Hynix Semiconductor Inc. v. U.S.

• Decision Date: 26 August 2005
• Docket Number: Slip Op. 05-106.,Court No. 03-00651.
• Citation: 391 F.Supp.2d 1337
• 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

391 F.Supp.2d 1337

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. 05-106.

Court No. 03-00651.

United States Court of International Trade.

August 26, 2005.

Willkie, Farr & Gallagher, LLP, Washington, DC (Daniel Lewis Porter and James Philip Durling) 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) for Defendant United States.

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

Collier, Shannon, Scott, PLLC, Washington, DC (Kathleen W. Cannon) for Defendant

— Intervenor Infineon Technologies North America Corp.

OPINION

GOLDBERG, Senior Judge.

Goldberg, Senior Judge: In this action, Plaintiffs Hynix Semiconductor Inc. and Hynix Semiconductor America Inc. (together, "Hynix") challenge the final affirmative determination of the United States Department of Commerce ("Commerce") in the countervailing duty proceedings involving 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), as amended by 68 Fed.Reg. 44290 (Dep't Commerce July 28, 2003) (amended final determination) (together, the "Final Determination"); see also Dynamic Random Access Memory Semiconductors from the Republic of Korea, 68 Fed.Reg. 47546 (Dep't Commerce Aug. 11, 2003) (notice of countervailing duty order).¹ Pursuant to USCIT Rule 56.2, Hynix moves for judgment on the agency record. The Court has jurisdiction pursuant to 28 U.S.C. § 1581(c).

I. BACKGROUND

A. Precipitating Events

Hynix is a Korean DRAMS producer with a history of poor financial performance dating from the late 1990s. See Appendix to Defendant's Memorandum in Opposition to Plaintiffs' Motion for Judgment on the Administrative Record ("Def.'s App."), App. 4 (Memorandum from Deputy Assistant Secretary to Assistant Secretary dated March 31, 2003) at 3-5 (analyzing Hynix's financial records from 1997 to 2002). In response to its deteriorating performance, Hynix underwent financial restructuring from approximately December 2000 to October 2001. Defendant's Memorandum in Opposition to Plaintiffs' Motion for Judgment on the Agency Record ("Def.'s Br.") at 8-9. During this ten-month period, four events formed the major part of the restructuring: (1) execution of a ten-bank syndicated loan to Hynix (December 2000); (2) enrollment of Hynix in the Korean government's "Fast Track" program which allowed repackaging and refinancing of rapidly maturing bonds (January 2001); (3) execution of a seventeen-bank debt restructuring package in favor of Hynix contingent on a successful international equity offering by Hynix (May 2001); and (4) execution of a seventeen-bank debt and debt-to-equity restructuring package in favor of Hynix (October 2001). Id. at 8-12; Plaintiffs' Memorandum In Support of Its Rule 56.2 Motion for Judgment on the Agency Record ("Pls.' Br.") at 11-13. These events necessarily involved the participation of Hynix's multiple creditors, which formed a creditors council including at least seventeen specialized government entities, majority government-owned financial institutions, and private financial institutions. Def.'s Br. at 10; Pls.' Br. at 11-13. Among these creditors was Citibank, a non-Korean financial institution. Def.'s Br. at 12. Together with its affiliate Solomon Smith Barney ("SSB"), Citibank also served as a paid financial adviser to Hynix during its restructuring. Id. at 6.

B. Commerce's Investigation

On November 1, 2002, Defendant-Intervenor Micron Technology, Inc. ("Micron"), a domestic DRAMS producer, filed a petition with Commerce and the United States International Trade Commission (the "ITC") alleging that Hynix² had received financial assistance from the Korean government during its restructuring which had resulted in an adverse impact on the DRAMS industry in the United States (the "U.S."). Def.'s Br. at 3. Commerce initiated a countervailing duty investigation shortly thereafter. Random Access Memory Semiconductors from the Republic of Korea, 67 Fed.Reg. 70927 (Dep't Commerce Nov. 27, 2002) (initiation of countervailing duty investigation). In connection with the preliminary phase of the investigation, Commerce issued questionnaires to the Korean government and Hynix and received responses and comments. Def.'s Br. at 3-4. On April 7, 2003, Commerce issued an affirmative preliminary countervailing duty determination. Dynamic Random Access Memory Semiconductors from the Republic of Korea, 68 Fed.Reg. 16766 (Dep't Commerce Apr. 7, 2003) (preliminary determination).

Commerce then commenced its final countervailing duty investigation, which included additional questionnaires and a two-week visit to Korea to conduct on-site verification of questionnaire responses. Def.'s Br. at 4. While in Korea, Commerce met with Hynix employees, Korean government officials, several of Hynix's creditors, and a number of unnamed Korean financial experts. Pls.' Br. at 2-3. Following verification, Commerce received case and rebuttal briefs from all parties and held a hearing on June 6, 2003. Def.'s Br. at 4-5.

C. Commerce's Final Determination

As a result of its investigation, on June 23, 2003, Commerce issued the Final Determination and a supplemental decision memorandum incorporated therein. 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, Inv. No. C-580-851, (Dep't Commerce June 16, 2003), available at http://ia.ita.doc.gov/frn/summary/korea-south/03-15793-1.pdf ("Decision Memo"). In its Final Determination, Commerce concluded that Hynix had been the recipient of substantial indirect subsidies during its ten-month restructuring, which Commerce viewed to be a clandestine subsidy program orchestrated by the Korean government. Decision Memo at 20-21. According to Commerce, these subsidies came about when the Korean government caused or coerced financial institutions to participate in Hynix's restructuring by making preferential loans and debt-to-equity swaps. Id.

To reach this conclusion, Commerce invoked its authority to countervail benefit-conferring financial contributions made by private parties pursuant to government direction, as described in 19 U.S.C § 1677(5)(B)(iii).³ Id. at 21. Commerce interpreted this statute to mean that, "if a government affirmatively causes or gives responsibility to a private entity or group of private entities to carry out what might otherwise be a governmental subsidy function[,]" a financial contribution would exist which, if benefit-conferring, would constitute a countervailable subsidy. Id. at 47.

To determine if Hynix's restructuring involved financial contributions of the type described in 19 U.S.C. § 1677(5)(B)(iii), Commerce employed a two-part methodology: (1) Commerce examined "whether the [Korean government] had in place during the relevant period a governmental policy to support Hynix" and (2) Commerce considered "whether evidence on the record establishe [d] a pattern of practices on the part of the [Korean government] to act upon that policy to entrust or direct lending decisions" as part of Hynix's restructuring. Id. at 49 (emphasis added). On the basis of the evidence derived from this methodology, Commerce found that substantial evidence supported the conclusion that, with the exception of Citibank, Hynix's creditors were subject to a program of government direction during Hynix's restructuring and, as a result of this direction, had made financial contributions to Hynix. Id. at 49. Emphasizing a ten-month subsidy "program" theory, Commerce found that "the [Korean government's] role was essential at each stage in directly supporting the restructuring process through its own actions and by directing, facilitating, and guiding the actions taken by creditor banks." Id. at 49. Accordingly, Commerce concluded that the Korean government had entrusted or directed Hynix's creditors to provide Hynix with loans and debt-to-equity swaps which constituted potentially countervailable financial contributions. Id. at 62. Further, Commerce concluded that by providing these financial contributions, Hynix's creditors had effectively performed a "governmental subsidy function[.]" Id. at 47.

Commerce next considered whether these financial contributions had conferred a benefit to Hynix, thus rendering them countervailable under 19 U.S.C. § 1677(5)(B)(iii). Id. at 6-11, 90-92. To make this determination, Commerce attempted to compare the financial contributions under investigation to commercial benchmarks, i.e., similar loans or equity infusions made by independent actors to Hynix under market conditions. Id. However, Commerce determined that no commercial benchmarks were available, eliminating from consideration loans and equity infusions made by the independent Citibank because of its involvement in Hynix's restructuring and the financial contributions under investigation. Id. Accordingly, Commerce analyzed Hynix to determine if the company was otherwise creditworthy or equityworthy during its restructuring, despite the lack of commercial benchmarks to this effect. Id. at 11, 91-92. Commerce determined that Hynix was neither. Id. As a result, Commerce concluded that Hynix would not have been able to attract loans or equity investment from reasonable commercial sources during its restructuring and, therefore, the financial contributions which Hynix received from its...