Certain Coated Paper from Indonesia: Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Countervailing Duty Determination with Final Antidumping Duty Determination, 10761-10774 [2010-4986]

Agencies

• DEPARTMENT OF COMMERCE
• International Trade Administration

[Federal Register Volume 75, Number 45 (Tuesday, March 9, 2010)]
[Notices]
[Pages 10761-10774]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-4986]


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DEPARTMENT OF COMMERCE

International Trade Administration

C-560-824


Certain Coated Paper from Indonesia: Preliminary Affirmative 
Countervailing Duty Determination and Alignment of Final Countervailing 
Duty Determination with Final Antidumping 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 certain coated paper suitable for high-
quality print graphics using sheet-fed presses (certain coated paper or 
CCP) in Indonesia. For information on the estimated subsidy rates, see 
the ``Suspension of Liquidation'' section of this notice.

EFFECTIVE DATE: March 9, 2010.

FOR FURTHER INFORMATION CONTACT: Myrna Lobo, Nicholas Czajkowski, or 
Justin Neuman, AD/CVD Operations, Office 6, Import Administration, 
International Trade Administration, U.S. Department of Commerce, 14th 
Street and Constitution Avenue, NW, Washington, DC 20230; telephone: 
(202) 482-2371, (202) 482-1395, and (202) 482-0486, respectively.

SUPPLEMENTARY INFORMATION:

Case History

    On October 13, 2009, the Department initiated a countervailing duty 
(CVD) investigation of certain coated paper from Indonesia. See Certain 
Coated Paper from Indonesia: Initiation of Countervailing Duty 
Investigation, 74 FR 53707 (October 20, 2009) (Initiation Notice).\1\ 
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.
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    \1\ Petitioners in this investigation are Appleton Coated LLC, 
NewPage Corporation, S.D. Warren Company d/b/a/ Sappi Fine Paper 
North America, and the United Steel, Paper and Forestry, Rubber, 
Manufacturing, Energy, Allied Industrial and Service Workers 
International Union (collectively, petitioners).
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    In the Initiation Notice, the Department identified the Asia Pulp & 
Paper/Sinar Mas Group (APP/SMG), through the Indonesian paper mills it 
operates, as the mandatory company respondent in this investigation. 
Respondent APP/SMG companies identified in this investigation are PT. 
Pabrik Kertas Tjiwi Kimia Tbk. (Tjiwi Kimia or TK), PT. Pindo Deli Pulp 
and Paper Mills (Pindo Deli or PD), and PT. Indah Kiat Pulp & Paper, 
Tbk. (Indah Kiat or IK) (hereinafter designated as respondents, APP/
SMG, or by their individual company names).
    On November 3, 2009, the Department issued the questionnaire 
(including government and company sections) to the Government of 
Indonesia (GOI). On the same day, the Department also provided a copy 
of the questionnaire to APP/SMG. On December 29, 2009, APP/SMG and the 
GOI submitted their questionnaire responses. (APP/SMG Initial 
Questionnaire Response and GOI Initial Questionnaire Response) On 
January 11 and January 14, 2010, the Department received comments from 
petitioners regarding these questionnaire responses. On January 28 and 
29, 2010, the Department issued supplemental questionnaires to APP/SMG 
and the GOI, respectively (Supplemental Questionnaire to APP/SMG and 
Supplemental Questionnaire to the GOI, respectively). Responses to 
these questionnaires were received on February 16, and 22, 2010, and 
March 1, 2010 (APP/SMG Supplemental Questionnaire Response and GOI 
Supplemental Questionnaire Response). The Department notes that the 
March 1 questionnaire response was received too late to be considered 
for this preliminary determination.
    On February 16, 2010, petitioners submitted comments for the 
Department to consider for purposes of the preliminary determination. 
On February 23, 2010, petitioners submitted additional comments for the 
Department's consideration. On February 26, 2010, respondents submitted 
comments for the Department's preliminary determination. However, the 
most recent comments from petitioners and respondents did not reach the 
Department in time for sufficient consideration to be given for 
purposes of the preliminary determination. The Department will 
therefore consider these submissions in its analysis for the final 
determination.
    On February 17, 2010, the Department issued a memorandum finding 
that petitioners' original allegation that APP/SMG was uncreditworthy 
from 2001 to April 2005 was sufficient and timely, and stating that we 
would cover creditworthiness in our analysis. See Memorandum to File 
from Justin M. Neuman, International Trade Analyst, AD/CVD Operations, 
Office 6, Countervailing Duty Investigation of Certain Coated Paper 
from Indonesia: Allegation of Uncreditworthiness, dated February 17, 
2010 (Creditworthiness Memorandum). On that same day, we issued a 
questionnaire to respondents regarding creditworthiness. Respondents 
submitted their response on February 22, 2010 (Creditworthiness 
Questionnaire Response).
    On December 3, 2009, the Department postponed the preliminary 
determination until February 20, 2010. However, since February 20, 2010 
fell on a Saturday, the Department stated its determination would be 
issued on the next business day, February 22, 2010. See Certain Coated 
Paper from Indonesia: Postponement of Preliminary

[[Page 10762]]

Determination in the Countervailing Duty Investigation, 74 FR 63391 
(December 3, 2010). Subsequently, on February 12, 2010, the Department 
issued a memorandum revising all case deadlines. As explained in the 
memorandum from the Deputy Assistant Secretary for Import 
Administration, the Department exercised its discretion to toll 
deadlines for the duration of the closure of the Federal Government 
from February 5 through February 12, 2010. See Memorandum to the Record 
from Ronald Lorentzen, DAS for Import Administration, Tolling of 
Administrative Deadlines As a Result of the Government Closure During 
the Recent Snowstorm, dated February 12, 2010, a public document on 
file in the Department's Central Records Unit (CRU) in Room 1117 of the 
main Department building. Thus, all deadlines in this segment of the 
proceeding have been extended by seven days. The revised deadline for 
the preliminary determination of this investigation was February 27, 
2010. Since this date fell on a Saturday, the actual signature date is 
March 1, 2010.
    On February 26, 2010, petitioners requested that the final 
determination of this countervailing duty investigation be aligned with 
the final determination in the companion antidumping duty investigation 
in accordance with section 705(a)(1) of the Act.

Alignment of Final Countervailing Duty Determination With Final 
Antidumping Duty Determination

    On the same day the Department initiated this countervailing duty 
investigation, see Initiation Notice, the Department also initiated the 
antidumping duty investigations of certain coated paper from Indonesia 
and the People's Republic of China (PRC). See Certain Coated Paper 
Suitable for High-Quality Print Graphics Using Sheet-Fed Presses From 
Indonesia and the People's Republic of China: Initiation of Antidumping 
Duty Investigations, 74 FR 53710 (October 20, 2009). The countervailing 
duty investigation and the antidumping duty investigation have the same 
scope with regard to the merchandise covered. On February 26, 2010, in 
accordance with section 705(a)(1) of the Act, petitioners requested 
alignment of the final countervailing duty determination with the final 
antidumping duty determination of certain coated paper from Indonesia. 
Therefore, in accordance with section 705(a)(1) of the Act and 19 CFR 
351.210(b)(4), we are aligning the final countervailing duty 
determination with the final antidumping duty determination. 
Consequently, the final countervailing duty determination will be 
issued on the same date as the final antidumping duty determination, 
which is currently scheduled to be issued no later than July 12, 2010, 
unless postponed.

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 U.S. industry. On November 23, 2009, the ITC 
published its affirmative preliminary determination that there is a 
reasonable indication that an industry in the United States is 
materially injured by reason of imports from the PRC and Indonesia of 
subject merchandise. See Certain Coated Paper Suitable for High-Quality 
Print Graphics Using Sheet-Fed Presses from China and Indonesia, 74 FR 
61174; and USITC Publication 4108 entitled Certain Coated Paper 
Suitable for High-Quality Print Graphics Using Sheet-Fed Presses from 
China and Indonesia: Investigation Nos. 701-TA-470-471 and 731-TA-1169-
1170 (Preliminary) (November 2009).

Scope of the Investigation

    The scope of this investigation consists of Coated Paper, which are 
certain coated paper and paperboard\2\ in sheets suitable for high 
quality print graphics using sheet-fed presses; coated on one or both 
sides with kaolin (China or other clay), calcium carbonate, titanium 
dioxide, and/or other inorganic substances; with or without a binder; 
having a GE brightness level of 80 or higher;\3\ weighing not more than 
340 grams per square meter; whether gloss grade, satin grade, matte 
grade, dull grade, or any other grade of finish; whether or not 
surface-colored, surface-decorated, printed (except as described 
below), embossed, or perforated; and irrespective of dimensions.
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    \2\ ``'Paperboard' refers to Coated Paper that is heavier, 
thicker and more rigid than coated paper which otherwise meets the 
product description. In the context of Coated Paper, paperboard 
typically is referred to as `cover,' to distinguish it from 
`text.'''
    \3\ One of the key measurements of any grade of paper is 
brightness. Generally speaking, the brighter the paper the better 
the contrast between the paper and the ink. Brightness is measured 
using a GE Reflectance Scale, which measures the reflection of light 
off of a grade of paper. One is the lowest reflection, or what would 
be given to a totally black grade, and 100 is the brightest measured 
grade.
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    Coated Paper includes: (a) coated free sheet paper and paperboard 
that meets this scope definition; (b) coated groundwood paper and 
paperboard produced from bleached chemi-thermo-mechanical pulp 
(``BCTMP'') that meets this scope definition; and (c) any other coated 
paper and paperboard that meets this scope definition.\4\
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    \4\ As noted below in the ``Scope Comments'' section, we have 
determined that the word ``paperboard'' was inadvertently left out 
of the sentence in the Initiation Notice and have corrected it for 
the preliminary determination.
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    Coated Paper is typically (but not exclusively) used for printing 
multi-colored graphics for catalogues, books, magazines, envelopes, 
labels and wraps, greeting cards, and other commercial printing 
applications requiring high quality print graphics.
    Specifically excluded from the scope are imports of paper and 
paperboard printed with final content printed text or graphics.
    As of 2009, imports of the subject merchandise are provided for 
under the following categories of the Harmonized Tariff Schedule of the 
United States (``HTSUS''): 4810.14.11, 4810.14.1900, 4810.14.2010, 
4810.14.2090, 4810.14.5000, 4810.14.6000, 4810.14.70, 4810.19.1100, 
4810.19.1900, 4810.19.2010, 4810.19.2090, 4810.22.1000, 4810.22.50, 
4810.22.6000, 4810.22.70, 4810.29.1000, 4810.29.5000, 4810.29.6000, 
4810.29.70. While HTSUS subheadings are provided for convenience and 
customs purposes, the written description of the scope of this 
investigation is dispositive.
    The HTSUS subheadings are provided for convenience and customs 
purposes only, the written description of the scope of this 
investigation is dispositive.

Scope Comments

    In accordance with the preamble to the Department's regulations, we 
set aside a period of time in our Initiation Notice for parties to 
raise issues regarding product coverage, and encouraged all parties to 
submit comments within 20 calendar days of publication of that notice. 
See Antidumping Duties; Countervailing Duties, 62 FR 27296, 27323 (May 
19, 1997), and Initiation Notice, 74 FR at 53703. We received comments 
concerning the scope of the antidumping duty (AD) and countervailing 
duty (CVD) investigations of coated paper from the PRC and Indonesia.
    Timely comments were filed collectively by Gold East Paper 
(Jiangsu) Co., Ltd., Gold Huasheng Paper Co., Ltd., PD, and TK 
(collectively, ``the scope respondents'') on November 6, 2009. These 
parties asked the Department to clarify the scope of these

[[Page 10763]]

investigations by inserting language stating that multi-ply coated 
paperboard is not covered. According to the scope respondents, multi-
ply coated paperboard is not the same as subject coated paper and 
paperboard. First, the scope respondents claim its end-use is not for 
graphic printing purposes or as a cover for graphic applications as 
stated in the petition, but primarily for packaging functions (e.g., 
cosmetics, cigarettes, etc.). Moreover, the physical characteristics of 
this product and its production process differ from those of subject 
coated paper. In addition, the scope respondents note the Harmonized 
Tariff Schedule (HTS) number for multi-ply coated paper products was 
not included in the scope by petitioners and, thus, it was not their 
intention to consider this product subject to the investigations. 
Finally, the scope respondents claim that including multi-ply coated 
paperboard would call into question the Department's industry standing 
analysis.
    In response to the scope respondents' submission, petitioners 
submitted comments on November 16, 2009. Petitioners assert the scope 
provides clear, specific criteria (e.g., sheets, suitable for high 
quality print graphics, using sheet-fed press, coated, 80 or higher GE 
brightness level, weight no more than 340 gsm, etc.) for determining 
covered merchandise. Petitioners also point out that neither the 
petitions nor the initiation documents indicate that plies are a 
relevant physical characteristic. Furthermore, multi-ply products 
produced by the scope respondents are suitable for more than a single 
use. Thus, if the coated paper product, including multi-ply coated 
paperboard, meets the criteria stated in the scope, the product is 
subject to these investigations and the arguments provided by the scope 
respondents (e.g., characteristics, production process, HTS numbers, 
etc.) are immaterial. Finally, petitioners claim that there is no 
reason to re-examine the analysis conducted at the initiation phase of 
the investigation regarding petitioners' standing.
    On December 16, 2009, the scope respondents requested that the 
Department revisit its determination regarding industry support. While 
acknowledging that the deadline had passed, the scope respondents 
claimed that neither the statute nor the Department's regulations 
preclude it from extending the deadline and revisiting its industry 
support determination.
    On December 28, 2009, petitioners responded that the statute and 
Statement of Administrative Action are clear that an industry support 
determination cannot be reconsidered in the context of the 
investigation. On February 19, 2010, representatives of the scope 
respondents met with Department officials to discuss their scope 
comments. See Memorandum to the File from Nancy Decker, regarding ``Ex-
Parte Meeting with Counsel to Respondents'' (March 1, 2010). On 
February 23, 2010, the scope respondents filed documents and 
photographs of items presented to the Department at this ex parte 
meeting. On February 22, 2010, representatives of petitioners met with 
Department officials to discuss their scope comments. See Memorandum to 
the File from Nancy Decker, regarding ``Ex-Parte Meeting with Counsel 
to Petitioners'' (March 1, 2010). On February 23, 2010, petitioners 
filed a submission in which they included a calculation presented to 
the Department during this ex parte meeting.
    On February 25, 2010, petitioners filed additional comments 
rebutting the documents filed by the scope respondents and restating 
their prior claims. In response to a question the Department posed 
during the ex parte meeting, petitioners stated that the phrase 
``suitable for high quality print graphics'' could be stricken from the 
description of the subject merchandise without altering the scope of 
these investigations.
    Based on our review of the scope, we agree with petitioners that 
the number of plies is not among the specific physical characteristics 
(e.g., brightness, coated, weight, etc.) defining the subject 
merchandise. Accordingly, we preliminarily find that multi-ply coated 
paper is covered by the scope of these investigations, to the extent 
that it meets the description of the merchandise in the scope.
    Given that petitioners' most recent submission regarding the 
suitability language was received shortly before these preliminary 
determinations, we have not had sufficient time to analyze this issue. 
Accordingly, we have not amended the scope and we invite parties to 
further comment with respect to whether the phrase ``suitable for high 
quality print graphics'' can be stricken from the description of the 
subject merchandise without altering the scope of these investigations. 
These scope comments must be filed within 20 calendar days of 
publication of this notice, and they must be filed on the record of 
this investigation, as well as the records of the concurrent AD 
investigations on coated paper from Indonesia and the PRC and the CVD 
investigation of coated paper from the PRC.
    In their February 25, 2010 submission, petitioners also stated that 
the phrase in the scope, ``(c) any other coated paper that meets the 
scope definition'' should also include the word ``paperboard.'' We 
agree that the word ``paperboard'' was inadvertently omitted (e.g., it 
is already explicitly included in the first sentence of the scope 
language and in ``(b)'' of the second paragraph) and have corrected the 
scope language to read ``(c) any other coated paper and paperboard that 
meets this scope definition.''

Period of Investigation

    The period for which we are measuring subsidies, i.e., the period 
of investigation (POI), is January 1, 2008 through December 31, 2008.

Subsidies Valuation Information

Cross-Ownership

    The Asia Pulp and Paper Company/Sinar Mas Group is comprised of a 
group of companies including forestry/logging companies, pulp 
producers, and paper pro\5\ducers linked by varying degrees of common 
ownership involving the Widjaja family. The producers/exporters of 
subject merchandise, TK, PD, and IK, have reported affiliations with 
each other through a parent holding company, PT. Purinusa Ekapersada 
(Purinusa); with pulp producer PT. Lontar Papyrus Pulp and Paper 
Industry (Lontar); with six forestry/logging companies PT. Arara Abadi 
(AA), PT. Wirakarya Sakti (WKS), PT. Satria Perkasa Agung (SPA), PT. 
Riau Abadi Lestari (RAL), PT. Finnantara Intiga (FI), and PT. Murini 
Timber (MT); and with domestic trading company PT. Cakrawala Megah 
Indah (CMI).
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    \5\ We note that respondent company IK is also a pulp producer 
and supplier, in addition to being a producer of the subject 
merchandise.
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    The Department's regulations at 19 CFR 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

[[Page 10764]]

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. 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 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 and if 
one or more of the relationships identified in 19 CFR 351.525(b)(6)(i) 
- (v) exists, we treat all cross-owned companies, to which at least one 
of those relationships apply, as one company, and calculate a single 
rate for any countervailable subsidies that we identify and measure, in 
accordance with 19 CFR 351.525(b)(6).
    Further, in accordance with 19 CFR 351.525(b)(6)(iv), if the 
Department determines that the suppliers of inputs primarily dedicated 
to the production of the downstream product are cross-owned with the 
producers/exporters under investigation, then the Department will treat 
subsidies provided to the input producers as subsidies attributable to 
the production of the downstream product.
    In this investigation, we are examining whether the three 
producers/exporters of the subject merchandise, TK, PD, and IK, are 
cross-owned with one another, and with their input suppliers, as 
outlined in 19 CFR 351.352(b)(6)(iv). The alleged subsidies pertaining 
to stumpage that we are investigating are conferred on the forestry/
logging companies which harvest standing timber and sell pulpwood to 
the pulp producers that supply pulp to the paper producers/exporters. 
Therefore, we must examine whether cross-ownership exists among and 
across the suppliers of pulpwood, the pulp producers, and the CCP 
producers/exporters.
    Based on information on the record, we preliminarily determine that 
cross-ownership exists, in accordance with 19 CFR 351.525(b)(6)(vi), 
among and across the following companies involved in the production and 
sale of the subject merchandise: respondent paper producers/exporters, 
TK, PD, and IK; pulp producers, Lontar and IK; forestry and logging 
companies, AA, WKS, RAL, SPA, FI, and MT; and domestic trading company, 
CMI. In addition, we find that the input products in question, pulp 
logs, are primarily dedicated to the production of CCP in accordance 
with 19 CFR 351.525(b)(6)(iv).
    Since much of our analysis supporting our finding on cross-
ownership 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, from Myrna Lobo, International Trade Compliance Analyst, 
Countervailing Duty Investigation: Certain Coated Paper from Indonesia 
- Cross-Ownership, dated March 1, 2010 (Cross-Ownership Memorandum), a 
public version of which is on file in the CRU.
    In addition to the six cross-owned forestry/logging companies 
identified above, APP/SMG reported ten additional forestry/logging 
companies from whom material quantities of timber were purchased during 
the POI and with whom APP/SMG entered into cooperation agreements. 
However, APP/SMG has reported that it has no affiliation with these 
companies other than a business arrangement. Accordingly, we 
preliminarily determine that these companies are not cross-owned with 
APP/SMG, but will continue examining this issue during the course of 
this investigation.

Allocation Period

    Under 19 CFR 351.524(d)(2)(i), we presume the allocation period for 
non-recurring subsidies to be the average useful life (AUL) prescribed 
by the Internal Revenue Service (IRS) for renewable physical assets of 
the industry under consideration (as listed in the IRS's 1977 Class 
Life Asset Depreciation Range System, and as updated by the Department 
of the Treasury). This presumption will apply unless a party claims and 
establishes that these tables do not reasonably reflect the AUL of the 
renewable physical assets of the company or industry under 
investigation. Specifically, the party must establish that the 
difference between the AUL from the tables and the company-specific AUL 
or country-wide AUL for the industry under investigation is 
significant, pursuant to 19 CFR 351.524(d)(2)(i) and (ii). For assets 
used to manufacture certain coated paper, the IRS tables prescribe an 
AUL of 13 years. Neither APP/SMG nor the GOI has disputed the AUL of 13 
years in this investigation. Therefore, the Department is using an AUL 
of 13 years in this investigation.

Creditworthiness

    In its petition, petitioners included an allegation that APP/SMG 
was uncreditworthy from 2001 through April 2005.\6\ As the basis for 
its allegation, petitioners relied on an earlier Department 
determination of uncreditworthiness for the same years with respect to 
APP/SMG. See Coated Free Sheet Paper from Indonesia: Final Affirmative 
Countervailing Duty Determination, 72 FR 60642 (October 25, 2007) 
(Indonesia CFS Final Determination) and the accompanying Issues and 
Decision Memorandum (CFS IDM) at 16.\7\ In the CFS investigation, the 
Department examined the following factors in determining the 
creditworthiness of APP/SMG: (1) the receipt by respondent companies of 
commercial long-term loans (as stated in 19 CFR 351.505(a)(4)(i)(A)); 
and (2) respondent companies' recent past and present ability to meet 
their costs and fixed financial obligations with their cash flow (as 
stated in 19 CFR 351.505(a)(4)(i)(C)). Based on this analysis, we found 
APP/SMG to be uncreditworthy from 2001 through April 2005. See 
Memorandum to File from Barbara E. Tillman, Director, Office 6, AD/CVD 
Operations, Countervailing Duty Investigation: Coated Free Sheet Paper 
from Indonesia: Post-Preliminary Analysis of Two New Subsidy 
Allegations, dated September 7, 2007 (Indonesia CFS Post-Preliminary

[[Page 10765]]

Analysis Memorandum), on this record as Exhibit 14 of Petition Volume 
V, dated September 23, 2007; unchanged in Indonesia CFS Final 
Determination.
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    \6\ Although the Department did not address this allegation in 
the Initiation Checklist (See Countervailing Duty Investigation 
Initiation Checklist: Certain Coated Paper from Indonesia, 74 FR 
53707 (October 20, 2009) (Initiation Checklist), we subsequently 
issued a memorandum confirming that this was a timely and sufficient 
allegation of uncreditworthiness which we would be examining during 
the course of the investigation. See Creditworthiness Memorandum.
    \7\ In the coated free sheet paper investigation (hereinafter 
referred to as the CFS investigation or CFS), APP/SMG was also the 
sole respondent, and all of the used programs examined in the CFS 
investigation were alleged in the current investigation of CCP. The 
POI in CFS was calendar year 2005. Because the programs and company 
in this investigation mirror the programs and company under 
investigation in CFS, we requested that the GOI and APP/SMG place on 
the record of this investigation the following documents from the 
CFS investigation: all verification reports as well as certain 
verification exhibits (on the record as Exhibits 32-33 of GOI 
Initial Questionnaire Response, dated December 29, 2009 and Exhibits 
2-9 of APP/SMG Supplemental Questionnaire Response, dated February 
16, 2010); business proprietary memoranda pertaining to cross-
ownership and the subsidy calculations, including benchmarks (on the 
record as Exhibit 65 of APP/SMG Initial Questionnaire Response, 
dated December 29, 2009 and Exhibit 1 of APP/SMG Supplemental 
Questionnaire Response, dated February 16, 2010). Where appropriate 
and necessary, we have relied on these documents as well as all of 
the other information in the GOI's questionnaire responses to reach 
this preliminary determination.
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    In March 2001, APP/SMG declared a standstill on its obligations 
(principal and interest) to its creditors. See Indonesia CFS Final 
Determination and CFS IDM at 16. APP/SMG began negotiating with its 
creditors to restructure its debt; however, the ``Master Restructuring 
Agreements'' (MRAs), which finalized the debt restructuring, did not go 
into effect until April 2005. See id. at 16. In the time between the 
announcement of the debt standstill and the effective date of the MRAs, 
none of the four Principal Indonesian Operating Companies (PIOCs) in 
the APP/SMG group (IK, Lontar, TK, and PD) made any payment of 
principal or interest on their multi-billion dollar debt obligations 
except for a $90 million payment that was made to repay a portion of 
IK's debt in June 2002. See id. at 16. Additionally, none of the PIOCs 
were able to secure long-term loans during this time period due to the 
debt standstill and the ongoing debt restructuring discussions with 
their creditors. See id. at 16.
    In Indonesia CFS Final Determination, due to their inability to 
meet their debt payments and financial obligations in accordance with 
19 CFR 351.505(a)(4)(i)(D) or to obtain any long-term loans in 
accordance with 19 CFR 351.505(a)(4)(i)(A) during this time period, we 
found that companies in the APP/SMG group were uncreditworthy at the 
time the government forgave debt through the acceptance of Certificates 
of Entitlement (COEs) as debt repayment and at the time the GOI forgave 
debt through the sale of APP/SMG's debt to Orleans Offshore Investment 
Limited (Orleans). See Indonesia CFS Final Determination and CFS IDM at 
16. See also Indonesia CFS Post-Preliminary Analysis Memorandum at 13-
14.
    In the instant investigation, we issued a supplemental 
questionnaire regarding the issue of creditworthiness to APP/SMG on 
February 17, 2010. In that questionnaire, we instructed APP/SMG that, 
if it disagreed with our determination in Indonesia CFS Final 
Determination, it should respond to a series of questions in the 
questionnaire so that the Department could conduct a meaningful 
analysis of any information APP/SMG presented regarding its 
creditworthiness status from 2001 to April 2005. In response to this 
questionnaire, APP/SMG stated that it would not contest the 
Department's previous determination of APP/SMG's creditworthiness 
status in Indonesia CFS Final Determination. See Creditworthiness 
Questionnaire Response at 2.
    Therefore, we are continuing to find that APP/SMG was 
uncreditworthy from 2001 through April 2005. Therefore, in accordance 
with the methodology described in 19 CFR 351.505(a)(3)(iii), a risk 
premium has been included in the discount rate used to calculate the 
debt forgiveness benefits for both the ``Debt Forgiveness through the 
Indonesian Government's Acceptance of Financial Instruments with No 
Market Value'' and the ``Debt Forgiveness through APP/SMG's Buyback of 
Its Own Debt from the Indonesian Government'' programs.

Analysis of Programs

I. Programs Preliminarily Determined To Be Countervailable

A. Provision of Standing Timber for Less Than Adequate Remuneration

    Petitioners alleged that the GOI provides a countervailable subsidy 
to pulp and paper producers through the provision of standing timber 
for less than adequate remuneration. As support for their allegation, 
they relied on Indonesia CFS Final Determination. In Indonesia CFS 
Final Determination, the Department found that the ``provision of 
standing timber'' (also referred to as stumpage) by the GOI was 
countervailable because the provision: (1) provided a financial 
contribution under section 771(5)(D)(iii) of the Act (provision of 
goods or services other than general infrastructure); (2) provided a 
benefit under section 771(5)(E)(iv) of the Act (goods or services are 
provided for less than adequate remuneration); and (3) was specific 
under section 771(5A)(D)(iii) of the Act (limited to a group of 
industries).
    In the CFS investigation, the GOI reported that virtually all 
harvestable forest land is owned by the GOI. See Indonesia CFS Final 
Determination and CFS IDM at 18. We found that the GOI allows timber to 
be harvested from government-owned land under two main types of 
licenses: (1) HPH licenses to harvest timber in the natural forest; and 
(2) HTI licenses to establish and harvest timber from plantations. HTI 
license holders pay ``cash stumpage fees'' known as PSDH royalty fees, 
which are paid per unit of timber harvested. In addition to paying PSDH 
fees, HPH license holders pay a per-unit Rehabilitation Fee (dana 
reboisasi or DR) for timber harvested from natural forests. License 
holders in Jambi province also pay a PSDA fee for harvest from 
plantations. See id. at 18. We also found that all of the stumpage fees 
are administratively set by the GOI. See id. at 69.
    In the November 3, 2009 questionnaire issued by the Department, we 
asked the GOI and APP/SMG to provide any new information or evidence of 
changed circumstances with respect to the administration of this 
program since December 2005 (the end of the POI in the Indonesia CFS 
Final Determination) that would warrant a reconsideration of the 
Department's prior countervailability finding that the GOI provided 
standing timber for less than adequate remuneration to a specific group 
of industries. See Certain Pasta from Italy: Final Results of the 
Seventh Countervailing Duty Administrative Review, 69 FR 70657 (Dec. 7, 
2004), and the accompanying Issues and Decision Memorandum at Comment 2 
(``It is the Department's practice not to revisit past findings unless 
new factual information or evidence of changed circumstances has been 
placed on the record of the proceeding that would cause the Department 
to deviate from past practice.''); see also PPG Industries, Inc. v. 
United States, 14 C.I.T. 522, 539-40 (1990) (upholding the Department's 
determination not to reinvestigate program absent sufficient new 
evidence). The GOI reported that several laws and decrees have been 
issued since December 2005 which have affected the forest industry. See 
GOI Initial Questionnaire Response, dated December 29, 2009 at 7-8. 
However, none of these changes materially alter the procedures through 
which the GOI provides standing timber or how it prices standing 
timber. The GOI did not provide any updated information on the quantity 
of forest land owned by the government; however, the GOI did report 
that the harvest from private land was 2,007,156 m[bds3] of a total of 
31,984,443 m[bds3] (or only 6.27 percent) of the total harvest during 
the POI. See GOI Initial Questionnaire Response, dated December 29, 
2009 at 18. Therefore, we preliminarily determine that the provision of 
standing timber by the GOI constitutes a financial contribution in 
accordance with section 771(5)(D)(iii) of the Act.
    In addition, in a letter dated February 4, 2010, the Department 
requested that the GOI provide information on the number of industries 
to which it provided standing timber during the POI, as well as the 
total number of industries in Indonesia. Information provided by the 
GOI indicates the government recognizes 23 industry categories. Of 
these 23 categories, standing timber was provided by the GOI to five 
industries during the POI,

[[Page 10766]]

including the paper industry. See GOI Supplemental Questionnaire 
Response, dated February 22, 2010 at 40. As such, we preliminarily 
determine that the provision of stumpage is specific in accordance with 
section 771(5A)(D)(iii) of the Act, because it is limited to a group of 
industries.
    The provision of standing timber provides a benefit as described in 
section 771(5)(E)(iv) of the Act, to the extent that the GOI received 
less than adequate remuneration, when measured against a market 
benchmark for stumpage. The Department's regulations at 19 CFR 
351.511(a)(2) set forth the basis for identifying benchmarks to 
determine 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.
    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. As noted above, the GOI reported private forests accounted 
for only 6.27 percent of the total harvest in 2008 (2,007,156 m[bds3] 
of a total of 31,984,443 m[bds3]). See GOI Initial Questionnaire 
Response, dated December 29, 2009 at 18 and Exhibit 27. Additionally, 
in Indonesia CFS Final Determination, the Department found that there 
were only 233,811 hectares of private forest land out of 57 million 
hectares in Indonesia. See Indonesia CFS Final Determination and CFS 
IDM at 18. The GOI did not provide any updated information on the 
percentage of government ownership of forest land. Thus, the GOI 
clearly plays a predominant role in the market for standing timber. As 
such, we preliminarily determine that there are no market-determined 
stumpage fees in Indonesia upon which to base a ``first tier'' 
benchmark. Furthermore, because standing timber cannot be imported, 
there are no actual stumpage import prices to consider. This is 
consistent with our finding in Indonesia CFS Final Determination.
    A ``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 the particular producer. In selecting a world 
market price under this second approach, the Department examines 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 65377. There are no world market 
prices for stumpage that we could use because standing timber cannot be 
traded across borders; only the logs produced from the standing timber 
can be traded. Thus, we cannot apply 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 
(i.e., the ``third tier'' as described in the Department's 
regulations). This approach is set forth in 19 CFR 351.511(a)(2)(iii) 
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 return sufficient 
to ensure future operations), or possible price discrimination.'' The 
regulations do not specify how the Department is to conduct such a 
market principles 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 to 
demonstrate that the stumpage fees it charges are established in 
accordance with market principles. Although the PSDH fees 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 (see further discussion below), the 
reference price is currently determined solely from domestic prices. 
Through its ownership of virtually all of Indonesia's harvestable 
forests, the GOI has almost complete control over access to the timber 
supply. In addition, the ban on the export of logs affects the price 
for logs. As such, the reference prices for logs cannot be considered 
to be market-based. Furthermore, the percentage that is applied to the 
reference price to calculate the PSDH fees is administratively set by 
the GOI. Thus, we preliminarily determine that the stumpage fees, 
charged by the GOI as a percentage of a non-market-determined reference 
price, are not based on market principles.
    Since the government price is 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,

[[Page 10767]]

derived from the demand for the products produced from those 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 the accompanying Issues and Decision Memorandum at 16-18.
    Both petitioners and respondents have made recommendations for the 
appropriate basis for calculating benchmark prices. Petitioners have 
placed Malaysian export prices for acacia pulpwood and mixed tropical 
hardwood (MTH) pulpwood from the World Trade Atlas (WTA) on the record 
of this review. See Petition Volume V, dated September 23, 2009 at 
Exhibit 11. The Department used WTA export prices as the basis for its 
benchmark price in Indonesia CFS Final Determination.
    Respondents provided a number of alternatives to the WTA data. See 
APP/SMG Initial Questionnaire Response, dated December 29, 2009 at 34-
41. These include: (1) pulpwood exports from the Malaysian state of 
Sabah collected by an industrial consultant; (2) specific transactions 
of Malaysian acacia exports to Indonesia; (3) export data from the 
Sabah Forestry Department; (4) pulpwood prices in the U.S. published in 
World Resources Quarterly (WRQ); (5) pulpwood prices in Chile and 
Russia published in WRQ; and (6) global pulpwood prices published in 
WRQ.
    For the purposes of this preliminary determination, the Department 
finds that a species-specific benchmark is the most appropriate basis 
for calculating a stumpage benefit. Based on the information provided 
by both the GOI and APP/SMG, stumpage fees are assessed on a species-
specific basis. For example, acacia, MTH, and meranti logs are all 
assessed different PSDH fees. See APP/SMG Initial Questionnaire 
Response, dated December 29, 2009 at 29. This is consistent with the 
Department's finding in the CFS investigation. See Indonesia CFS Final 
Determination and CFS IDM at 22.
    In reviewing the benchmark alternatives suggested, the data from 
the Sabah Forestry Department and the WRQ are not species specific. 
Therefore, we are not using data from these sources as the basis of our 
benchmark. We also are not using individual transaction prices for 
pulpwood between a Malaysian exporter and an Indonesian importer as a 
starting point. First, these individual transactions were self-selected 
by respondents. In addition, because the GOI dominates the Indonesian 
stumpage market and because stumpage and pulpwood markets are 
inextricably intertwined, we find it inappropriate to use import prices 
into Indonesia for pulpwood as a starting point to determine whether 
Indonesian stumpage prices reflect market prices. Finally, although the 
Sabah pulpwood export data provided by the industrial consultant are 
species specific, we do not find them preferable to the Malaysian 
export statistics because: (1) they were prepared for purposes of this 
investigation; and (2) they cannot be checked against any official 
export data, including data from the Sabah Forestry Department, which 
is not presented on a species-specific basis.
    As a result of the geographic proximity and the similarities of 
forest conditions, climate, and tree species between Indonesia and 
Malaysia, we preliminarily determine that Malaysian pulp log export 
prices as reported in the WTA are the most appropriate source to use in 
our analysis. We have relied on these export prices to derive a market-
based stumpage benchmark, which we have compared to GOI stumpage fees 
in order to determine whether the GOI is providing standing timber for 
less than adequate remuneration. To calculate the benchmark, where 
possible we have removed exports to Indonesia from these statistics. As 
discussed above, we find that it is not appropriate to use imports into 
Indonesia as a benchmark source. However, for one of the species, the 
only exports in the Malaysian statistics are exports to Indonesia. 
Therefore, for purposes of this preliminary determination, we are using 
the statistics for this species to calculate the benchmark. However, we 
will further evaluate this approach for the final determination and we 
intend to gather additional information with respect to a benchmark 
source that does not reflect prices into Indonesia.
    Respondents have argued that, if the Department does use export 
prices from either Malaysia or Sabah, a deduction for export royalty 
payments must be made from the benchmark price. Respondents argue that 
these payments are reflected in the export prices and therefore should 
be deducted to calculate an accurate benchmark. We do not necessarily 
agree with respondents that such royalty fees should be deducted from 
the starting price, but we need not reach that issue in this 
preliminary determination. While respondents have provided information 
that export royalty payments are to be collected on log exports from 
Malaysia, they have not provided any evidence on the record for this 
investigation demonstrating that these royalties are reflected in the 
values reported in the export statistics of Malaysia. Furthermore, the 
Malaysian transactions of acacia pulp logs exported to Indonesia, 
placed on the record by respondents, do not include export royalty 
payments. According to respondents, timber harvested from private 
village territory in Malaysia is not subject to an export royalty. See 
APP/SMG Supplemental Questionnaire Response, dated February 16, 2010 at 
12. Therefore, we are not making any deductions from the export values 
for export royalty payments.
    After removing exports to Indonesia from the statistics, where 
possible, we have calculated four unit values: one for acacia pulp 
logs; one for MTH chipwood; one for eucalyptus; and one for logs 
(timber over 30 cm in diameter). We have also 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.'' See 
Petition Volume V, dated September 23, 2009, Exhibit 9. This study 
provides the only independent source on the record 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.
    Respondents have argued 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, that it has evaluated how to distinguish the types of costs 
relevant to harvesting from plantations versus the natural forest, and 
that it has a system in place to distinguish the costs of extraction 
from plantations versus other plantation development and maintenance 
costs.
    The deduction of the harvesting costs, and profit associated with 
harvesting, from the unit values results in a derived benchmark 
stumpage price for each species. We compared these derived benchmark 
prices for each type or species of standing timber to the Indonesian 
stumpage fees and found the

[[Page 10768]]

GOI's stumpage fees to be lower than the market benchmark prices. 
Accordingly, we preliminarily determine that a benefit is provided in 
accordance with section 771(5)(E)(iv) of the Act because the GOI 
provides standing timber for less than adequate remuneration.
    To calculate the benefit received under this program, we first 
multiplied the benchmark prices for each type of timber by the 
appropriate harvest quantity. According to the questionnaire responses, 
the GOI charges PSDH and DR fees on both a cubic meter and metric ton 
basis, depending on the species. See APP/SMG Initial Questionnaire 
Response, dated December 29, 2009 at 29. The quantities of pulp log 
exports from Malaysia that are associated with the total value of 
exports from Malaysia are reported by the WTA in cubic meters. Thus, 
the per cubic meter export price is the starting point for our 
benchmark calculation. Therefore, to calculate the benefit, the 
Department must convert from metric tons to cubic meters on a 
consistent basis.
    In Indonesia CFS Final Determination, where necessary, the 
Department converted harvest and purchase quantities using the 
conversion factor in a report of the Food and Agriculture Organization 
of the United Nation (FAO) to convert metric tons to cubic meters. The 
Department found that the FAO conversion factor for tropical pulpwood 
(1 metric ton to 1.33 cubic meters) was the most appropriate conversion 
factor to apply.
    In its questionnaire response, APP/SMG provided a set of conversion 
factors developed through a research project authorized by the Ministry 
of Forestry. See APP/SMG Initial Questionnaire Response, dated December 
29, 2009 at Exhibit 61. These factors were based on a field study 
conducted by the Study Team of the Center for Research and Development 
of Forest Products (hereinafter referred to as field study). In this 
study, smaller diameter logs of acacia that are grown and harvested on 
plantations were evaluated. The GOI argues that, based on this study, 
the more accurate conversion factor for metric tons to cubic meters for 
smaller diameter acacia is 1.0.
    The Department preliminarily finds that the conversion factors 
developed in the study by the Ministry of Forestry provide a more 
appropriate basis for the conversion factors for the acacia species 
harvested by APP/SMG. Based on the information currently on the record, 
this study appears to be an objective field study of actual conditions 
in Indonesia. Furthermore, it was not developed for purposes of this 
investigation. While the Department is using this conversion factor for 
acacia in the preliminary determination, we do have some concerns 
regarding this factor. We intend to solicit additional information from 
the GOI about the purpose of the study and any parameters the GOI set 
for the study team. Further, the GOI and/or APP/SMG will need to 
demonstrate that this conversion factor is applicable to the acacia 
entering the APP/SMG inventory.
    We recognize that, in addition to acacia conversion factors, this 
study also contains conversion factors for multiple species of 
eucalyptus. However, we are unable to establish, based on record 
information, which species of eucalyptus APP/SMG harvested. Therefore, 
for the purposes of this preliminary determination, we have used the 
conversion factors in the FAO report, where appropriate, for 
eucalyptus. We will collect additional information regarding the 
eucalyptus conversion factor for the final determination. If we find 
that the data in the study is reliable and that there is a conversion 
factor applicable to the eucalyptus entering the APP/SMG inventory, we 
will consider using one of the Ministry of Forest's conversion factors 
for eucalyptus in the final determination.
    The field study does not address MTH chipwood and logs (over 30 cm 
in diameter); therefore, for MTH chipwood and logs (over 30 cm in 
diameter), the Department has used the conversion factors in the FAO 
report in this preliminary determination.
    To calculate the benefit conferred through stumpage fees charges 
for acacia, we multiplied each benchmark price by the sum of each 
forestry company's acacia harvest during the POI. To calculate the 
benefit conferred through stumpage fees charged for MTH chipwood, we 
multiplied the benchmark price by the sum of each forestry company's 
MTH chipwood timber harvest during the POI. To calculate the benefit 
conferred through stumpage fees charged for eucalyptus, we multiplied 
the benchmark price by the sum of each forestry company's eucalyptus 
timber harvest during the POI.
    In determining the benefit for logs (i.e., harvested timber over 30 
cm in diameter that was sold to the APP/SMG pulp producers for pulp 
production), the Department is using the volume of logs sold by IK and 
Lontar as the quantity for which to measure the benefit. We are using 
log sales to the APP/SMG pulp producers rather than total harvest 
quantity because we are only capturing in our calculation benefits 
attributable to the pulp and paper production of the APP/SMG pulp and 
paper producers.
    After multiplying each stumpage benchmark by the appropriate 
harvest quantities, we summed all the values to calculate the total 
amount of fees that should have been paid at the market-based benchmark 
stumpage rate. We then subtracted the total of the actual PSDH and DR 
fees, plus the PSDA fees, paid by the APP/SMG forestry companies during 
the POI, from the total amount of stumpage fees that should have been 
paid.
    We then divided the benefit by the total external sales of the APP/
SMG pulp and paper producers, including external sales made through 
CMI, respondents' affiliated reseller and trading company (i.e., the 
total FOB sales values of the pulp and paper producers minus any cross-
owned inter-company sales) to calculate a net countervailable subsidy 
rate of 10.30 percent ad valorem for this program. See Memorandum to 
the File from Nicholas Czajkowski, International Trade Analyst, 
Calculations for the Preliminary Determination of Certain Coated Paper 
from Indonesia, dated concurrently with this notice (CCP Preliminary 
Calculation Memorandum).

B. Government Prohibition of Log Exports

    Petitioners alleged that the GOI provides a countervailable subsidy 
to pulp and paper producers through the GOI's ban on log exports. As 
support for their allegation, they relied on Indonesia CFS Final 
Determination in which the Department found that the GOI's imposition 
of a log export ban on logs and chipwood provided a countervailable 
subsidy to downstream wood processing industries, including the pulp 
and paper producing industries. See Indonesia CFS Final Determination 
and CFS IDM at 32.
    In CFS, the Department determined that the log export ban provided 
a financial contribution in accordance with sections 771(5)(B)(iii) and 
771(5)(D)(iii) of the Act. Specifically, the Department found that the 
GOI, through the log export ban, entrusted or directed forestry/
harvesting companies to provide lower price inputs (logs and chipwood) 
to companies in the pulp and paper producing industries. The Department 
determined that the log export ban provided a benefit in accordance 
with section 771(5)(E)(iv) of the Act. Specifically, the GOI's log 
export ban allowed the forestry companies in the APP/SMG group to

[[Page 10769]]

purchase inputs (logs and chipwood) from unaffiliated forestry 
companies below market log prices.
    Finally, the Department determined that the log export ban was 
specific under section 771(5A)(D)(i) of the Act. Specifically, the 
Department found the GOI's decree banning the exports of logs and 
chipwood to be de jure specific within the meaning of section 
771(5A)(D)(i) of the Act, since it is restricted by law to only a 
limited group of industries and because it covers only a small number 
of products within each of these seven industries.
    In the November 3, 2009 questionnaire issued by the Department, we 
asked the GOI and APP/SMG to provide any new information or evidence of 
changed circumstances with respect to the administration of this 
program that would warrant a reconsideration of the Department's prior 
countervailability finding regarding the log export ban. In their 
questionnaire responses for the current investigation, both the GOI and 
APP/SMG have objected to the Department's finding in CFS. The GOI and 
APP/SMG state that the World Trade Organization (WTO) has ruled that 
this type of government action cannot constitute a subsidy program. See 
WT/DS 194 United States -- Measures Treating Export Restraints As 
Subsidies (adopted by WTO DSB August 23, 2001). Our finding here and 
our countervailing duty law are consistent with our WTO commitments. 
Moreover, as discussed in CFS, WTO panel reports are not binding on the 
United States and do ``not have any power to change U.S. law or to 
order such a change.'' See Statement of Administrative Action (SAA) 
accompanying the Uruguay Round Agreements Act, H.R. Doc. 103-316, Vol. 
1 at 659. See also Indonesia CFS Final Determination and CFS IDM at 97. 
The Department is obligated to follow U.S. law in reaching its 
countervailing duty determinations, and, as discussed below, the GOI's 
log export ban constitutes a countervailable subsidy under U.S. law. In 
its questionnaire response, the GOI also reported that it has begun the 
process of legalizing the export of forest products. See GOI Initial 
Questionnaire Response, dated December 29, 2009 at Exhibit 8, 
``Government Regulation No.6 of 2007.'' While the GOI may have begun 
the process legalizing exports of certain forest products, the GOI 
confirmed that a ban on the exportation of logs was still in effect 
during the POI of this investigation. See id. at 25.
    As explained in Indonesia CFS Final Determination, one of the 
purposes of the GOI's ban was to develop the downstream industries, 
which was a basis on which the Department determined that the GOI 
entrusts or directs domestic log suppliers to sell logs at suppressed 
prices to domestic consumers, thus providing a good to pulp and paper 
producers for less than adequate remuneration. See Indonesia CFS Final 
Determination and CFS IDM at 27. Neither the GOI nor APP/SMG has placed 
any additional information on the record that causes us to reconsider 
our prior finding. As such, we preliminarily determine that the log 
export ban continues to provide a countervailable subsidy to pulp and 
paper producers. The ban constitutes a financial contribution in 
accordance with sections 771(5)(B)(iii) and 771(5)(D)(iii) of the Act 
through the GOI's entrustment or direction of forestry/harvesting 
companies to provide goods (i.e., logs and chipwood). It provides a 
benefit in accordance with section 771(5)(E)(iv) of the Act to the 
extent that the prices paid by APP/SMG to unaffiliated forestry/
harvesting companies for its purchases of logs and chipwood are less 
than the benchmark price. Our benefit analysis is discussed in detail 
below. Furthermore, the log export ban is de facto specific pursuant to 
section 771(5A)(D)(iii)(I) of the Act because the industries receiving 
subsidies from the operation of the ban are limited in number.
    To determine whether the log export ban provided a benefit to APP/
SMG during the POI, the Department compared the price paid by APP/SMG 
for the logs it purchased during the POI from unaffiliated forestry/
harvesting companies to a benchmark price based on the criteria 
stipulated in 19 CFR 351.511(a)(2).
    The Department's regulations at 19 CFR 351.511(a)(2) set 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 th