment 1. Most of the evidence supporting the Department's 
finding was contemporaneous with Hynix's financial restructurings in 
2002. The record evidence in this review, however, either fails to 
demonstrate that the GOK entrusted or directed Hynix's creditors in 
2004 or relates to GOK actions that occurred prior to 2004.
    First, the record evidence in this review demonstrates that the 
GOK-entrusted or -directed financial restructurings of Hynix in 2001 
and 2002 largely achieved the GOK's objective of preventing Hynix's 
collapse by 2004. Specifically, the record evidence shows that Hynix's 
financial condition in 2004 was drastically improved in comparison to 
2001 through 2003. For instance, Hynix consistently generated 
significant revenue, profit, and return on equity throughout 2004. See 
Hynix's June 30, 2006 supplemental questionnaire response at 4, 8-9, 
and Exhibit NA-3. In fact, Hynix reported a record net profit of 26 
percent in 2004, in contrast to the double-digit negative profit 
margins that Hynix generated during 2001 through 2003. Similarly, Hynix 
reported a strong return on equity during 2004, as opposed to 
significant negative returns on equity during 2001 to 2003. Id. at 11 
and Exhibit NA-3. As a result, the key financial measures that 
creditors turn to in their evaluations of credit risk were quite 
positive in 2004. Id. at 6-7 and Exhibit NA-1. See also Hynix's January 
27, 2006 rebuttal factual information submission at Exhibits 28-30.
    In addition, industry analysts held favorable views of Hynix 
throughout the POR. For example, Merrill Lynch

[[Page 46196]]

reported in October 2004 that ``{w{time} e do not see any financial 
distress from Hynix.'' See Hynix's January 27, 2006 Rebuttal Factual 
Information at Exhibit 22. Additional evidence of Hynix's financial 
health in 2004 are in Hynix's January 27, 2006 Rebuttal Factual 
Information at Exhibits 3, 10, 19, 21, 26, 27, 33, and 35.
    Thus, Hynix was no longer at risk of failure during the POR, as it 
was in prior years, which eliminated the principal motivation and basis 
for the GOK's past policy regarding Hynix.
    Nevertheless, Micron has submitted various information as evidence 
that the GOK continued to entrust or direct Hynix's creditors to 
provide support for Hynix during the POR. For example, Micron cites to 
a July 2004 report from the Korea Development Bank (``KDB'') to the 
Korean National Assembly's Committee on Finance and Economy as evidence 
that the GOK's policy to support Hynix continued in 2004. See Micron's 
January 12, 2006, New Subsidies Allegation (``Initial Allegation'') at 
Exhibit 31. This report describes various activities of the KDB, which 
include ``{w{time} ork toward 2004 key objectives of supporting 
government goals, such as balanced national development and building a 
Northeast Asian economic hub...,'' as well as, ``{c{time} ontinue to 
push for corporate restructuring,'' and, ``{a{time} s of June 2004, 
pushing for restructuring of 36 corporations through court 
receivership, joint management by creditor groups, etc.'' Id. at 11 and 
16. The report identifies Hynix among the ``affected companies'' and 
``sale of business divisions'' as the ``restructuring method.'' Id. at 
11 and 16. Although this document shows that the KDB supported the sale 
of Hynix's business divisions as part of the company's restructuring, 
we do not find that this document demonstrates that the GOK continued a 
policy to prevent Hynix's failure in 2004, or took actions to entrust 
or direct Hynix's other creditors to forgive debt in 2004.
    Micron also points to a September 15, 2004 newspaper article 
entitled, ``Revival of Government-Directed Banking,'' to show that the 
GOK continued to interfere in the lending decisions of Korean banks, 
and in the lending decisions of Hynix's creditors in particular. See 
Initial Allegations at Exhibit 64. According to this article,
    Government-directed banking has now been transformed from explicit 
to something implicit. Despite the very questionable legitimacy of 
government control, this transition is taking place under the banner 
touting 'soundness and transparency'...Interfering with the management 
of financial institutions through the willful enforcement of vague 
regulations and accounting standards is the newest form of government-
directed banking, and it must be abolished...Jeong-tae Kim 
has...strongly objected to the recovery measures offered by the 
government on behalf of Hynix Semiconductor in 2001, SK Global in 2003, 
and LG Card earlier this year. Id.
    While this article may serve as evidence of the GOK's well-
documented actions to entrust or direct Korean banks to assist Korean 
companies in financial crisis, including Hynix in 2001, we do not 
consider this evidence of GOK entrustment or direction of Hynix's 
creditors in 2004. Moreover, we note that this article specifically 
identifies the GOK's involvement in Hynix's 2001 financial 
restructuring, but makes no mention of GOK entrustment or direction of 
Hynix's creditors in 2004.
    Similarly, an April 5, 2005 Korea Times article, entitled ``Too-
Big-To-Fail Myth Dies Hard,'' reaffirms the Department's past findings 
regarding GOK entrustment or direction of Hynix's creditors, yet makes 
no mention of the GOK's policies or actions in 2004, with regard to 
Hynix:
    The government led the bailout of LG Card and Hynix Semiconductor 
to prevent them from triggering systemic risks over the past several 
years...Hynix is another sign of the government's intervention 
policy...The government's moves to direct banks to provide massive 
loans to Hynix from late 2000 to early 2002 are frankly not seen as 
credible by non-interested parties outside Korea. Initial Allegations 
at Exhibit 66.
    Again, although we find that this article supports the Department's 
prior findings with respect to GOK entrustment or direction in 2001-
2003, it fails to establish that the GOK entrusted or directed Hynix's 
creditors in 2004.
    Other record evidence in this review relates to periods well before 
the POR and, therefore, does not pertain to the question of whether the 
GOK entrusted or directed Hynix's creditors to forgive debt in 2004. 
For example, Micron points to the January 8, 2003, ``Meeting Agenda for 
the Ministers in the Economic Sector, Direction of Steering the Economy 
for Year 2003.'' This document indicates the GOK's plans to
    ...complete processing of pending cases of insolvent corporations 
at expeditious stage. To implement restructuring of insolvent 
corporations that have become the main issue of our economy with 
creditor group at the forefront. As for Hynix, business restructuring 
such as debt restructuring and sales shall be implemented more 
aggressively following the restructuring method that is confirmed 
through discussion of the creditor group. Initial Allegation at Exhibit 
43.
    Micron also cites to a January 9, 2003 newspaper article, which 
states, ``{t{time} he Government will try to conclude dealing with 
insolvent companies including Hanbo Steel and Hynix Semiconductor as 
soon as possible, and improve the system to help create an environment 
for on-going corporate restructuring.'' See Initial Allegation at 
Exhibit 48. Although these documents clearly relate to the GOK's 
activities in 2003, there is no indication that they relate to the 
GOK's actions or policies towards Hynix in 2004. Additional examples of 
record evidence that do not relate to the GOK's actions or policies in 
2004 are exhibits 47, 49, 50, and 51 of Micron's Initial Allegation.
    In the first administrative review, the Department found that 
Hynix's Creditors' Council was dominated by GOK- owned or controlled 
banks, which were subject to significant GOK influence. We also found 
that the GOK influenced the remaining creditors through these banks. 
See AR1 Decision Memorandum at 10 and Section B and C of Comment 1. 
However, the record evidence in this review suggests that the GOK did 
not maintain its dominance of the Creditors' Council in 2004, because 
of the change in ownership of Korea Exchange Bank (``KEB'') and the 
arrival of new, foreign-owned creditors on the Creditors' Council.
    In September 2003, Lone Star, a Texas-based private equity firm, 
purchased a 51 percent ownership stake in KEB, and thus became the 
largest single shareholder in the bank. The GOK maintained a 20 percent 
ownership stake in KEB in 2003 and 2004. See Initial Allegation at 
Exhibit 56 and the August 7, 2006 Preliminary Calculations Memorandum 
at Attachment 3. Throughout 2003 and 2004, KEB's other foreign-owned 
shareholder, Commerzbank, maintained its ownership stake of just under 
15 percent. Combined with Lone Star's ownership, KEB's total foreign 
ownership was approximately 65 percent in 2004. Id. By comparison, in 
2002, the GOK was KEB's single largest shareholder (36 percent) and 
Commerzbank was the only foreign

[[Page 46197]]

shareholder. The Department found, ``that through its ownership of KEB, 
the GOK was indeed able to, and did, influence KEB's credit decisions 
with respect to Hynix's financial restructurings in 2002.'' See AR1 
Decision Memorandum at 34-35.
    In prior segments of this proceeding, we found that the GOK was 
able to influence the lending decisions of Korea First Bank (``KFB''), 
despite the fact that a U.S. firm, Newbridge Capital, owned 51 percent 
of KFB. We based this finding, in part, on the GOK's 49 percent 
ownership stake in KFB. However, record evidence also demonstrated that 
the GOK threatened KFB to ensure that it participated in Hynix's 2001 
financial restructuring. We also found that Commerzbank's 23.6 percent 
ownership of KEB in 2002 did not immunize KEB from GOK influence or 
control because the GOK was KEB's single largest shareholder. See AR1 
Decision Memorandum at 34. The record evidence in this review, however, 
does not indicate that the GOK threatened, or otherwise entrusted or 
directed KEB to forgive Hynix's debt in 2004.
    Micron cites to a newspaper article which states that ``{Lone 
Star{time}  has expressed its intention to separate the state-funded 
bank's {(i.e. KEB's){time}  ownership from management.'' See Initial 
Allegation at Exhibit 56. However, that same article quoted a market 
analyst's opinion that ``the professional management may not easily 
pursue its own strategy and exclude the bank's largest shareholder,'' 
despite Lone Star's reported desire to separate ownership from 
management. Id. According to this article, ``KEB appointed seven new 
outside directors, including five recommended by Lone Star following 
the acquisition,'' and that Lone Star was waiting to ``announce its 
official position on management strategy after paying out its takeover 
money.'' Id.
    As we stated in the AR1 Decision Memorandum, we considered 
creditors in which the GOK was the majority or single largest 
shareholder as GOK-owned or -controlled. See AR1 Decision Memorandum at 
Comment 1-C. Thus, given Lone Star's majority ownership of KEB and 
significant presence on KEB's board of directors, coupled with 
Commerzbank's continuing minority stake in KEB, we find that in 2004 
the KEB was no longer a GOK-owned or -controlled creditor. As a result, 
the GOK no longer had the same ability to influence or control KEB's 
lending decisions as it did in prior periods.
    The GOK also no longer held a controlling majority of the voting 
rights on Hynix's Creditors' Council. In fact, the voting rights held 
by GOK-owned or -controlled creditors in 2004 did not even constitute a 
majority of the votes on the Creditors' Council. See the Department's 
August 7, 2006 Preliminary Calculations Memorandum at Attachment 3. 
Therefore, we find that the GOK-owned or -controlled banks no longer 
dominated the Creditors' Council. Thus, even if the GOK did continue to 
have a policy to save Hynix in 2004 (and, as we indicated above, the 
record evidence does not show that they did), a key factor that 
permitted the GOK to effectuate such a policy - control of the 
Creditors' Council - was no longer in place in 2004.
    In sum, Hynix's improved financial situation in 2004, the lack of 
evidence demonstrating a GOK policy or pattern of practices to entrust 
or direct Hynix's creditors to provide financial assistance to Hynix in 
2004, and the GOK's lack of sufficient voting rights to dominate the 
Creditors' Council in 2004 lead us to conclude that the GOK did not 
entrust or direct Hynix's creditors to reduce or forgive Hynix's debt 
in 2004. We also note that, unlike prior segments of this proceeding, 
the record in this review contains no evidence that the GOK threatened 
or otherwise pressured Hynix's creditors during 2004. Therefore, we 
preliminarily find that debt reductions or debt forgiveness Hynix 
received from non-GOK entities in 2004 are not countervailable.
    In prior segments of this proceeding, we have distinguished 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 AR1 Decision Memorandum at 6-7. The record information in 
this review does not show any new evidence or changed circumstances 
that would lead us to revisit our prior determinations that the KDB and 
other ``specialized'' banks are government authorities and that the 
financial contributions made by these entities fall within the meaning 
of section 771(5)(B)(i) of the Act. Therefore, although we have 
preliminarily determined that the GOK did not entrust or direct non-GOK 
entities to provide financial contributions in 2004, we must further 
address whether government authorities provided countervailable 
subsidies. For the reasons discussed below, we preliminarily find that 
the debt reductions provided by the KDB and other GOK entities in 
connection with the financial transactions newly alleged and under 
investigation in this review do not confer countervailable subsidies.

Tranche A of the Acquisition Financing for the Sale of the System IC 
Unit to MagnaChip

    Record information indicates that in July 2004, Hynix's Creditors' 
Council agreed to provide acquisition financing for MagnaChip's 
purchase of the System IC unit from Hynix. Concurrently, the Creditors' 
Council agreed to the terms for the October CBO. See Hynix's March 30, 
2006 submission at Exhibit 9. Tranche A of the System IC acquisition 
financing involved the transfer of new loans received by Hynix and 
previously existing loans from Hynix to MagnaChip. The total debt 
transferred to MagnaChip under Tranche A was KRW 154.9 billion, which 
formed part of the purchase price MagnaChip paid for System IC. Hynix 
also reported that, prior to the transfer of the existing loans, 
Hynix's creditors reduced the original debt amount through an 
application process established by the Creditors' Council. According to 
Micron, this debt reduction constitutes a direct transfer of funds in 
the form of debt forgiveness, within the meaning of section 
771(5)(D)(ii) of the Act.
    No GOK entities participated in Tranche A financing. Instead, the 
banks that agreed to discount the Hynix debt that was transferred to 
MagnaChip were wholly-owned foreign banks or non-GOK entities. Absent 
GOK entrustment or direction to participate in Tranche A financing, any 
debt reductions provided by these creditors do not constitute a 
financial contribution and, therefore, are not countervailable. See 
Hynix's March 30, 2006 supplemental questionnaire response at 6. 
Consequently, we focused our analysis on the October and December CBOs, 
in which the Korean government authorities did participate.

The October and December CBOs

    According to Hynix, the expected cash proceeds from the System IC 
sale and income from its normal business operations enabled Hynix to 
repay numerous outstanding loans in 2004, prior to their maturity.\1\ 
These repayments were made under the October CBO, which occurred 
concurrently with the System IC sale and Tranche A acquisition 
financing. Hynix also repaid debt early and at a discount under the 
December CBO, which occurred after the System IC sale. See Hynix's 
March 30, 2006 submission at 5-8 and Exhibit 9. See also Hynix's

[[Page 46198]]

June 30, 2006 submission at Exhibit NA-9.
---------------------------------------------------------------------------

    \1\ We note that all of the loans affected by these early 
repayments are loans that the Department has previously found to 
have been provided to Hynix at the entrustment or direction of the 
GOK.
---------------------------------------------------------------------------

    The terms of the October CBO included a maximum cash buyout rate of 
70% for unsecured loans and a fixed cash buyout rate of 96% for secured 
loans. In other words, the Creditors' Council established maximum early 
payment discounts of 30 percent and 4 percent on unsecured and secured 
loans, respectively. The Creditors' Council also established a target 
amount for repayment for the entire CBO, limitations on the amount of 
secured debt that would be repaid under the CBO, and a hierarchy of 
loans that were eligible for the CBO. See Hynix's March 30, 2006 
submission at 5-8 and Exhibit 9. See also Hynix's June 30, 2006 
submission at Exhibit NA-9.
    In addition, the Creditors' Council established a bidding process 
under which each creditor would bid or apply to participate in the CBO. 
Therefore, the types of debt repaid under the CBO would largely depend 
on which creditors applied to participate in the CBO and the type of 
debt that they held. According to the terms set by the Creditors' 
Council, the discount rates for the October CBO applied equally to all 
participating creditors, even though some creditors offered discount 
rates greater than 30 percent on unsecured debt. See Hynix's March 30, 
2006 submission at 5-8 and Exhibit 9. See also Hynix's June 30, 2006 
submission at Exhibit NA-9.
    Similarly, Hynix repaid existing loans prior to their maturity 
under the December CBO at a discount. According to Hynix, the discount 
rates for the December CBO were established by Hynix, not the 
Creditors' Council. (However, the discount rates were similar to the 
rates for the October CBO.) Like the October CBO, the December CBO 
relied upon an application process under which creditors applied to 
participate and identified the types of loans that they wanted repaid 
by Hynix. See Hynix's June 30, 2006 submission at Exhibits NA-11 and 
NA-12.
    We preliminarily determine that the October and December CBOs were 
early repayment plans under which creditors could exchange loans with a 
maturity in 2006 for a discounted amount (i.e., cash) in 2004. We 
further preliminarily determine that the discounts taken by the 
participating creditors do not constitute debt forgiveness, as 
described in section 351.508 of the Department's regulations. Instead, 
the discounts reflect the value to Hynix of repaying the loans and the 
value to its creditors of obtaining repayment prior to the scheduled 
maturity of the loans. Thus, the issue we need to address is whether 
the terms of repayment of these loans conferred a benefit on Hynix.
    According to section 771(5)(E)(ii) of the Act, a benefit is 
conferred from a loan ``if there is a difference between the amount the 
recipient of the loan pays on the loan and the amount the recipient 
would pay on a comparable commercial loan that the recipient could 
actually obtain on the market.'' Under the CBOs, the amount that Hynix 
paid on the loans was determined by the discount rates its creditors 
were willing to accept. Therefore, whether a benefit was conferred on 
Hynix as a result of the CBOs depends on whether the repayment terms on 
the loans held by government authorities differed from the repayment 
terms on the loans held by commercial lenders.
    For the reasons explained below, we preliminarily determine that 
there was significant participation by commercial creditors in the 
CBOs, that the Korean government authorities participated on the same 
terms as the commercial creditors and, consequently, that Hynix 
received no benefit from early repayment of its debt at a discount.
    In the investigation and first administrative review, we found that 
wholly-owned foreign creditors operating in Korea, such as Citibank, 
were not entrusted or directed by the GOK to participate in government-
led bailouts of Hynix. As such, these wholly-owned foreign banks could 
have been used as commercial benchmarks, although they were not used 
because their portion of the loans and equity infusions being reviewed 
was so small. See AR1 Decision Memorandum at Comments 5 and 6. In the 
instant review, wholly-owned foreign creditors accounted for over 30 
percent and 80 percent of the discounted debt in the October and 
December CBOs, respectively. On an aggregate basis, wholly-owned 
foreign creditors accounted for over 40 percent of the debt discounted 
under the two CBOs. See the August 7, 2006 Preliminary Calculations 
Memorandum at Attachment 3. Therefore, we find that the wholly-owned 
foreign creditors held a significant portion of the debt discounted in 
the October and December CBOs.
    With regard to Citibank, we acknowledge that in the first 
administrative review, we cited an additional reason for not using 
Citibank as a commercial benchmark: although we did not find Citibank 
to be entrusted or directed by the GOK per se, we found that GOK 
influence extended to Citibank during the POR of the first 
administrative review because of the GOK's dominance of the Creditors' 
Council. See AR1 Decision Memorandum at Comment 6. However, as 
discussed above, the GOK no longer dominated the Creditors' Council in 
2004. Consequently, a key factor we previously found to have given the 
GOK the ability to influence Hynix's other creditors - control of the 
Creditors' Council - was no longer present in 2004. Moreover, the 
Department finds no other record evidence in the present review 
indicating that Citibank's participation in the October or December 
2004 CBOs was subject to GOK influence.
    We further determine that the government authorities and the 
wholly-owned foreign banks participated in the October and December 
CBOs on the same terms. As noted above, creditors were free to apply 
for early repayment, and the discount rates in the CBOs applied equally 
to all participants.
    Therefore, we preliminarily find that Hynix's early repayments of 
debt to GOK entities at a discount do not confer a benefit on Hynix 
and, consequently, are not countervailable. We further note that even 
if the Department were to find that the GOK entrusted or directed 
Hynix's creditors to participate in the CBOs, such financial 
contributions to Hynix would not constitute countervailable subsidies 
because the participation by Citibank and other wholly-owned foreign 
banks on identical terms means the no benefit is conferred on Hynix.

Specificity

    With regard to any benefits attributable to the current POR, 
because we have found that the GOK did not entrust or direct Hynix's 
creditors to forgive debt in 2004, and that debt reductions provided by 
GOK entities in 2004 did not confer a benefit to Hynix, we need not 
address the issue of specificity with respect to those alleged 
subsidies.
    With regard to earlier subsidies that we have previously examined, 
the Department determined in the investigation that the GOK entrusted 
or directed credit to the semiconductor industry through 1998. See 
Investigation Decision Memorandum at 12-21. For the period 1999 through 
June 30, 2002, the Department determined that the subsidies were 
specific to Hynix under section 771(5A)(D)(iii) of the Act because the 
GOK's entrustment or direction to provide financial contributions, and 
the benefits thereby conferred, involved current or former Hyundai 
Group companies, and Hynix in particular. Id. at 17-19. In the first 
administrative review, the Department

[[Page 46199]]

found the December 2002 restructuring was de facto specific to Hynix 
within the meaning of section 771(5A)(D)(iii)(I) of the Act. See AR1 
Decision Memorandum at 10-11.
    Nothing on the record of this review would lead us to reconsider 
these prior specificity findings.

III. Programs Previously Found Not to Have Been Used or Provided No 
Benefits

    We preliminarily determine that the following programs were not 
used during the POR: See Hynix's December 22, 2005, Questionnaire 
Response at 24 and the GOK's December 22, 2005, Questionnaire Response 
at 13.
    A. Short-term Export Financing
    B. 1.Tax Programs Under the TERCL and/or the RSTA
    2. Tax Credit for Investment in Facilities for Productivity 
Enhancement (Article 25 of RSTA/Article 25 of TERCL)
    3. Tax Credit for Investment in Facilities for Special Purposes 
(Article 25 of RSTA)
    4. Reserve for Overseas Market Development (formerly, Article 17 of 
TERCL)
    5. Reserve for Export Loss (formerly, Article 16 of TERCL)
    6. Tax Exemption for Foreign Technicians (Article 18 of RSTA)
    7. Reduction of Tax Regarding the Movement of a Factory That Has 
Been Operated for More Than Five Years (Article 71 of RSTA)
    C. Tax Reductions or Exemption on Foreign Investments under Article 
9 of the Foreign Investment Promotion Act (``FIPA'')/ FIPA (Formerly 
Foreign Capital Inducement Law)
    D. Duty Drawback on Non-Physically Incorporated Items and Excessive 
Loss Rates
    E. Export Insurance
    F. Electricity Discounts Under the RLA Program
    G. System IC 2010 Project
    In the first administrative review, the Department found that ``any 
benefits provided to Hynix under the System IC 2010 Project are tied to 
non-subject merchandise'' and, therefore, that ``Hynix did not receive 
any countervailable benefits under this program during the POR,'' in 
accordance with 19 CFR 351.525(b)(5). See AR1 Decision Memorandum at 
15. No new information has been provided with respect to this program. 
Therefore, we preliminarily find that Hynix did not receive any 
countervailing benefits from the System IC 2010 Project during the POR.

Preliminary Results of Review

    In accordance with 19 CFR 351.221(b)(4)(i), we calculated an 
individual subsidy rate for Hynix Semiconductor, Inc., the producer/
exporter covered by this administrative review. We preliminarily 
determine that the total estimated net countervailable subsidy rate for 
Hynix for calendar year 2004 is 31.86 percent ad valorem.
    If the final results of this review remain the same as these 
preliminary results, the Department intends to instruct CBP, within 15 
days of publication of the final results of this review, to liquidate 
shipments of DRAMS by Hynix entered or withdrawn from warehouse, for 
consumption from January 1, 2004, through December 31, 2004, at 31.86 
percent ad valorem of the F.O.B. invoice price.
    The Department also intends to instruct CBP to collect cash 
deposits of estimated countervailing duties at 31.86 percent ad valorem 
of the F.O.B. invoice price on all shipments of the subject merchandise 
from Hynix, entered, or withdrawn from warehouse, for consumption on or 
after the date of publication of the final results of this 
administrative review.
    We will instruct CBP to continue to collect cash deposits for non-
reviewed companies covered by this order at the most recent company-
specific rate applicable to the company. Accordingly, the cash deposit 
rate that will be applied to non-reviewed companies covered by this 
order will be the rate for that company established in the 
investigation. See Notice of Amended Final Affirmative Countervailing 
Duty Determination: Dynamic Random Access Memory Semiconductors from 
the Republic of Korea, 68 FR 44290 (July 28, 2003). The ``all others'' 
rate shall apply to all non-reviewed companies until a review of a 
company assigned this rate is requested. The Department has previously 
excluded Samsung Electronics Co., Ltd. from this order. Id.

Public Comment

    Interested parties may submit written arguments in case briefs 
within 30 days of the date of publication of this Notice. Rebuttal 
briefs, limited to issues raised in case briefs, may be filed not later 
than five days after the date of filing the case briefs. Parties who 
submit briefs in this proceeding should provide a summary of the 
arguments not to exceed five pages and a table of statutes, 
regulations, and cases cited. Copies of case briefs and rebuttal briefs 
must be served on interested parties in accordance with 19 CFR 
351.303(f).
    Interested parties may request a hearing within 30 days after the 
date of publication of this notice. Unless otherwise specified, the 
hearing, if requested, will be held two days after the scheduled date 
for submission of rebuttal briefs.
    The Department will publish a notice of the final results of this 
administrative review within 120 days from the publication of these 
preliminary results.
    We are issuing and publishing these results in accordance with 
sections 751(a)(1) and 777(i)(1) of the Act.

    Dated: August 7, 2006.
Joseph A. Spetrini,
Acting Assistant Secretary for Import Administration.
[FR Doc. E6-13167 Filed 8-10-06; 8:45 am]
BILLING CODE 3510-DS-S