Notice of Preliminary Affirmative Countervailing Duty Determination: Certain Lined Paper Products from Indonesia, 7524-7534 [E6-1993]

Agencies

• DEPARTMENT OF COMMERCE
• International Trade Administration

[Federal Register Volume 71, Number 29 (Monday, February 13, 2006)]
[Notices]
[Pages 7524-7534]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-1993]


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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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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 
(Janu