Slip Op. 01-39
UNITED STATES COURT OF INTERNATIONAL TRADE
BEFORE: THE HONORABLE GREGORY W. CARMAN, CHIEF JUDGE
TAIWAN SEMICONDUCTOR
MANUFACTURING CO., LTD.,
Plaintiffs,
v.
UNITED STATES OF AMERICA,
Court No. 98-05-02184
Defendant,
and
MICRON TECHNOLOGY, INC.,
Defendant-
Intervenor.
Plaintiff, Taiwan Semiconductor Manufacturing Company, Ltd. (TSMC) has challenged
the United States Department of Commerce’s (Commerce) Response to Court Remand Pursuant
to Taiwan Semiconductor Manufacturing Company, Ltd., v. United States, Slip Op. 00-48 (Court
Order, May 2, 2000) (Remand Response). Plaintiff’s challenge is in furtherance of TSMC’s
original motion for Judgment Upon the Agency Record pursuant to Rule 56.2 of the Rules of this
Court, challenging Commerce’s final determination in the antidumping duty investigation
excluding TSMC as a producer in Notice of Final Determination of Sales at Less Than Fair
Value: Static Random Access Memory Semiconductors From Taiwan, 63 Fed. Reg. 8909 (Feb.
23, 1998) (Final Determination), as amended by Notice of Amended Final Determination and
Antidumping Duty Order of Sales at Less Than Fair Value: Static Random Access Memory
Semiconductors From Taiwan, 63 Fed. Reg. 18,883 (Apr. 16, 1998) (Amended Final
Determination). Absent a response by Defendant, this Court has treated Defendant as being
opposed to Plaintiff’s challenge to Commerce’s Remand Response.
Upon Plaintiff’s challenge, and upon the opposition of Defendant and Defendant-
Intervenor thereto, Plaintiff’s motion is denied. The Final Determination of Commerce, as
amended by the Amended Final Determination and Remand Response, is sustained in all
respects. Plaintiff’s motion for stay of further proceedings is denied. This case is dismissed.
Court No. 98-05-02184 Page 2
Dated: April 4, 2001
White and Case LLP (Christopher F. Corr, Robert G. Gosselink), Washington, D.C., for
Plaintiff.
Stuart E. Schiffer, Deputy Assistant Attorney General of the United States; David M.
Cohen, Director, Commercial Litigation Branch, Civil Division, United States Department of
Justice; Velta A. Melnbrencis, Assistant Director, Commercial Litigation Branch, Civil Division,
United States Department of Justice; Kenneth S. Kessler, Commercial Litigation Branch, Civil
Division, United States Department of Justice; Melanie A. Frank, Office of the Chief Counsel for
Import Administration, United States Department of Commerce, of Counsel, for Defendant.
Hale & Dorr LLP (Michael D. Esch, Gilbert B. Kaplan, Paul W. Jameson, Chris R.
Revaz), Washington, D.C., for Defendant-Intervenor.
OPINION
CARMAN, Chief Judge: Upon Plaintiff’s challenge to the Remand Response in
furtherance of Plaintiff’s original motion for Judgement Upon the Agency Record, and upon the
opposition of the Defendant and Defendant-Intervenor thereto, Plaintiff’s motion is denied, and
this Court sustains in all respects Commerce’s Final Determination, as amended by the Amended
Final Determination and Remand Response.
BACKGROUND
Commerce initiated antidumping duty investigations regarding Static Random Access
Memory Semiconductors (SRAMs) from the Republic of Korea and Taiwan for the period
January 1, 1996, through December 31, 1996. See Initiations of Antidumping Duty
Investigations: Static Random Access Memory From the Republic of Korea and Taiwan, 62 Fed.
Reg. 13,596 (March 21, 1997) (SRAMs from Taiwan). On April 16, 1997, Commerce issued
questionnaires to twenty-two companies thought to be producers or exporters of SRAMs in
Taiwan. Information from eighteen responding companies indicated a lack of administrative
Court No. 98-05-02184 Page 3
resources to investigate all SRAM producers and exporters. Therefore, pursuant to 19 U.S.C. §
1677f-1(c)(2)(B) (1994),1 Commerce limited the number of mandatory respondents (producers or
exporters under the statute) in the investigation. On May 21, 1997, Commerce selected five
companies as mandatory respondents in the investigation: Integrated Silicon Solutions, Inc.,
TSMC, Winbond Electronics Corporation, Alliance Semiconductor Corporation, and United
Microelectronics Corporation. (Memorandum of May 21, 1997, from the Team to Louis Apple,
Acting Director, Import Admin., Pl. Pub. Exh. 3, at 2 (Respondent Selection Memorandum).)
TSMC is the world’s largest semiconductor foundry. In making its selection, Commerce
noted an apparent double counting of certain TSMC indirect sales to the United States and
questioned whether to attribute the sales to TSMC or to TSMC’s design house customer for
whom TSMC manufactured the SRAM wafers. See id. at 2 n.3. The issue remained unresolved
as Commerce proceeded with its investigation. After TSMC filed its responses on June 16,
1
19 U.S.C. § 1677f-1(c)(2)(B) (1994) states, in pertinent part:
(c) Determination of dumping margin
...
(2) Exception
If it is not practicable to make individual weighted average dumping margin
determinations under paragraph (1) [determining weighted average dumping
margins for every known exporter and producer of subject merchandise] because
of the large number of exporters or producers involved in the investigation or
review, the administering authority may determine the weighted average dumping
margins for a reasonable number of exporters or producers by limiting its
examination to
...
(B) exporters and producers accounting for the largest volume of the
subject merchandise from the exporting country that can be reasonably
examined.
Court No. 98-05-02184 Page 4
1997, Commerce solicited supplemental information from TSMC regarding design and foundry
roles in the SRAM production process and sale of merchandise.
In a September 23, 1997 memorandum, Commerce concluded that a foundry such as
TSMC that manufactures processed SRAM wafers according to designs provided by a design
house is not considered a producer under the statute because the design house has ultimate
control over how the merchandise is produced and the manner in which it is ultimately sold.
(Memorandum of September 23, 1997 from the Team to Louis Apple, Director, Import Admin.,
Pub. Doc. 346, Pl. Pub. Exh. 4, at 9, 11 (Foundry Elimination Memorandum).) On October 1,
1997, Commerce reversed its selection of TSMC as a mandatory respondent. See Notice of
Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final
Determination: Static Random Access Memory Semiconductors From Taiwan, 62 Fed. Reg.
51,442, 51,444 (Oct. 1, 1997) (Preliminary Determination).
TSMC is considered a subcontractor. Therefore, in both the Foundry Elimination
Memorandum and Preliminary Determination, Commerce applied its policy toward
subcontractors or tollers as set forth in proposed regulation 19 C.F.R. § 351.401(h) and its
preamble.2 The proposed regulation states Commerce “will not consider a toller or subcontractor
to be a manufacturer or producer where the toller or subcontractor does not acquire ownership,
and does not control the relevant sale of the subject merchandise”; in addition, the preamble
requires control of production. Antidumping Duties; Countervailing Duties, 61 Fed. Reg. 7308,
7330, 7381 (1996) (proposed Feb. 27, 1996) (codified at 19 C.F.R. pt. 351) (Proposed Rules).
2
Proposed regulation 19 C.F.R. § 351.401(h) was finalized May 19, 1997. The final
regulation excludes the preamble. See Antidumping Duties; Countervailing Duties; Final Rule,
62 Fed. Reg. 27,296 (May 19, 1997).
Court No. 98-05-02184 Page 5
Commerce reasoned that because TSMC did not own the SRAM design, which imparts the
essential features of the product, TSMC did not own, control the relevant sale of, or control the
production of, the subject merchandise. Preliminary Determination, 62 Fed. Reg. at 51,444.
TSMC filed unsolicited comments with Commerce on October 14, 1997, justifying its
standing as a producer respondent and requesting that Commerce reconsider its preliminary
determination. On October 29, 1997, Commerce informed TSMC that it would not alter
TSMC’s non-producer status and would therefore not engage TSMC in the verification process.
On February 23, 1998, Commerce reiterated its preliminary determination to exclude TSMC
from the investigation in the Final Determination, as amended.
On May 15, 1998, TSMC moved for Judgment Upon the Agency Record challenging
Commerce’s exclusion of TSMC as a producer in its Final Determination, as amended. Among
its contentions, TSMC argued a misapplication by Commerce of proposed regulation 19 C.F.R. §
351.401(h), contrary precedent, required verification, and violation of rules of procedural
fairness.
On March 31, 1999, the United States Government (United States) opposed TSMC’s
motion. The United States argued that by not specifying the criteria for identifying a producer,
Congress gave Commerce discretion to devise its own methodology. (Defendant’s Memorandum
in Opposition to Plaintiff’s Motion for Judgment on the Agency Record at 26 (Def’s Memo in
Opposition).) The United States asserted Commerce exercised its discretion consistent with
proposed regulation 19 C.F.R. § 351.401(h) and its preamble, and that substantial evidence on
the record indicated the design house’s ownership of the SRAMs design gave it control of the
relevant sale of and control of production of the subject merchandise, while TSMC’s non-
Court No. 98-05-02184 Page 6
ownership of the design minimized its role in the production process. See id. at 29-31. The
United States argued that although section 351.401(h) properly guided Commerce, the proposed
regulation did not “address all circumstances in which a toller would not be deemed a producer.”3
Id. at 35. The United States claimed that TSMC’s legal title to the SRAM wafers lessened the
design house’s risk of loss while TSMC processed the wafers, but it did not lessen the
significance of the design house’s continuous ownership of the underlying intellectual property
rights. Id. at 39-40. The United States also claimed Commerce did not need to verify TSMC’s
data once TSMC was no longer a selected respondent. See id. at 51. Finally, the United States
stated Commerce violated no requirements for procedural fairness because TSMC had ample
opportunity to explain why it should be considered a respondent, and Commerce may make
changes during an administrative proceeding to reach an accurate conclusion. See id. at 55-56.
On May 2, 2000, this Court remanded the Final Determination, as amended, to
Commerce to clarify: (1) its reasons for choosing sale by the design house as the “relevant sale”;
and (2) its analysis, under its subcontractor practice, of TSMC’s producer status in the context of
TSMC’s direct sales to the United States. See Taiwan Semiconductor Manufacturing Co. v.
United States, 100 F.Supp. 2d 1109, 1125-1126 (Ct. Int’l Trade, 2000) (Taiwan Semiconductor).
A familiarity with this Court’s opinion in Taiwan Semiconductor is presumed.
In its Remand Response, Commerce reiterated its reliance upon the proposed regulation
and its preamble. Commerce clarified its interpretation of “relevant sale,” defining it as the “first
3
For support, the United States pointed to a “totality of circumstances” standard
Commerce first applied after its final determination in the instance case. See Taiwan
Semiconductor Manufacturing Co. v. United States, 100 F.Supp. 2d 1109, 1120, fn.13 (Ct. Int’l
Trade, May 2, 2000) (Taiwan Semiconductor).
Court No. 98-05-02184 Page 7
sale in the distribution chain by the company that is in a position to set the price of the product,
and by doing so, to sell at less than fair value in or to the U.S. market.” Remand Response at 7-8.
Because the design house owns the design, its sale price represents the full value of the subject
merchandise by including the value of both design and fabrication. See id. at 10. Commerce
stressed the essential nature of design in this specific proceeding, noting that design determines
the ultimate characteristics, performance, and purposes of the subject merchandise. See id. at 11.
Commerce explained that by controlling how the foundry uses the design in production and the
distribution to the marketplace of products incorporating the design, the design house directs
production of the subject merchandise. See id. at 11.
Although Commerce acknowledged the significance of the fabrication performed by
TSMC, it stated that TSMC’s price does not reflect all relevant elements of value because the
subcontractor only performs a segment of the manufacturing process, and this at the direction of
another entity. See id. at 8-9. Commerce reasoned that because TSMC does not bear at least one
element of cost essential to production, its price represents only a portion of the value of the
subject merchandise. Commerce considered the transaction between TSMC and the design
house to be a sale of inputs and services rather than a sale of subject merchandise. See id. at 9-
10.
In keeping with this interpretation of “relevant sale,” Commerce next rejected TSMC as a
producer within the context of TSMC’s direct sales to design houses in the United States because
only the location of the producer distinguished TSMC’s direct from indirect sales. See id. at 12.
Commerce stated that in order to be a producer, the foundry must use its own designs or those
licensed from another company; TSMC offered no evidence of operating differently for
Court No. 98-05-02184 Page 8
contractors in the United States than it operated for contractors located in Taiwan. See id. at 13.
On July 11, 2000, in furtherance of Plaintiff’s original 56.2 Motion, TSMC challenged
Commerce’s determination to exclude TSMC as a respondent producer in the underlying
investigation. (Response of Taiwan Semiconductor Manufacturing Company, Ltd. to the
Remand Views Submitted by the U.S. Department of Commerce to the Court on June 30, 2000
(Pl.’s Resp. to Remand).)
JURISDICTION AND STANDARD OF REVIEW
This Court has jurisdiction pursuant to 28 U.S.C. § 1581(c) (1994). This Court will
sustain Commerce’s determination 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) (1994).
Substantial evidence is “such relevant evidence as a reasonable mind might accept as adequate to
support a conclusion.” Matsushita Elec. Indus. Co., Ltd. v. United States, 750 F.2d 927, 933
(Fed. Cir. 1984) (quoting Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229 (1938)).
CONTENTIONS OF THE PARTIES
A. Plaintiff
TSMC makes five criticisms of Commerce’s Remand Response. First, TSMC contends
that Commerce failed to meet its legal standard for determining that a subcontractor is not a
manufacturer or producer under Section 351.401(h). (Pl.’s Resp. to Remand at 3.) According to
TSMC, a subcontractor must satisfy two requirements in order to be considered a non-producer:
(1) non-ownership of the subject merchandise; and (2) lack of control of the relevant sale of the
subject merchandise. See id. at 3. TSMC claims that because it retains legal title to the subject
Court No. 98-05-02184 Page 9
merchandise until its sale to the design house, TSMC fails to meet both requirements for non-
producer status and must therefore be a producer. See id. at 3-4. Accordingly, TSMC asserts it
need not prove control of relevant sale. See id. at 4.
Second, TSMC nonetheless claims to control the relevant sale, which it defines as the
first sale of the subject merchandise to an unaffiliated person. See id. TSMC distinguishes
customer payments made to TSMC pursuant to a sales contract from a contractor’s payment of a
service fee to a non-producer subcontractor. See id.
Third, TSMC claims Commerce’s application of its “price setter” theory fails for four
reasons: (1) by transferring title to the buyer for consideration, TSMC sold the subject
merchandise itself rather than a mere service or input; (2) TSMC’s decision to be bound by freely
negotiated contract terms does not waive its control of sales; (3) no law or precedent requires the
export price to support all elements of value; rather, in investigations involving custom-made
products, Commerce has treated the entity that actually manufactured the product as the
producer; and (4) it would create unsustainable precedent by requiring complex economic
analysis of whether all cost elements “passed through” to the customer in the price, thus exposing
Commerce to challenges that it treated the wrong company as producer and imposing an
unpredictable standard upon exporters and importers as to the identity of a producer in a given
investigation. See id. at 6-13.
Fourth, TSMC faults Commerce for labeling as temporary and partial TSMC’s ownership
of the subject merchandise, asserting a lack of evidence for Commerce’s claim that TSMC takes
title for indemnification purposes. See id. at 13-15. Because TSMC’s sales contract covers the
subject fabricated wafer, TSMC claims Commerce incorrectly characterized the sale as one of
Court No. 98-05-02184 Page 10
inputs and services and that because TSMC owns the fabricated wafer entirely, Commerce
incorrectly claimed partial ownership by the design house. See id.
Fifth, TSMC asserts Commerce did not adequately respond to the Court’s request for
clarification under the statute and existing practice. See id. at 15-16. TSMC criticizes
Commerce for inadequately defending its formulation of “relevant sale” as the downstream sale
by TSMC’s customers and argues that under Commerce’s formulation, a subcontractor could
never qualify as a producer under 19 C.F.R. § 351.401(h), rendering the standard nugatory. See
id.
B. Defendant-Intervenor
Defendant-Intervenor contends: (1) Commerce fully responded to the Court’s remand
order; and (2) Commerce’s Remand Response, by receiving approval from the lead official
responsible for administering the antidumping laws at the Department of Commerce “represents
the considered policy decision of the Department of Commerce.” (Comments of Defendant-
Intervenor Micron Technology, Inc. on Defendant’s Response to Court Remand.)
C. Defendant
Absent a response by Defendant, this Court treats Defendant as being opposed to
Plaintiff’s challenge to Commerce’s Remand Response.
ANALYSIS
A. Commerce’s interpretation of “producer” is based upon a reasonable construction of the
antidumping statute.
Commerce based its determination upon a reasonable construction of the antidumping
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statute. Because the statute lists no criteria by which to determine producer status,4 the Court
must consider whether the agency’s determination “is based on a permissible construction of the
statute.” Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843
(1984). In doing so, the Court “need not conclude that the agency construction was the only one
it permissibly could have adopted to uphold the construction, or even the reading the court would
have reached if the question initially had arisen in a judicial proceeding.” Id. at 843 n.11.
Commerce’s construction of the statute is found in proposed regulation 19 C.F.R.
§351.401(h) and its preamble, by which Commerce publicized its change of practice from
treating the subcontractor as producer to treating the contractor as producer. See Proposed Rules,
61 Fed. Reg. at 7330, 7381; see also Notice of Final Determination of Sales at Less Than Fair
Value: Polyvinyl Alcohol From Taiwan, 61 Fed. Reg. 14,064, 14,070 (March 29, 1996).5
Proposed regulation 19 C.F.R. § 351.401(h) states: “The Secretary will not consider a toller or
subcontractor to be a manufacturer or producer where the toller or subcontractor does not acquire
ownership, and does not control the relevant sale, of the subject merchandise or foreign like
product.” Proposed Rules, 61 Fed. Reg. at 7381. The preamble states:
New paragraph (h) deals with the Department’s treatment of subprocessors or
4
19 U.S.C. § 1677(28) (1994) simply defines “producer” as “the producer of the subject
merchandise.”
5
Because the investigation of this matter began by petition filed in May, 1997, which is
after January 1, 1995, but prior to June 18, 1997, the applicability date of 19 C.F.R. part 351, this
Court will treat the proposed regulation and preamble as a “restatement of the Department’s
interpretation of the requirements of the Act as amended by the [Uruguay Round Agreements
Act].” 19 C.F.R. § 351.701 (1998). Although the regulation is not directly applicable to the
instant investigation and this Court will not strictly construe its language and terms, it does
“provide guidance.” See Brass Sheet and Strip From the Netherlands: Final Results of
Antidumping Duty Administrative Review, 62 Fed. Reg. 51,449, 51,451 (Oct. 1, 1997).
Court No. 98-05-02184 Page 12
“tollers.” Several commentators expressed support for the Department’s recent
decision that tolling operations (i.e., subcontractors) should not be treated as
manufacturers or producers of the subject merchandise. The Department concurs
with those commentators who urged that, because this policy has not been widely
publicized, that it be enunciated in the regulations. Under paragraph (h), where a
party owning the components of subject merchandise has a subcontractor
manufacture or assemble that merchandise for a fee, the Department will consider
the owner to be the manufacturer, because that party has ultimate control over
how the merchandise is produced and the manner in which it is ultimately sold.
The Department will not consider the subcontractor to be the manufacturer or
producer, regardless of the proportion of production attributable to the
subcontracted operation or the location of the subcontractor or owner of the
goods.
Id. at 7330 (emphasis added).
Commerce’s construction of “producer,” as memorialized in the proposed regulation and
preamble, emphasizes three factors: (1) ownership of the subject merchandise; (2) control of the
relevant sale of the subject merchandise; and (3) control of production of the subject
merchandise. To determine whether Commerce’s consideration of these factors is reasonable,
this Court remanded the matter to Commerce to clarify its reason for choosing the sale by the
design house as the “relevant sale.” See Taiwan Semiconductor, 100 F. Supp. 2d at 1122.
Commerce’s Remand Response defines “relevant sale” as “the first sale in the distribution
chain by the company that is in a position to set the price of the product, and by doing so, to sell
at less than fair value in or to the U.S. market.” Remand Response at 7-8. Because such a
company’s “pricing represents all relevant elements of value,” it “functions as the ‘price setter’ or
potential price discriminator” and is therefore the producer of the merchandise. Id. at 8.
Commerce’s use of “relevant sale” to interpret “producer” is a reasonable construction of
the statute because it furthers congressional intent for Commerce to determine whether subject
merchandise is being, or is likely to be, sold in the United States at less than its fair value. See 19
Court No. 98-05-02184 Page 13
U.S.C. § 1673d(a)(1) (1994). In order to make a less-than-fair-value determination, Commerce
must first determine the exporter or producer of the subject merchandise who controls the export
price (or constructed export price) that Commerce compares to normal values to determine
dumping margins. See 19 U.S.C. § 1677f-1(c)(1) (1994). This Court agrees with Commerce that
its interpretation of “producer” is consistent with section 772(a) and (b) of the Tariff Act of 1930,
as amended, which defines “export price” and “constructed export price” as the price at which
the subject merchandise is first sold (or agreed to be sold) by the producer or exporter of such
merchandise to an unaffiliated purchaser in, or for exportation to, the United States. TSMC, in
claiming an arm’s length establishment of subject merchandise’s price is the “only legal
requirement for the use of sales in calculating dumping,” ignores Commerce’s need to determine
the identity of the producer making the sale. (Pl.’s Resp. to Remand at 8.)
Neither will this Court label Commerce’s “pass through” analysis unreasonable simply
because TSMC claims its application too complex for future investigations. The elaborate
analysis rejected by the Court of Appeals for the Federal Circuit in Daewoo Electronics Co. v.
International Union, 6 F.3d 1511, 1518 (Fed Cir. 1993) is readily distinguishable. There, the
lower court had rejected Commerce’s reasonable use of the accounting method, requiring instead
a more complicated econometric analysis of taxes passed through to home market consumers.
Here, the Court does not impose a preferred definition of “relevant sale” upon Commerce that
thwarts Commerce’s reasonable consideration of control of all relevant elements of value to
determine producer status. This Court will not decide the hypothetical cases raised by TSMC.
TSMC has also failed to persuade this Court that Commerce has unreasonably departed
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from case precedent. The cases it cites regarding custom-made products are inapposite.6
TSMC claims Commerce’s definition of relevant sale renders the regulation nugatory
because, as the subcontractor cannot control the downstream sale by its purchaser, the
subcontractor can never qualify as producer. Commerce, however, does not require the
subcontractor to control the downstream sales of its customers. Its requirement of control over
all elements of value simply means here that the subcontractor’s customer who owns the design,
rather than the subcontractor, controls all relevant elements of value.
TSMC also claims Commerce did not respond to the Court’s request for clarification
under the statute and existing practice. This Court has already noted an absence of
6
TSMC attempts to support its claim that Commerce “routinely has granted manufacturer
status to, and calculated individual margins for, producers that manufactured and sold custom-
made products based on customer-provided designs and/or specifications” by citing to the
following: Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof From
France, et. al., 64 Fed. Reg. 35,590 (July 1, 1999) (lists custom-made specialty bearings under
“products covered” with no discussion of whether bearing designer or bearing manufacturer
should be considered the respondent); Engineered Process Gas Turbo-Compressor Systems
Whether Assembled or Unassembled, and Whether Complete or Incomplete, from Japan, 62 Fed.
Reg. 24,394, 24,406 (May 5, 1997) (in discussion of level of trade adjustment, “technical
specification development” listed as U.S. selling expense in transaction between affiliated
parties); Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof From
France, et al., 62 Fed Reg. 2081 (Jan. 15, 1997) (lists custom-made specialty bearings under
“products covered” with no discussion of whether bearing designer or bearing manufacturer
should be considered the respondent); Certain Corrosion Resistant Carbon Steel Flat Products
and Certain Cut-to-Length Carbon Steel Plate from Canada, 61 Fed. Reg. 51,891 (Oct. 4, 1996)
(Canadian manufacturer’s sales of custom-made products to end users and steel service centers a
substantially similar selling activity warranting no level of trade adjustment); Mechanical
Transfer Presses from Japan, 62 Fed. Reg. 11,820 (March 13, 1997) (discusses need for cost test
on sale-by-sale basis for unique custom-built capital equipment); Large Power Transformers
from Japan, 56 Fed. Reg. 29,215 (June 26, 1991) (pre-dates change of tolling practice).
(Response of Taiwan Semiconductor Manufacturing Company, Ltd. to the Remand Views
Submitted by the U.S. Department of Commerce to the Court on June 30, 2000 at 16 (Pl.’s Resp.
to Remand).) Of the cases decided after the proposed regulation, none revolve around the issue
of producer identity.
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administrative and judicial precedent interpreting Commerce’s practice under the statute. See
Taiwan Semiconductor, 100 F. Supp. 2d at 1123. Commerce’s remand response has, however,
through its further development of Commerce’s reasoning behind the proposed regulation,
adequately demonstrated its interpretation of “relevant sale” is a reasonable construction of
“producer.”
Ownership and control of production of the subject merchandise, the other two
components emphasized by the proposed regulation and preamble, also constitute a reasonable
construction of “producer.” In considering ownership, Commerce reasonably considers whether
a party owns the components of the subject merchandise. The preamble states: “Where a party
owning the components of the subject merchandise has a subcontractor manufacture or assemble
that merchandise for a fee, the Department will consider the owner to be the manufacturer . . . .”
61 Fed. Reg at 7330 (emphasis added). TSMC focuses only upon the language of proposed
regulation 19 C.F.R. § 351.401(h) to argue that ownership of the subject merchandise
automatically renders a subcontractor a producer. See Proposed Rules, 61 Fed. Reg. at 7381
(“The Secretary will not consider a . . . subcontractor to be a . . . producer where the . . .
subcontractor does not acquire ownership, and does not control the relevant sale, of the subject
merchandise . . . .”). This Court finds Commerce has reasonably considered ownership of the
components of the subject merchandise as a factor in its construction of “producer.” Control of
production of the subject merchandise, the other factor emphasized by the proposed regulation
and preamble, also constitutes a reasonable construction of “producer.”
B. Commerce’s determination is supported by substantial evidence on the record.
Commerce’s determination that TSMC is not a producer of the subject merchandise is
Court No. 98-05-02184 Page 16
supported by substantial evidence on the record showing that TSMC does not own, control the
relevant sale of, or control production of, the subject merchandise. TSMC’s non-ownership of
the wafer design constitutes the determinative factor in Commerce’s and this Court’s analysis.
First, TSMC’s non-ownership of the design negates its claim of ownership of the subject
merchandise. On its face, TSMC appears to own the subject merchandise because it holds title to
the wafers sold to the design house.7 Commerce, however, correctly notes that although TSMC
delivers to the design house a product with all the characteristics of the subject merchandise, its
price represents only the cost of transferring another company’s design into the actual product.
See Remand Response at 5, 9. The record demonstrates the design house owns the underlying
intellectual property at all stages of production; therefore, only upon TSMC’s transfer to the
design house does one party own all components of the subject merchandise.
Second, TSMC’s non-ownership of the design means it cannot control the relevant sale of
the subject merchandise. Because TSMC’s price does not reflect all relevant elements of value,
it cannot function as the price-setter for purposes of a dumping investigation. Substantial
evidence on the record supports Commerce’s position that, “in an industry that is shaped by
intellectual property considerations[,] . . . design is one of the primary determinants of the value
of individual products.” Id. at 11. In its Foundry Elimination Memorandum, Commerce quotes
United Microelectronics Corporation, a foundry with processes similar to those of TSMC:
In the foundry business, UMC starts with blank wafers, and processes them in
foundry operations according to instructions and using designs created, owned and
provided by a design house or customer. These designs determine the type,
function and features of the resulting integrated circuit or IC. [The foundry]
7
TSMC correctly asserts its purpose for holding title is irrelevant, despite Commerce’s
assumption that TSMC holds title merely to indemnify against loss.
Court No. 98-05-02184 Page 17
simply performs foundry operations (i.e., depositing layers, forming patterns,
etching, implanting into and treating the wafers) to produce a finished wafer
incorporating the customer’s specific designs.
(Foundry Elimination Memorandum at 7-8.) Because TSMC “normally sells its . . . SRAM . . .
processed wafers to customers who supply their own designs,” TSMC’s customers control the
relevant sale of the subject merchandise. (Response of Taiwan Semiconductor Manufacturing
Company Ltd. of May 14, 1997 to Section A of Commerce’s Questionnaire, Pub. Doc. 131
(excerpts), Pl. Pub. Exh. 2, at A-1.)
Finally, by owning the design, the design house controls production of the subject
merchandise. From information provided by respondents, Commerce concluded “the entity
controlling the wafer design in effect controls production in the SRAMs industry” because the
design house: (1) produces, or arranges and pays for the production of, the design mask; (2)
retains ownership of the design and design mask at all stages of production; (3) subcontracts
production with a foundry, telling the foundry what and how much to make; and (4) arranges for
subsequent steps in the production process after taking possession of the processed wafers.
(Foundry Elimination Memorandum at 9.)
C. Commerce’s decision not to verify the information submitted by TSMC is supported by
substantial evidence and otherwise in accordance with law.8
Because TSMC is not a producer and thus cannot be a respondent, Commerce should not
be required to verify the information submitted by TSMC. Although 19 U.S.C. §
1677m(i)(1994) states Commerce “shall verify all information relied upon in making . . . a final
determination in an investigation” and this is echoed by the implementing regulation applicable
8
The parties arguments regarding verification and procedural fairness are summarized in
Taiwan Semiconductor, 100 F.Supp. 2d at 1115, 1116, 1118.
Court No. 98-05-02184 Page 18
at the time,9 a subsequent provision of the regulation states:
If the Secretary decides that, because of the large number of producers and
resellers included in an investigation or administrative review, it is impractical to
verify relevant factual information for each person, the Secretary may select and
verify a sample.
19 C.F.R. § 353.36(a)(2). Requiring verification would defeat the legislative intent behind 19
U.S.C. § 1677f-1(c)(2) (1994), which allows Commerce to limit the number of mandatory
respondents when an investigation involves an unmanageable number of producers. Verification
of information from each potential respondent would undermine statutory and regulatory concern
for conservation of scarce administrative resources. ( Defendant’s Opposition to Motion for
Judgment on Agency Record at 51-52.)
Furthermore, verification would not change TSMC’s status. This Court has found
substantial evidence on the record to support Commerce’s determination to exclude TSMC as a
mandatory respondent. Were Commerce to resolve the factual discrepancies alleged by TSMC in
TSMC’s favor, the foundry would remain a non-producer. Commerce’s decision not to verify
the information submitted by TSMC is supported by substantial evidence and otherwise in
accordance with law.
D. Commerce did not violate legal rules of procedural fairness.
Commerce did not violate legal rules of procedural fairness when its Preliminary
Determination announced Commerce would no longer consider TSMC a mandatory respondent
despite contradicting Commerce’s earlier statement that TSMC would be a mandatory
respondent throughout the investigation. (Respondent Selection Memorandum at 2 n.3.) In
9
“The Secretary will verify all factual information the Secretary relies on in [a] final
determination . . . .” 19 C.F.R. § 353.36(a)(1)(i) (1997).
Court No. 98-05-02184 Page 19
reviewing an agency’s change of position, the Court will consider whether the action was
arbitrary. See Cultivos Miramonte S.A. v. United States, 980 F.Supp. 1268, 1274, n.7 (Ct. Int’l
Trade, 1997).
Commerce’s action was not arbitrary. The context within which it named TSMC a
mandatory respondent also indicated the need to resolve a double counting discrepancy.
Commerce warned that indirect sales to the United States by TSMC could instead be analyzed as
direct sales to the United States by TSMC’s design house customers. (Memorandum of May 21,
1997, from the Team to Louis Apple, Acting Director, Import Admin., Confidential Def. Exh. 1
at 2 n.3.) As explained in the Foundry Elimination Memorandum, Commerce originally believed
TSMC “had a sufficient volume of sales to the United States to select [it] as [a respondent]
independent of any finding related to [its] foundry business.” (Foundry Elimination
Memorandum at 2 n.4). Subsequent review of TSMC’s responses, however, indicated no non-
foundry-related sales by TSMC during the period of investigation. Id.
In order to reach an accurate conclusion in the final determination, therefore, Commerce
could no longer treat TSMC as a mandatory respondent. Through the Preliminary Determination
Commerce gave TSMC adequate opportunity to comment on its decision. Commerce did not
arbitrarily change its position in excluding TSMC as a mandatory respondent.
Court No. 98-05-02184 Page 20
CONCLUSION
Upon Plaintiff’s challenge to Commerce’s exclusion of TSMC as a producer in the Final
Determination, as amended by the Amended Final Determination and Remand Response, and
upon the opposition to Defendant and Defendant-Intervenor thereto, the Final Determination of
Commerce, as amended by the Amended Final Determination and Remand Response, is
sustained in all respects. Plaintiff’s motion for stay of further proceedings is denied.
_____________________________
Gregory W. Carman
Chief Judge
Dated: April 4, 2001
New York, New York