Hynix Semiconductor Inc. v. United States

Slip Op. 06-39

UNITED STATES COURT OF INTERNATIONAL TRADE

HYNIX SEMICONDUCTOR INC.,
HYNIX SEMICONDUCTOR AMERICA INC.,
Before: Richard W. Goldberg,
Plaintiffs, Senior Judge

v. Court No. 03-00651

UNITED STATES,

Defendant,

and

INFINEON TECHNOLOGIES, NORTH
AMERICA CORP. and MICRON
TECHNOLOGY, INC.,

Defendant-
Intervenors.

OPINION

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

Date: 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.
Court No. 03-00651 Page 2

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.

Goldberg, Senior Judge: 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”).
Court No. 03-00651 Page 3

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

1
This section provides, in pertinent part:
A subsidy is described in this paragraph in the case
in which an authority . . .
(iii) makes a payment to a funding mechanism to
provide a financial contribution, or entrusts or
directs a private entity to make a financial
contribution, if providing the contribution would
normally be vested in the government and the
practice does not differ in substance from
practices normally followed by governments,
to a person and a benefit is thereby conferred.
19 U.S.C. § 1677(5)(B) (1999) (emphasis added).
Court No. 03-00651 Page 4

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/summary/korea-south/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’

2
References to the countervailing duty statute are to the Tariff
Act of 1930, as amended by, inter alia, the Uruguay Round
Agreements Act, 19 U.S.C. §§ 1671 et seq.
Court No. 03-00651 Page 5

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 ___,
Court No. 03-00651 Page 6

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 function 3 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

3
The Court has adopted this term as a matter of convenience. It
is intended to refer to the portion of the statute which states:
“if providing the contribution would normally be vested in the
government and the practice does not differ in substance from
practices normally followed by governments[.]” 19 U.S.C. §
1677(5)(B)(iii).
Court No. 03-00651 Page 7

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
Court No. 03-00651 Page 8

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
Court No. 03-00651 Page 9

for Hynix. Id. Commerce concluded its analysis of the GDS

offering by characterizing it as simply an attempt to share at

least some of the financial burden of saving Hynix which had

been imposed on Hynix’s creditors by the Korean government. Id.

at 14.

With regard to whether the options provided to creditors

participating in Hynix’s October 2001 debt restructuring belied

an inference of government control, Commerce concluded that the

“true nature of the options was to benefit Hynix at the

creditors’ expense.” Id. at 15 (quotation marks omitted).

Commerce noted that, with regard to this transaction, Hynix’s

creditors were required to select from among three options

developed by Hynix’s creditors council. Id. These options

were: (1) extend new loans to Hynix and convert/renegotiate

existing secured and unsecured debt in a manner more

advantageous to Hynix; (2) not extend new loans, but convert all

secured debt and 28 percent of unsecured debt in a manner more

advantageous to Hynix, and forgive the remaining unsecured debt;

or (3) exercise appraisal rights for all secured debt and 25

percent of unsecured debt based on Hynix’s liquidation value,

and forgive the remaining unsecured debt. Id. Commerce

observed that the third option did not provide for an immediate

refund of liquidated loans, but instead called for these

liquidated funds to be converted into five-year, interest-free
Court No. 03-00651 Page 10

loans to Hynix. Id. In Commerce’s view, the result to Hynix

under any of the options was either complete debt extinguishment

or partial debt extinguishment coupled with sufficient new loans

to service the remaining debt load – all at the expense of the

creditors’ balance sheets. Id. at 16. Commerce further

observed that Hynix’s creditors were unhappy with these options,

as reported in several contemporaneous news accounts. Id.

Commerce concluded its analysis of the options featured in the

October 2001 restructuring by characterizing them as an attempt

to provide Hynix’s creditors with some limited flexibility in

the manner in which they participated in the government-mandated

bailout of the struggling company. Id. at 17. In Commerce’s

view, this flexibility was simply intended to better accommodate

the varying levels of investment and financial health of Hynix’s

beleaguered creditors. Id.

Having thus found that Hynix’s restructuring “was not the

product of market forces,” Commerce concluded the Remand Results

by reaffirming its determination that, based on the record

evidence, 4 Hynix had been the recipient of government-entrusted

or directed financial contributions. Id.

4
The record evidence adduced by Commerce in support of its
finding of government entrustment or direction is discussed in
detail infra, at Part III.B.1.
Court No. 03-00651 Page 11

C. The Deferred Portions of the Final Determination

Commerce appropriately limited the Remand Results to the

questions concerning its financial contribution analysis raised

by the Court in Hynix I, relying on its original analysis in the

portions of the Final Determination deferred by the Court.

In the Final Determination, once Commerce found that Hynix

had received financial contributions entrusted or directed by

the Korean government, Commerce proceeded to the next step in

the statutory test to prove their countervailability.

Considering the portion of 19 U.S.C. § 1677(5)(B)(iii) that

specifies that a financial contribution is only countervailable

“if providing the contribution would normally be vested in the

government and the practice does not differ in substance from

practices normally followed by governments,” Commerce

interpreted this requirement to mean that a “governmental

subsidy function” must be performed for an investigated

financial contribution to be countervailable. Decision Memo at

47. Applying this statutory interpretation and in light of the

evidence before it, Commerce concluded that this requirement had

been met. Id. at 61.

Commerce then proceeded to the third and final prong of the

statutory test for countervailability under 19 U.S.C. §

1677(5)(B)(iii). To countervail an entrusted or directed

financial contribution given pursuant to a government subsidy
Court No. 03-00651 Page 12

function, Commerce determined that it was statutorily required

to establish that the financial contribution conferred a benefit

on its recipient. Id. at 21. To identify the benefit, if any,

received by Hynix during its restructuring, Commerce attempted

to compare the investigated financial contributions to

commercial benchmarks (i.e., similar loans or equity infusions

made by independent actors to Hynix under market conditions).

Id. at 6-7.

First analyzing the financial contributions received in the

form of credit (i.e., preferential loans), Commerce was unable

to find any appropriate commercial benchmarks for use in

establishing Hynix’s creditworthiness. 5 Id. at 19-25. To reach

this conclusion, Commerce eliminated from consideration

Citibank’s loans to Hynix. Id. at 11. Although concluding that

Citibank was independent of government control, id. at 8,

Commerce disqualified Citibank’s loans because (1) Citibank’s

involvement was relatively small compared to the overall

restructuring; (2) Citibank took into consideration the behavior

of the government-entrusted or directed financial institutions

in order to hedge its lending risk; and (3) Citibank/SSB stood

5
Creditworthiness is a term of art which refers to the “attempt
to determine if the company in question could obtain long-term
financing from conventional commercial sources” at the time of
the government-entrusted or directed loan. Decision Memo at 6;
see also 19 C.F.R. § 351.505(a)(4) (2005).
Court No. 03-00651 Page 13

to earn greater fees as Hynix’s financial advisor than what

other financial institutions could expect from their return on

investment in Hynix, thus skewing Citibank’s risk calculus. Id.

at 9-11. Commerce also disregarded the loans made by Hynix’s

other creditors, based on their entrustment or direction by the

Korean government. Id. at 11. Lacking an actual commercial

benchmark, Commerce attempted to determine if Hynix was

otherwise creditworthy during its restructuring. Id. Commerce

determined that Hynix was not and constructed a benchmark to

calculate the benefit conferred to Hynix by the credit-based

financial contributions. Id. at 11, 105. Commerce developed

this constructed benchmark using Moody’s U.S. average cumulative

default rates for corporate bonds, instead of default rates

specific to Korea which were supplied to Commerce by Hynix

during the course of the investigation. Id. at 5.

Next analyzing the financial contributions received in the

form of equity (i.e., investments), Commerce was similarly

unable to identify any commercial benchmarks for use in

establishing Hynix’s equityworthiness. 6 Id. at 91. To reach

6
Equityworthiness is a term of art which refers to the attempt
to determine if the company in question could, “from the
perspective of a reasonable private investor” at the time of the
government-entrusted or directed equity infusion, show “an
ability to generate a reasonable rate of return within a
reasonable time.” Decision Memo at 6; see also 19 CFR §
351.507(a)(4) (2005).
Court No. 03-00651 Page 14

this conclusion, Commerce again eliminated from consideration

Citibank’s involvement because, when compared to the size of the

investment made by the government-entrusted and directed

financial institutions during Hynix’s restructuring, Commerce

found that Citibank’s equity investment in Hynix was not

“significant” as required by the countervailing duty

regulations. 7 Id. at 90 (citing 19 C.F.R. § 351.507(a)(2)(iii)).

Commerce also disregarded the equity infusions made by Hynix’s

other creditors, based on their entrustment or direction by the

Korean government. Id. at 91.

Lacking an actual commercial benchmark, Commerce attempted

to determine if Hynix was otherwise equityworthy during its

restructuring. Id. at 91. As part of that analysis, Commerce

considered third party studies of Hynix commissioned by its

creditors which discussed Hynix’s investment potential at the

time of its restructuring. Id. Commerce ultimately disregarded

these studies, finding that their focus on creditor concerns

meant that they did not properly discuss Hynix’s future

financial prospects or other factors denoting equityworthiness.

Id. Commerce also questioned the credibility of the methodology

and analysis used in some of these reports. Id. Further,

Commerce found that Hynix’s financial indicators for the years

7
References to the countervailing duty regulations are to 19
C.F.R. § 351.101 et seq.
Court No. 03-00651 Page 15

1997 through 2001 were too weak to support a commercially

reasonable investment decision at that time. Id. at 92. To

reach this conclusion, Commerce applied an economic theory known

as the Expected Utility Model, which posits that a rational

investor focuses on future profitability and does not let the

value of past investments in a company affect future investment

decisions in that same company. Id. Ultimately finding that

Hynix was unequityworthy during its restructuring, Commerce

calculated the benefit conferred to Hynix by the equity-based

financial contributions. Id.

Based on the foregoing findings and analysis, Commerce

determined that the three-prong statutory test had been met and

made a final affirmative countervailing duty determination.

Final Determination, 68 Fed. Reg. 37122, 37122.

II. STANDARD OF REVIEW

The Court must sustain any determination, finding, or

conclusion made by Commerce in the Final Determination and the

Remand Results unless it is “unsupported by substantial evidence

on the record, or otherwise not in accordance with law.” 19

U.S.C. § 1516a(b)(1)(B)(i) (1999). The Court must also defer to

an agency’s reasonable construction of an ambiguous statute.

Allegheny Ludlum Corp. v. United States, 367 F.3d 1339, 1343

(Fed. Cir. 2004) (citing Chevron, U.S.A., Inc. v. NRDC, 467 U.S.

837 (1984)). Further, “[t]he deference granted to the agency’s
Court No. 03-00651 Page 16

interpretation of the statutes it administers extends to the

methodology it applies to fulfill its statutory mandate.” GMN

Georg Muller Nurnberg AG v. United States, 15 CIT 174, 178, 763

F. Supp. 607, 611 (1991) (citing, inter alia, Chevron, 467 U.S.

at 844-45; Amer. Lamb Co. v. United States, 785 F.2d 994, 1001

(Fed. Cir. 1986)). “Likewise, the [C]ourt may defer to an

agency’s interpretation of an ambiguous regulation, so long as

that interpretation is not plainly erroneous or inconsistent

with the regulation, does not fail to reflect the ‘agency’s fair

and considered judgment on the matter in question,’ or, if

adopted, does not render the regulation unreasonable or

otherwise not in accordance with law.” Decca Hospitality

Furnishings, LLC v. United States, 29 CIT ___, ___, 391 F. Supp.

2d 1298, 1304 (2005) (quoting Auer v. Robbins, 519 U.S. 452, 462

(1997) (citations omitted)).

III. DISCUSSION

A. Summary of Analysis

This case is before the Court for review of Commerce’s

determination that Hynix received a countervailable benefit from

the Korean government through a program of indirect subsidies of

the type described in 19 U.S.C. § 1677(5)(B)(iii). For the

reasons that follow, the Court concludes that Commerce has

satisfied the requirements of the applicable three-prong

statutory test in reaching this determination.
Court No. 03-00651 Page 17

First, Commerce adduced substantial evidence in support of

its finding that the Korean government entrusted or directed

certain financial institutions to provide preferential loans and

equity infusions to Hynix during its restructuring. Although

Commerce did not provide conclusive evidence for each party or

each transaction involved in the program, the agency’s

circumstantial and direct evidence (and the reasonable

inferences drawn therefrom) adequately connected the various

financial institutions involved in Hynix’s multi-phase

restructuring to the Korean government’s anticompetitive

involvement. Counterevidence offered by Hynix does not

undermine the agency’s substantiated factual finding.

Second, Commerce’s interpretation of the second prong of

the statutory test, concerning the performance of a government

subsidy function in connection with the entrusted or directed

financial contributions, is in accordance with law. Commerce’s

interpretation appropriately narrows the reach of the

countervailing duty statute to only those government actions

which involve the delegation of a subsidy function to a private

entity. Applying this interpretation, Commerce adduced

substantial evidence demonstrating that the Korean government

delegated its subsidy function to Hynix’s creditors.

Finally, Commerce met the third prong of the statutory test

by demonstrating that Hynix received a benefit from the credit
Court No. 03-00651 Page 18

and equity-based financial contributions provided by its

creditors at the behest of the Korean government. In making

this assessment, Commerce appropriately considered the

suitability of commercial benchmarks provided by Citibank’s

loans and equity infusions in Hynix and reasonably concluded

that Hynix was neither creditworthy nor equityworthy at the time

of its restructuring. Commerce also acted within its authority

when establishing an uncreditworthy benchmark for Hynix.

As a result, the Court sustains both the Remand Results and

the remainder of the Final Determination. The Court’s

conclusions are discussed more fully below.

B. Commerce’s Financial Contribution Analysis Is Supported by
Substantial Evidence

Hynix argues that the record evidence in this case does not

support Commerce’s conclusion that Hynix received entrusted or

directed financial contributions during its restructuring.

First, Hynix claims that the various pieces of evidence in

support of Commerce’s conclusion were seriously flawed and

insufficient to establish a program of entrustment or direction

under the substantial evidence standard. Plaintiffs’ Memorandum

in Support of Its Rule 56.2 Motion for Judgment on the Agency

Record (“Pls.’ Br.”) at 17-25, 29-33. Second, Hynix contends

that Commerce’s proffered evidence was in fact rebutted by

counterevidence firmly establishing that an independent third
Court No. 03-00651 Page 19

party (not the Korean government) orchestrated Hynix’s

restructuring and included commercial options and contingencies

in that restructuring. Id. at 11-16, 25-29.

For the reasons that follow, the Court upholds Commerce’s

conclusion that Hynix received government-entrusted or directed

financial contributions as supported by substantial evidence.

1. Record Evidence Supports Commerce’s Conclusion That
Hynix Received Entrusted or Directed Financial
Contributions

Notwithstanding Hynix’s specific evidentiary arguments

(discussed below), the Court finds that the record supports

Commerce’s conclusion that Hynix received financial

contributions from private entities entrusted or directed by the

Korean government.

To support its factual finding of government entrustment or

direction, Commerce adduced circumstantial and direct evidence

of the Korean government’s motive, proclivity, opportunity, and

capacity to support Hynix through private entities. For

example, Commerce cited persuasive evidence indicating that the

Korean government had a policy of supporting Hynix and,

therefore, a motive to entrust or direct private entities to

participate in Hynix’s restructuring. Commerce noted that, in a

2001 statement, a member of the Korean president’s staff stated

that Hynix was part of a strategically important domestic

industry which “should not be sold off just to follow market
Court No. 03-00651 Page 20

principles.” Decision Memo at 49; see also Appendix to

Defendant’s Memorandum in Opposition to Plaintiffs’ Motion for

Judgment on the Administrative Record (“Def.’s App.”), App. 5

(Ex. C-20 of Petitioner’s Comments to Commerce dated Mar. 14,

2003) at 17. Commerce further noted that, in a 2002 exchange

between the Korean president and a member of Korea’s National

Assembly, the assembly member criticized Korea’s president for

compelling financial institutions to provide Hynix “astronomical

sums of special support . . . by mobilizing the resources of

financial and government-run institutions.” Id. at 50; see also

Def.’s App., App. 5 (Ex. C-20 of Petitioner’s Comments to

Commerce dated Mar. 14, 2003) at 17. The official presidential

response to this statement was: “[w]e are doing what is deemed

necessary to save companies leading the countries [sic]

strategic industries.” Decision Memo at 50. Even if this

exchange was political banter as asserted by Hynix, see Pls.’

Br. at 17-18, Commerce reasonably found it telling that the

presidential response did not deny the allegation of an official

policy of supporting Hynix. Cf. United States v. Hale, 422 U.S.

171, 176 (1975) (in criminal context, “[s]ilence gains more

probative weight where it persists in the face of accusation,

since it is assumed in such circumstances that the accused would

be more likely than not to dispute an untrue accusation”).

Here, “it would have been natural under the circumstances” for
Court No. 03-00651 Page 21

the Korean executive branch to object to an unfounded public

accusation of large-scale government waste. Hale, 422 U.S. at

176. This exchange, particularly when read together with the

2001 presidential statement, 8 gave rise to a reasonable inference

by Commerce that the Korean government maintained a policy to

financially support Hynix. 9

Commerce’s evidence also demonstrated a strong proclivity

on the part of the Korean government to support Hynix through

private entities. During the early stages of Hynix’s

restructuring, record evidence showed that the Korean

government’s Economic Ministers met to discuss possible measures

to alleviate Hynix’s liquidity problems. Decision Memo at 50.

8
Hynix contends that the 2001 presidential statement is
suggestive only of a possible motive for the Korean government
to intervene and does not indicate the formulation of an
affirmative government support policy toward Hynix. Pls.’ Br.
at 17. This is one possible reading of that statement.
However, “the evidence on which the agency relies does not exist
in a vacuum.” Former Employees of Int’l Bus. Mach. v. United
States Sec’y of Labor, 29 CIT ___, ___, 403 F. Supp. 2d 1311,
1324 (2005). Commerce was entitled to consider the statement in
conjunction with other evidence and draw reasonable inferences
therefrom.
9
The Court shares Hynix’s concerns about Commerce’s third piece
of governmental policy evidence, concerning the existence of a
more general Korean government policy to support the
restructuring process of major Korean companies. See Pls.’ Br.
at 18. In the Decision Memo, Commerce failed to cite to any
record evidence to support this specific contention. See
Decision Memo at 50. Without record support, this observation
smacks of bootstrapping by the agency. Nonetheless, the other
evidence cited by Commerce supports the inference of the
existence of a governmental policy to support Hynix.
Court No. 03-00651 Page 22

The execution of the Ministers’ decisions was delegated to

government agencies, including the Korea Export Insurance

Corporation (“KEIC”), which was advised by the Economic

Ministers that the decisions should be “carried out perfectly.”

Id. at 51; see also Def.’s App., App. 5 (Ex. C-20 of

Petitioner’s Comments to Commerce dated Mar. 14, 2003) at 17.

The agencies then took two measures: (1) they waived certain

regulatory requirements to enable Hynix’s creditors to increase

the credit extended to Hynix and (2) they resumed providing

insurance for certain financing transactions undertaken by Hynix

and its creditors. Decision Memo at 51-52. Commerce reasonably

found that these measures enabled Hynix’s creditors to

participate in the company’s restructuring. Id. at 50-51. In

other words, early in Hynix’s restructuring, the Korean

government demonstrated an inclination for using private

entities to achieve its policy of supporting Hynix. This early

demonstration was followed by the creation of a government-run

bond placement program used by Hynix’s creditors to

extend/refinance credit at a time in which the maturation of

existing bonds threatened Hynix’s default. Id. at 52. Although

this so-called KDB Fast Track program was non-compulsory and

open to firms other than Hynix, see Pls.’ Br. at 21, it was used

predominantly by Hynix’s creditors. Decision Memo at 52. This

“more than coincidental” participation reasonably led Commerce
Court No. 03-00651 Page 23

to characterize the program as a further demonstration of the

Korean government’s encouragement of private entity involvement

in Hynix’s restructuring. 10 Id.

Further, evidence concerning Hynix’s creditors council

demonstrated that the Korean government had ample opportunity to

entrust or direct private entities during the later phases of

Hynix’s restructuring. 11 Hynix’s creditors council was comprised

of the same financial institutions which participated in each

phase of Hynix’s restructuring. Decision Memo at 53-54. A

10
Hynix correctly notes that evidence concerning regulatory
waivers, a government-backed insurance program, and a
government-backed bond conversion program did not demonstrate an
inclination by the Korean government to involve private entities
in Hynix’s restructuring in a manner at odds with the
countervailing duty law. See Pls.’ Br. at 19-20. Similarly,
this evidence did not establish that the Korean government
affirmatively caused any of Hynix’s creditors to participate in
the multiple facets of Hynix’s restructuring. See id. What
Hynix fails to recognize is that this evidence did demonstrate
the willingness of the Korean government to take action to
involve private entities in Hynix’s restructuring. Commerce
could reasonably consider this evidence for that purpose. See
Decision Memo at 52 (noting that the Korean government took
measures “that would facilitate the new loans from the company’s
key creditors”).
11
The formation of the creditors council was predated by the
first major phase in Hynix’s restructuring, a December 2000
syndicated loan. Pls.’ Br. at 32. Hynix correctly notes that,
as a result, any opportunity presented by the creditors council
could not have applied to this early stage of Hynix’s
restructuring. Id. However, as Hynix also notes, “[t]he
October 2001 restructuring . . . alone account[ed] for about
two-thirds of the total alleged subsidy[.]” Id. at 13. In
other words, it was reasonable for Commerce to find the evidence
related to the creditors council highly probative even if the
temporal reach of this evidence was somewhat limited.
Court No. 03-00651 Page 24

majority of Hynix’s outstanding debt was held by financial

institutions with varying degrees of government ownership. Id.

These debt levels translated to voting interests on the

creditors council in an amount sufficient to influence the plans

approved by the council and to veto any undesirable proposals.

Id. at 54-55. Commerce found that, by virtue of its ownership

interests in voting members of the creditors council, the Korean

government could have had a unique vantage point from which to

orchestrate Hynix’s restructuring using the private entities on

Hynix’s creditors council. Id. This inference is reasonable.

If the Korean government’s ownership interests in certain Hynix

creditors gave the government the ability to influence or direct

decisions taken by those financial institutions, 12 then the

dominant presence of financial institutions with government

ownership could have given the Korean government the opportunity

12
It is noteworthy that evidence concerning government ownership
interests in certain of Hynix’s creditors cannot be considered
conclusive proof of Korean government entrustment or direction
of these entities. Rather, as argued by Hynix, these financial
institutions are subject to the same inquiry as all other
private entities under investigation. See Pls.’ Br. at 24.
Contrary to Hynix’s contention, Commerce recognized this fact in
its Decision Memo, noting that financial institutions were not
presumed to be under government entrustment or direction simply
by virtue of government ownership interests. Decision Memo at
17. The evidence which led Commerce to find that these entities
were in fact subject to government entrustment or direction is
discussed by the Court later in this section.
Court No. 03-00651 Page 25

to have a pervasive influence on the decision-making of Hynix’s

creditors on the creditors council.

Commerce also adduced evidence indicating that the Korean

government recognized the opportunity to exert influence or

control over private entities which was presented by the

creditors council. Commerce learned during verification that a

government official attended a March 2001 creditors council

meeting “to urge creditor banks to execute the resolutions made

by creditors.” Decision Memo at 59; see also Def.’s App., App.

30 (Korean Government Verification Report dated May 15, 2003) at

19. In addition, the Korean government later enacted a new law

requiring all creditor financial institutions to attend

creditors council meetings for any major corporate

restructuring, such as Hynix’s. Id. A government official

quoted in a July 2001 Korea Times article cited by Commerce

explained that the purpose of the new law was “to prevent some

of [the creditors] from refusing to attend [meetings] and

pursuing their own interests by taking advantage of bailout

programs[.]” Id. at 59. From this evidence, Commerce could

reasonably find that the Korean government recognized that the

creditors council was a possible forum to both communicate and

effectuate its Hynix support policy through private entities.

Moreover, Commerce’s evidence demonstrated that the Korean

government had the capacity to act on the opportunity for
Court No. 03-00651 Page 26

entrustment or direction of private entities which was presented

by its ownership interests in financial institutions on Hynix’s

creditors council. For example, Commerce cited various

contemporaneous Korean newspapers and international financial

publications which reported that the Korean government

influenced at least three of Hynix’s creditors with substantial

government ownership. Decision Memo at 56. Specifically,

Commerce cited a January 2002 Business Week article which

reported that the Korean government forced Woori Bank, the

Korean Exchange Bank (“KEB”), and ChoHung Bank to provide

significant funding to Hynix. Id. An October 2001 Korea Times

article reported that a KEB official had confirmed that the

Korean government was “working out a series of powerful measures

to ensure the survival of [Hynix.]” Id. Commerce also cited a

September 2001 Asiamoney article which discussed general

suspicions that banks with substantial government shareholdings

were being pressured by the Korean government to support Hynix.

Id.

Additional reports cited by Commerce indicated that the

Korean government had the capacity to influence even those

members of Hynix’s creditors council without significant

government ownership. For example, Commerce cited to a Dow

Jones International article which reported that KorAm Bank

reversed its decision not to participate in a portion of Hynix’s
Court No. 03-00651 Page 27

May 2001 restructuring after the Korean government’s Financial

Supervisory Service (the “FSS”) warned of possible sanctions if

it did not participate. Decision Memo at 59. Commerce also

cited to a Korea Herald article which reported that the FSS had

threatened to fine Hana Bank if it did not provide emergency

liquidity to HPC, a Hynix affiliate. Id. at 60. Taken

together, Commerce reasonably viewed these news reports as

circumstantial evidence suggesting that the Korean government

was able to influence or coerce private entities – with and

without government ownership – to support Hynix’s restructuring.

Commerce was able to further support the inference of

Korean government capacity to influence private entities with

additional evidence drawn from the opinions of the independent

Korean financial experts interviewed during verification.

Commerce noted that “the clear consensus that emerged from the

independent financial sector experts . . . was that the [Korean

government] can and does influence” financial institutions owned

whole or in part by the government. Decision Memo at 53-54

n.20. With regard to financial institutions free of government

ownership, Commerce also observed that while “many experts

interviewed suggest[ed] that the [Korean government] no longer

had control over the private banks the way it had in the past[,]

. . . at least one expert did comment that government influence

over the private banks has continued.” Id. at 57. Upon a
Court No. 03-00651 Page 28

review of the entire summary of the financial expert interviews

as urged by Hynix, see Pls.’ Br. at 25, the Court finds that

this evidence supports Commerce’s inference that the Korean

government could have exercised a degree of influence over the

financial institutions involved in Hynix’s restructuring. See

Appendix to Plaintiffs’ Motion for Judgment on the

Administrative Record (“Pls.’ App.”), App. 6 (Private Financial

Experts Verification Report dated May 15, 2003). Although the

opinions of the independent Korean financial experts were far

from unanimous or conclusive on the question of the Korean

government’s ability to effectuate its Hynix support policy

through private financial institutions, see id. at 3, 12; Pls.’

Br. at 22, this evidence lent some additional support for

Commerce’s inference that the Korean government had the capacity

to entrust or direct the private financial institutions that

participated in Hynix’s restructuring.

Commerce built on its evidence of the Korean government’s

capacity to influence financial institutions with government

ownership by specifically examining actions taken with respect

to the KEB. Formerly a fully government-owned bank, the KEB was

Hynix’s principal creditor. Decision Memo at 56. Because the

Korean government remained the KEB’s largest shareholder with

about 43% of the bank’s shares, certain of the financial experts

interviewed by Commerce contended that the KEB was still subject
Court No. 03-00651 Page 29

to government influence over lending decisions. Id. at 55-56.

Indeed, official correspondence sent to the KEB from the Korean

government’s Economic Ministers advised the bank to “carr[y] out

perfectly” their decisions to support Hynix. Id. at 50.

Commerce could reasonably find it telling that, as discussed

above, these were the same instructions sent by the Economic

Ministers to a Korean government agency. Further, confidential

internal loan documentation obtained by Commerce at verification

also indicated that the KEB took into account non-commercial,

economic and social policy considerations when it chose to

participate in various stages of Hynix’s restructuring. Id. at

55-56; Pls.’ App., App. 7 (Hynix Verification Report dated May

15, 2003) at 15, 17. This evidence also indicated that the KEB

shared these considerations with Hynix’s creditors council. Id.

In the Court’s view, Commerce reasonably found this evidence to

be a demonstration of the Korean government’s influence on the

KEB’s decision to provide credit and equity to Hynix. It is

indeed suspect for an allegedly independent financial

institution to consider the ramifications of isolated lending

and investment decisions on the economic and social health of a

country, rather than that institution’s bottom line. Commerce

reasonably found that this was not normal behavior for a profit-

maximizing market actor. Cf. Nelson v. Pilkington PLC, 385 F.3d

350, 360-61 (3d Cir. 2004) (in antitrust context, noting that
Court No. 03-00651 Page 30

“[e]vidence that the defendant acted contrary to its interests

means evidence of conduct that would be irrational assuming that

the defendant operated in a competitive market. Put differently

. . . a court looks to evidence that the market behaved in a

noncompetitive manner.”) (quotation marks omitted). Based on

this evidence, Commerce was justified in finding that “the very

commercial nature which Hynix states motivated the KEB is

fundamentally called into question.” Decision Memo at 57.

Commerce also found evidence of Korean government

entrustment or direction with respect to Kookmin Bank

(“Kookmin”), a Korean commercial financial institution without

substantial government ownership. Commerce initially cited a

September 2001 certified filing made by Kookmin to the U.S.

Securities and Exchange Commission (“SEC”). Id. at 57. In that

filing, Kookmin warned its investors that:

The [Korean government] has promoted, and, as a matter
of policy may continue to attempt to promote certain
lending to certain types of borrowers. It generally
has done this by requesting banks to participate in
remedial programs for troubled corporate borrowers . .
. . The government has in this manner promoted low-
mortgage lending and lending to technology companies.
We expect that all loans made pursuant to government
policies will be reviewed in accordance with
[Kookmin’s] credit review policies. However, we
cannot assure you that government policy will not
influence [Kookmin] to lend to certain sectors or in a
manner in which [Kookmin] otherwise would not in the
absence of government policy.
Court No. 03-00651 Page 31

Id. at 57-58 (emphasis added); see also Def.’s App., App. 12

(Attach. 1 of Petitioner’s Comments to Commerce dated Mar. 28,

2003) at 22. 13 In the Court’s view, Commerce reasonably found

that this filing served as an admission by a Hynix creditor of

the tendency of the Korean government to direct private banks to

provide financial contributions to technology companies, such as

Hynix. 14 To tie this tendency specifically to Hynix’s

restructuring, Commerce then cited confidential internal loan

documentation obtained from Kookmin at verification which

indicated that, as warned in its SEC filing, Kookmin took into

account Korean government policy goals when weighing its

participation in Hynix’s December 2000 syndicated loan.

Decision Memo at 59; see also Def.’s App., App. 11 (Ex. 11 of

13
Kookmin also filed a similar prospectus in June 2002.
Decision Memo at 58. Because Kookmin was the sole Korean bank
listed on a U.S. stock exchange during the period of
investigation, no other such SEC filings were made by Hynix’s
creditors. Id.
14
Hynix argues that Commerce failed to consider “a detailed
statement by the specific lawyers who drafted the prospectus,
which made clear that the language was in no way meant to imply
[Korean government] control over Kookmin lending decisions.”
Pls.’ Br. at 32 (citing Pls.’ App., App. 16 (Hynix’s Supporting
Documentation dated Apr. 14, 2003)). However, “absent a showing
to the contrary, [the agency] is presumed to have considered all
of the evidence in the record.” Nat’l Ass’n of Mirror Mfrs. v.
United States, 12 CIT 771, 779, 696 F. Supp. 642, 648 (1988).
Hynix has failed to rebut this presumption here; Commerce is not
required to expressly distinguish every post hoc, self-serving
declaration offered by a party which is facially at odds with
the plain meaning of non-technical record evidence.
Court No. 03-00651 Page 32

Hynix Verification Report dated May 15, 2003) at 12. Taken

together, Commerce reasonably found that this evidence

demonstrated that the Korean government was successful in

enlisting Kookmin, a financial institution without substantial

government ownership, to support Hynix during its restructuring.

In sum, the Court concludes that record evidence supports

Commerce’s determination that Hynix received financial

contributions from private entities entrusted or directed by the

Korean government. As the foregoing discussion demonstrates,

Commerce did not rely on “past findings” from earlier

countervailing duty investigations involving the Korean

government to support its finding of government entrustment or

direction. Pls.’ Br. at 10. Rather, Commerce appropriately

“point[ed] to evidence from which it [was] reasonable to infer

that the government’s control continued into the period of

investigation.” AK Steel Corp. v. United States, 192 F.3d 1367,

1376 (Fed. Cir. 1999).

2. Counterevidence Adduced by Hynix Does Not Undermine
Commerce’s Conclusion That Hynix Received Entrusted or
Directed Financial Contributions

Of course, the Court’s substantial evidence review does not

end with an examination of the evidence supporting Commerce’s

finding. The Court must also consider whatever “fairly detracts

from the substantiality of [that] evidence.” Huaiyin Foreign

Trade Corp. v. United States, 322 F.3d 1369, 1374 (Fed. Cir.
Court No. 03-00651 Page 33

2003) (quotation marks omitted). Hynix argues that

counterevidence on the record soundly refutes Commerce’s finding

of Korean government entrustment or direction of the financial

institutions involved in Hynix’s restructuring.

First, Hynix argues that Citibank/SSB, not the Korean

government, was responsible for orchestrating Hynix’s

restructuring. Pls.’ Br. at 11-16, 25-29. Hynix contends that

Citibank/SSB initiated and was at the center of Hynix’s

multifaceted restructuring, both as an advisor and participant.

Plaintiffs’ Comments on the Final Results of Redetermination

(“Pls.’ Remand Comments”) at 7. In these roles, Hynix notes

that Citibank/SSB was found not to be under Korean government

control. Id. at 9 (citing Decision Memo at 5). Further, Hynix

observes that SSB’s engagement letter and restructuring

proposals recognized that the Korean government might not

provide the regulatory flexibility needed to make Hynix’s

restructuring successful. Id. at 10-11. Hynix additionally

notes that Citibank committed its own funds to Hynix’s

restructuring. Id. at 12-13. Taken together, Hynix argues that

the evidence concerning Citibank/SSB’s commercial involvement

demonstrated the independence of Hynix’s restructuring from the

Korean government. Id. at 12-13.

The Court finds that the evidence of Citibank/SSB’s

involvement in Hynix’s restructuring is insufficient to
Court No. 03-00651 Page 34

undermine Commerce’s finding of government entrustment or

direction. The parties agree that, while important to the

restructuring from a technical perspective, SSB did not have the

ability to ensure the participation of Hynix’s creditors in the

various phases of Hynix’s restructuring. See Remand Results at

7; Pls.’ Remand Comments at 8. In other words, for SSB’s

restructuring blueprint to work, Hynix’s creditors had to

participate – either voluntarily or through government coercion.

Hynix places great emphasis on the fact that Citibank/SSB, as

demonstrated by its proposals to Hynix’s creditors and

affidavits to Commerce, believed that commercial persuasion (not

government coercion) was the motivating force behind creditor

participation. Indeed, this rightfully is circumstantial

evidence that weighs against Commerce’s determination. However,

even the documents cited by Hynix acknowledge that the

restructuring devised by SSB was subject to some form of Korean

government approval. See Remand Results at 8. Regardless,

Citibank/SSB’s view of the nature of the Korean government’s

involvement in Hynix’s restructuring or the reasons for creditor

involvement is but one of the opinions collected by Commerce

during its investigation. Considering the totality of the

evidence before the agency, which included reports of behind-

the-scenes Korean government coercion by numerous independent
Court No. 03-00651 Page 35

sources, 15 Commerce reasonably chose to disbelieve the minority

view of Citibank/SSB.

Further, this choice by the agency was not significantly

undercut by evidence of Citibank’s own financial participation

in Hynix’s restructuring. As discussed in greater detail infra

at Part III.D.1.a, Commerce found that Citibank purposefully

waited until the involvement of the other creditors was assured

before committing resources to Hynix’s restructuring. The

important point for Citibank was the participation of the other

creditors – not their rationale (or provocation) for doing so.

Citibank’s “symbolic gesture” of support for Hynix (and, by

extension, the potentially marketable Korean corporate

restructuring blueprint represented by Hynix), Decision Memo at

9-10, was therefore minimally probative on the question of the

15
As noted by Commerce, when investigating an alleged
clandestine program of subsidization, “secondary sources can be
particularly credible as these observers are independent and
without a vested interest in the outcome.” Decision Memo at 50
n.13. Of course, secondary information is not necessarily
reliable in all circumstances, which is why the countervailing
duty statute requires Commerce to corroborate such information
to the extent practicable. See 19 U.S.C. § 1677e(c) (1999).
Commerce duly carried out its duty to corroborate during the
underlying investigation; however, even more telling, Hynix
itself has urged both Commerce and the Court to look to
“reliable outside commentary” when analyzing the role played by
the Korean government in Hynix’s restructuring. Pls.’ Br. at
31. While the commentary collected by Commerce during its
investigation was hardly unanimous, see id., much (if not the
majority) lends support to Commerce’s finding of government
entrustment or direction.
Court No. 03-00651 Page 36

true nature of the Korean government’s role in the

restructuring. As such, it was reasonable for Commerce to find

that Citibank/SSB’s involvement did not negate the existence of

government entrustment or direction in Hynix’s restructuring.

Second, Hynix contends that Hynix’s restructuring included

commercial options and contingencies which belie a finding of

government entrustment or direction. Pls.’ Remand Comments at

13-20. With regard to the May 2001 phase of Hynix’s

restructuring, which featured an international GDS offering,

Hynix argues that the provisions of this offering demonstrate

that the success of Hynix’s restructuring depended on the

support of international investors – not the Korean government.

Id. at 13. Hynix contends that, because the record evidence

demonstrates that the May 2001 restructuring was contingent on

commercial action, Hynix’s restructuring had to have been

independent from the Korean government. Id. at 16.

The Court finds that the inclusion of the GDS offering in

the May 2001 restructuring is also insufficient to undermine

Commerce’s finding of government entrustment or direction.

Record evidence shows that Hynix’s creditors voted to provide

the new loan and debt restructuring package featured in the May

2001 restructuring before the GDS offering even began. Remand

Results at 12. While the GDS offering was underway, an offering

memorandum was circulated to potential investors, characterizing
Court No. 03-00651 Page 37

the May 2001 package as one of the “Concurrent Financing

Transactions” central to Hynix’s overall restructuring. Id.;

see also Pls.’ App., App. 1C (Ex. 5 of Hynix Questionnaire Resp.

dated Jan. 27, 2004). Then, before the GDS offering closed,

Hynix’s creditors met again to work out important details of the

restructuring package. Remand Results at 13. Based on the

timing of the creditors’ agreements and the characterization of

the restructuring package in the offering memorandum, Commerce

found it “unlikely that the banks were truly waiting until the

successful conclusion of the GDS to decide whether to proceed

with the May restructuring.” Id. Hynix looks to the same

evidence and finds that it supports the opposite inference –

that the May 2001 restructuring package was contingent on

approval by international investors and not the Korean

government. Pls.’ Remand Comments at 13-16. Upon a careful

review of the record evidence, the Court is forced to conclude

that both interpretations of the documents related to the May

2001 restructuring are equally plausible. Faced with this

equipoise, the Court must defer to the interpretation made by

Commerce as the agency expert. See Burlington Truck Lines, Inc.

v. United States, 371 U.S. 156, 167 (1962) (noting that

“[e]xpert discretion is the lifeblood of the administrative

process”). As such, it was reasonable for Commerce to find that
Court No. 03-00651 Page 38

the GDS offering featured in Hynix’s May 2001 restructuring did

not negate the existence of government entrustment or direction.

Hynix next argues that, with regard to the October 2001

phase of Hynix’s restructuring, the existence of multiple

options available to creditors (including debt liquidation)

negates government control. Pls.’ Remand Comments at 17. Hynix

notes that these options were adopted by a vote of Hynix’s

creditors council – a vote which required the support of the

holders of at least seventy-five percent of Hynix’s outstanding

debt. Id. Hynix contends that Commerce failed to demonstrate

that the Korean government had control over creditors holding

this amount of Hynix’s debt. Id. According to Hynix, at best

Commerce showed that the Korean government had ownership

interests in certain Hynix creditors, but that even these

creditors did not hold the requisite seventy-five percent of

Hynix’s outstanding debt. Id. at 18. Hynix contends that, as a

result, the Korean government was simply not in a position to

force Hynix’s creditors to follow any course of action - as

reflected in the availability of multiple options during the

October 2001 restructuring. Id. at 19. 16

16
Hynix also argues that Commerce ignored the fact that Hynix’s
creditors had a statutory right to seek outside mediation
concerning the terms for Hynix’s October 2001 restructuring set
by the creditors council. Pls.’ Remand Comments at 17. In
Hynix’s view, recourse to mediation contradicts a finding of any
(footnote continued)
Court No. 03-00651 Page 39

The Court finds that the inclusion of multiple options in

the October 2001 restructuring is insufficient to undermine

Commerce’s finding of government entrustment or direction. In

the Remand Results, Commerce provided a more detailed

explanation of the options made available to creditors during

the last stage of Hynix’s restructuring. Although these options

offered varying degrees of continued involvement in Hynix, none

of the options provided an immediate refund of liquidated loans

to creditors. Remand Results at 15. Instead, even under the

option most favorable to a creditor seeking to extricate itself

from the restructuring, funds from the liquidated loans were

converted back into five-year, interest free loans to Hynix.

Id. Under any scenario, Hynix stood to benefit from either

complete debt extinguishment or partial debt extinguishment

coupled with sufficient new loans to service the remaining debt.

Id. at 16. These were the options presented to Hynix’s

creditors, notwithstanding the fact that the October 2001

sort of Korean government control over these financial
institutions. Id. This is an interesting argument;
unfortunately, it does not appear that it was made by Hynix
during the administrative proceedings below. See Micron’s
Rebuttal Comments on the Final Results of Redetermination at 12-
13. It is well established that “[a] reviewing court usurps the
agency’s function when it sets aside the administrative
determination upon a ground not theretofore presented . . . .”
Unemployment Comp. Comm’n of Alaska v. Aragon, 329 U.S. 143, 155
(1946); see also 28 U.S.C. § 2637(d) (1999) (requiring
exhaustion of administrative remedies where appropriate).
Court No. 03-00651 Page 40

restructuring was an “unforeseen event, made necessary by an

unexpected slump in the DRAM market” – in other words, made

necessary by Hynix’s still worsening financial position. Pls.’

Br. at 12. While it is hard to imagine what a good set of

options might have been for Hynix’s creditors in this situation,

see Pls.’ Remand Comments at 19, it is suspect that “under any

scenario, Hynix would be saved to the detriment of its

creditors.” Remand Results at 16. Viewed in this light,

Commerce reasonably found that the October 2001 restructuring

options were not commercial in nature and, therefore, did not

contradict a finding of government entrustment or direction.

In reaching this conclusion, the Court rejects Hynix’s

chief rejoinder - that Commerce failed to demonstrate that the

Korean government had control over a sufficient percentage of

the creditors council in order to vote into place any sort of

non-commercial options. See Pls.’ Remand Comments at 17. As

the Court found above in Part III.B.1, Commerce did in fact

adduce evidence supporting its conclusion that the Korean

government was able to influence or coerce multiple members of

Hynix’s creditors council, both with and without government

ownership. Further, the very existence of the highly suspect

options featured in the last restructuring phase actually

reinforces Commerce’s determination that government entrustment
Court No. 03-00651 Page 41

or direction persisted for the duration of the alleged ten-month

program.

The Court recognizes that this last piece of circumstantial

evidence - like each set of evidence related to the Korean

government’s motive, proclivity, opportunity, and capacity to

support Hynix in a manner at odds with the countervailing duty

statute - would fall short of meeting the substantial evidence

standard if viewed in isolation. Hynix has ably demonstrated as

much throughout its briefing. Unfortunately for Hynix, this

observation is of no moment. Commerce need not exclusively rely

on any one piece or set of evidence to prove entrustment or

direction. Rather, Commerce must show through the totality of

its evidence that entrustment or direction has taken place. See

Hynix I at ___, 391 F. Supp. 2d at 1349. Commerce has done so

here. Through its substantial direct and circumstantial

evidence, Commerce has “connect[ed] ostensibly disparate parties

and transactions to a single, interrelated program of government

entrustment or direction.” Id. at ___, 391 F. Supp. 2d at 1350.

Admittedly, Commerce’s finding of government entrustment or

direction here is not without some doubt. This is a close case.

In such circumstances, however, “the Court may not substitute

its judgment for that of the [agency] when the choice is between

two fairly conflicting views[.]” S.F. Candle Co. v. United

States, 27 CIT ___, ___, 265 F. Supp. 2d 1374, 1381 (2003)
Court No. 03-00651 Page 42

(quotation marks omitted). Accordingly, the Court upholds

Commerce’s conclusion that Hynix’s creditors were entrusted or

directed by the Korean government to provide financial

contributions to Hynix as supported by substantial evidence.

C. Commerce’s Government Subsidy Function Analysis Is In
Accordance with Law and Supported by Substantial Evidence

Hynix next argues that Commerce wrongly concluded that the

prong of 19 U.S.C. § 1677(5)(B)(iii) pertaining to the

performance of a government subsidy function was satisfied in

connection with the investigated financial contributions. Pls.’

Br. at 33 (citing Decision Memo at 47). Hynix asserts that, as

a matter of law, actions taken by a wholly independent actor

cannot possibly be actions or practices normally vested in or

followed by governments – the standard established by the

relevant portion of 19 U.S.C. § 1677(5)(B)(iii). Id. at 33-34.

Hynix contends that Commerce erred by ignoring the close

parallels between the actions of Citibank, a concededly

independent commercial actor, and other creditors deemed to be

under government control. Id. Since Hynix’s creditors

generally acted like Citibank during the restructuring, Hynix

argues that a government subsidy function simply could not have

been performed. Id. Commerce’s conclusion to the contrary was,

in Hynix’s view, not in accordance with law and unsupported by

substantial evidence. Id.
Court No. 03-00651 Page 43

The Court upholds both Commerce’s interpretation and

application of the portion of 19 U.S.C. § 1677(5)(B)(iii)

pertaining to the performance of a government subsidy function.

First, under two-step Chevron analysis, Commerce’s

interpretation of the relevant statutory language is in

accordance with law. 19 U.S.C. § 1677(5)(B)(iii) provides that,

to be actionable, the provision of a financial contribution must

be done by a function or practice normally vested in or followed

by government; however, the statute does not define or provide

examples of such functions or practices. The relevant

legislative history is likewise silent. In light of this

statutory ambiguity, Commerce is given deference under Chevron

step one to make a reasonable interpretation. See Floral Trade

Council v. United States, 23 CIT 20, 24, 41 F. Supp. 2d 319, 324

(1999) (noting that courts will defer to Commerce’s reasonable

interpretation under Chevron where Congress’s intended

definition of a term is not ascertainable through statutory

construction).

Turning to Chevron step two, Commerce determined that this

portion of 19 U.S.C. § 1677(5)(B)(iii) was best understood as

making actionable under the countervailing duty law only those

financial contributions which could be characterized as

fulfilling a “governmental subsidy function[.]” Decision Memo

at 47. In the Court’s view, an example best demonstrates the
Court No. 03-00651 Page 44

soundness of this interpretation: in the context of an ordinary

civil trial, a government, through its courts, could order a

losing party to pay the prevailing party punitive damages. Such

a court order would direct a private entity to transfer funds to

another private entity without any consideration, resulting in a

windfall to the second party. This order would contain the

familiar elements of government direction, financial

contribution, and benefit – but should such an order reasonably

be considered a countervailable subsidy? 19 U.S.C. §

1677(5)(B)(iii), as interpreted by Commerce, clearly provides

the answer: no, because under normal circumstances court-ordered

punitive damages do not fulfill a government subsidy function. 17

Commerce’s interpretation of 19 U.S.C. § 1677(5)(B)(iii) avoids

the nonsensical result of bringing many more government actions

within the ambit of the countervailing duty law than could have

been plausibly intended by Congress.

Further, the Court is not persuaded by Hynix’s criticism of

Commerce’s interpretation. In essence, Hynix argues for a more

limited reading of the government subsidy function requirement

of 19 U.S.C. § 1677(5)(B)(iii) – namely that a government

17
Rather, court-ordered punitive damages are generally
considered to implicate a government’s police power. See United
States v. Morrison, 529 U.S. 598 (2000) (characterizing use of
punitive damages to suppress crime as example of state police
power).
Court No. 03-00651 Page 45

subsidy function cannot be performed if the practice in question

is commercially rational. What Hynix fails to recognize is that

the countervailing duty statute already requires Commerce to

consider the relative commerciality of a financial contribution

– to determine if a benefit has been conferred. See 19 U.S.C. §

1677(5)(B)(iii) (1999); id. § 1677(5)(E). Hynix’s

interpretation seeks to unnecessarily conflate two statutorily

distinct inquiries and is therefore unpersuasive. As such, the

Court finds Commerce’s reasonable statutory interpretation of

the portion of 19 U.S.C. § 1677(5)(B)(iii) pertaining to the

government subsidy function requirement to be in accordance with

law.

In addition, the Court finds substantial evidence in

support of Commerce’s conclusion that the government subsidy

function requirement was satisfied by the investigated financial

contributions. 18 As discussed above at Part III.B, Hynix’s

creditors transferred funds, in the form of preferential loans

and equity infusions, pursuant to the entrustment or direction

18
Hynix asserts that Commerce “completely ignored the second
independent prong of 19 U.S.C. § 1677(5)(B)(iii)” (i.e., the
government subsidy function requirement) in reaching its
determination. Pls.’ Br. at 33. The Court disagrees with this
characterization. While Commerce’s analysis certainly could
have been more rigorously demarcated, the Court must “uphold a
decision of less than ideal clarity if the agency’s path may
reasonably be discerned.” Bowman Transp., Inc. v. Arkansas-Best
Freight System, Inc., 419 U.S. 281, 286 (1974).
Court No. 03-00651 Page 46

of the Korean government. If the Korean government had

undertaken these transfers directly, there can be no question

that it would have thereby provided countervailable subsidies to

Hynix. See 19 U.S.C. § 1677(5)(B)(i) (1999) (describing

countervailable subsidy to include benefit-conferring financial

contribution provided directly by a government). In effect, the

Korean government delegated its subsidy function to Hynix’s

creditors, which then performed officially sanctioned “financial

support activities[.]” Decision Memo at 61. As such,

substantial evidence supports the conclusion that the government

subsidy function requirement of 19 U.S.C. § 1677(5)(B)(iii)

was met.

Accordingly, the Court upholds Commerce’s conclusion that

Hynix’s creditors performed a government subsidy function for

purposes of 19 U.S.C. § 1677(5)(B)(iii) as in accordance with

law and supported by substantial evidence.

D. Commerce’s Benefit Analysis Is In Accordance with Law and
Supported by Substantial Evidence

Turning to the final prong of 19 U.S.C. § 1677(5)(B)(iii),

Hynix alleges error with the two principal analyses underlying

Commerce’s conclusion that a countervailable benefit was

conferred to Hynix during its restructuring. First, Hynix

claims that Commerce’s creditworthiness analysis, which

determined that Hynix would not have been able to attract loans
Court No. 03-00651 Page 47

from commercial sources during its restructuring, was flawed.

Pls.’ Br. at 36-40, 42-45, 49-50. Second, Hynix argues that

Commerce’s equityworthiness analysis, which determined that

Hynix would not have been able to attract equity from commercial

sources during its restructuring, was also flawed. Id. at 40-

42, 46-49. Hynix’s specific arguments concerning Commerce’s

creditworthiness analysis and equityworthiness analysis are

addressed separately below. 19

For the reasons that follow, the Court upholds Commerce’s

conclusion that a benefit was conferred to Hynix by its receipt

of government-entrusted or directed financial contributions as

in accordance with law and supported by substantial evidence.

1. Creditworthiness Analysis

a. Commerce’s Rejection of Loans Made by Citibank as
Commercial Benchmarks in Hynix’s Creditworthiness
Analysis Is Reasonable

Hynix contends that Commerce erroneously rejected as

commercial benchmarks the loans made by Citibank to Hynix during

its restructuring, ultimately leading to an inaccurate

19
Concerning both of these analyses, Hynix argues that Commerce
erred by refusing to use as commercial benchmarks the loans and
equity infusions made by Hynix’s creditors (other than Citibank)
during Hynix’s restructuring. Pls.’ Br. at 45-46. Because the
Court concludes that Commerce reasonably found these loans and
equity infusions to have been made pursuant to government-
entrustment or direction, see supra Part III.B, the Court also
upholds Commerce’s decision to disqualify them as commercial
benchmarks.
Court No. 03-00651 Page 48

creditworthiness analysis. Pls.’ Br. at 36. Hynix argues that

Commerce should have considered these loans, made by a

concededly independent commercial actor, as evidence that Hynix

was creditworthy. Id. at 37. In support of this position,

Hynix points to the countervailing duty regulations, which state

that “the receipt [by an investigated company] of comparable

long-term commercial loans, unaccompanied by a government-

guarantee, will normally constitute dispositive evidence that

[the investigated company] is not uncreditworthy.” Id. at 35

(quoting 19 C.F.R. § 351.505(a)(4)(ii) (2005)). Hynix also

contends that Commerce ignored affidavits by Citibank officials

indicating that the bank’s involvement in Hynix’s restructuring

stemmed from purely commercial motivations, rather than the

influence of the Korean government. Id. at 42-44. Finally,

Hynix argues that Citibank’s dual role as lender and financial

advisor to Hynix should not have led Commerce to the conclusion

that Citibank was different from the average lender. Id. at

44-45.

The Court finds that Commerce reasonably determined that

the loans made by Citibank were not suitable commercial

benchmarks for use in Hynix’s creditworthiness analysis. First,

Commerce acted in accordance with law when it considered the

influence of governmental actions on a private entity whose

loans were proffered as commercial benchmarks of
Court No. 03-00651 Page 49

creditworthiness for an investigated company. The preamble to

the countervailing duty regulations explains that Commerce will

carefully examine any loan made by a private entity which is

part of a package including government loans to determine if the

loan is truly “commercial” in nature. Countervailing Duties, 63

Fed. Reg. 65348, 65364 (Dep’t Commerce Nov. 25, 1998) (final

rule). This examination is necessary because, as Commerce has

noted, “special features” in such a loan package may influence

an otherwise independent, commercial lender to “offer lower,

more favorable terms than would be offered absent the

government/commercial bank package.” Id. For purposes of this

examination, Commerce need not find that a private entity has

been entrusted or directed by a government for that entity to

nonetheless be influenced by the government’s actions when

making investment decisions. For example, it would be fully

rational for an independent private entity seeking to make sound

business decisions based on market factors to take into

consideration a government’s pervasive involvement in the

restructuring of a company. Although rightly a factor in the

commercial decision-making process, such government influence

would render that entity’s loans inappropriate for use as

commercial benchmarks in creditworthiness analysis. 20

20
Consideration of the distortive, if non-countervailable, role
(footnote continued)
Court No. 03-00651 Page 50

Further, Commerce’s finding that Citibank’s lending

decisions were influenced by the Korean government’s involvement

in Hynix’s restructuring is supported by substantial evidence.

Commerce appropriately took great care in examining the nature

of Citibank’s lending to Hynix during a restructuring which

involved significant participation by government-entrusted and

directed financial institutions. Commerce found that Citibank

waited until the involvement of these financial institutions was

assured before it committed resources to Hynix’s restructuring.

Decision Memo at 9-10; see also Def.’s App., App. 8 (Hynix

Verification Report dated May 15, 2003) at 20 (“Citibank decided

to participate in the [bond] issuance that was part of the May

restructuring to provide a ‘symbolic gesture of support’ to show

that Citibank willing [sic] to stand behind Hynix.”); id. at 21

(“Citibank felt that it was best to provide a small additional

amount of funding and ‘ride’ with the [Korean] banks to see if

a government may play in the marketplace is not limited to this
section of the countervailing duty statute. For example, with
regard to the privatization of government-owned companies, the
presumption of subsidy extinguishment which accompanies the sale
of such a company for fair market value “may be rebutted upon a
showing that the sale process was distorted through government
intervention” in the broader market. Allegheny Ludlum Corp. v.
United States, 29 CIT ___, ___, 358 F. Supp. 2d 1334, 1346
(2005) (citing Notice of Final Modification of Agency Practice
Under Section 123 of the Uruguay Round Agreements Act, 68 Fed.
Reg. 37125, 37127 (Dep’t Commerce June 23, 2003) (notice of
modification of agency practice regarding privatizations)).
Court No. 03-00651 Page 51

Hynix could make it as an ongoing concern. The officials

explained that Citibank was making a bet that the [Korean] banks

would protect their exposure.”). Only then did Citibank seek

internal credit approval for its portion of the first loan to

Hynix. Def.’s App., App. 8 (Hynix Verification Report, dated

May 15, 2003) at 20 (“According to Citibank officials, it did

not seek internal credit approval for its portion of the

syndicated bank loan until after the [Korean] banks committed to

the syndicated bank loan.”). In addition, the level of

Citibank’s lending to Hynix – only 12.5 percent of the December

2000 syndicated loan and a small percentage of the May 2001

restructuring package – further supports Commerce’s conclusion

that Citibank was able to alter its lending risk calculus by

relying on the dominant participation of government-entrusted or

directed financial institutions. 21 See Def.’s App., App. 7

21
Indeed, as indicated in the preamble to the countervailing
duty regulations, the “relatively small amount” of a long-term
commercial loan may rebut the presumption of creditworthiness
which accompanies its receipt by a company. Countervailing
Duties, 63 Fed. Reg. 65348, 65367. Accordingly, Commerce’s
substantiated finding that Citibank’s lending was “relatively
small in absolute and percentage terms compared to the
involvement” of the government-entrusted or directed financial
institutions during Hynix’s restructuring, Decision Memo at 9,
provides independent justification for Commerce’s rejection of
Citibank’s loans as commercial benchmarks. Hynix’s attempt to
undermine this finding by comparing Citibank’s lending with that
of individual government-entrusted or directed financial
institutions (rather than the group as a whole), see Pls.’ Br.
at 38-40, is unavailing.
Court No. 03-00651 Page 52

(Commerce Mem. on Bus. Proprietary Info. for Final Determination

dated June 16, 2003) at Attach. 1 (detailing Citibank’s share of

new debt extended to Hynix); id., App. 24 (Hynix Supplemental

Resp. dated Mar. 4, 2003) at Ex. 8 (detailing Hynix’s various

loans). Based on this evidence, it was reasonable for Commerce

to conclude that the involvement of government-entrusted or

directed financial institutions affected the terms by which

Citibank agreed to lend to Hynix. Hynix counters that Commerce

failed to take into consideration two affidavits by Citibank

officials which indicated that Citibank acted in a purely

commercial manner independent of government influence. Pls.’

Br. at 42-44; see Pls.’ App., App. 17 (Citibank Aff. dated Mar.

20, 2003); id., App. 18 (Citibank Aff. dated May 22, 2003).

However, Commerce specifically addressed these affidavits in its

Decision Memo and in fact altered certain aspects of its

preliminary analysis as a result of this evidence. See Decision

Memo at 8 (“Since our preliminary analysis, relevant evidence

has been added to the record which warrants a reconsideration .

. . . This includes information provided by Citibank officials

in an interview at verification, which Citibank further

clarified in a second affidavit . . . .”). Commerce nonetheless

concluded that these affidavits supported its finding that
Court No. 03-00651 Page 53

Citibank considered factors, like the participation of

government-entrusted or directed financial institutions, 22 when

lending to Hynix. Upon a careful review of these largely

confidential affidavits as urged by Hynix, the Court cannot

disagree with this conclusion.

As such, the Court concludes that Commerce’s rejection of

Citibank’s loans as commercial benchmarks in Hynix’s

creditworthiness analysis is reasonable.

b. Commerce’s Rejection of the Korean Default Rates
Supplied by Hynix Is Reasonable

Hynix next contends that, once Commerce erroneously

determined that Hynix was uncreditworthy, Commerce further erred

by using Moody’s U.S. average cumulative default rates to

construct an uncreditworthy benchmark for use in calculating the

benefit received by Hynix from government-entrusted or directed

loans. Pls.’ Br. at 49. Hynix argues that Commerce should have

22
In addition, Commerce reasonably found that Citibank likely
took into consideration its dual role (through SSB) as Hynix’s
financial advisor when making lending decisions. As Commerce
noted in the preamble to the countervailing duty regulations,
“many characteristics could factor into a decision of whether a
loan should be considered comparable to the government-provided
loan.” Countervailing Duties, 63 Fed. Reg. 65348, 65363. One
such characteristic could be the existence of an alternative
revenue stream which directly affects the relative risk of
entering into a commercial relationship. As a result, even if
Commerce had found Citibank’s loans to be otherwise suitable
commercial benchmarks, the agency still would have been
justified in taking this aspect of Citibank’s loans into
consideration.
Court No. 03-00651 Page 54

instead used Korean default rates for corporate bonds published

by Korean bond rating agencies and provided to Commerce by

Hynix. Id. at 49. Hynix argues that, while Commerce’s

regulations generally require the agency to use Moody’s U.S.

data, they also allow Commerce to consider country-specific data

when available. Id. (citing Countervailing Duties, 63 Fed. Reg.

65348, 65365). Hynix contends that Commerce should have

recognized that the available Korean default data was much more

accurate than Moody’s U.S. default data for this investigation.

Id. Further, Hynix argues that Commerce inappropriately

rejected the Korean default data simply because it was “not

sufficiently clear” that the data was comparable to Moody’s U.S.

data. Id. (quoting Decision Memo at 105). Hynix argues that

Commerce was legally required to seek the needed clarification

from Hynix before drawing such an unjustified, adverse inference

about the data. Pls.’ Br. at 49 (citing Helmerich & Payne, Inc.

v. United States, 22 CIT 928, 24 F. Supp. 2d 304 (1998) (holding

that Commerce must provide opportunity for

clarification/correction before drawing adverse inferences)).

The Court finds that Commerce reasonably rejected the

Korean default data provided by Hynix for calculating the

uncreditworthy benchmark. First, Commerce appropriately found

the data provided by Hynix to be unclear and incomplete. The

countervailing duty regulations state that Commerce normally
Court No. 03-00651 Page 55

uses the average “cumulative” default rates developed by Moody’s

to construct uncreditworthy benchmarks. 19 C.F.R. §

351.505(a)(3)(iii) (2005). The preamble to Commerce’s

countervailing duty regulations reiterates this requirement and

makes clear that Commerce will only consider using non-Moody’s

data that is “detailed and comprehensive[.]” Countervailing

Duties, 63 Fed. Reg. 65348, 65365. Notwithstanding this, Hynix

provided default data without any indication that it was

cumulative. Decision Memo at 105. Further, the minimal data

offered by Hynix provided none of the detail or discussion of

methodology which would have allowed Commerce to compare the

quality of that data to Moody’s U.S. data. Id. Instead, a

portion of the Korean default data was anomalous on its face.

See Pls.’ App., App. 10 (Supplemental Questionnaire Resp. of

Hynix dated Mar. 4, 2003) at Ex. 18 (report of one Korean bond

rating agency indicating a default rate of 2.47 percent for “CCC

and below” bonds and a default rate of 4.98 percent for “A”

bonds). Hynix did not provide any explanation for these

aberrational default rates with its submission. Given these

omissions, Commerce had reasonable grounds to question the

reliability of the Korean default data provided by Hynix and

ultimately disregard it.

Second, Commerce did not err by declining to request

clarification of the Korean default data from Hynix.
Court No. 03-00651 Page 56

Commerce was not required by the countervailing duty statute or

regulations to offer Hynix an opportunity to better explain or

correct its proffered data. Rather, the countervailing duty

regulations place the onus on the parties to an investigation to

convince Commerce that more accurate, country-specific default

information is available. 23 To that end, Plaintiffs’ reliance on

Helmerich is misplaced. Helmerich stands for the principle that

Commerce must “fairly request” information from a party before

drawing an “adverse inference” that the party has failed to

cooperate. Helmerich, 22 CIT at 931, 24 F. Supp. 2d at 308.

This principle is not applicable to Commerce’s rejection of the

Korean default data because Commerce did not apply adverse

inferences. Rather, Commerce’s standard methodology is to use

23
Compare Countervailing Duties, 63 Fed. Reg. 65348, 65365
(“[I]f [detailed and comprehensive country-specific default
data] do exist and are brought to our attention in the course of
an investigation . . . we would consider using the default rate
from the country under investigation.”) (emphasis added) with 19
U.S.C. § 1677m(d) (1999) (if “a response to a request for
information under this title does not comply with the request,
[Commerce] shall promptly inform the person submitting the
response of the nature of the deficiency and shall, to the
extent practicable, provide that person with an opportunity to
remedy or explain the deficiency”) (emphasis added). Absent an
affirmative due process, statutory, or regulatory obligation on
the part of Commerce to request clarification of unsolicited
default data, the Court will not here impose one. However, the
Court notes that Commerce’s selection of default data must
nonetheless be adequately explained and supported by substantial
evidence, thereby potentially limiting Commerce’s discretion in
future investigations involving country-specific default data
which does not feature the serious infirmities present here.
Court No. 03-00651 Page 57

Moody’s U.S. default data. This court has held that Commerce

does not make an adverse inference by “simply following its

standard practice[.]” Rhodia, Inc. v. United States, 26 CIT

1107, 1111, 240 F. Supp. 2d 1247, 1251 (2002).

As such, the Court concludes that Commerce’s rejection of

the Korean default rates for purposes of Hynix’s

creditworthiness analysis is reasonable.

2. Equityworthiness Analysis

a. Commerce’s Rejection of Equity Investments Made
by Citibank as Commercial Benchmarks in Hynix’s
Equityworthiness Analysis Is Reasonable

Hynix next argues that Commerce erred in finding Citibank’s

equity investment in Hynix to be too small for use as a

commercial benchmark of the price of Hynix’s equity, ultimately

resulting in a flawed equityworthiness analysis. Pls.’ Br. at

40. Hynix notes that, following the October 2001 debt-to-equity

conversion, Citibank became Hynix’s fifth largest shareholder. 24

Id. Hynix contends that Citibank’s investment, representing

only a small percentage of the total debt-to-equity conversion

but valued at tens of millions of dollars, should have been

considered “significant” and thus qualified for use as a

commercial benchmark. Id. at 41 (citing 19 C.F.R. §

351.507(a)(2)(iii) (2005)). Hynix argues that Commerce should

24
The actual portion of Citibank’s equity purchase which
occurred during Hynix’s restructuring is confidential.
Court No. 03-00651 Page 58

have reached this conclusion in order to be consistent with its

past determinations. Id. (citing Small Diameter Circular

Seamless Carbon and Alloy Steel Standard, Line and Pressure Pipe

from Italy, 60 Fed. Reg. 31992 (Dep’t Commerce June 19, 1995)

(final determination) (finding investment valued at

approximately $15 million and resulting in 18.3 percent

ownership interest in an investigated company to be significant)

(“Seamless Pipe from Italy”)). Hynix argues that an appropriate

comparison of Citibank’s investment in Hynix and that in

Seamless Pipe from Italy should have compared the amount of the

investment and not the percent ownership interest involved.

Pls.’ Br. at 41. According to Hynix’s calculations, had

Commerce compared the amounts invested in the two investigated

companies, Commerce would have found that the value of

Citibank’s investment was far greater than the investment at

issue in Seamless Pipe from Italy, which Commerce had determined

to be significant under 19 C.F.R. § 351.507(a)(2)(iii). Id.

The Court concludes that Commerce appropriately found the

equity investment made by Citibank was not a suitable commercial

benchmark for use in Hynix’s equityworthiness analysis. First,

Commerce’s interpretation of the significant investment

requirement of 19 C.F.R. § 351.507(a)(2)(iii) is reasonable.

Commerce included the significant investment standard in its

regulations based on the observation that “the volume of a
Court No. 03-00651 Page 59

firm’s traded shares [may] be so low as to preclude the use of

those shares as a benchmark.” Countervailing Duties, 62 Fed.

Reg. 8818, 8832 (Dep’t Commerce Feb. 26, 1997) (notice of

proposed rulemaking and request for public comments). However,

neither this language nor the text of the regulation makes clear

how the significance of an investment should be evaluated by

Commerce. Commerce argues that it should, and here as in

Seamless Pipe from Italy properly did, focus its inquiry on the

percent involvement by private investors - rather than the

dollar value of private investment. The Court agrees. In this

case as well as Seamless Pipe from Italy, Commerce largely

rested its significance determination on the percent interest

held by private investors, even though the dollar amount of

private investment could be roughly deduced from the facts

presented. See Decision Memo at 90; Seamless Pipe from Italy,

60 Fed. Reg. at 31994. While this construction of the term

“significant” is not necessarily compelled by the language of

Commerce’s regulation, it is far from being at odds with the

regulation. Analysis of percent interest appears to provide a

controlled and predictable way for Commerce to evaluate the

significance of equity investments across different industries

and investigations. Comparisons of dollar amounts across

investigations, as suggested by Hynix, would require Commerce to

control for the effects of inflation, exchange rate
Court No. 03-00651 Page 60

fluctuations, and, most challenging, the variability in the

intrinsic value of companies in order to apply the regulation in

an evenhanded manner. The difficulties inherent in Hynix’s

approach demonstrate the reasonableness of Commerce’s

construction of its own regulation, already entitled to

significant deference under this Court’s standard of review.

Second, applying Commerce’s construction of 19 C.F.R. §

351.507(a)(2)(iii) to this case, substantial evidence supports

the finding that Citibank’s equity stake in Hynix was not

significant. Citibank’s equity purchase during Hynix’s

restructuring was well below the 18.3 percent equity stake found

to be significant in Seamless Pipe from Italy. Although the

exact “significant” threshold is not clear from Commerce’s

construction, it was reasonable for Commerce to conclude that an

investment the size of Citibank’s was not significant.

As such, Commerce’s rejection of Citibank as a commercial

benchmark in Hynix’s equityworthiness analysis is reasonable.

b. Commerce’s Use of the Expected Utility Model to
Reject the October 2001 Debt-to-Equity Conversion
as Evidence of Hynix’s Equityworthiness Is
Reasonable

Hynix next contends that, despite the absence of commercial

benchmarks, Commerce erroneously disregarded the October 2001

debt-to-equity conversion as evidence that Hynix was otherwise

equityworthy. Pls.’ Br. at 48. In rejecting this transaction,
Court No. 03-00651 Page 61

Hynix argues that Commerce impermissibly grafted an economic

theory – the Expected Utility Model – into the countervailing

duty statute and regulations. Id. Contrary to this model,

which states that the existence and status of previous

investments in a company are extraneous considerations when

weighing new investment in the same company, Hynix argues that

it is natural for an existing creditor to consider the likely

effect of a new investment on an existing investment in the same

company. Id. According to Hynix, an investor already deeply

committed to a company might make an additional capital infusion

in the hopes that more resources will help the company to

improve. Id. If Commerce had instead applied this principle,

Hynix argues that it would have found the October 2001 debt-to-

equity conversion to be consistent with the “usual investment

practice” of at least some “private investors” – the standard by

which Commerce must evaluate the benefit conferred by an equity

infusion. Id. (citing 19 U.S.C. § 1677(5)(E)(i) (1999)).

The Court finds that Commerce’s rejection of the October

2001 debt-to-equity conversion as evidence of Hynix’s

equityworthiness is reasonable. First, Commerce’s use of the

Expected Utility Model is in accordance with law. Commerce has

repeatedly used the Expected Utility Model as a methodological

tool to help analyze the equityworthiness of investigated

companies. See, e.g., Certain Steel Products from Austria, 58
Court No. 03-00651 Page 62

Fed. Reg. 37217, 37249-50 (Dep’t Commerce July 9, 1993) (final

determination); Certain Hot Rolled Lead and Bismuth Carbon Steel

Products from the United Kingdom, 58 Fed. Reg. 6237, 6245 (Dep’t

Commerce Jan. 27, 1993) (final determination); Steel Wheels from

Brazil, 54 Fed. Reg. 15523, 15530 (Dep’t Commerce Apr. 18, 1989)

(final determination). Although not identifying the model by

name, this court has upheld the logical underpinnings of this

methodology in past reviews of Commerce’s countervailing duty

determinations. See British Steel Corp. v. United States, 10

CIT 224, 231, 632 F. Supp. 59, 65 (1986); Companhia Siderurgica

Paulista, S.A. v. United States, 12 CIT 1098, 1101-03, 700 F.

Supp. 38, 42-43 (1988). In British Steel, an analogous case

involving a previous version of the countervailing duty statute,

the court reviewed Commerce’s finding that the British

government’s equity investments in the investigated company were

inconsistent with commercial considerations. British Steel, 10

CIT at 224-25, 632 F. Supp. at 60. British Steel argued that

such equity investments should be considered commercially

reasonable where the funds are used to help cover the operating

losses of an investigated company which is able to cover its

variable costs; the additional equity would be used to pay down

fixed costs. Id. at 228-29, 632 F. Supp. at 62-63. British

Steel maintained that it would be economically rational for an

investor to support continued operations by such a company so
Court No. 03-00651 Page 63

that the company’s overall loss would be minimized by the

additional investment funds. Id. This court upheld Commerce’s

rejection of British Steel’s arguments, stating:

[I]t would be unrealistic to expect a private sector
investor to supply operating funds to a loss-
incurring firm merely to permit the firm to continue
operations to minimize its losses. Thus, while it may
be perfectly rational for an owner to sustain loss-
minimizing operations, it would not be commercially
reasonable for an investor to provide funds for that
purpose without adequate assurance of the future
profitability of the enterprise and a return on . . .
investment within a reasonable time.

Id. at 231, 632 F. Supp. at 65. The poor financial prospects of

the investigated company, based on a trend of consistently bad

returns, were critical to this court’s implicit support of the

Expected Utility Model used by Commerce in British Steel. See

also Companhia Siderurgica Paulista, 12 CIT at 1103, 700 F.

Supp. at 43 (approving of Commerce’s “comprehensive analysis”

which focused on company’s current health, past performance,

independent studies, and industry forecasts).

Like British Steel, substantial evidence in this case

demonstrates that Hynix was a company whose consistently bleak

financial results could provide a reasonable investor with

little assurance of future profitability. See Decision Memo at

92; Def.’s App., App. 4 (Creditworthiness Analysis of Hynix

Semiconductor, Inc. dated Mar. 31, 2003) at 3-5 (analyzing

Hynix’s financial records from 1997 to 2002). Hynix’s arguments
Court No. 03-00651 Page 64

against application of the Expected Utility Model would perhaps

warrant greater consideration in a case where investors in a

generally sound company faced only short-term financial

troubles. See British Steel, 10 CIT at 231, 632 F. Supp. at 65

(noting that “equity infusions in loss-incurring companies do

not per se confer a subsidy”). Such is not the case here.

Under these circumstances, application of the Expected Utility

Model as a methodological tool for assessing equityworthiness is

reasonable. Commerce therefore properly found that the purchase

of an additional equity stake in Hynix in October 2001 was

inconsistent with the usual investment practice of private

investors.

As such, Commerce’s rejection of the October 2001 debt-to-

equity conversion as a commercial benchmark for use in Hynix’s

equityworthy analysis is reasonable.

c. Commerce’s Rejection of Third Party Studies
Commissioned by Hynix’s Creditors During the
Restructuring as Evidence of Hynix’s
Equityworthiness Is Reasonable

Finally, Hynix contends that Commerce improperly rejected

studies by third parties which discussed the financial merits of

investment in Hynix and proved that Hynix was otherwise

equityworthy during its restructuring. Pls.’ Br. at 47. Hynix

argues that these studies, relied upon by Hynix’s creditors in

making their investment decisions, provided important insight
Court No. 03-00651 Page 65

into the perceived commercial rationality of transactions like

the October 2001 debt-to-equity conversion. Id. at 46-47.

Hynix argues that Commerce should not have disregarded these

studies simply because they focused on investment in Hynix from

a creditor (rather than new investor) perspective. Id. at 47

(citing Decision Memo at 91 (noting that studies focused on

“financial mechanisms available to save Hynix from collapse”)).

The Court upholds Commerce’s rejection of the third party

studies commissioned by Hynix’s creditors as evidence of Hynix’s

equityworthiness. Hynix advances these studies as its principal

evidence of why an already committed investor would continue to

finance the struggling Hynix in order to minimize losses. To

the extent that this argument largely relies on acceptance of

Hynix’s criticism of the Expected Utility Model, it is rejected

by the Court. See supra Part III.D.2.b. In addition, the Court

notes that Commerce questioned the credibility and/or

reliability of several of these studies for reasons related to

soundness of methodology and independence of analysis. See

Decision Memo at 91-92. This finding, uncontested here by

Hynix, provides an alternative ground for rejecting these

studies because they were not “[o]bjective analyses” as required

by the countervailing duty regulations. 19 C.F.R. §

351.507(a)(4)(i)(A) (2005).

As such, Commerce’s rejection of the third party studies
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for use in Hynix’s equityworthy analysis is reasonable and,

accordingly, the Court upholds as in accordance with law and

supported by substantial evidence Commerce’s conclusion that the

government-entrusted or directed financial contributions

received by Hynix during its restructuring conferred a

countervailable benefit.

IV. CONCLUSION

For the foregoing reasons, the Court sustains the Remand

Results and the remainder of the previously deferred Final

Determination. Judgment shall be entered accordingly.

/s/ Richard W. Goldberg
Richard W. Goldberg
Senior Judge

Date: March 23, 2006
New York, New York