WORLD TRADE ORGANIZATION

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1 WORLD TRADE ORGANIZATION Committee on Safeguards G/SG/N/8/IDN/3 14 October 2009 ( ) Original: English NOTIFICATION UNDER ARTICLE 12.1(B) OF THE AGREEMENT ON SAFEGUARDS ON FINDING A SERIOUS INJURY OR THREAT THEREOF CAUSED BY INCREASED IMPORTS NOTIFICATION PURSUANT TO ARTICLE 12.1(C) OF THE AGREEMENT ON SAFEGUARDS NOTIFICATION PURSUANT TO ARTICLE 9, FOOTNOTE 2 OF THE AGREEMENT ON SAFEGUARDS INDONESIA (Wire Nails) The following communication, dated 12 October 2009, is being circulated at the request of the Delegation of Indonesia. Pursuant to article 12.1 (c) of the WTO Agreement on Safeguards, Indonesia notifies that Ministerial of Finance Decree number: 151/PMK.011/2009 dated 24 September 2009 was published on 7 October 2009 in the Indonesian daily news paper (Bisnis Indonesia) enacting the adoption of definitive safeguard measures on import of Wire Nails for a period of three (3) years. Annexed hereto a copy of Ministerial of Finance Decree number: 151/PMK.011/2009 dated 24 September 2009 and Indonesian daily news paper (Bisnis Indonesia dated 7 October 2009). It is requested that this notification under Article 12.1 (C) of the Agreement on Safeguards be brought to the notice of Members.

2 Page 2 A. BACKGROUND 1. On 17 October 2008 Compartment Long Product, Cluster of Wires and Nails (formerly Ikatan Pabrik Kawat dan Paku Indonesia/ IPPAKI) of the Indonesian Iron and Steel Industry Association (IISIA) on behalf of wire nails producers filed a petition to Indonesian Safeguard Committee (Komite Pengamanan Perdagangan Indonesia/ KPPI) requesting for a safeguard measure from various countries. 2. The petitioner claimed that the domestic industry has been facing serious injury caused by imports. This claim is based on information covering the period 2005 First Semester of 2008 which shows that imports, in terms of volume, increased significantly that resulted in serious injury to the domestic industry. 3. Date of the Initiation After examining the request made by the petitioner, the KPPI decided to initiate an investigation on 5 November 2008 (published in Bisnis Indonesia daily newspaper) and individual notices were sent to all known interested parties and concerned government agencies as well as private entities. 4. Product Subject to Investigation Wire Nails, under HS code Period of Investigation The period of investigation covers 3 and half years (2005 First Semester of 2008). 6. Standing of the Petitioner There were 36 producers of wire nails in Indonesia in 2005, and in the First Semester of 2008 when the petition was filed there were only 19 active producers. Ten active producers which accounts for 79.5 per cent of total national production, support the petition. 7. Hearing The hearing was held on 2 March 2009 at the Office of the KPPI, Ministry of Trade of Indonesia building, and in attendance were representatives from the petitioner, Indonesian Importers Association (GINSI); Ministry of International Trade and Industry (MITI), Malaysia; Representative Taipei Economic and Trade Office; Embassy of Mexico; PT Rodamas Baja Intan; PT Sidoarjo Universal Metal Works; PT Dunia Metal Works, and PT ISPAT Wire. The parties that submitted written comments were: Petitioner (IPPAKI); Indonesian Importers Association (GINSI); Embassy of Malaysia; Representative Taipei Economic and Trade Office; Embassy of Mexico.

3 Page 3 B. EVIDENCE Evidence that the safeguard measure is considered necessary to remedy serious injury caused by increased imports: 1. Development of Imports Development of Imports (in MT) Semester I of , ton 4,203,33 12, , Source: Central Agency for Statistics of Indonesia. The table above shows a sudden-sharp increase of imports in 2007 and in Semester I of 2008 which represent a significant market share of the subject goods in Indonesia. 2. Import by Major Supplying Country Import Share HS VOLUME/ Semester SHARE I 2008 VOLUME CHINA (TON) 2, , , , SHARE 57.82% 66.92% 86.00% 91.46% VOLUME MALAYSIA (TON) 1, , , , SHARE 29.38% 25.51% 13.13% 8.45% VOLUME ,973 OTHERS (TON) SHARE 12.80% 7.57% 0.87% 0.08% VOLUME TOTAL (TON) 3, , , , TOTAL 100% 100% 100% 100% Source: Central Agency Statistics of Indonesia (processed). As can be seen, China is the main supplier of wire nails by per cent share of Indonesian total imports or 10, MT in 2007, followed by Malaysia as the second main supplier by per cent share of Indonesian total import or 1, MT. 3. Situation of Domestic Industry (indices unless otherwise stated) Indicator of Injury Suffered By Domestic Industry (Indexed Unless Otherwise Stated) INDICATOR Semester I 2008 Production Capacity Utilization

4 Page 4 INDICATOR Semester I 2008 Domestic Sales Inventory Loss Employment Productivity Imports (MT) 3, ,203,33 12, , National Consumption Import share Domestic market share Sources: Petitioner and Central Agency Statistics of Indonesia (processed). As can be seen, the surge of imports during IP has resulted in a significant increase in inventory and a loss is mainly due to impact of imports. a) Causation analysis Effect of increased imports: Imports have increased in the period under investigation from 3, MT in 2005 to 12, MT in 2007 which means 213 per cenet increase in the level of imports. Over the same period the market share of imports grew from 5 per cent to 15 per cent, whilst the market share of the domestic industry fell from 95 per cent to 85 per cent. Based on a comparison of average ex-works prices charged by the domestic producer and by exporting producers to the Indonesian importers (sum of CIF price, customs duty and other costs), domestic prices were undercut during IP by 143 per cent. At the same time the domestic industry's loss increased by 6.5 per cent. b) Other Factors Other factors have been examined that selling price of wire nails has been effected by global economic recession although it is not significant. In addition, low prices of Chinese products in global market have caused negative impact to Indonesian export products, including wire nails and, in turns, it caused increase the inventory of domestic industry. However, as shown in Table 1 that there was sharp increases in imports from 3, MT in 2005 to 12, MT in The surge of imports has caused a decline in the domestic market share. The domestic market share of domestic industry declined from 10 per cent in 2007, when compared to c) Unforeseen Development Indonesia's bound tariff for HS was 40 per cent. Since 2007 the applied tariff for HS have been 7.5 per cent (in 2009 the tariff has been to 12.5 per cent). Even though the current tariff has been increased, sharp competition between domestic product and the import of product concerned still exists and the increase of national consumption was mostly taken by imports. This situation was not predicted by the petitioner.

5 Page 5 As one of the biggest steel producers in the world, China exports a lot of steel products to US and European markets. When the global economy recession happened, a lot of the orders were cancelled and the Chinese exporters had to reroute their cargoes to other destinations in Asian market, particularly Indonesia. 4. Adjustment Plan The domestic industry has submitted the following adjustment program for the purpose of improving the competitiveness in the global market conditions. The program includes: More production cost efficiency; Increasing of production utilization; Improvement of chain distribution; Focus on environmental friendly production; Increasing the labor productivity. 5. Expected timetable for progressive liberalization of the measure In order to induce adjustment, the tariff level will be subject to liberalization on a regular basis following its imposition, thereby ensuring that there is a strong incentive for domestic producer to progressively undertake the necessary restructuring and adjustment. The timetable for progressive liberalization of the proposed measure is shown below. The measure is applied for 3 years from 1 October 2009 to 30 September The measure will be subject to liberalization. The timetable for progressive liberalization is shown below: Period Fixed Duty 1 October September % 1 October September % 1 October September % Below is the list of Developing Countries excluded from the measures as they exported less than 3 per cent of total imports to Indonesia (Article 9.1 of the Agreement on Safeguards).

6 Page 6 List of Developing Countries excluded from the measures Afghanistan Albania Algeria American Samoa Angola Anguilla Antigua and Barbuda Antilles (Netherlands) Argentina Armenia Aruba Ascension Austral Islands Azerbaijan Bahamas Bahrain Bangladesh Barbados Belarus Belize Benin Bermuda Bhutan Bolivia Bosnia and Herzegovina Botswana Bouvet Islands Brazil British Antarctic Territories British Indian Ocean Territory British Virgin Islands Brunei Darussalam Burkina Faso Burundi Cambodia Cameroon Canary Islands Cape Verde Caroline Islands Cayman Islands Central African Republic Ceuta and Mellia Chad Chile Christmas Islands Iran, Islamic Republic of Cocos Islands Colombia Comoros Congo, Democratic Republic of the Congo, Republic of Cook Islands Costa Rica Cote d'ivoire Croatia Cuba Curacao Cyprus Djibouti Dominica Dominican Republic Ecuador Egypt El Salvador Equatorial Guinea Eritrea Estonia Ethiopia Falkland Islands and Dependencies Fiji French Southern and Antarctic Territories French Polynesia Gabon Gambia Georgia Ghana Gibraltar Gilbert and Ellice Islands Greenland Grenada Guam Guatemala Guinea Guinea-Bissau Guyana Haiti Heard Island and McDonald Island Honduras Hong Kong Hungary India Norfolk Island

7 Page 7 Iraq Israel Jamaica Jordan Kazakhstan Kenya Kiribati Korea, Democratic People's Republic of Korea, Republic of Kuwait Kyrgyzstan Lao People's Democratic Republic of Latvia Lebanon Lesotho Liberia Libyan Arab Jamaririya Lithuania Macao Macedonia (The Former Yugoslav Republic of) Madagascar Malawi Maldives Mali Malta Marianas Islands (North) Marshall Islands Mauritania Mauritius Mayotte Mexico Micronesia, Federated States of Moldova, Republic of Mongolia Montserrat Morocco Mozambique Myanmar Namibia Nauru Nepal New Caledonia and Dependencies Nicaragua Niger Nigeria Niue Turkey Turkmenistan Oman Pakistan Palau Panama Papua New Guinea Paraguay Peru Philippines Pitcairn Islands Qatar Romania Russian Federation Rwanda Samoa Sao Tome and Principe Saudi Arabia Senegal Seychelles Sierra Leone Slovenia Solomon Islands Somalia South Africa Southern Sandwich Islands and Dependencies Sri Lanka Saint Helena and Dependencies Saint Kitts and Nevis Saint Lucia Saint Martin Saint Pierre and Miquelon Saint Vincent and Grenadines Sudan Suriname Swaziland Syrian Arab Republic Taiwan Tajikistan Tanzania, United Republic of Thailand Timor-Leste Togo Tokelau Islands Tonga Trinidad and Tobago Tristan de Cuhna Tunisia Vanuatu Venezuela Vietnam

8 Page 8 Turks and Caicos Islands Tuvalu Uganda Ukraine United Arab Emirates United States Minor Outlying Islands Uruguay Uzbekistan Virgin Islands (United Kingdom) Virgin Islands (United States) Wallis and Futuna Islands Western Sahara Yemen Zambia Zimbabwe