Coated Free Sheet Paper from Indonesia: Notice of Preliminary Affirmative Countervailing Duty Determination, 17498-17507 [E7-6499]

Download as PDF 17498 Federal Register / Vol. 72, No. 67 / Monday, April 9, 2007 / Notices submission of case briefs, pursuant to 19 CFR 351.309(d)(1). 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 Net subsidy should be limited to five pages total, Exporter/manufacturer rate including footnotes. (percent) Section 774 of the Act provides that the Department will hold a public Gold East Paper (Jiangsu) Co., Ltd. ............................ 20.35 hearing to afford interested parties an opportunity to comment on arguments Shandong Chenming Paper Holdings Ltd. ..................... 10.90 raised in case or rebuttal briefs, All Others .............................. 18.16 provided that such a hearing is requested by an interested party. If a In accordance with sections 703(d) request for a hearing is made in this and 705(c)(5)(A) of the Act, for investigation, the hearing will companies not investigated, we have tentatively be held two days after the determined an ‘‘all others’’ rate by deadline for submission of the rebuttal weighting the individual company briefs, pursuant to 19 CFR 351.310(d), at subsidy rate of each of the companies the U.S. Department of Commerce, 14th investigated by each company’s exports Street and Constitution Avenue, NW., of the subject merchandise to the United Washington, DC 20230. Parties should States, if available, or CFS exports to the confirm by telephone the time, date, and United States. The all others rate does place of the hearing 48 hours before the not include zero and de minimis rates scheduled time. or any rates based solely on the facts Interested parties who wish to request available. a hearing, or to participate if one is In accordance with sections requested, must submit a written 703(d)(1)(B) and (2) of the Act, we are request to the Assistant Secretary for directing CBP to suspend liquidation of Import Administration, U.S. Department all entries of CFS from the PRC that are of Commerce, Room 1870, within 30 entered, or withdrawn from warehouse, days of the publication of this notice, for consumption on or after the date of pursuant to 19 CFR 351.310(c). Requests the publication of this notice in the should contain: (1) The party’s name, Federal Register, and to require a cash address, and telephone; (2) the number deposit or bond for such entries of of participants; and (3) a list of the merchandise in the amounts indicated issues to be discussed. Oral above. presentations will be limited to issues raised in the briefs. ITC Notification This determination is published In accordance with section 703(f) of pursuant to sections 703(f) and 777(i) of the Act, we will notify the ITC of our the Act. determination. In addition, we are Dated: April 2, 2007. making available to the ITC all nonStephen J. Claeys, privileged and non-proprietary information relating to this Deputy Assistant Secretary for Import Administration. investigation. We will allow the ITC access to all privileged and business [FR Doc. E7–6498 Filed 4–6–07; 8:45 am] proprietary information in our files, BILLING CODE 3510–DS–P provided the ITC confirms that it will not disclose such information, either publicly or under an administrative DEPARTMENT OF COMMERCE protective order, without the written International Trade Administration consent of the Assistant Secretary for Import Administration. C–560–821 In accordance with section 705(b)(2) of the Act, if our final determination is Coated Free Sheet Paper from affirmative, the ITC will make its final Indonesia: Notice of Preliminary determination within 45 days after the Affirmative Countervailing Duty Department makes its final Determination determination. AGENCY: Import Administration, Public Comment International Trade Administration, Case briefs for this investigation must Department of Commerce. be submitted no later than one week SUMMARY: The Department of Commerce after the issuance of the last verification (the Department) preliminarily report. Rebuttal briefs must be filed determines that countervailable within five days after the deadline for subsidies are being provided to sroberts on PROD1PC70 with NOTICES an individual rate for each exporter/ manufacturer of the subject merchandise. We preliminarily determine the total estimated net countervailable subsidy rates to be: VerDate Aug<31>2005 18:21 Apr 06, 2007 Jkt 211001 PO 00000 Frm 00024 Fmt 4703 Sfmt 4703 producers and exporters of coated free sheet paper (CFS) in Indonesia. For information on the subsidy rates, see the ‘‘Suspension of Liquidation’’ section of this notice. EFFECTIVE DATE: April 9, 2007. FOR FURTHER INFORMATION CONTACT: Sean Carey, Jacqueline Arrowsmith, or Gene Calvert, AD/CVD Operations, Office 6, Import Administration, International Trade Administration, U.S. Department of Commerce, Room 7866, 14th Street and Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 482–3964, (202) 482– 5255, or (202) 482–3586, respectively. SUPPLEMENTARY INFORMATION: Background On November 20, 2006, the Department initiated a countervailing duty (CVD) investigation of CFS from Indonesia. See Notice of Initiation of Countervailing Duty Investigations: Coated Free Sheet Paper from the People’s Republic of China, Indonesia, and the Republic of Korea, 71 FR 68546 (November 27, 2006) (Initiation Notice) (CFS Investigations). In the Initiation Notice, the Department set aside a period for all interested parties to raise issues regarding product coverage. The comments we received are discussed in the ‘‘Scope Comments’’ section below. On November 30, 2006, the Department issued a 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 CFS. The Department also provided courtesy copies of the questionnaire to PT. Pabrik Kertas Tjiwi Kimia Tbk. (TK) and to PT. Pindo Deli Pulp and Paper Mills (PD), who the GOI identified as the sole producers/exporters of CFS from Indonesia. On December 29, 2006, the Department postponed the preliminary determination until March 30, 2007. See Coated Free Sheet Paper from Indonesia, the People’s Republic of China and the Republic of Korea: Notice of Postponement of Preliminary Determinations in the Countervailing Duty Investigations, 71 FR 78403 (December 29, 2006). On January 25, 2007, TK and PD (collectively, respondents), and the GOI submitted their questionnaire responses. On February 2 and February 12, 2007, the Department received comments from the petitioner regarding these questionnaire responses. On February 16, 2007, the Department issued supplemental questionnaires to the GOI and to the respondents. The GOI and the respondents submitted their E:\FR\FM\09APN1.SGM 09APN1 sroberts on PROD1PC70 with NOTICES Federal Register / Vol. 72, No. 67 / Monday, April 9, 2007 / Notices supplemental responses on March 6, 2007. On December 15, 2006, New Page Corporation, the petitioner, submitted two new subsidy allegations. The GOI and the respondents filed comments concerning these new allegations on December 26, 2006. On January 30, 2007, the petitioner submitted additional information regarding the December 15, 2006 new subsidy allegations. On February 7, 2007, the Department received additional comments from the respondents regarding the petitioner’s January 30, 2007 submission. On March 15, 2007, the Department determined that the requirements of section 702 of the Tariff Act of 1930, as amended (the Act) were met, and initiated an investigation of the following new subsidy allegations: (1) debt forgiveness through the GOI’s acceptance of allegedly worthless shares in the Sinar Mas Group/Asia Pulp & Paper Company’s (SMG/APP) affiliated bank as debt repayment; and, (2) debt forgiveness through the GOI allowing SMG/APP to repurchase its own debt at a steep discount through an affiliated company. For a complete discussion on the Department’s decision to initiate on these programs, see the Memorandum to Barbara E. Tillman, Director, Office of AD/CVD Enforcement VI, Countervailing Duty Investigation: Coated Free Sheet Paper from Indonesia; New Subsidy Allegations, dated March 15, 2007, which is on file in the Import Administration Central Records Unit (CRU), Room B–099 of the Commerce Department Building. The Department has not had sufficient time to gather the information necessary to analyze the countervailability of these two programs for purposes of this preliminary determination. However, after the Department has gathered and analyzed information from the GOI and respondents, we intend to issue an interim analysis describing our preliminary findings with respect to these programs before the final determination so that parties may have the opportunity to comment on our findings before the final determination. On March 9, 2007, the United Steel, Paper and Forestry, Rubber Manufacturing, Energy, Allied and Industrial Service Workers International Union, AFL–CIO-CLC (‘‘USW’’) and the Sierra Club filed an additional new subsidy allegation, contending that illegal logging in Indonesia results in additional countervailable subsidies to Indonesian producers/exporters of VerDate Aug<31>2005 18:21 Apr 06, 2007 Jkt 211001 CFS.1 In the submission, the USW acknowledges that the allegation is untimely in accordance with section 351.301(d)(4)(i)(A) of the Department’s regulations. However, the USW cites section 351.311 of the Department’s regulations, which addresses instances in which the Department discovers a practice that appears to provide a countervailable subsidy during a countervailing duty investigation. As noted by the USW, under section 351.311(b) of the Department’s regulations, the Department may include such a subsidy program in its investigation as long as sufficient time remains before the scheduled final determination. On March 21, 2007, respondents submitted comments regarding the USW allegation, arguing that it should be rejected as untimely filed. With respect to the USW allegation, although it is untimely, we note that we are already investigating the provision of standing timber for less than adequate remuneration. If, during the course of our investigation, we find that cross– owned companies in the CFS production chain harvested pulp logs for which no stumpage or reforestation fees were paid, or less than the required fees were paid, we would include any such subsidy benefits in the calculation of any subsidy rate for these pulp logs in accordance with our stumpage subsidy calculation methodologies. On March 19, 2007, the petitioner submitted comments for the Department to consider for purposes of the preliminary determination. On March 23, 2007, petitioner filed a few additional pre–preliminary determination comments. At the request of the Department, the petitioner refiled this submission on March 26, 2007. On March 26, 2007, petitioner requested that the final determination of this countervailing duty investigation be aligned with the final determination in the companion antidumping duty investigations in accordance with section 705(a)(1) of the Act. We will address this request in a separate Federal Register notice. On March 26, 2007, respondents filed pre–preliminary determination comments. With respect to these comments, they were filed too late to be fully considered for purposes of this preliminary determination, but we note that they identify a number of issues we are already addressing in the ‘‘Subsidies 1 The Sierra Club does not have standing to file a subsidy allegation in accordance with sections 702(b) and 771(9) of the Act; however the USW is an interested party in this proceeding pursuant to section 771(9)(D) of the Act and may submit subsidy allegations. PO 00000 Frm 00025 Fmt 4703 Sfmt 4703 17499 Valuation’’ and ‘‘Analysis of Programs’’ sections below. Respondents also filed rebuttal comments to petitioner’s additional pre–preliminary determination comments on March 27 and 28, 2007. In addition, on March 28, 2007, the USW submitted additional comments concerning its March 9, 2007 new subsidy allegation and respondents’ March 21, 2007 comments on its new subsidy allegation. We did not have sufficient time to review these submissions for purposes of this preliminary determination. Scope of the Investigation The merchandise covered by this investigation includes coated free sheet paper and paperboard of a kind used for writing, printing or other graphic purposes. Coated free sheet paper is produced from not–more-than 10 percent by weight mechanical or combined chemical/mechanical fibers. Coated free sheet paper is coated with kaolin (China clay) or other inorganic substances, with or without a binder, and with no other coating. Coated free sheet paper may be surface–coated, surface–decorated, printed (except as described below), embossed, or perforated. The subject merchandise includes single- and double–side-coated free sheet paper; coated free sheet paper in both sheet or roll form; and is inclusive of all weights, brightness levels, and finishes. The terms ‘‘wood free’’ or ‘‘art’’ paper may also be used to describe the imported product. Excluded from the scope are: (1) Coated free sheet paper that is imported printed with final content printed text or graphics; (2) base paper to be sensitized for use in photography; and (3) paper containing by weight 25 percent or more cotton fiber. Coated free sheet paper is classifiable under subheadings 4810.13.1900, 4810.13.2010, 4810.13.2090, 4810.13.5000, 4810.13.7040, 4810.14.1900, 4810.14.2010, 4810.14.2090, 4810.14.5000, 4810.14.7040, 4810.19.1900, 4810.19.2010, and 4810.19.2090 of the Harmonized Tariff Schedule of the United States (HTSUS). While HTSUS subheadings are provided for convenience and customs purposes, our written description of the scope of this investigation is dispositive. Scope Comments In accordance with the preamble to the Department’s regulations (see Antidumping Duties; Countervailing Duties, 62 FR 27296, 27323 (May 19, 1997) (Preamble)), in our Initiation Notice we set aside a period of time for parties to raise issues regarding product E:\FR\FM\09APN1.SGM 09APN1 17500 Federal Register / Vol. 72, No. 67 / Monday, April 9, 2007 / Notices sroberts on PROD1PC70 with NOTICES coverage, and encouraged all parties to submit comments within 20 calendar days of publication of the Initiation Notice. On December 18, 2006, the respondents submitted timely scope comments in the antidumping duty investigation of CFS from Indonesia. On January 12, 2007, the Department requested that the respondents file these comments on the administrative record of the CFS Investigations. See Memorandum from Alice Gibbons to The File, dated January 12, 2007. On January 12, 2007, the respondents re– filed these comments on the administrative record of the CFS Investigations. On January 19, 2007, the petitioner filed a response to these comments. The respondents requested that the Department exclude from its investigations cast–coated free sheet paper. The Department analyzed this request, together with the comments from the petitioner, and determined that it is not appropriate to exclude cast– coated free sheet paper from the scope of these investigations. See the Memorandum to Stephen J. Claeys, Deputy Assistant Secretary for Import Administration, Request to Exclude Cast–Coated Free Sheet Paper from the Antidumping Duty and Countervailing Duty Investigations on Coated Free Sheet Paper, dated March 22, 2007, on file in the CRU. Injury Test Because Indonesia is a ‘‘Subsidies Agreement Country’’ within the meaning of section 701(b) of the Act, the International Trade Commission (ITC) is required to determine whether imports of the subject merchandise from Indonesia materially injure, or threaten material injury to a United States industry. On December 15, 2006, the ITC transmitted its preliminary determination to the Department. See Coated Free Sheet Paper from China, Indonesia, and Korea: Investigation Nos. 701–TA–444–446 (Preliminary) and 731–TA–1107–1109 (Preliminary), USITC Publication 3900 (December 2006). On December 29, 2006, 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 allegedly subsidized imports from China, Indonesia, and Korea of subject merchandise. See Coated Free Sheet Paper China, Indonesia, and Korea, 71 FR 78464. Period of Investigation The period of investigation (POI) for which we are measuring subsidies is VerDate Aug<31>2005 18:21 Apr 06, 2007 Jkt 211001 January 1, 2005 through December 31, 2005, which corresponds to the most recently completed fiscal year for the respondents. See section 351.204(b)(2) of the Department’s regulations. Subsidies Valuation Cross–Ownership Information on the record indicates the name SMG/APP is commonly used to refer to a group of forestry/logging companies, pulp producers, and paper producers linked by varying degrees of common ownership involving the Widjaja family. The respondents in this investigation, TK and PD, have reported affiliations with each other through a parent holding company Purinusa Ekapersada (Purinusa); with two pulp producers (PT. Lontar Papyrus Pulp and Paper Industry (Lontar) and PT. Indah Kiat Pulp and Paper Tbk. (IK)); and with five forestry/logging companies (Arara Abadi (AA), Wira Karya Sakti (WKS), PT. Satria Perkasa Agung (SPA), PT. Riau Abadi Lestrari (RAL), and PT. Finnantara Intiga (FI)). The Department’s regulations at section 351.525(b)(6)(vi) state that 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 ownership 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 63 FR 65347, 65401 (CVD Preamble). According to the CVD 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 (including subsidy benefits) of the other corporation in essentially the same way it can use its own assets (including subsidy benefits). The cross–ownership standard 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 PO 00000 Frm 00026 Fmt 4703 Sfmt 4703 share’’ may also result in cross– ownership. See CVD Preamble at 63 FR 65401. As such, the Department’s regulations make it clear that we must examine the facts presented in each case in order to determine whether cross–ownership exists. If we find that cross–ownership exists between TK and PD, the producers/exporters under investigation, and among and across the companies within the input supply chain, we will treat all companies as one company, and calculate a single rate for any countervailable subsidies that we identify and measure, in accordance with section 351.525(b)(6) of the Department’s regulations. Further, in accordance with section 351.525(b)(6)(iv) of the Department’s regulations, if the Department determines that the suppliers of inputs primarily dedicated to the production of paper products are cross–owned with the producers/exporters under investigation, then the Department treats subsidies provided to the input producers as subsidies conferred on the production of the finished product. In this investigation, we are examining whether the two producers/ exporters of the subject merchandise, TK and PD, are cross–owned with one another, and with their input suppliers as outlined in section 351.352(b)(6)(iv) of the Department’s regulations. The alleged subsidies we are investigating are conferred on the forestry/logging companies which harvest and sell pulp logs, which in turn are sold to the pulp producers that supply the paper producers/exporters. Therefore, we must examine whether cross–ownership exists among and across the suppliers of pulp logs, the pulp producers, and the CFS producers/exporters. Based on information on the record, we preliminarily determine that cross– ownership exists, in accordance with section 351.525(b)(6)(vi) of the Department’s regulations, among and across the following companies involved in the production and sale of the subject merchandise: the respondent paper producers/exporters, TK and PD; pulp producers, Lontar and IK; and the forestry and logging companies, AA, WKS, RAL, SPA, and FI. Since much of our analysis supporting this conclusion involves business proprietary information, a full discussion of the bases for our preliminary determination is set forth in the Memorandum to Barbara E. Tillman, Director, AD/CVD Operations, Office 6, Cross–Ownership, dated March 29, 2007 (Cross–Ownership Memo), a public version of which is on file in the CRU. E:\FR\FM\09APN1.SGM 09APN1 Federal Register / Vol. 72, No. 67 / Monday, April 9, 2007 / Notices sroberts on PROD1PC70 with NOTICES In addition to the five cross–owned forestry/logging companies identified above, we are also preliminarily finding that certain additional timber suppliers from which pulp logs were purchased during the POI are cross–owned. In the questionnaire responses, respondents reported that some of the five cross– owned forestry/logging companies identified above also purchased pulp logs from unaffiliated timber suppliers. The Department examined the information provided in the questionnaire responses about these reportedly unaffiliated timber suppliers, and conducted additional independent research concerning these timber suppliers. See Cross–Ownership Memo for a full discussion of the Department’s analysis and research. In addition, the Department examined information about these reportedly unaffiliated timber suppliers, and supporting documentation, provided by petitioner. After analyzing all of this information and documentation, we find that the information and documentation supports a preliminary finding that certain of these timber suppliers are cross–owned with the SMG/APP Group. Since the names of these suppliers are business proprietary, a complete discussion of the bases for our preliminary finding that these additional timber suppliers are also cross–owned with the other companies in the production chain is provided in the Cross–Ownership Memo. Attribution of Subsidies Provided to Cross–Owned Input Suppliers As discussed above, the Department’s regulations at section 351.525(b)(6)(iv) state that if there is cross–ownership between an input supplier and a downstream producer, and production of the input product is primarily dedicated to production of the downstream product, the Secretary will attribute subsidies received by the input producer to the combined sales of the input and downstream products produced by both corporations (excluding the sales between the two corporations). The respondents, TK and PD, have argued that they do not have to respond for AA, WKS, RAL, SPA, and FI because the input products in question, logs, are not ‘‘primarily dedicated to the production of CFS’’ and therefore, do not meet the standard in accordance with section 351.525(b)(6)(iv) of the Department’s regulations. See respondents’ March 2, 2007 response at page 3. The respondents state that they believe the Department should conduct its ‘‘primarily dedicated analysis’’ with respect to the Indonesian economy as a VerDate Aug<31>2005 18:21 Apr 06, 2007 Jkt 211001 whole, and that its analysis should determine whether facts on the record support the conclusion that timber and other resources under the Forestry Program are primarily dedicated to the production of CFS. Additionally, the respondents state that the Department should give ‘‘proper weight and consideration to the word primarily,’’ arguing that the word is defined as ‘‘chiefly’’ or ‘‘in the first place.’’ See respondents’ March 6, 2007 response at page 28. The respondents claim that they, and their affiliated companies, produce a variety of products such as pulp, photocopier paper, and tissue, as well as CFS, and that timber accounts for roughly 25 percent of all Indonesian industry groupings, ranging from paper to furniture to chemical products. Therefore, the respondents conclude, the primarily dedicated test would not be met even if the Department were to perform its analysis specifically for the group of companies to which the respondents belong. Id. The Department has previously addressed the issue regarding pulp logs as input products in the production of pulp and paper products in the Notice of Preliminary Affirmative Countervailing Duty Determination: Certain Lined Paper Products from Indonesia, 71 FR 7524, 7527–28 (February 13, 2006) (Lined Paper Prelim). In Lined Paper Prelim, the Department determined that harvested pulp logs, and the pulp they are used to produce, are input products primarily dedicated to the downstream product within the meaning of section 351.525(b)(6)(iv) of the Department’s regulations. In Lined Paper Prelim, the Department determined that ‘‘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 Final Affirmative Countervailing Duty Determination and Final Negative Critical Circumstances Determination: Certain Lined Paper Products from Indonesia, 71 FR 47174 (August 16, 2006) (Lined Paper Final), and accompanying Issues and Decision Memorandum at Comment 3, the Department remained consistent with its preliminary determination, and determined that the logs harvested by the logging companies and sold to the pulp producers are primarily dedicated to the production of pulp and, thus, to the production of the downstream product, paper, which included certain PO 00000 Frm 00027 Fmt 4703 Sfmt 4703 17501 lined paper products, the subject merchandise in that case. In the instant case, pulp logs harvested by the cross–owned forestry/ logging companies are processed into pulp by pulp producers Lontar and IK. This pulp is consumed by the respondents, TK and PD, to make paper and paper products including the subject merchandise, CFS. Because the pulp logs are primarily dedicated to the production of pulp and, ultimately, to the production of paper products, it is reasonable to conclude that a subsidy to pulp logs also benefits pulp and paper production where all of the companies involved are cross–owned. Based on the information on the record, we preliminarily determine that the production of pulp logs are an input product that is primarily dedicated to the production of pulp and paper products, including CFS. See Cross– Ownership Memo. In accordance with section 351.525(b)(6)(iv) of the Department’s regulations, any subsidies found will be attributed to the appropriate combined sales of the products produced by the cross–owned companies, excluding any inter– company sales. Loan Benchmarks In measuring the benefit from loan programs, section 351.505(a)(1) of the Department’s regulations provides that a ‘‘benefit exists to the extent that the amount the firm pays on the government–provided loan is less than the amount the firm would pay on a comparable commercial loan(s) that the firm could actually obtain on the market.’’ In section 351.505(a)(2)(ii), the Department’s regulations address the selection of a commercial loan as the appropriate basis for comparison, stating ‘‘the Secretary normally will use a loan taken out by the firm from a commercial lending institution or a debt instrument issued by the firm in a commercial market.’’ TK and PD have not provided sufficient information regarding actual financing they (or the other cross–owned companies) obtained at the same time that the loans under examination were obtained and thus we are unable to rely on the companies’ own financing experience as the basis for our loan interest rate benchmark. Therefore, we are guided by section 351.505(a)(3)(ii) of the Department’s regulations, which states, ‘‘{i}f the firm did not take out any comparable commercial loans during the period . . . the Secretary may use a national average interest rate for comparable commercial loans.’’ Accordingly, to measure the loan benefits, we have used as our benchmark the rate charged by E:\FR\FM\09APN1.SGM 09APN1 17502 Federal Register / Vol. 72, No. 67 / Monday, April 9, 2007 / Notices private national banks for ‘‘Investment’’ (long–term loans) as shown in the Bank of Indonesia Interest Rates Table 39 ‘‘Commerical Bank Credits In Ruppiah by Group of Commercial Banks,’’ in Exhibit 19 of the GOI’s January 24, 2007 response and in Exhibit 8 of the respondents’ January 24, 2007 response, for the years in which the loans were approved. The petitioner alleged that the Indonesian companies were uncreditworthy beginning in 2001 and thereafter. The Department initiated on this allegation. See Initiation Checklist: Coated Free Sheet Paper from Indonesia, dated November 20, 2006 (Initiation Checklist), a public version of which is on file in the CRU. Because the loans under investigation were all approved prior to 2001 (the earliest year for which the Department initiated an uncreditworthiness investigation), we have not analyzed the creditworthiness of the respondents and their cross– owned suppliers and, consequently, we have not added a risk premium to the benchmark for long–term loans as provided for in section 351.505(a)(3)(iii) of the Department’s regulations. Analysis of Programs sroberts on PROD1PC70 with NOTICES I. Programs Preliminarily Determined To Be Countervailable A. GOI Provision of Standing Timber for Less than Adequate Remuneration According to the GOI, it controls and administers over 57 million hectares of public harvestable forest land, which accounts for virtually all the harvestable forest land in Indonesia. See GOI’s January 25, 2007 response at pages 4 and 13. Record information shows that timber can be harvested from the GOI land under two main types of licenses: licenses to harvest timber in the natural forest, known as ‘‘HPH’’ licenses, and licenses to establish, and harvest from, plantations, which are known as ‘‘HTI’’ licenses. See the GOI’s January 25, 2007 response at page 5. Respondents and the GOI reported that AA, WKS, SPA, RAL and FI are affiliated forestry/logging companies which harvested pulp logs during the POI from plantations under HTI licenses. Id. at page 11; see also respondents’ January 25, 2007 response at pages 19–20. As discussed above in the ‘‘Cross–Ownership’’ section, the Department has preliminarily determined that these forestry/logging companies are cross–owned with pulp producers IK and Lontar, and with CFS producers/exporters TK and PD. In addition, as discussed above in the ‘‘Cross–Ownership’’ section, we have found, for purposes of this preliminary determination, certain forestry/logging VerDate Aug<31>2005 18:21 Apr 06, 2007 Jkt 211001 companies from whom AA and WKS purchased pulp logs during the POI to be cross–owned with the companies in the production chain. As such, the Department is including all of these cross–owned forestry/logging companies in our analysis of whether the GOI has provided standing timber for less than adequate remuneration. The GOI provided the laws that outline the types of fees and royalties assessed for the harvest of standing public timber in Indonesia. Id. at Exhibit 7. Specifically, the GOI stated that HTI license holders pay an initial license fee at the granting of each concession. In addition, these HTI license holders pay ‘‘cash stumpage fees’’ known as PSDH royalty fees which are paid per unit of timber harvested (usually a per ton or per cubic meter unit of measure). The PSDH rate in effect during the POI for acacia harvested from plantations was five percent in accordance with Regulation 59/1998. Id. at Exhibit 7. Regulation 74/ 1999 increased the PSDH rate for all timber harvested from the natural forest from six percent to ten percent, the rate in effect during the POI. Id.; see also GOI’s March 6, 2007 response at page 5. These percentage rates are multiplied by the reference prices set by the GOI for each type of wood harvested to determine the PSDH fee a company should pay per unit of timber harvested. See the GOI’s January 25, 2007 response at page 15. There were two sets of reference prices in effect during the POI. The first was in effect until February 3, 2005; the second published set of reference prices was put into effect on February 4, 2005. Id. at Exhibit 7 under Regulations 436/MPP/Kep/7/2004 and 18/M/Kep/2005, respectively. According to the GOI, the reference prices reflect the market prices for each type of log sold in Indonesia. Id. at page 15. In addition to the PSDH fee, a per unit Rehabilitation Fee (dana reboisasi or DR) is paid for timber harvested from the natural forest and remained the same throughout the POI. Id. at page 13; see also the GOI’s January 25, 2007 response at Exhibit 7 for the fee paid during the POI under Regulation 92/ 1999. The GOI stated that HTI license holders are not subject to the DR when ‘‘the wood harvested comes from their own plantation assets.’’ Id. at page 6. However, respondents reported that for pre–existing timber that is cleared within the plantation boundaries to allow new planting on the plantations, they ‘‘pay PSDH and DR fees on timber that is harvested during clearing exercises.’’ See respondents’ March 6, 2007 response at page 14. As stated PO 00000 Frm 00028 Fmt 4703 Sfmt 4703 above, all five of the forestry/logging companies reported in the questionnaire response as being affiliated with respondents, harvested from their own plantations. They harvested acacia, mixed tropical hardwood (MTH) chipwood, and smaller volumes of MTH pulp logs. The GOI initially reported that numerous products, both timber and non–timber, are harvested from public land owned by the GOI. See GOI’s January 25, 2007 response at page 4; however, the GOI did not report the number of industries that had rights to harvest standing timber. In our supplemental questionnaire, we requested that the GOI identify for the years 2002 through 2005, every company, and the industry in which it was classified, that applied for and was approved or rejected for either an HPH or HTI license. See the Department’s February 16, 2007 Supplemental Questionnaire at 2. The GOI did provide a list of company names but did not identify the company’s industry classification. We also requested that the GOI identify the Indonesian industrial classifications for companies that harvest timber and consume timber as a primary input. Id. at 2. In response, the GOI stated that the following five industries used standing timber either through consumption of timber as a primary input or through products that are produced with timber: the wood and wood products, paper and paper products, publishing and printing, chemical, and furniture industries. See GOI’s March 6, 2006 response at page 6 and Exhibit Supp–5. Although we are concerned that in its supplemental questionnaire response the GOI broadened the scope of our question by adding in industries that do not harvest timber or consume timber as a primary input, we are relying on the GOI’s statement that five industries are provided standing timber by the GOI for purposes of this preliminary determination. We also asked the GOI to identify the total number of industries in Indonesia at the same level of industrial classification in which the GOI placed the industries that harvest or consume timber. See the Department’s February 16, 2007 Supplemental Questionnaire at 2. In response, the information provided by the GOI identifies a total of 23 industries at the level of large and medium manufacturing activities. See the GOI’s March 6, 2006, response at page 6 and Exhibit Supp–5. Therefore, even relying on the GOI’s statement that five industries use this program, these five industries constitute a limited group of industries within the universe of 23 E:\FR\FM\09APN1.SGM 09APN1 sroberts on PROD1PC70 with NOTICES Federal Register / Vol. 72, No. 67 / Monday, April 9, 2007 / Notices industries identified by the GOI. Accordingly, we preliminarily determine that provision of standing timber by the GOI is de facto specific in accordance with section 771(5A)(D)(iii) of the Act. We also preliminarily determine that the provision of standing timber provides a financial contribution as described in section 771(5)(D)(iii) of the Act (provision of goods or services other than general infrastructure). 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) of the Act 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 Department’s regulations sets forth the basis for identifying comparative 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. Thus, in accordance with the first preference in the hierarchy, to determine the existence and extent of the benefit, we would need to identify an observed market stumpage price from a private supplier in Indonesia. The GOI VerDate Aug<31>2005 18:21 Apr 06, 2007 Jkt 211001 reported that there were only 233,811 hectares of private forest land and that it does not maintain information on the value of any private sales of standing timber in Indonesia. See the GOI’s March 6, 2007 response at page 3. We preliminarily determine that there are no market–determined stumpage fees in Indonesia upon which to base a ‘‘first tier’’ benchmark. This is consistent with our finding in Lined Paper Final at ‘‘Benchmark for Stumpage’’ section. As noted above, the GOI has not provided any information on the sale of either privately–owned standing timber in Indonesia, or the stumpage fees charged by private timber companies. See the GOI’s March 6, 2007 response at page 3. Nor has the Department been able to identify such information from any other available source. Accordingly, the Department has no private stumpage data in Indonesia that could even be evaluated for purposes of a ‘‘first tier’’ benchmark. The ‘‘second tier’’ benchmark, according to the regulations, 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 CVD Preamble, 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 CVD Preamble at 63 FR 65377. We have insufficient evidence of world market prices for standing timber on the record of this investigation. This finding is also consistent with Lined PO 00000 Frm 00029 Fmt 4703 Sfmt 4703 17503 Paper. Respondents have provided information regarding stumpage rates in the United States and have argued that the Department should use U.S. stumpage rates as a benchmark, consistent with our determination in 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) (‘‘Lumber’’) and accompanying Issues and Decision Memorandum at section ‘‘C.I.B.’’ However, respondents have not demonstrated that the types of U.S. timber they are suggesting for comparison purposes are grown in similar conditions as those in Indonesia and are similar to the species harvested in Indonesia as pulpwood. These were all important factors which supported the Department’s decision to use U.S. stumpage prices in Lumber. Id. Based on the record in this investigation, we preliminarily determine that U.S. stumpage prices do not satisfy the ‘‘second tier’’ benchmark requirements. In the alternative, respondents have also provided information on Malaysian stumpage rates for acacia, one of the species used to produce pulp and paper products in Indonesia. However, the information respondents provided is a study commissioned by them for purposes of this investigation and consists of a statement of opinion that includes no supporting documentation to establish the authenticity of the figures used to calculate this benchmark rate. Even if this study were independent and the data in it supported, the respondents have not addressed how these Malaysian stumpage rates are representative of rates that would be available to a purchaser in Indonesia. Consequently, these data do not provide an appropriate basis for a ‘‘second tier’’ benchmark. Since we are not able to conduct our analysis under the ‘‘second tier’’ of the regulations, consistent with the hierarchy, we 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 Department’s regulations and is explained further in the CVD Preamble at 65378: ‘‘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 E:\FR\FM\09APN1.SGM 09APN1 sroberts on PROD1PC70 with NOTICES 17504 Federal Register / Vol. 72, No. 67 / Monday, April 9, 2007 / Notices return sufficient to ensure future operations), or possible price discrimination.’’ The regulations do not specify how the Department is to conduct such a market principle analysis. By its nature the analysis depends upon available information concerning the market sector at issue and, therefore, must be developed on a case–by-case basis. The GOI has not provided information or documentation which demonstrates that the stumpage fees it charges are established in accordance with market principles. Although the PSDH rates are established as a percentage of the reference price of logs, we cannot conclude that the log reference price is reflective of market principles or is a market–determined price. The GOI reported that the reference price is normally determined by a weighted– average of both the Indonesian domestic and export prices for logs. However, since a log export ban is in place, the reference price is currently determined solely from domestic prices. See GOI’s January 25, 2007 response at page 15. Through its ownership of virtually all of Indonesia’s harvestable forests, the GOI has complete control over access to the timber supply. In addition, the ban on the export of logs affects the price for logs. Id. at Exhibit 7 under Regulations 1132/Kpts–II/2001 and 292/MPP/Kep/ 10/2001; see also GOI’s March 6, 2007 response at Exhibit Supp–12 and the paper by the Centre for Strategic and International Studies on ‘‘Competitiveness and Efficiency of the Forest Product Industry in Indonesia’’ (noting a study on page 6 that the ‘‘stumpage value was reduced by 33% under the log export ban policy.’’). As such, the reference prices for logs cannot be considered market–based. Thus, we preliminarily determine that the stumpage fees charged by the GOI which are charged as a percentage of a non–market determined reference price are not based on market principles. Since the government price was not set in accordance with market principles, we looked for an appropriate proxy to determine a market–based stumpage benchmark. 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. See e.g., Notice of Final Results of Countervailing Duty VerDate Aug<31>2005 18:21 Apr 06, 2007 Jkt 211001 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 at pages 16–18. As a result of the geographic proximity and the similarities of forest conditions, climate, and tree species between Indonesia and Malaysia, we have selected Malaysian pulp log export prices as the most appropriate basis for evaluating whether Indonesian stumpage is priced consistent with market principles. See section 351.511(a)(2)(iii) of the Department’s regulations; see also Preliminary Affirmative Countervailing Duty Determination on Coated Free Sheet Paper from Indonesia: Analysis Memorandum on Calculations for PT. Pabrik Kertas Tjiwi Kimia Tbk and PT. Pindo Deli Pulp and Paper Mills (Preliminary Analysis Memo), dated March 29, 2007. This is consistent with our finding in Lined Paper Final. Furthermore, neither party has argued that Malaysian pulpwood is not suitable for comparison purposes. These export transactions reflect prices resulting from private transactions between Malaysian pulp log sellers and pulp log buyers in the international market; thus, they represent market–determined prices. Accordingly, we are using the value of pulp log exports from Malaysia during the POI, as reported in the ‘‘World Trade Atlas,’’ as the starting point for determining whether the GOI is providing standing timber for less than adequate remuneration. To determine which Malaysian export statistics to include in the benchmark, we evaluated the suggestions submitted by the parties regarding Malaysian log export prices for several types and species of logs. The respondents have reported that acacia and MTH are the types of timber that were harvested from HTI plantations for pulp and paper production in Indonesia and that AA, WKS, SPA, RAL, and FI harvested either one or both of these types of pulpwood from plantations. See respondents’ March 6, 2007 questionnaire response at Exhibit Supp–10; see also Cross– Ownership Memo on timber purchased by AA and WKS from the suppliers that we have preliminarily determined are also cross–owned. For acacia, none of the parties suggested using anything other than the value of acacia pulp log exports from Malaysia. No record information suggests that exports of acacia pulp logs are not the appropriate basis to use as the starting point for determining whether the GOI is providing acacia pulpwood for less than adequate remuneration. PO 00000 Frm 00030 Fmt 4703 Sfmt 4703 For MTH, respondents suggested that we rely on export data for three categories of pulpwood, one of which is identified as light hardwood pulpwood and the other two as light hardwood pulpwood of the species batai and meransi. Petitioner has suggested that we use the same benchmark for MTH that we used in Lined Paper Final, which was based on the value of exports of sawlogs, veneer logs, and other wood of the species kapur, keruin, ramin, and other tropical woods. We do not find it appropriate to use the export values of the types of logs used in the Lined Paper Final, as suggested by petitioner, because those log types included saw logs and veneer logs, as adverse facts available in that case. In addition, we have preliminarily determined not to include the batai and meransi categories of pulp logs suggested by respondents because they have not demonstrated that these particular types of wood are harvested as pulpwood in Indonesia. If the GOI can demonstrate that these other types of wood are harvested as pulpwood in Indonesia, we will consider including them in any calculation of the Malaysian export values in the final determination. Therefore, for purposes of this preliminary determination, we have decided to use Malaysian exports of light hardwood pulpwood, of a type not elsewhere specified (HTS 4403.99.195) as the starting point for determining whether the GOI is providing MTH pulp logs and chipwood for less than adequate remuneration. Using the Malaysian export data for acacia and light hardwood pulpwood, we calculated two unit values: one to use for acacia pulp logs and one to use for MTH chipwood and pulp logs. See Preliminary Analysis Memo. To derive a market–based benchmark price for Indonesian stumpage, we then adjusted the Malaysian export log prices to remove the Indonesian costs of extraction (harvesting) of the standing timber. To determine the Indonesian harvesting costs (including a reasonable amount for profit associated with extraction), we used information contained in ‘‘Addicted to Rent: Corporate and Spatial Distribution of Forest Resources in Indonesia; Implications of Forest Sustainability and Government Policy.’’ This study, which was submitted as Exhibit V–8 of the October 31, 2006 petition, provided the only independent source that specifies extraction costs and profit in Indonesia. The amounts in this report are $17 for extraction costs and $5 for profit in connection with extraction. Both the petitioner and the respondents have argued (albeit for E:\FR\FM\09APN1.SGM 09APN1 Federal Register / Vol. 72, No. 67 / Monday, April 9, 2007 / Notices sroberts on PROD1PC70 with NOTICES different reasons and for different adjustments) that the Department could use the forestry/logging companies’ reported actual costs for harvesting to adjust the Malaysian log export prices. However, for purposes of this preliminary determination, we have decided not to use these actual costs. We may consider using these actual costs for the final determination if the GOI can demonstrate that it has a system in place to evaluate exactly which costs are legitimately considered to be harvesting and extraction costs, and that it has evaluated how to distinguish the types of costs relevant to harvesting on plantations versus the natural forest, and that it has a system in place to distinguish the costs of extraction on plantations versus other plantation development and maintenance costs. Based on our analysis of the information on the record, as well as our own research which shows that acacia is grown on plantations in Malaysia just as it is in Indonesia, we preliminarily determine that no other adjustments (other than the extraction costs and the profit associated with extraction) are necessary to the Malaysian export prices to derive a market–based stumpage price in Indonesia. See Preliminary Analysis Memo. We then compared this derived market–based stumpage price to the stumpage fees paid by respondents’ cross–owned forestry/logging companies.2 Where possible, we used the reported PSDH royalty fees and the relevant DR reforestation fees that the respondents’ cross–owned forestry/ logging companies reported paying during the POI for each of the types of Indonesian pulp logs (acacia and MTH) harvested during the POI. See respondents’ March 6, 2007 response at Exhibit Supp–10. For MTH chipwood and pulp logs (the GOI defines chipwood as timber of any length whose diameter is less than 29 centimeters), respondents reported payments of both PSDH and DR; for acacia, respondents only reported payments of PSDH because DR fees are not required on 2 Because the Malaysian export values are reported in ringgits and the Indonesian stumpage fees are in rupiahs, and because the sales values reported by IK, Lontar, TK and PD were in U.S. dollars, we have converted all values into U.S. dollars using the annual average exchange rate for the POI reported in the International Monetary Fund Statistics. In addition, where it was necessary to convert between tons and cubic meters, we used a conversion factor reported in the Food and Agriculture Organization of the United Nations’ ‘‘Forest Products Yearbook 2003’’ which we have placed on the record in the Preliminary Analysis Memo. VerDate Aug<31>2005 18:21 Apr 06, 2007 Jkt 211001 these logs which are harvested from the plantation. Id. at page 16. To determine the existence and extent of the benefit for acacia and MTH on a per–unit basis, we compared the actual payment of PSDH fees by AA, WKS, SPA, RAL and FI on accacia to the benchmark stumpage fee derived from the Malaysian export prices for accacia pulp logs. We then compared, where possible, the actual PSDH fees and DR fees paid by AA, WKS, SPA, RAL and FI on MTH chipwood and pulp logs, to the corresponding derived stumpage benchmark for MTH pulpwood. Respondents claimed that the Department should make adjustments to these actual stumpage payments to the GOI for a number of harvesting costs, taxes and annual license fees that the companies incur. We have already factored in, as a deduction from the Malaysian export prices, an amount for total harvesting costs. The GOI has provided no basis for making an adjustment for taxes. While an adjustment for an annual licensing fee may be warranted, the GOI did not provide any information on what those annual licensing fees are and the companies did not report what they paid in annual licensing fees during the POI. Based on the comparison of the per– unit stumpage fees actually paid on each type of wood with the market– derived stumpage benchmark, we determine that the GOI provided standing timber for less than adequate remuneration. We then multiplied the difference between the actual fee paid on a per–unit basis and the benchmark stumpage rate, by multiplying this per– unit stumpage benefit for each type of wood by the reported volume of each type of wood that was harvested and sold to IK and Lontar during the POI for these five forestry/logging companies. For the pulp logs purchased by AA and WKS from the additional suppliers that we have preliminarily determined are cross–owned (see ‘‘Cross– Ownership’’ section above), we did not have information about the actual stumpage and DR fees paid. We calculated the amount of the stumpage paid for acacia by multiplying the volume of acacia pulp logs produced by these suppliers which was purchased by AA and WKS, by the PSDH that would have been charged by the GOI during the POI. The MTH stumpage payments were calculated by multiplying the volume of MTH pulp logs produced by these suppliers which was purchased by AA and WKS, by the PSDH that would have been charged by the GOI during the POI, plus the DR fee charged on MTH pulp logs that would have been PO 00000 Frm 00031 Fmt 4703 Sfmt 4703 17505 charged by the GOI during the POI. We compared the resulting calculated stumpage and DR fees paid by pulp log type, to the appropriate benchmark. We multiplied the resulting difference by the volume of pulp logs sold to AA and WKS by these cross–owned pulp log suppliers to determine the benefit. Since we have preliminarily determined that the forestry/logging companies are cross- owned with the pulp and paper producers and that the pulp logs produced by these cross– owned forestry/logging companies are primarily dedicated to the production of the downstream products (see ‘‘Cross– Ownership’’ section above), we preliminarily find that the GOI’s provision of timber for less than adequate remuneration provides a countervailable subsidy to TK/PD. To determine the subsidy rate, we first summed all of the benefit amounts calculated for the cross–owned forestry/ logging companies. We then divided the aggregate benefit by the sum of the external sales values of TK, PD, IK, and Lontar (i.e., total FOB sales values minus any cross–owned inter–company sales), adjusted, where possible, for sales returns, claims, and discounts. We have not included in the denominator any external sales of the cross–owned forestry/logging companies because, as discussed above, we are capturing in the benefit calculation only pulp logs that were harvested/produced by the cross– owned forestry/logging companies that were sold to IK and Lontar. This calculation yields a countervailable subsidy rate of 21.23 percent ad valorem for the combined entity TK/PD. Although the Department initiated an investigation of whether the GOI ban on log exports provides a countervailable subsidy to the respondents, we determine that the issue of the countervailability of the log export ban need not be reached for purposes of this preliminary determination. First, the only source of pulp logs for IK and Lontar, the cross–owned pulp producers which supplied pulp to TK and PD during the POI, was from the cross– owned forestry/logging companies. Respondents stated that ‘‘IK and Lontar did not purchase timber from any supplier other than AA and WKS during the POI.’’ See respondents’ March 6, 2007 response at page 10. Second, we have preliminarily found that IK’s and Lontar’s total supply of pulp logs is roughly equivalent to the total quantity of pulp logs harvested by AA and WKS, plus the quantity of pulp logs purchased by AA and WKS from cross–owned forestry/logging companies in the CFS production chain. As such, we find it reasonable to conclude for purposes of E:\FR\FM\09APN1.SGM 09APN1 17506 Federal Register / Vol. 72, No. 67 / Monday, April 9, 2007 / Notices sroberts on PROD1PC70 with NOTICES this preliminary determination that IK’s and Lontar’s supply of pulp logs was exclusively sourced from the production of these cross–owned companies. Because we would not attribute to the downstream cross–owned pulp and paper producers a benefit that encompasses a quantity of pulp logs that is greater than the quantity of pulp logs actually produced and sold by the cross–owned forestry/logging companies to the downstream producers, we need not evaluate whether the remaining purchases by AA and WKS of pulp logs from unaffiliated suppliers are benefitting from a subsidy through the log export ban. Furthermore, because we have used export prices of pulp logs from Malaysia as the starting point for deriving a market–based stumpage benchmark, the amount of any benefit to the combined entity TK/PD that might be found in an evaluation of the log export ban is included in the calculation for the provision of standing timber for less than adequate remuneration. Thus, because the total quantity of pulp logs produced by the cross–owned forestry logging companies in the production chain captures the total quantity of pulp logs sold by the cross–owned forestry/ logging companies to IK and Lontar, the entire amount of any countervailable subsidy is subsumed under the ‘‘Provision of Standing Timber for Less than Adequate Remuneration’’ program, noted above. B. Subsidized Funding for Reforestation (Hutan Tanaman Industria or HTI Program): ‘‘Zero Interest’’ Rate Loans The GOI reported that ‘‘zero interest’’ rate loans were available to some holders of HTI licenses; such licenses are issued for harvesting timber from plantations. The GOI has reported that there are three types of plantations in Indonesia: (1) Privately owned, (2) voluntary HTI joint ventures, and (3) compelled HTI joint ventures for the purpose of implementing transmigration policy. Of these three types of plantations, only HTI joint ventures could apply for zero–interest rate loans. The GOI reported that the loaned amounts came from the DR Fund. The HTI joint venture could apply for zero– interest loans from the DR Fund for the establishment phase of the plantation. According to the GOI, loan amounts were payable to the joint venture in increments based on the amount of harvesting done each year and the total amount of the loan could not exceed 32.5 percent of the calculated plantation costs. The GOI required that the private party guarantee the loan repayment in full. In 2000, the GOI discontinued VerDate Aug<31>2005 18:21 Apr 06, 2007 Jkt 211001 funding joint ventures through the DR Fund loan programs, although existing joint ventures which had previously obtained loans through the DR Fund would receive loan disbursements and would be required to make loan payments as required by loan agreements finalized before 2000. The respondents reported that of the cross–owned forestry/logging companies (see ‘‘Cross–Ownership’’ section above), only RAL (a compelled joint venture) and FI (a voluntary joint venture) received ‘‘zero interest’’ loans prior to 2000 that remained outstanding during the POI. These loans provide a financial contribution as described in section 771(5)(D)(i) of the Act, as a direct transfer of funds in the form of loans. The loans give rise to a benefit in the amount of the difference between the amount of interest the borrowers actually paid and the amount of interest the borrowers would have paid on a comparable commercial loan under section 771(5)(E)(ii) of the Act. The loan program is specific within the meaning of section 771(5A)(D)(i) of the Act, because participation in the program is limited to HTI joint venture plantations. Therefore, we preliminarily determine that these loans confer countervailable subsidies. To calculate the benefit (the amount of the interest savings), we applied the benchmark interest rate described in the ‘‘Loan Benchmarks’’ section above to the average loan balance outstanding during the POI for both RAL and FI. We then divided the amount of interest savings by the total external sales values of all the cross–owned companies in the production chain (i.e., total FOB sales values minus any cross–owned inter– company sales), adjusted, where possible, for sales returns, claims, and discounts. Thus, we preliminarily determine the countervailable subsidy from the HTI zero–interest rate loan program to be 0.01 percent ad valorem for the combined entity TK/PD. II. Programs Preliminarily Determined To Be Not Used A. Subsidized Funding for Reforestation (Hutan Tanaman Industria or HTI Program): Commercial Rate Loans Neither TK, PD, nor any of their cross–owned suppliers reported receiving loans under this program. Therefore, we preliminarily determine that this program was not used. PO 00000 B. Subsidized Funding for Reforestation (Hutan Tanaman Industria or HTI Program): Government Capital Infusions into Joint Venture Forest Plantation The respondents reported that RAL and FI, both HTI joint ventures, received captial infusions in the 1990s under this program. However, petitioner’s unequityworthiness allegation, and the Department’s subsequent initiation, addressed the companies’ unequityworthiness from 2001 through the POI (see Initiation Checklist). Because the capital infusions were provided prior to 2001, we have not examined whether the GOI provision of capital to joint venture forest plantations provides a countervailable subsidy. Therefore, we preliminarily determine that this program was not used. Verification As provided in section 782(i)(1) of the Act, we intend to conduct verification of the GOI’s and respondents’ questionnaire responses following the issuance of the preliminary determination. Suspension of Liquidation In accordance with section 703(d)(1)(A)(i) of the Act, we have calculated a single subsidy rate for the two cross–owned producers/exporters of the subject merchandise. We preliminarily determine the total countervailable subsidy rate to be: Producer/exporter PT. Pabrik Kertas Tjiwi Kimia Tbk/ PT. Pindo Deli Pulp and Paper Mills .............................. All Others .................................... Rate 21.24 % 21.24 % In accordance with sections 703(d) and 705(c)(5)(A) of the Act, we have set the ‘‘all others’’ rate as the rate for TK/ PD because it is the only producer/ exporter investigated. In accordance with sections 703(d)(1)(B) and (2) of the Act, we are directing U.S. Customs and Border Protection (CBP) to suspend liquidation of all entries of the subject merchandise 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 the posting of a bond for such entries of the merchandise in the amounts indicated above. This suspension will remain in effect until further notice. ITC Notification In accordance with section 703(f) of the Act, we will notify the ITC of our Frm 00032 Fmt 4703 Sfmt 4703 E:\FR\FM\09APN1.SGM 09APN1 Federal Register / Vol. 72, No. 67 / Monday, April 9, 2007 / Notices sroberts on PROD1PC70 with NOTICES determination. In addition, we are making available to the ITC all non– privileged and non–proprietary 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. number; (2) the number of participants; and, (3) to the extent practicable, an identification of the arguments to be raised at the hearing. This determination is issued and published pursuant to sections 703(f) and 777(i) of the Act. Notification of Parties In accordance with section 351.224(b) of the Department’s regulations, we will disclose to the parties the calculations for this preliminary determination within five days of its announcement. Unless otherwise notified by the Department, interested parties may submit case briefs within 50 days of the date of publication of the preliminary determination in accordance with section 351.309(c)(i) of the Department’s regulations. As part of the case brief, parties are encouraged to provide a summary of the arguments not to exceed five pages and a table of statutes, regulations, and cases cited pursuant to section 351.309(c)(2) of the Department’s regulations. Rebuttal briefs, which must be limited to issues raised in the case briefs, must be filed within five days after the case briefs are filed in accordance with section 351.309(d) of the Department’s regulations. In accordance with section 351.310 of the Department’s regulations, we will hold a public hearing, if requested, to afford interested parties an opportunity to comment on this preliminary determination. Individuals who wish to request a hearing of the Department’s regulations must submit a written request pursuant to section 351.310(c) within 30 days of the publication of this notice in the Federal Register to the Assistant Secretary for Import Administration, U.S. Department of Commerce, Room 1870, 14th Street and Constitution Avenue, NW, Washington, DC 20230. Pursuant to section 351.310(c) of the Department’s regulations, parties will be notified of the schedule for the hearing and parties should confirm by telephone the time, date, and place of hearing 48 hours before the scheduled time. Requests for a public hearing should contain: (1) party’s name, address, and telephone [C–580–857] VerDate Aug<31>2005 18:21 Apr 06, 2007 Jkt 211001 Dated: March 29, 2007. David M. Spooner, Assistant Secretary for Import Administration. [FR Doc. E7–6499 Filed 4–6–07; 8:45 am] BILLING CODE 3510–DS–S DEPARTMENT OF COMMERCE International Trade Administration Coated Free Sheet Paper From the Republic of Korea: Preliminary Affirmative Countervailing Duty Determination Import Administration, International Trade Administration, Department of Commerce. SUMMARY: The Department of Commerce (‘‘the Department’’) preliminarily determines that countervailable subsidies are being provided to producers and exporters of coated free sheet paper (‘‘CFS paper’’) from the Republic of Korea (‘‘Korea’’). For information on the estimated subsidy rates, see the ‘‘Suspension of Liquidation’’ section of this notice. EFFECTIVE DATE: April 9, 2007. FOR FURTHER INFORMATION CONTACT: Maura Jeffords or Kristen Johnson, AD/ CVD Operations, Office 3, Import Administration, U.S. Department of Commerce, Room 4014, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone: (202) 482–3146 and (202) 482–4793, respectively. SUPPLEMENTARY INFORMATION: AGENCY: Background On October 31, 2006, the Department received the petition filed in proper form by NewPage Corporation (‘‘petitioner’’). This investigation was initiated on November 20, 2006. See Notice of Initiation of Countervailing Duty Investigations: Coated Free Sheet Paper from the People’s Republic of China, Indonesia, and the Republic of Korea, 71 FR 68546 (November 27, 2006) (‘‘Initiation Notice’’), and accompanying Initiation Checklist for CVD Petition on CFS paper from Korea (November 20, 2007) (‘‘Initiation Checklist’’).1 On December 19, 2006, 1 A public version of this and all public Department memoranda is on file in the Central PO 00000 Frm 00033 Fmt 4703 Sfmt 4703 17507 petitioner timely requested a 65-day postponement of the preliminary determination for this investigation. On December 22, 2006, the Department postponed the deadline for the preliminary determination by 65 days to no later than March 30, 2007, in accordance with section 703(c)(1)(A) of the Tariff Act of 1930, as amended (‘‘the Act’’). See Coated Free Sheet Paper from Indonesia, the People’s Republic of China and the Republic of Korea: Notice of Postponement of Preliminary Determinations in the Countervailing Duty Investigations, 71 FR 78403 (December 29, 2006). Due to the large number of producers and exporters of CFS paper in Korea, we determined that it is not possible to investigate each producer or exporter individually and selected four producers/exporters of CFS paper to be mandatory respondents: EN Paper Mfg. Co., Ltd. (‘‘EN Paper’’) (formerly Shinho Paper Co., Ltd. (‘‘Shinho Paper’’)), Kyesung Paper Co., Ltd. (‘‘Kyesung’’), Moorim Paper Co. Ltd. (‘‘Moorim’’) (formerly Shinmoorim Paper Mfg. Co., Ltd.), and Hansol Paper Co., Ltd. (‘‘Hansol’’) (collectively, ‘‘respondents’’). See Memorandum from the Team, through Office Director Melissa Skinner, to Deputy Assistant Secretary Stephen J. Claeys: Regarding Respondent Selection (December 4, 2006) (‘‘Respondent Selection Memo’’).2 On December 6 and 8, 2006, respondents submitted comments on our Respondent Selection Memo, in which they argued that the Department should select an additional mandatory respondent. On December 20, 2006, we responded to respondents’ comments, stating that we would not deviate from our original decision to investigate four mandatory respondents in the instant investigation. See Memorandum from Program Manager Eric B. Greynolds, through Office Director Melissa Skinner, to Deputy Assistant Secretary Stephen J. Claeys: Regarding Response to Comments from Interested Parties Regarding Respondent Selection (December 20, 2006) (‘‘Second Respondent Selection Memorandum’’). On December 14, 2006, we issued our initial questionnaire to the Government of Korea (‘‘the GOK’’) and requested that the GOK forward the relevant sections of the initial questionnaire to the mandatory respondents. On December 14, 2006, petitioner submitted a new subsidy allegation. On January 3, 2007, we declined to initiate Records Unit (‘‘CRU’’), room B–099 in the main building of the Commerce Department. 2 A public version of this memorandum is available in the CRU. E:\FR\FM\09APN1.SGM 09APN1

Agencies

[Federal Register Volume 72, Number 67 (Monday, April 9, 2007)]
[Notices]
[Pages 17498-17507]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-6499]


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DEPARTMENT OF COMMERCE

International Trade Administration

C-560-821


Coated Free Sheet Paper from Indonesia: Notice of Preliminary 
Affirmative Countervailing Duty Determination

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.
SUMMARY: The Department of Commerce (the Department) preliminarily 
determines that countervailable subsidies are being provided to 
producers and exporters of coated free sheet paper (CFS) in Indonesia. 
For information on the subsidy rates, see the ``Suspension of 
Liquidation'' section of this notice.

EFFECTIVE DATE: April 9, 2007.

FOR FURTHER INFORMATION CONTACT: Sean Carey, Jacqueline Arrowsmith, or 
Gene Calvert, AD/CVD Operations, Office 6, Import Administration, 
International Trade Administration, U.S. Department of Commerce, Room 
7866, 14th Street and Constitution Avenue, NW, Washington, DC 20230; 
telephone: (202) 482-3964, (202) 482-5255, or (202) 482-3586, 
respectively.

SUPPLEMENTARY INFORMATION:

Background

    On November 20, 2006, the Department initiated a countervailing 
duty (CVD) investigation of CFS from Indonesia. See Notice of 
Initiation of Countervailing Duty Investigations: Coated Free Sheet 
Paper from the People's Republic of China, Indonesia, and the Republic 
of Korea, 71 FR 68546 (November 27, 2006) (Initiation Notice) (CFS 
Investigations). In the Initiation Notice, the Department set aside a 
period for all interested parties to raise issues regarding product 
coverage. The comments we received are discussed in the ``Scope 
Comments'' section below. On November 30, 2006, the Department issued a 
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 CFS. The Department also 
provided courtesy copies of the questionnaire to PT. Pabrik Kertas 
Tjiwi Kimia Tbk. (TK) and to PT. Pindo Deli Pulp and Paper Mills (PD), 
who the GOI identified as the sole producers/exporters of CFS from 
Indonesia.
    On December 29, 2006, the Department postponed the preliminary 
determination until March 30, 2007. See Coated Free Sheet Paper from 
Indonesia, the People's Republic of China and the Republic of Korea: 
Notice of Postponement of Preliminary Determinations in the 
Countervailing Duty Investigations, 71 FR 78403 (December 29, 2006). On 
January 25, 2007, TK and PD (collectively, respondents), and the GOI 
submitted their questionnaire responses. On February 2 and February 12, 
2007, the Department received comments from the petitioner regarding 
these questionnaire responses. On February 16, 2007, the Department 
issued supplemental questionnaires to the GOI and to the respondents. 
The GOI and the respondents submitted their

[[Page 17499]]

supplemental responses on March 6, 2007.
    On December 15, 2006, New Page Corporation, the petitioner, 
submitted two new subsidy allegations. The GOI and the respondents 
filed comments concerning these new allegations on December 26, 2006. 
On January 30, 2007, the petitioner submitted additional information 
regarding the December 15, 2006 new subsidy allegations. On February 7, 
2007, the Department received additional comments from the respondents 
regarding the petitioner's January 30, 2007 submission.
    On March 15, 2007, the Department determined that the requirements 
of section 702 of the Tariff Act of 1930, as amended (the Act) were 
met, and initiated an investigation of the following new subsidy 
allegations: (1) debt forgiveness through the GOI's acceptance of 
allegedly worthless shares in the Sinar Mas Group/Asia Pulp & Paper 
Company's (SMG/APP) affiliated bank as debt repayment; and, (2) debt 
forgiveness through the GOI allowing SMG/APP to repurchase its own debt 
at a steep discount through an affiliated company. For a complete 
discussion on the Department's decision to initiate on these programs, 
see the Memorandum to Barbara E. Tillman, Director, Office of AD/CVD 
Enforcement VI, Countervailing Duty Investigation: Coated Free Sheet 
Paper from Indonesia; New Subsidy Allegations, dated March 15, 2007, 
which is on file in the Import Administration Central Records Unit 
(CRU), Room B-099 of the Commerce Department Building.
    The Department has not had sufficient time to gather the 
information necessary to analyze the countervailability of these two 
programs for purposes of this preliminary determination. However, after 
the Department has gathered and analyzed information from the GOI and 
respondents, we intend to issue an interim analysis describing our 
preliminary findings with respect to these programs before the final 
determination so that parties may have the opportunity to comment on 
our findings before the final determination.
    On March 9, 2007, the United Steel, Paper and Forestry, Rubber 
Manufacturing, Energy, Allied and Industrial Service Workers 
International Union, AFL-CIO-CLC (``USW'') and the Sierra Club filed an 
additional new subsidy allegation, contending that illegal logging in 
Indonesia results in additional countervailable subsidies to Indonesian 
producers/exporters of CFS.\1\ In the submission, the USW acknowledges 
that the allegation is untimely in accordance with section 
351.301(d)(4)(i)(A) of the Department's regulations. However, the USW 
cites section 351.311 of the Department's regulations, which addresses 
instances in which the Department discovers a practice that appears to 
provide a countervailable subsidy during a countervailing duty 
investigation. As noted by the USW, under section 351.311(b) of the 
Department's regulations, the Department may include such a subsidy 
program in its investigation as long as sufficient time remains before 
the scheduled final determination. On March 21, 2007, respondents 
submitted comments regarding the USW allegation, arguing that it should 
be rejected as untimely filed.
---------------------------------------------------------------------------

    \1\ The Sierra Club does not have standing to file a subsidy 
allegation in accordance with sections 702(b) and 771(9) of the Act; 
however the USW is an interested party in this proceeding pursuant 
to section 771(9)(D) of the Act and may submit subsidy allegations.
---------------------------------------------------------------------------

    With respect to the USW allegation, although it is untimely, we 
note that we are already investigating the provision of standing timber 
for less than adequate remuneration. If, during the course of our 
investigation, we find that cross-owned companies in the CFS production 
chain harvested pulp logs for which no stumpage or reforestation fees 
were paid, or less than the required fees were paid, we would include 
any such subsidy benefits in the calculation of any subsidy rate for 
these pulp logs in accordance with our stumpage subsidy calculation 
methodologies.
    On March 19, 2007, the petitioner submitted comments for the 
Department to consider for purposes of the preliminary determination. 
On March 23, 2007, petitioner filed a few additional pre-preliminary 
determination comments. At the request of the Department, the 
petitioner refiled this submission on March 26, 2007. On March 26, 
2007, petitioner requested that the final determination of this 
countervailing duty investigation be aligned with the final 
determination in the companion antidumping duty investigations in 
accordance with section 705(a)(1) of the Act. We will address this 
request in a separate Federal Register notice.
    On March 26, 2007, respondents filed pre-preliminary determination 
comments. With respect to these comments, they were filed too late to 
be fully considered for purposes of this preliminary determination, but 
we note that they identify a number of issues we are already addressing 
in the ``Subsidies Valuation'' and ``Analysis of Programs'' sections 
below. Respondents also filed rebuttal comments to petitioner's 
additional pre-preliminary determination comments on March 27 and 28, 
2007. In addition, on March 28, 2007, the USW submitted additional 
comments concerning its March 9, 2007 new subsidy allegation and 
respondents' March 21, 2007 comments on its new subsidy allegation. We 
did not have sufficient time to review these submissions for purposes 
of this preliminary determination.

Scope of the Investigation

    The merchandise covered by this investigation includes coated free 
sheet paper and paperboard of a kind used for writing, printing or 
other graphic purposes. Coated free sheet paper is produced from not-
more-than 10 percent by weight mechanical or combined chemical/
mechanical fibers. Coated free sheet paper is coated with kaolin (China 
clay) or other inorganic substances, with or without a binder, and with 
no other coating. Coated free sheet paper may be surface-coated, 
surface-decorated, printed (except as described below), embossed, or 
perforated. The subject merchandise includes single- and double-side-
coated free sheet paper; coated free sheet paper in both sheet or roll 
form; and is inclusive of all weights, brightness levels, and finishes. 
The terms ``wood free'' or ``art'' paper may also be used to describe 
the imported product.
    Excluded from the scope are: (1) Coated free sheet paper that is 
imported printed with final content printed text or graphics; (2) base 
paper to be sensitized for use in photography; and (3) paper containing 
by weight 25 percent or more cotton fiber.
    Coated free sheet paper is classifiable under subheadings 
4810.13.1900, 4810.13.2010, 4810.13.2090, 4810.13.5000, 4810.13.7040, 
4810.14.1900, 4810.14.2010, 4810.14.2090, 4810.14.5000, 4810.14.7040, 
4810.19.1900, 4810.19.2010, and 4810.19.2090 of the Harmonized Tariff 
Schedule of the United States (HTSUS). While HTSUS subheadings are 
provided for convenience and customs purposes, our written description 
of the scope of this investigation is dispositive.

Scope Comments

    In accordance with the preamble to the Department's regulations 
(see Antidumping Duties; Countervailing Duties, 62 FR 27296, 27323 (May 
19, 1997) (Preamble)), in our Initiation Notice we set aside a period 
of time for parties to raise issues regarding product

[[Page 17500]]

coverage, and encouraged all parties to submit comments within 20 
calendar days of publication of the Initiation Notice.
    On December 18, 2006, the respondents submitted timely scope 
comments in the antidumping duty investigation of CFS from Indonesia. 
On January 12, 2007, the Department requested that the respondents file 
these comments on the administrative record of the CFS Investigations. 
See Memorandum from Alice Gibbons to The File, dated January 12, 2007. 
On January 12, 2007, the respondents re-filed these comments on the 
administrative record of the CFS Investigations. On January 19, 2007, 
the petitioner filed a response to these comments.
    The respondents requested that the Department exclude from its 
investigations cast-coated free sheet paper. The Department analyzed 
this request, together with the comments from the petitioner, and 
determined that it is not appropriate to exclude cast-coated free sheet 
paper from the scope of these investigations. See the Memorandum to 
Stephen J. Claeys, Deputy Assistant Secretary for Import 
Administration, Request to Exclude Cast-Coated Free Sheet Paper from 
the Antidumping Duty and Countervailing Duty Investigations on Coated 
Free Sheet Paper, dated March 22, 2007, on file in the CRU.

Injury Test

    Because Indonesia is a ``Subsidies Agreement Country'' within the 
meaning of section 701(b) of the Act, the International Trade 
Commission (ITC) is required to determine whether imports of the 
subject merchandise from Indonesia materially injure, or threaten 
material injury to a United States industry. On December 15, 2006, the 
ITC transmitted its preliminary determination to the Department. See 
Coated Free Sheet Paper from China, Indonesia, and Korea: Investigation 
Nos. 701-TA-444-446 (Preliminary) and 731-TA-1107-1109 (Preliminary), 
USITC Publication 3900 (December 2006). On December 29, 2006, 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 allegedly subsidized imports from China, Indonesia, and 
Korea of subject merchandise. See Coated Free Sheet Paper China, 
Indonesia, and Korea, 71 FR 78464.

Period of Investigation

    The period of investigation (POI) for which we are measuring 
subsidies is January 1, 2005 through December 31, 2005, which 
corresponds to the most recently completed fiscal year for the 
respondents. See section 351.204(b)(2) of the Department's regulations.

Subsidies Valuation

Cross-Ownership

    Information on the record indicates the name SMG/APP is commonly 
used to refer to a group of forestry/logging companies, pulp producers, 
and paper producers linked by varying degrees of common ownership 
involving the Widjaja family. The respondents in this investigation, TK 
and PD, have reported affiliations with each other through a parent 
holding company Purinusa Ekapersada (Purinusa); with two pulp producers 
(PT. Lontar Papyrus Pulp and Paper Industry (Lontar) and PT. Indah Kiat 
Pulp and Paper Tbk. (IK)); and with five forestry/logging companies 
(Arara Abadi (AA), Wira Karya Sakti (WKS), PT. Satria Perkasa Agung 
(SPA), PT. Riau Abadi Lestrari (RAL), and PT. Finnantara Intiga (FI)).
    The Department's regulations at section 351.525(b)(6)(vi) state 
that 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 ownership 
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 63 FR 65347, 65401 (CVD Preamble).
    According to the CVD 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 (including subsidy benefits) of the 
other corporation in essentially the same way it can use its own assets 
(including subsidy benefits). The cross-ownership standard 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 CVD Preamble at 63 FR 
65401.
    As such, the Department's regulations make it clear that we must 
examine the facts presented in each case in order to determine whether 
cross-ownership exists. If we find that cross-ownership exists between 
TK and PD, the producers/exporters under investigation, and among and 
across the companies within the input supply chain, we will treat all 
companies as one company, and calculate a single rate for any 
countervailable subsidies that we identify and measure, in accordance 
with section 351.525(b)(6) of the Department's regulations.
    Further, in accordance with section 351.525(b)(6)(iv) of the 
Department's regulations, if the Department determines that the 
suppliers of inputs primarily dedicated to the production of paper 
products are cross-owned with the producers/exporters under 
investigation, then the Department treats subsidies provided to the 
input producers as subsidies conferred on the production of the 
finished product.
    In this investigation, we are examining whether the two producers/
exporters of the subject merchandise, TK and PD, are cross-owned with 
one another, and with their input suppliers as outlined in section 
351.352(b)(6)(iv) of the Department's regulations. The alleged 
subsidies we are investigating are conferred on the forestry/logging 
companies which harvest and sell pulp logs, which in turn are sold to 
the pulp producers that supply the paper producers/exporters. 
Therefore, we must examine whether cross-ownership exists among and 
across the suppliers of pulp logs, the pulp producers, and the CFS 
producers/exporters.
    Based on information on the record, we preliminarily determine that 
cross-ownership exists, in accordance with section 351.525(b)(6)(vi) of 
the Department's regulations, among and across the following companies 
involved in the production and sale of the subject merchandise: the 
respondent paper producers/exporters, TK and PD; pulp producers, Lontar 
and IK; and the forestry and logging companies, AA, WKS, RAL, SPA, and 
FI. Since much of our analysis supporting this conclusion involves 
business proprietary information, a full discussion of the bases for 
our preliminary determination is set forth in the Memorandum to Barbara 
E. Tillman, Director, AD/CVD Operations, Office 6, Cross-Ownership, 
dated March 29, 2007 (Cross-Ownership Memo), a public version of which 
is on file in the CRU.

[[Page 17501]]

    In addition to the five cross-owned forestry/logging companies 
identified above, we are also preliminarily finding that certain 
additional timber suppliers from which pulp logs were purchased during 
the POI are cross-owned. In the questionnaire responses, respondents 
reported that some of the five cross-owned forestry/logging companies 
identified above also purchased pulp logs from unaffiliated timber 
suppliers. The Department examined the information provided in the 
questionnaire responses about these reportedly unaffiliated timber 
suppliers, and conducted additional independent research concerning 
these timber suppliers. See Cross-Ownership Memo for a full discussion 
of the Department's analysis and research. In addition, the Department 
examined information about these reportedly unaffiliated timber 
suppliers, and supporting documentation, provided by petitioner. After 
analyzing all of this information and documentation, we find that the 
information and documentation supports a preliminary finding that 
certain of these timber suppliers are cross-owned with the SMG/APP 
Group. Since the names of these suppliers are business proprietary, a 
complete discussion of the bases for our preliminary finding that these 
additional timber suppliers are also cross-owned with the other 
companies in the production chain is provided in the Cross-Ownership 
Memo.

Attribution of Subsidies Provided to Cross-Owned Input Suppliers

    As discussed above, the Department's regulations at section 
351.525(b)(6)(iv) state that if there is cross-ownership between an 
input supplier and a downstream producer, and production of the input 
product is primarily dedicated to production of the downstream product, 
the Secretary will attribute subsidies received by the input producer 
to the combined sales of the input and downstream products produced by 
both corporations (excluding the sales between the two corporations).
    The respondents, TK and PD, have argued that they do not have to 
respond for AA, WKS, RAL, SPA, and FI because the input products in 
question, logs, are not ``primarily dedicated to the production of 
CFS'' and therefore, do not meet the standard in accordance with 
section 351.525(b)(6)(iv) of the Department's regulations. See 
respondents' March 2, 2007 response at page 3. The respondents state 
that they believe the Department should conduct its ``primarily 
dedicated analysis'' with respect to the Indonesian economy as a whole, 
and that its analysis should determine whether facts on the record 
support the conclusion that timber and other resources under the 
Forestry Program are primarily dedicated to the production of CFS. 
Additionally, the respondents state that the Department should give 
``proper weight and consideration to the word primarily,'' arguing that 
the word is defined as ``chiefly'' or ``in the first place.'' See 
respondents' March 6, 2007 response at page 28.
    The respondents claim that they, and their affiliated companies, 
produce a variety of products such as pulp, photocopier paper, and 
tissue, as well as CFS, and that timber accounts for roughly 25 percent 
of all Indonesian industry groupings, ranging from paper to furniture 
to chemical products. Therefore, the respondents conclude, the 
primarily dedicated test would not be met even if the Department were 
to perform its analysis specifically for the group of companies to 
which the respondents belong. Id.
    The Department has previously addressed the issue regarding pulp 
logs as input products in the production of pulp and paper products in 
the Notice of Preliminary Affirmative Countervailing Duty 
Determination: Certain Lined Paper Products from Indonesia, 71 FR 7524, 
7527-28 (February 13, 2006) (Lined Paper Prelim). In Lined Paper 
Prelim, the Department determined that harvested pulp logs, and the 
pulp they are used to produce, are input products primarily dedicated 
to the downstream product within the meaning of section 
351.525(b)(6)(iv) of the Department's regulations. In Lined Paper 
Prelim, the Department determined that ``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 Final Affirmative Countervailing Duty Determination and Final 
Negative Critical Circumstances Determination: Certain Lined Paper 
Products from Indonesia, 71 FR 47174 (August 16, 2006) (Lined Paper 
Final), and accompanying Issues and Decision Memorandum at Comment 3, 
the Department remained consistent with its preliminary determination, 
and determined that the logs harvested by the logging companies and 
sold to the pulp producers are primarily dedicated to the production of 
pulp and, thus, to the production of the downstream product, paper, 
which included certain lined paper products, the subject merchandise in 
that case.
    In the instant case, pulp logs harvested by the cross-owned 
forestry/logging companies are processed into pulp by pulp producers 
Lontar and IK. This pulp is consumed by the respondents, TK and PD, to 
make paper and paper products including the subject merchandise, CFS. 
Because the pulp logs are primarily dedicated to the production of pulp 
and, ultimately, to the production of paper products, it is reasonable 
to conclude that a subsidy to pulp logs also benefits pulp and paper 
production where all of the companies involved are cross-owned.
    Based on the information on the record, we preliminarily determine 
that the production of pulp logs are an input product that is primarily 
dedicated to the production of pulp and paper products, including CFS. 
See Cross-Ownership Memo. In accordance with section 351.525(b)(6)(iv) 
of the Department's regulations, any subsidies found will be attributed 
to the appropriate combined sales of the products produced by the 
cross-owned companies, excluding any inter-company sales.

Loan Benchmarks

    In measuring the benefit from loan programs, section 351.505(a)(1) 
of the Department's regulations provides that a ``benefit exists to the 
extent that the amount the firm pays on the government-provided loan is 
less than the amount the firm would pay on a comparable commercial 
loan(s) that the firm could actually obtain on the market.'' In section 
351.505(a)(2)(ii), the Department's regulations address the selection 
of a commercial loan as the appropriate basis for comparison, stating 
``the Secretary normally will use a loan taken out by the firm from a 
commercial lending institution or a debt instrument issued by the firm 
in a commercial market.'' TK and PD have not provided sufficient 
information regarding actual financing they (or the other cross-owned 
companies) obtained at the same time that the loans under examination 
were obtained and thus we are unable to rely on the companies' own 
financing experience as the basis for our loan interest rate benchmark. 
Therefore, we are guided by section 351.505(a)(3)(ii) of the 
Department's regulations, which states, ``{i{time} f the firm did not 
take out any comparable commercial loans during the period . . . the 
Secretary may use a national average interest rate for comparable 
commercial loans.'' Accordingly, to measure the loan benefits, we have 
used as our benchmark the rate charged by

[[Page 17502]]

private national banks for ``Investment'' (long-term loans) as shown in 
the Bank of Indonesia Interest Rates Table 39 ``Commerical Bank Credits 
In Ruppiah by Group of Commercial Banks,'' in Exhibit 19 of the GOI's 
January 24, 2007 response and in Exhibit 8 of the respondents' January 
24, 2007 response, for the years in which the loans were approved.
    The petitioner alleged that the Indonesian companies were 
uncreditworthy beginning in 2001 and thereafter. The Department 
initiated on this allegation. See Initiation Checklist: Coated Free 
Sheet Paper from Indonesia, dated November 20, 2006 (Initiation 
Checklist), a public version of which is on file in the CRU. Because 
the loans under investigation were all approved prior to 2001 (the 
earliest year for which the Department initiated an uncreditworthiness 
investigation), we have not analyzed the creditworthiness of the 
respondents and their cross-owned suppliers and, consequently, we have 
not added a risk premium to the benchmark for long-term loans as 
provided for in section 351.505(a)(3)(iii) of the Department's 
regulations.

Analysis of Programs

I. Programs Preliminarily Determined To Be Countervailable

A. GOI Provision of Standing Timber for Less than Adequate Remuneration

    According to the GOI, it controls and administers over 57 million 
hectares of public harvestable forest land, which accounts for 
virtually all the harvestable forest land in Indonesia. See GOI's 
January 25, 2007 response at pages 4 and 13. Record information shows 
that timber can be harvested from the GOI land under two main types of 
licenses: licenses to harvest timber in the natural forest, known as 
``HPH'' licenses, and licenses to establish, and harvest from, 
plantations, which are known as ``HTI'' licenses. See the GOI's January 
25, 2007 response at page 5. Respondents and the GOI reported that AA, 
WKS, SPA, RAL and FI are affiliated forestry/logging companies which 
harvested pulp logs during the POI from plantations under HTI licenses. 
Id. at page 11; see also respondents' January 25, 2007 response at 
pages 19-20. As discussed above in the ``Cross-Ownership'' section, the 
Department has preliminarily determined that these forestry/logging 
companies are cross-owned with pulp producers IK and Lontar, and with 
CFS producers/exporters TK and PD. In addition, as discussed above in 
the ``Cross-Ownership'' section, we have found, for purposes of this 
preliminary determination, certain forestry/logging companies from whom 
AA and WKS purchased pulp logs during the POI to be cross-owned with 
the companies in the production chain. As such, the Department is 
including all of these cross-owned forestry/logging companies in our 
analysis of whether the GOI has provided standing timber for less than 
adequate remuneration.
    The GOI provided the laws that outline the types of fees and 
royalties assessed for the harvest of standing public timber in 
Indonesia. Id. at Exhibit 7. Specifically, the GOI stated that HTI 
license holders pay an initial license fee at the granting of each 
concession. In addition, these HTI license holders pay ``cash stumpage 
fees'' known as PSDH royalty fees which are paid per unit of timber 
harvested (usually a per ton or per cubic meter unit of measure). The 
PSDH rate in effect during the POI for acacia harvested from 
plantations was five percent in accordance with Regulation 59/1998. Id. 
at Exhibit 7. Regulation 74/1999 increased the PSDH rate for all timber 
harvested from the natural forest from six percent to ten percent, the 
rate in effect during the POI. Id.; see also GOI's March 6, 2007 
response at page 5. These percentage rates are multiplied by the 
reference prices set by the GOI for each type of wood harvested to 
determine the PSDH fee a company should pay per unit of timber 
harvested. See the GOI's January 25, 2007 response at page 15. There 
were two sets of reference prices in effect during the POI. The first 
was in effect until February 3, 2005; the second published set of 
reference prices was put into effect on February 4, 2005. Id. at 
Exhibit 7 under Regulations 436/MPP/Kep/7/2004 and 18/M/Kep/2005, 
respectively. According to the GOI, the reference prices reflect the 
market prices for each type of log sold in Indonesia. Id. at page 15.
    In addition to the PSDH fee, a per unit Rehabilitation Fee (dana 
reboisasi or DR) is paid for timber harvested from the natural forest 
and remained the same throughout the POI. Id. at page 13; see also the 
GOI's January 25, 2007 response at Exhibit 7 for the fee paid during 
the POI under Regulation 92/1999. The GOI stated that HTI license 
holders are not subject to the DR when ``the wood harvested comes from 
their own plantation assets.'' Id. at page 6. However, respondents 
reported that for pre-existing timber that is cleared within the 
plantation boundaries to allow new planting on the plantations, they 
``pay PSDH and DR fees on timber that is harvested during clearing 
exercises.'' See respondents' March 6, 2007 response at page 14. As 
stated above, all five of the forestry/logging companies reported in 
the questionnaire response as being affiliated with respondents, 
harvested from their own plantations. They harvested acacia, mixed 
tropical hardwood (MTH) chipwood, and smaller volumes of MTH pulp logs.
    The GOI initially reported that numerous products, both timber and 
non-timber, are harvested from public land owned by the GOI. See GOI's 
January 25, 2007 response at page 4; however, the GOI did not report 
the number of industries that had rights to harvest standing timber. In 
our supplemental questionnaire, we requested that the GOI identify for 
the years 2002 through 2005, every company, and the industry in which 
it was classified, that applied for and was approved or rejected for 
either an HPH or HTI license. See the Department's February 16, 2007 
Supplemental Questionnaire at 2. The GOI did provide a list of company 
names but did not identify the company's industry classification. We 
also requested that the GOI identify the Indonesian industrial 
classifications for companies that harvest timber and consume timber as 
a primary input. Id. at 2. In response, the GOI stated that the 
following five industries used standing timber either through 
consumption of timber as a primary input or through products that are 
produced with timber: the wood and wood products, paper and paper 
products, publishing and printing, chemical, and furniture industries. 
See GOI's March 6, 2006 response at page 6 and Exhibit Supp-5.
    Although we are concerned that in its supplemental questionnaire 
response the GOI broadened the scope of our question by adding in 
industries that do not harvest timber or consume timber as a primary 
input, we are relying on the GOI's statement that five industries are 
provided standing timber by the GOI for purposes of this preliminary 
determination. We also asked the GOI to identify the total number of 
industries in Indonesia at the same level of industrial classification 
in which the GOI placed the industries that harvest or consume timber. 
See the Department's February 16, 2007 Supplemental Questionnaire at 2. 
In response, the information provided by the GOI identifies a total of 
23 industries at the level of large and medium manufacturing 
activities. See the GOI's March 6, 2006, response at page 6 and Exhibit 
Supp-5. Therefore, even relying on the GOI's statement that five 
industries use this program, these five industries constitute a limited 
group of industries within the universe of 23

[[Page 17503]]

industries identified by the GOI. Accordingly, we preliminarily 
determine that provision of standing timber by the GOI is de facto 
specific in accordance with section 771(5A)(D)(iii) of the Act.
    We also preliminarily determine that the provision of standing 
timber provides a financial contribution as described in section 
771(5)(D)(iii) of the Act (provision of goods or services other than 
general infrastructure). 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) of the Act 
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 Department's regulations sets forth 
the basis for identifying comparative 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.
    Thus, in accordance with the first preference in the hierarchy, to 
determine the existence and extent of the benefit, we would need to 
identify an observed market stumpage price from a private supplier in 
Indonesia. The GOI reported that there were only 233,811 hectares of 
private forest land and that it does not maintain information on the 
value of any private sales of standing timber in Indonesia. See the 
GOI's March 6, 2007 response at page 3. We preliminarily determine that 
there are no market-determined stumpage fees in Indonesia upon which to 
base a ``first tier'' benchmark. This is consistent with our finding in 
Lined Paper Final at ``Benchmark for Stumpage'' section. As noted 
above, the GOI has not provided any information on the sale of either 
privately-owned standing timber in Indonesia, or the stumpage fees 
charged by private timber companies. See the GOI's March 6, 2007 
response at page 3. Nor has the Department been able to identify such 
information from any other available source. Accordingly, the 
Department has no private stumpage data in Indonesia that could even be 
evaluated for purposes of a ``first tier'' benchmark.
    The ``second tier'' benchmark, according to the regulations, 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 CVD Preamble, 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 CVD Preamble at 63 FR 65377.
    We have insufficient evidence of world market prices for standing 
timber on the record of this investigation. This finding is also 
consistent with Lined Paper. Respondents have provided information 
regarding stumpage rates in the United States and have argued that the 
Department should use U.S. stumpage rates as a benchmark, consistent 
with our determination in 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) (``Lumber'') and accompanying Issues and Decision 
Memorandum at section ``C.I.B.'' However, respondents have not 
demonstrated that the types of U.S. timber they are suggesting for 
comparison purposes are grown in similar conditions as those in 
Indonesia and are similar to the species harvested in Indonesia as 
pulpwood. These were all important factors which supported the 
Department's decision to use U.S. stumpage prices in Lumber. Id. Based 
on the record in this investigation, we preliminarily determine that 
U.S. stumpage prices do not satisfy the ``second tier'' benchmark 
requirements.
    In the alternative, respondents have also provided information on 
Malaysian stumpage rates for acacia, one of the species used to produce 
pulp and paper products in Indonesia. However, the information 
respondents provided is a study commissioned by them for purposes of 
this investigation and consists of a statement of opinion that includes 
no supporting documentation to establish the authenticity of the 
figures used to calculate this benchmark rate. Even if this study were 
independent and the data in it supported, the respondents have not 
addressed how these Malaysian stumpage rates are representative of 
rates that would be available to a purchaser in Indonesia. 
Consequently, these data do not provide an appropriate basis for a 
``second tier'' benchmark.
    Since we are not able to conduct our analysis under the ``second 
tier'' of the regulations, consistent with the hierarchy, we 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 Department's 
regulations and is explained further in the CVD Preamble at 65378: 
``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

[[Page 17504]]

return sufficient to ensure future operations), or possible price 
discrimination.'' The regulations do not specify how the Department is 
to conduct such a market principle analysis. By its nature the analysis 
depends upon available information concerning the market sector at 
issue and, therefore, must be developed on a case-by-case basis.
    The GOI has not provided information or documentation which 
demonstrates that the stumpage fees it charges are established in 
accordance with market principles. Although the PSDH rates are 
established as a percentage of the reference price of logs, we cannot 
conclude that the log reference price is reflective of market 
principles or is a market-determined price. The GOI reported that the 
reference price is normally determined by a weighted-average of both 
the Indonesian domestic and export prices for logs. However, since a 
log export ban is in place, the reference price is currently determined 
solely from domestic prices. See GOI's January 25, 2007 response at 
page 15. Through its ownership of virtually all of Indonesia's 
harvestable forests, the GOI has complete control over access to the 
timber supply. In addition, the ban on the export of logs affects the 
price for logs. Id. at Exhibit 7 under Regulations 1132/Kpts-II/2001 
and 292/MPP/Kep/ 10/2001; see also GOI's March 6, 2007 response at 
Exhibit Supp-12 and the paper by the Centre for Strategic and 
International Studies on ``Competitiveness and Efficiency of the Forest 
Product Industry in Indonesia'' (noting a study on page 6 that the 
``stumpage value was reduced by 33[percnt] under the log export ban 
policy.''). As such, the reference prices for logs cannot be considered 
market-based. Thus, we preliminarily determine that the stumpage fees 
charged by the GOI which are charged as a percentage of a non-market 
determined reference price are not based on market principles.
    Since the government price was not set in accordance with market 
principles, we looked for an appropriate proxy to determine a market-
based stumpage benchmark. 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. See e.g., 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 at pages 16-18.
    As a result of the geographic proximity and the similarities of 
forest conditions, climate, and tree species between Indonesia and 
Malaysia, we have selected Malaysian pulp log export prices as the most 
appropriate basis for evaluating whether Indonesian stumpage is priced 
consistent with market principles. See section 351.511(a)(2)(iii) of 
the Department's regulations; see also Preliminary Affirmative 
Countervailing Duty Determination on Coated Free Sheet Paper from 
Indonesia: Analysis Memorandum on Calculations for PT. Pabrik Kertas 
Tjiwi Kimia Tbk and PT. Pindo Deli Pulp and Paper Mills (Preliminary 
Analysis Memo), dated March 29, 2007. This is consistent with our 
finding in Lined Paper Final. Furthermore, neither party has argued 
that Malaysian pulpwood is not suitable for comparison purposes. These 
export transactions reflect prices resulting from private transactions 
between Malaysian pulp log sellers and pulp log buyers in the 
international market; thus, they represent market-determined prices. 
Accordingly, we are using the value of pulp log exports from Malaysia 
during the POI, as reported in the ``World Trade Atlas,'' as the 
starting point for determining whether the GOI is providing standing 
timber for less than adequate remuneration.
    To determine which Malaysian export statistics to include in the 
benchmark, we evaluated the suggestions submitted by the parties 
regarding Malaysian log export prices for several types and species of 
logs. The respondents have reported that acacia and MTH are the types 
of timber that were harvested from HTI plantations for pulp and paper 
production in Indonesia and that AA, WKS, SPA, RAL, and FI harvested 
either one or both of these types of pulpwood from plantations. See 
respondents' March 6, 2007 questionnaire response at Exhibit Supp-10; 
see also Cross-Ownership Memo on timber purchased by AA and WKS from 
the suppliers that we have preliminarily determined are also cross-
owned. For acacia, none of the parties suggested using anything other 
than the value of acacia pulp log exports from Malaysia. No record 
information suggests that exports of acacia pulp logs are not the 
appropriate basis to use as the starting point for determining whether 
the GOI is providing acacia pulpwood for less than adequate 
remuneration.
    For MTH, respondents suggested that we rely on export data for 
three categories of pulpwood, one of which is identified as light 
hardwood pulpwood and the other two as light hardwood pulpwood of the 
species batai and meransi. Petitioner has suggested that we use the 
same benchmark for MTH that we used in Lined Paper Final, which was 
based on the value of exports of sawlogs, veneer logs, and other wood 
of the species kapur, keruin, ramin, and other tropical woods. We do 
not find it appropriate to use the export values of the types of logs 
used in the Lined Paper Final, as suggested by petitioner, because 
those log types included saw logs and veneer logs, as adverse facts 
available in that case. In addition, we have preliminarily determined 
not to include the batai and meransi categories of pulp logs suggested 
by respondents because they have not demonstrated that these particular 
types of wood are harvested as pulpwood in Indonesia. If the GOI can 
demonstrate that these other types of wood are harvested as pulpwood in 
Indonesia, we will consider including them in any calculation of the 
Malaysian export values in the final determination. Therefore, for 
purposes of this preliminary determination, we have decided to use 
Malaysian exports of light hardwood pulpwood, of a type not elsewhere 
specified (HTS 4403.99.195) as the starting point for determining 
whether the GOI is providing MTH pulp logs and chipwood for less than 
adequate remuneration.
    Using the Malaysian export data for acacia and light hardwood 
pulpwood, we calculated two unit values: one to use for acacia pulp 
logs and one to use for MTH chipwood and pulp logs. See Preliminary 
Analysis Memo. To derive a market-based benchmark price for Indonesian 
stumpage, we then adjusted the Malaysian export log prices to remove 
the Indonesian costs of extraction (harvesting) of the standing timber. 
To determine the Indonesian harvesting costs (including a reasonable 
amount for profit associated with extraction), we used information 
contained in ``Addicted to Rent: Corporate and Spatial Distribution of 
Forest Resources in Indonesia; Implications of Forest Sustainability 
and Government Policy.'' This study, which was submitted as Exhibit V-8 
of the October 31, 2006 petition, provided the only independent source 
that specifies extraction costs and profit in Indonesia. The amounts in 
this report are $17 for extraction costs and $5 for profit in 
connection with extraction.
    Both the petitioner and the respondents have argued (albeit for

[[Page 17505]]

different reasons and for different adjustments) that the Department 
could use the forestry/logging companies' reported actual costs for 
harvesting to adjust the Malaysian log export prices. However, for 
purposes of this preliminary determination, we have decided not to use 
these actual costs. We may consider using these actual costs for the 
final determination if the GOI can demonstrate that it has a system in 
place to evaluate exactly which costs are legitimately considered to be 
harvesting and extraction costs, and that it has evaluated how to 
distinguish the types of costs relevant to harvesting on plantations 
versus the natural forest, and that it has a system in place to 
distinguish the costs of extraction on plantations versus other 
plantation development and maintenance costs.
    Based on our analysis of the information on the record, as well as 
our own research which shows that acacia is grown on plantations in 
Malaysia just as it is in Indonesia, we preliminarily determine that no 
other adjustments (other than the extraction costs and the profit 
associated with extraction) are necessary to the Malaysian export 
prices to derive a market-based stumpage price in Indonesia. See 
Preliminary Analysis Memo.
    We then compared this derived market-based stumpage price to the 
stumpage fees paid by respondents' cross-owned forestry/logging 
companies.\2\ Where possible, we used the reported PSDH royalty fees 
and the relevant DR reforestation fees that the respondents' cross-
owned forestry/logging companies reported paying during the POI for 
each of the types of Indonesian pulp logs (acacia and MTH) harvested 
during the POI. See respondents' March 6, 2007 response at Exhibit 
Supp-10. For MTH chipwood and pulp logs (the GOI defines chipwood as 
timber of any length whose diameter is less than 29 centimeters), 
respondents reported payments of both PSDH and DR; for acacia, 
respondents only reported payments of PSDH because DR fees are not 
required on these logs which are harvested from the plantation. Id. at 
page 16.
---------------------------------------------------------------------------

    \2\ Because the Malaysian export values are reported in ringgits 
and the Indonesian stumpage fees are in rupiahs, and because the 
sales values reported by IK, Lontar, TK and PD were in U.S. dollars, 
we have converted all values into U.S. dollars using the annual 
average exchange rate for the POI reported in the International 
Monetary Fund Statistics. In addition, where it was necessary to 
convert between tons and cubic meters, we used a conversion factor 
reported in the Food and Agriculture Organization of the United 
Nations' ``Forest Products Yearbook 2003'' which we have placed on 
the record in the Preliminary Analysis Memo.
---------------------------------------------------------------------------

    To determine the existence and extent of the benefit for acacia and 
MTH on a per-unit basis, we compared the actual payment of PSDH fees by 
AA, WKS, SPA, RAL and FI on accacia to the benchmark stumpage fee 
derived from the Malaysian export prices for accacia pulp logs. We then 
compared, where possible, the actual PSDH fees and DR fees paid by AA, 
WKS, SPA, RAL and FI on MTH chipwood and pulp logs, to the 
corresponding derived stumpage benchmark for MTH pulpwood. Respondents 
claimed that the Department should make adjustments to these actual 
stumpage payments to the GOI for a number of harvesting costs, taxes 
and annual license fees that the companies incur. We have already 
factored in, as a deduction from the Malaysian export prices, an amount 
for total harvesting costs. The GOI has provided no basis for making an 
adjustment for taxes. While an adjustment for an annual licensing fee 
may be warranted, the GOI did not provide any information on what those 
annual licensing fees are and the companies did not report what they 
paid in annual licensing fees during the POI.
    Based on the comparison of the per-unit stumpage fees actually paid 
on each type of wood with the market-derived stumpage benchmark, we 
determine that the GOI provided standing timber for less than adequate 
remuneration. We then multiplied the difference between the actual fee 
paid on a per-unit basis and the benchmark stumpage rate, by 
multiplying this per-unit stumpage benefit for each type of wood by the 
reported volume of each type of wood that was harvested and sold to IK 
and Lontar during the POI for these five forestry/logging companies.
    For the pulp logs purchased by AA and WKS from the additional 
suppliers that we have preliminarily determined are cross-owned (see 
``Cross-Ownership'' section above), we did not have information about 
the actual stumpage and DR fees paid. We calculated the amount of the 
stumpage paid for acacia by multiplying the volume of acacia pulp logs 
produced by these suppliers which was purchased by AA and WKS, by the 
PSDH that would have been charged by the GOI during the POI. The MTH 
stumpage payments were calculated by multiplying the volume of MTH pulp 
logs produced by these suppliers which was purchased by AA and WKS, by 
the PSDH that would have been charged by the GOI during the POI, plus 
the DR fee charged on MTH pulp logs that would have been charged by the 
GOI during the POI. We compared the resulting calculated stumpage and 
DR fees paid by pulp log type, to the appropriate benchmark. We 
multiplied the resulting difference by the volume of pulp logs sold to 
AA and WKS by these cross-owned pulp log suppliers to determine the 
benefit.
    Since we have preliminarily determined that the forestry/logging 
companies are cross- owned with the pulp and paper producers and that 
the pulp logs produced by these cross-owned forestry/logging companies 
are primarily dedicated to the production of the downstream products 
(see ``Cross-Ownership'' section above), we preliminarily find that the 
GOI's provision of timber for less than adequate remuneration provides 
a countervailable subsidy to TK/PD. To determine the subsidy rate, we 
first summed all of the benefit amounts calculated for the cross-owned 
forestry/logging companies. We then divided the aggregate benefit by 
the sum of the external sales values of TK, PD, IK, and Lontar (i.e., 
total FOB sales values minus any cross-owned inter-company sales), 
adjusted, where possible, for sales returns, claims, and discounts. We 
have not included in the denominator any external sales of the cross-
owned forestry/logging companies because, as discussed above, we are 
capturing in the benefit calculation only pulp logs that were 
harvested/produced by the cross-owned forestry/logging companies that 
were sold to IK and Lontar. This calculation yields a countervailable 
subsidy rate of 21.23 percent ad valorem for the combined entity TK/PD.
    Although the Department initiated an investigation of whether the 
GOI ban on log exports provides a countervailable subsidy to the 
respondents, we determine that the issue of the countervailability of 
the log export ban need not be reached for purposes of this preliminary 
determination. First, the only source of pulp logs for IK and Lontar, 
the cross-owned pulp producers which supplied pulp to TK and PD during 
the POI, was from the cross-owned forestry/logging companies. 
Respondents stated that ``IK and Lontar did not purchase timber from 
any supplier other than AA and WKS during the POI.'' See respondents' 
March 6, 2007 response at page 10. Second, we have preliminarily found 
that IK's and Lontar's total supply of pulp logs is roughly equivalent 
to the total quantity of pulp logs harvested by AA and WKS, plus the 
quantity of pulp logs purchased by AA and WKS from cross-owned 
forestry/logging companies in the CFS production chain. As such, we 
find it reasonable to conclude for purposes of

[[Page 17506]]

this preliminary determination that IK's and Lontar's supply of pulp 
logs was exclusively sourced from the production of these cross-owned 
companies.
    Because we would not attribute to the downstream cross-owned pulp 
and paper producers a benefit that encompasses a quantity of pulp logs 
that is greater than the quantity of pulp logs actually produced and 
sold by the cross-owned forestry/logging companies to the downstream 
producers, we need not evaluate whether the remaining purchases by AA 
and WKS of pulp logs from unaffiliated suppliers are benefitting from a 
subsidy through the log export ban. Furthermore, because we have used 
export prices of pulp logs from Malaysia as the starting point for 
deriving a market-based stumpage benchmark, the amount of any benefit 
to the combined entity TK/PD that might be found in an evaluation of 
the log export ban is included in the calculation for the provision of 
standing timber for less than adequate remuneration. Thus, because the 
total quantity of pulp logs produced by the cross-owned forestry 
logging companies in the production chain captures the total quantity 
of pulp logs sold by the cross-owned forestry/logging companies to IK 
and Lontar, the entire amount of any countervailable subsidy is 
subsumed under the ``Provision of Standing Timber for Less than 
Adequate Remuneration'' program, noted above.

B. Subsidized Funding for Reforestation (Hutan Tanaman Industria or HTI 
Program): ``Zero Interest'' Rate Loans

    The GOI reported that ``zero interest'' rate loans were available 
to some holders of HTI licenses; such licenses are issued for 
harvesting timber from plantations. The GOI has reported that there are 
three types of plantations in Indonesia: (1) Privately owned, (2) 
voluntary HTI joint ventures, and (3) compelled HTI joint ventures for 
the purpose of implementing transmigration policy. Of these three types 
of plantations, only HTI joint ventures could apply for zero-interest 
rate loans.
    The GOI reported that the loaned amounts came from the DR Fund. The 
HTI joint venture could apply for zero-interest loans from the DR Fund 
for the establishment phase of the plantation. According to the GOI, 
loan amounts were payable to the joint venture in increments based on 
the amount of harvesting done each year and the total amount of the 
loan could not exceed 32.5 percent of the calculated plantation costs. 
The GOI required that the private party guarantee the loan repayment in 
full. In 2000, the GOI discontinued funding joint ventures through the 
DR Fund loan programs, although existing joint ventures which had 
previously obtained loans through the DR Fund would receive loan 
disbursements and would be required to make loan payments as required 
by loan agreements finalized before 2000.
    The respondents reported that of the cross-owned forestry/logging 
companies (see ``Cross-Ownership'' section above), only RAL (a 
compelled joint venture) and FI (a voluntary joint venture) received 
``zero interest'' loans prior to 2000 that remained outstanding during 
the POI. These loans provide a financial contribution as described in 
section 771(5)(D)(i) of the Act, as a direct transfer of funds in the 
form of loans. The loans give rise to a benefit in the amount of the 
difference between the amount of interest the borrowers actually paid 
and the amount of interest the borrowers would have paid on a 
comparable commercial loan under section 771(5)(E)(ii) of the Act. The 
loan program is specific within the meaning of section 771(5A)(D)(i) of 
the Act, because participation in the program is limited to HTI joint 
venture plantations. Therefore, we preliminarily determine that these 
loans confer countervailable subsidies.
    To calculate the benefit (the amount of the interest savings), we 
applied the benchmark interest rate described in the ``Loan 
Benchmarks'' section above to the average loan balance outstanding 
during the POI for both RAL and FI. We then divided the amount of 
interest savings by the total external sales values of all the cross-
owned companies in the production chain (i.e., total FOB sales values 
minus any cross-owned inter-company sales), adjusted, where possible, 
for sales returns, claims, and discounts. Thus, we preliminarily 
determine the countervailable subsidy from the HTI zero-interest rate 
loan program to be 0.01 percent ad valorem for the combined entity TK/
PD.
II. Programs Preliminarily Determined To Be Not Used

A. Subsidized Funding for Reforestation (Hutan Tanaman Industria or HTI 
Program): Commercial Rate Loans

    Neither TK, PD, nor any of their cross-owned suppliers reported 
receiving loans under this program. Therefore, we preliminarily 
determine that this program was not used.

B. Subsidized Funding for Reforestation (Hutan Tanaman Industria or HTI 
Program): Government Capital Infusions into Joint Venture Forest 
Plantation

    The respondents reported that RAL and FI, both HTI joint ventures, 
received captial infusions in the 1990s under this program. However, 
petitioner's unequityworthiness allegation, and the Department's 
subsequent initiation, addressed the companies' unequityworthiness from 
2001 through the POI (see Initiation Checklist). Because the capital 
infusions were provided prior to 2001, we have not examined whether the 
GOI provision of capital to joint venture forest plantations provides a 
countervailable subsidy. Therefore, we preliminarily determine that 
this program was not used.

Verification

    As provided in section 782(i)(1) of the Act, we intend to conduct 
verification of the GOI's and respondents' questionnaire responses 
following the issuance of the preliminary determination.

Suspension of Liquidation

    In accordance with section 703(d)(1)(A)(i) of the Act, we have 
calculated a single subsidy rate for the two cross-owned producers/
exporters of the subject merchandise. We preliminarily determine the 
total countervailable subsidy rate to be:

------------------------------------------------------------------------
                      Producer/exporter                          Rate
------------------------------------------------------------------------
PT. Pabrik Kertas Tjiwi Kimia Tbk/ PT. Pindo Deli Pulp and         21.24
 Paper Mills................................................    [percnt]
All Others..................................................       21.24
                                                                [percnt]
------------------------------------------------------------------------

    In accordance with sections 703(d) and 705(c)(5)(A) of the Act, we 
have set the ``all others'' rate as the rate for TK/PD because it is 
the only producer/exporter investigated.
    In accordance with sections 703(d)(1)(B) and (2) of the Act, we are 
directing U.S. Customs and Border Protection (CBP) to suspend 
liquidation of all entries of the subject merchandise 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 the posting of a bond for 
such entries of the merchandise in the amounts indicated above. This 
suspension will remain in effect until further notice.

ITC Notification

    In accordance with section 703(f) of the Act, we will notify the 
ITC of our

[[Page 17507]]

determination. In addition, we are making available to the ITC all non-
privileged and non-proprietary 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.

Notification of Parties

    In accordance with section 351.224(b) of the Department's 
regulations, we will disclose to the parties the calculations for this 
preliminary determination within five days of its announcement. Unless 
otherwise notified by the Department, interested parties may submit 
case briefs within 50 days of the date of publication of the 
preliminary determination in accordance with section 351.309(c)(i) of 
the Department's regulations. As part of the case brief, parties are 
encouraged to provide a summary of the arguments not to exceed five 
pages and a table of statutes, regulations, and cases cited pursuant to 
section 351.309(c)(2) of the Department's regulations. Rebuttal briefs, 
which must be limited to issues raised in the case briefs, must be 
filed within five days after the case briefs are filed in accordance 
with section 351.309(d) of the Department's regulations.
    In accordance with section 351.310 of the Department's regulations, 
w