[Federal Register: February 13, 2006 (Volume 71, Number 29)]
[Notices]
[Page 7524-7534]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13fe06-42]
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71 FR 7524, February 13, 23006
DEPARTMENT OF COMMERCE
International Trade Administration
[C-560-819]
Notice of Preliminary Affirmative Countervailing Duty Determination:
Certain Lined Paper Products from Indonesia
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
SUMMARY: The Department of Commerce preliminarily determines that
countervailable subsidies are being provided to producers and exporters
of certain lined paper products from Indonesia. For information on the
estimated subsidy rates, see the ``Suspension of Liquidation'' section
of this notice.
EFFECTIVE DATE: February 13, 2006.
FOR FURTHER INFORMATION CONTACT: David Layton or David Neubacher, AD/
CVD Operations, Office 1, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 482-
0371 or (202) 482-5823, respectively.
SUPPLEMENTARY INFORMATION:
[[Page 7525]]
Case History
The petitioner in this investigation is the Association of American
School Paper Suppliers and its individual members (petitioner). The
following events have occurred since the publication of the Department
of Commerce's (the Department) notice of initiation in the Federal
Register. See Notice of Initiation of Countervailing Duty
Investigations: Certain Lined Paper Products from India (C-533-844) and
Indonesia (C-560-819), 70 FR 58690 (October 7, 2005) (Initiation
Notice).
On October 20, 2005, we issued the countervailing duty (CVD)
questionnaire to the Government of Indonesia (GOI). The questionnaire
informed the GOI that it was responsible for forwarding the
questionnaire to producers/exporters of certain lined paper products
(CLLP). The Department also provided courtesy copies of the
questionnaire to PT. Pabrik Kertas Tjiwi Kimia Tbk (TK), an Indonesian
company that entered an appearance at the Department and the
International Trade Commission (ITC), on the same day.
On November 8, 2005, we published a postponement of the preliminary
determination of this investigation until February 6, 2006. See Certain
Lined Paper Products from India and Indonesia: Extension of Time Limit
for Preliminary Determinations in the Countervailing Duty
Investigations, 70 FR 67668 (November 8, 2005).
We received responses from the GOI and TK on December 5, 2005. On
December 13, 2005, the petitioner submitted comments regarding these
questionnaire responses. We issued supplemental questionnaires to the
GOI and TK on December 23, 2005. We received responses to the
supplemental questionnaires on January 12, 2006. We issued a second
supplemental questionnaire to TK on January 23, 2006, and received a
response to the questionnaire on January 30, 2006. As stated in the
Department's January 23\rd\ letter\1\ to TK, due to time constraints,
we were unable to use the response to our 2\nd\ supplemental in our
analysis for the preliminary determination. However, we will consider
TK's submitted information for the final determination.
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\1\ See Letter from Constance Handley, Program Manager to TK,
Re: Countervailing Duty Investigation: Certain Lined Paper Products
from Indonesia (January 23, 2006).
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On October 20, 2005, the petitioner submitted several new subsidy
allegations. The GOI filed comments on these new allegations on October
28, 2005. We addressed these subsidy allegations in a November 17,
2005, memorandum to Susan Kuhbach, Office Director, New Subsidy
Allegation (``November 17\th\ New Subsidy Allegations Memo''), which is
on file in the Department's Central Records Unit in Room B-099 of the
main Department building (``CRU''). Because we decided to include one
of these newly-alleged programs, a loan guarantee, in our investigation
(as discussed in the November 17\th\ New Subsidy Allegations Memo), we
issued a questionnaire to each of the respondents with respect to the
new program on November 28, 2005. We received a response to these
questionnaires on December 28, 2005. We issued a supplemental
questionnaire to the GOI and TK and received a response to the
supplemental questionnaires on January 20, 2006.
On November 28, 2005, the petitioner in the above-referenced
investigation requested that the Department make an expedited finding
that critical circumstances exist with respect to imports of certain
lined paper products from India, Indonesia, and the People's Republic
of China (PRC). On February 1, 2006, the Department found that the
petitioner's allegation does not in itself provide a sufficient factual
basis for making an affirmative finding. See Memorandum from Susan H.
Kubach, Melissa Skinner and Wendy Frankel to Stephen J. Claeys: Whether
Critical Circumstances Exist with Respect to Imports of Certain Lined
Paper Products (February 1, 2006). The Department determined that it
will monitor imports of subject merchandise from all countries under
investigation and will request that U.S. Customs and Border Protection
(CBP) compile information on an expedited basis regarding entries of
subject merchandise to determine at the earliest possible date whether
the criteria for a finding of critical circumstances exist. As we found
no indication that the respondent in the Indonesian case has received
subsidies inconsistent with the WTO Subsidies Agreement, we stated in
the memorandum that we would issue a negative preliminary determination
of critical circumstances as part of this preliminary determination.
On December 23, 2005, the petitioner submitted additional new
subsidy allegations. The GOI and TK did not comment on these new
allegations. The Department is continuing to analyze these allegations.
Finally, the petitioner submitted comments for consideration in the
preliminary determination on January 26 and 27, 2006, and the GOI
submitted a letter on February 1, 2006, in response to the petitioner's
above submissions.
Period of Investigation
The period for which we are measuring subsidies, or the period of
investigation (POI), is calendar year 2004.
Scope of the Investigation
The scope of this investigation includes certain lined paper
products, typically school supplies,\2\ composed of or including paper
that incorporates straight horizontal and/or vertical lines on ten or
more paper sheets,\3\ including but not limited to such products as
single- and multi-subject notebooks, composition books, wireless
notebooks, looseleaf or glued filler paper, graph paper, and laboratory
notebooks, and with the smaller dimension of the paper measuring 6
inches to 15 inches (inclusive) and the larger dimension of the paper
measuring 8-3/4 inches to 15 inches (inclusive). Page dimensions are
measured size (not advertised, stated, or ``tear-out'' size), and are
measured as they appear in the product (i.e., stitched and folded pages
in a notebook are measured by the size of the page as it appears in the
notebook page, not the size of the unfolded paper). However, for
measurement purposes, pages with tapered or rounded edges shall be
measured at their longest and widest points. Subject lined paper
products may be loose, packaged or bound using any binding method
(other than case bound through the inclusion of binders board, a spine
strip, and cover wrap). Subject merchandise may or may not contain any
combination of a front cover, a rear cover, and/or backing of any
composition, regardless of the inclusion of images or graphics on the
cover, backing, or paper. Subject merchandise is within the scope of
this petition whether or not the lined paper and/or cover are hole
punched, drilled, perforated, and/or reinforced. Subject merchandise
may contain accessory or informational items including but not limited
to pockets, tabs, dividers, closure devices, index cards, stencils,
protractors, writing implements, reference materials such as
mathematical tables, or printed items such as sticker sheets or
miniature calendars, if such items are physically incorporated ,
included with, or attached to the product, cover and/or backing
thereto.
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\2\ For purposes of this scope definition, the actual use of or
labeling these products as school supplies or non-school supplies is
not a defining characteristic.
\3\ There shall be no minimum page requirement for looseleaf
filler paper.
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Specifically excluded from the scope of this petition are:
[[Page 7526]]
unlined copy machine paper;
writing pads with a backing (including but not limited to
products commonly known as ``tablets,'' ``note pads,'' ``legal pads,''
and ``quadrille pads''), provided that they do not have a front cover
(whether permanent or removable). This exclusion does not apply to such
writing pads if they consist of hole-punched or drilled filler paper;
three-ring or multiple-ring binders, or notebook
organizers incorporating such a ring binder provided that they do not
include subject paper;
index cards;
printed books and other books that are case bound through
the inclusion of binders board, a spine strip, and cover wrap;
newspapers;
pictures and photographs;
desk and wall calendars and organizers (including but not
limited to such products generally known as ``office planners,'' ``time
books,'' and ``appointment books'');
telephone logs;
address books;
columnar pads & tablets, with or without covers, primarily
suited for the recording of written numerical business data;
lined business or office forms, including but not limited
to: preprinted business forms, lined invoice pads and paper, mailing
and address labels, manifests, and shipping log books;
lined continuous computer paper;
boxed or packaged writing stationary (including but not
limited to products commonly known as ``fine business paper,''
``parchment paper, `` and ``letterhead''), whether or not containing a
lined header or decorative lines;
Stenographic pads (``steno pads''), Gregg ruled,\4\
measuring 6 inches by 9 inches;
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\4\ ``Gregg ruling'' consists of a single- or double-margin
vertical ruling line down the center of the page. For a six-inch by
nine-inch stenographic pad, the ruling would be located
approximately three inches from the left of the book.
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Also excluded from the scope of these investigations are the following
trademarked products:
Fly\TM\ lined paper products: A notebook, notebook
organizer, loose or glued note paper, with papers that are printed with
infrared reflective inks and readable only by a Fly\TM\ pen-top
computer. The product must bear the valid trademark Fly\TM\.\5\
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\5\ Products found to be bearing an invalidly licensed or used
trademark are not excluded from the scope.
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Zwipes\TM\: A notebook or notebook organizer made with a
blended polyolefin writing surface as the cover and pocket surfaces of
the notebook, suitable for writing using a specially-developed
permanent marker and erase system (known as a Zwipes\TM\ pen). This
system allows the marker portion to mark the writing surface with a
permanent ink. The eraser portion of the marker dispenses a solvent
capable of solubilizing the permanent ink allowing the ink to be
removed. The product must bear the valid trademark Zwipes\TM\.\6\
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\6\ Products found to be bearing an invalidly licensed or used
trademark are not excluded from the scope.
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FiveStar[reg]Advance\TM\: A notebook or notebook organizer
bound by a continuous spiral, or helical, wire and with plastic front
and rear covers made of a blended polyolefin plastic material joined by
300 denier polyester, coated on the backside with PVC (poly vinyl
chloride) coating, and extending the entire length of the spiral or
helical wire. The polyolefin plastic covers are of specific thickness;
front cover is .019 inches (within normal manufacturing tolerances) and
rear cover is .028 inches (within normal manufacturing tolerances).
Integral with the stitching that attaches the polyester spine covering,
is captured both ends of a 1'' wide elastic fabric band. This band is
located 2-3/8'' from the top of the front plastic cover and provides
pen or pencil storage. Both ends of the spiral wire are cut and then
bent backwards to overlap with the previous coil but specifically
outside the coil diameter but inside the polyester covering. During
construction, the polyester covering is sewn to the front and rear
covers face to face (outside to outside) so that when the book is
closed, the stitching is concealed from the outside. Both free ends
(the ends not sewn to the cover and back) are stitched with a turned
edge construction. The flexible polyester material forms a covering
over the spiral wire to protect it and provide a comfortable grip on
the product. The product must bear the valid trademarks
FiveStar[reg]Advance\TM\.\7\
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\7\ Products found to be bearing an invalidly licensed or used
trademark are not excluded from the scope.
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FiveStar Flex\TM\: A notebook, a notebook organizer, or
binder with plastic polyolefin front and rear covers joined by 300
denier polyester spine cover extending the entire length of the spine
and bound by a 3-ring plastic fixture. The polyolefin plastic covers
are of a specific thickness; front cover is .019 inches (within normal
manufacturing tolerances) and rear cover is .028 inches (within normal
manufacturing tolerances). During construction, the polyester covering
is sewn to the front cover face to face (outside to outside) so that
when the book is closed, the stitching is concealed from the outside.
During construction, the polyester cover is sewn to the back cover with
the outside of the polyester spine cover to the inside back cover. Both
free ends (the ends not sewn to the cover and back) are stitched with a
turned edge construction. Each ring within the fixture is comprised of
a flexible strap portion that snaps into a stationary post which forms
a closed binding ring. The ring fixture is riveted with six metal
rivets and sewn to the back plastic cover and is specifically
positioned on the outside back cover. The product must bear the valid
trademark FiveStar Flex\TM\.\8\
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\8\ Products found to be bearing an invalidly licensed or used
trademark are not excluded from the scope.
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Merchandise subject to this investigation is typically imported under
headings 4820.10.2050, 4810.22.5044, 4811.90.9090 of the Harmonized
Tariff Schedule of the United States (HTSUS).\9\ The tariff
classifications are provided for convenience and CBP purposes; however,
the written description of the scope of the investigation is
dispositive.
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\9\ During the investigation additional HTS codes may be
identified.
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Injury Test
Because Indonesia is a ``Subsidies Agreement Country'' within the
meaning of section 701(b) of the Tariff Act of 1930, as amended, (the
Act), section 701(a)(2) of the Act applies to this investigation.
Accordingly, the ITC must determine whether imports of the subject
merchandise from Indonesia materially injure, or threaten material
injury to, a U.S. industry. On October 31, 2005, the ITC published its
preliminary determination that there is a reasonable indication that an
industry in the United states is materially injured by reason of
imports from China, India, and Indonesia. See Certain Lined Paper
School Supplies From China, India and
[[Page 7527]]
Indonesia, 70 FR 62329 (October 31, 2005).
Critical Circumstances
On November 28, 2005, the petitioner in the above-referenced
investigations requested the Department make an expedited finding that
critical circumstances exist with respect to imports of certain lined
paper products from India, Indonesia, and the PRC. Section 703(e)(1) of
the Act states that if the petitioner alleges critical circumstances,
the Department will determine, on the basis of information available to
it at the time, if there is a reason to believe or suspect the alleged
countervailable subsidy is inconsistent with the Subsidies Agreement.
We find no indication that the respondent in the Indonesian case has
received subsidies inconsistent with the WTO Subsidies Agreement, i.e.
export subsidies, and therefore, in accordance with section 703(e)(1)
of the Act, we preliminarily determine that critical circumstances do
not exist with respect to imports of CLPP from Indonesia.
Subsidies Valuation Information
Allocation Period
The average useful life (``AUL'') period in this proceeding as
described in 19 CFR 351.524(d)(2) is 13 years according to the U.S.
Internal Revenue Service's 1977 Class Life Asset Depreciation Range
System. No party in this proceeding has disputed this allocation
period.
Attribution of Subsidies
The Department's regulations at 19 CFR 351.525(b)(6)(i) state that
the Department will normally attribute a subsidy to the products
produced by the corporation that received the subsidy. However, 19 CFR
351.525(b)(6) directs that the Department will attribute subsidies
received by certain other companies to the combined sales of those
companies if (1) cross-ownership exists between the companies, and (2)
the cross-owned companies produce the subject merchandise, are a
holding or parent company of the subject company, produce an input that
is primarily dedicated to the production of the downstream product, or
transfer a subsidy to a cross-owned company.
According to 19 CFR 351.525(b)(6)(vi), cross-ownership exists
between two or more corporations where one corporation can use or
direct the individual assets of the other corporation(s) in essentially
the same ways it can use its own assets. This section of the
Department's regulations states that this standard will normally be met
where there is a majority voting interest between two corporations or
through common ownership of two (or more) corporations. The Preamble to
the Department's regulations further clarifies the Department's cross-
ownership standard. (See Countervailing Duties; Final Rule, 63 FR
65348, 65401 (November 25, 1998) (Preamble).) According to the
Preamble, relationships captured by the cross-ownership definition
include those where
the interests of two corporations have merged to such a degree that
one corporation can use or direct the individual assets (or subsidy
benefits) of the other corporation in essentially the same way it can
use its own assets (or subsidy benefits) * * * Cross-ownership does not
require one corporation to own 100 percent of the other corporation.
Normally, cross-ownership will exist where there is a majority voting
ownership interest between two corporations or through common ownership
of two (or more) corporations. In certain circumstances, a large
minority voting interest (for example, 40 percent) or a ``golden
share'' may also result in cross-ownership.
See Preamble 63 FR at 65401.
Thus, the Department's regulations make clear that the agency must look
at the facts presented in each case in determining whether cross-
ownership exists.
The Court of International Trade (CIT) has upheld the Department's
authority to attribute subsidies based on whether a company could use
or direct the subsidy benefits of another company in essentially the
same way it could use its own subsidy benefits. See Fabrique de Fer de
Charleroi v. United States, 166 F.Supp 2d, 593, 603 (CIT 2001).
Our preliminary findings regarding cross-ownership and attribution
follow.
The relationships that exist between the responding company in this
investigation, TK, who is the producer of the subject merchandise, and
its affiliated suppliers present the Department with a novel situation.
TK is the only known Indonesian producer/exporter of subject
merchandise. See Letter from Arnold & Porter to Secretary of Commerce,
the GOI's Response to the Department's October 20, 2005 Questionnaire,
at 15 (December 5, 2005) (GOI's December 5\th\ Response). Based on
information submitted by TK and the GOI, TK is part of a group of pulp
and paper and forestry companies linked by varying degrees of common
ownership involving the Widjaja family. These companies and others are
commonly referred to as the Sinar Mas Group (SMG).
TK has responded to the Department's questionnaire on behalf of
itself and its subsidiaries, and its parent company, PT. Purinusa
Ekapersada (Purinusa). TK acknowledges that it is cross-owned with its
pulp suppliers, PT. Indah Kiat Pulp & Paper Tbk (IK) and Lontar Papyrus
Pulp & Paper Industry (Lontar). However, TK has not responded on behalf
of these cross-owned pulp suppliers because TK maintains that neither
supplies an input which is primarily dedicated to the production of the
subject merchandise (see 19 CFR 525(b)(6)(iv)). TK's position is
explained more fully below.
In response to further questions from the Department, TK has
provided certain information regarding IK, Lontar, Asia Pulp & Paper
Company Ltd. (APP, the parent of Purinusa), PT. Ekamas Fortuna (Ekamas,
another input supplier), PT. Pindo Deli Pulp and Paper Mills (Pindo
Deli, Lontar's Parent), ``to be as comprehensive as possible.'' See
Letter from Arnold & Porter to Secretary of Commerce, TK's Response to
the Department's December 23, 2005 Questionnaire, at 2 (January 12,
2006) (TK's January 12\th\ Response). TK has acknowledged its
affiliation with two forestry companies in Indonesia, PT. Arara Abadi
(AA) and PT. Wirakarya Sakti (WKS). These companies harvest Indonesian
timber and are the suppliers of logs to IK and Lontar. See TK's January
12\th\ Response at 3.
The GOI has indicated on behalf of TK that the affiliated forestry
companies, AA and WKS, supply all of the logs used by TK's two pulp
suppliers, IK and Lontar, and the two pulp producers only produce pulp
from the hardwood logs they purchase from these two logging companies.
See GOI's January 12 Response at 1. The GOI reports that a third
forestry company, PT. Satria Perkasa Agung (SPA), has a concession to
cut public timber and sells logs to WKS.
Input Products
Both TK and the GOI have argued that TK does not have to report on
behalf of IK, Lontar, AA, WKS or SPA because none of these companies
produces an input product that is primarily dedicated to the production
of the downstream product, as specified under 19 CFR 351.525(b)(6)(iv).
Specifically, respondents argue that neither the logs produced by the
forestry companies nor the pulp produced from those logs by IK and
Lontar can be considered ``primarily dedicated'' to the production of
downstream product, which TK
[[Page 7528]]
defines specifically as the subject merchandise, CLPP. TK maintains
that the affiliates' pulp production is not primarily dedicated to the
production of CLPP because it is also used for most of TK's other paper
production as well as other paper production and pulp sales by the pulp
producers.\10\ Respondents additionally claim that the logs that IK and
Lontar use to produce the pulp are not an input to CLPP at all because
they are used to make pulp and not paper, and TK also states that TK
never buys logs.
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\10\ Letter from Arnold & Porter to Secretary of Commerce, TK's
Response to the Department's October 20, 2005 Questionnaire, at
Exhibit TK-A-2 (TK's December 5\th\ Response).
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We preliminarily determine that the pulp logs harvested by AA, WKS,
and SPA, and the pulp produced by IK and Lontar are input products
whose production ``is primarily dedicated to the production of the
downstream product'' within the meanings of 19 CFR 325(b)(6)(iv).
Contrary to TK's claim, the issue is not whether the potentially
subsidized inputs are used exclusively or nearly exclusively for the
production of the subject merchandise. Rather, it is a question of
whether the inputs are primarily dedicated to the production of the
downstream product. In this case, pulp logs harvested by AA, WKS, and
SPA, are turned into pulp by IK and Lontar. The pulp, in turn, is used
by TK to make paper and paper products, including the subject
merchandise. Because pulpwood is primarily dedicated to the production
of pulp, and pulp is primarily dedicated to the production of paper, it
is reasonable to conclude that a subsidy to pulpwood production also
subsidizes pulp production and, in turn, paper production where the
producers in this chain are cross-owned. (The cross-ownership between
TK, IK, Lontar, AA, WKS, and SPA is discussed further below.)
Furthermore, although we have characterized our analysis above
along these lines, it is important to note that the ``primarily
dedicated'' regulation does not require that the ``input'' and the
``downstream product'' be directly connected or sequentially linked in
the production process. In other words, in looking at the production
process as a whole, it is reasonable to find that pulpwood is primarily
dedicated to the production of paper, even though that primary input
must be further processed through various intermediate steps (e.g.,
turned into pulp) before it can ultimately be made into paper. Clearly,
pulpwood is used primarily to make paper in a paper-making process
which includes pulp-making as an intermediate step. Moreover, it is
irrelevant to this ``primarily dedicated'' analysis that this overall
paper-making production process may be segmented among separately-
incorporated entities, as the analysis of the corporate structure is
addressed under the cross-ownership prong of the regulation.
TK has pointed to prior determinations by the Department to argue
that the input must be primarily dedicated to production of the subject
merchandise, i.e., that pulp must be primarily dedicated to the
production of CLPP. While we acknowledge that the Department has
referred to subject merchandise in prior cases, we believe such
references merely described the facts of those particular cases. TK's
reading of our practice is overly narrow and would inappropriately
constrain our ability to take action against subsidies that benefit a
limited group of products, such as paper products. (These precedents
are discussed further below.) We note further that 19 CFR
351.525(b)(6)(iv) specifically refers to an input being primarily
dedicated to a ``downstream product.'' Thus, the regulation does not
limit the Department to ``the subject merchandise.'' Nor are we limited
in our analysis to just those subsidies, received by the respondent,
that are tied solely to the subject merchandise. The Department's
regulations at 351.525(b)(3) indicate that normally the Department will
attribute domestic subsidies received by the firm to all the products
sold by the firm. We only attribute a firm's subsidy to a particular
product produced by that firm if the subsidy is shown to be tied to
that product alone. In this instance, as the respondent itself has
noted, any subsidy from the subsidized pulpwood is not tied to the
production of subject merchandise alone but, rather, would benefit all
of the paper products that respondent produces.
In Notice of Final Affirmative Countervailing Duty Determination:
Polyethylene Terephthalate Film, Sheet, and Strip (PET Film) from
India, 67 FR 34905 (May 16, 2002) and the accompanying Issues and
Decision Memorandum at Comment 15 (PET Film from India) and in Certain
Pasta from Italy: Final Results of the Seventh Countervailing Duty
Administrative Review, 69 FR 70657 (December 7, 2004), we described
inputs covered by 19 CFR 351.525(b)(6)(iv) as inputs that were
primarily dedicated to the production of the ``subject merchandise.''
However, in neither case was the Department addressing the issue of
whether subsidies on the production of the input product may have
benefitted downstream products other than the subject merchandise.
Instead, it appears that pasta and PET film were the downstream
products as well as the subject merchandise.
In the case of this investigation, based on the information on the
record, we preliminarily determine that the logs harvested by AA, WKS
and SPA and sold to the pulp producers, IK and Lontar, are primarily
dedicated to the production of pulp, and thus to the production of the
TK's downstream product, paper, which includes CLPP. Therefore, we find
the condition outlined in 19 CFR 351.525(b)(6)(iv) that the production
of the input product is primarily dedicated to production of the
downstream product is satisfied, and we now turn to the question of
whether the input suppliers are cross-owned.
Cross-Ownership
Based on information currently on the record, we preliminarily find
that cross-ownership exists between TK and Purinusa, IK, Lontar, APP,
Pindo Deli, Ekamas, and SPA, in accordance with 19 CFR
351.525(b)(6)(vi). For the other two pulp log suppliers, AA and WKS, TK
has failed to submit information that would allow the Department to
determine whether these companies satisfy the criteria for cross-
ownership outlined in 19 CFR 351.525(b)(6)(vi).
Section 776(a)(2) of the Act, provides that
* * * if an interested party or any other person - (A) withholds
information that has been requested by the administering authority * *
*; (B) fails to provide such information by the deadlines for the
submission of the information or in the form and manner requested
subject to subsections (c)(1) and (e) of section 782 * * *; (C)
significantly impedes a proceeding under this subtitle; or (D) provides
such information but the information cannot be verified as provided in
section 782(i), the administering authority * * * shall, subject to
section 782(d), use the facts otherwise available in reaching the
applicable determination under this subtitle.
The statute requires that certain conditions be met before the
Department may resort to the facts available (FA). Where the Department
determines that a response to a request for information does not comply
with the request, section 782(d) of the Act provides that the
Department will so inform the party submitting the response and will,
to the extent practicable, provide that party an
[[Page 7529]]
opportunity to remedy or explain the deficiency.
If the party fails to remedy the deficiency within the applicable
time limits, the Department may, subject to section 782(e), disregard
all or part of the original and subsequent responses, as appropriate.
Section 782(e) states that the Department shall not decline to consider
information deemed ``deficient'' under section 782(d) if: (1) the
information is submitted by the established deadline; (2) the
information can be verified; (3) the information is not so incomplete
that it cannot serve as a reliable basis for reaching the applicable
determination; (4) the interested party has demonstrated that it acted
to the best of its ability; and (5) the information can be used without
undue difficulties.
As described below, TK has withheld certain information, failed to
respond to portions of the Department's requests for information by the
deadlines established or provide the complete information required, and
has impeded the investigation of allegations regarding subsidized
inputs. Pursuant to section 782(d) of the Act, the Department advised
TK of its deficiencies, but TK and its affiliates failed to respond to
the Department's request that they report certain company- specific
information on the forestry companies. By not providing the Department
with the requested company-specific information, TK and its affiliates
prevented the Department from conducting the analysis necessary to
determine whether AA and WKS meet the criteria for establishing cross-
ownership as outlined in 19 CFR 351.525(b)(6)(vi).
In the original October 20, 2005, questionnaire, we requested
financial statements as well as information on their respective owners,
boards of directors, and managers of companies that produced and
supplied inputs for the production of CLPP. TK, on the basis of the
position that such information was not relevant to the investigation
because these inputs were not primarily dedicated to CLPP, declined to
provide the requested information in its first response. In our
supplemental questionnaire dated December 23, 2005, we specifically
requested financial statements and background information on the
owners, board members and managers for the affiliated pulp producers
and forestry companies including AA, WKS and SPA. We also stated that
if TK failed to cooperate, the Department might use information that is
adverse to TK's interest. TK still declined to provide the information
necessary to analyze the cross-ownership criteria.
We issued a second supplemental questionnaire regarding affiliation
and stumpage on January 23, 2006, in which we repeated our request for
specific information on AA and WKS, again warning that if TK failed to
cooperate, the Department would consider the use of adverse
information.\11\
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\11\ In the January 23, 2006 letter, we indicated that due to
the proximity of the preliminary determination deadline, we may not
have time to consider any information that TK provided in its
response to the January 23, 2006, supplemental questionnaire in the
preliminary determination analysis, the response to which was due
only one week before this preliminary determination. This
preliminary determination is based in information on the record
prior to January 30, 2006.
---------------------------------------------------------------------------
The limited information on the record shows that the respondent has
acknowledged some common ownership among TK, the pulp producers, and
the forestry companies. Indeed, the IK and Lontar financial statements
demonstrate that pulp producers IK and Lontar have long-term pulpwood
purchase agreements with AA and WKS, which suggest a very close
supplier relationship, including some financing commitments on the part
of IK in AA's forestry operations. While this information indicates
that cross-ownership is likely to exist, the information that TK has
failed to provide, despite our repeated requests, is necessary to make
a definitive finding. Therefore, section 776(a)(2) of the Act requires
the use of FA.
Use of an Adverse Inference
Section 776(b) of the Act provides that the Department may use an
inference adverse to the interests of a party that has failed to
cooperate by not acting to the best of its ability to comply with the
Department's requests for information. See also Statement of
Administrative Action (SAA) accompanying the URAA, H.R. Rep. No. 103-
316 at 870 (1994). The statute provides, in addition, that in selecting
from among the FA the Department may, subject to the corroboration
requirements of section 776(c), rely upon information drawn from the
petition, a final determination in the investigation, any previous
administrative review conducted under section 751 (or section 753 for
countervailing duty cases), or any other information on the record.
We find that the application of an adverse inference in this
determination is appropriate, pursuant to section 776(b) of the Act. As
discussed above, TK has failed to cooperate by failing to comply with
repeated requests for company-specific information necessary to analyze
the extent of affiliation and ascertain the costs of certain input
suppliers. For the reasons described above, we believe that TK did not
act to the best of its ability in responding to the Department's
requests for information and that, consequently, an adverse inference
is warranted under section 776(b) of the Act.\12\
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\12\ See, e.g., Final Determination of Sales at Less Than Fair
Value; Stainless Steel Sheet and Strip in Coils From Germany, 64 FR
30710, (June 8, 1999) and accompanying Issues and Decision
Memorandum at Comment 3 (sustained Grupp Thyssen Nirosta Gmbh v.
United States, 24 CIT 666 (2000)), see also Stainless Steel Sheet
and Strip From Taiwan; Final Results and Partial Rescission of
Antidumping Duty Administrative Review, 67 FR 6682 (February 13,
2002) and accompanying Issues and Decision Memorandum at Comment 24.
---------------------------------------------------------------------------
Section 776(b) of the Act authorizes the Department to use as
adverse facts available information derived from the petition, the
final determination, a previous administrative review, or other
information placed on the record. As adverse facts available, we have
drawn an adverse inference from the information supplied by TK in its
questionnaire responses. To determine whether AA and WKS meet the
definition of cross-owned companies in accordance 19 CFR
351.525(b)(6)(vi), we have considered a combination of facts available
on the record, including proprietary information on common
ownership,\13\ the fact that the forestry companies are the exclusive
suppliers of pulp logs to IK and Lontar, TK's conceded cross-ownership
with IK and Lontar, and public information regarding the pulpwood
purchase agreements between IK and AA and Lontar and WKS. As discussed
above, these facts, taken on their face, may not be sufficient to
establish that one or more of the corporations involved can manipulate
the assets of the others. However, pursuant to section 776(b) of the
Act, we preliminarily determine that cross-ownership exists between TK
and AA and WKS.
---------------------------------------------------------------------------
\13\ See TK's December 5\th\ Response at Exhibit TK-A
---------------------------------------------------------------------------
Because information to which we apply the adverse inference is from
the current segment of the proceeding, is provided by the respondent,
and is, in part, from publicly-available audited financial statements,
we find that there is no further need to corroborate this information
pursuant to section 776(c) of the Act.
Consequently, because we have primarily determined that TK is
cross-owned with the forestry companies AA and WKS, and that pulp logs
harvested by these companies are primarily dedicated to pulp and paper,
subsidies
[[Page 7530]]
received are properly attributed to the sales of AA, WKS, IK, Lontar,
and TK.
Based on record information and, in the case of AA and WKS, the
application of adverse inferences regarding record information, we have
a preliminarily determined that TK and the input suppliers AA, WKS,
SPA, IK and Lontar meet the criteria of cross-ownership in accordance
with 19 CFR 351.525(b)(6)(iv) and (vi).
Benchmark for Interest Rates
Pursuant to 19 CFR 351.505(a), the Department will use the actual
cost of comparable borrowing by a company as a loan benchmark, when
available. According to 19 CFR 351.505(a)(2), a comparable commercial
loan is defined as one that, when compared to the government-provided
loan in question, has similarities in the structure of the loan (e.g.,
fixed interest rate v. variable interest rate), the maturity of the
loan (e.g., short-term v. long-term), and the currency in which the
loan is denominated. In instances where no applicable company-specific
comparable commercial loans are available, 19 CFR 351.505(a)(3)(ii)
permits the Department to use a national average interest rate for
comparable commercial loans.
In the 1990's, the GOI set-up a joint venture forest plantation,
PT. Riau Abadi Lestari (RAL), with AA, a cross-owned company of TK
under the Hutan Tanaman Industria (HTI) Program, described in the
``Analysis of Programs'' sections below. Under the terms of the
program, RAL was able to secure an interest-free loan from the GOI.
Information on the record stated that RAL would begin repaying the loan
ten years after the initial agreement, when the plantation started to
have substantial harvest.
We have no information indicating whether RAL obtained loans from
any other sources in the year it received the loan. Therefore, pursuant
to 19 CFR 351.505(a)(3)(ii), we used a national average interest rate
for comparable commercial loans, i.e., the 1994/1995 national average
interest rate on investment loans, taken from the Bank of Indonesia
1994/95 Annual Report.
Benchmark for Stumpage
Section 771(5)(E)(iv) of the Act and section 351.511(a) of the CVD
regulations govern the determination of whether a benefit has been
conferred from subsidies involving the provision of a good or service.
Pursuant to section 771(5)(E)(iv) of the Act, a benefit is conferred
when the government provides a good or service for less than adequate
remuneration. Section 771(5)(E) further states that the adequacy of
remuneration:
shall be determined in relation to prevailing market conditions for
the good or service being provided * * * in the country which is
subject to the investigation or review. Prevailing market conditions
include price, quality, availability, marketability, transportation,
and other conditions of sale.
Section 351.511(a)(2) of the regulations sets forth three
categories of comparison benchmarks for determining whether a
government good or service is provided for less than adequate
remuneration. These potential benchmarks are listed in hierarchical
order by preference: (1) market prices from actual transactions within
the country under investigation; (2) world market prices that would be
available to purchasers in the country under investigation; or (3) an
assessment of whether the government price is consistent with market
principles. This hierarchy reflects a logical preference for achieving
the objectives of the statute.
The most direct means of determining whether the government
required adequate remuneration is by comparison with private
transactions for a comparable good or service in the country. Thus, the
preferred benchmark in the hierarchy is an observed market price for
the good, in the country under investigation, from a private supplier
(or, in some cases, from a competitive government auction) located
either within the country, or outside the country (the latter
transaction would be in the form of an import). This is because such
prices generally would be expected to reflect most closely the
commercial environment of the purchaser under investigation.
The Department has preliminarily found that there were no market-
determined prices in Indonesia upon which to base a ``first tier''
benchmark. According to the GOI, it owns all harvestable forest land.
The GOI controls and administers 57 million hectares of public
harvestable forest land while only 1.6 million hectares of Indonesia
forest land is reported to be in private hands. We have not identified
any private sales of standing timber in Indonesia.
The ``second tier'' benchmark relies on world market prices that
would be available to the purchasers in the country in question, though
not necessarily reflecting prices of actual transactions involving that
particular producer. In selecting a world market price under this
second approach, the Department will examine the facts on the record
regarding the nature and scope of the market for that good to determine
if that market price would be available to an in-country purchaser. As
discussed in the Preamble to the regulations, the Department will
consider whether the market conditions in the country are such that
it is reasonable to conclude that a purchaser in the country could
obtain the good or service on the world market. For example, a European
price for electricity normally would not be an acceptable comparison
price for electricity provided by a Latin American government, because
electricity from Europe in all likelihood would not be available to
consumers in Latin America. However, as another example, the world
market price for commodity products, such as certain metals and ores,
or for certain industrial and electronic goods commonly traded across
borders, could be an acceptable comparison price for a government-
provided good, provided that it is reasonable to conclude from record
evidence that the purchaser would have access to such internationally
traded goods.
See ``Explanation of the Final Rules'' of Countervailing Duties, Final
Rule, 63 FR 65348, 65377 (November 25, 1998) (Preamble).
We note that we have insufficient evidence of world market prices
for standing timber on the record of the investigation. Consequently,
we are not able to conduct our analysis under tier two of the
regulations and, consistent with the hierarchy, and are preliminarily
measuring the adequacy of remuneration by assessing whether the
government price is consistent with market principles.
This approach is set forth in section 351.511(a)(2)(iii) of the
regulations, which is explained further in the Preamble:
Where the government is the sole provider of a good or service, and
there are no world market prices available or accessible to the
purchaser, we will assess whether the government price was set in
accordance with market principles through an analysis of such factors
as the government's price-setting philosophy, costs (including rates of
return sufficient to ensure future operations), or possible price
discrimination.
63 FR at 65378.
The regulations do not specify how the Department is to conduct
such a market principle analysis. By its nature
[[Page 7531]]
the analysis depends upon available information concerning the market
sector at issue and, therefore, must be developed on a case-by-case
basis.
The information submitted by the parties regarding potential
benchmarks consists of Malaysian log market prices for red meranti and
some other species from a report published by the International
Tropical Timber Association and an Australian stumpage price. We have
also examined the GOI-calculated ``reference prices'' for logs which
the GOI states represent an average of Indonesian and international
market prices. Because these reference prices are at least in part
based on domestic Indonesian prices in a market where the GOI has
direct influence over the supply and pricing of almost all stumpage, we
do not consider them to be market-determined. Regarding the Australian
stumpage price, there is insufficient information about what the
stumpage price represents.
It is generally accepted that the market value of timber is
derivative of the value of the downstream products. The species,
dimension and growing condition of a tree largely determine the
downstream products that can be produced from a tree; the value of a
standing tree is derived from the demand for logs produced from that
tree and the demand for logs is in turn derived from the demand for the
products produced from these logs.\14\
---------------------------------------------------------------------------
\14\ See Notice of Final Results of Countervailing Duty
Administrative Review and Rescission of Certain Company-Specific
Reviews: Certain Softwood Lumber Products From Canada, 69 FR 75917
(December 20, 2004) and accompanying Issues and Decision memorandum
(Lumber First Review) (Issues and Decision Memorandum at 16).
---------------------------------------------------------------------------
As a result of the similarities of forest conditions, climate,
geographic position and tree species in Indonesia and Malaysia, we have
selected Malaysian log prices as the most appropriate basis for
evaluating whether Indonesian pulp logs are priced consistent with
market principles. See 19 CFR 351.511(a)(2)(iii). The petitioner
proposed that we use red meranti log prices in Malaysia as our
benchmark. Based on our understanding that red meranti is more commonly
used in the production of flooring, paneling, furniture, joinery,
mouldings, plywood, turnery and carving,\15\ we have instead used as an
alternative, the value of pulp log exports from Malaysia during the
POI, as reported in the World Trade Atlas. Malaysian pulp log export
prices provide the best available measure of consistency with market
principles in this instance because the prices are from private
transactions between Malaysian pulp log sellers and pulp log buyers in
the international market and are, thus, market-determined prices.
---------------------------------------------------------------------------
\15\ See Memo from David Layton and David Neubacher,
International Trade Compliance Analysts, through Constance Handley,
Program Manager, to the File, Re: Calculations for the Preliminary
Determination for PT. Pabrik Kertas Tjiwi Kimia Tbk (February 6,
2006) (Analysis Memo) at Attachment 7.
---------------------------------------------------------------------------
We find that the species used for pulp logs in Malaysia are
representative of the species used in Indonesia. The GOI has indicated
that acacia and eucalyptus are species commonly harvested from HTI
plantations for pulp and paper production in Indonesia. See, e.g.,
GOI's January 12th Response at 17-18. TK has also noted that AA, WKS
and SPA harvest off of plantations. See id. at 15. The Malaysian export
data we have used to calculate the benchmark covers the same two
species specifically identified as providing plantation pulp logs in
Indonesia, acacia and eucalyptus.
We adjusted the average unit value of the Malaysian pulp logs to
reflect prevailing market conditions in Indonesia. We did this by
deducting amounts for the Indonesian logging operation's extraction
costs and profit. These amounts were taken from the petition, as the
respondents did not provide information on their costs and profits. The
result of these adjustments was a derived market stumpage price that is
consistent with market principles.
Analysis of Programs
Based upon our analysis of the petition and the responses to our
questionnaires, we determine the following:
I. Programs Preliminarily Determined to Be Countervailable
A. GOI Provision of Logs at Less Than Adequate Remuneration
According to the GOI all harvestable forest land in Indonesia is
owned by the GOI. See GOI's January 12\th\ Response at 17. Numerous
products, timber and non-timber, are harvested from this land. See id.
at 2. Timber can be harvested from the GOI land under two main types of
licenses: licenses to harvest timber in the natural forest and licenses
to establish and harvest from plantations. The latter licenses are
known as ``HTI licenses.'' See GOI's January 12\th\ Response at 8.
TK and the GOI reported that AA, WKS and SPA, forestry companies
that the Department preliminarily determines to be cross-owned with
downstream producers TK, IK and Lontar, harvested pulp logs from public
forest concessions under an HTI license. TK did not provide information
on the charges and fees actually paid by these forestry companies
during the POI or the costs of harvesting pulp logs. However, the GOI
provided laws that outline the types of fees and royalties assessed for
the harvest of public timber in Indonesia. The government also stated
that HTI licenses require the holder of an HTI license to pay an
initial license fee, cash stumpage fees and a tax for land use. See
GOI's December 12\th\ Response at 22.
Record information indicates that the license fee to which the GOI
refers is the Forest Utilization Business Permit Fee or IIUPH, a one-
time fee paid at the granting of each concession. See, e.g., Letter
form Wiley Rein & Fielding to Secretary of Commerce, Response to
Request for Information by the U.S. Dept. of Commerce, at Exhibit VI
(Indonesian Ministry of Forestry presentation on Forest Fiscal Reform
(Ministry of Forestry presentation) (September 22, 2005) and GOI's
January 12\th\ Response at Exhibit GOI-S-2, GOI Regulations No. 34,
2002 Article 1, Item 20). The Ministry of Forestry presentation
indicates that the IIUPH is calculated at U.S.$3-10 per hectare for the
entire area of the concession granted. Based on the information
submitted by the GOI regarding the land area and agreed duration of
each of the three HTI concessions held by the cross-owned companies, we
have calculated the IIUPH fee on these concessions during the POI. See
GOI's January 12 Response at Exhibit GOI-S-5 for concession approval
agreements. The cost per cubic meter was so small as to be immaterial.
See Analysis Memo at Attachment 5.
The ``cash stumpage fees'' for the HTI licenses appear to be the
PSDH royalty fee which is paid per unit of timber harvested and may
include a per unit Rehabilitation Fee (Dana Reboisasi or DR) for the
Ministry of Forestry Reforestation Fund. Alternatively, HTI license
holders may incur the costs of reforestation. However, we are not able
to quantify these costs using the evidence on the record. Based on the
fee schedules provided by the GOI, we are able to calculate PSDH
royalties and DR fees for specific types of timber. See GOI's January
12th Response at Exhibit GOI-S-2 (Government Regulation No. 59 1998
(PSDH Rates); Decree of the Ministry of Industry and Trade Republic of
Indonesia No. 436/MPP/Kep/7/2004: The Reference Price Decision for PSDH
(Forest Royalty) Calculation on Logs and Rattan (July 9, 2004),
Government Regulation No. 92 1999 (DR Fees)).
We did not have sufficient information to estimate the land use
tax.
[[Page 7532]]
We preliminarily find that the GOI's provision of a good, pulp
logs, to the input suppliers of the pulp and paper producers confers a
countervailable subsidy on TK. The provision of the pulp logs provides
a financial contribution as described in section 771(5)(D)(iii) of the
Act (providing goods or services other than general infrastructure).
Moreover, we preliminarily determine that this good was provided for
less than adequate remuneration. See 771(5)(E)(iv) of the Act and
section 771(5)(D)(iii) above. We also preliminarily determine that
there is a de facto limitation of stumpage benefit to a group of
industries, namely pulp and paper mills, saw mills and remanufacturers.
Therefore, the subsidy is specific as a matter of fact to this group of
industries as they are the predominant users of timber and receive a
disproportionate amount of the subsidy. See sections 771(5A)(D)(iii)
(II) and (III) of the Act.
To determine the existence and extent of the benefit, we compare
the estimated stumpage price of Indonesian pulp logs to the stumpage
benchmark derived from the average unit value of 2004 exports of acacia
and eucalyptus pulp logs from Malaysia, as reported in the World Trade
Atlas. We calculated an estimated cost of Indonesian pulp log stumpage
relying on information reported by the GOI and facts available because
respondents did not provide the actual company-specific costs of the
cross-owned forestry companies. The GOI has stated that the ``small
wood for chips and pulp that can be cultivated on HTI plantations is
typically a particular type of acacia or eucalyptus.'' See GOI's
January 12th Response at 18. As TK has informed us that the cross-owned
forestry companies harvest their pulp logs from HTI plantations, we are
using the published PSDH rate for acacia and eucalyptus from HTIs as
our estimate of the unit stumpage price applicable to AA, WKS and SPA.
See GOI's January 12th Response at Exhibit GOI-S-2 (Government
Regulation No. 59 1998 (PSDH Rates); Decree of the Ministry of Industry
and Trade Republic of Indonesia No. 436/MPP/Kep/7/2004: The Reference
Price Decision for PSDH (Forest Royalty) Calculation on Logs and Rattan
(July 9, 2004), Government Regulation No. 92 1999 (DR Fees)). Because
the cross-owned forestry companies have not provided their actual costs
for reforestation and other maintenance obligations in the HTI
concessions, we are using as a surrogate, the published Rehabilitation
Fee (DR) for chip wood (GOI defines chip wood as timber of any length
whose diameter is less than 29 centimeters. See GOI's January 12\th\
Response Exhibit GOI-LER-1) given that the GOI has indicated that this
mix of species is also used as a pulp log source. See GOI's January
12\th\ Response at 17 and Exhibit GOI-S-2 (Government Regulation No. 92
1999 (DR Fees)). We added the PSDH HTI royalty and the mixed tropical
hardwood DR fee together to obtain the estimated unit cost of stumpage
for the cross-owned input suppliers. We have not added the allocated
cost of the one-time IIUPH fee for the forest utilization business
permit because the cost is negligible.
To obtain an aggregate POI benefit for Indonesian stumpage, we
multiplied the estimated unit stumpage cost times the estimated volume
of the log harvest which we extrapolated from proprietary information
on pulp production. We then multiplied the volume of the log harvest by
the per unit benchmark to get an aggregate benchmark value. The
difference between these aggregate values is the total benefit which we
divided by the combined sales of the cross-owned corporations
(excluding affiliated sales). This calculation yields an ad valorem
rate of 33.30[percnt] for TK.
B. Government Ban on Log Exports
The GOI provided the Department with copies of the legislation
concerning the log export ban and argued that the log export ban did
not influence the price of pulp logs in Indonesia because wood fiber
for paper production is more commonly shipped in chip form and the
export of chips is allowed.
The information provided by the respondents and relied upon for
this preliminary determination does not indicate whether TK's cross-
owned forestry companies purchased logs from unaffiliated parties.
However, for purpose of calculating any benefit for this preliminary
determination the issue is moot. Because, in calculating the
countervailable subsidy conferred by the GOI's provision of logs for a
less than adequate remuneration, we were limited by the data on the
record and necessarily treated all pulp used by TK as subsidized.
Moreover, under the methodology proposed by the petitioner (see Letter
from Wiley Rein & Fielding to Secretary of Commerce, Re: Response to
the Request for Information by the U.S. Department of Commerce, at
Table 3 (petitioner's September 22\nd\ submission), the amount of the
benefit to TK from stumpage and the log export ban is identical.
Therefore, whether TK's cross-owned forestry companies harvested or
purchased logs (or harvested and purchased logs), it would not change
the benefit amount given the data available for this preliminary
determination.\16\
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\16\ This is consistent with the Department's approach in the
Canadian lumber investigation where we found that ``any conceivable
benefit provided through a log ban would already be included in the
denominator of the stumpage benefit based upon our selected market-
based benchmark prices for stumpage.'' See Notice of Final
Affirmative Countervailing Duty Determination and Final Negative
Critical Circumstances Determination: Certain Softwood Lumber
Products From Canada, 67 FR 15545 (April 2, 2002) and Issues and
Decisions Memorandum at page 26, footnote 5.
---------------------------------------------------------------------------
If we determine that TK's cross-owned suppliers purchased
Indonesian logs from other companies in Indonesia, we intend to issue
an interim analysis of the log-export ban to allow parties an
opportunity to comment before our final determination.
C. Subsidized Funding for Reforestation (HTI Program)
According to the GOI, in the 1990s the government decided to use
money collected as reforestation charges to create public-private joint
ventures with HTI holders. Through these joint ventures, the government
could learn from the private sector and attract private companies into
the business, while giving the government more direct control over
operations. In addition, the government decided to start a policy of
transmigration, moving populations from over-crowded cities in Java to
less populated areas of Indonesia. The joint venture program was used
to create jobs for these displaced people.
There were two types of participants in the joint venture program:
private participants that chose to partner with the GOI, and other HTI
holders that were required to shift a portion of their licensed area
into a public-private joint venture. In the latter case, the private
company was required to contribute 60 percent of the equity and the
government was required to contribute 40 percent. Despite these
ownership shares, control of the joint venture was not given to the
private investor, according to the GOI. Instead, government officials
were placed in key positions of the joint venture such as production
director and president of the board of directors, and key decisions
required government approval. The joint venture also had to provide
monthly and annual reports to the government on its operations, and
operational issues faced by the joint venture had to be resolved on a
consensus basis between the government and the private partner. In
addition to the government's equity contribution, the joint venture
could also apply for interest-free loans from
[[Page 7533]]
the Reforestation Fund to establish the plantation.
In our Initiation Notice, we stated that we were investigating
interest-free loans provided under this program. The GOI has responded
that neither WKS nor SPA participated in this program, but that AA did
and was a mandatory participant. The public/private joint venture they
formed is called RAL. As discussed above in the ``Benchmark for
Interest Rates'' section, the GOI provided an interest-free loan to
RAL.
We preliminarily determine that this loans confers a
countervailable subsidy on TK. The loan is a financial contribution as
described in section 771(5)(D)(i) of the Act, which gives rise to a
benefit in the amount of the difference between what the borrower paid
and what the borrower would have paid on a comparable commercial loan
(section 771(5)(E)(ii)). The loan program is specific because within
the meaning of section 771(5A)(D)(i) because it is limited to public/
private joint venture tree plantations.
To calculate the benefit, we applied the benchmark interest rate
described above to the average loan balance outstanding during the POI.
We divided this by the combined POI sales of the cross-owned
corporations (excluding affiliated sales). This calculation yields an
ad valorem rate of 0.01[percnt] for TK.
In its submission dated January 26, 2006, the petitioner has
alleged additional subsidies in the form of the GOI-provided equity to
RAL as well as the equity provided by AA.\17\ Regarding the latter, the
petitioner alleges that AA was entrusted or directed to provide equity
that normally would have been provided by the GOI.
---------------------------------------------------------------------------
\17\ See Letter from Wiley Rein & Fielding to Secretary of
Commerce, RE: Comments on Stumpage Programs, at pages 24 - 26
(January 26, 2006).
---------------------------------------------------------------------------
For this preliminary determination, we find no benefit to the
subject merchandise produced by TK from these alleged equity subsidies.
First, petitioner's January 26\th\ allegations relating to the equity
investments are untimely filed (see 19 CFR 351.301(d)(4)(i)(A)).
Second, while we recognize the Department's obligation to investigate
subsidies discovered in the course of an investigation (see 19 CFR
351.311), the information on the record does not provide a basis for
considering these investments to be subsidies. Specifically, there is
no information indicating that the investments gave rise to a benefit
as defined in 19 CFR 351.507(a)(1) and (4). For example, if the joint
venture could be considered cross-owned with the respondents, the
petitioner has not clearly articulated how an equity infusion by the
respondent into the joint venture conferred a benefit on the
respondent. Finally, the amounts would make no difference in the
countervailing duty rate even if the entire amount of each were found
to be a countervailable subsidy. (See, e.g., Final Affirmative
Countervailing Duty Determination and Countervailing Duty Order;
Certain Textile Mill Products From Mexico, 50 FR 10824 (March 18, 1985)
and Live Swine From Canada; Final Results of Countervailing Duty
Administrative Review, 63 FR 2204 (January 14, 1998)).
II. Programs Preliminarily Determined to Be Not Countervailable
A. Accelerated Depreciation
The Indonesian tax code allows two options for calculating
depreciation for tax purposes, straight line depreciation or double
declining balance depreciation (DDBD). Companies elect which method to
use. Also, according to the Indonesian tax code, all companies that
have tangible capital assets with a useful life of more than one year
are eligible for the DDBD. It is calculated using the GOI's issued tax
depreciation schedule.
Two cross-owned companies, TK and Purinusa, used double declining
balance depreciation on their 2004 tax returns.
With regard to the DDBD, we examined whether this program was
specific within the meaning of section 771(5A) of the Act. Use of DDBD
is not contingent upon exportation or import substitution (see sections
771(5A)(B) and (C) of the Act). Furthermore, as noted above, the DDBD
was available to any company that had tangible capital assets with a
useful life of one year or more. Therefore, there is no basis to find
that the applied tax credit was de jure specific according to section
771(5A)(D)(i) of the Act.
We next examined whether the DDBD was de facto specific according
to section 771(5A)(D)(iii) of the Act. The GOI stated that several
industries (e.g., oil and gas, mining, chemicals, cement, automobiles,
textiles) used this standard provision. Accordingly, we preliminarily
determine that the DDBD is also not de facto specific. We therefore
find that this program is available to all Indonesian firms regardless
of geographic location or type of industry. On this basis, and because
we have no evidence that the GOI exercises discretion through an
application and approval process in administering this program, we
preliminary determine that this program is not limited to a specific
enterprise or industry, or group of enterprises or industries, within
the meaning of the Act and, therefore, is not countervailable during
the POI.
B. Government of Indonesia Loan Guarantee to Sinar Mas/APP
In 1999, SMG/APP's affiliated bank, Bank Internasional Indonesia
(BII), qualified for a GOI recapitalization program run by the
Indonesian Bank Restructuring Agency (IBRA). As part of the agreement,
IBRA took a majority ownership of BII and all SMG/APP debt owed to BII
was restructured. A subsequent debt restructuring agreement was signed
by SMG/APP, BII and IBRA the following year. In February 2001, SMG/APP
negotiated a new restructuring agreement on its debt to BII. The terms
of the agreement stated that BII would retain SMG/APP's debt on its
books, but the GOI extended a loan guarantee on the debt. SMG/APP also
agreed to put up assets equaling 145 percent of the value of the debt
as collateral.
The petitioner alleges that the loan guarantee conferred a benefit
on APP because the company was uncreditworthy at the time and SMG/APP
would not have been able to secure similar financial terms on a
commercial loan.
Based on record information, BII transferred SMG/APP's debt to IBRA
in November 2001. When this occurred, the loan guarantee ceased to
exist, as the guarantor became the creditor on the debt, according to
TK. Therefore, the guarantee was not outstanding during the POI and
conferred no benefit on TK during the POI. See 19 CFR 351.506(a).
Verification
In accordance with section 782(i)(1) of the Act, we will verify the
information submitted by the respondents prior to making our final
determination.
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we
calculated an individual rate for each exporter/manufacturer of the
subject merchandise. We preliminarily determine the total estimated net
countervailable subsidy rates to be:
------------------------------------------------------------------------
Net Subsidy
Exporter/Manufacturer Rate
------------------------------------------------------------------------
PT. Pabrik Kertas Tjiwi Kimia Tbk.......................... 33.31%
All Others................................................. 33.31%
------------------------------------------------------------------------
In accordance with sections 703(d) and 705(c)(5)(A) of the Act, we
have set the ``all others'' rate as TK's rate because
[[Page 7534]]
it is the only exporter/manufacturer investigated.
In accordance with section 703(d)(1)(B) and (2) of the Act, we are
directing the CBP to suspend liquidation of all entries of certain
lined paper products from Indonesia which are entered, or withdrawn
from warehouse, for consumption on or after the date of the publication
of this notice in the Federal Register, and to require a cash deposit
or bond for such entries of the merchandise in the amounts indicated
above.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the
ITC of our determination. In addition, we are making available to the
ITC all nonprivileged and nonproprietary information relating to this
investigation. We will allow the ITC access to all privileged and
business proprietary information in our files, provided the ITC
confirms that it will not disclose such information, either publicly or
under an administrative protective order, without the written consent
of the Assistant Secretary for Import Administration.
In accordance with section 705(b)(2) of the Act, if our final
determination is affirmative, the ITC will make its final determination
within 45 days after the Department makes its final determination.
Public Comment
Case briefs for this investigation must be submitted no later than
one week after the issuance of the last verification report. Rebuttal
briefs must be filed within five days after the deadline for submission
of case briefs. A list of authorities relied upon, a table of contents,
and an executive summary of issues should accompany any briefs
submitted to the Department. Executive summaries should be limited to
five pages total, including footnotes.
Section 774 of the Act provides that the Department will hold a
public hearing to afford interested parties an opportunity to comment
on arguments raised in case or rebuttal briefs, provided that such a
hearing is requested by an interested party. If a request for a hearing
is made in this investigation, the hearing will tentatively be held two
days after the deadline for submission of the rebuttal briefs at the
U.S. Department of Commerce, 14th Street and Constitution Avenue, N.W.,
Washington, D.C. 20230. Parties should confirm by telephone the time,
date, and place of the hearing 48 hours before the scheduled time.
Interested parties who wish to request a hearing, or to participate
if one is requested, must submit a written request to the Assistant
Secretary for Import Administration, U.S. Department of Commerce, Room
1870, within 30 days of the publication of this notice. Requests should
contain: (1) the party's name, address, and telephone; (2) the number
of participants; and (3) a list of the issues to be discussed. Oral
presentations will be limited to issues raised in the briefs.
This determination is published pursuant to sections 703(f) and
777(i) of the Act.
Dated: February 6, 2006.
David M. Spooner,
Assistant Secretary for Import Administration.
[FR Doc. E6-1993 Filed 2-10-06; 8:45 am]
BILLING CODE 3510-DS-S