Article 14(d) of the Agreement of Subsidies and Countervailing Measures (SCM Agreement)

The USDOC considered that Indonesia's provision of standing lumber and the export ban on logs and chipwood conferred a benefit to coated paper producers in Indonesia for less than adequate remuneration when compared against a market benchmark. The USDOC did not use in-country prices for standing timber and logs as a basis of determining the adequate benchmark but used Malaysian export prices for acacia pulpwood and mixed tropical hardwood as reported in the World Trade Atlas (WTA) trade statistics, but excluded shipments to Indonesia.Footnote ²

The Government of Indonesia (GOI) argued that the USDOC reached its finding of less than adequate remuneration because it improperly made a per se determination of a price distortion based on the GOI's predominant share of the domestic market for standing timber. According to the GOI, the USDOC thus failed to determine the adequacy of remuneration in respect of prevailing market conditions in Indonesia in favour of ‘aberrationally high’ out-of-country benchmarks.Footnote ³

The panel concluded that, given the characteristics of the market for standing timber in Indonesia and the evidence before the USDOC (placed in front of the panel), the USDOC reached a conclusion that any unbiased and objective investigating authority could have reached. That is, there were no market-determined in-country private prices for stumpage that could be used as a benchmark. This was premised on the fact that the GOI is the predominant supplier (at 93% of the market) of timber harvested during the period of investigation (POI). This created fertile ground for private prices to be distorted and private land owners to match their prices for harvesting standing timber with the GOI's prices. The panel considered that the GOI's position in the standing timber market was akin to a monopoly. In addition, the parties did not present arguments to the USDOC suggesting that they used private stumpage prices to calculate the benchmark.Footnote ⁴

The panel further found that the USDOC's reliance on WTA data on Malaysian export prices was an adequate benchmark and not imports into Indonesia because the nature of the GOI's intervention in the market was such that foreign exporters of timber would have to align their prices to those distorted by the GOI's intervention.Footnote ⁵ Further, the fact that the log export ban applied to all logs in Indonesia, and that domestic imports only accounted for 1% of logs in the Indonesian market made it likely that import prices would be forced to match the government-established prices and therefore could not be relied upon as a basis to calculate the benchmark.Footnote ⁶

The panel thus concluded that Indonesia failed to establish that the USDOC acted inconsistently with Article 14(d) of the SCM Agreement by not relying on domestic prices for standing timber in Indonesia to calculate the benchmark. The panel further found that Indonesia failed to establish that the USDOC acted inconsistency with Article 14(d) by declining to use private prices for logs in Indonesia as the basis for calculating the benchmark for the log export ban.Footnote ⁷

Article 12.7 of the SCM Agreement

Indonesia considered the USDOC finding that the GOI provided a subsidy to Asia Pulp and Paper/Sinar Mas Group (APP/SMG) in the form of debt buy-back inconsistent with Article 12.7 of the SCM Agreement. Specifically, Indonesia challenged the finding that the company Orleans was affiliated to APP/SMG, as this finding was made based on an adverse inference. The USDOC determined that the GOI failed to cooperate in providing the necessary information requested by the USDOC.Footnote ⁸ Indonesia further argued that the USDOC did not fulfil the conditions for resorting to ‘facts available ’ under Article 12.7, and that the facts available relied upon by the USDOC did not ‘reasonably replace’ the information that the GOI allegedly failed to submit.Footnote ⁹

The panel found that while the GOI provided some of the information that was requested, it did not provide the USDOC with information pertaining to whether Orleans and APP/SMG were affiliated. As a result, the USDOC reached a conclusion that any unbiased and objective investigating authority would reach, given the fact that the GOI failed to cooperate within a reasonable period.Footnote ¹⁰ The panel further agreed with the US that the fact that the GOI failed to provide necessary information when it was requested justified the USDOC's use of an ‘adverse’ inference.Footnote ¹¹

The panel thus concluded that Indonesia did not establish that the USDOC violated Article 12.7 in its determination that the two entities were affiliated.Footnote ¹²

Article 2.1(c) and the chapeau of Article 2.1 of the SCM Agreement

Indonesia claimed that in respect of its provision of standing timber, the log export ban, and the debt buy-back, the USDOC failed to determine that the subsidies were part of a scheme or programme designed to confer a benefit. Thus, the USDOC acted inconsistently with Article 2.1(c) of the SCM Agreement.Footnote ¹³ Further, Indonesia argued that the USDOC's finding of de facto specificity in respect of the debt buy-back to be inconsistent with the chapeau of Article 2.1(c) because the investigating authority failed to ‘identify the jurisdiction allegedly providing a benefit’.Footnote ¹⁴

The panel found that Article 2.1(c) does not require an investigating authority, in considering the relevant subsidy programme, to make a finding in all instances that the programme explicitly sets out the financial contribution and the benefit. The panel considered that it is enough that the investigating authority identifies the subsidy programme by describing the legal framework pursuant to which the financial contribution is provided. Further, when examining whether subsidies are de facto specific, an investigating authority is not required not to make an explicit finding of the existence of the subsidy programme prior to analysing the factors provided for in Article 2.1(c).Footnote ¹⁵

The panel concluded that the USDOC identified the three subsidy programmes for its specificity analysis under Article 2.1(c) regarding the description of the measures that it found to constitute the subsidies at issue. Thus, the panel found that Indonesia failed to establish that the USDOC's de facto specificity determination is inconsistent with Article 2.1(c).Footnote ¹⁶

Regarding whether the USDOC's determination of de facto specificity in connection with the debt buy-back is inconsistent with the chapeau of Article 2.1, the panel concluded that Indonesia failed to establish that the USDOC failed to identify properly the granting authority of that subsidy or the jurisdiction of that authority.Footnote ¹⁷

Article 3.5 of the Anti-Dumping Agreement and Article 15.5 of the SCM Agreement (non-attribution)

Indonesia argued that the USCIT determination of threat of injury is inconsistent with Articles 3.5 of the Anti-Dumping Agreement and 15.5 of the SCM Agreement because the USCIT attributed to the imports likely adverse effects of three known ‘other factors’ that could cause injury in the future or during the POI: (i) declining US demand for coated paper; (b) imports from non-investigated countries (non-subject imports); and (iii) the expiration of the black liquor tax credit, an alternative fuel tax credit some US producers received in 2009.Footnote ¹⁸

The panel considered that the USCIT's explanation of the likely future impact of the projected decline in demand is reasonable, and one that could have been reached by an objective investigating authority. The panel thus concluded that Indonesia failed to establish that the USCIT attributed to the imports at issue imminent injury that was allegedly caused by the projected decline in demand.Footnote ¹⁹ Further, the panel considered that the USCIT found that the temporary and once off black liquor tax credit was not an ‘other factor’; rather, it mitigated injury to the domestic injury during the POI. The panel thus concluded that Indonesia did not establish that the USCIT acted inconsistently with Articles 3.5 and 15.5.Footnote ²⁰

Regarding the non-subject imports, the panel found that Indonesia did not argue that these imports were an ‘other factor’ threatening to cause injury to its domestic industry, and the panel concluded that Indonesia failed to establish a prima facie claim that the USCIT failed to examine properly an ‘other factor’.Footnote ²¹

Thus, the panel concluded that Indonesia failed to establish that the USCIT's threat of injury determination violates Articles 3.5 of the Anti-Dumping Agreement and 15.5 of the SCM Agreement as it attributed to the subject imports adverse effects caused by other factors.Footnote ²²

Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the SCM Agreement (threat of injury)

Indonesia alleged that the USCIT's threat of injury determination was inconsistent with Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the SCM Agreement because it based some findings on conjecture and remote possibility. Indonesia, challenged the following two intermediate findings: (i) the subject imports would gain market share at the expense of the domestic industry; and (ii) the subject imports would have adverse price effects on domestic prices.Footnote ²³

With regard to the first preliminary finding, the panel found that, based on the explanation provided by the USCIT in the light of the record evidence, Indonesia did not demonstrate that the conclusions were based on conjecture or speculation.Footnote ²⁴ With respect to the second preliminary finding, the panel found that the USCIT's findings were reasonable and adequately explained in the light of the record evidence. Indonesia failed to provide evidence or present arguments that undermines the reasonableness of the USCIT's conclusions.Footnote ²⁵

The panel concluded that Indonesia did not establish that the USCIT's findings violated Articles 3.7 of the Anti-Dumping Agreement and Article 15.7 of the SCM Agreement.Footnote ²⁶

Article 3.8 of the Anti-Dumping Agreement and Article 15.8 of the SCM Agreement (special care)

Indonesia argued that the USCIT's threat of injury determination is inconsistent with Article 3.8 of the Anti-Dumping Agreement and Article 15.8 of the SCM Agreement because it failed to exercise ‘special care’.Footnote ²⁷ Indonesia also argued that Section 771(11)(B) of the US Tariff Act, as it applies to threat of injury determinations, is ‘as such’ inconsistent with these provisions.Footnote ²⁸

The panel found that Indonesia's contention that Articles 3.8 and 15.8 required the investing authority's threat of injury analysis to be at least as ‘robust’ or ‘rigorous’ as its analysis of the domestic industry's situation during the POI is not supported in the text of these agreements. The panel additionally found that Indonesia had no legal basis for its stance that Article 3.8 and 15.8 require an investigating authority to resolve some issues in favour of respondents. What matters is that the investigating authority resolved each issue in a manner that is inconsistent with its obligation under the provisions at issue.Footnote ²⁹

The panel concluded that Indonesia had not established that the USCIT's threat of injury determination is inconsistent with Articles 3.8 of the Anti-Dumping Agreement and 15.8 of the SCM Agreement.Footnote ³⁰ The panel also found that Indonesia failed to establish that Section 771(11)(B) of the US Tariff Act is ‘as such’ inconsistent with the same provisions.Footnote ³¹

The panel report was adopted on 12 January 2018. The US was not required to take any further action.