Hynix Semiconductor Inc. v. U.S.

• Decision Date: 23 March 2006
• Docket Number: Slip Op. 06-39. Court No. 03-00651.
• Citation: 425 F.Supp.2d 1287
• Parties: HYNIX SEMICONDUCTOR INC., Hynix Semiconductor America Inc., Plaintiffs, v. UNITED STATES, Defendant, and Infineon Technologies, North America Corp. and Micron Technology, Inc., Defendant-Intervenors.
• Court: U.S. Court of International Trade

425 F.Supp.2d 1287

HYNIX SEMICONDUCTOR INC., Hynix Semiconductor America Inc., Plaintiffs, v. UNITED STATES, Defendant, and Infineon Technologies, North America Corp. and Micron Technology, Inc., Defendant-Intervenors.

Slip Op. 06-39. Court No. 03-00651.

United States Court of International Trade.

March 23, 2006.

Willkie, Farr & Gallagher, LLP (Daniel Lewis Porter, James Philip Durling and Matthew Paul McCullough) for Plaintiffs Hynix Semiconductor Inc. and Hynix Semiconductor America Inc.

Peter D. Keisler, Assistant Attorney General; David M. Cohen, Director; Jeanne Davidson, Deputy Director, Commercial Litigation Branch, Civil Division, U.S. Department of Justice (David F. D'Alessandris) and Matthew Dennis Walden, Office of the Chief Counsel for the Import Administration, U.S. Department of Commerce for Defendant United States.

King & Spalding, LLP (Gilbert Bruce Kaplan and Cris R. Revaz) for Defendant-Intervenor Micron Technology, Inc.

Collier, Shannon, Scott, PLLC (Kathleen W. Cannon) for Defendant-Intervenor Infineon Technologies North America Corp.

OPINION

GOLDBERG, Senior Judge:

[Commerce's remand determination sustained. Previously deferred portions of final affirmative countervailing duty determination sustained.]

In Hynix Semiconductor Inc. v. United States, 29 CIT ____, 391 F.Supp.2d 1337 (2005) ("Hynix I"), familiarity with which is presumed, the Court sustained in part, remanded in part, and deferred reviewing in part the final affirmative countervailing duty determination made by the United States Department of Commerce ("Commerce") regarding dynamic random access memory semiconductors ("DRAMS") from the Republic of Korea ("Korea"). See Dynamic Random Access Memory Semiconductors from the Republic of Korea, 68 Fed. Reg. 37122 (Dep't Commerce June 23, 2003) (final determination), amended by 68 Fed. Reg. 44290 (Dep't Commerce July 28, 2003) (amended final determination) (together, the "Final Determination"). Duly complying with the Court's remand order in Hynix I, Commerce issued draft redetermination results on November 3, 2005 and then, after receiving comments from Plaintiffs Hynix Semiconductor Inc. and Hynix Semiconductor America Inc. (together, "Hynix") and Defendant-Intervenor Micron Technology, Inc. ("Micron"), Commerce issued final redetermination results. See Final Results of Redetermination Pursuant to Remand, Inv. No. C-580-851 (Nov. 23, 2005), available at http://ia.ita.doc.gov/remands/05-106.pdf (the "Remand Results").

This case is now properly before the Court following remand and the Court has jurisdiction pursuant to 28 U.S.C. § 1581(c). For the reasons that follow, the Court sustains the Remand Results and, proceeding to an analysis of the issues previously deferred by the Court, also sustains the remainder of the Final Determination.

I. BACKGROUND

A. The Court's Decision in Hynix I

In Hynix I, the Court recognized the novelty of Commerce's invocation of authority under 19 U.S.C. § 1677(5)(B)(iii)¹ for purposes of the Final Determination. Hynix I, 29 CIT at ____, 391 F.Supp.2d at 1343. This section of the countervailing duty statute permits Commerce to countervail certain benefit-conferring financial contributions made by private parties pursuant to government entrustment or direction.² Invoking this section in the Final Determination, Commerce determined that Hynix had received substantial indirect subsidies from the Korean government through a clandestine program of coercing Hynix's creditors to give preferential loans and debt-to-equity swaps during Hynix's ten-month restructuring. Id. at ____, 391 F.Supp.2d at 1340 (citing Issues and Decision Memorandum for the Final Determination in the Countervailing Duty Investigation of Dynamic Random Access Memory Semiconductors from the Republic of Korea, Inv. No. C-580-851, (Dep't Commerce June 16, 2003), available at http://ia.ita.doc.gov/frn/surnmary/koreasouth/03-15793-1.pdf ("Decision Memo") at 20-21).

The Court focused its initial review of the Final Determination on Commerce's interpretation and application of the first part of the three-prong statutory test required to prove the existence of these so-called "entrusted or directed" subsidies: "the making of a financial contribution by a private entity to another private entity pursuant to government entrustment or direction." Id. at ____, 391 F.Supp.2d at 1343 (citing 19 U.S.C. § 1677(5)(B)(iii)). The Court held that Commerce's decision to interpret the "entrusts or directs" language of this prong to include "a single program of financial contributions involving multiple financial institutions directed by a foreign government" was in accordance with law. Id. Further, the Court upheld Commerce's methodology for proving such a program of financial contributions, recognizing that the substantial evidence standard "does not require Commerce to produce conclusive evidence of entrustment or direction of each entity involved in each transaction making up an alleged program" under 19 U.S.C. § 1677(5)(B)(iii), so long as "the cumulated evidence and the reasonable inferences drawn therefrom sufficiently connect all the implicated parties and transactions to the alleged program of government entrustment or direction." Id.

Nonetheless, the Court remanded the Final Determination. Although Commerce provided an extensive explanation of the record evidence which, in the agency's view, demonstrated that the Korean government had both a "governmental policy to support Hynix" and "a pattern of practices . . . to act upon that policy to entrust or direct" Hynix's creditors, Decision Memo at 49 (emphasis added), the Court found that Commerce had neglected to adequately consider "counterevidence indicating that the transactions making up [the alleged program in this case] were formulated by an independent commercial actor (not a government) and motivated by commercial considerations." Hynix I at ____, 391 F.Supp.2d at 1343. In the Court's view, the unusual role played by Citibank and its affiliate Solomon Smith Barney ("SSB") in Hynix's restructuring, as well as the apparent presence of commercial options and contingencies in the restructuring, required additional explanation before the Court could proceed with its substantial evidence review of Commerce's financial contribution analysis. Id. at ____, 391 F.Supp.2d at 1344.

Because the Court remanded to Commerce for further consideration of its threshold financial contribution analysis, the Court deferred review of Commerce's interpretation and application of the other two prongs of the statutory test required to prove the existence of "entrusted or directed" subsidies: the exercise of a government subsidy function³ in the provision of the investigated financial contribution and the existence of a benefit from that financial contribution to its recipient. Id.

B. Commerce's Remand Results

In the Remand Results, Commerce affirmed its original determination that the Korean government entrusted or directed Hynix's creditors to provide financial contributions within the meaning of 19 U.S.C. § 1677(5)(B)(iii). Remand Results at 1.

Considering first whether Hynix's restructuring was in fact orchestrated by a commercial actor rather than the Korean government, Commerce found that Citibank/SSB's role was "quite limited[,]" id. at 6, and more akin to that of a "consultant" than orchestrator. Id. at 7. While acknowledging that "Citibank/SSB certainly did much of the technical work behind the mechanics of Hynix's financial restructuring[,]" Commerce concluded that "it was the actions taken by the [Korean government] . . . that effectuated the restructuring and brought about the financial contributions." Id. at 9. In Commerce's view, Citibank/SSB provided necessary expertise in arranging the complicated financial transactions which comprised Hynix's restructuring, but was able to do so only because the Korean government used its authority to coerce the participation of Korean financial institutions in those highly risky transactions. Id. at 7-8. At most, Commerce found that Citibank/SSB's involvement could be seen as "working to assist the creditors make the best out of a bad situation" and not as orchestrating commercially-motivated lending and investment opportunities for Hynix's creditors. Id at 11.

Next considering whether Hynix's restructuring featured commercially-based contingencies and options which belied an inference of government control, Commerce found that no such contingencies or options existed in Hynix's restructuring. Id. With regard to the international offering of Hynix's equity (the "GDS offering") made in conjunction with Hynix's May 2001 restructuring, Commerce concluded that the May 2001 restructuring was not "truly contingent upon the GDS offering[.]" Id. (quotation marks omitted). Commerce noted that, before completion of the GDS offering, Hynix's creditors approved the new loans and debt restructuring included in that transaction, id., and they also entered into a related underwriting agreement. Id. at 13. Because Hynix's creditors agreed to important details of the May 2001 restructuring even before the GDS offering closed, Commerce found it "unlikely that the [creditors] were truly waiting until the successful conclusion of the GDS to decide whether to proceed with the May restructuring." Id. To further support this view, Commerce noted that the May 2001 restructuring was used as an important selling point in the GDS Offering Memorandum. Id. Commerce observed that this memorandum characterized the May 2001 loans and debt restructuring as closing "substantially concurrently" with the closing of the GDS offering period, "highlighting the automaticity of the assistance agreed to in May" by Hynix's creditors. Id. at 12. Commerce also noted that the GDS Offering Memorandum underscored the Korean government's support for Hynix. Id. Commerce concluded its analysis of the GDS offering by characterizing it as simply an...