Commission Implementing Regulation (EU) 2022/433 of 15 March 2022 imposing definitive countervailing duties on imports of stainless steel cold-rolled flat products originating in India and Indonesia and amending Implementing Regulation (EU) 2021/2012 imposing a definitive anti-dumping duty and definitively collecting the provisional duty imposed on imports of stainless steel cold-rolled flat products originating in India and Indonesia

(727) As mentioned in Sections 3.4.1.2 to 3.4.1.5 of the GFF anti-subsidy investigation, as well as Sections 3.3.1.2 to 3.3.1.4 of the GFR investigation, Eximbank (EXIM), China Development Bank (CDB), Bank of China (BOC), Industrial and Commercial Bank of China (ICBC) are Chinese State-owned banks and there are formal indicia of control of the GOC over these banks. Furthermore, in the same Sections of the GFF anti-subsidy investigation and the GFR investigation, the Commission concluded that the GOC has created a normative framework that had to be adhered to by the managers and supervisors, appointed by the GOC and accountable to the GOC. Therefore, the GOC relied on the normative framework in order to exercise control in a meaningful way over the conduct of the State-owned banks.

(728) In addition to the general legal framework set out in the GFF anti-subsidy investigation and the GFR investigation, the entire legal context stated in the framework of the bilateral cooperation set out in section 4.6.3.1, as well as the specific point for CDB raised in the next recital, applied to the loans provided by these banks to IRNC Group.

(729) In 2013, MOFCOM issued a ‘Notice on Aspects related to the China Development Bank support to the establishment and development of overseas economic and trade cooperation zones’. According to this Notice, MOFCOM and CDB will ‘provide policy support for investment and financing for enterprises and enterprises entering the zone in eligible cooperation zones’. CDB will ‘clarify the basic conditions for priority financing in the cooperation zone in accordance with the requirements of the Ministry of Commerce and the Ministry of Finance’, and CDB will ‘selectively support the projects under construction and cooperation projects that MOFCOM has paid close attention to with the host governments of the cooperation zone.’

(730) The Commission established that all State-owned Chinese financial institutions implemented the legal framework set out above in the exercise of governmental functions with respect to the SSCR sector. Therefore, they were public bodies in the sense of Article 2(b) of the basic Regulation read in conjunction with Article 3(1)(a)(i) of the basic Regulation and in accordance with the relevant WTO case-law.

(731) In addition, even if the State-owned financial institutions were not to be considered as public bodies, the Commission established that they would be considered entrusted or directed by the GOC to carry out functions normally vested in the government within the meaning of Article 3(1)(a)(iv) of the basic Regulation for the same reasons, as set out above.

(732) The Commission considered that, in principle, for the beneficiaries located in Indonesia, it would be appropriate to inquire whether these recipients of the loans received better terms than they would have received on the Indonesian financial market. According to the information submitted by the GOID, the average interest rates on USD loans issued by Indonesian commercial banks during the period considered were broadly in line with the interest rates paid by the companies of the IRNC Group (190).

(733) However, the Commission considered that these statistics did not reflect the specific circumstances of the case, and more specifically the risk factors highlighted in recitals (737) to (742). Indeed, the statistics concern a multitude of loans, with varying amounts (including loans to SMEs), duration, purpose, credit risk, etc. No information was provided either about loans for start-up situations requiring significant amounts of financing with a huge underlying risk. Since the GOID ensured that the GOC would finance the necessary investments for the Chinese companies to bring their smelting capacity to Indonesia, it appears reasonable to conclude that there was no private lender in Indonesia that would have provided similar loans to the exporting producers. Furthermore, information about loans in Indonesia only concern loans provided by domestic banks to their domestic customers, and thus did not take into account the fact that in the case at hand, loans were provided by Chinese financial institutions to overseas customers. Since the interest rates on the financing provided were set by Chinese actors on the Chinese financial market, the Commission’s calculation in this case took that fact into account.

(734) In view of the exceptional circumstances mentioned in recital (682), the Commission thus calculated the amount of the countervailable subsidy taking into account the fact that the recipients obtained the preferential financing in China. For this calculation, the Commission assessed the benefit conferred on the recipients during the investigation period. According to Article 6(b) of the basic Regulation, the benefit conferred on the recipients is the difference between the amount of interest that the company pays on the preferential loan and the amount that the company would pay for a comparable commercial loan obtainable on the Chinese financial market.

(735) The Commission decided to establish the market rates for the preferential loans from the Chinese banks with respect to hypothetical benchmarks from the perspective of Chinese market investors in accordance with Article 6(b) of the basic Regulation.

(736) Therefore, the Commission decided to use the same calculation methodology as for loans denominated in foreign currencies, and issued by Chinese financial institutions in the PRC, and added the risk premium linked to the investment in Indonesia as follows.

(737) The Commission first established the credit rating of the companies in the IRNC Group. During the investigation, IRNC and the other four related entities submitted their credit rating made by the Indonesian rating agency Pefindo during the period from 2017 to 2020. The rating varied between BBB and A. However, in the only complete credit rating report that was provided, it was clearly stipulated that one of the supporting factors for the rating was the fact that IRNC was supported by the Eximbank China and shareholders loans.

(738) Furthermore, the Commission noted that the investment made in Indonesia was a green field investment, which entailed very high risks. Without the support of the GOC and GOID the credit risk of these companies would have been much higher.

(739) Nickel is a commodity and the price of commodities, including the nickel ore and nickel pig iron prices, can fluctuate rapidly and are affected by numerous factors beyond the control of a company. These factors include world demand for commodities, production cost levels, macroeconomic factors such as expectations regarding inflation, interest rates and global and regional demand for, and supply of, commodities as well as general global economic conditions. These factors may have an adverse effect on the Company’s activities as well as the Company’s ability to fund those activities. As explained in section regarding nickel, the GOID, though its price mechanism, made sure that IRNC group had access to nickel ore at prices significantly below international prices.

(740) Furthermore, as explained in the section regarding the land, the companies started to build their plants without having the building right certificates. Therefore, without the support of the GOID the IRNC Group could not have invested significant amounts of money to build their plants without actually having the legal right to do it.

(741) Moreover, Indonesia is an emerging market and therefore investing in Indonesia involves greater risk than investing in more developed markets, including in some cases significant legal and economic risk. The mining industry is heavily regulated in Indonesia and it is changing continuously. IRNC Group is a foreign investment and in certain sectors of the Indonesian economy there are restrictions regarding the shareholding of foreign enterprises.

(742) As a start-up entity, the credit risk of these companies was thus significant. As the companies started to produce and sell their products, their risk gradually decreased.

(743) In view of these specific circumstances of the case, the Commission decided to establish two credit ratings. For the start-up period, the Commission considered that the companies were in a situation similar to private-equity start-up investments. Such investments entail high risk and would thus correspond to a credit rating equivalent to CCC or lower. For the subsequent period, where the companies operated under normal conditions, the Commission considered that the overall financial situation of the IRNC Group corresponded to a BB rating, which is the highest rating that does no longer qualify as ‘investment grade’. However, the Commission found, as mentioned in recitals (757) to (759) below, that the companies of the IRNC Group had to complement their financing needs by taking out shareholder loans from their parent companies, and that they did not honour their debt repayment schedules on these loans.

(744) In order to take into account the increased risk exposure of the banks highlighted by the existence of shareholder loans and debt forgiveness, the Commission thus decided to move down one notch in the risk rating scale and concluded that the use of a B (instead of BB) credit rating would be more appropriate to determine the market-based benchmark.

(745) In line with other loans denominated in foreign currencies and issued by Chinese financial institutions in the PRC, B rated corporate bonds issued in USD during the investigation period were thus used to determine an appropriate benchmark for the period of normal operations.

(746) For loans which were granted during the start-up period of the companies concerned, the Commission considered that a different benchmark was warranted, since these loans concerned very substantial amounts (several billion USD) for a very risky overseas project, and the banks did not benefit from any risk premium element in the form of capital (e.g. right of conversion into shares). Therefore, the relevant benchmark must reflect the particularity of the situation, which is similar to venture capital/private equity start-up investments. The Commission searched publicly available information, but found no readily available benchmarks for venture capital or private equity transactions as such. However, the Commission considered that a rate for high-yield bonds in USD (equivalent to a credit rating of CCC or lower) would be equivalent to the return that a private-equity fund would require on such transactions.

(747) Finally, loans provided by Chinese financial institutions are normally granted to Chinese companies located in the domestic Chinese market. The IRNC Group on the contrary is located in Indonesia, and thus has a credit risk different from Chinese companies related to the external conditions prevailing in the country itself, as highlighted in recital (741) above. In order to take into account the specific credit risk environment prevailing in Indonesia, the Commission thus added a mark-up to the benchmark rate established for the Chinese sampled companies, in order to integrate the country risk into the market rate.

(748) The premium related to country risk was determined based on the OECD classification of country risk for export credits, as well as the corresponding minimum premium rate set by the OECD. The country risk premium for loans provided by the Chinese banks was established at between 0,13 % to 0,88 % depending on the duration of the loan.

(749) The subsidy amount thus established for support for loans from policy banks amounted to 1,84 %.

(750) The GOID and IRNC Group submitted comments on final disclosure concerning the preferential financing from policy banks.

(751) The GOID claimed that the Commission did not make any relevant finding nor has indicated that the GOID was the granting authority of financing to the IRNC Group, let alone preferential financing. According to the GOID, based on the erroneous interpretation of ‘financial contribution’ under Article 1.1(a)(1) of the SCM Agreement, the Commission attributed the foreign financing to the GOID by virtue of the ‘acknowledgement and adoption’. The GOID further noted that nothing in the findings states or implies that the GOID or ‘public bodies’ of the GOID provided the financing and submitted that it is unfair to impose countervailing duties on the basis of financial contributions by foreign entities. Moreover, the GOID complained that it could not defend itself with regard to whether the Chinese financial institutions are ‘public bodies’ or not, since these entities are outside the GOID’s jurisdiction. However, it stated that it is normal for any company to seek whichever financing they deem appropriate, and that the GOID itself was not in a position to reject or restrict the financing flow from Chinese financial institutions or any source.

(752) In response, the Commission wishes to highlight first that general comments on the ‘acknowledgement and adoption’ of financing from Chinese sources by the GOID have already been addressed in section 4.5.8 above. Furthermore, the Commission noted that the funds provided by Chinese financial institutions, such as the EXIM Banks, were channelled through so-called ‘agency banks’, responsible for the day-to-day implementation of the disbursements and repayments on the loans. These agency banks were Indonesian branches of Chinese banks, subject to Indonesian banking legislation, and located on the territory of Indonesia.

(753) Concerning shareholder loans, the Commission found that the loan agreements for such loans made a specific reference to ‘the filing of periodic reports to the Bank of Indonesia, the Ministry of Finance and the Team for Offshore Commercial Loans (Tim Pinjaman Komersial Luar Negeri or “PKLN”)’. The PKLN was formed according to Presidential Decree No. 39 of 1991 concerning Coordination of Management of Offshore Commercial Loans (‘Presidential Decree No. 39’) (191), and consists of representatives from various Ministries as well as from the Bank of Indonesia. According to Article 2 of this Decree, loans falling under the remit of the PKLN need to be approved by the Team, are subject to periodic reporting requirements for their implementation and are closely monitored by the PKLN. Furthermore, Article 6 on the scope of this legislation specifies that loans subject to the remit of the Team are only loans ‘connected with development projects’, confirming that only loans linked to special development projects like the Morowali one are subject to this scrutiny and monitoring.

(754) Although Presidential Decree No. 39 was revoked in July 2020 by Presidential Regulation No. 82 of 2020 concerning the Handling Committee for COVID-19 and the Recovery of the National Economy, this new Regulation also stipulated that the implementation of the duties and functions of the PKLN Team under the revoked PD 39 will continue to be carried out by the Ministry of Finance. This is indeed the case in practice, as can be seen from examples of on site monitoring visits of PKLN projects listed on the website of the Ministry of Finance (192).

(755) The Commission thus maintained its position that the preferential financing from Chinese sources was acknowledged and adopted by the GOID, and that the GOID was in a position to intervene in the financing flow.

(756) IRNC Group contested the benchmark for the bank loans and claimed that it was not a start-up business, subject to very high risk, since it was part of the Tsingshan Group and benefitted from its mature manufacturing techniques and key technical and managerial staff. Moreover, IRNC Group noted that it has an outstanding cost advantage, as the factory is close to the raw materials and thus raw material prices and transportation costs are low.

(757) The Commission observed that its practice is to make individual assessments of the companies in a group, and to determine either a single benchmark for the group as a whole based on this assessment, or to modulate the benchmark based on the specific circumstances of individual companies in the group. Indeed, the fact that a company belongs to a wider group does not impinge upon the fact that certain projects carried out by the group (such as the start-up of a plant) are more risky than others. As highlighted in recitals (738) to (744) above, various risk factors were taken into account by the Commission, such as the greenfield nature of the investment, the magnitude of the capital needed for the investment, risks related to the acquisition of assets and materials, as well as the increased risk exposure of the banks highlighted by the existence of shareholder loans and debt forgiveness. IRNC Group did not provide additional evidence that could have altered the Commission’s assessment on these factors. Finally, in any event, the Commission was not in a position to make an assessment of the Tshingshan Group as such, since none of the parent companies in the group cooperated with the investigation.

(758) Over the period 2015 to 2019, the parent companies of the IRNC Group provided a series of inter-company loans (13 loans in total) to the various companies of the IRNC Group, for a total amount of USD 380 million.

(759) These loans were subordinated to the bank loans. The investigation revealed that with the exception of the loans to GCNS as well as one loan to ITSS, IRNC and the other related companies were not paying at all an interest rate for these loans. In addition, in most cases, the loans did not have an end date, and the companies of the IRNC Group did not repay any capital on the outstanding loans. However, the parent companies did not take any measures to adjust the interest rates accordingly to reflect the real risk of the transactions, nor did they request payment of the amounts due.

(760) Therefore, the Commission considered that these loans were in fact equivalent to additional capital contributions by the parent companies. As such, the treatment of these loans will be further developed in the section on support for capital investment below.

(761) The purpose of a credit line is to establish a borrowing limit that the company can use at any time to finance its current operations thus making working capital financing flexible and immediately available when needed. Therefore, the Commission considered that in principle, all short-term financing of the sampled companies, such as short-term loans, bank acceptance drafts etc., should be covered by a credit line instrument.

(762) The Commission established that Chinese financial institutions provided credit lines to the IRNC Group in connection with the provision of financing. These consisted of framework agreements, under which the bank allows the sampled companies to use various debt instruments, such as working capital loans, bank acceptance drafts and other forms of trade financing within a certain maximum amount.

(763) As mentioned in recital (760) above, all short-term financing should be covered by a credit line. Therefore, the Commission compared the amount of the credit lines available to the cooperating companies during the investigation period with the amount of short-term financing used by these companies during the same period to establish whether all short-term financing was covered by a credit line. Where the amount of the short-term financing exceeded the credit line limit, the Commission increased the amount of the existing credit line by the amount actually used by the exporting producers beyond that credit line limit.

(764) Under normal market circumstances, credit lines would be subject to a so-called ‘arrangement’ or ‘commitment’ fee to compensate for the bank's costs and risks at the opening of a credit line, as well as to a ‘renewal fee’ charged on a yearly basis for renewing the validity of the credit lines. However, the Commission found that the IRNC Group benefited from credit lines mostly provided free of charge. Therefore, a benefit was conferred to the investigated groups of companies within the meaning of Article 6(d) of the basic Regulation.

(765) In accordance with Article 6(d)(ii) of the basic Regulation, the Commission considered the benefit conferred on the recipients to be the difference between the amount that they paid as a fee for the opening or the renewal of the credit lines by Chinese financial institutions, and the amount that they would pay for a comparable commercial credit line obtained at an undistorted market rate.

(766) The appropriate benchmarks for the arrangement fee and for the renewal fee were established at 1,5 % and 1,25 % respectively by reference to publicly available data (193) and benchmarks used in previous investigations (194).

(767) In principle, the arrangement fee and the renewal fee are payable on a lump sum basis at the time of the opening of a new credit line or the renewal of an existing credit line respectively. However, for calculation purposes, the Commission took into account credit lines which had been opened or renewed before the investigation period but which were available to the sampled groups during the investigation period and also the credit lines that were opened during the investigation period. Then, the Commission calculated the benefit based on the period within the investigation period during which the credit line was available.

(768) The subsidy amount established under this scheme amounted to 0,06 % for IRNC Group.

(769) In addition to the direct loans and intercompany loans, the IRNC Group also needed to cover its financial needs through capital contributions.

(770) Previous investigations found that substantial subsidies were received at the level of the parent companies of Chinese groups to support foreign investment under the BRI, in the form of grants, preferential financing and equity injections. This was notably the case in the anti-subsidy investigation on Tyres (‘the Tyres case’), as well as in the GFF anti-subsidy investigation and the GFR investigation (195).

(772) The investigation revealed that in October 2013, Reed International Ltd. acquired 24 % stake in SMI, a related company to IRNC.

(773) Reed International Ltd. is a special purpose investment vehicle, fully owned and controlled by CAF. As mentioned in the 2017 annual report of IMIP, ‘Reed International Limited is a special investment company of China-ASEAN Investment Cooperation Fund set up for investment of the SMI project’ (196). In order to determine whether the CAF could be considered a public body, the Commission requested specific information from the GOC concerning CAF. Given the absence of any reply, for instance, about CAF’s Articles of Association, the Commission had to rely on facts available under Article 28(1) of the basic Regulation to analyse this aspect.

(774) According to publicly available information, CAF is a USD-denominated offshore quasi-sovereign equity fund. It is owned and sponsored by several State-Owned Banks and other Chinese financial institutions (such as the Export-Import Bank of China (’EXIM Bank’) and a China's sovereign wealth fund, China Investment Corporation (‘CIC’), together representing more than 76 % of the shares in CAF) (197). CAF is subject to the direction of the PRC State Council (198) and approval by the National Development and Reform Commission. Exim Bank and CIC, have jointly founded the USD 1 billion private-equity fund. Exim Bank and CIC have each invested USD 300 million in CAF. Other shareholders include Bank of China Group Investment Co., Ltd., and China Communications Construction Co., Ltd, two Chinese state-owned financial institutions (199). The CEO and the COO of the company both originate from the Exim Bank.

(775) The fund targets investment opportunities in infrastructure, energy and natural resources in the ASEAN countries (200). Its target investment sectors include notably natural resources in the Ferrous and Non-Ferrous Metals Sector (201).

(776) In May 2010, Li Ruogu, president of China EXIM Bank, stated that the CAF is ‘a major innovation in the financing model of the [China EXIM] Bank’ (202). On 9 September 2013, Chinese Prime Minister Li Keqiang stated that the CAF is part of the Chinese strategy to deepen the cooperation between the PRC and ASEAN. In the speech, the Prime Minister said that ‘China will activate a new round of special loans, make good use of the China-ASEAN Investment Cooperation Fund, and actively explore with other parties the creation of a financing platform for infrastructure development in Asia to fund major projects’ (203).

(777) Moreover, point 35 of the Guiding Opinions mentioned in recital (770) above, explicitly mentions CAF as a vehicle for providing financial support under the BRI, as follows: ‘We will give full play to the role of the Silk Road Fund, China-Africa Fund, the China ASEAN Fund, and China Overseas Investment Corporation. We will actively support international production capacity and equipment manufacturing cooperation projects through equity investment and debt financing. We will encourage the domestic private equity fund management agencies to “go global” and give full play to their role of supporting enterprises “going out” to carry out greenfield investment, M&A investment, etc’. Of note, on the basis of the same evidence, the Commission found in the Tyres investigation that a similar fund (SRF) was a public body (204).

(778) Finally, as mentioned in recitals (589) and (626) above, during the Indonesia/China summit on 2 October 2013, in the presence of the respective Presidents of State, the founder shareholders of IMIP, BDI and SDI, signed an investment and financing agreement with the CAF to develop activities in the Morowali Park (205). The equity investment of the CAF in SMI exactly coincides in time with the signature of this agreement, and corresponds to an investment to develop activities in the park. Furthermore, as can be seen in the recital above, financial support provided by the GOC via CAF can encompass either equity investment or debt financing. Therefore, such equity support would thus equally fall under the preferential financing agreed upon between China and Indonesia under the bilateral cooperation framework, attributed to Indonesia for the same reasons explained above and can thus be allocated to the products exported from Indonesia.

(779) Despite the lack of cooperation on this aspect, the Commission concluded on the basis of publicly available information that CAF can be considered a public body within the meaning of Articles 3 and 2(b) of the basic Regulation, providing a financial contribution to SMI. Indeed, CAF is owned and subject to the GOC’s control. Its actions are directed by the State Council in line with the policy objectives set by the GOC and thus CAF is vested with government authority.

(780) The Commission then analysed whether the financial contribution provided by the CAF conferred a benefit to the IRNC Group. As mentioned above, Reed International Ltd is a special purpose investment vehicle of the CAF, established specifically to invest in SMI, one of the companies of the IRNC Group. Pursuant to the terms of the Subscription Agreement with the other shareholders (206), Reed International Ltd was to sell its shares back to the other shareholders at the same price 5 to 6 years after its initial investment, irrespective of the actual market value of the shares. Furthermore, Reed’s acquired shares were special shares with very limited governance rights. These conditions already show that, contrary to what a market operator would ask, Reed International Ltd did not expect any reasonable return from the purchase of the shares; nor does the investor seek out any control rights. Thus, the operation cannot be qualified as made on market terms.

(781) Moreover, the investigation revealed that after the start-up period, investment in SMI became less risky, and the financial position of the company became stronger. Therefore, the value of its shares increased over time, but this was not reflected in the sales price of Reed International Ltd. This does not reflect rational behaviour of an operator under normal market conditions. Based on the evidence on file, the Commission thus concluded that the financial contribution provided by the GOC via CAF, acting as a public body, conferred a benefit within the meaning of Article 3(2) of the basic Regulation.

(782) During their start-up period, all companies of the IRNC Group benefited from capital contributions in kind in the form of production equipment.

(783) Indeed, the investigation revealed that all the machinery for the production process of the IRNC Group were imported from related companies in China, which were not the manufacturers of the equipment. The Commission requested the invoices related to the purchase from the original manufacturers of the equipment, but due to the non-cooperation of the Chinese parent companies, these were not submitted, therefore preventing the Commission from verifying whether the prices were at arm’s length and whether the origin was indeed China, as declared.

(784) In addition, they benefited from shareholder loans which were equivalent to equity injections, as mentioned in recital (759).

(785) In the absence of any reply from the Chinese parent companies providing the equipment and shareholder loans in question as well as from the GOC, and following the application of the provisions of Article 28(1) of the basic Regulation, the Commission had to rely partially on facts available for its findings concerning the acquisition of this equipment and these shareholder loans. In particular, the Commission had to use facts available in order to identify the origin of the equipment and the source of financing of the equipment and the loans provided by the Chinese parent companies to the companies of the IRNC Group.

(786) To reach this conclusion, the Commission established the existence of a clear commitment from the Chinese parent companies to invest overseas in encouraged industries. In this respect, as mentioned above Tsingshan advertises itself on its website as ‘always been following the national development strategy of globalization and actively responding to “The Belt and Road” initiative’. It even has a special subsidiary managing its overseas projects: ‘Eternal Tsingshan Group is one of the entity-type enterprise management groups under the Board of Directors of Tsingshan Industry, and is responsible for managing all overseas projects planned by the Board of Directors of Tsingshan Industry. So far, Eternal Tsingshan Group has completed the international strategic layout in Indonesia, Singapore, India, the United States and other countries, and manages over 15 subsidiaries/representative offices (207).’

(787) Furthermore, one of the main companies involved in the provision of equipment to the IRNC Group was Shanghai Dingxin Investment (Group) Co., Ltd. (‘Dingxin Group’). It is one of the four major group companies under the board of directors of Qingshan Industrial. According to the website of the group, it has been the main force of Tsingshan Industrial to promote international operations. Dingxin Group also stated that it is mainly responsible for Overseas investment project management, export of mechanical and electrical products and other construction equipment to the Tsingshan Park in Indonesia.

(788) All of these overseas projects fit within the wider context of China’s ‘going out’ policy. In this respect, the Chairman of Tsingshan Holding Group, stated for example: ‘Tsingshan Industrial Park is the biggest and most successful Chinese investment in Indonesia and will accommodate the production capacity transferred from China. It’s a major project for us to fulfil our social responsibility and give back to the society. It’s also important for the implementation of the Belt and Road Initiative (208)’.

(790) Moreover, the ‘Guiding Opinions’ mentioned in recital (770) above include steel as a priority sector for international production capacity and equipment manufacturing cooperation (see chapter 3, point 7). They also state that ‘Going global of Chinese equipment, technology, services and standards shall be promoted’, especially in these priority sectors. Chapter 3, point 8 adds that steel production sites shall be built ‘in priority countries with favourable conditions of resources… and with vast market potential by means of export of complete sets of equipment….’ Finally, point 32 which refers to increased financial support, mentions among others the following means to support enterprises ‘going global’; ‘support the “going global” enterprises with foreign assets and equity interests, as collateral to obtain loans and other mineral rights, and to improve their corporate finance capabilities.’

(791) In other words, the provision of the shareholder loans and equipment by the Chinese parent companies to their subsidiaries in Indonesia squarely fits into the GOC’s policy objective of promoting BRI projects in the steel industry, and the provision of foreign assets (in this case equipment) is seen as a means by the GOC to beef up collateral to improve the overall financial capabilities of such companies.

(792) It is in this context that the IRNC Group’s parent companies received a financial contribution from the GOC in the form of grants or preferential financing in order to implement these policies, including to fund their investments in Indonesia for the production of the product concerned. Due to the complete non-cooperation of these companies and of the GOC on this matter, the Commission was unable to identify the actual source of financing and substantiate in detail through which means such a financial contribution was made. However, on the basis of the facts available pursuant to Article 28(1) of the basic Regulation and based on all the above evidence on the funding under the BRI of projects outside of China including Indonesia, as well as on the findings in the Tyres case, the GFF anti-subsidy investigation and the GFR investigation, the Commission concluded that the Chinese parent companies received a financial contribution in the form of grants or preferential financing that were then used to provide shareholder loans and capital in kind to their subsidiaries to facilitate their financial capabilities and operations in Indonesia. In this respect, the benefit from the grants or preferential loans received by the Chinese parent companies was allocated to the activities of the subsidiaries in Indonesia, using zero interest inter-company loans.

(793) Specifically, in the Tyres case the Commission found that financing provided under the BRI was used to purchase shares in the Pirelli Group and amounted to an export subsidy (209). In the GFF anti-subsidy investigation and the GFR investigation, despite partial cooperation, the Commission was able to trace the preferential funding originating in China and reconcile them to the funding finally contributed into the Egyptian producing entities. In both cases, the Commission could show that the financial contributions granted in China to the parent companies were fully transferred by the parents to the respective foreign subsidiaries in the exporting countries. In this case, due to the complete non-cooperation the Commission is unable to assess the tracing of the funds as it was unable to find these specific financial data in the public domain, despite searching also from Chinese sources. Therefore, the Commission needed to draw inferences on the basis of Article 28(1) based on the Tyres case, the GFF anti-subsidy investigation and the GFR investigation, which have very similar situation to this case because they involve projects financed under the BRI initiative following exactly the same pattern. Furthermore, the GFF anti-subsidy investigation and the GFR investigation have a number of similarities in that China provided preferential financing via their policy and State-owned banks to the Egyptian subsidiaries in the context of the BRI and the bilateral cooperation with the Egyptian government. These are mirror situations of the one in this investigation, where China is providing preferential financing via EXIM and the other SOCBs under the BRI for an investment project in Indonesia.

(794) In the absence of any evidence provided by the Chinese companies or GOC, and based on the publicly available evidence namely in the Tyres case, the GFF anti-subsidy investigation and the GFR investigation, the Commission thus concluded that the provision of equipment and shareholder loans by the shareholders was just another means of financing the Indonesian subsidiaries and decided to countervail these as equity injections supported by the State, with the aim of setting up and expanding the production facilities of the IRNC Group in Indonesia. Such support would equally fall under the items agreed upon between China and Indonesia under the bilateral cooperation framework, attributed to Indonesia for the same reasons explained in recitals above and can thus be allocated to the products exported from Indonesia.

(795) The Commission then analysed whether the financial contribution provided by the GOC via the Chinese parent companies conferred a benefit to the IRNC Group. Once again, due to the non-cooperation of these companies, the Commission had to base its findings on the provisions of facts available according to Article 28 of the basic Regulation. The conditions of the shareholder loans (including the fact that no interests were charged) show that the Chinese parent companies fully allocated the benefit from the grants and preferential loans received in China to its activities in Indonesia.

(796) Concerning the equipment, the Commission analysed whether the equipment in question was purchased at arm’s length prices, by making a comparison with the market prices for similar equipment used in the stainless steel industry. Based on this analysis, the Commission found that equipment was provided at a significant discount compared with international market prices for similar, representative sets of production equipment for cold-rolling mills. Based on the evidence on file, and in accordance with Article 28(1) of the basic Regulation (210), the Commission concluded that the financial contribution provided by the GOC via the Chinese parent companies conferred a benefit within the meaning of Article 3(2) of the basic Regulation.

(797) For the first point, i.e. the equity injection provided by CAF, the benefit was calculated on the basis of a reasonable rate of return, i.e. what a market investor would have expected when selling the shares at the time the shares were purchased. For this, the Commission looked for similar transactions in the steel industry in the last years. Based on the result of 11 sales transactions of steel companies in the period 2006 to 2019, the Commission concluded that a reasonable price for the shares in a steel company would be 8 times the operating profit.

(798) Therefore, the benefit was calculated as the difference between the value of Reed Investment’s 24 % stake valued at 8 times the operating profit of SMI for 2018 less the price paid by Reed Investment. The benefit was then apportioned to the investigation period using the lockdown period mentioned in the Subscription Agreement, i.e. 5,5 years.

(799) For the second point, i.e. the provision of equipment at preferential terms, the benefit was calculated as the difference between the purchase price paid by the companies in the IRNC Group and a market price for comparable equipment purchases. The Commission examined in this respect similar purchases of representative sets of equipment for cold-rolling mills in the last years, based on purchase transactions of steel companies. The resulting benefit was then allocated to the investigation period based on the useful life of the assets purchased.

(800) For the third point, i.e. shareholder loans, since these loans were considered to be de facto equity injection through which the Chinese parent companies channelled the grants and preferential loans received, the Commission decided to treat the outstanding amounts of these loans during the investigation period as a grant. The benefit conferred was determined based on the outstanding capital amount of the loan minus the interest paid during the investigation period (if any). Since the loans were clearly linked to a long-term investment, the capital amount was depreciated over the duration of the loan, and only the amount allocated to the investigation period was taken into consideration. Finally, where necessary, the amount of the benefit was further adjusted to reflect only the number of days in the investigation period in which the loan was running.

(801) The subsidy amount thus established for support for capital investment amounted to 6,02 % for the IRNC Group.

(802) The IRNC Group complained about the inadequate disclosure concerning the benchmark for the capital injection by CAF, since the names of the companies in the benchmark were omitted and there was no indication on whether the transactions concerned special shares.

(803) The Commission considered that revealing the detailed figures, the nature of the shares and individual names of the companies would reveal confidential information of transactions made by specific companies. Instead, the Commission provided a meaningful summary of the data, with indexed figures and an indication that all transactions were made by companies in the steel sector. This claim was thus rejected.

(804) Eurofer noted that the benchmark was calculated on the operating profit (EBITA), but the information provided on the similar transactions for steel companies seemed to refer to the EBITDA. The EBITA is lower than the EBITDA. Therefore, if the Commission applied the calculation to the EBITA rather than to the EBITDA to which the benchmark refers, the benefit for SMI was underestimated. The complainant invited the Commission to reassess the calculation.

(805) The financial statements of SMI do not contain EBITDA as such. Instead of trying to recalculate EBITDA based on the available data, the Commission indeed used the operating profit of SMI to calculate the benefit. This was considered to be a reasonable and prudent approach. In any event, after further analysis, the Commission found that the reassessment of the calculation would only have led to a negligible change of less than 0,1 %. The Commission thus maintained its original calculation.

(806) On the provision of capital in kind for less than adequate remuneration, the IRNC Group submitted that, IRNC only imported one single cold rolling line and claimed that the rest of the equipment has no similarity with the cold rolling line. IRNC Group argued that the Commission did not explain why benefits have been conferred also to other types of equipment.

(807) In this respect, the Commission first observed that the fixed assets register of a large production plant such as IRNC consists of hundreds of lines. The Commission therefore decided to sample representative sets of equipment to determine the benefit for the entire plant. The cold rolling lines represented an essential part of IRNC’s production process, and the benefit for these production lines can thus be considered representative for the entire plant. Furthermore, the Commission did not just use one single type of equipment in its calculation, but several types of equipment which are part of a production line, such as parts of a twenty-roll reversible cold rolling mill, grinder, part of the bridge crane, winding unit, slitting machine and others. This claim was thus rejected.

(808) IRNC Group also asked the Commission to disclose additional information on the methodology used to establish the benchmark for the purchases of machinery.

(809) In this regard, the Commission notes that the benchmark used was adjusted for similar production capacity as IRNC’s equipment, the origin of the equipment was either European or American and the purchase year of the equipment ranged from 2008 to 2020, i.e. both before and after IRNC’s plant was set up. Since no meaningful price differences could be detected within this time range, the Commission concluded that all of the purchases within this time period were reasonable proxies for IRNC’s purchases.

(810) In its comments to the additional final disclosure, IRNC Group noted that the additional information provided by the Commission on the benchmark for the imported machinery refer to a benchmark outside of the ‘country of provision or purchase’, to which Article 14(d) of the SCM Agreement refers. According to IRNC Group, in this case, the ‘country of provision or purchase’ should be Indonesia or China, in line with the Appellate Body in US – Softwood Lumber IV (211). According to IRNC Group, the Commission should have established that private prices in Indonesia and China were distorted before referring to European or American equipment as a benchmark.

(811) Moreover, IRNC Group claimed that, even assuming that the Commission was justified in rejecting prices in Indonesia and China, the Commission did not explain why it chose American and European, instead of Indian prices for cold-rolling equipment, considering the similar level of economic development of India and Indonesia.

(812) At the least, the Commission should have adequately adjusted prices to reflect the prevailing market conditions in China or Indonesia.

(813) With respect to the ‘country of provision or purchase’ of the equipment, the Commission observed that the IRNC Group itself did not make any equipment purchases on the domestic Indonesian market. All of the equipment was imported. Using Indonesia as a benchmark would thus not have been aligned with the factual situation of the IRNC Group. As for China, the Commission recalls that the machinery was imported from related companies in China, which were not the manufacturers of the equipment. The Commission tried to determine the origin of the equipment by requesting the invoices from the original manufacturers, but due to the non-cooperation of the Chinese parent companies, this was not possible. Hence, the Commission had to rely on facts available with regard to the actual country of origin of the purchases.

(814) In terms of facts available, the use of data from the Indian sampled company in the case at hand was not feasible. Full data on the equipment of the plant was not requested from the Indian manufacturers, as they were not necessary to determine subsidisation under the Indian subsidy schemes. As a result, no relevant data were available for one of the sampled companies. For the other company, the data were considered to be unfit for use as a benchmark since they related to inter-company purchases. On the other hand, Europe and the US both have a reputable industry for steel plant equipment, and the suppliers included in the benchmark sold cold-rolling mills around the world, including to Chinese steel manufacturers. Therefore, the Commission considered that such global players could be used as a reasonable proxy for a purchase of imported equipment from unknown origin.

(815) Finally, the same reasoning applies for the adjustment of prices to reflect the prevailing market conditions in China or Indonesia. Since there is no evidence that the equipment was procured on either of these markets, the Commission sees no need to make any further adjustments. Therefore, these claims were rejected.

(816) Concerning the non-cooperation by related companies on the origin of the equipment, the IRNC Group claimed to have provided sufficient information on the machinery imported from related companies in China and that there was no evidence to support the findings of the Commission in this relation.

(817) The Commission disagreed with this claim. As mentioned in recital (782) above, the machinery was imported from related companies in China, which were not the manufacturers of the equipment. Contrary to what was stated by the company, the Commission requested the invoices related to the purchase from the original manufacturers of the equipment by the related companies, but due to the non-cooperation of the Chinese parent companies, these were not submitted. This information was necessary within the scope of the investigation in order to establish the arms-length value of said equipment. The Commission thus maintains its position that insufficient information was provided on the equipment imported from related companies and that it therefore had to rely on best facts available.

(818) On the shareholder loans, the IRNC Group claimed that the Commission failed to prove that the GOC provided a financial contribution via the Chinese parent companies or conferred a benefit to the IRNC Group. According to the GOID and IRNC Group, IRNC’s shareholders are private companies, and the Commission failed to establish that the Tsingshan Group is a public body or entrusted by the GOC. It also recalled that shareholder loans were subordinated to bank loans from China, i.e. they were a pre-condition to obtain the bank loans. In the IRNC Group’s view, if the shareholder loans had originated from the GOC just as the bank loans from China, the subordination would have been illogic.

(819) The Commission recalls that in the absence of any reply from the Chinese parent companies providing the shareholder loans in question as well as from the GOC, the Commission had to rely partially on facts available for its findings concerning these shareholder loans. In particular, the Commission had to use facts available in order to identify the source of financing of the loans provided by the Chinese parent companies to the companies of the IRNC Group. The Commission established at length in recitals (785) to (790) above that there is a clear commitment from the Chinese parent companies to invest overseas in encouraged industries and that the provision of these shareholder loans squarely fits into the GOC’s policy objective of promoting BRI projects in the steel industry. As mentioned in recital (794), the conditions of the shareholder loans (including the fact that no interest was charged) show that the Chinese parent companies fully allocated the benefit from the grants and preferential loans received in China to its activities in Indonesia. The fact that IRNC’s shareholders are private companies does not contradict these findings. As to the fact that the shareholder loans are a condition for the direct bank loans from the Chinese public bodies does not contradict the Commission’s findings either. In the Commission’s view, it only shows the existence of different channels to provide financial support, and it actually reinforces the Commission’s point that there is a strong link between both types of loans. This claim was thus rejected.

(820) Furthermore, the IRNC Group claimed that the shareholders loan from two companies, located in Hong Kong and Japan respectively, should not be countervailed as they were not located in China.

(821) Concerning the loan from the company located in Hong Kong, the Commission observed that Luck Scenery did not cooperate during the investigation, and that the IRNC Group had not submitted any additional evidence after the final disclosure to substantiate its claim.

(822) On the other hand, the claim was found to be justified for the Japanese company. Contrary to the other shareholder loans, information was actually provided for this company, showing that it had indeed been established in Japan with Japanese shareholders. Contrary to the other loans, no links could be found with the Chinese government, Chinese banks, the Tsingshan Group or other Chinese stakeholders. Therefore the Commission removed the loans of this company from the benefit calculation.

(823) Concerning the non-cooperation by the IRNC Group’s shareholders, IRNC Group recalled that the Commission should base its conclusions on the best facts available and claimed that evidence of non-cooperation could not derive from information, which was never required and should not be required from the IRNC Group, being outside the scope of this investigation.

(824) The Commission noted that the scope of the investigation included subsidy schemes awarded under the bilateral cooperation between China and Indonesia. Point 6 of the general instructions also stated that ‘In case where a related company has obtained any benefits from the subsidy schemes under investigation, the details shall be reported in line with the questions in this questionnaire’. As explained in recital (791), IRNC Group’s parent companies received a financial contribution from the GOC in the form of grants or preferential financing in order to implement the GOC’s preferential policies, including to fund their investments in Indonesia for the production of the product concerned. Therefore, both IRNC’s shareholders and the shareholders of other IRNC Group’s entities were required to provide their replies to the questionnaire. In addition during the investigation, the Commission requested specific information from all the parent companies and none of the Chinese shareholders responded to these requests. Therefore, the claim was rejected.

(825) With reference to the benefit, IRNC Group noted that the end date of the shareholders' loans follows that of the bank loans since they cannot be paid before the bank loans. The IRNC Group also clarified that the shareholder loans are booked as liabilities and that IRNC Group's companies accrue interests. Therefore, in the IRNC Group’s view, the Commission should not treat the outstanding amounts of all shareholder loans during the IP as a grant.

(826) The loan agreements indeed stipulate that the bank loans are to be paid before the shareholder loans. However, contrary to the bank loans, which have a clear repayment schedule, the shareholder loans do not indicate any timeline for repayment after the maturity date of the bank loans. Furthermore, even if interest is accrued in the accounts of the company, this does not refute the Commission’s findings that in practice the company did not have any actual cash outflow and could freely dispose of all of its liquid cash, thus procuring a clear financial benefit equivalent to a grant. Therefore, the Commission maintained its position.

(827) The complainant alleged that the exporting producers benefitted from cheap coal due to various government measures on the domestic coal market, notably the existence of a maximum domestic price, a domestic market obligation (‘DMO’) and a letter of credit requirement for export sales. These measures would serve to depress the domestic prices of coal and provide a benefit for coal users, including stainless steel industry. However, the investigation found that the alleged measures neither individually, nor taken together, had the alleged effect.

(828) The investigation has determined that the maximum domestic price did not apply to, or provide, any benefit to the exporting producers. The regulated maximum price for thermal coal capped at USD 70 per tonne applied only to electricity companies selling energy to final customers (‘public interest companies’). The exporting producers and their related suppliers of intermediate materials used all electricity they self-generated, therefore they were not ‘public interest companies’ and they did not benefit from the capped price.

(829) Therefore, the investigation could not find that the exporting producers benefitted from this subsidy.

(830) The complainant contended that IMIP channelled the direct support it received from the GOID, which provided facilities in terms of land, to the exporting producer with which IMIP is related to. According to the complainant, land acquisition and development, and arrangements on the rental of buildings, are important facilities that the GOID granted to IMIP and hence to the related exporting producer.

(831) According to Articles 1 and 2 of the Basic Agrarian Law No. 5 of 1960 (‘Basic Agrarian Law’), all land and natural resources in Indonesia are conceived as ‘gifts of God’ which are ‘controlled by the State’. This ‘right of control’ of the State, consisting, inter alia, in regulating the appropriation and the use of the land, is exercised in order to achieve ‘the maximum prosperity of the people’.

(832) Pursuant to Articles 28 and 33, paragraph 3 of the Constitution of the Republic of Indonesia and to the Basic Agrarian Law, private persons are entitled to hold a ownership in the form of freehold over a plot of land (Hak milik). Moreover, a number of minor property rights exists, such as the exploitation right (Hak guna usaha – ‘HGU’), the use right (Hak pakai, also translated as cultivation right) or the building use right (Hak guna bangunan – ‘HGB’, also translated as building right). The latter includes the right to use and to build over a plot of land. While the ownership is reserved only to Indonesian persons, HGU and HGB are available also to foreign-owned companies incorporated in Indonesia. However, in practice these formal rights still coexist with customary land claims. This is due to the fact that not all plots of land in Indonesia are officially registered because members of the customary communities (Ulaiat) are not obliged to register their plots of land, and that the proof of the rights over a plot of land is provided by a corresponding certificate (Sertifikat) granted only on plots of land already registered. Certificates are different depending on the right they acknowledge, namely: Sertifikat hak milik – ‘SHM’ for the ownership; Sertifikat hak guna usaha – ‘SHGU’ for the exploitation right; and Sertifikat hak guna bangunan –‘SHGB’ for the building use right.

(833) As explained in the relevant section above, the Morowali Park is an industrial park incorporated in Indonesia under the special qualification of an industrial estate. Therefore, in tracing back the legal basis that regulates the land where the Morowali Park was established, account has to be taken not only of the laws concerning land ownership and spatial planning, but also of specific regulations concerning industrial estates.

(837) The GOID provided land for less than adequate remuneration to IMIP, and hence to IMIP’s related companies of the IRNC Group, as part of the bilateral cooperation with the GOC. The deal between the GOID and the GOC relied on Indonesia agreeing to establish a special Industrial Estate in the Morowali Park and confer the management to IMIP (see recitals (560) et seq.). Among the terms of the agreement between the governments, the GOID would facilitate the procurement and acquisition of land for the exporting producers established in the Morowali Park, in accordance namely with the Joint Statement of March 2015 and Regulation No. 142 of 2015.

(838) The investigation found that the GOID facilitated the necessary land to IMIP starting from 2013. The land in question was the property of the Indonesian State. IMIP agreed with the local authorities, and with the assistance of the Bahodopi district authorities, on a single average payment per square meters, as a compensation, for the individuals using the land at the time.

(839) The investigation also showed that the tenants in the Morowali Park, including the IRNC Group, were able to start building their plants before actually obtaining the legal certificate for the building use right because IMIP was considered by the GOID a National Strategic Project (213). For some plots, a legal certificate was available during the IP, and corresponded to either a full ownership right or a HGB. The recognition of IMIP as National Strategic Project provided a formal legal assurance to the IRNC Group that it could start building on the land received even before acquiring definitive title to the land. In addition, it is generally recognised that it is risky to buy land in Indonesia due to difficulties in obtaining and showing ownership title. The removal of this risk grants a decisive advantage to an envisaged investment.

(840) The GOID alleged that the transfer of the land to IMIP was a transaction between private parties. This is incorrect. As a matter of fact, the GOID was the owner of the land. The fact that there were villagers occupying the land and that IMIP paid the agreed compensation to the villagers to purchase the land does not make such a transaction a transaction between two private parties.

(841) Therefore, the Commission concluded that the GOID provided a financial contribution directly to IMIP in the form of provision of State land within the meaning of Article 3.1(a)(iii) of the basic Regulation.

(842) This financial contribution confers an advantage because IMIP simply paid a compensation pre-agreed with the local and district GOID’s officials for the giving up of the occupation of the land, which was unrelated to the actual value of the land or any market considerations. The actual owner of the rights to the land, i.e. the GOID, never charged anything to IMIP for the actual value of the land. There was also no document showing that the land was properly evaluated. In fact, there is evidence on file that the amount for the compensation paid to the villagers was unrelated to the actual market value of the land and its potential to be used as industrial land.

(843) Similar to preferential financing, this scheme is both sectorally and regionally specific for the same legal reasons.

(844) In order to measure the advantage received by the exporting producer, the Commission resorted to an in-country benchmark for land. The most appropriate approach at this stage was to compare the value of developed land ready to build a plant on. However, the Commission could not consider the compensation awarded as comparable to prices paid for land transactions on the market. Therefore, the Commission considered only the development costs incurred by IMIP to transform the land purchased as forest and plantation into land ready for industrial use. The Commission compared these costs with an independent evaluation report for industrial land prepared for Jindal Indonesia. Jindal Indonesia is located in the Gresik Regency in the province of East Java and the evaluation report, prepared every few years for accounting purposes and at the request of lending banks, assessed the value of the HGBs held by Jindal Indonesia, inter alia, through comparison to prices in transactions concerning HGBs over developed land in the area. The Gresik Regency in East Java is an area comparable to the Morowali Regency in Central Sulawesi because it has a similar GDP, because of the presence of an industrial park and because they are both far from the capital Jakarta, whose land prices are far different from the rest of the country. Moreover, the value in the Jindal Indonesia’s evaluation report is a conservative estimate, since they concern only HGBs, whereas, as mentioned, IRNC Group acquired from IMIP variably HGBs and full ownership rights, with a higher value compared to HGBs, on different plots of land.

(845) In the calculation, first of all, the value of the evaluation report referred to 2020. Therefore, it was adjusted by the consumer price index (CPI) to obtain the value in each year in which each the IRNC Group had purchased a plot of land. The amount of benefit was established by deducting the compensation paid by IMIP from the benefit found.

(846) Then, IMIP’s land development costs by square meter were compared to the value of the evaluation report adjusted to the corresponding year to obtain the benefit per square meter. This figure was then multiplied by the area of land that each of the companies in the IRNC Group was actually using, in order to allocate the total benefit for the group to each of the companies in the group.

(847) After that, the benefit was apportioned to the IP by using the useful economic life of the land, i.e. 30 years. This corresponds to the duration of HGBs in Indonesia. The total benefit received was allocated on the basis of the actual usage per square meter by each company of the IRNC Group in the Morowali Park.

(848) Only the IRNC Group benefited from this subsidy scheme. No benefit was found for Jindal Stainless Indonesia, as it had acquired an already existing plant when it started operations.

(850) The GOID and IRNC Group claimed that the Commission did not put forward evidence that land was property of the Indonesian State and it recalled that the land had been purchased from private individuals. The GOID clarified that this was certified by the regional government since the land was not registered under land deed, but that this did not mean that the purchase was agreed with local authorities. The GOID asserted that the State is only responsible for administering the ownership rights of the land, including certifying the transfer of ownership, until the land is registered. This certification is just for land administration purposes. Both parties further claimed that the price was set and agreed between IMIP and the private land owners, and the GOID added that the transaction in question as a sale and purchase transaction, not a compensation.

(851) In response, the Commission observed that the land of the territory where IMIP was established is State Land (‘Tanah Negara’) with the status of former Swapraja land. This term refers to the land which, before the independence of Indonesia, belonged to local sultanates or kingdoms benefitting from a certain degree of self-government. After the independence, these areas and the customary communities living there still retained a certain degree of semi-autonomy.

(852) The Basic Agrarian Law, enacted in 1960, provided that Swapraja land could be converted into private land until 1980. Failure to convert it into private land resulted, after 1980, in the GOID acquiring the right to administer and manage the former Swapraja land, thus becoming effectively State Land. Since the customary communities are not obliged to register the land, this change in land status led to large areas of the country where plots of land are not registered. Absence of registration implies that members of the customary communities living there have no certificate to prove their rights on the land where they live. This situation does not prevent members of the customary communities from demonstrating their customary use of a plot of land.

(853) However, the rights of customary communities, even when recognised, still coexist with the right to administer and manage the former Swapraja land falling upon the GOID. In fact, the land transferred to IMIP was clearly labelled as State Land (Tanah Negara). Indeed, Art. 1(3) of the Government Regulation of the Republic of Indonesia No 24 of 1997 regarding land registration clearly states: ‘State land (tanah negara) or land directly controlled by the State is land which is not possessed under a certain land right.’

(854) As a consequence, the members of the customary communities can give up their customary use of the land and be compensated for it, but it is the GOID that retains the right to actually sell/transfer the land. As such, the GOID had to give its consent to the transaction.

(855) In addition, Article 43 of the Agrarian Law of 1960 stipulates that: ‘As far it concerns land directly controlled by the State, the right of use may only be transferred to another party with the permission of the authorized official’. Based on this, the Commission concluded that it was up to the GOID to decide whether the land would be transferred to IMIP or not.

(856) In the context of IMIP’s establishment, the GOID actively intervened in several ways to procure the land to IMIP in accordance with Article 48(1) and 45(1) of Regulation 142 of 2015.

(857) First, the GOID amended the spatial planning of the Morowali Area, changing the purpose of the land from farmland to industrial land, more specifically linked to a nickel project. Indeed, Article 28 of Morowali Regency Regulation No. 10 of 2012 designated as nickel mining area the Bahodopi district, i.e., the sub-regency entity where IMIP is located. Moreover, Article 29 of the same Morowali Regency Regulation designated the Bahodopi district also as an Industrial Area ‘based on mining raw materials’. More generally, the Morowali Regency identified a ‘large industrial area in Bahodopi District’ as a ‘Regency strategic area from the point of utilization of natural resources’ (Article 37). Finally, Article 9 of the same Morowali Regency Regulation identified Bahodopi district as the area where a special mining port terminal is located. This change of use left the villagers with no choice but to relinquish their right to occupy and use their land as they could no longer use it for farming activities.

(858) Second, IMIP contacted the local authorities in the area, i.e., the mayors of the villages located in the area, and agreed with them on a compensation to be provided to the people that the village heads identified as occupants of the plots of land in the area. In this process, three elements have to be highlighted: (i) IMIP agreed on the compensation with the village heads also with the assistance of GOID’s officials of the Bahodopi district, because the contracts show that they later witnessed the transaction and certified the use and the ensuing right to compensation of the villagers; (ii) the plots of land whose occupants were identified by the village heads have more or less all the same area (approx. 20 000 square metres each); and (iii) the compensations in the contracts is actually a single average price per square metre and it is not defined with the Indonesian word for ‘price’ (Harga), but with the Indonesian word for ‘compensation’ (Ganti rugi).

(859) The evidence proved that the land purchase process undertaken by IMIP was actually a process where the State provides the land to the IMIP without any consideration, only with the requirement to pay the agreed compensation to the villagers. IMIP agreed with the local authorities, and with the assistance of the Bahodopi district authorities, on a single average compensation per square meters for the individuals owning the land. The right to compensation was acknowledged by local and district authority through the recognition of continued use of the land, absent a formal title.

(860) On this basis, the claims of the GOID and of IRNC are rejected.

(861) The GOID and IRNC Group also claimed that the benchmark employed referred to developed land, whereas the land acquired by IMIP consisted of forests and plantations.

(862) The Commission indeed used a benchmark for developed land. However, on the side of IMIP, the Commission included in the calculation the original cost of the land plus the development costs for this land, as reported by IMIP itself. The Commission thus compared the cost of developed land for IMIP with the publicly available cost of developed land. Therefore, this claim was dismissed.

(863) Finally, IRNC Group disputed the adjustment to the benchmark based on the CPI, since land is a capital good, not a consumption good, and thus the CPI does not include land prices.

(864) The Commission disagreed with this statement. The CPI is a good indication of the general price inflation in the economy as a whole, including in relation to land prices. Indeed, the CPI contains among other factors rental prices, which provide a good indication of the evolution of land and real estate prices. This claim was thus rejected.

(865) The investigation determined that the exporting producers did not purchase stainless steel scrap. Therefore, the Commission concluded that there was no need to further investigate this scheme.

(866) The investigation revealed that one exporting producer self-generated its electricity needs and the other one was buying it at market prices. Therefore, no subsidy relative to the provision of power was provided to them and there was no countervailable subsidisation of the provision of power.

(867) The investigation revealed that one exporting producer did not buy gas while the other one was buying gas at market prices. Therefore, no subsidy relative to the provision of power was provided to them and there was no countervailable subsidisation of the provision of power.

(868) The Complainant claims that the GOID provides tax holidays to corporate taxpayers that perform investment in so-called ‘pioneer industries’. The complainant argues that the respective regulation defines ‘pioneer industries’ as ‘industries characterised by large connectivity, creation of added-value and high externality, introduction of new technology, and of strategic value to the national economy’. Among other sectors, those ‘pioneer industries’ include steel and non-steel upstream base metal industries.

(869) The legal basis for this program is the Regulation of the Minister of Finance Number 150/PMK.010/2018 (MOF 150/2018) regarding the Administration of Corporate Income Tax Deduction Facility. In 2020, the program was renewed by the MOF No. 130/2020.

(870) The Commission found that on 9 August 2019 the IRNC received a tax facility benefit from the Directorate General of Taxation, which allows reduction in net taxable income for ferronickel product of 100 % for 7 years and 50 % for the next 2 years.

(871) The other entities parts of IRNC group that have a ferronickel plant did not avail of this scheme.

(872) IRNC explained that this program was applicable to only one of its plants, i.e. ferronickel plant. The IRNC submitted the Decision of the Director General of Taxes NUMBER KEP-161/PJ/2020 regarding the determination on utilisation of corporate income tax deduction facility for its ferronickel plant.

(873) This scheme is available to corporate taxpayers making new investments in ‘pioneer industries’. Pursuant to Article 1 of MOF 150/2018 the ‘pioneer industries’ are industries characterised by large connectivity, creation of added-value and high externality, introduction of new technology, and of strategic value to the national economy. Under MOF 150/2018 Pioneer Industry includes, among other things, the upstream basic metal industry: (i) steel; or (ii) not steel, with or without its integrated derivatives product processing facilities.

(874) In order to benefit from the reduction of its income tax, the taxpayers must: (1) have the status of an Indonesian legal entity; (2) make an investment that is a new investment and that has not been given/has not been rejected to receive a reduction of the CIT; (3) the investment must be made in an industry that qualifies as ‘pioneer industry’; (4) the new investment is of minimum IDR 100 billion; and (5) the taxpayer satisfies the debt to equity ratio set out in the regulation.

(875) The Commission considered that this scheme is a subsidy under Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation because there is a financial contribution in the form of revenue foregone by the GOID that confers a benefit to the company concerned. The benefit for the recipients is equal to the tax saving.

(876) The scheme is specific because it is available only to certain companies active in certain sectors that are qualified as ‘pioneer industries’ in accordance with Articles 4(2)(a) of the basic Regulation.

(877) The amount of countervailable subsidy was calculated in terms of the benefit conferred on the recipients during the investigation period. The benefit was calculated as the difference between the income taxes payable in the absence of the income tax deduction facility and the income taxes paid in the IP.

(878) The subsidy rate established for this specific scheme amounted to 1,65 % for IRNC group.

(879) The Complainant claimed that this scheme grants income tax facilities for investments in certain business fields and or certain region to boost direct foreign and domestic investments in Indonesia.

(880) The scheme is based on Regulation of the Minister of Finance Number 89/PMK.010/2015 (214) concerning procedures for the granting of income tax facilities for investment in certain business fields and/or in certain regions and transfer of assets and sanctions on domestic taxpayers given income tax facilities.

(881) In order to benefit from the scheme, beneficiaries must submit an investment plan including the details of the investment and the total investment amount, subject to approval and monitoring by the GOID.

(882) The investigation revealed that SMI, a related company to IRNC that provides raw materials to IRNC for the manufacturing of the SSCR, benefited from this scheme. On July 24, 2017 SMI has obtained tax allowance for specific capital investment and/or specific area facility based on Minister of Finance Decision Letter No. 170/KM.3/2017 for sales of stainless steel, since the Company commercially produced stainless steel on August 31, 2018. Based on that letter, the Company is eligible to, among others: (a) a. obtain reduction of net taxable income of 30 % from investment in tangible assets including land that are used for the Company’s main business and charge for 6 years of 5 % per annum calculated since the Company started its commercial production and (b) accelerated depreciation on tangible asset obtained in relation with new capital investment and/or expansion with useful life and depreciation tariff.

(883) The Commission considered that this scheme is a subsidy under Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation because there is a financial contribution in the form of revenue foregone by the GOID that confers a benefit to the company concerned. The benefit for the recipients is equal to the tax saving.

(884) In light of the above, the Commission therefore considered that this scheme confers a benefit to the exporting producer as it is placed in a better financial position than it would be absent the scheme. In fact, absent the scheme, it would have paid additional income tax.

(885) The scheme is specific because it is available only to certain companies depending on their business activities in accordance with Articles 4(2)(a) of the basic Regulation.

(886) The amount of countervailable subsidy was calculated in terms of the benefit conferred on the recipients during the investigation period. The benefit was calculated as the difference between the income taxes payable in the absence of the income tax deduction facility and the income taxes paid in the IP.

(887) The subsidy rate established for this specific scheme amounted to 0,06 % for IRNC Group.

(888) This programme provides an exemption from the import tariffs for imports of machinery and equipment used in the construction of production facilities.

(889) Regulation of the Finance Minister 176/PMK.011/2009 on the exemption from import duty on the imports of machines, goods and materials for the establishment or development of industry in the frame of investment as amended by MOF Regulation Number 76/PMK.011/2012 and MOF Regulation Number 188/PMK.010/2015.

(890) According to Article 2(3) of Regulation 176/2009, the exemption can be granted for the purchase of machines, goods and materials which: are not produced domestically; are not produced domestically but do not meet the required specifications; or are produced domestically but in insufficient number.

(891) The investigation revealed that IRNC and the four related companies (GCNS, ITSS, SMI and ITS) benefited from the import duty exemption for the imports of machinery during the phase of construction of the plants until they started the production. Consequently, import duties were not paid for machines imported during the respective construction periods of these plants.

(892) To benefit from this exemption, the company needed to obtain a confirmation letter from the local authority responsible for the project, which needs to be submitted to the local customs authority.

(893) According to Article 2 of Regulation 176/2009, the benefit is available only to companies producing goods, or services in certain sectors. For the industries producing services, the sectors are: tourism and culture, transportation, public health, mining, construction, telecommunications.

(894) The scheme aims at facilitating the import of goods, and in particular machines which are not available domestically. As explained in the Master Plan for Acceleration and Expansion of Indonesia Economic Development 2011-2025 (‘MP3EI’), which aims at implementing the 2005-2025 Long-term National Development Plan, the main points for the country’s 2025 development goals include the following: 1) ‘increase value adding and expanding value chain for industrial production processes [and] increase the capability of the industry to access and utilize natural resources’, and 3) ‘to push for the strengthening of the national innovation system in the areas of production [and] process, […] towards an innovation-driven economy’ (215).

(895) The Master Plan further notes that, when it comes to the country’s challenges, ‘Indonesia’s current economic structure is primarily focused on agriculture and industries which extract and harvest natural resources. There are only limited industries which focus on products with added value’ (216). According to the Plan, ‘to foster the economic growth in Indonesia, it will depend on the private sector participation which includes state-owned enterprises, and private domestic and foreign investors’ (217).

(896) The steel sector is one of the 22 main economic activities that compose the 8 major programs which are set to support the acceleration and expansion of economic development in Indonesia (218). Moreover, the Plan explains that it is crucial for the country to further develop downstream manufacturing. According to the it, ‘without more downstream activities, Indonesia will miss the opportunity to increase employment and profit margins on the value chain because of the absence of downstream processing industries of iron ore and iron sand’ (219).

(897) Against this background, the duty exemption scheme should be considered targeted towards certain sectors of the economy because its conditions seek to provide support to a selected number of industries, in line with the goal of pursuing additional value added from natural resources. In particular, the combined effect of the requirements of the establishment of a new plant, together with the domestic unavailability of the imported machine, make the scheme applicable only to certain sectors, like the steel production and nickel transformation, in which the government policy is seeking to encourage additional downstream transformation of natural resources.

(898) Therefore, taking into account the legal requirements referred to above, which make it only available to manufacturing companies or to companies providing services in certain selected sectors, the scheme is to be considered specific in accordance with Article 4(2)(a) of the basic Regulation.

(899) Even considering that the legal conditions for eligibility under the duty exemption scheme could suggest the appearance of a scheme of general application, the scheme would still be considered de facto specific in accordance with Article 4(2)(c) of the basic Regulation because, as explained above, the scheme is designed to be in practice available only to a selected and limited number of enterprises, which are active in certain industrial sectors in line with the above mentioned objectives of Indonesia’s industrial and economic policy.

(900) IRNC and its related companies imported all the equipment from related companies from China. Furthermore, IRNC Group claimed that due to the Free Trade Agreement between Indonesia and China it did not need to pay import duty for this equipment. This claim was rejected as it was not substantiated.

(901) Indeed, the investigation revealed that the related companies from which IRNC Group imported the equipment were not the actual manufacturers of the equipment. The company claimed that the origin of the equipment was China; however, it failed to submit any evidence in this regard. While it was clear that the equipment was shipped from China, IRNC refused to submit the invoices from the actual country of origin of the equipment.

(902) Therefore, the Commission informed IRNC Group that it might have to resort to the use of facts available under Article 28(1) of the basic Regulation with regard to the subsidy scheme in question. The IRNC Group claimed that the Chinese related parties were not within the scope of the investigation as they were not within the territory nor the jurisdiction of the GOID and therefore were not obligated to provide the invoices from the original manufacturer or country of origin. Furthermore, it was stated that the proof of origin was the fact that on the Custom declaration it was stated China as the origin of goods.

(903) During the RCC of the GOID, the GOID was asked to explain how the origin of the machinery imported by IRNC Group was established at the time of importation. The GOID explained that IRNC Group should have provided to the Commission the form BC2.3 and the formal letter declaring the origin of the equipment from the country of origin and asked the Commission to ask the IRNC Group to submit such information.

(904) The IRNC group has not submitted any document indicating the origin of the equipment as well as the spare parts linked to this equipment apart from the Custom Declaration. Therefore, in the absence of the requested information the Commission considered that it did not receive crucial and necessary information relevant to this aspect of the investigation. Therefore, the Commission applied Article 28 of the basic Regulation and relied on facts available with respect to these points.

(905) Therefore, in the absence of any information in the file indicating that these equipment was indeed manufactured in China, the Commission concluded that an import duty was applicable, i.e. 5 % based on the HS code of the equipment.

(906) This programme provides a financial contribution in the form of revenue forgone by the GOID within the meaning of Article 3(1)(a)(ii) as IRNC Group is relieved from payment of import tariffs which would be otherwise due. It also confers a benefit on the recipient companies in the sense of Article 3(2) of the basic Regulation.

(907) The programme is specific because only the industries mentioned in the Annex to Regulation 176/2009 can benefit from it and only the goods that cannot be produced in Indonesia or not in sufficient quantities or with an adequate quality can be eligible for this programme.

(908) The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the investigation period. The benefit conferred on the recipients is considered to be the amount of duties exempted on imported equipment. In order to ensure that the countervailable amount only covered the investigation period the benefit received was amortized over the useful life of the equipment according the company's normal accounting procedures.

(909) The amount of subsidy established for this specific scheme amounted to 0,16 % for IRNC Group.

(910) The investigation revealed that Jindal Indonesia could have possibly benefited from a partial exemption from import duties pursuant to Minister of Finance Decree No. 135/KMK.05/2000. Articles 2 and 3 of the Decree specify that if the import duty is higher than 5 %, a successful applicant for the import duty exemption will have to pay only a 5 % import duty. However, if the import duty is lower than 5 %, that duty will remain applicable.

(911) The investigation revealed that such potential benefit was very low (0,02 %). In view of the fact that this was the only program that Jindal Indonesia benefited from during the investigation period, and in view of the low potential benefit, the Commission did not investigate this scheme further.

(912) Bonded zones are defined as areas within the customs territory of Indonesia where import duty for imported goods is suspended. The imported goods can be capital goods, raw materials and supporting material.

— Ministry of Finance Regulation 147/PML.04/2011 and further amended by the Ministry of Finance Regulations 255/PPMK.04/2011 and 120/PMK.04/2013

— Regulation of the Ministry of Finance No. 131 of 2018, on bonded zones

(913) The investigation revealed that IRNC and its related companies (GCNS, ITSS, SMI and TSI) have been operating in a bonded zone since September 2018 and have availed of this programme since then.

(914) Within the Bonded Zone, the importation process of suspended until the companies sells the finished goods within the territory of Indonesia. IRNC and its related companies benefit from a full (100 %) suspension from the payment of import duties payable on goods imported into their bonded zone (machinery, spare parts and raw materials) as long as those goods (i) are used in the subsequent production activities of IRNC; and (ii) the final goods produced with them are destined for the export market.

(915) If a product remains in the bonded zone (such as machinery) or is directly exported the import duty is never due.

(916) In accordance with Articles 3, 4, 16 and 20 of Regulation 131/2018, the following requirements apply: (1) to be an Indonesian company; (2) to be established in an industrial bonded zone in Indonesia; (3) to perform production activities in the bonded zone or to be a power plant in the bonded zone; (4) to import raw materials or (semi)finished goods in order to further process them; (5) to export the final goods produced with the imported goods.

(917) During the RCC the GOID explained that there were no pre-defined areas of the territory of Indonesia identified as bonded zones, rather companies can apply and if the application is accepted their premises become a bonded zone. Furthermore, it was stated that there were approximatively 1 300 bonded zones. The GOID explained that Morowali Park was not a bonded zone, as the status of the bonded zone was not granted to an industrial park. Each company located in an industrial park has to apply separately for the status of a bonded zone. Furthermore, it was explained that in order to avail of this programme, more than 50 % of total yearly production must be exported outside of Indonesia.

(918) IRNC Group is export oriented. Nevertheless, small volumes of products were sold as well on the domestic market. The investigation revealed that the companies were paying import duties for dome of the imported raw materials used to manufacture products that were sold on the domestic market. The companies submitted the payment of these amounts. However, the companies did not have in place a proper system to check the correctness of the content of the imported raw materials in the value of the products sold on the domestic market. For example IRNC submitted an excel file for the calculation of the custom duties due but was unable to explain the percentages of each raw materials used in the manufacturing process. It was stated that it was based on its own calculations, and the customs authorities had to judge whether the calculations made sense. In addition, the GOID explained that there were not guidelines for such calculations.

(919) Furthermore, the related companied were selling products between themselves which incorporated imported raw materials but did not report to the purchasing entity the value of the custom duties.

(920) The investigation also revealed that TSI, paid import duties for imported machinery used for power generation. During the RCC the GOID explained that the bonded zone is linked to the industrial business licence and that the company had two business license, one for its steel activity, and the other one for the power generation, with the bonded zone applying only to the first one. During the RCC TSI showed a document indicating the boundaries of the bonded zone and it confirmed that it only applied to machinery imported for ferronickel and not for the power generation.

(921) It was further explained that this scheme was available only for the companies that imported good into Indonesia for further processing. Hence, mere importers cannot apply to obtain a bonded zone status.

(922) Based on the above, the Commission therefore concluded that the granting of the above-mentioned exemption is entirely at the discretion of the GOID.

(923) Furthermore, the Commission considered that the import duty exemption on inputs granted by the bonded zones scheme constitutes a financial contribution by the GOID to the exporting producers in the form of revenue forgone.

(924) Therefore, the Commission concluded that the exemption of import duties on inputs amounts to revenue foregone or not collected in sense of Article 3(1)(ii) of the basic Regulation.

(925) In light of the above, the Commission therefore considered that this scheme confers a benefit to the exporting producers as they are placed in a better financial position than they would be absent the scheme.

(926) The scheme is specific because it is available only to certain companies depending on their export performance and location in specific geographic areas within the jurisdiction of the granting authority, in accordance with Articles 4(2)(a) and 4(3) of the basic Regulation.

(927) The IRNC Group claimed that no benefit should be calculated for inputs imported from China, Australia and Vietnam because of the existence of Free Trade Agreements of Indonesia with these countries.

(928) This claim was found to be justified for Australia and Vietnam, and therefore the Commission revised the amount of subsidisation of the respective subsidy scheme. However, the Commission did not accept the claim with respect to spare parts imported from China. Indeed, the Commission noted that the vast majority of items imported from China were spare parts purchased from related companies. As highlighted in recitals (899) and (903), these spare parts concerned machinery for which the Commission contested the origin and for which the Commission concluded that an import duty was applicable, i.e. 5 % based on the HS code of the equipment. Mutatis mutandis, this also applies to the spare parts which are linked to this equipment.

(929) IRNC Group argued that the bonded zone scheme is an export subsidy, and should thus be calculated based on export turnover, and subsequently deducted from the combined dumping and subsidy duties.

(930) This claim was found to be justified as far as it relates to raw materials, which are used in the production of exported finished goods. Therefore, the Commission recalculated the respective subsidy margin.

(931) The benefit was calculated as the difference between the amount of import duties due during the investigation period, and the actual amount of import duties paid during the investigation period. The amount of subsidy established for this specific scheme for the IRNC Group amounted to 0,28 % for spare parts and 0,90 % for raw materials.

(932) The Complainant alleged that the exporting producers benefited from VAT exemption for the imports of machinery. The investigation determined that the Indonesian tax administration timely paid the VAT refunds submitted by the companies during the IP for the excess amount of VAT paid. Therefore, the Commission concluded that there was no countervailable subsidisation related to these VAT exemptions.

(933) The Complainant alleged that the GOID reduced the taxable value of the land and buildings belonging to the mining industry and its downstream industry. However, the Commission did not find any evidence of subsidisation for these schemes.

(934) The Commission calculated the amount of countervailable subsidies for the cooperating companies in accordance with the provisions of the basic Regulation by examining each subsidy or subsidy programme, and added these figures together to calculate a total amount of subsidisation for each of the exporting producers for the investigation period. To calculate the overall subsidisation the Commission first calculated the percentage of subsidisation: the subsidy amount as a percentage of the company's total turnover. This percentage was then used to calculate the subsidy allocated to exports of the product concerned to the Union during the investigation period. The subsidy amount per tonne of product concerned exported to the Union during the investigation period was then calculated, and the rates below calculated as a percentage of the Costs, Insurance and Freight (‘CIF’) value of the same exports per tonne.

(935) Following final disclosure, the complainant noted that the Commission’s findings revealed that a large majority of the subsidies identified for the integrated exporting producers affect the upstream stages of the production process of SSCR. According to the complainant, this means that the non-integrated Indonesian producer of SSCR – Jindal Indonesia – might have also benefited from subsidies conferred to Indian and/or Indonesian upstream producers. This could happen in case of domestic sales of upstream products from IRNC Group to Jindal Indonesia or in case of Jindal Indonesia’s purchases of subsidized upstream products of Indian origin.

(936) The Jindal Group and Jindal Indonesia responded that there is no legal basis for such a pass-through to Jindal Indonesia, and that in any case there is no such a pass-through.

(937) On the basis of the analysis of Jindal Indonesia’s production process and the company’s raw material purchases in the IP, the Commission concluded that the company could not have benefited from the purchases of subsidized upstream products of Indonesian origin.