+--------------------------------------------------+-------------------+
| **[World Trade]{.smallcaps}**                    |                   |
|                                                  |                   |
| **[Organization]{.smallcaps}**                   |                   |
+--------------------------------------------------+-------------------+
|                                                  |                   |
+--------------------------------------------------+-------------------+
|                                                  | **WT/DS236/R**    |
|                                                  |                   |
|                                                  | 27 September 2002 |
+--------------------------------------------------+-------------------+
|                                                  | (02-4958)         |
+--------------------------------------------------+-------------------+
|                                                  |                   |
+--------------------------------------------------+-------------------+
|                                                  | Original: English |
+--------------------------------------------------+-------------------+

**UNITED STATES -- PRELIMINARY DETERMINATIONS WITH RESPECT TO CERTAIN
SOFTWOOD LUMBER FROM CANADA**

***Report of the Panel***

The report of the Panel on United States -- Preliminary Determinations
with Respect to Certain Softwood Lumber from Canada is being circulated
to all Members, pursuant to the DSU. The report is being circulated as
an unrestricted document from 27 September 2002 pursuant to the
Procedures for the Circulation and Derestriction of WTO Documents
(WT/L/160/Rev.1). Members are reminded that in accordance with the DSU
only parties to the dispute may appeal a panel report. An appeal shall
be limited to issues of law covered in the Panel report and legal
interpretations developed by the Panel. There shall be no *ex parte*
communications with the Panel or Appellate Body concerning matters under
consideration by the Panel or Appellate Body.

  -----------------------------------------------------------------------
  **Note by the Secretariat**: This Panel Report shall be adopted by the
  Dispute Settlement Body (DSB) within 60 days after the date of its
  circulation unless a party to the dispute decides to appeal or the DSB
  decides by consensus not to adopt the report. If the Panel Report is
  appealed to the Appellate Body, it shall not be considered for adoption
  by the DSB until after the completion of the appeal. Information on the
  current status of the Panel Report is available from the WTO
  Secretariat.

  -----------------------------------------------------------------------

TABLE OF CONTENTS

[Page]{.underline}

**I. introduction [1](#__RefHeading___Toc15459560)**

A. complaint of canada [1](#complaint-of-canada)

B. establishment and composition of the panel
[1](#establishment-and-composition-of-the-panel)

C. Panel proceedings [2](#panel-proceedings)

II\. FACTUAL ASPECTS [2](#factual-aspects)

III\. parties\' requests for findings and recommendations
[3](#parties-requests-for-findings-and-recommendations)

A. canada [3](#canada)

B. united states [3](#united-states)

IV\. ARGUMENTS OF THE PARTIES [3](#arguments-of-the-parties)

A. first written submission of canada
[3](#first-written-submission-of-canada)

1\. The Preliminary Countervailing Duty Determination
[4](#the-preliminary-countervailing-duty-determination)

2\. The Preliminary Critical Circumstances Determination
[10](#the-preliminary-critical-circumstances-determination)

3\. US Law is Inconsistent with US Obligations on Expedited and
Administrative Reviews
[12](#us-law-is-inconsistent-with-us-obligations-on-expedited-and-administrative-reviews)

B. first written submission of the united states
[14](#first-written-submission-of-the-united-states)

1\. Introduction [14](#introduction-1)

2\. Statement of Facts [15](#statement-of-facts)

3\. Standard of Review [15](#standard-of-review)

4\. Argument [15](#argument)

\(a\) Canada Bears the Burden of Proving Its Claim
[15](#canada-bears-the-burden-of-proving-its-claim)

\(b\) The Preliminary Countervailing Determination Is Consistent With
the SCM Agreement
[15](#the-preliminary-countervailing-determination-is-consistent-with-the-scm-agreement)

\(i\) Provincial Stumpage Programmes Constitute a "Financial
Contribution"
[15](#provincial-stumpage-programmes-constitute-a-financial-contribution)

\(ii\) Provincial Stumpage Programmes Provide a "Benefit"
[17](#provincial-stumpage-programmes-provide-a-benefit)

\(iii\) The Calculation Did Not Overstate the Subsidy Found to Exist
[18](#the-calculation-did-not-overstate-the-subsidy-found-to-exist)

\(iv\) Canada's "Pass-through" Argument Is Inapposite
[19](#canadas-pass-through-argument-is-inapposite)

\(c\) The Preliminary Critical Circumstances Finding Is Consistent with
the SCM Agreement
[20](#the-preliminary-critical-circumstances-finding-is-consistent-with-the-scm-agreement)

\(i\) Judicial Economy [20](#judicial-economy)

\(ii\) Authority to Impose Provisional Measures Retroactively
[20](#authority-to-impose-provisional-measures-retroactively)

\(iii\) Basis for Critical Circumstances Findings
[21](#basis-for-critical-circumstances-findings)

\(d\) Expedited and Administrative Reviews
[21](#expedited-and-administrative-reviews)

\(i\) Section 777A(e)(2)(A) and (B) of the Tariff Act of 1930
[21](#section-777ae2a-and-b-of-the-tariff-act-of-1930)

\(ii\) Expedited Reviews [21](#expedited-reviews)

\(iii\) Administrative Reviews [22](#administrative-reviews)

C. first oral statement of canada [22](#first-oral-statement-of-canada)

1\. The Preliminary Countervailing Duty Determination
[23](#the-preliminary-countervailing-duty-determination-1)

\(a\) Stumpage is not a "financial contribution"
[23](#stumpage-is-not-a-financial-contribution)

\(b\) The USDOC's use of "cross-border" benchmarks to find and measure
"benefit" violates the SCM Agreement
[24](#the-usdocs-use-of-cross-border-benchmarks-to-find-and-measure-benefit-violates-the-scm-agreement)

\(c\) The USDOC impermissibly presumed a pass-through of an alleged
benefit
[25](#the-usdoc-impermissibly-presumed-a-pass-through-of-an-alleged-benefit)

\(d\) The USDOC impermissibly inflated the subsidy rate by calculating a
"weighted-average country-wide rate" based upon only a portion of
Canadian production and exports
[25](#the-usdoc-impermissibly-inflated-the-subsidy-rate-by-calculating-a-weighted-average-country-wide-rate-based-upon-only-a-portion-of-canadian-production-and-exports)

\(e\) The USDOC impermissibly applied provisional measures in excess of
the subsidy preliminarily found to exist
[25](#the-usdoc-impermissibly-applied-provisional-measures-in-excess-of-the-subsidy-preliminarily-found-to-exist)

2\. The Preliminary Critical Circumstances Determination
[26](#the-preliminary-critical-circumstances-determination-1)

3\. US Law is Inconsistent with US Obligations on Expedited and
Administrative Reviews
[27](#us-law-is-inconsistent-with-us-obligations-on-expedited-and-administrative-reviews-1)

D. first oral statement of the united states
[28](#first-oral-statement-of-the-united-states)

1\. Preliminary Subsidy Determination
[28](#preliminary-subsidy-determination)

\(a\) Financial Contribution [28](#financial-contribution)

\(b\) Benefit [29](#benefit)

\(c\) Cross-Border Benchmark [29](#cross-border-benchmark)

\(d\) Benefit Calculation - Indirect Subsidies (Pass-Through)
[30](#benefit-calculation---indirect-subsidies-pass-through)

\(e\) Benefit Calculation - Denominator
[30](#benefit-calculation---denominator)

2\. Critical Circumstances [30](#critical-circumstances)

3\. Reviews [31](#reviews)

E. second written submission of canada
[31](#second-written-submission-of-canada)

1\. Introduction [31](#introduction-2)

2\. The Preliminary Countervailing Duty Determination
[31](#the-preliminary-countervailing-duty-determination-2)

\(a\) "Financial Contribution" [31](#financial-contribution-1)

\(b\) "Benefit" [33](#benefit-1)

\(c\) Pass-Through [38](#pass-through)

\(d\) First Mill [40](#first-mill)

3\. The Preliminary Critical Circumstances Determination
[40](#the-preliminary-critical-circumstances-determination-2)

4\. US Law On Expedited Reviews And Administrative Reviews
[41](#us-law-on-expedited-reviews-and-administrative-reviews)

F. second written submission of the united states
[42](#second-written-submission-of-the-united-states)

1\. Introduction [42](#introduction-3)

2\. Argument [43](#argument-1)

\(a\) The USDOC's Preliminary Determination that the Canadian Provincial
Governments Provide a Good to Lumber Producers Is Consistent with
Article 1.1(a)(1)(iii) of the SCM Agreement
[43](#the-usdocs-preliminary-determination-that-the-canadian-provincial-governments-provide-a-good-to-lumber-producers-is-consistent-with-article-1.1a1iii-of-the-scm-agreement)

\(b\) The USDOC Properly Measured the Benefit from Provincial Stumpage
Systems Under Article 14(d) of the SCM Agreement
[44](#the-usdoc-properly-measured-the-benefit-from-provincial-stumpage-systems-under-article-14d-of-the-scm-agreement)

\(i\) The Use of Commercially Available World Market Prices Is, in
Appropriate Circumstances, Consistent with Article 14(d) of the SCM
Agreement
[44](#the-use-of-commercially-available-world-market-prices-is-in-appropriate-circumstances-consistent-with-article-14d-of-the-scm-agreement)

\(ii\) There Is No Evidence of a Market Benchmark in Canada
[45](#there-is-no-evidence-of-a-market-benchmark-in-canada)

\(iii\) US Stumpage Prices Are Commercially Available to Canadian Lumber
Producers
[46](#us-stumpage-prices-are-commercially-available-to-canadian-lumber-producers)

\(c\) The USDOC Properly Calculated the Total Amount of the Subsidy to
Producers of the Subject Merchandise
[47](#the-usdoc-properly-calculated-the-total-amount-of-the-subsidy-to-producers-of-the-subject-merchandise)

\(d\) The Preliminary Critical Circumstances Finding Is Consistent with
the SCM Agreement
[49](#the-preliminary-critical-circumstances-finding-is-consistent-with-the-scm-agreement-1)

\(e\) US Laws Governing Reviews Are Consistent with the SCM Agreement
[49](#us-laws-governing-reviews-are-consistent-with-the-scm-agreement)

3\. Conclusion [49](#conclusion)

G. second oral statement of canada
[49](#second-oral-statement-of-canada)

1\. Introduction [49](#introduction-4)

2\. Subsidy [50](#subsidy)

\(a\) Financial Contribution [50](#financial-contribution-2)

\(b\) Benefit [51](#benefit-2)

\(c\) Pass-through [53](#pass-through-1)

\(d\) First mill [53](#first-mill-1)

3\. Critical circumstances [54](#critical-circumstances-1)

4\. Expedited review and Administrative review
[54](#expedited-review-and-administrative-review)

H. second oral statement of the united states
[55](#second-oral-statement-of-the-united-states)

1\. Financial Contribution [55](#financial-contribution-3)

2\. Benefit [55](#benefit-3)

3\. Critical Circumstances [56](#critical-circumstances-2)

4\. Expedited Reviews [57](#expedited-reviews-1)

5\. Factual Support for the Preliminary Determination
[57](#factual-support-for-the-preliminary-determination)

\(a\) Processing Requirements - Independent Loggers
[58](#processing-requirements---independent-loggers)

\(b\) Private Prices [58](#private-prices)

6\. Standard of Review [58](#standard-of-review-1)

V. ARGUMENTS OF THE THIRD PARTIES [59](#arguments-of-the-third-parties)

A. third party written submission of the european communities
[59](#third-party-written-submission-of-the-european-communities)

1\. Scope of the term "good" under Article 1.1(a)(1)(iii) of the SCM
Agreement
[59](#scope-of-the-term-good-under-article-1.1a1iii-of-the-scm-agreement)

2\. Determination of a "benefit" under Article 1.1(b), 14(d) of the SCM
Agreement
[60](#determination-of-a-benefit-under-article-1.1b-14d-of-the-scm-agreement)

3\. The determination of a "pass-through" Benefit
[61](#the-determination-of-a-pass-through-benefit)

4\. No application of Article 20.6 of the SCM Agreement to provisional
countervailing duties
[62](#no-application-of-article-20.6-of-the-scm-agreement-to-provisional-countervailing-duties)

5\. Requested recommendation [62](#requested-recommendation)

B. third party oral statement of the european communities
[62](#third-party-oral-statement-of-the-european-communities)

1\. Introduction [62](#introduction-5)

2\. A \"pass-through\" benefit determination
[63](#a-pass-through-benefit-determination)

\(a\) Article 1.1(a)(1)(iv) of the SCM Agreement not the relevant
benchmark for a \"pass through\" benefit determination
[63](#article-1.1a1iv-of-the-scm-agreement-not-the-relevant-benchmark-for-a-pass-through-benefit-determination)

\(b\) Determination of a \"benefit\" according to Article 1.1(b) of the
SCM Agreement
[63](#determination-of-a-benefit-according-to-article-1.1b-of-the-scm-agreement)

3\. The scope of Article 19.3 of the SCM Agreement for an \"expedited
review\"
[64](#the-scope-of-article-19.3-of-the-scm-agreement-for-an-expedited-review)

4\. Conclusion [65](#conclusion-1)

C. third party oral statement of india
[65](#third-party-oral-statement-of-india)

D. Third party written submission of japan
[66](#third-party-written-submission-of-japan)

1\. Introduction [66](#introduction-6)

2\. Arguments [67](#arguments)

\(a\) Indirect Subsidies [67](#indirect-subsidies)

\(b\) Existence of a financial contribution by a government
[67](#existence-of-a-financial-contribution-by-a-government)

\(c\) Benefits conferred [67](#benefits-conferred)

VI\. interim review [68](#interim-review)

VII\. FINDINGS [69](#findings)

A. CLAIMS RELATING TO THE PRELIMINARY COUNTERVAILING DUTY DETERMINATION
[70](#claims-relating-to-the-preliminary-countervailing-duty-determination)

1\. Introduction [70](#introduction-7)

2\. Claim 1: inconsistent finding of the existence of a financial
contribution.
[71](#claim-1-inconsistent-finding-of-the-existence-of-a-financial-contribution.)

\(a\) Arguments of the parties [71](#arguments-of-the-parties-1)

\(i\) Canada [71](#canada-1)

\(ii\) United States [72](#united-states-1)

\(b\) Analysis [73](#analysis)

\(c\) Conclusion [79](#conclusion-2)

3\. Claim 2: inconsistent determination of benefit
[79](#claim-2-inconsistent-determination-of-benefit)

\(a\) arguments of the parties [79](#arguments-of-the-parties-2)

\(i\) Canada [79](#canada-2)

\(ii\) United States [80](#united-states-2)

\(b\) Analysis [82](#analysis-1)

\(c\) Conclusion [88](#conclusion-3)

4\. Claim 3: failure to examine and determine the existence of benefit
to the producers of the subject product
[89](#claim-3-failure-to-examine-and-determine-the-existence-of-benefit-to-the-producers-of-the-subject-product)

\(a\) Arguments of the parties [89](#arguments-of-the-parties-3)

\(i\) Canada [89](#canada-3)

\(ii\) United States [90](#united-states-3)

\(b\) Analysis [91](#analysis-2)

\(c\) Conclusion [94](#conclusion-4)

5\. Claim 4: impermissible application of a provisional duty in excess
of the subsidy rate
[95](#claim-4-impermissible-application-of-a-provisional-duty-in-excess-of-the-subsidy-rate)

\(a\) Arguments of the parties [95](#arguments-of-the-parties-4)

\(i\) Canada [95](#canada-4)

\(ii\) United States [96](#united-states-4)

\(b\) Analysis [96](#analysis-3)

6\. Conclusion on Canada\'s claims relating to the Preliminary
Countervailing Duty Determination.
[97](#conclusion-on-canadas-claims-relating-to-the-preliminary-countervailing-duty-determination.)

B. CLAIMS RELATING TO THE PRELIMINARY CRITICAL CIRCUMSTANCES
DETERMINATION AND THE RETROACTIVE APPLICATION OF PROVISIONAL
COUNTERVAILING MEASURES
[97](#claims-relating-to-the-preliminary-critical-circumstances-determination-and-the-retroactive-application-of-provisional-countervailing-measures)

1\. Claim 1: retroactive application of provisional measures is
inconsistent with Article 20.6 SCM Agreement and violates Article 17.3
and 17.4 SCM Agreement.
[98](#claim-1-retroactive-application-of-provisional-measures-is-inconsistent-with-article-20.6-scm-agreement-and-violates-article-17.3-and-17.4-scm-agreement.)

\(a\) Arguments of the parties [98](#arguments-of-the-parties-5)

\(i\) Canada [98](#canada-5)

\(ii\) United States [98](#united-states-5)

\(b\) Analysis [99](#analysis-4)

\(i\) Does Article 20.6 SCM Agreement allow for the retroactive
application of provisional measures?
[99](#does-article-20.6-scm-agreement-allow-for-the-retroactive-application-of-provisional-measures)

\(ii\) Does the retroactive application of provisional measures also
violate the disciplines of Article 17 SCM Agreement.
[102](#does-the-retroactive-application-of-provisional-measures-also-violate-the-disciplines-of-article-17-scm-agreement.)

\(c\) Conclusion [103](#conclusion-5)

2\. Claim 2: USDOC failed to establish critical circumstances under
Article 20.6 SCM Agreement
[103](#claim-2-usdoc-failed-to-establish-critical-circumstances-under-article-20.6-scm-agreement)

\(a\) Arguments of the parties [103](#arguments-of-the-parties-6)

\(i\) Canada [103](#canada-6)

\(ii\) United States [104](#united-states-6)

\(b\) Analysis [104](#analysis-5)

3\. Conclusion on Canada\'s claim concerning the USDOC Preliminary
Critical Circumstances Determination
[105](#conclusion-on-canadas-claim-concerning-the-usdoc-preliminary-critical-circumstances-determination)

C. claim of Inconsistent CVD Law concerning Expedited and Administrative
Reviews
[105](#claim-of-inconsistent-cvd-law-concerning-expedited-and-administrative-reviews)

\(a\) Arguments of the parties [105](#arguments-of-the-parties-7)

\(i\) Canada [105](#canada-7)

\(ii\) United States [106](#united-states-7)

\(b\) Analysis [107](#analysis-6)

\(i\) Mandatory versus discretionary legislation
[108](#mandatory-versus-discretionary-legislation)

\(ii\) The US Statute and the Statement of Administrative Action
[108](#the-us-statute-and-the-statement-of-administrative-action)

\(iii\) USDOC Regulations [109](#usdoc-regulations)

\(c\) Conclusion [116](#conclusion-6)

VIII\. Conclusions and recommendations
[116](#conclusions-and-recommendations)

**LIST OF ANNEXES**

  ---------------------------------------------------------- ------------
  **Contents**                                               **Page**

  Annex A-1 Responses of Canada to questions posed in the    A-2
  context of the first substantive meeting of the Panel      

  Annex A-2 Responses of the United States to questions      A-13
  posed in the context of the first substantive meeting of   
  the Panel                                                  

  Annex B-1 Responses of Canada to questions posed in the    B-2
  context of the second substantive meeting of the Panel     

  Annex B-2 Responses of the United States to questions      B-11
  posed in the context of the second substantive meeting of  
  the Panel                                                  
  ---------------------------------------------------------- ------------

# introduction

## complaint of canada

1.  On 21 August 2001, Canada requested consultations with the United
    States pursuant to Article 4 of the Dispute Settlement Understanding
    (\"the DSU\"), Article XXII of the General Agreement on Tariffs and
    Trade 1994 (\"GATT 1994\") and Article 30 of the Agreement on
    Subsidies and Countervailing Measures (\"the SCM Agreement\" or
    \"the Agreement\"), with regard to the preliminary countervailing
    duty determination and the preliminary critical circumstances
    determination made by the US Department of Commerce (\"USDOC\") on 9
    August 2001, with respect to certain softwood lumber from Canada,
    and with regard to US measures on company-specific expedited reviews
    and administrative reviews.[^1]

2.  On 17 September 2001, Canada and the United States held the
    requested consultations, but failed to reach a mutually satisfactory
    resolution of the matter.

3.  On 25 October 2001, Canada requested the establishment of a panel to
    examine the matter.[^2]

## establishment and composition of the panel

4.  At its meeting of 5 December 2001, the Dispute Settlement Body
    (\"the DSB\") established a Panel in accordance with Article 6 of
    the DSU and pursuant to the request made by Canada in document
    WT/DS236/2.

5.  At that meeting, the parties to the dispute also agreed that the
    Panel should have standard terms of reference. The terms of
    reference therefore are the following:

\"To examine, in the light of the relevant provisions of the covered
agreements cited by Canada in document WT/DS236/2 the matter referred to
the DSB by Canada in that document, and to make such findings as will
assist the DSB in making the recommendations or in giving the rulings
provided for in those agreements.\"

6.  On 22 January 2002, Canada requested the Director-General to
    determine the composition of the Panel, pursuant to paragraph 7 of
    Article 8 of the DSU. This paragraph provides:

> \"If there is no agreement on the panelists within 20 days after the
> date of the establishment of a panel, at the request of either party,
> the Director-General, in consultation with the Chairman of the DSB and
> the Chairman of the relevant Council or Committee, shall determine the
> composition of the panel by appointing the panelists whom the
> Director-General considers most appropriate in accordance with any
> relevant special or additional rules or procedures of the covered
> agreement or covered agreements which are at issue in the dispute,
> after consulting with the parties to the dispute. The Chairman of the
> DSB shall inform the Members of the composition of the panel thus
> formed no later than 10 days after the date the Chairman receives such
> a request.\"

7.  On 1 February 2002, the Director-General accordingly composed the
    Panel as follows:

    Chairman: Mr. Dariusz Rosati

    Members: Mr. Robert Arnott

    Mr. Gonzalo Biggs

The European Communities, India and Japan reserved their third party
rights.

## Panel proceedings

8.  The Panel met with the parties on 24-25 April 2002 and 4 June 2002.
    The Panel met with third parties on 24 April 2002.

9.  On 26 July 2002, the Panel provided its interim report to the
    parties.

# FACTUAL ASPECTS

1.  This dispute concerns the preliminary countervailing duty
    determination and the preliminary critical circumstances
    determination made by the USDOC on 9 August 2001 in respect of
    certain softwood lumber imports from Canada, classified under
    headings 4407.1000, 4409.1010, 4409.1020, and 4409.1090.[^3] This
    dispute also concerns US law on expedited and administrative reviews
    in the context of countervailing measures.

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10. On 2 April 2001 an application for countervailing duties was filed
    with the USDOC by the Coalition for Fair Lumber Imports Executive
    Committee; the United Brotherhood of Carpenters and Joiners; and the
    Paper, Allied-Industrial, Chemical and Energy Workers International
    Union. On 20 April 2001, the application was amended to include as
    applicants Moose River Lumber Co., Inc.; Shearer Lumber Products;
    Shuqualak Lumber Co.; and Tolleson Lumber Co., Inc. On 30 April
    2001, the USDOC published a notice of initiation of a countervailing
    duty investigation in the US Federal Register.

11. In May 2001, the US International Trade Commission (\"ITC\")
    published its preliminary affirmative determination that there was a
    reasonable indication that the US industry was threatened with
    material injury by reason of imports from Canada of softwood lumber,
    which were alleged to be subsidized by the Government of Canada.

12. On 27 July 2001, the USDOC amended the initiation of the
    investigation, to exempt from investigation imports of certain
    softwood lumber produced in the Maritime Provinces from timber
    harvested in the Maritime Provinces.[^4]

13. On 17 August 2001, the USDOC published in the Federal Register a
    notice of preliminary affirmative countervailing duty determination,
    preliminary affirmative critical circumstances determination, and
    alignment of final countervailing duty determination with final
    antidumping duty determination. Provisional measures (withholding of
    appraisement and posting of cash deposit or bond) were imposed on
    the basis of a preliminary subsidy rate of 19.31 per cent,
    applicable to all producers/exporters, and applied to all entries of
    the subject merchandise from Canada entered, or withdrawn from
    warehouse, for consumption on or after 90 days prior to the date of
    publication of the notice.

# parties\' requests for findings and recommendations 

## canada

1.  Canada requests the Panel to:

-   find that the Preliminary Countervailing Duty Determination of the
    United States in the softwood lumber case violates Articles 10, 14,
    17.1, 17.2, 17.5, 19.4 and 32.1 of the SCM Agreement and Article
    VI:3 of GATT 1994;

-   find that the Preliminary Critical Circumstances Determination of
    the United States in the softwood lumber case violates Article
    17.1(b), 17.3, 17.4, 17.5, 19.4 and 20.6 of the SCM Agreement and
    Article VI:3 of GATT 1994;

-   find that US countervailing duty law regarding expedited and
    administrative reviews and the application of that law in the
    *Lumber IV* investigation violate Articles 10, 19.3, 19.4, 21.2 and
    32.1 of the SCM Agreement and that as a result, the United States
    has failed to ensure that its laws, regulations and administrative
    procedures are in conformity with its WTO obligations as required by
    Article XVI:4 of the WTO Agreement and Article 32.5 of the SCM
    Agreement; and

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-   recommend that the United States bring its measures into conformity
    with the SCM Agreement and the WTO Agreement, including by lifting
    the suspension of liquidation for the period of 19 May through 16
    August 2001, and making company-specific expedited and
    administrative reviews available to exporters and producers subject
    to any countervailing duty order that may be issued as a result of
    the *Lumber IV* investigation.

## united states 

1.  The United States requests that the Panel reject Canada\'s claims in
    their entirety.

# ARGUMENTS OF THE PARTIES

1.  The arguments of the parties are set forth in their written and oral
    submissions to the Panel, and in their answers to questions. The
    parties\' arguments as presented in their submissions are summarized
    in this section. Summaries of the parties\' written answers to
    questions are set forth in the Annexes to this report (*see* list of
    annexes at page ).

## first written submission of canada

2.  The following are Canada\'s arguments in its first written
    submission.

3.  At issue in this dispute are the preliminary countervailing duty
    determination (the \"preliminary determination\") and the
    preliminary critical circumstances determination made by the USDOC
    on 9 August 2001, with respect to certain softwood lumber from
    Canada, which violate US obligations under the SCM Agreement and
    GATT 1994. Also at issue is the denial of company-specific expedited
    reviews and administrative reviews under US countervailing duty law,
    which violates US obligations under the SCM Agreement and the WTO
    Agreement.

### The Preliminary Countervailing Duty Determination

4.  In the preliminary countervailing duty determination, the USDOC
    concluded that "provincial stumpage programmes" in Quebec, British
    Columbia, Ontario, Alberta, Manitoba and Saskatchewan are
    countervailable subsidies. It determined (a) that stumpage is the
    "provision of a good or service", (b) based on a "cross-border"
    analysis of "benefit", that the stumpage programmes were subsidies
    to softwood lumber producers, and (c) that the alleged subsidies
    were specific. It assumed that the benefit was passed through to
    certain producers. Of the 19.31 per cent country-wide subsidy rate
    calculated by the USDOC, a full 19.21 per cent is attributed to
    these "stumpage programmes".

5.  The USDOC's findings and determinations and the provisional measures
    imposed as a result are inconsistent with US obligations under the
    SCM Agreement and GATT 1994. Specifically: (a) the Canadian
    practices in question are not "subsidies" as defined in Article 1 of
    the SCM Agreement, (b) the USDOC impermissibly inflated the alleged
    subsidy rate by calculating a country-wide rate based on only a
    portion of Canadian production and exports of softwood lumber;
    and (c) the USDOC impermissibly inflated the provisional measures
    imposed by applying them on an entered value after having calculated
    the subsidy rate using a first mill value. Although Canada is not
    making submissions regarding the USDOC's preliminary finding of
    specificity, Canada does not accept that finding as correct[^5].

6.  The Canadian practices are not "subsidies" because: (a) "stumpage"
    is not a "financial contribution" within the meaning of Article
    1.1(a) of the SCM Agreement; (b) the USDOC's determination and
    measurement of a "benefit" is based on a "cross-border" methodology
    that is not permitted by the SCM Agreement; and (c) the USDOC's
    determination assumes holders of harvesting rights pass through an
    alleged benefit to softwood lumber producers, without any basis for
    the assumption.

7.  ["Stumpage" is not a "financial contribution"]{.underline}. Most
    forest land in Canada is publicly owned "Crown" land. As stewards of
    this land, Federal and provincial governments manage forestry
    resources not for the benefit of specific users, but for the country
    as a whole, and with a view to conservation and preservation of
    Canada's natural heritage for future generations. Forest resource
    management is, therefore, concerned with a range of economic and
    public interests and activities associated with forest lands. These
    include timber, trapping, fishing, recreation, water quantity and
    quality, wildlife habitat, wilderness and aesthetics and erosion
    control. The management of forestry resources related to timber
    harvesting is characterized by a system of interlocking rights and
    obligations between provincial and federal governments, and timber
    harvesters. This system of resource management is based most
    frequently on tenure and licensing agreements.

8.  Tenure and licensing agreements vary from province to province, but
    they are all similar in that they are a complex bundle of rights and
    obligations, containing at a minimum: (a) the right to harvest
    standing timber on Crown land or "stumpage"; (b) service and
    maintenance obligations on the part of the concern, such as
    road-building and maintenance, and protection against fire; (c)
    implementation of forestry management and conservation measures,
    including silviculture and reforestation; and (d) payment of a
    volumetric "stumpage charge ", levied upon the exercise of the
    harvesting right.

9.  "Stumpage", as a right to exploit an *in situ* natural resource,
    takes two forms in Canada: a servitude referred to as a *profit à
    prendre* and a licence to harvest standing timber. Both rights are
    in respect of specified provincial Crown lands. A *profit à prendre*
    is a form of property right that conveys a non-possessory interest
    in the land to the recipient. Similarly, a licence is a revocable
    right to do something on, or to the detriment of, the land of
    another that would otherwise not be permitted -- in this case, the
    right to harvest standing timber. Other related forms of rights
    include: mineral servitudes, mineral entry, timber easements,
    licensing quotas to harvest fish, and rights of access to exploit
    inland water currents for use in irrigation or electrical power
    generation.

10. By the terms of Articles 10 and 32.1 of the SCM Agreement, to be
    countervailable a practice must satisfy the definition of "subsidy"
    in Article 1.1. Where an investigating authority determines the
    existence of a subsidy in respect of a measure that does not fit
    within the terms of Article 1, that determination is not in
    accordance with the terms of the SCM Agreement and is, accordingly,
    in violation of Articles 10 and 32.1 of the Agreement. Article
    17.1(b) specifically provides that provisional measures may be
    imposed only if "a preliminary affirmative determination has been
    made that a *subsidy* exists". (emphasis added).

11. Article 1 of the SCM Agreement sets out an *exclusive* definition
    for what constitutes a subsidy for the purposes of the SCM
    Agreement. The Appellate Body recognized in *Brazil -- Export
    Financing Programme for Aircraft* that a subsidy as defined by
    Article 1 has two discrete elements: (i) a financial contribution
    that (ii) confers a benefit. The panel in *Export Restraints* noted
    that the definition of "subsidy" in Article 1 reflects the Members'
    agreement not only as to the types of government action subject to
    the SCM Agreement, but also that not all government actions that may
    affect the market come within the ambit of the SCM Agreement.

12. Under Article 1.1(a)(1)(iii) of the SCM Agreement, a financial
    contribution exists where a government provides *goods*. The
    ordinary meaning of "goods" is "tangible or movable personal
    property other than money; \[especially\] articles of trade or items
    of merchandise ‹goods or services›". Nothing in the context of the
    SCM Agreement in any way detracts from or expands this ordinary
    meaning. A good is a good, a product, something on the cross-border
    trade of which tariffs may be imposed.

13. This is confirmed by the negotiating history related to the
    measurement of a benefit. On 4 September 1990, the Chairman of the
    Negotiating Group on Subsidies and Countervailing Measures
    circulated seven "informal discussion papers" in preparation for
    issuing a revised version of the Chairman's text. Discussion Paper
    No. 6 dealt with the measurement of the amount of a subsidy and
    offered draft language for the current Article 14. Draft
    Article 14.4(a), as set out in Discussion Paper No. 6, reflects an
    understanding at the time of the negotiations on the SCM Agreement
    of the fundamental difference between tangible commercial inputs and
    intangible real property rights. This draft provided in relevant
    part that "the amount of subsidy arising from government provision
    of goods, services, *or extraction/harvesting rights* ..." (emphasis
    added). The terms "or extraction/harvesting rights" are nowhere
    found either in the final text of Article 1.1(a)(1)(iii) or in the
    final text of Article 14(d) of the SCM Agreement. This confirms that
    rights, such as *profits à prendre,* are not included within the
    scope of the Agreement.

14. The USDOC simply asserted that stumpage is a financial contribution
    in the form of a provision of goods or services. It did not declare
    itself as to whether, in its view, stumpage is the provision of
    "goods" or "services". The petitioner in *Lumber IV*, however, has
    argued that stumpage is the provision of goods ("wood fiber") in the
    form of timber or logs. Canada therefore understands the USDOC to
    have determined that stumpage is "the provision of goods".

15. The USDOC also made no attempt to examine the evidence on the record
    and did not analyse how property rights, such as *profits à prendre*
    and timber harvesting licenses, are a "financial contribution" under
    Article 1.1. Properly understood, *profit à prendre* and the license
    to harvest standing timber is not the provision of "goods" within
    the meaning of Article 1. These rights are not in themselves goods
    or services. As a simple factual matter, "stumpage" -- the right to
    harvest standing timber -- is not a log. "Stumpage" is instead the
    right to exploit an *in situ* natural resource, akin to the right to
    extract oil and minerals from public lands, quotas to harvest fish
    from a country's territorial waters, or the right of access to
    exploit inland water and water currents for use in irrigation or
    electrical power generation. To determine otherwise is to expand the
    scope of "provides goods" and, therefore, the SCM Agreement beyond
    all recognition.

16. Timber harvesters have the right to harvest timber from Crown lands
    by virtue of their tenures or licenses; they do not pay stumpage
    charges as remuneration to acquire this right. Rather, a "stumpage
    charge" is a levy on the exercise of an existing right to harvest
    timber. It is properly viewed as a form of revenue collection by the
    government and is the economic equivalent of a tax.

17. The USDOC erred in determining that "stumpage" is a "financial
    contribution". On a plain reading of Article 1.1(a)(1)(iii), the
    term "provides goods" cannot be interpreted to include the granting
    of rights such as "stumpage". Since stumpage is not a "financial
    contribution" and, therefore, not a subsidy as defined in Article
    1.1, the determination by the USDOC that it is a subsidy and the
    imposition of provisional countervailing measures as a result,
    violates Articles 10, 17.1(b), 17.5, 19.4 and 32.1 of the SCM
    Agreement and Article V1:3 of GATT 1994.

18. [The USDOC's use of "cross-border" benchmarks to find and measure
    "benefit" violates the SCM Agreement]{.underline}. Nothing in the
    SCM Agreement permits the USDOC to do so; indeed, the text, context,
    and Appellate Body interpretations of Articles 1 and 14 indicate
    that such an analysis violates the SCM Agreement.

19. The USDOC purported to establish that Canadian stumpage practices
    conferred a benefit by comparing: stumpage charges levied by
    Canadian provinces with stumpage prices on selected state lands in
    the *United States*, on the basis that such prices are "commercially
    available world market prices..." to softwood lumber producers in
    Canada. The USDOC found US stumpage prices to be higher than the
    charges levied by Canadian provinces. the USDOC then multiplied this
    difference by what it considered the portion of the provinces'
    harvest consumed in sawmills to arrive at the calculated amount of
    the "stumpage subsidy". The "stumpage subsidy" was wholly derived
    from the comparisons of stumpage charges in Canada and cross-border
    prices for stumpage in the United States.

20. Article 1.1 of the SCM Agreement provides that a subsidy exists
    where there is a financial contribution by a government and "a
    benefit is thereby conferred". In *Canada -- Aircraft*, the
    Appellate Body stated that "the word 'benefit', as used in Article
    1.1(b), implies some kind of comparison... \[since\] there can be no
    "benefit" to the recipient unless the "financial contribution" makes
    the recipient "better off" than it would otherwise have been, absent
    that contribution." In the case of a government provision of goods,
    the question is therefore whether the purchaser of a good from the
    government is "better off" than other purchasers who buy the same
    good from other sellers in the country subject to the investigation.

21. This is confirmed by Article 14(d), which sets out guidelines to
    calculate the amount of a subsidy based on a "benefit to the
    recipient" test in cases of an alleged government provision of
    goods. It provides in particular that, "\[t\]he adequacy of
    remuneration shall be determined *in relation to prevailing market
    conditions* for the good or service in question *in the country of
    provision or purchase*" (emphasis added). The words of Article 14(d)
    are unambiguous. "In the country of provision or purchase" means "in
    the country of provision or purchase." It does not mean adequacy can
    be determined as against prevailing market conditions in *some other
    country* or *internationally*. Nothing in the context, object and
    purpose or the negotiating history of Article 14 permits reading
    "in" as anything other than "in"; "in the country" does not admit of
    "cross-border" analysis. A cross-border analysis using transactions
    in another country to determine the existence of and measure a
    "benefit" is thus inconsistent with Article 1 and Article 14 as
    interpreted by the Appellate Body, and viewed in context and in the
    light of the object and purpose of the SCM Agreement.

22. The USDOC's cross-border analysis is illogical even in the context
    of its own previous determinations. In each of the prior lumber
    cases -- *Lumber I*, *Lumber II* and *Lumber III* -- the USDOC
    rejected the use of cross-border comparisons for a number of
    reasons, including the USDOC's view that they are "arbitrary and
    capricious".

23. By using a benchmark in the United States, outside the country of
    the alleged provision of goods, the United States breached its
    obligations under Article 14 of the SCM Agreement. The USDOC's
    finding of a subsidy based on criteria not permitted by the SCM
    Agreement is also inconsistent with US obligations under Articles
    10, 17.5, 19.4 and 32.1 of the SCM Agreement and Article VI:3 of
    GATT 1994. Furthermore, the United States violated Article 17.1 of
    the SCM Agreement by imposing provisional measures with respect to a
    practice that is not a subsidy.

24. [The USDOC also impermissibly assumed a pass-through of an alleged
    benefit]{.underline}. In the preliminary determination, the USDOC
    found that the alleged "financial contribution" to timber harvesters
    conferred a benefit on softwood lumber producers. This presumption
    that the alleged benefit to timber harvesters passes through to
    lumber producers, without a determination that this did, in fact,
    occur, is inconsistent with the SCM Agreement.

25. In Canada, standing timber is harvested and processed into logs.
    Logs are then usually processed in sawmills and pulp mills to
    produce a wide variety of products including softwood lumber. Lumber
    may be sold as an end product or sold to remanufacturing industries
    that make a vast array of products. Both softwood lumber and
    remanufactured products, but not logs, are subject to the US
    investigation. A significant portion of harvesting is done by
    entities operating at arm's-length from lumber producers; in these
    instances, logs are sold to lumber producers and other industries in
    arm's-length transactions.

26. A countervailing duty may be imposed only where all the elements of
    a subsidy have been established. A subsidy is exhaustively defined
    in Article 1 of the SCM Agreement. A direct subsidy exists where a
    financial contribution confers a benefit to the recipient of that
    contribution. The criteria for an *indirect* subsidy are found in
    Article 1.1(a)(1)(iv) of that Agreement. In the context of Article
    1.1(a)(1)(iii), *i.e.* where the alleged financial contribution is
    the government provision of goods, an indirect subsidy may be found
    *only* where a private entity is entrusted or directed by government
    to provide these goods in a manner that confers a benefit. Thus,
    where the recipient of a subsidy (whose products are not subject to
    the investigation) enters into transactions with other entities, an
    investigating authority may not assume that the subsidy has been
    passed on, or if so, that the recipient was entrusted or directed by
    government to pass it on. Rather, the authority must establish the
    existence of a subsidy in respect of the entity being investigated.
    This is especially the case where the transaction is at
    arm's-length.

27. The findings of the Appellate Body in *British Steel* are
    particularly relevant in this instance. There, the Appellate Body
    agreed with the Panel that "in order to determine whether any
    subsidy was bestowed on the production \[of the subject
    merchandise\], it is necessary to determine whether there was any
    "benefit" to \[the recipient\]." This included examining, on
    administrative review, the continued existence of any "benefit"
    already found to have been conferred by "financial contributions"
    pre-dating the privatization of the original recipient of those
    contributions. Moreover, this had to be done from the perspective of
    the producers of the imports subject to the review, not the producer
    that had been privatized prior to the review (i.e. whose imports
    were not subject to the review). Finally, in that case, the
    Appellate Body confirmed that where fair market value is paid on
    privatization, no previously conferred benefit could be passed
    through to the acquiring entity.

28. The Appellate Body's analysis in *British Steel* is even more apt in
    respect of *original* determinations where an investigating
    authority has the duty to establish *each element* of a subsidy. In
    such cases, the authority may find an "indirect" subsidy only where
    an indirect financial contribution has been found in the sense of
    Article 1.1(a)(1)(iv). The reason is simple. Where transactions take
    place in the market and at arm's-length, and where there has been no
    "direction" or "entrustment", the original recipient of a subsidy
    must be presumed to have retained the benefit. Conversely, to assume
    pass-through in such arm's-length transactions without establishing
    "direction" or "entrustment" in the sense of Article 1.1(a)(1)(iv)
    would nullify the clear meaning of that Article.

29. Since the USDOC did not do any indirect subsidy or pass-through
    analysis, its finding of "benefit" is, on its face, incorrect and
    illegal. In the current investigation there are no allegations of
    direct stumpage subsidies to the subject merchandise, softwood
    lumber. Softwood lumber is *processed* from logs, and logs from
    standing timber; neither logs nor timber are within the scope of the
    investigation. Logs result from the harvesting of timber -- the
    subject matter of stumpage, which is the allegedly subsidized
    economic activity. The alleged subsidies therefore are on log
    production.

30. Lumber producers may not legally be *deemed* to be subsidized simply
    because of a finding of subsidization to upstream producers. Rather,
    to find that the downstream industries are subsidized, the USDOC
    must first establish an indirect financial contribution, and then
    demonstrate a benefit conferred *upon the recipient* by that
    contribution. The USDOC did not establish, as is required by the SCM
    Agreement, that any "financial contribution" by the government to
    timber harvesters had been "entrusted" or "directed" to be passed
    through to lumber producers or remanufacturers. It did not find that
    the alleged benefit of the financial contribution in question was
    also passed through to and conferred upon lumber producers or
    remanufacturers (the producers of the subject merchandise within the
    scope of the investigation). The USDOC did not provide any analysis
    of either requirement of Article 1 in respect of the merchandise on
    which it imposed a countervailing duty. *A* *fortiori,*
    remanufacturers who buy lumber from lumber producers may not legally
    be presumed to have benefited from an alleged stumpage subsidy two
    transactions away.

31. The USDOC has failed to establish the elements of a subsidy in
    respect of the subject merchandise by failing to demonstrate a
    pass-through of financial contribution and benefit. In imposing
    provisional measures on practices not properly found to be a
    subsidy, the United States has violated Articles 10, 17.1(b), 19.4
    and 32.1 of the SCM Agreement and Article VI:3 of GATT 1994.

32. The USDOC also impermissibly inflated the subsidy rate by
    calculating a "weighted-average country-wide rate" based upon only a
    portion of Canadian production and exports. Having determined that
    various federal and provincial programmes were subsidies, the USDOC
    calculated the subsidy rate by 1) for each provincial stumpage
    programme, dividing the total calculated stumpage benefit by the
    total value of the province's production of softwood lumber and
    co-products by sawmills; and 2) for other provincial and federal
    programmes found to be countervailable, dividing the total
    calculated benefit by the value of sales (or exports, for an alleged
    export subsidy) of softwood lumber and co-products by sawmills for
    the relevant jurisdiction. In each case, the alleged benefit was the
    numerator, and the shipment value was the denominator of the
    calculation. The USDOC then weight-averaged the resulting provincial
    rates by the provinces' relative shares of exports to the United
    States to arrive at a "country-wide" rate. In these calculations,
    the USDOC impermissibly excluded Maritime shipments from the total
    Canadian shipments used as the denominator for calculating certain
    federal programme rates and excluded Maritime exports in weight
    averaging provincial rates to construct a country-wide rate.

33. Articles 17.2 and 19 (through Article 17.5) of the SCM Agreement,
    and Article VI:3 of GATT 1994 require the USDOC to estimate "the
    amount of the subsidy found to exist" so as to ensure it is
    representative of the actual subsidization. Accordingly, a
    "country-wide" countervailing duty rate must approximate the average
    rate of subsidization of the subject merchandise. This means that
    shipments of subject merchandise by any company in the country under
    investigation (including those companies that have been excluded
    from the investigation or countervailing duty order) must be
    included in calculating a country-wide rate. Exclusion of the
    Maritime Provinces' shipments and exports from the calculation
    results in imposition of provisional measures "in excess of the
    amount of the subsidy found to exist."

34. The impropriety of the USDOC's country-wide subsidy rate calculation
    becomes all the more evident when it is considered that the USDOC
    relied on import statistics that included imports from the Maritimes
    to find evidence of causation of material injury or threat of
    material injury sufficient to initiate the investigation. The USDOC
    cannot now credibly exclude these Maritime shipments from the
    subsidy calculation. Likewise, the International Trade Commission
    based its preliminary determination of threat of material injury on
    its analysis of total imports of softwood lumber from Canada,
    including the Maritime Provinces. Article 17.1(b) of the SCM
    Agreement requires that provisional measures may be applied only if
    "a preliminary affirmative determination has been made that a
    subsidy exists and that there is injury to a domestic industry
    caused by subsidized imports." Here, the ITC made no finding of
    injury based solely on the subnational group of imports on which the
    USDOC calculated provisional duties.

35. Since the preliminary determination inflates the weighted average
    country-wide subsidy rate in violation of Article 19.4 of the SCM
    Agreement and Article VI:3 of GATT 1994, the United States is also
    in violation of Articles 10 and 32.1 of the SCM Agreement.

36. [The USDOC also impermissibly applied provisional measures in excess
    of the subsidy preliminarily found to exist]{.underline}. In its
    preliminary determination, the USDOC found a net subsidy rate of
    19.31 per cent *ad valorem* and stated that it was directing the US
    Customs Service ("Customs") to suspend liquidation of entries of
    subject merchandise and to require a cash deposit or bond *in the
    amount of the subsidy found*. It did not in fact do so, however.
    Instead, the USDOC calculated the subsidy rate on a *first mill*
    basis, but applied it on an *entered value* basis, with the effect
    of significantly increasing the provisional measures applied to a
    considerable portion of Canadian exports of softwood lumber to the
    United States.

37. In all of the USDOC subsidy calculations, described above, the
    denominator of the calculation was the value of *sawmill* shipments
    or exports, *i.e.*, the "first mill" value. Sawmills ("first mills")
    produce lumber from logs. They ship lumber to end users, and also
    sell some quantity of lumber to downstream value-added
    remanufacturers ("final mills") that use lumber inputs, produce
    further processed lumber products (of which some are within the
    scope of the investigation).

38. A USDOC decision memorandum subsequently claimed that "\[t\]he
    record for the Preliminary Determination supports the collection of
    CVD deposits on an entered value basis" and the USDOC instructions
    to Customs referenced in the preliminary determination instructed
    Customs to require countervailing duty cash deposits or the posting
    of a bond without specifying that such provisional measures applied
    to the first mill value, thus ensuring application on an entered
    value basis. Thus, for example, where a 19 per cent duty calculated
    on first mill value is applied to the entered value (and, for
    illustration, assuming an import with first mill value of \$100 and
    final mill or entered value of \$125), the importer of the
    value-added product faces an actual duty not of 19 per cent but of
    23.75 per cent of the first mill value.

39. Articles 17.2 and 19.4 (through 17.5) of the SCM Agreement and
    Article VI:3 of GATT 1994 establish the fundamental obligation that
    a duty may not exceed the subsidy found to exist. In applying the
    preliminary determination on an entered value basis, the United
    States significantly increased the provisional measures in violation
    of Articles 17.2 and 19.4 of the SCM Agreement and Article VI:3 of
    GATT 1994.

### The Preliminary Critical Circumstances Determination

40. Commerce also made a preliminary critical circumstances
    determination as a result, the United States retroactively applied
    the provisional measures to entries occurring within 90 days prior
    to the date of publication of the preliminary determinations, *i.e.*
    entries from May 19 through 16 August 2001. The retroactive
    application of provisional measures is inconsistent with US
    obligations under the SCM Agreement. Even if such action were
    permitted under the Agreement, Commerce's preliminary critical
    circumstances determination is itself inconsistent with US
    obligations under the SCM Agreement and GATT 1994.

41. Under Article 20.6, "critical circumstances" exist only where four
    conditions are satisfied: (1) there is injury to the domestic
    industry that is difficult to repair; (2) such injury is caused by
    massive imports in a relatively short period; (3) such imports are
    of a product benefiting from subsidies paid or bestowed
    inconsistently with the provisions of GATT 1994 and of the SCM
    Agreement; and (4) retroactive assessment of definitive
    countervailing duties on those imports is necessary to preclude the
    recurrence of such injury.

42. Even where these elements are present, Article 20.6 states that the
    type of duties that may be assessed are "definitive", not
    "provisional". The term "definitive" is defined as "having the
    function or character of finality" or "decisive", "conclusive" and
    "finally settled." Accordingly, the ordinary meaning of the
    provision prohibits any retroactive application of countervailing
    measures under the Article until after a final determination is
    made. This understanding of the meaning of the word "definitive" in
    Article 20.6 of the SCM Agreement is reinforced by the consistent
    distinction in the Agreement, for example in Articles 20.1 and 20.3,
    and 22.4 and 22.5, between "provisional measures" on the one hand
    and "countervailing duties" or "definitive duties" on the other
    hand. Despite the clear application of Article 20.6 to definitive
    countervailing duties and not provisional measures, Commerce acted
    otherwise.

43. In its preliminary critical circumstances determination and related
    analysis, Commerce preliminarily determined that there had been
    "massive imports" of a product benefiting from a prohibited export
    subsidy. For Commerce, this was a sufficient basis to apply
    countervailing measures retroactively. Commerce recognized that the
    ITC had not considered (even preliminarily) the injury factors
    required to be considered under Article 20.6 of the SCM Agreement,
    and that "\[f\]or purposes of a final determination whether
    retroactive relief is warranted, other factors are considered by the
    ITC in its final determination". Nonetheless, Commerce applied its
    preliminary critical circumstances determination on a provisional
    basis. Since Article 20.6 permits the retroactive application of
    only definitive countervailing duties, and not provisional measures,
    for the reasons set out above, the United States has violated this
    provision.

44. Moreover, since the investigation was initiated on 23 April 2001,
    Article 17.3 requires that provisional measures in this case not be
    applied sooner than 22 June 2001. However, the United States applied
    provisional measures as of 19 May 2001. Article 17.3 thus not only
    confirms that Article 20.6 does not permit the retroactive
    application of provisional measures, but to the extent the United
    States has applied such measures sooner than 22 June 2001, it has
    also violated Article 17.3 outright.

45. Similar inconsistencies result under Article 17.4. This provision
    states that "\[t\]he application of provisional measures shall be
    limited to as short a period as possible, not exceeding four
    months." Pursuant to the preliminary determination, the United
    States has applied provisional duties to imports of softwood lumber
    from Canada for a period of four months, beginning on the date of
    publication of the determination on 17 August 2001 and ending
    14 December 2001. However, in also retroactively applying
    provisional measures for the period from 19 May 2001 to 17 August
    2001, the United States has applied provisional measures for a total
    of nearly 7 months. Here again, not only does Article 17.4 confirm
    that Article 20.6 does not permit the retroactive application of
    provisional measures, but to the extent the United States has
    applied such measures from 19 May 2001 through 14 December 2001, the
    United States has also violated Article 17.4 on its face.

46. Even if provisional measures could be applied retroactively under
    Article 20.6, Commerce did not establish that "critical
    circumstances" exist in its preliminary critical circumstances
    determination. **First**, the IQ SMB Guarantee programme upon which
    the determination is based is not a prohibited export subsidy and
    even if it were, the amount of subsidy found for the programme was
    *de minimis* and thus did not provide the basis for a determination
    under Article 20.6. Assuming, *arguendo*, that the IQ SMB Guarantee
    loan guarantees programme conferred a "benefit", the programme
    itself is not contingent on exports from Canada. Record information
    demonstrated that the programme is contingent on developing markets
    outside *Quebec*, not outside *Canada*. Accordingly, for the
    purposes of Commerce's investigation, the IQ SMB Guarantee programme
    is not "contingent on export performance" under Article 3.1(a) and
    the determination that the "massive imports" in question have
    benefited from "subsidies paid or bestowed inconsistently with the
    provisions of GATT 1994 and of \[the SCM\] Agreement" is flawed.

47. Furthermore, a critical circumstances determination cannot be based
    on a prohibited subsidy of a negligible amount. Commerce found that
    the benefit from this programme was less than 0.005 per cent, *i.e.*
    a rate that is *de minimis*. A *de minimis* rate is insufficient to
    provide a basis for applying any countervailing measure (provisional
    or final). By its own terms, Article 11.9 of the SCM Agreement
    applies to any part of a countervailing duty investigation.
    Therefore, a determination under Article 20.6 is governed by the *de
    minimis* threshold under Article 11.9, since action under the former
    is based solely on a subsidy that is "paid or bestowed
    inconsistently with the provisions of GATT 1994 and of this
    Agreement" and not *all* alleged subsidy programmes under
    investigation. Since Commerce's preliminary critical circumstances
    determination is based solely on the SMB Guarantee programme, which
    was not an export subsidy and was found to be *de minimis*, the
    United States has taken action under Article 20.6 in the absence of
    "critical circumstances", *i.e.* in violation of that provision.

48. **Second**, even if the SMB Guarantee programme had correctly been
    found to be a prohibited export subsidy, the rate applicable to the
    retroactive measures should have been the rate attributed to this
    programme -- less than 0.005 per cent -- and not the rate
    attributable to all other alleged subsidies taken together -- 19.3
    per cent. The text of Article 20.6 does not refer to "massive
    imports" of a product benefiting from "any or all of the subsidies
    under investigation". The provision specifically refers to
    "subsidies paid or bestowed inconsistently with the provisions of
    GATT 1994 and of this Agreement". The text of Article 20.6 of the
    SCM Agreement and the logic behind it allow the retroactive
    application of only the rate that is commensurate with the benefit
    bestowed by the alleged prohibited subsidy. Furthermore, any
    countervailing measures applied under Article 20.6 must conform to
    the basic requirement under Articles 17.5 and 19.4 of the SCM
    Agreement and Article VI:3 of GATT 1994 that they may not exceed the
    amount of the subsidy found to exist, i.e. such measures can be in
    an amount no greater than that needed to offset the benefit
    conferred by the alleged prohibited subsidies found to exist. To do
    so at a higher rate would countervail in an amount in excess of that
    required to "preclude the recurrence of \[the\] injury" caused by
    such subsidies in "critical circumstances", the object and purpose
    of Article 20.6. In the instant case, the applicable rate was less
    than 0.005 per cent as opposed to 19.31 per cent.

49. In applying provisional measures retroactively in the amount of
    19.31 per cent, the United States has violated Article 20.6 of the
    SCM Agreement, as well as Articles 17.5 and 19.4 of the SCM
    Agreement and Article VI:3 of GATT 1994.

50. **Third**, no countervailing measure, whether provisional or final,
    can be applied retroactively under Article 20.6 without the
    requisite injury findings and no such findings were made by US
    authorities. There is no dispute that the USDOC's determination
    contains no finding on the two injury elements set out in Article
    20.6 of the Agreement. First, neither the USDOC nor the ITC had
    found "injury which is difficult to repair" and neither the USDOC
    nor the ITC had determined that retroactive application of
    definitive countervailing duties was necessary "in order to preclude
    the recurrence of such injury". There can be no dispute on this
    point because the USDOC itself expressly stated that these
    determinations would be made by the ITC when the ITC made its final
    determination. Accordingly, in applying such countervailing measures
    retroactively under Article 20.6 without first making the requisite
    injury findings, the United States violated outright Article 20.6 of
    the Agreement.

51. **Fourth**, the USDOC's finding of "massive imports" (1) incorrectly
    attributed to all imports from Canada the alleged benefit conferred
    by the IQ SMB Guarantee programme, which applies only to shipments
    from Quebec and (2) attributed to an alleged export subsidy an
    increase in imports resulting from the impending and then actual
    expiration of the *Canada**-**United States Softwood Lumber
    Agreement* (SLA).

52. The USDOC determined that imports of softwood lumber from Canada had
    increased by 23.34 per cent in the three months following the filing
    of the petition compared to the previous three months and on this
    basis that the requirement of "massive imports" over a "relatively
    short period" of time had been satisfied. The SLA expired two days
    before the petition was filed, *i.e.* at the end of the first
    quarter of 2001. Its impending expiration sharply reduced exports in
    the first quarter of 2001 and its actual expiry led to an increase
    in the second quarter. These dramatic and well-documented trade
    trends were nonetheless attributed by the USDOC to the existence of
    a *de minimis* alleged export subsidy.

53. Even assuming that the SMB Guarantee programme were a prohibited
    export subsidy, it is patently impossible to attribute the "massive
    imports" finding in this case, an increase of 23.34 per cent, to a
    programme that did not benefit any exports during the period of
    investigation -- and in any event could have benefited only a small
    fraction of exports and only in an amount of less than 0.005 per
    cent. Since the United States has applied provisional measures
    retroactively in the absence of a valid finding of "massive
    imports", it has violated Article 20.6.

54. **Fifth**, the USDOC's finding of "massive imports" improperly
    excludes imports from the Canadian Maritime Provinces. If it is
    permissible, as the USDOC did, to include shipments that have not
    benefited from the prohibited subsidy, then it should include all
    such shipments and not simply the portions of those shipments that
    suit its needs. In this respect, the USDOC's "massive imports"
    finding is defective also because it was "net of the Maritime
    Provinces", *i.e.* the USDOC excluded from any of its calculations
    imports from the Canadian Maritime provinces. Under various methods
    of calculating "massive imports", inclusion of exports from the
    entirety of Canada, including the exports from the Maritime
    Provinces, would have resulted in a negative "massive imports"
    finding under the SCM Agreement. There is no basis in Article 20.6
    of the SCM Agreement for making a "massive imports" finding on the
    basis of only a segment of total imports.

### US Law is Inconsistent with US Obligations on Expedited and Administrative Reviews

55. Article 19.3 of the SCM Agreement expressly requires Members to
    grant an expedited review to those exporters that were not
    individually investigated who have requested such a review, in order
    to establish an individual countervailing duty rate for that
    exporter. Article 21.2 requires the same for any interested party in
    cases of administrative review. The Agreement thus ensures that
    exporters and producers not individually investigated will
    nevertheless be able to obtain an individual countervailing duty
    rate if they so request. It also ensures that each exporter and
    producer is not subject to a duty rate higher than that called for
    in its individual circumstances. The United States has failed to
    implement these obligations in US law.

56. Section 777A(e)(1) of the *Tariff Act of 1930* establishes the
    general rule that the USDOC will determine an individual subsidy
    rate for each known exporter or producer of the subject merchandise.
    Where the application of the general rule is not practicable because
    of the large number of exporters or producers involved in the
    investigation, exception to this rule can be made under
    section 777A(e)(2)(A) and (B) of the Tariff Act of 1930 ("the Act"),
    as interpreted by the SAA. Under subparagraph (A), the USDOC can
    limit its examination to a statistically valid sample of exporters
    or producers or limit its examination to those exporters and
    producers accounting for the largest volume of exports of the
    subject merchandise that the USDOC determines can reasonably be
    examined. Under subparagraph (B), the USDOC can determine a single
    country-wide rate to be applied to all exporters and producers.

57. The regulations implementing US obligations under the SCM Agreement
    regarding individual expedited and administrative reviews limit the
    availability of such reviews to instances where the USDOC has
    undertaken its investigation according to subsection (A) of section
    777A(e)(2). The regulations limit the availability of expedited
    reviews and company-specific administrative reviews in cases where
    the USDOC elects to conduct its investigation on an aggregate
    "country-wide" basis. In such cases, the USDOC *must* deny
    individual exporters the benefit of company-specific expedited
    reviews and administrative reviews.

58. In the case of individual expedited reviews, section 351.214(k)(l)
    provides for a request for individual expedited review only if "the
    Secretary limited the number of exporters or producers to be
    individually examined under section 777A(e)(2)(A) of the Act" (i.e.
    by sample or by taking account of those exporters and producers
    accounting for the largest volume of exports). Significantly, this
    is the case as soon as the initial decision is made as to *how* the
    investigation is to be conducted. In the case of administrative
    reviews, subparagraphs (1), (2) and (3) of section 351.213(b) each
    expressly bar the request by an foreign government, exporter, or
    importer of record for an individual administrative review where the
    "investigation or prior administrative review was conducted on an
    aggregate basis". Moreover, the only requests the USDOC will
    consider for an individual administrative review in cases where
    administrative reviews are conducted on a country-wide basis are
    those for individual assessment and cash deposit rates of zero under
    subparagraph (1) of section 351.213(k) and then, "only to the extent
    practicable." Section 351.213(k)(2) provides, however, that if, in
    the review, the USDOC calculated a country-wide rate, "that rate
    will supersede, for cash deposit purposes, all rates previously
    determined in the countervailing duty proceeding in question."

59. This result is inconsistent with the obligations of the United
    States under the SCM Agreement. Article 19.3 provides that exporters
    not "actually investigated" are entitled upon request *in all cases*
    to an expedited review "in order that the investigating authorities
    promptly establish an individual countervailing duty rate for that
    exporter". Article 21.2 entitles exporters and producers to a
    company-specific administrative review upon request *in all cases*.
    This ensures that exporters and producers not given an individual
    rate during the countervailing duty investigation will be given one
    in an administrative review. This also means that exporters and
    producers already given an individual rate during the investigation,
    may be given an individual rate again in an administrative review.
    Nothing in the context or object and purpose of these provisions or
    indeed the SCM Agreement in any way modifies the nature of these
    obligations. Accordingly, section 351.214(k)(l) of the regulations
    violates Article 19.3 of the Agreement and section 351.213(b)
    violates Article 21.2.

60. Section 351.213(b) on administrative reviews also violates US
    obligations regarding expedited reviews under Article 19.3. Under
    the US retrospective duty system, final liability for countervailing
    duties is not determined until the administrative review. Section
    351.213(b) specifically denies exporters and producers an
    administrative review if the investigation was conducted on an
    aggregate basis. This means that an exporter or producer would still
    be denied the opportunity to obtain a final individual
    countervailing duty rate contrary to Article 19.3, even if it were
    given the right to an expedited review to establish an individual
    cash deposit rate.

61. Finally, since section 351.213(k)(2) mandates that the single
    country-wide countervailing duty rate calculated by the USDOC in an
    administrative review must supersede all individual rates previously
    determined, this provision violates both Article 19.3 and
    Article 21.2. First, mandating that a single country-wide rate
    supersedes all individual rates effectively undoes the benefit of
    any expedited review that an exporter or producer may have been
    granted by the USDOC pursuant to an investigation conducted under
    section 777A(e)(2)(A). Second, it prevents exporters and producers
    from obtaining an individual rate in an administrative review if
    that review is conducted on an aggregate basis.

62. The USDOC decided to conduct the *Lumber IV* investigation on a
    country-wide basis. Three consequences flow from this decision.
    First, by operation of the regulations, exporters and producers
    involved in the investigation are denied expedited reviews and
    company-specific administrative reviews, in violation of
    Articles 19.3 and 21.2 of the SCM Agreement. Second, in this case,
    the USDOC will, as a result, impose a countervailing duty in excess
    of the amount of the subsidy found. This is because a country-wide
    rate necessarily imposes a duty on some exporters and producers in
    excess of what would be their individual duty rate. The United
    States therefore also violates Article 19.4. Third, as a
    consequence, the United States also violates Articles 10 and 32.1 of
    the SCM Agreement.

63. The US failure to provide for expedited reviews and company-specific
    administrative reviews in all cases means that the United States has
    failed to ensure the conformity of its laws, regulations and
    administrative procedures with its obligations under the SCM
    Agreement. Thus the United States should also be found in violation
    of its obligations under Articles XVI:4 of the WTO Agreement and
    Article 32.5 of the SCM Agreement.

## first written submission of the united states

64. The following are the arguments of the United States in its first
    written submission.

### Introduction

65. "No Member should cause, through the use of any subsidy . . . ,
    adverse effects to the interests of other Members, i.e. . . . injury
    to the domestic industry of another Member . . . ."[^6] That
    obligation is the core of the dispute now before the Panel. When one
    Member causes injury to the domestic industry of another Member
    through the use of *any* subsidy, the injured Member has the right
    to take countervailing measures.

66. The United States has acted entirely within its rights under the SCM
    Agreement in this case by taking provisional countervailing measures
    to offset the injurious subsidies that Canada provides to its lumber
    mills. Canada's claims to the contrary are without merit. Canada is
    asking this Panel to ignore the text of the SCM Agreement and create
    exceptions to the subsidy disciplines for Canada's decades-old
    system of subsidies to its lumber industry. In addition, Canada's
    claims of WTO-inconsistent US laws are, in reality, an effort to
    resolve a future dispute that may never occur. Therefore, consistent
    with the SCM Agreement and the DSU, the United States asks the Panel
    to reject Canada's claims.

### Statement of Facts

67. On 17 August 2001, the USDOC published its preliminary
    determination, which contained a preliminary affirmative
    countervailing duty determination and a preliminary affirmative
    finding of critical circumstances. In the preliminary determination,
    the USDOC preliminarily found that provincial stumpage programmes in
    Canada provided a countervailable subsidy to Canadian lumber
    producers. In addition, the USDOC found reasonable cause to believe
    or suspect that critical circumstances existed based on evidence
    that lumber producers received prohibited export subsidies and that
    there were massive imports of the subject merchandise over a
    relatively short period of time.

68. Accordingly, the USDOC imposed provisional measures (i.e.,
    suspension of liquidation and posting of security in the form of
    cash deposits or bonds), effective on the date of publication of the
    preliminary determination, i.e., 17 August 2001. In light of the
    affirmative finding of critical circumstances, the USDOC ordered
    provisional measures applied to entries of the subject merchandise
    made during the period 90 days prior to the date of the publication
    of the preliminary determination.

### Standard of Review

69. Article 11 of the DSU requires a panel to make an objective
    assessment of the matter before it and determine whether the
    identified measure is consistent with the provisions of the SCM
    Agreement upon which the claim is based. Panels cannot add to or
    diminish the rights and obligations provided in the SCM Agreement.

70. A panel does not conduct a *de novo* review of the evidence nor
    substitute its judgment for that of the competent authority.
    Moreover, the sufficiency of the evidence in this case should be
    judged in relation to the particular measure that Canada has
    challenged. It is important to bear in mind the preliminary nature
    of the determination at issue. The consistency of a preliminary
    determination with the obligations imposed on Members should be
    based on the record evidence before the authority at the time the
    determination was made.

### Argument

#### Canada Bears the Burden of Proving Its Claim

71. Canada, as the complainant, bears the burden of coming forward with
    evidence and argument that establish a *prima facie* case of a
    violation. If the balance of evidence is inconclusive with respect
    to a particular claim, Canada must be held to have failed to
    establish that claim.

#### The Preliminary Countervailing Determination Is Consistent With the SCM Agreement

##### Provincial Stumpage Programmes Constitute a "Financial Contribution"

72. The Canadian provincial governments own approximately 90 per cent of
    the forested land in Canada ("Crown land"), and the provincial
    governments control access to the timber on Crown land. The
    provinces enter into contractual arrangements that allow companies
    to harvest the timber on Crown land in exchange for an
    administratively set stumpage fee and the assumption of certain
    forest management obligations associated with harvesting operations.
    To be awarded such a contract, normally the company must either have
    a Canadian lumber mill, or have an agreement with a Canadian lumber
    mill to process all of the harvested timber. The vast majority of
    the Crown timber is awarded under long-term contracts that are not
    subject to competition (these contracts are usually referred to as
    tenures), with the fees set administratively by the provincial
    government.

73. In the preliminary determination, the USDOC concluded that these
    Canadian provincial "stumpage programmes" constitute a financial
    contribution because they provide a good to lumber producers within
    the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement. That
    good is timber.

74. Article 31 of the *Vienna Convention on the Law of Treaties*, which
    reflects customary rules of interpretation of public international
    law, states that a treaty shall be interpreted "in accordance with
    the ordinary meaning to be given to the terms of the treaty in their
    context and in the light of its object and purpose." Article 1.1 of
    the SCM Agreement defines a subsidy as a "financial contribution" by
    a government that confers a benefit. Article 1.1(a)(1)(iii) states
    that a financial contribution shall be deemed to exist where, *inter
    alia*, the government "provides goods or services other than general
    infrastructure." The SCM Agreement does not specifically define the
    meaning of "provides\" or "goods." The Panel should look to the
    ordinary meaning of these terms.

75. The New Shorter Oxford English Dictionary defines "provides" as
    meaning, among other things, to "supply or furnish for use." Black's
    Law Dictionary defines "goods" as specifically including "growing
    crops, and other identified things to be severed from real
    property." Provincial stumpage programmes therefore constitute a
    "financial contribution" because they "supply or furnish" an
    "identified thing to be severed from real property," i.e., timber.

76. The text of Article 1.1(a)(1)(iii) does not contain any exclusions
    for natural resources, nor can such an exclusion be read into the
    text. To the contrary, the Members evidently considered exceptions,
    and the sole exclusion from the phrase "goods and services" that
    they agreed on is reflected in Article 1.1(a)(1)(iii) itself, i.e.,
    general infrastructure. It would be extraordinary if the Members
    intended *sub silentio* to provide a safe harbour for a broad group
    of government subsidies. Rather, this sole, express exclusion
    demonstrates that the Members intended to include all other goods
    and services.

77. Canada argues that provincial governments are not providing timber
    to lumber producers, but rather are merely granting the right to
    harvest the timber. There is, however, no meaningful distinction
    between providing the right to harvest timber and providing the
    timber itself. The provincial stumpage systems are designed for one
    purpose: to provide timber to Canadian mills that make lumber or
    wood pulp. Participation in these programmes is restricted to
    Canadian sawmills or pulpmills, or companies that have contracts
    with Canadian mills to process the harvested timber. Furthermore,
    each of the provincial stumpage programmes charges the tenure holder
    on a "volumetric" basis. Tenure holders do not pay stumpage fees for
    timber that they do not harvest. In light of these facts, it is
    obvious that the provincial governments are providing timber through
    these stumpage systems.

78. Moreover, the New Shorter Oxford English Dictionary defines
    "provides" as meaning to "make available" in addition to "supply or
    furnish for use." Thus, even if provincial tenures are viewed as
    simply providing the right to take timber off the land rather than
    providing the timber itself, such a provision would still constitute
    the "provision of a good" within the meaning of
    Article 1.1(a)(1)(iii) of the SCM Agreement because the government
    is making the timber available. Therefore, the USDOC's preliminary
    determination that provincial stumpage programmes constitute the
    provision of a good is entirely consistent with the text of Article
    1.1(a)(1)(iii) of the SCM Agreement.

79. The USDOC's Preliminary Determination is also consistent with the
    context, object and purpose of Article 1.1(a)(1)(iii). The object
    and purpose of the SCM is to impose multilateral disciplines on
    subsidies because of the "the trade-distorting potential" of
    government largesse. It is evident from Article 1.1 that the Members
    recognized that governments have a variety of mechanisms at their
    disposal to confer an advantage on specific domestic enterprises or
    industries and that they intended to bring those mechanisms within
    the disciplines of the Agreement. Article 1.1(a)(1)(iii) should be
    interpreted in that context.

80. If the major input for a product is a natural resource -- timber,
    bauxite, iron ore -- a government that provides the natural resource
    to producers has the ability, depending upon the price charged, to
    provide an advantage that would not otherwise be available in the
    market. Canada's attempt to exempt such potentially
    market-distorting government practices from the disciplines of the
    SCM Agreement has no basis in the text of the Agreement and is
    entirely at odds with its object and purpose.

##### Provincial Stumpage Programmes Provide a "Benefit" 

81. The *Canada Aircraft* panel stated that authorities must "determine
    whether the financial contribution places the recipient in a more
    advantageous position than would have been the case but for the
    financial contribution."[^7] In this case, the USDOC used market
    stumpage prices from comparable regions of the United States,
    adjusted as appropriate, as the benchmark price to determine whether
    the stumpage programmes administered by the Canadian provincial
    governments provided timber to lumber producers on a more favorable
    basis than the marketplace would provide. The USDOC declined to use
    non-government prices between buyers and sellers within each
    province as the benchmark prices because provincial government sales
    constitute the overwhelming majority of timber sales in each of the
    provinces. As a result of the provincial governments' dominance of
    the timber market, the USDOC could not conclude that non-government
    prices within the provinces were unaffected by the very distortion a
    market benchmark price is intended to measure, i.e., that they
    reflected the market "but for" the government financial
    contribution.

82. The USDOC's decision to use a US benchmark is consistent with
    Article 14 of the SCM, which sets forth guidelines for measuring the
    amount of the benefit to the recipient of a government's financial
    contribution. Article 14(d) states that "the provision of goods . .
    . by a government shall not be considered as conferring a benefit
    unless the provision is made for less than adequate remuneration . .
    . . The adequacy of remuneration shall be determined *in relation to
    prevailing market conditions* for the good or service in question in
    the country of provision . . . (including price, quality,
    availability, marketability, transportation and other conditions of
    purchase or sale)."[^8]

83. The dictionary definition of "in relation to" is "with reference
    to." Thus, under Article 14(d), the prevailing conditions in the
    country of provision are a reference point, not necessarily an end
    point, for the market benchmark. The proper benchmark measures the
    market but for the financial contribution. Thus, the issue is
    finding a market benchmark with reference to what the "in country"
    market would be but for the subsidy. It would therefore be improper
    to look outside a country simply to determine what the market value
    of a good is elsewhere in the world. It is, however, entirely proper
    to do so if one can use such prices, properly adjusted, to determine
    the market value of the good in the country under investigation.

84. Moreover, Article 14(d) states that the "prevailing market
    conditions" to be taken into account are the conditions of purchase
    or sale. Therefore, when read in context, "in relation to prevailing
    market conditions" requires the authority to determine the adequacy
    of remuneration with reference to market prices for transactions
    that, while not necessarily between buyers and sellers within the
    country of provision, are (or could be adjusted to be) comparable to
    the government transactions at issue with respect to the conditions
    of purchase or sale in the market.

85. The "in relation to" language in Article 14(d) demonstrates the
    Members' intent to provide more flexibility in the selection of
    market benchmarks for determining the adequacy of remuneration for
    the provision of goods and services. This flexibility is evident
    elsewhere in the Agreement. The "market," as generally referred to
    in the Agreement, is not restricted to the exporting country, but
    rather encompasses the entire market available to the subsidized
    producer or exporter. For example, Article 14(b) refers to
    comparable commercial loans available to the firm "on the market."
    In *Canada Dairy*, the Appellate Body recognized this flexibility,
    confirming that "\[w\]orld market prices do . . . provide one
    possible measure of value of milk to producers" in Canada.[^9]

86. Limiting the benchmark to the exporting country's market would also
    seriously undermine the object and purpose of the SCM Agreement
    generally, and Articles 1.1(b) and 14(d) specifically. If the
    government were the sole provider of a good in the exporting
    country, for example, there would be no non-government benchmark
    prices in the exporting country to use as a point of reference and
    it therefore would be impossible to determine that the government
    had provided a benefit -- even if it provided the good for a
    fraction of its value.

87. The trade-distorting potential of the government's provision of a
    good can be identified only by reference to an independent market
    price, i.e., a price that is unaffected by the very trade distortion
    the test is designed to identify. If the comparison price were
    entirely, or almost entirely, dependent upon the government price,
    as in the case where the government sales overwhelmingly dominate
    the market, the analysis would become circular because the benchmark
    price would reflect the very market distortion that the comparison
    is designed to detect. Using prices largely dictated by the
    government to measure the adequacy of government prices would
    therefore defeat the purpose of Article 14.

88. Whether a particular market benchmark price for the adequacy of
    remuneration is consistent with Article 14(d) must depend upon the
    facts of the particular case. Canada has failed to make a *prima
    facie* case that the USDOC's use of stumpage prices for comparable
    US forests, adjusted to take into account differences in the
    conditions of sale (i.e., in relation to prevailing market
    conditions) in the Canadian timber market, is *per se* inconsistent
    with Article 14(d) where the government sales dominate the Canadian
    market. To the contrary, the USDOC properly determined that US
    stumpage prices, as adjusted, represent prices under prevailing
    market conditions in Canada. The adjusted US prices represent an
    appropriate measure of what Canadian prices would be but for the
    subsidy.

##### The Calculation Did Not Overstate the Subsidy Found to Exist

[Exclusion of Maritime Lumber]{.underline}

89. The investigation in this case initially covered softwood lumber
    products from all Canadian provinces. After receiving comments from
    Canada, however, the USDOC subsequently excluded from the
    investigation imports of softwood lumber products produced in the
    Canadian Provinces of New Brunswick, Nova Scotia, Prince Edward
    Island and Newfoundland (the "Maritime Provinces") from timber
    harvested in the Maritime Provinces ("Maritime Lumber").

90. In accordance with its aggregate methodology, the USDOC then
    calculated a single, country-wide rate based on the ratio of the
    total subsidy provided to producers of the subject merchandise to
    the total sales of the subject merchandise. In this calculation,
    neither the numerator nor the denominator included the excluded
    Maritime Lumber because Maritime Lumber was not subject merchandise,
    i.e., it was not within the scope of the investigation. Canada's
    alternative methodology would require the USDOC to allocate some
    portion of the aggregate subsidy found for subject merchandise to
    non-subject merchandise. The result of such a calculation would be a
    rate that would require the United States to impose duties in an
    amount *less* than the subsidy found to exist with respect to the
    subject merchandise. Articles VI:3 and 19.4 do not require such a
    result.

[Total Value of All Sales that Canada Provided]{.underline}

91. The Panel should review the WTO consistency of the USDOC's
    preliminary determination based on the record before the Department
    at the time the determination was made. The record at the time of
    the preliminary determination establishes that the USDOC used in the
    denominator of its subsidy calculations the amount that Canada
    reported in its questionnaire response as the total value of
    softwood lumber sales, including all sales of first-mill lumber
    products and remanufactured products.

92. *After* the publication of the preliminary determination, Canada
    asserted, *for the first time,* that the total amount reported in
    its questionnaire response as the total value of softwood lumber
    sales did not, as indicated in its questionnaire response, include
    the value of remanufactured lumber shipments. Whatever the merits of
    this late claim by Canada that the data it submitted did not include
    sales of "remanufactured" products, that question is not before this
    Panel. Factual determinations should be reviewed "as perceived by
    the \[administering authority\] at the time it made its
    determination based upon the record before it . . . ."[^10]

##### Canada's "Pass-through" Argument Is Inapposite

93. The stumpage subsidies at issue in this case are direct subsidies.
    As noted above, the provincial governments enter into tenure
    contracts with producers of the subject merchandise. As a general
    matter, there is no "private body" intermediary between the
    government and the recipient, as that term is used in Article
    1.1(a)(1)(iv). Therefore, the provisions of Article 1.1(a)(1)(iv) do
    not apply to this case.

94. Furthermore, nothing in the SCM Agreement precludes a Member from
    issuing a preliminary determination and imposing provisional
    measures based on data establishing the total amount of the subsidy
    that the government provides to the subject merchandise. Although
    company-specific subsidy calculations may be preferred, they are not
    required. Canada does not contest this point.

95. The SCM Agreement simply requires that the countervailing duty rate
    applied not exceed the subsidy found to exist. As explained above,
    the USDOC in this case properly determined that Canadian federal and
    provincial governments provided subsidies to producers and exporters
    of softwood lumber, and properly calculated a country-wide subsidy
    rate based on the total amount of the subsidy preliminarily found to
    exist for the subject merchandise.

96. The Panel should reject Canada's argument that the USDOC should have
    conducted a "pass-through" analysis. While such an analysis might be
    relevant for purposes of determining the level of subsidy received
    by a specific producer or exporter, no producer or exporter-specific
    subsidy rates are calculated in an aggregate investigation. The
    USDOC did not collect company-specific information, and Canada
    neither objected to the aggregate approach taken in this case nor
    recommended a company-specific approach. Nor did Canada supply any
    company-specific data to support is claim of the necessity of a
    "pass-through" analysis.

#### The Preliminary Critical Circumstances Finding Is Consistent with the SCM Agreement

##### Judicial Economy

97. As an initial matter, the United States notes that the USDOC issued
    a final negative critical circumstances finding in this case. The
    USDOC's preliminary critical circumstances finding is no longer of
    any practical consequence; retroactive provisional measures have
    been terminated and no retroactive assessment will be imposed. The
    Panel therefore should not address Canada's critical circumstances
    claim because it is not "necessary to resolve the particular
    matter."[^11] In this case, the normal course of the investigative
    process has resolved Canada's critical circumstances claim and has
    provided Canada with the relief it seeks.

98. If the Panel decides to resolve this issue on the merits, it should
    conclude that Canada has failed to make a *prima facie* case that
    the USDOC's preliminary critical circumstances finding was
    inconsistent with the SCM Agreement.

##### Authority to Impose Provisional Measures Retroactively

99. The USDOC's imposition of provisional measures on merchandise
    entered during the 90-day period prior to the publication of the
    preliminary determination is consistent with the text of Article 20
    of the SCM Agreement, as well as with its object and purpose.
    Article 20.1 generally provides that provisional measures and final
    countervailing duties shall only be applied prospectively, i.e., to
    products that enter for consumption after the date of the
    preliminary determination under Article 17.1 or the final
    determination under Article 19.1, respectively. This rule, however,
    is not absolute. Article 20.1 expressly provides that the
    prospective application of provisional measures and final duties is
    "subject to the exceptions set out in this Article."

100. Article 20.6 of the SCM Agreement provides that a Member may assess
     final, definitive duties retroactively for a period "not more than
     90 days prior to the date of application of provisional measures,"
     if critical circumstances are present. Article 20.6 is intended
     specifically to provide retroactive relief in a "critical"
     situation. At the time of the preliminary determination, there may
     be a reasonable basis to believe or suspect that such a situation
     exists. However, retroactive assessment of definitive duties cannot
     be ordered until a final determination has been made many months
     later, following a full investigation. Absent suspension of
     liquidation, entries made 90 days prior to the preliminary
     determination might be liquidated during the intervening period. If
     the entries are liquidated, the possibility of retroactive relief,
     even though fully warranted, no longer exists.

101. Articles 17 and 20 of the SCM Agreement do not intend such an
     outcome. Article 17 of the SCM Agreement provides for the
     imposition of provisional measures to preserve a Member's right to
     relief once there is sufficient evidence to determine preliminarily
     that such relief is warranted. Retroactive provisional measures are
     essential to enable a Member to avail itself of the special remedy
     provided under Article 20.6. Therefore, Article 20.1 should be
     interpreted as providing for retroactive provisional measures where
     there is preliminary evidence of critical circumstances. A contrary
     interpretation would render Article 20.6 a nullity.

##### Basis for Critical Circumstances Findings

102. In order to find critical circumstances pursuant to Article 20.6 of
     the SCM Agreement, the authority must determine that there have
     been "massive imports" within a relatively short period, and that
     the imported product benefitted from "subsidies paid or bestowed
     inconsistently" with the SCM Agreement. The USDOC's preliminary
     finding of critical circumstances satisfied each of these
     requirements. An objective review of the facts in this case
     demonstrates that the USDOC had a reasonable factual basis to
     preliminarily determine that a Canadian province provided an export
     subsidy, which is prohibited under Article 3.1 of the SCM
     Agreement, and that imports of softwood lumber from Canada had
     increased more than 23 per cent over the base period. Moreover, the
     ITC preliminarily found that imports of softwood lumber from Canada
     were injuring the US industry before the USDOC made its preliminary
     critical circumstances determination. This preliminary injury
     determination, together with the evidence concerning prohibited
     subsidies and massive imports described above, constituted
     sufficient evidence to take the limited step of imposing
     provisional measures retroactively, pending the outcome of the full
     investigation.

#### Expedited and Administrative Reviews 

103. Under established WTO jurisprudence, a Member's law violates that
     Member's WTO obligations only if the law *mandates* action that is
     inconsistent with those obligations. If the law provides discretion
     to authorities to act in a WTO-consistent manner, the law, as such,
     does not violate a Member's WTO obligations.

104. None of the US laws that Canada challenges mandates that the United
     States take action inconsistent with its obligations under the SCM
     Agreement. US law gives the USDOC broad discretion to conduct
     reviews. Until the USDOC exercises that discretion in a particular
     case, any exploration of the issues raised by Canada would be
     hypothetical. That is particularly true in this case because
     aggregate cases are extremely rare.

##### Section 777A(e)(2)(A) and (B) of the Tariff Act of 1930

105. Section 777A of the Tariff Act of 1930, as amended (the "Act")
     implemented several changes to US law to meet obligations under the
     SCM Agreement by eliminating the presumption in favor of
     country-wide rates and establishing a general rule in favor of
     company-specific rates. Section 777A(e)(2) contains two exceptions
     to the general rule to address cases, such as the lumber case,
     where there is such a large number of exporters and producers that
     it is not practicable to investigate each company individually.

106. Canada has not cited a single provision in the SCM Agreement that
     prohibits the investigative procedures set out in Section
     777A(e)(2), and nothing in Section 777A(e)(2) limits the USDOC's
     broad authority to conduct reviews. Canada has therefore failed to
     establish a *prima facie* case of a violation because it has
     utterly failed to establish that Section 777A(e)(2) is inconsistent
     with any provision of the SCM Agreement.

##### Expedited Reviews

107. The USDOC's regulations governing expedited reviews do not cover
     aggregate cases. As noted above, aggregate cases are rare and,
     because they have only been used in cases involving industries with
     an extremely large number of producers and exporters, they present
     unique issues with respect to expedited reviews. Because these
     cases are so rare, the USDOC has not yet addressed these issues, by
     regulation or in practice.

108. Section 751 of the Act gives the USDOC broad authority to conduct
     reviews. The fact that the USDOC has not elected to promulgate
     specific regulations for handling what could potentially be an
     extremely large number of expedited reviews in an aggregate case
     does not in any way diminish the Department's statutory authority
     to conduct such reviews. Statutory authority is sufficient;
     regulations are not essential. Therefore, the fact that 19 C.F.R. §
     351.214(k)(1) does not cover expedited reviews in aggregate cases
     does not in any way prohibit such reviews. The Panel therefore
     should reject Canada's claim that 19 C.F.R. § 351.214(k)(1)
     mandates that the United States violate its obligation to provide
     expedited reviews.

##### Administrative Reviews

109. Section 751 of the Act also provides broad authority for the USDOC
     to conduct administrative reviews. Again, Canada erroneously
     concludes that the USDOC's regulations limit that authority and
     require the Department to deny administrative reviews in aggregate
     cases.

## first oral statement of canada

110. In its first oral statement, Canada made the following arguments.

111. The complaint of Canada before this Panel involves three distinct
     sets of claims:

-   first, the preliminary countervailing duty determination made by the
    US USDOC is inconsistent with US obligations;

-   second, there is no basis in the SCM Agreement for retroactive
    application of provisional measures under a preliminary critical
    circumstances determination, and

-   third, the denial of expedited reviews and company-specific
    administrative reviews where the USDOC conducts a country-wide
    investigation violates US obligations.

    1.  These actions stem primarily from two US interpretations of the
        SCM Agreement that Canada believes are fundamentally wrong, and
        that have immense implications for Members' rights to manage
        their natural resources. The first is an unwarranted reading by
        the USDOC of the agreed definition of "financial contribution".
        The second is the US determination that Canadian provincial
        stumpage programmes confer a "benefit".

    2.  The repeated US assertion that the appropriate comparison for
        determining "benefit" is between provincial and selected US
        jurisdictions demonstrates that the US measures are a demand
        that Canadian forest management practices mimic their own. The
        United States assumes that any public ownership of forestry
        resources is subsidised and argues that only by auction is there
        any assurance that this will not occur. The WTO Agreement does
        not direct Members to abandon public ownership of their natural
        resources.

    3.  The repeated references to the alleged "market distorting"
        effects of "stumpage" also indicate that the United States is
        arguing that any government action that might have the potential
        to distort trade is a subsidy under the SCM Agreement. This
        interpretation, however, was expressly rejected by the panel in
        *Export Restraints*.

    4.  The panel in *Export Restraints* also found that the definition
        of "subsidy" in Article 1.1 reflects the Members' agreement not
        only as to the types of government action subject to the SCM
        Agreement, but also that not all government action that may
        affect the market comes within its ambit.

### The Preliminary Countervailing Duty Determination 

#### Stumpage is not a "financial contribution"

5.  As noted in the first written submission "stumpage" is a right to
    harvest standing timber. Provinces grant these rights through
    tenures or through licences. Tenures and licences both carry with
    them a broad range of forest management responsibilities and
    significant in-kind costs.

6.  Timber harvesters have the right to harvest timber from Crown lands
    by virtue of their tenures or licences; they do not pay stumpage
    charges as remuneration to acquire this right. Rather, a "stumpage
    charge" is a levy on the exercise of an existing right to harvest
    timber. Stumpage charges are properly viewed as a form of revenue
    collection that is the economic equivalent of a tax.

7.  Tenures and licences both confer real property rights -- the right
    to exploit a natural resource on public land. They are comparable in
    this respect to the licensing of quotas to harvest fish or the
    leasing of the right to extract oil or minerals from public lands.
    The United States nevertheless treats these rights to harvest
    standing timber as a financial contribution in the form of a
    "provision of goods". In so doing, the United States makes two
    fundamental errors.

8.  First, the ordinary meaning of the term "goods" refers to "articles
    of trade or items of merchandise \<goods or services\>" or "saleable
    commodities." The United States misinterprets the term "goods" by
    confusing it with the term "property". The United States found that
    property in its widest sense, includes all a person's legal rights
    of whatever description. The issue, however, is not what property
    means -- and certainly not what the term property might be construed
    to include in its widest meaning -- but rather what "goods" means in
    the context of the SCM Agreement. The right to exploit an *in situ*
    natural resource -- the right to harvest standing timber -- is not a
    saleable commodity. It is not an article of trade or an item of
    merchandise and therefore it does not come within the meaning of
    "goods". The right to harvest standing timber is not "wood fibre" or
    logs, any more than a lease to develop petroleum resources is gas at
    the pump or the right to catch fish is tuna in a can.

9.  Indeed, this meaning of the term "goods" as articles of trade or
    saleable commodities is the only meaning that could have been
    intended by the negotiators of the WTO Agreements. As evidenced by
    the "General interpretative note to Annex 1A" to the WTO Agreement
    "goods" subject to GATT 1994 are those things in respect of which a
    tariff binding may be negotiated: in other words, tradable things.
    It follows that things that are inherently incapable of being traded
    across borders are not "goods". Accordingly, standing timber cannot
    be considered "goods" as it cannot be traded across borders.

10. The second US error relates to the determination that a "financial
    contribution" occurs when a tenure holder exercises its right to
    harvest timber. This is confirmed by the USDOC's finding in the
    preliminary determination that benefits conferred by the provinces'
    administered stumpage programmes had been expensed in the year of
    receipt or when the timber was harvested. The USDOC has thus found
    that the "goods" were provided during the period of investigation
    when timber was harvested. The United States erred in its finding
    that a "financial contribution" under Article 1.1(a) occurred
    through the action of the alleged recipient, rather than in the
    action of a government as required.

11. In addition, the claim by the United States that Canada has
    requested the panel to read a "safe harbour" into subparagraph (iii)
    misses the entire point to having an agreed definition of "subsidy"
    to define the scope of Members' obligations under the SCM Agreement.
    The claim of the United States has no support in either the text of
    Article 1.1 or the negotiating history of Article 14. This confirms
    that real property rights were not intended to be included within
    the scope of the Agreement.

#### The USDOC's use of "cross-border" benchmarks to find and measure "benefit" violates the SCM Agreement

12. There are three fundamental problems with the USDOC's use of
    cross-border price comparisons to determine whether a benefit has
    been conferred, and to calculate the alleged subsidy.

13. First, Article 14(d) of the SCM Agreement requires that the adequacy
    of remuneration be determined in relation to prevailing market
    conditions for the good or service in question in the country of
    provision. This direction is unambiguous and nothing in the context,
    object and purpose or the negotiating history of Article 14 permits
    reading "in the country" in any other manner. In addition, the
    ordinary meaning, in context, of "prevail" is "exist". The reference
    to "prevailing market conditions" is, therefore, to conditions that
    actually exist in the country of provision and not to conditions
    that would exist only under hypothetical circumstances.

14. The United States offers a number of interpretations of the term "in
    relation to" that would effectively read out the phrase "in the
    country", and would turn the mandatory "shall" into the
    discretionary "may". The United States also attempts to justify
    using prices in the United States as a benchmark by suggesting that
    US stumpage is available "in" Canada. It is clear that US stumpage
    is not available in Canada, because producers can harvest this
    timber only in the United States

15. Second, Article 14(d) was drafted in this manner because
    cross-border comparisons make no economic sense. The mere fact that
    the domestic price in one country is lower than the price in another
    does not mean that the first country is providing a subsidy, because
    a wide range of complex political and economic factors may account
    for differences in prices between countries. These border-related
    differences make valid international comparisons substantially more
    difficult than comparisons within a province or a country. As well,
    the USDOC itself has repeatedly recognised the vast differences in
    natural and timber conditions that exist. These differences are so
    great that the USDOC rejected this methodology in all three of the
    previous *Lumber* cases, finding in one instance that such an
    analysis would be "arbitrary and capricious". These determinations
    were factual and all of the factors that led the USDOC to reject the
    use of cross-border comparisons in the past still exist today.

16. Third, the USDOC's reliance on cross-border benchmarks was based on
    unsubstantiated assertions that no in-country benchmarks were
    available. The USDOC asserted this without bothering to demonstrate
    that no valid benchmark existed "in" Canada. It simply presumed that
    provincial stumpage charges are distorted because most standing
    timber is harvested on provincial lands.

17. In fact, the USDOC had compelling evidence before it related to
    private sales of timber harvesting rights, competitive tenures in
    certain provinces, and other evidence that provinces operate their
    stumpage systems on market terms. Instead of addressing this
    evidence, the USDOC simply asserted that stumpage fees on private
    lands are largely derivative of the public land prices. In the
    USDOC's opinion this meant that stumpage fees on private lands were
    distorted by that very fact. Moreover, the USDOC's purported
    rationale for moving to cross-border benchmarks, i.e., that there is
    distortion if the government does not auction timber harvesting
    rights, does not reflect its obligations under Article 14(d) -- to
    determine if remuneration is "adequate".

18. If cross-border comparisons were permitted, then the only way Canada
    would ever know whether it was conferring a "benefit" would be to
    examine prices and market conditions in other countries. This
    interpretation is unreasonable and unduly onerous. It would also be
    impossible for Canada to be certain that the benchmark examined
    would be acceptable to the investigating authority. The SCM
    Agreement contemplates no such thing.

#### The USDOC impermissibly presumed a pass-through of an alleged benefit

19. Under Article 1.1(a)(1)(iv), the USDOC must establish that any
    "financial contribution" by the government to timber harvesters had
    been "entrusted" or "directed" to be passed through to lumber
    producers. It also must establish that the alleged benefit of the
    alleged financial contribution was passed through to and conferred
    upon lumber producers and remanufacturers. It is not sufficient for
    the United States to simply assert, as it did here, that the
    subsidies at issue in this case are direct subsidies.

20. In this case, there is no allegation of direct subsidisation in
    respect of the subject merchandise, which is softwood lumber.
    Softwood lumber is produced from logs, and logs are made from
    standing timber; neither logs nor standing timber are within the
    scope of the investigation. In fact, a significant amount of
    harvesting is done by independent entities operating at arm's-length
    from lumber producers.

21. The United States argues that it does not matter if some producers
    do not receive direct benefits because it is conducting a
    country-wide investigation. It is Canada's position that lumber
    producers legally may not be deemed to be subsidised simply because
    of a finding of subsidisation to producers of the input product.

#### The USDOC impermissibly inflated the subsidy rate by calculating a "weighted-average country-wide rate" based upon only a portion of Canadian production and exports[^12]

22. This issue concerns two problems with the USDOC's determination of
    the rate of subsidisation. The first is the effect of the exclusion
    of goods from Maritime Provinces in the preliminary determination on
    the calculation of a "country-wide" subsidy rate.

23. A "country-wide" rate is precisely that: the average rate of
    subsidisation of the exported product. It is the total amount of a
    subsidy in a country divided by all shipments or exports to the
    investigating Member. When the USDOC disregarded unsubsidised
    Maritime shipments in calculating the country-wide duty rate, it
    calculated a country-wide duty exceeding the average country-wide
    level of subsidisation. The SCM Agreement requires that a
    countervailing duty rate not exceed the amount of the subsidy.

24. The United States attempts to excuse its calculation by claiming,
    first, that its Maritime exclusion was a product exclusion for
    certain lumber produced in the Maritimes. In fact, the lumber is
    indistinguishable from other lumber and the exclusion was of the
    "Maritime provinces". More specifically, the exclusion is a partial
    exclusion of Maritime companies for lumber they produce from
    Maritime timber. This exclusion does not alter the proper method for
    calculating a country-wide weighted average subsidy rate.

25. The United States' second argument -- that Canada simply
    misunderstood the US calculation methodology -- is even further from
    the mark. This methodology is clearly flawed as it places the
    country-wide benefit in the numerator and only a portion of total
    shipments in the denominator.

#### The USDOC impermissibly applied provisional measures in excess of the subsidy preliminarily found to exist

26. This is the second problem relating to the application of the
    effective rate of duty. The United States determined a subsidy rate
    of 19.31 per cent *ad valorem*, but it employed a different basis
    for calculating this rate than it later used in applying the duties.
    Accordingly, the provisional measures were effectively applied at a
    higher rate than 19.31 per cent.

27. As stated in the preliminary determination, the United States
    calculated the amount of subsidy on a "first mill" basis. This means
    that the denominator of the calculation was the value of sawmill
    shipments, that is, the "first mills" that produce lumber from logs.
    The denominator did not include the value of shipments by secondary
    value-added producers of merchandise, or "final mills", that are
    also covered by the investigation.

28. The United States now claims that, at the time of the preliminary
    determination, it did not know that the data that it used was first
    mill data. It further argues that statements by the USDOC indicating
    that it had used first mill data were "inadvertent" and that it was
    surprised to find out later that the data was first mill data.
    Finally, the United States asserts that that the panel must limit
    its analysis to evidence used by the importing Member in making its
    determination to impose the measure.

29. These arguments are factually incorrect and cannot relieve the
    United States of its obligation, not to apply a duty that exceeds
    the subsidy found to exist. The data reported in the investigation
    was the same sawmill ("first mill") data that were provided and
    relied upon in all previous lumber investigations. Furthermore, by
    the time the USDOC issued its instructions to impose duties, it had
    received substantial information from Canada confirming that the
    data used was first mill data. Indeed, the United States
    acknowledges that Canada made this clarification, but it did not act
    upon the information. The US application of duties was inconsistent
    with its preliminary determination, and resulted in application of
    provisional measures in excess of the subsidy found to exist. As
    such, it violated Articles 17.2 and 19.4 of the SCM Agreement and
    Article VI:3 of GATT 1994.

### The Preliminary Critical Circumstances Determination

30. The preliminary critical circumstances determination imposed a
    retroactive duty liability going back 90 days that amounting to
    \$300 million and violated the obligations of the United States
    under Article 20.6 of the SCM Agreement. This provision permits the
    retroactive application of "definitive duties" following a critical
    circumstances finding. Article 20 and the SCM Agreement both
    indicate that "definitive duties" are distinct from preliminary or
    provisional measures. In the proper context, the term "definitive
    duties" plainly refers to countervailing duties imposed following a
    final determination. Consequently, the United States may apply
    measures retroactively under a critical circumstances finding after
    it has made a final countervailing duty determination.

31. The United States argues that it is permitted to make a preliminary
    critical circumstances determination and impose provisional measures
    retroactively. In support of its position, it relies on the findings
    of the *Hot Rolled Steel* panel and the object and purpose of
    Articles 17 and 20.

32. The *Hot Rolled Steel* panel report concerned a preliminary
    determination of critical circumstances under Article 10.7 of the
    *Antidumping Agreement*. The panel confirmed the limited scope of
    its own findings by observing that measures taken under Article 10.7
    were not based on the evaluation of the same criteria as final
    measures that may be imposed at the end of the investigation. As
    there is no provision that corresponds to Article 10.7 in the SCM
    Agreement; the *Hot Rolled Steel* panel report is not relevant.

33. The plain text of Article 20.6 also belies the arguments of the
    United States concerning the object and purpose of this provision.
    The term definitive means definitive; it does not mean preliminary.
    The United States concedes as much, as it too equates definitive
    with final determination. The United States also invokes the object
    and purpose of Article 17, but neglects consideration of the
    specific provisions of that Article. Article 17.3 requires that a
    Member may not impose provisional measures sooner than 60 days after
    the date of initiation of the investigation. The preliminary
    critical circumstances determination imposed measures soon after the
    date of initiation, immediately violating this provision. Similarly,
    within a month of the preliminary critical circumstances
    determination the measures had violated Article 17.4 that limits the
    application of provisional measures to four months.

34. A "critical circumstances" measure must satisfy several requirements
    under the provisions of Article 20.6; this measure violated all of
    these requirements.

### US Law is Inconsistent with US Obligations on Expedited and Administrative Reviews

35. The United States violates Articles 19.3 and 21.2 because it does
    not provide for company-specific reviews where it determines an
    "aggregate" subsidy level. It also violates Article 19.4, as
    exporters that would have benefited from these reviews pay more in
    countervailing duties. Finally, the United States proceeded with the
    investigation on an "aggregate" basis thereby denying exporters
    expedited and individual administrative reviews in violation of
    Articles 19.3 and 21.2.

36. Article 19.3 requires WTO Members to provide an expedited review
    when an exporter requests a review. The United States provides for
    expedited reviews only in non-country-wide cases. The United States
    argues that the regulations do not mandate a violation because the
    USDOC has broad discretion to conduct reviews and has only neglected
    to promulgate regulations. The United States position is untenable,
    for four reasons:

-   First, the United States has the burden of establishing that the
    measure at issue is "discretionary". It asserts that the USDOC may
    conduct reviews, but it failed to create regulations. This
    explanation is insufficient to discharge this burden.

-   Second, these regulations are procedural rules relating to every
    aspect of countervailing proceedings. The neglect of any right as
    fundamental as an individual review in aggregate cases would be
    deliberate. The preamble to the US regulations reinforces this
    conclusion, stating that the USDOC will not individually review
    firms when it uses a country-wide rate.

-   Third, it is a basic principle of statutory construction that if a
    right is provided for in certain circumstances, its deliberate
    exclusion in other circumstances must be given meaning: that is,
    that no such right exists in those other cases. In this respect, the
    practice of the USDOC and its analysis of its own discretion with
    respect to the regulations concerning voluntary respondents
    demonstrates that it also interprets US law in this manner.

-   Finally, the United States argues that it has broad authority under
    section 751 of the Tariff Act to conduct expedited reviews. This
    provision relates to annual administrative reviews and other forms
    of review, but is silent with respect to expedited reviews.

    1.  The United States argues that Article 21.2 does not create an
        obligation to conduct company-specific administrative reviews.
        In this instance, the US regulations also expressly prohibit
        company-specific administrative reviews in aggregate cases. In
        contrast, the text of Article 21.2 clearly requires
        company-specific administrative reviews. In *British Steel* the
        Appellate Body found that Article 21.2 required a Member to
        review the need for continued imposition of a countervailing
        duty when appropriate. The Appellate Body also indicated that
        this provision was designed to ensure that countervailing duties
        only remained in force long enough to counteract the injury
        caused by the subsidisation.

    2.  The administrative review provisions also violate Article 19.3
        as the single country-wide rate arrived at in an administrative
        review supersedes all individual rates. Therefore, even if the
        United States had discretion to grant expedited reviews, in
        country-wide cases the benefits of those reviews vanish as soon
        as there is a country-wide rate on an administrative review.
        Finally, the regulations demonstrate that the discretion
        provided under s. 751 does not extend to individual
        administrative reviews. In fact, these regulations specifically
        deny the USDOC the discretion to grant individual administrative
        reviews.

    3.  The United States has argued that a violation of Articles 19.3
        and 21.2 exists only where it has expressly refused to grant
        these reviews. This is not correct. Once the decision had been
        made to make an aggregate assessment, Canadian exporters could
        not secure a different form of assessment. Consequently,
        exporters were effectively denied these reviews as soon as the
        decision to make an aggregate assessment was made thereby
        breaching Articles 19.3 and 21.2.

## first oral statement of the united states

4.  In its first oral statement, the United States made the following
    arguments.

5.  Although some of the facts of this case are technically complex and
    can be confusing, in the end the issues are simple. The preliminary
    record indicates that the Canadian provincial governments provide
    timber to lumber producers at less than market prices. Under Article
    1 of the WTO *Agreement on Subsidies and Countervailing Measures*
    ("SCM Agreement"), that is a subsidy.

6.  Article 5 of the SCM Agreement states that "No Member should cause,
    through the use of any subsidy . . . , adverse effects to the
    interests of other Members, i.e. . . . injury to the domestic
    industry of another Member . . ." When one Member causes injury to
    the domestic industry of another Member through the use of *any*
    subsidy, the injured Member has the right to take countervailing
    measures. The United States' preliminary decision to exercise that
    right was fully warranted in this case.

### Preliminary Subsidy Determination

7.  Article 1.1 of the SCM Agreement defines a subsidy as a financial
    contribution by the government that confers a benefit. Thus, there
    are two elements to a subsidy: financial contribution and benefit.

#### Financial Contribution

8.  The USDOC preliminarily determined that the system of timber
    contracts administered by the Canadian provincial governments
    constitutes a financial contribution within the meaning of Article
    1.1(a)(1) of the SCM Agreement. Although Canada focuses on the
    complexities of these arrangements, none of those complexities
    alters the fundamental fact that these provincial programmes provide
    timber to lumber producers.

9.  Over 90 per cent of the forested land in Canada is held by the
    provincial governments ("Crown timber"). Each province administers a
    system of contracts called tenures or licenses ("timber contracts")
    that allow the tenure holder or licensee to harvest the Crown
    timber.

10. There is no dispute that lumber producers participate in provincial
    timber contracts for one reason -- to obtain timber. The definitions
    discussed in the US first submission leave no doubt that timber is a
    good within the ordinary meaning of Article 1.1(a)(1)(iii).
    Nevertheless, Canada argues that when the provinces issue these
    contracts they are not providing a good -- timber -- to lumber
    producers, but the *right to take* timber off the land. Neither the
    SCM Agreement nor the facts of this case support Canada's claim.

11. Although there are some variations across the provinces, the core
    elements of all timber contracts are the same, that is, the lumber
    producer obtains the right to cut timber in a specified area in
    exchange for an administratively set fee, the "stumpage" fee, and
    the assumption of certain forest management obligations. The lumber
    producer knows the specific area in which it will be able to harvest
    and knows the timber, that is, the species and quality of the trees.
    The producer pays stumpage fees only for the volume of timber
    actually harvested. The lumber producer is therefore obtaining a
    specifically identified good -- timber.

12. Moreover, the ordinary meaning of "provide" includes "make
    available." Thus, the fact that a lumber producer has to get the
    timber off the stump is irrelevant. The economic consequences of
    providing a good or a right to a good are the same. To treat them as
    distinct would invite circumvention of the subsidy disciplines and
    seriously undermine their purpose.

13. Given the ample evidence that the provinces are providing lumber
    producers with timber, Canada's only hope is that the Panel will
    read into the SCM Agreement an exemption for all extraction and
    harvesting rights. There is no support in the text for such an
    exemption, and a treaty interpreter may not read into the SCM
    Agreement what is not there.

#### Benefit

14. The USDOC preliminarily determined that the provincial governments
    provide timber for less than adequate remuneration, within the
    meaning of Article 14(d) of the SCM Agreement, thereby conferring a
    benefit.

#### Cross-Border Benchmark

15. As the Appellate Body has confirmed, a benefit is conferred when the
    government's financial contribution places the recipient in a more
    advantageous position than would have been the case absent the
    financial contribution. Moreover, the Appellate Body has recognized
    that the marketplace provides an appropriate basis for comparison.
    In the underlying investigation, the USDOC preliminarily determined
    that no market benchmarks existed in Canada, and therefore used
    stumpage prices in US states with comparable forests, adjusted to
    reflect prevailing market conditions in Canada.

16. Article 14(d) states that: "The adequacy of remuneration shall be
    determined in relation to prevailing market conditions for the good
    or service in question in the country of provision or purchase
    (including price, quality, availability, marketability,
    transportation and other conditions of purchase or sale)." Canada
    ignores most of that language and argues, in effect, that Article
    14(d) says: "The adequacy of remuneration shall be determined in the
    country of provision or purchase." The treaty interpreter, however,
    must give meaning to all the words in the Agreement.

17. World market prices can constitute part of the "market conditions in
    the country of provision." As the European Communities ("EC") points
    out, the relevance of world market prices is recognized in item (d)
    of the Illustrative List of Export Subsidies in Annex I of the SCM
    Agreement.

18. Therefore, the question is not whether Article 14(d) permits a
    Member to use something other than a domestic benchmark price, but
    when it is appropriate to do so. The facts more than adequately
    support the USDOC's preliminary decision to do so in this case.

19. As noted previously, 90 per cent of the forested land in Canada is
    held by the Crown. The market for timber is therefore dominated by
    the provincial governments. The impact of the governments'
    administratively set prices on the very small residual market is
    virtually inescapable. Nevertheless, the USDOC did request
    information on private prices in each of the provinces. Only three
    of the provinces responded, and the USDOC determined that the prices
    provided were not market-based. For example, the record contained
    statements by a Quebec official and a Canadian forestry expert
    acknowledging that private timber prices in Quebec are suppressed by
    the overwhelming market power of low-cost Crown timber.

20. It is evident why Canada would insist that the United States use
    prices in Canada despite the evidence of a market dominated by the
    provincial governments. Canada would require the United States to
    measure the governments' prices against prices that reflect the very
    distortion that we are attempting to measure. Article 14(d) does not
    require such an obviously flawed and circular methodology.

#### Benefit Calculation - Indirect Subsidies (Pass-Through)

21. The USDOC determined the total amount of the subsidy provided to
    Canadian producers of the subject merchandise based on aggregate
    data from the provincial governments. The Department then divided
    the total subsidy by total sales of the subject merchandise to
    obtain the subsidy rate. Canada claims that this calculation
    improperly assumed that benefits to tenure holders passed through to
    lumber producers. The United States does not, as the EC suggests,
    concede that this is the case. Some clarification of the facts is
    necessary to better understand the basis for the USDOC's subsidy
    calculation and shed light on the flaws in Canada's claim.

22. First, an input subsidy under Article 1.1(a)(1)(iii) is a direct
    subsidy. Under Canada's interpretation, all financial contributions
    through the provision of a good are transformed into an indirect
    subsidy under Article 1.1(a)(1)(iv). Canada's submission suggests
    that there are three distinct industries in Canada: loggers, lumber
    producers and remanufacturers. This is not the case. The vast
    majority of the Crown softwood timber is harvested under timber
    contracts held by integrated producers.

23. The vast majority of the timber contracts in Canada are directly
    between the provincial governments and Canadian forest products
    producers, or wood processing facilities. In most instances, only
    wood processing facilities, such as sawmills that produce lumber,
    are eligible to obtain a timber contract. Thus, Canada's alleged
    middleman between the provincial governments and the lumber
    producers is largely a myth.

#### Benefit Calculation - Denominator

24. Canada also claims that the USDOC should have included non-subject
    merchandise in the calculation of the subsidy. The United States
    excluded certain Maritime lumber from the scope of the
    investigation, not producers. Canada nonetheless argues that the
    calculation of the benefit must exclude Maritime lumber, but the
    denominator must include Maritime lumber. Canada's reasoning would
    result in a rate less than the subsidy found to exist with respect
    to the subject merchandise.

25. Canada also argues that the USDOC calculated the subsidy on the
    basis of the total value of first milled lumber products, but then
    applied the subsidy rate to the entered value of subject
    merchandise. Canada's claim ignores the fact that the Department's
    calculation and application of the subsidy rate was entirely
    consistent with the preliminary record before the Department at the
    time of the preliminary determination. As previous panels have
    stated, the consistency of an authority's decisions must be assessed
    based on an objective assessment of the facts before the authority
    at the time the decision was made.

### Critical Circumstances

26. Canada's claims relating to the USDOC's imposition of retroactive
    provisional measures rest on an interpretation of Article 20.6 that
    would render the retroactive remedies provided for a nullity. It is
    beyond dispute that the general principles of treaty interpretation
    preclude such a reading of the Agreement.

27. The general rule in Article 21 that provisional measures and
    definitive duties are applied prospectively is expressly made
    "subject to the exceptions set out in \[Article 20\]." Nothing in
    Article 20.1 limits the applicability of those exceptions to
    definitive countervailing duties.

28. Article 20.6 defines a set of exceptional circumstances that warrant
    retroactive relief. Under the text of Article 20.1 those exceptional
    circumstances apply to provisional measures.

### Reviews

29. Finally, Canada claims that various provisions of US law are
    inconsistent with its obligations under the SCM Agreement because
    they preclude reviews in aggregate cases. Under established WTO
    jurisprudence, a Member's law breaches that Member's WTO obligations
    only if the law *mandates* action that is inconsistent with those
    obligations. If the law provides discretion to authorities to act in
    a WTO-consistent manner, the law, as such, does not breach a
    Member's WTO obligations.

30. US law provides the USDOC with discretion to conduct expedited and
    administrative reviews in all cases, including aggregate cases.
    Nothing in the regulations cited by Canada limits that discretion.
    Thus, US law does not mandate action that is inconsistent with US
    WTO obligations. The United States is entitled to the presumption
    that it will implement its obligations in good faith.

## second written submission of canada

31. In its second written submission, Canada made the following
    arguments.

### Introduction

32. This submission responds to the incorrect factual assertions and
    legal arguments that the United States has continued to make in its
    Oral Statement and in its Answers ("Answers") to the Panel's 26
    April 2002 questions. Canada will demonstrate that: the United
    States misunderstands the "financial contribution" requirement of
    Article 1.1(a); its cross-border analysis of "benefit" is not
    permitted by Article 14(d); its response to the "pass-through"
    question is flawed and exhibits lack of comprehension of the
    "benefit" analysis that is required; in respect of critical
    circumstances, it continues to make implausible arguments. As well,
    Canada seeks to clarify US admissions concerning expedited reviews
    and will demonstrate that the US position on administrative review
    misstates US law and SCM Agreement obligations.

### The Preliminary Countervailing Duty Determination 

#### "Financial Contribution"

33. In its Answers, the United States asserts that, "Canada claims that
    the *benefit* is received when the timber is harvested." From this
    faulty premise, the United States wrongly attributes to Canada the
    argument that, "the act of harvesting (which is not performed by the
    government) is the financial contribution." It then argues that,
    "\[t\]he provincial governments provide the timber by placing it at
    the lumber producer's disposal under the tenure contract."

34. The US argument distorts Canada's submission and conflates a series
    of distinct relationships into one transaction. A right to cut a
    tree is not the same thing as a log; nor are timber harvesters the
    same as lumber producers.

35. Under tenure agreements, timber harvesters have the right to harvest
    standing timber and undertake a number of forest management
    obligations. These obligations, such as fire protection and pest
    control, constitute their share of a fiduciary duty for the public
    good. Indeed, tenure holders must undertake such costly obligations
    regardless of whether they harvest any trees. The bundle of rights
    and obligations that a tenure represents does not admit of
    simplification into "provision of goods".

36. The right to harvest trees is, in law and in fact, distinct from
    trees themselves (standing timber), which is a physical thing
    attached to the land. Standing timber is, in turn, different from
    logs. The cutting down of timber is the point at which "goods" --
    logs -- are produced from natural resources; this is similar to when
    fish are caught, or water is bottled. Logs are input goods into the
    production of lumber, which is the subject matter at issue. The
    right to harvest a tree is, therefore, different from the end
    results of harvesting (the cutting down of standing timber to
    produce logs) and processing (turning logs into lumber); this right
    does not amount to "goods" or "services" within the meaning of
    Article 1.1(a)(1)(iii). In fact, even the thing in which provincial
    governments convey an interest -- standing timber -- is not "goods"
    or "services".

37. The United States attempts to rebut this reading by relying on two
    arguments, neither of which has merit.

38. First, it states that "from the reference in Article 1.1(a)(1)(iii)
    to goods and services other than 'general infrastructure,' it
    follows *a contrario* that any specific immovable object may be a
    covered good." The conclusion in no way follows the premise. The
    converse of "general infrastructure" is not "any specific immovable
    object". In any event, "general infrastructure" is an *exception* to
    "services".

39. Second, the United States argues that "the economic consequence of
    providing a good and providing a right to a good are exactly the
    same." This argument follows the same faulty logic of the US
    argument in *Export Restraints* that, "an export restraint is
    'functionally equivalent' to an entrustment of or direction to a
    private body to provide goods domestically." The panel in that case
    rejected the "functional equivalence" argument on the grounds that
    the verbs "entrust" and "direct" implied "an explicit and
    affirmative action of delegation or command." The panel also held
    that the "financial contribution" element of Article 1 was concerned
    with actions of governments and not the effects of those actions.
    The term "provides goods" implies a positive action on the part of
    the government in respect of the goods themselves.

40. The United States then relies on one of several definitions of
    "provide" set out in one dictionary, to try to persuade the Panel
    that the term "provide" should be interpreted to mean "make
    available" in the broadest sense of the phrase.

41. The US position is untenable as the more common meaning of "provide"
    is "supply". As well, the proposed US interpretation encompasses a
    range of government action that goes far beyond those actions
    contemplated under Article 1.1(a). To "*make available* services",
    for example, would include any circumstance in which a government
    action makes possible the receipt of services.

42. Finally, throughout the WTO Agreement, the word "provide" is used to
    indicate the giving of something rather than the more generally
    enabling someone to obtain or produce something. For example, the
    word "provide" in Articles 3.2 and 8 of the Agreement on Agriculture
    refers not to the availability of subsidies or support to potential
    recipients, but rather the giving of such support or of subsidies.
    This is also the case in respect of Article XV:1 of the GATS.

43. The US argument also ignores the distinction: between timber
    harvesters and lumber producers. Timber harvesters produce *logs*
    from trees; and logs are not subject to the investigation. Timber
    harvesters "provide" these logs to their own mills or to other mills
    for the production of lumber or other products. This equation of
    timber harvesting and production of lumber has serious consequences
    in two respects.

44. First, the repeated and erroneous reference to "lumber producers"
    diverts attention from the issue before the Panel: the provision of
    a right to harvest to timber harvesters. Second, it ignores the
    nature of the rights and obligations contained in tenure agreements.
    The US assertion is based on its contention that the laws of each
    province "require the tenure holders be sawmills." This is simply
    incorrect.

45. In B.C. a tenure holder is not required to build a sawmill. The
    major forms of tenure may require an applicant to maintain a "timber
    processing facility," but that facility can be any of a wide variety
    of facilities, such as pulp mills, waferboard plants, etc. Moreover,
    the relevant provisions in the *Forest Act* are more discretionary.
    Section 13(3)(c) has provisions regarding timber processing
    facilities, but only if they are required in the invitation for
    application.

46. The United States also argues that in B.C. most loggers operate as
    employees or contractors for tenure holders rather than as
    independent entities. There are thousands of Crown tenure holders,
    unaffiliated with any sawmill, that independently harvest standing
    timber, produce logs, and either use or sell the logs at
    arm's-length to sawmills and other kinds of processors. The record
    prior to the preliminary determination (PD) documented that of 5,932
    Crown tenure holders in B.C. during the POI, only 105, or 1.8 per
    cent, owned sawmills.

47. In Quebec, there are two common forms of tenure. The dominant form
    of tenure, the TSFMA, can be and is held by any primary processing
    mill (for example, pulp mill, panel mill, veneer mill, etc.) and is
    not limited to sawmills. The second common form, the forest
    management contract ("FMC"), is rarely held by sawmills or even
    primary processing mills.

48. The United States further confuses the issues by leaving out two
    central facts in its discussion of Ontario tenures. Ontario, like
    other provinces, routinely grants export licenses for the export of
    logs. Indeed, Ontario granted export licenses pursuant to all
    requests.

49. Alberta also does not "generally require the tenure holders be
    sawmills." The United States misrepresents Alberta's questionnaire
    response that "\[a\]ll forms of commercial tenure own and operate
    sawmills". There, Alberta was indicating that when all sawmills are
    considered together, one will find among them all the types of
    tenures that exist in the province. Alberta at no point suggested
    that all tenures were held only by sawmills, or that only sawmills
    could get a tenure.

#### "Benefit"

50. A benefit analysis under Articles 1.1(b) and 14(d) of the SCM
    Agreement must use benchmarks "in the country of provision".
    Canada's submissions in this regard are based on three complementary
    points: first, that the text of Article 14(d) did not permit
    "cross-border" comparisons; second, that the injunction in Article
    14(d) is based on sound economic principles; and third, that, in any
    event, there were ample benchmarks *inside* Canada that the United
    States could have used to determine "adequacy of remuneration".

51. The United States argues that the concept of "commercial
    availability" is incorporated in Article 14(d). Article 14(d) does
    not refer to "commercial" availability of goods, much less "prices
    commercially available" for those goods. The term "availability",
    read in context, refers not to the price of a good, or commerciality
    of that price, but whether the goods are available in the country in
    question. Article 14(d) reflects a simple economic reality: the
    availability of a product -- its "supply" -- has an impact on its
    price.

52. In any event, even if the United States were correct in its
    interpretation, its conclusions do not follow. The existence of
    imported goods in a market does not make the price of those goods
    the "prevailing market condition". Imported goods may, and often do,
    command premium prices on domestic markets.

53. The United States rejects the use of benchmarks reflecting market
    conditions prevailing in Canada and justifies the use of US
    benchmarks on grounds of subsidization and price suppression. The
    United States then proceeds to "prove" such subsidization and
    suppression solely on the basis of the US benchmark. Under this
    standard, any country enjoying a natural comparative or competitive
    advantage over the United States in anything would automatically be
    found to be giving countervailable subsidies.

54. The United States is also not correct in citing item (d) of Annex I
    as support for its proposition that "in the country of provision"
    means outside the country of provision. Item (d) identifies the
    elements of a specific practice that is considered in itself to
    constitute a prohibited export subsidy. It in no sense suggests that
    world prices can be used as a measure of benefit to domestic
    producers. Item (d) is framed in a way consistent with other items
    in Annex I, and it has the same relationship to Article 1 of the SCM
    Agreement as those other items. For example, the first paragraph of
    item (k) refers to lending at rates below the government's cost of
    borrowing. However, that does not mean that a "financial
    contribution" analysis must always find a cost to government.

55. The United States argues that it can do what the specific text of
    Article 14(d) does not allow, because forestry resources are for the
    most part owned by the Crown. It asserts that the only way it can
    determine "benefit" independently of the alleged distortion is to
    look beyond the borders of the "country of provision". The arguments
    of the United States must not prevail, for two reasons.

56. First, a "benefit" analysis seeks to identify whether a government
    practice has had "trade-distorting effects" but only in the sense of
    Article 1.1(b). The question is whether as a result of the financial
    contribution by the government, the recipient has got something it
    could not otherwise have got on its own in the market. Article
    14(d), in turn, sets out the benchmark that can be used to determine
    the existence of "benefit" when the financial contribution in
    question is in the form of provision of goods. Neither Article 1 nor
    Article 14 *presumes* the existence of "distortion" because there is
    a financial contribution by the government. Furthermore, neither of
    these provisions permits dismissing benchmarks because of a
    presumption that these benchmarks might be "distorted" by a
    financial contribution.

57. The US argument is circular: market prices can be "suppressed" --
    driven below "normal" levels -- by dominant government prices only
    if those government prices are below that "normal" level. However,
    that is the very point a benefit analysis must demonstrate.

58. Article 14(d) requires an investigating authority to use in-country
    benchmarks to determine and measure an alleged benefit. The finding
    of government dominance in the alleged supply of goods does not
    establish that the remuneration it receives is not adequate. And the
    United States did not make such a finding; it only asserted it. A
    Member also may not short-circuit the "in-country" requirement of
    Article 14(d) by a finding regarding the market share of the
    government. Market share does not equal market dominance; and
    neither may give rise to a presumption of price suppression.

59. Second, nothing in Article 1.1(a)(1) or in the jurisprudence of the
    WTO mentions alleged "price suppression" as a reason for dispensing
    with the market benchmarks set out in Article 14(d) in favour of US
    benchmarks. The benchmark under Article 1.1(b) is not the highest
    price the recipient might have liked to get, but rather the price
    prevailing in the market.

60. There are good reasons why Article 14(d) was written the way it was:
    cross border comparisons make no economic sense. The use of US
    stumpage prices as a benchmark rests on the wholly unsupported
    premise that "there should be no difference between the private
    prices in the country of exportation and world market prices, except
    for import taxes." In concluding this, the USDOC implicitly made an
    incorrect assumption that stumpage is a commodity product with
    negligible transportation and transactions costs.

61. In particular, borders affect prices and "thick border effects" are
    substantial and notoriously difficult to quantify. The border is
    highly relevant as political boundaries drive differences in
    government regulatory regimes, tax regimes, investment regimes,
    currency, banking and financial systems, business practices, and
    business climate. Government policies and other factors in different
    jurisdictions may affect economic conditions, including wage rates,
    taxes, capital costs, and exchange rates.

62. A wide variety of complex factors also affect stumpage rates. These
    factors include locational characteristics, timber characteristics,
    measurement systems, operating costs, government regulation,
    economic conditions, and tenure holders' obligations and
    responsibilities. Adjustments for these factors are difficult or
    even impossible to quantify for the following reasons:

-   **Locational differences**: The PD assumes that tree-growing and
    harvesting conditions are "comparable" (an ambiguous term the USDOC
    never bothered to define) between the Canadian and US comparison
    areas. The USDOC addressed none of the contrary evidence in the
    record that significant differences in topography, soil conditions,
    climate, availability of ground and water transport, and distance to
    mills and to markets differentiate the Canadian and US market
    conditions.

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-   **Timber differences**: Differences in timber characteristics such
    as quality and stand density affect stumpage values but the USDOC
    made no adjustment for these differences

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-   **Differences in Measurements**: Differences in measurement
    conventions between the scales used to measure timber volumes in the
    United States and Canada and in the way in which timber is
    classified as "sawtimber" make cross-border comparisons impossible.

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-   **Differences in economic conditions**: Economic conditions such as
    wages, capital costs, taxes, and governmental regulatory policies
    affect stumpage values, and cross border comparisons must take into
    account these differences. The only economic condition that the
    USDOC made an adjustment for was in the PD exchange rates.

-   **Differences in rights and obligations of timber harvesters**: The
    bundle of rights and obligations under any harvesting programme
    affects stumpage values. Canadian tenure holders obtain harvesting
    rights through tenures effectively of indefinite duration. This
    differs from the transactions used by the USDOC that consisted of
    short-term timber harvesting rights in US sales. Similarly, the
    lump-sum payments to obtain timber harvesting rights in the United
    States are not equivalent to stumpage charges in Canada levied on a
    volumetric basis that were previously conferred. With only limited
    exceptions, the USDOC did not attempt adjustments for these
    differences.

    1.  While Canada believes that the Panel need not address the issue
        of adjustments, the United States advised the Panel that the
        USDOC made adjustments. It further asserted that the USDOC
        examined the obligations that Canadian tenure holders were
        legally obligated to assume, and calculated a per unit amount
        for each category, which it then added to the stumpage fee to
        arrive at a total "price" for stumpage in Canada. The USDOC did
        not make or even attempt any adjustments for almost all of these
        factors. Where it did, it did so incorrectly, including as
        follows:

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-   the USDOC refused to make adjustments for the costs Canadian timber
    harvesters incur scaling (measuring) provincial logs, because it
    claimed that "costs related to scaling are not mandatory and are not
    borne exclusively by tenure holders....". Provincial regulations
    across Canada require tenure holders to scale timber to the
    provinces' requirements.

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-   the USDOC's claim that it calculated "a per-unit amount for each
    category of Canadian obligations that was above and beyond
    obligations incurred by parties paying stumpage charges in the
    United States" is equally without foundation. The USDOC did not
    examine US costs and did not compare US and Canadian obligations,
    but simply asserted that, where similar costs existed in the United
    States, no adjustments were necessary.

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-   In Quebec, the USDOC made an adjustment for primary and secondary
    roads, but refused to make an adjustment for the costs of haulage
    roads, rather than measuring the difference between haulage road
    costs in Quebec and Maine. In Ontario, the USDOC used a different
    methodology, measuring road costs by their in-kind revenue to the
    Crown, rather than by the actual costs incurred by harvesters.

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-   In relation to B.C., the USDOC refused to adjust for timber sale
    costs incurred by B.C. licensees, such as the engineering and layout
    costs incurred to design and layout the appropriate contours and
    areas for harvesting. In Washington State lands (the benchmark the
    USDOC used) these costs are not imposed on the tenure holder.

    1.  One of the most significant errors made by the USDOC was the
        conversion factor it used to compare the stumpage rates in
        different jurisdictions. Comparing US and Canadian stumpage
        rates involves different measures of log volumes. Log volumes in
        several of the US comparison areas used by the USDOC are
        measured in thousand board feet (MBF) whereas stumpage in Canada
        is measured in cubic metres (m^3^) using a metric scale designed
        to measure the total volume of solid wood in logs..

    2.  The issue of conversion rates arises because cubic log scales
        attempt to measure the total content of each log while the US
        log scales attempt to measure only that portion of total log
        volume that would be contained in the lumber produced from each
        log. This portion varies with the diameter, taper, and length of
        the log. Further, that portion will vary with which US log scale
        is being converted (and the United States has many different
        scales) the scale's log measurement conventions, and the scale's
        allowances for volume deductions for log defects. To accurately
        compare stumpage rates, the conversion factor must also account
        for differences in timber size and the utilization standards of
        the jurisdictions being compared.

    3.  Taken together this means that there is no such thing as a
        constant log scale conversion factor. Instead, the conversion
        factor must be specifically chosen to reflect differences in the
        log scales, the measurement conventions, the current timber
        profiles and the utilization standards of the jurisdictions
        being compared. The USDOC did not do this. Instead it took a
        "national" average factor and applied it across all provinces.
        The application of a proper conversion factor would have
        resulted in a rate substantially less than was calculated by the
        USDOC in the PD.

    4.  The United States continues to assert that "only the governments
        of Alberta, Quebec and Ontario provided any information" in
        response to the USDOC's request for in-country benchmarks, and
        that only "Quebec and Ontario actually provided private prices."

    5.  To the contrary, Alberta answered every US question and provided
        all documentation requested by the United States Alberta
        discussed and provided information on wood volumes. Further,
        Alberta responded fully to a series of follow up questions
        regarding Alberta's "private market stumpage figure." The
        USDOC's questions did not include any requests for further
        documentation of the stumpage value data.

    6.  Ontario provided the USDOC with a study entitled "Ontario's
        Private Timber Market" prior to the PD. The study was conducted
        by Resource Information Systems Inc. and explained that:

The results of the survey suggest that the market for private timber in
Ontario appears to be both competitive and efficient. Buyers and sellers
have the same information about market conditions, sellers produce
homogeneous products, they are price-takers and they can enter and exit
the market easily. Hence the market meets the classic definition of a
competitive market. The market can also be classified as efficient given
its low transaction costs and low level of government involvement.

7.  Quebec submitted to the USDOC the results of the private forest
    stumpage surveys conducted annually for the three years preceding
    the period of investigation and explained that these surveys are
    used to determine stumpage rates on public land under the *Forest
    Act*. Quebec reminded the USDOC that it had accepted earlier
    versions of the same private forest surveys in *Lumber III* as a
    benchmark. Quebec also submitted a lengthy study demonstrating that
    the private forest in Quebec, is an open, competitive, and
    functioning market. This study analysed the conditions and
    circumstances of the private forest and found that it exhibited all
    the indicia of a competitive market.

8.  Finally, the United States states that B.C. did not provide private
    stumpage rates. However, B.C. explained on the record before the PD
    that most private timber transactions are for logs, and log price
    data was provided.

9.  The four primary exporting provinces also provided the USDOC with
    information demonstrating that they were operating their stumpage
    systems consistently with market principles. This information
    established that each of these provinces earned substantial profits
    from timber harvesting rights.

10. Finally, B.C. put on the record extensive economic analysis that
    established that B.C.'s price setting practices were consistent with
    market principles. This was because provincial stumpage charges were
    equal to, or even higher, than the prices that would prevail in a
    competitive market and prices for logs were no lower and quantities
    no higher than what would prevail in a competitive market. As well,
    B.C. provided the USDOC with information on competitive sales of
    stumpage in B.C. through the Small Business Forest Enterprise
    Programme sales.

11. The USDOC rejected the above evidence on the basis that private
    stumpage prices in Canada were not valid benchmarks for determining
    and measuring benefit. It stated in the PD:

> \"Since the stumpage fees on public lands are the price driver for the
> stumpage market in those provinces, we conclude that the stumpage fees
> on private lands are largely derivative of the public land prices and
> are therefore distorted\".

and later,

> \"Because of the provincial government's control of the market through
> a system of administratively-set prices and other market distorting
> measures, there is no market-determined price for stumpage that is
> independent of the distortion caused by the government's interference
> in the market\".

12. The USDOC cited the petition in support of its position. In
    particular, it relied on a letter of the Quebec Minister of Natural
    Resources to the President of the Wood Producer's Federation of
    Quebec (an association of private land owners). The United States
    now argues that this letter, and other outdated and anecdotal
    evidence, "\[indicates\] that private stumpage prices were depressed
    by the overwhelming majority of government-supplied timber in the
    market."

13. The letter is a Government response to the private land owners'
    association's criticisms of the cost adjustments used to make public
    and private timber comparable in Quebec's parity system, which
    itself is used for setting public land stumpage rates. The relevant
    portion of the letter relied upon by the USDOC states:

> \"Toutefois, je suis conscient que la tarification des bois des forêts
> publiques puisse avoir une influence indirecte sur le marché privé\".

14. The verb "puisse," as used in the letter, translated means "could"
    or "might". It does not translate into "does". Therefore, the above
    sentence, translated, reads:

> \"However, I am aware that public land stumpage charges \[*could* or
> *might*\] have an indirect influence on the private market\".

15. This in itself demonstrates the United States' gross
    mischaracterization of the value and import of the letter. However,
    the context of the above passage is equally revealing: the statement
    is simply the reason given by the Minister as to why the Government
    of Quebec continues to undertake meaningful dialogue with Quebec
    private landowners.

16. The United States also relies on a 1995 paper for its conclusion
    that Quebec private stumpage prices are distorted. The 1995 paper
    cites earlier studies (published between 1972 and 1985) that spoke
    to the Quebec stumpage regime that was replaced in 1989 as support
    for the relevant passage used by the United States In *Lumber III*,
    the Coalition made the same "distortion" argument regarding Quebec
    private stumpage prices. The USDOC addressed the argument and the
    evidence at that time as follows:

> \"The Coalition contends the entire provincial stumpage system in
> Québec is not "market-based" because private prices in Québec are
> distorted and depressed by decades of artificially cheap provincial
> stumpage, and these prices are used to set public stumpage.
>
> Citing a study published in 1988 of the "20 quality zones" in Québec
> ..., the Coalition asserts the "cost adjustments" which Québec used to
> make public and private timber comparable are utterly fanciful and
> lead to anomalous results. Respondents point out that the Aktrin study
> cited by the Coalition is completely outdated and irrelevant since it
> examined a system that was replaced in 1989 by Québec's current system
> of 28 \'biophysically and geologically homogeneous tariffing zones.\'
>
> We agree with Respondents that private prices in Québec collected
> under Québec's own contracted out surveys, which we examined in depth
> at verification, are a viable benchmark. The evidence cited by the
> Coalition is either outdated and irrelevant or anecdotal...\"

17. In *Lumber III* the USDOC, therefore, rejected evidence that was
    arguably more current, reliable and relevant than the material it is
    now relying on to arrive at the opposite conclusion.

#### Pass-Through

18. Evidence on the record at the PD demonstrated that some lumber
    producers had purchased log inputs at arm's-length from timber
    harvesters; the alleged recipients of the "stumpage" subsidy. The
    USDOC failed to consider or even acknowledge that evidence and
    proceeded to grossly overstate the alleged benefit to lumber
    producers.

19. The United States now attempts to argue that it had, in fact, made a
    finding of no arm's-length transactions in respect of such
    downstream producers; and that no such analysis was necessary. This
    attempt must fail, for two reasons.

20. First, the US position is internally illogical and contradictory. If
    it was not necessary to make a finding, then the USDOC presumably
    did not make such a finding; and if it did make such a finding, it
    was because it found that the analysis was necessary. Second, the US
    assertion is simply untrue. The determination does not contain a
    "pass-through" analysis. In fact, there is no mention of the issue
    anywhere in the determination. The USDOC undertook no factual
    enquiry into the question of pass-through; it simply presumed that
    all lumber producers benefited from alleged subsidies.

21. Given the evidence on the record of arm's-length transactions
    between downstream producers of lumber and timber harvesters, the
    United States was under an obligation to establish an *indirect*
    subsidy in the sense of Article 1.1(a)(1)(iv) for all those
    transactions. In the absence of any such findings, even recognition
    of the evidence, the United States must be found in violation of its
    obligations under the SCM Agreement not to impose countervailing
    measures without first establishing the existence of a subsidy.

22. If the United States had examined the evidence on the record, it
    would have -- indeed, should have -- determined that, *first*, there
    were arm's-length transactions in which the pass-through of a
    subsidy may not be presumed; and *second*, that no subsidy was in
    fact passed-through from timber harvesters to arm's-length lumber
    producers. The United States now concedes that, if there were in
    fact independent loggers who sell logs in arm's-length transactions,
    then those sales cannot be countervailed, or at the very least, that
    a pass-through analysis must be conducted. To counter this, the
    United States claims that it "preliminarily concluded that the
    overwhelming majority of Crown timber is provided directly to
    sawmills."

23. The following examples provide a sampling of the evidence on the
    record on this issue. In B.C., more than 30 per cent of the timber
    harvested on Crown lands is harvested by entities that do not own
    sawmills. Similarly, in Ontario "approximately 30 per cent of the
    softwood timber harvested from Crown land during the USDOC's period
    of investigation was sold by tenure holders to third parties who
    subsequently processed this timber into forest products." Further,
    forest management contracts ("FMCs") in Quebec are typically held by
    municipalities, communities, or non-profit organizations and rarely
    held by primary processing mills.

24. This evidence was not considered by the USDOC and it made no finding
    on "pass-through" at the PD. The United States has now proceeded,
    for the first time, to counter the evidence on the record. It claims
    that there were no "true" independent loggers and cites evidence
    regarding the harvesting of timber in each province. The attempt by
    the United States to justify its failure to analyse evidence on the
    record must fail, for four reasons.

25. First, the facts presented by the United States do not support its
    conclusions. For example, the United States expressly admits that
    approximately 17 per cent of B.C. Crown timber is "provided under
    licenses that are normally reserved to entities not owning timber
    processing facilities," and that, in Saskatchewan, approximately 14
    per cent "of the harvest was provided to smaller licenses... some of
    whom have their own sawmills." The United States also does not claim
    that all stumpage benefits are direct benefits, only that an
    "overwhelming majority" of Crown timber is provided directly to
    sawmills. Thus, notwithstanding that the United States' belated
    factual conclusion is incorrect, there was uncontroverted evidence
    on the record demonstrating arm's-length transactions between
    independent loggers and lumber.

26. Second, contrary to the United States's claim, the presence of
    domestic processing requirements or other regulations in no way
    preclude arm's-length transactions. The United States rests on the
    existence of an additional element in determining what constitutes
    an "arm's-length" transaction: the concept of an absence of "outside
    control or influence" For there to be an arm's-length transaction,
    there is no requirement that the Parties must operate independently
    of all other external influences.

27. Third, the US attempt to dismiss the evidence on the record after
    the fact only further highlights the USDOC's unjustifiable failure
    to undertake an indirect subsidy analysis in the preliminary
    determination . For example, the United States argues that in B.C.,
    most loggers operate as employees or contractors for tenure holders
    rather than as independent entities. However, as noted above, the
    evidence on the record indicates otherwise.

28. Finally, the United States is simply incorrect to suggest that no
    pass-through analysis is necessary with respect to arm's-length
    purchasers who produce some merchandise that is subject to the
    investigation. Unaffiliated remanufacturers purchase lumber in
    arm's-length transactions from lumber producers. In those
    arm's-length transactions, any alleged benefit to the lumber
    producers would not be passed through to the remanufacturers.

29. The United States insists that no analysis of pass-through was
    necessary in a country-wide investigation. According to the United
    States, in such cases, "\[t\]he precise amount of the benefit
    received by any specific producer would only be determined in a
    company-specific review." An investigation undertaken on a
    country-wide basis does not relieve the United States of its
    obligation to establish the existence and amount of a subsidy. The
    effect of the US' failure to analyse the pass-through of alleged
    benefits was to countervail in instances where no benefit was
    received and to sharply increase the countervailing duty rate.

#### First Mill

30. Although the calculation methodology in the survey makes clear that
    the data provided were from a survey of "sawmills" (also noted as
    "first mills"), the discussion of the methodology further intended
    to explain that the data also included a small portion of
    remanufactured products that were produced by the sawmills. Thus the
    statement \-- " \[b\]ecause the MSM does not collect commodity data,
    it was not possible to exclude 'remanufacturers' from its results"
    \-- intended to say that "it was not possible to exclude
    're-manufactures\' from its results." Canada explained this clearly
    in its August 21 and August 27 submissions, prior to the time at
    which the USDOC issued its Customs instructions implementing the
    decision.

### The Preliminary Critical Circumstances Determination

31. The United States argues that it is not possible for the United
    States to apply definitive countervailing duties retroactively, if
    it were not permitted to suspend liquidation *provisionally* with
    respect to entries made before the PD that may later be subject to a
    definitive critical circumstances determination. This position is
    untenable for three reasons.

32. First, the essence of the US argument appears to have become this:
    the only way, under US law, the United States may exercise its right
    under Article 20.6 to make a definitive critical circumstances
    determination, is for it to breach that Article by imposing
    provisional measures not provided for by the Article, to preserve
    this right. At issue is not what the United States may or may not do
    under US law, but rather what are the United States's obligations
    under Article 20.6. If the United States is concerned about its
    ability to preserve retroactive imposition of definitive
    countervailing duties pursuant to a critical circumstances
    determination, it should ensure that its laws provide for this.. The
    United States does not lose its ability to impose duties
    retroactively by virtue of making a final determination of critical
    circumstances.

33. Second, the United States misinterprets Article 20.3 of the SCM
    Agreement. Article 20.3 in no way limits, or in fact speaks to, the
    right of Members under Article 20.6 to impose definitive duties
    retroactively pursuant to a critical circumstances determination.
    Rather Article 20.3 addresses the *amount* of countervailing duties
    that may be collected with respect to provisional measures imposed
    pursuant to a preliminary countervailing duty determination.

34. Third, Canada reiterates its position that the United States'
    reliance on *Hot Rolled Steel from Japan* is misplaced. Article 10.7
    of the AD Agreement has no analogue in the SCM Agreement. Further,
    Article 20.6 does not permit a *preliminary* critical circumstances
    finding.

### US Law On Expedited Reviews And Administrative Reviews 

35. On the basis of the United States' replies, Canada understands US to
    have confirmed that:

-   it has an unconditional obligation under Article 19.3 of the SCM
    Agreement to provide expedited reviews to any exporter not actually
    investigated for reasons other than a refusal to cooperate who
    requests such a review and in doing so promptly establish an
    individual countervailing duty rate for that exporter; and

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-   it has the discretion to grant such reviews when such a request is
    made.

    1.  In the light of these statements, Canada further understands
        that the United States does not propose to argue that its
        discretion to grant a review includes the discretion to *reject*
        such a review. Any such argument would directly contradict the
        US acceptance of its obligation under Article 19.3.

    2.  Canada is not convinced that US law provides the United States
        with the discretion to meet its obligations under Article 19.3.
        Nevertheless, its statements to the Panel represent declarations
        by the United States of both its understanding of its
        obligations under the WTO Agreement and also the operation of
        its laws. Therefore, Canada requests that the Panel find that
        the United States:

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-   has failed to fully implement its obligation under Article 19.3 to
    provide for expedited reviews in case of specific requests to do so
    in country-wide cases;

-   now asserts that it has the lawful "discretion" to conduct such
    reviews despite the absence of specific statutory or regulatory
    provisions;

-   may not exercise its "discretion" to *deny* any request for an
    expedited review; and

-   must promptly grant all such requests made in *Lumber IV*, and in
    any other investigation.

    1.  It is critical that the USDOC give exporters subject to the
        country-wide countervailing duty rate in *Lumber IV* expedited
        reviews "promptly," as Article 19.3 requires. Within a few days,
        these exporters will be required to pay cash deposits at a
        country-wide CVD rate of 18.8 per cent. Moreover, expedited
        reviews provided months or years from now cannot, by definition,
        constitute the "expedited" reviews that Article 19.3 requires.

    2.  With respect to administrative reviews, the United States's
        responses effectively concede that Canada's understanding that
        US law prohibits granting exporters individual rates in
        country-wide cases is correct. In paragraph 67 of its answers,
        for example, the United States confirms that Section 351.213(b)
        of the Regulations does not provide for individual reviews in
        country-wide cases.

    3.  By relying on this section of the regulations, the United States
        asserts that its obligations with respect to administrative
        reviews are not to determine individual rates so as to ensure
        that individual companies are not paying more than the extent of
        the subsidy they actually receive. Rather, the United States
        argues that it is required to provide for individual rates only
        if such a rate turns out to be zero. This interpretation turns
        Articles 19.3 and 21.2 on their head. If adopted, the US
        interpretation would result in these provisions being read in a
        manner that would reduce the scope of their application far
        beyond that intended by drafters of the SCM Agreement, something
        a treaty interpreter must not do.

    4.  Furthermore, if the Panel does not find that the United States
        must conduct individual administrative reviews in country-wide
        cases, any relief granted regarding expedited reviews is
        virtually moot. Exporters and producers would obtain individual
        cash deposit rates that would be in effect only until completion
        of the first administrative review, given that the regulations
        mandate that a single country-wide rate calculated in an
        administrative review supersedes any individual rate previously
        determined.

## second written submission of the united states

5.  In its second written submission, the United States made the
    following arguments.

### Introduction

6.  Over the course of this proceeding, the issues have been focused and
    the facts clarified. If there was ever a doubt, the United States
    has now demonstrated that the Canadian provincial governments
    provide timber to lumber producers -- that is a financial
    contribution under the WTO *Agreement on Subsidies and
    Countervailing Measures* ("SCM Agreement").

7.  The United States and the European Communities ("EC") also share the
    view that, in appropriate circumstances, the benefit from the
    government's provision of a good may be measured by comparison to
    commercially available world market prices, consistent with Article
    14(d) of the SCM Agreement. Even Canada agrees that the use of
    import prices may be appropriate in certain circumstances. Therefore
    Article 14(d) does not prohibit the use of world market prices in
    appropriate circumstances.

8.  There has, however, been much debate over whether the USDOC's
    recourse to such prices in this case was appropriate. In the end, as
    discussed below, the evidence demonstrates that the USDOC's use of
    US stumpage prices commercially available to Canadian lumber
    producers was entirely consistent with the SCM Agreement.

9.  The United States has also amply rebutted Canada's claim that the
    USDOC inflated the amount of the subsidy benefit by failing to take
    into account so-called "independent loggers." The USDOC's
    preliminary determination that the Canadian provincial stumpage
    systems provide a subsidy to lumber producers was therefore entirely
    consistent with US obligations under the SCM Agreement.

10. Thus, we come full circle to where we began. "No Member should
    cause, through the use of any subsidy . . ., adverse effects to the
    interests of other Members, i.e. . . . injury to the domestic
    industry of another Member."[^13] When one Member causes injury to
    the domestic industry of another Member through the use of *any*
    "specific" subsidy, the injured Member has the right to take
    countervailing measures. The US right to impose provisional measures
    to counteract the injurious effects of billions of dollars of
    imports of subsidized Canadian lumber should therefore not be
    denied.

### Argument

#### The USDOC's Preliminary Determination that the Canadian Provincial Governments Provide a Good to Lumber Producers Is Consistent with Article 1.1(a)(1)(iii) of the SCM Agreement

11. It should be beyond dispute that the provincial governments are
    providing a good -- timber -- to lumber producers, within the
    meaning of Article 1.1(a)(1)(iii) of the SCM Agreement. This
    conclusion is inescapable under any definition of "good" in any
    language. It should also be beyond dispute that when a government
    gives a company the right to take a good, whether it is the right to
    take widgets from a government warehouse or timber from government
    land, the government is "providing" that good within the meaning of
    Article 1.1(a)(1)(iii). The Canadian provincial governments give
    tenure holders the right to take timber off Crown land and, thus,
    give them the timber itself. The only logical conclusion is that, in
    doing so, the provincial governments are providing a good within the
    meaning of Article 1.1(a)(1)(iii).

12. Canada's attempts to obfuscate this simple fact rely on logically
    flawed arguments, and ignore the basic principles of treaty
    interpretation reflected in Article 31 of the *Vienna Convention on
    the Law of Treaties*. For example, Canada asks the Panel to infer
    from the use of the phrase "imported goods" in Article 3.1(b) of the
    SCM Agreement and the word "products" in Parts III and V of the SCM
    Agreement, that "goods" can only mean traded goods that fall within
    the GATT 1994 Article II schedules. The fact that "products" are
    goods and "imported goods" are goods does not, however, logically
    give rise to the inference that nothing else can come within the
    meaning of "goods."

13. To sustain its strained interpretation, Canada simply ignores the
    most relevant aspect of the ordinary definition of "goods" in the
    source it relies upon, which is the inclusion of "growing crops, and
    other identified things to be severed from real property." Moreover,
    Canada's attempt to narrow the ordinary meaning of "goods" would
    render superfluous the only express limitation in the text itself,
    i.e., the exclusion for "general infrastructure." If "goods" were
    intended to be read as narrowly as Canada suggests, it could never
    encompass *any* infrastructure (e.g., a building, road, etc.), let
    alone general infrastructure. "Goods" must include some
    infrastructure, otherwise the specific exclusion in Article
    1.1(a)(1)(iii) is superfluous. Thus, the very existence of that
    express limitation demonstrates that the Members intended "goods" to
    be read in accordance with its ordinary meaning and therefore to
    include things other than those listed in the GATT 1994 tariff
    schedule.

14. In addition, Canada's arguments are premised on the notion that the
    only thing at issue here is an intangible "right" granted by the
    provincial governments, which Canada then proceeds to totally
    divorce, analytically, from the object of the right granted. Under
    Canada's theory, form is everything: what something is called (e.g.,
    an "exploitation right") is more important than what it actually is.
    In Canada's truncated analysis, if the government has granted a
    right, the inquiry stops, regardless of what the "right" entitles
    the holder of the right to do. By ignoring substance, Canada
    concludes that, while granting a right may constitute a financial
    contribution, it can never constitute the provision of a good.
    However, as the *Export Restraints* panel stated:

> We believe, in particular, that the appropriate way to conceive of a
> "financial contribution" is purely as a transfer of economic resources
> by a government to private entities in the market, without regard to
> the *terms* of the transfer.

15. Thus, it is in fact the "right," i.e., the terms under which the
    provinces transfer timber to lumber producers, that is irrelevant.
    To determine whether there is a financial contribution, the treaty
    interpreter should look at the reality of what actually occurs. In
    the case of provincial tenures, what actually occurs is that the
    provincial governments grant tenure holders the right "to take" a
    tangible good -- timber -- off the land. The right "to take" is, in
    fact, the mechanism (or terms) by which the government "provides"
    the timber, i.e., places the timber at the disposal of the lumber
    producer. The provincial governments are therefore providing goods
    within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.

16. Canada concedes that offering steel producers the opportunity to
    load and haul (i.e., "to take") iron ore from a government stockpile
    would constitute the provision of goods. In reality, there is no
    meaningful difference between giving lumber producers the right to
    take trees off Crown land and giving steel producers the right to
    take iron ore from a government stockpile. While Canada may
    disagree, the United States is confident that the steel producers
    and the lumber producers would not.

17. The reality of the provincial tenure systems is readily apparent.
    The evidence demonstrates that companies obtain tenures for the sole
    purpose of obtaining timber, not to manage the forest. Tenure
    holders acquire nothing under the tenure but timber, and pay
    stumpage fees only on the amount of timber actually harvested. These
    facts leave no doubt that through the tenure systems the provincial
    governments are "providing" a "good" -- timber.

#### The USDOC Properly Measured the Benefit from Provincial Stumpage Systems Under Article 14(d) of the SCM Agreement

18. Canada has made several claims with respect to the USDOC's
    measurement of the benefit from provincial stumpage systems. In this
    section, the United States will address Canada's claims concerning
    the USDOC's selection of a market benchmark for stumpage.

##### The Use of Commercially Available World Market Prices Is, in Appropriate Circumstances, Consistent with Article 14(d) of the SCM Agreement

19. As discussed in the US prior submissions, Article 14 of the SCM
    Agreement sets forth guidelines for determining the benefit
    conferred by a financial contribution. Prior panel and Appellate
    Body reports have defined a benefit as some form of advantage that
    would not otherwise be available in the marketplace, absent the
    financial contribution. The guidelines in Article 14(d) should
    therefore be interpreted to achieve an appropriate comparison of the
    financial contribution to the marketplace, i.e., a comparison that
    would identify the artificial advantage resulting from the
    government's financial contribution.

20. Article 14 does not purport to address every conceivable scenario in
    which a benefit must be determined. For instance, some types of
    financial contributions are not addressed at all in Article 14
    (e.g., grants and debt forgiveness). Thus, authorities have the
    discretion to develop appropriate methodologies. It is the view of
    the United States that an appropriate methodology is one that is
    consistent with the guidelines in Article 14, considered in light of
    the object and purpose of Article 14 to compare the financial
    contribution to what would be available to the recipient in the
    market absent the financial contribution.

21. With respect to the provision of a good, Article 14(d) of the SCM
    Agreement states that the comparison should be made "in relation to
    prevailing market conditions for the good \[\] in question in the
    country of provision . . . .". There is no dispute that the basis
    for the comparison described in Article 14(d) is the prevailing
    market conditions in the country under investigation. What
    constitutes prevailing market conditions is also described in
    Article 14(d), i.e., "price, quality, availability, marketability,
    transportation and other conditions of purchase or sale." Where the
    United States and Canada disagree is in defining what constitutes
    the universe of permissible market benchmarks that could be used to
    measure the adequacy of remuneration "in relation to prevailing
    market conditions" in the country under investigation, consistent
    with Article 14(d).

22. As the EC stated: "\[t\]he expression 'market conditions in the
    country of provision' in Article 14(d) of the SCM Agreement is
    sufficiently broad to allow the consideration of world market
    prices." In particular, as noted above, the concept of commercial
    "availability" is expressly incorporated in Article 14(d). The use
    of "commercially available" world market prices is also expressly
    sanctioned in item (d) of the Illustrative List of Export Subsidies,
    and has been endorsed by the Appellate Body. Prevailing market
    conditions in the country of provision may therefore encompass
    prices commercially available on the world market to purchasers in
    the country under investigation. Commercially available world market
    prices can therefore be used as a market benchmark, in appropriate
    circumstances, consistent with Article 14(d).

23. As the EC points out, the issue therefore is not whether Article
    14(d) permits the use of commercially available world market prices
    (such as US stumpage prices) *per se*, but rather whether it was
    appropriate to do so in this case. The facts discussed below
    demonstrate that the USDOC's use of commercially available US
    stumpage prices was appropriate in this case and therefore
    consistent with Article 14(d) of the SCM Agreement.

##### There Is No Evidence of a Market Benchmark in Canada

24. When considering the entire universe of potential market benchmarks,
    the United States agrees that prices within the country under
    investigation should be used whenever possible. Use of prices within
    the country under investigation is, however, not always possible.
    The obvious example, which the EC noted, is the case of a government
    monopoly for the good in question. In such a case there is no
    "market" benchmark price. That example is no different in principle
    from the circumstances of this case. The provincial governments
    control 85 to 95 per cent of the market for timber. There is
    extremely limited information on non-government prices and the
    evidence indicates that non-government prices are suppressed by
    government prices. There is therefore no "market" benchmark price in
    Canada that could measure the benefit. That conclusion is not based
    on theory, it is based on the record evidence.

25. First, only three provinces provided any private price data in
    response to the USDOC's questionnaire. Canada's claim that there was
    "extensive evidence" related to private markets in those provinces
    is simply not supported by the record. The limited data provided by
    the provinces was inadequate for purposes of establishing a market
    benchmark. For example, as the United States explained in its
    response to the Panel's questions, Alberta stated that it does not
    have any data on private timber used in sawmills. The so-called
    "extensive" data provided by Alberta was a two-page excerpt from a
    KPMG survey, which contained a single estimated stumpage value
    derived from some price data for log sales. Moreover, Alberta
    acknowledged that the estimated value was based on information that
    did not distinguish between private and *Crown* timber.

26. Ontario and Quebec submitted market surveys. However, the Ontario
    survey was flawed in several respects (e.g., it provided no
    information on quality or grade). Moreover, there was substantial
    evidence on the record, including statements by an official in
    Quebec's Ministry of Natural Resources, that government prices
    suppressed private prices in the provinces. In fact, one Canadian
    group said that "downward pressure on the price of private wood is
    built into the system." The influence of a dominant owner has been
    recognized in other markets as well. A study of stumpage trends in
    South Australia notes:

> Of the total \[productive forest land\] . . . \[a\]bout 70 per cent of
> the resource is publicly owned. The percentage of the publicly owned
> resource was even higher in the past. Hence it is likely that stumpage
> for public pine logs has held a dominating influence on stumpage for
> similar logs sold by private growers in \[South Australia\].

27. The remainder of the evidence that Canada cites consists of evidence
    that does not actually pertain to private prices. That evidence
    instead largely pertains to whether the provinces recover their
    costs and earn a profit when they sell timber. The government's
    profitability is, however, not the issue. It is now well settled
    that the cost to the government is irrelevant in measuring benefit.
    Moreover, the purported fact that the provincial governments made a
    profit does not establish that they sold Crown timber at market
    prices. The information provided therefore does not address the
    relevant inquiry, i.e., whether provincial prices for timber are
    more advantageous than those that would have been available to
    lumber producers on the market absent the provincial governments'
    financial contribution.

28. As the above analysis of the record demonstrates, there was
    insufficient evidence of "market" prices in Canada to form a
    benchmark. As the EC asked, "which other benchmark should be used in
    \[such a case\]?" The United States agrees with the EC that, in the
    absence of market prices in Canada, the use of other prices
    commercially available to Canadian lumber producers on world markets
    is a reasonable alternative. As demonstrated below, stumpage prices
    for comparable timber in the United States are commercially
    available to lumber producers in Canada.

##### US Stumpage Prices Are Commercially Available to Canadian Lumber Producers

29. Canada agrees that some prices commercially available on the world
    market, specifically import prices, can provide a benchmark
    consistent with Article 14(d). Canada argues, however, that it is
    impossible for there to be import prices in this case. Canada does
    not claim that Canadian producers cannot or do not harvest timber in
    the United States, or that US timber cannot be imported into Canada.
    Canada simply reverts to its argument that the provincial
    governments are providing a "right," not timber, and that a "right"
    cannot be imported. Once again, in Canada's view, form is all that
    matters. As the United States has amply demonstrated above, the
    provincial governments are not merely providing rights, they are
    providing timber. US timber can be, and in fact is, imported into
    Canada.

30. More importantly, Canadian lumber producers can and do purchase US
    timber on the stump for harvesting and import into Canada. The SCM
    Agreement states that "commercially available means that the choice
    between domestic and imported products is unrestricted and depends
    only on commercial considerations." Canadian lumber producers have
    virtually unrestricted access to US stumpage for import into Canada.
    US stumpage is therefore commercially available to Canadian lumber
    producers. Because US stumpage prices are commercially available to
    Canadian lumber producers, they fall within the universe of
    benchmarks that can be considered for purposes of measuring the
    benefit from provincial stumpage, consistent with Article 14(d) of
    the SCM Agreement.

31. In fact, based on commercial considerations, US stumpage prices are
    the most reasonable world market prices to use because the terrain,
    topography and species mix for US timber in border states are most
    comparable to those in Canada, and because the record shows that
    Canadian companies do in fact purchase US timber. In fact, virtually
    all of Canada's timber imports come from the United States.

32. Furthermore, it is reasonable to conclude that US stumpage prices
    represent appropriate market-based benchmark prices to measure
    whether provincial prices confer an artificial advantage. The
    observed price difference for Canadian and US stumpage does not
    reflect differences in inherent market characteristics in Canada
    versus the United States. Rather, it reflects the fact that the
    Canadian system precludes price arbitrage for timber. There is a
    fully integrated North American *lumber* market that coexists with a
    largely segregated North American *timber* market. Canada exports
    over half of its total lumber production to the United States, but
    only three per cent of its timber production. The United States
    exports little lumber to Canada, but exports nearly six times as
    much timber. The low volume of timber trade between the two
    countries is the result of domestic processing requirements in
    Canada that limit the flow of Canadian logs southward, and the
    advantageous stumpage prices in Canada inhibit the flow of US logs
    northward. The segregated timber market in North America allows for
    virtually no price arbitrage in timber markets across the border.

33. The unusual nature of the situation in the North American market is
    evident when compared to the substantial amounts of lumber and
    timber exports from other countries with major timber and lumber
    industries. More importantly, the data indicates that US stumpage
    prices are comparable to prices in Australia, New Zealand, Finland
    and Chile.

34. The USDOC's use of prices for comparable US timber that is
    commercially available to lumber producers in Canada was therefore
    appropriate in this case. Moreover, in establishing the market
    benchmark, the USDOC took into account other market conditions
    prevailing in Canada for timber, such as species, quality and tenure
    obligations. The market benchmark that the USDOC used in the
    preliminary determination was therefore consistent with Article
    14(d).

#### The USDOC Properly Calculated the Total Amount of the Subsidy to Producers of the Subject Merchandise

35. Canada alleges that the USDOC improperly assumed that the benefit
    from a financial contribution to one entity accrued to another
    entity. These allegations pertain to three distinct situations: (1)
    logs harvested by one sawmill and then sold in arm's-length
    transactions to other sawmills; (2) lumber sold in arm's-length
    transactions to companies that produce remanufactured lumber
    products; and (3) timber harvested by independent loggers who sell
    at arm's-length to lumber mills. In each case, the allegations do
    not withstand close scrutiny.

36. In the first two situations, all of the alleged recipients of the
    financial contribution and the benefit are producers of the subject
    merchandise. As discussed previously, in an aggregate case no
    further analysis of these situations is necessary to perform the
    aggregate calculation. The numerator (total benefit to the subject
    merchandise) is properly matched to the denominator (total sales of
    the subject merchandise). The precise amount of the benefit received
    by a specific producer would only be determined in a
    company-specific review.

37. Canada's claim with respect to the third situation rests on the
    assertion that the provincial governments provide a significant
    volume of Crown timber to independent loggers who then sell the
    timber at arm's-length to lumber mills. In response to the Panel's
    questions on this issue, the parties have provided record evidence
    concerning the operation of provincial tenures, and, in particular,
    the restrictions that the provinces impose on who may acquire a
    tenure and what the tenure holder may do with the harvested timber.
    While it is not the Panel's task to conduct a *de novo* review of
    those facts, a careful analysis of this evidence demonstrates that
    it does not support Canada's claim that lumber producers acquire a
    significant volume of timber from independent loggers.

38. First, as the United States has previously demonstrated, the
    potential volume of timber provided by so-called "independent"
    loggers is small. Canada's "evidence" to the contrary relies in
    large part on confusing or irrelevant statistical data. For example,
    Canada claims that "large numbers of harvesters" are independent
    loggers. The number of harvesters is, however, irrelevant. The issue
    is not how many independent loggers there are, but rather whether
    they provide a significant *volume* of Crown timber to lumber
    producers. Moreover, it is irrelevant if the harvester is
    "independent" if the mill owns the license (or is tied to the
    license contractually, as in Ontario).

39. The record demonstrates that the vast majority of the Crown softwood
    sawlog harvest is, in fact, under tenure to sawmills. This fact is
    obscured by Canada's province-specific data. For example, instead of
    estimating the volume of softwood sawlogs harvested by independent
    loggers in British Columbia, which is the relevant data, Canada
    estimates the volume of "timber" harvested by companies "not owning
    sawmills." "Timber" includes hardwood as well as softwood, and
    pulpwood as well as sawlogs. Moreover, it is completely irrelevant
    that some portion of the Crown timber was harvested by a tenure
    holder owning a pulpmill rather than a sawmill, if that timber was
    not used to make subject merchandise. The relevant fact is that more
    than 83 per cent of the British Columbia Crown softwood timber
    harvest is provided under tenures that require the tenure holder to
    own a sawmill.

40. Canada's statements with respect to the potential universe of
    "independent loggers" in Quebec are perhaps the most difficult to
    understand because they are almost entirely irrelevant. The issue is
    the percentage of the *Crown* harvest of softwood sawlogs that is
    provided to lumber mills by independent harvesters. In Quebec, 99
    per cent of the Crown harvest is provided under Timber Supply and
    Forest Management Agreements ("TSFMA"). The Quebec Forest Act states
    that "\[n\]o one except a person authorized under Title IV to
    construct or operate a wood processing plant is qualified to enter
    into" a TSFMA. The harvest from Federal lands, which is minuscule
    (less than 1 per cent), and private lands is irrelevant to the
    benefit calculation, as is the fact that there are 40,000 registered
    woodlot owners. Given the TSFMA requirements, it is virtually
    impossible to have a significant percentage of independent loggers
    harvesting Crown timber in Quebec.

41. Similarly, in Saskatchewan, more than 86 per cent of softwood
    sawlogs were harvested by tenure holders that own sawmills and
    process their own timber, and in Manitoba, approximately 95 per cent
    of the softwood sawlogs were provided directly to sawmills. Alberta
    also stated that "\[a\]ll forms of commercial tenure own and operate
    sawmills."

42. Second, to the extent there may be a small portion of Crown timber
    harvested by entities that do not own processing facilities,
    transactions between those entities and the lumber mills are not at
    "arm's-length." A truly arm's-length negotiation is one where
    neither party is under any outside control or influence, either from
    the party with whom they are bargaining, or other parties.

43. Canada claims that tenure holders are free to sell their logs to
    unrelated mills. In fact, the record evidence demonstrates the
    contrary. For example, Quebec indicated that there were essentially
    no arm's-length transactions involving Crown timber sold by
    independent loggers to sawmills. Moreover, the record establishes
    that all of the provinces generally require that Crown timber be
    processed in a mill within the province. Each province also imposes
    other restrictions that impede a harvester's ability to negotiate
    freely and that compel the harvester to sell to particular
    customers. For example, in Ontario, as a condition of the license,
    tenure holders are required to sign "wood supply agreements," in
    which they agree to supply specific quantities of wood to specific
    mills. The licenses also provide that the Ministry of Natural
    Resources can direct excess log production to specific mills. In
    British Columbia, major licensees are required by law to process
    their logs or an "equivalent volume" of wood in their mills.
    Similarly, in Alberta, all licenses on the record specify a
    particular fixed volume that must be processed in a specific mill.
    Moreover, the evidence shows that the so-called independent loggers
    often operate as employees or contractors for tenure holders. In
    addition, Canada's claim of significant "sales" by independent
    harvesters includes transactions that are, in fact, "swaps."

44. In light of this evidence, the only reasonable conclusion is that
    there are no true arm's-length transactions for Crown timber between
    independent loggers and lumber mills. There is therefore no basis
    for Canada's claim.

#### The Preliminary Critical Circumstances Finding Is Consistent with the SCM Agreement

45. As fully discussed in the US prior submissions, Canada has failed to
    make a *prima facie* case that the USDOC's preliminary critical
    circumstances finding was inconsistent with the SCM Agreement. The
    USDOC's imposition of provisional measures in this case on
    merchandise entered during the 90-day period prior to the
    publication of the preliminary determination was in fact fully
    consistent with the text of Article 20 of the SCM Agreement, as well
    as with its object and purpose.

46. Article 20.1 expressly provides that the prospective application of
    provisional measures and final duties is "subject to the exceptions
    set out in this Article." Article 20.6 provides such an exception,
    stating that a Member may assess final, definitive duties
    retroactively for a period "not more than 90 days prior to the date
    of application of provisional measures" if critical circumstances
    are present. As discussed in the US prior submissions, retroactive
    provisional measures (including suspension of liquidation and cash
    deposits or bonds) are essential to enable a Member to avail itself
    of the special remedy provided under Article 20.6. It is therefore
    the view of the United States that a Member may impose retroactive
    provisional measures if there is a reasonable basis to believe or
    suspect at the time of the preliminary determination that critical
    circumstances exist.

47. With respect to Canada's remaining critical circumstances claims,
    the United States will, at this time, rely on its prior submissions.

#### US Laws Governing Reviews Are Consistent with the SCM Agreement

48. No reviews have been requested, much less denied, in this case
    because the United States has not yet imposed definitive
    countervailing duties. Canada simply claims that the US laws
    governing such reviews are inconsistent with the SCM Agreement.
    Under established WTO jurisprudence, however, a Member's law
    breaches that Member's WTO obligations only if the law *mandates*
    action that is inconsistent with those obligations. If the law
    provides discretion to authorities to act in a WTO-consistent
    matter, the law, as such, does not breach a Member's WTO
    obligations.

49. For the reasons fully discussed in the US prior submissions, the US
    laws that Canada challenges clearly do not mandate action
    inconsistent with US WTO obligations. US law instead gives the USDOC
    broad discretion to conduct reviews in a WTO-consistent manner.

### Conclusion

50. For the reasons set forth above, the United States requests that the
    Panel reject Canada's claims in their entirety.[^14]

## second oral statement of canada

51. In its second oral statement, Canada made the following arguments.

### Introduction

52. We are here because the United States, in violation of its WTO
    obligations, is imposing duties on Canadian softwood industries that
    are crippling our forest industries. This dispute is not just about
    trees or logs or lumber*.* It is, rather, about how the WTO
    Agreement applies to a Member's management of its natural resources.
    The United States claims a right to countervail the products of
    Members who manage their natural resources in a way that differs
    from the way chosen by the United States*.* Ignoring the SCM
    Agreement, the United States simply presumes that the difference
    between Canadian stumpage fees and US prices is a countervailing
    subsidy. In effect the US view is that where a government owns
    natural resources, it may exploit those resources only by auctioning
    them off in the US style*.* Of course this is not the way Canada
    manages its timber resources*.* And it is not the way the United
    States manages its natural resources, such as fisheries and mineral
    rights.

53. The US approach is also neither logical nor consistent with economic
    theory*.* For example, it is not at all evident that auctioning off
    stumpage in Canada would result in higher returns than those
    prevailing under Canada's current systems. However, where there is
    an abundance of resources and a small market, one would expect
    prices to be lower. And, the owner of those resources might well
    command a higher return by setting rates administratively.

54. The United States has imposed provisional countervailing measures
    against practices that are not subsidies within the meaning of the
    SCM Agreement. The United States has, also, impermissibly imposed
    retroactive provisional measures pursuant to a "preliminary"
    critical circumstances determination. Finally, in countrywide cases,
    the United States does not provide for expedited reviews as required
    by Article 19.3, and outright prohibits company-specific
    administrative reviews contrary to Article 21.2 of the SCM
    Agreement.

### Subsidy

#### Financial Contribution

55. The distinction between the right to harvest trees, standing timber,
    and logs, and the distinction between timber harvesters and lumber
    producers, are at the heart of this dispute*.* They are as follows:

-   **the right to harvest trees** is a form of property interest*.* The
    owner of this right may go on someone's land and cut down the trees
    on that land;

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-   **standing timber** refers to trees in the forest, that are
    incapable of being traded; and

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-   **logs** are what is produced when trees are cut down and prepared
    for transportation;

-   Sawmills, in turn, process logs into lumber, which is the subject
    merchandise.

    The second set of distinctions relate to the different players.

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-   **provinces** own most forests in Canada;

-   **timber harvesters** enter into agreements with provinces to manage
    these forestry resources*.* Under these agreements, the tenure
    holder has the right to harvest trees, but also incurs obligations
    (including reforestation, and the like), regardless of the quantity
    of trees harvested. The tenure holder may or may not own a mill; or
    if it has a mill, it may not be able to process all of the logs that
    result from its own harvest of standing timber*.* So the tenure
    holder could sell logs, process logs itself, or export them; and

-   **lumber producers** are the sawmill operators that process logs
    into lumber. They are also secondary manufacturers that buy lumber
    from sawmills for further processing.

    1.  The United States assertion that provinces provide "timber" to
        lumber producers is, therefore, incorrect as a matter of fact,
        and its assertion that provinces "provide goods" when they enter
        into tenure agreements is incorrect as a matter of law.

    2.  The ordinary meaning of "provide" is to "supply", in the sense
        of to "give"*.*

    3.  The United States proposes an alternative meaning, to "make
        available", in the sense of to "make it possible to obtain"*.*
        The verb "provide", however, does not have such a wide scope:

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-   in subparagraph (iii), the converse of "provide" is "purchase"*.*
    Properly construed, therefore, "provide" must mean "give" or "sell";
    and

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-   elsewhere in the WTO Agreement, the verb "provide" is used when the
    drafters intended to denote "give"*.*

    1.  If the negotiators had wanted to say, "make it possible to
        obtain", they would have said so in Article 1. In the light of
        its context, "provide" means to "give" or to "sell"*.*

    2.  The term "goods" has the same meaning in Article 1 as elsewhere
        in the SCM Agreement and the WTO Agreement*.* "Goods" in Article
        1 are the "goods" to which the modifier "imported" is applicable
        in Article 3; they are the same "goods" that are the subject of
        Article II of GATT 1994 and the Customs Valuation Agreement*.*
        "Goods" are tradable items -- products -- that are capable of
        bearing a tariff, and exclude real property, intellectual
        property and other property interests.

    3.  Moreover, the terms "goods" and "products" are used
        interchangeably in the WTO Agreement*.* Article II of GATT 1994
        refers to "products" in paragraph 1(b) and "goods" in
        paragraph 1(c) -- and both refer to items that may be subject to
        tariff bindings. The term "goods" is translated into "*biens*"
        and "*bienes*" in Article 1 of the French and Spanish versions
        of the SCM Agreement, and "*produits*" and "*productos*" in
        Article 3*.* The term "goods" is also translated into
        "*marchandises*" and "*mercancías*" in the French and Spanish
        versions of the Customs Valuation Agreement*.* "Goods",
        "*biens*", "*bienes*", "*produits*", "*productos*",
        "*marchandises*", "*mercancías*" -- all mean the same thing:
        tradable items, or *products* in the sense of Article II of GATT
        1994.

    4.  The United States persists in its argument that providing the
        right to produce goods is in effect the same as providing
        goods*.* In this respect, the United States is rehashing its
        failed "functional equivalence" arguments from *United States --
        Export Restraints*. Subparagraph (iii) does not refer to the
        *effects* of a government action, but the action itself*.* This
        government action is entering into a tenure agreement, one
        element of which is a right to harvest trees*.*

    5.  The question before you is the scope of the phrase "provides
        goods" and not Article 1.1(a) of the SCM Agreement more
        generally. The United States tries to justify its stretching of
        "provides goods" by saying that Canada's objections elevate form
        over substance*.* On the contrary, it is evident that the
        drafters of the SCM Agreement made conscious and careful choices
        in defining "financial contribution" under the SCM Agreement,
        and we ask the Panel to give effect to those choices*.*

#### Benefit

6.  The Parties agree: that there is a "benefit" where "the recipient
    has received a 'financial contribution' on terms more favourable
    than those available to the recipient in the market"; where the
    alleged financial contribution is a government provision of goods,
    Article 14(d) of the SCM Agreement is the relevant guideline; and
    that Article 14(d) requires an investigating authority to determine
    adequacy of remuneration in relation to prevailing market conditions
    in the country of provision of the goods*.* The United States now
    concedes that "\[t\]here is no dispute that the basis for the
    comparison described in Article 14(d) is the prevailing market
    conditions in the country under investigation."

7.  This is a significant departure from the USDOC's position in the
    preliminary determination (PD) and from the position the United
    States took earlier in this case*.* In the PD, the USDOC found that
    in-country benchmarks were not required. In its First Written
    Submission, the United States argued that Article 14(d) "requires
    \[an\] authority to determine the adequacy of remuneration with
    reference to market prices for transactions that, while not
    necessarily between buyers and sellers within the country of
    provision, are (or could be adjusted to be) comparable to the
    government transactions ...".

8.  The United States now argues that out-of-country benchmarks are
    "commercially available" in Canada*.* For the United States, it is
    no longer the case that "in" means "out" -- rather, it is that "out"
    really means "in": that is to say the prevailing market conditions
    in the United States are somehow "available" in Canada, the
    appropriate benchmarks *in* Canada are those to be found in the
    United States

9.  Moreover, Article 14(d) does not refer to "commercial" availability
    of the goods in question, much less "prices commercially available"
    for those goods*.* Rather, "availability", read in context, refers
    to whether the *goods* are available in the country of provision.

10. The United States argues that the US stumpage prices from selected
    lands it used as benchmarks in this case are "world market
    prices"*.* This is untenable. Goods that are capable of having a
    "world market price" are essentially homogeneous commodities or ones
    whose characteristics can be defined so that they are
    interchangeable*.* Standing timber is not such a commodity. This is
    why the USDOC used six different US benchmarks

11. The United States also argues that US stumpage prices are comparable
    to stumpage prices in other parts of the world and are, therefore,
    "appropriate" and consistent with Article 14(d). It asserts that
    support for its position can be found in item (d) of the
    Illustrative List of Export Subsidies and case law - *Canada --
    Dairy*.

12. With respect to item (d), Canada has explained that its only
    possible relevance to this dispute is that it equates "goods" with
    "products"*.* Further*, Canada -- Dairy* is not relevant because the
    phrase "commercial availability" relates only to item (d) and there
    was no decision concerning this provision, as the Panel's findings
    were rendered moot and of no legal effect by the Appellate Body
    (AB). If anything, the significance of this decision is limited to
    the conclusion of the AB that world market prices did not provide a
    valid basis for determining whether there were "payments" under
    Article 9.1(c) of the Agreement on Agriculture. The AB found that a
    comparison between commercial export milk prices and world market
    prices gave no indication as to whether Canadian export production
    had been given an advantage.

13. Not only are US prices not "world market prices", they are also not
    "available" in Canada. According to the United States, US stumpage
    is commercially available "in" Canada for two reasons: (1) because
    Canadian producers can purchase US timber on the stump for
    harvesting, and (2) because logs produced from timber harvested in
    the United States can be exported to Canada*.* Neither reason is
    valid.

14. First, the fact that a Canadian can bid on timber in the United
    States does not make that standing timber available in Canada.
    Second, that some Canadian firms can use logs produced from US
    timber does not mean that they can use US timber harvesting rights
    in Canada*.* Rights to harvest timber in the United States are
    available only in the United States

15. Moreover, US law prohibits the export of logs from the public lands
    in the western US that the USDOC used as benchmarks for B.C.
    (Washington), Alberta (Montana) and Saskatchewan (Montana)*.* Thus,
    the United States has used as benchmarks, stumpage from public lands
    where the export of logs is prohibited.

16. At the time of the PD the USDOC had before it ample evidence of
    benchmarks in Canada that it chose to ignore. The United States
    initially asserted that the in-country benchmarks were unusable
    because they were artificially suppressed by government involvement
    in the marketplace*.* However, the rejection of an in-country
    benchmark as "distorted" because of government involvement is not
    supported by the SCM agreement.

17. The United States now argues that the evidence was inadequate to
    establish a market benchmark. Yet the USDOC did no analysis of this
    evidence. Alberta, Ontario and Quebec all provided evidence on
    private sales of timber harvesting rights*.* B.C. provided private
    log price data. Alberta and B.C. also provided information on
    competitive tenures.

18. In addition, these four provinces, which represent 96 per cent of
    softwood lumber exports from Canada provided the USDOC with
    information demonstrating that they were operating their stumpage
    systems consistently with market principles*.* The United States
    attempts to dismiss this evidence on the basis that "cost to
    government" is irrelevant in determining benefit*.* But the point
    has nothing to do with "cost to government". Rather, the substantial
    profits show that the provinces are acting consistently with market
    behaviour.

19. Moreover, the US position cannot be reconciled with the USDOC's own
    regulations, which provide for analysing consistency with market
    principles as a way to evaluate adequacy of remuneration. The USDOC
    has consistently determined adequacy of remuneration using this
    benchmark where it has found that the government played a dominant
    role in the market. Finally, the USDOC ignored evidence that there
    is no benefit to lumber producers when the situation in Canada is
    compared with results that would be produced in a competitive
    market*.* Regardless of what the United States now says respecting
    the adequacy of this evidence, the USDOC had an obligation to
    analyse it*.* It did not do so*.*

#### Pass-through

20. The United States has not demonstrated that a subsidy exists in this
    case. Rather, it has improperly *presumed* the existence of a
    "subsidy" to producers of subject merchandise that buy their inputs
    at arm's-length*.*

21. The United States has admitted that *at least* 17 per cent of Crown
    timber harvest is done by independent harvesters in B.C., 14 per
    cent in Saskatchewan, and 5 per cent in Manitoba, and that a
    pass-through analysis is required at least in respect of companies
    that do not produce subject merchandise. Prior to the PD, the record
    evidence indicated even higher percentages. The requirement for a
    pass-through analysis, however, goes beyond this and includes
    instances of arm's-length transactions for inputs (logs or lumber)
    into the production of the subject merchandise*.* In all these
    cases, the United States has failed to demonstrate the existence of
    a subsidy because it has not undertaken the required pass-through
    analysis.

22. The United States now attempts to justify this violation by arguing
    that it does not need to undertake a pass-through analysis in
    countrywide cases. This argument is not relevant because it ignores
    the required elements of Article 1*.* More specifically, the United
    States has failed to establish that governments have made a
    financial contribution or that the financial contribution confers a
    benefit on a recipient*.* In arm's length transactions the profit
    maximizing recipient of an alleged subsidy must be presumed to have
    retained subsidies it received. Under the SCM Agreement, there are
    *no* exceptions to the obligation to establish the existence of a
    subsidy*.*

#### First mill

23. The USDOC calculated the subsidy rate on a first-mill basis, but
    applied it on an entered-value basis, with the effect of
    significantly increasing the countervailing measures applied*.*
    There is no dispute that the data used was first mill data*.*
    Therefore, there should be no dispute that the United States
    violated its obligations. The United States has attempted to excuse
    its violation, claiming that the USDOC did not know that the data it
    used was first mill data. This claim is not credible. The United
    States has acknowledged that the USDOC received clarification of the
    information provided to it before it made its decision to impose
    measures on a final mill basis.

### Critical circumstances

24. The United States argues that the term "definitive duties" in
    Article 20.6 also refers to preliminary measures, because, first,
    Article 20.1 refers to both definitive duties and preliminary
    measures*.* And second, Article 20.3 prohibits the collection of
    preliminary duties in an amount greater than definitive duties*.*
    The United States then argues that it must be permitted to breach
    Article 20.6 in order to be able, under its domestic law, to
    exercise the right to collect retroactive duties.

25. Article 20.1 prohibits retroactive application of preliminary
    measures and countervailing duties subject to exceptions listed in
    the rest of the Article*.* Each of the exceptions is applicable only
    to the extent relevant; Article 20.6 refers to definitive duties and
    not preliminary measures; it does not, therefore, create an
    exception in respect of preliminary measures*.*

### Expedited review and Administrative review

26. The USDOC has posted a notice indicating that it will accept
    requests for expedited reviews in the *Lumber IV* case*.* The notice
    contains no information on timelines or procedures for these reviews
    or whether the reviews will actually be conducted for all requesting
    companies*.*

27. In the light of these considerations, and to ensure that there is no
    doubt as to the substance of the obligations under Article 19.3,
    Canada requests the following findings:

-   First, that the United States is required under Article 19.3 to
    grant expedited reviews upon request and to establish an individual
    countervailing duty rate;

-   Second, as the United States has repeatedly stated, nothing in US
    law or regulations prohibits the United States from granting
    expedited reviews in all instances upon request and establishing
    individual countervailing duty rates for requesting exporters; and

-   Third, that the United States has [no]{.underline} discretion to
    refuse to grant expedited reviews upon request or to establish an
    individual countervailing duty rate for the requesting exporter.

    1.  Accordingly, Canada asks that the Panel recommend that the
        United States may conform to its obligations under Article 19.3
        only where it grants expedited reviews upon request and
        establishes individual countervailing duty rates for requesting
        exporters in countrywide cases at least in accordance with the
        timetable and procedures applicable to other expedited review
        requests.

    2.  The United States continues to deny its obligations under
        Article 21.2 of the SCM Agreement and maintains that it has
        provided for some form of administrative review in countrywide
        cases*.* US arguments in respect of Article 21.2 ignore two
        critical points.

    3.  First, the first sentence of Article 21.2 refers to "the
        duty"*.* This can only mean the "countervailing duty" mentioned
        in Article 21.1*.* Accordingly, Article 21.2 should be read in
        the light of the preceding paragraph, which reads, "A
        countervailing duty shall remain in force only as long as and to
        the extent necessary to counteract subsidization which is
        causing injury." This means that the review must also consider
        the level of the countervailing duties. Second, there are
        *three* elements in Article 21.2. Article 21.2 requires that a
        Member review, "the need for the continued imposition of the
        duty ... upon request by any interested party which submits
        positive information substantiating the need for a review". It
        gives a right to an interested party to request such reviews in
        respect of "whether the continued imposition of the duty is
        necessary to offset subsidization" and whether injury would
        continue if the duty were removed *or varied.* And it requires
        that the authorities terminate the duty if it is no longer
        warranted.

    4.  Read together, in the light of Article 21.1, the obligation
        becomes clear: the United States must provide for, and conduct,
        administrative reviews upon request to determine not only
        whether countervailing duties are necessary at all, but also to
        establish company-specific rates*.*

    5.  The United States is in breach of Article 21.2 because it
        expressly denies administrative reviews in countrywide cases*.*
        The United States persists in arguing that it has the
        "discretion" to grant administrative reviews in certain limited
        circumstances and subject to certain qualifications. This is not
        enough*.* The "discretion" in question is to grant an
        administrative review only "where practicable" and then only
        when there is a request for a "zero rate"*.*

    6.  Finally, if individual administrative reviews are not necessary
        in aggregate cases, any relief relating to expedited reviews
        becomes moot*.* This is because the aggregate rate determined at
        the first administrative review supersedes all other previously
        determined rates.

## second oral statement of the united states 

7.  In its second oral statement, the United States made the following
    arguments.

### Financial Contribution

8.  The provincial governments identify specific stands of timber and
    enter into tenure agreements that allow companies to harvest that
    timber, that is, to take the timber off the land, in exchange for a
    fee based on the volume of timber harvested. The provincial
    governments are therefore providing a good within the meaning of
    Article 1.1(a)(1)(iii) of the *Agreement on Subsidies and
    Countervailing Measures* ("SCM Agreement").

9.  Canada's attempts to argue to the contrary defy general principles
    of treaty interpretation, the rules of logic and common sense. The
    essence of Canada's argument is that when the provincial governments
    grant lumber producers the right to take timber from government
    land, the producers actually provide *themselves* with a good when
    they cut down a tree. To support this rather extraordinary
    proposition, Canada ignores the ordinary meaning of "goods," which
    includes things to be severed from the land, such as timber. In
    Canada's view, a government can identify a whole forest of trees and
    give a specific lumber company the right to take those trees for
    free. The violence such a theory does to the subsidy disciplines is
    obvious.

10. Canada's strained interpretation is not supported by the text of the
    SCM Agreement. Based on the ordinary meaning of the text, when the
    provincial governments grant companies the right to take an
    identified good -- timber -- from government land, the government
    makes a financial contribution within the meaning of Article
    1.1(a)(1)(iii) of the Agreement.

### Benefit

11. A financial contribution confers a benefit if it provides some form
    of artificial advantage that would not otherwise be available in the
    marketplace absent the government's financial contribution. Under
    the guidelines in Article 14(d), the benefit from a government's
    provision of goods is to be determined in relation to the prevailing
    market conditions for the good in the country of provision. The
    United States shares the view of the European Communities that the
    concept of "prevailing market conditions in the country of
    provision" is sufficiently broad to permit consideration of prices
    for competitive goods commercially available on the world markets to
    purchasers in the country of provision.

12. That interpretation is firmly grounded in the text of the SCM
    Agreement and commercial reality. "Commercially available," as
    defined in the SCM Agreement, means that the choice between domestic
    and imported goods is unrestricted and depends solely on commercial
    considerations. Commercially available goods, both imported and
    domestic, compete in the domestic market and constitute the supply
    available to purchasers in the country of provision, that is, goods
    that the purchasers could obtain in the market absent the
    government's financial contribution.

13. Canada has acknowledged that "prevailing market conditions" in the
    country of provision include the available supply and that imports,
    which are part of the available supply, can, in appropriate
    circumstances, provide a market benchmark consistent with Article
    14(d). Even under Canada's reading of Article 14(d), therefore,
    prices for competitive goods commercially available on world markets
    fall within the universe of potential market benchmarks in certain
    cases. Because prices for competitive goods commercially available
    on world markets fall within the ordinary meaning of the terms used
    in Article 14(d), there is no basis to interpret that provision as
    precluding the use of such prices, under any circumstances.

14. As the Canada Aircraft panel stated, the purpose of a benefit
    analysis is to determine whether the financial contribution places
    the recipient in a more advantageous position than would have been
    the case *but for* the financial contribution. Likewise, the
    Appellate Body stated that the analysis is to determine whether the
    recipient is better off than it would otherwise have been *absent
    the financial contribution*. Private prices for a good that are
    driven by government prices for that good do not represent prices
    that would otherwise have been available in the market *absent* the
    government financial contribution. The USDOC's preliminary
    investigation indicates that such is the case with respect to
    private stumpage prices in Canada.

15. The USDOC found that the provincial governments control
    approximately 90 per cent of the softwood timber supply. Moreover,
    tenure holders consistently harvest less than their annual allowable
    cut ("AAC") and, if necessary, a tenure holder may harvest in excess
    of its AAC. These undisputed facts indicate that Canadian lumber
    producers would have no incentive to purchase private stumpage
    unless the private seller was willing to meet, or better, the
    government's administratively set stumpage price. The record facts,
    when taken as a whole, support the USDOC's conclusion that private
    stumpage prices in Canada are integrally linked to the government
    prices and therefore could not logically serve as a benchmark.

16. Stumpage prices in contiguous US states were the most logical
    choice. US stumpage is commercially available to Canadian producers
    and the contiguous forests are generally comparable. The United
    States is the only country from which Canada obtains significant
    amounts of softwood timber. Canadian companies own timberland in the
    United States, bid on US stumpage and regularly import US timber.

17. In sum, the Panel should find that Article 14(d) permits the use of
    prices commercially available on world markets in appropriate
    circumstances. The Panel should also find that the use of such a
    benchmark was appropriate under the specific facts of this case.

### Critical Circumstances

18. Canada argues in its second submission that, if the United States
    wishes to preserve the possibility of retroactively imposing
    definitive countervailing duties pursuant to a critical
    circumstances determination, it should provide in its laws for
    retroactive assessment. That is, however, precisely what suspension
    of liquidation does. Furthermore, Canada's assertion that US
    Customs' practice resolves this issue is incorrect. Under US law, an
    entry that is not liquidated within one year from the date of entry
    is deemed liquidated by operation of law at the rate of duty in
    effect at the time of entry. Countervailing duty investigations
    frequently take more than a year to complete; the SCM Agreement
    permits the investigation to go as long as 18 months. Entries during
    the 90-day retroactivity period would, in such cases, be liquidated
    by operation of law and no retroactive countervailing duties could
    be imposed.

19. The United States also notes that Canada's flexible interpretation
    of Article 20.3 stands in stark contrast to its restrictive reading
    of Article 20.1. The United States therefore takes little comfort in
    Canada's assertion that Article 20.3, which on its face does not
    contain the limitations assumed by Canada, would not be interpreted
    as precluding the imposition of retroactive duties where the amount
    of the duties has not been guaranteed by cash deposit or bond.

### Expedited Reviews

20. The United States has demonstrated that US law provides the USDOC
    with discretion under section 751 of the statute to implement the
    United States' obligations under Article 19.3. Canada nonetheless
    asks the Panel to find "for the sake of clarity" that the United
    States has failed to implement its obligations under the SCM
    Agreement. Moreover, Canada even goes so far as to ask the Panel to
    make findings that the United States must implement its obligations
    in a specific fashion, not just in this case, but "in any other
    investigation." Such a request is, to say the least, inappropriate.

21. Where a Member's laws do not mandate WTO-inconsistent action, the
    Member is accorded the presumption that it will implement its
    obligations in good faith. The United States has demonstrated that
    the laws and regulations at issue do not mandate WTO inconsistent
    action or preclude it from implementing the obligations in Article
    19.3 of the SCM Agreement. Therefore, the measures are not
    inconsistent with the SCM Agreement. No further findings or
    recommendations are necessary or appropriate.

22. Canada has also misstated the United States' position with respect
    to administrative reviews. Canada notes that the United States
    stated that Section 351.213(b) of the USDOC's regulations does not
    apply to aggregate cases. Canada fails to note, however, that the
    United States also stated that the regulation does not restrict the
    USDOC's authority to conduct reviews. More importantly, however, the
    regulations cited by Canada govern only assessment proceedings and
    Article 21.2 does not address assessment proceedings.

### Factual Support for the Preliminary Determination

23. The factual record at the time of the preliminary determination
    consists largely of the information that Canada submitted in its
    initial responses to the USDOC's questionnaire. The United States
    has provided the Panel with a great deal of that information. The
    United States therefore finds very disturbing Canada's serious and
    entirely baseless accusation that the United States has wilfully
    misrepresented certain facts concerning tenures in Alberta. The
    documents provided by the United States speak for themselves.

24. Canada also argues at length in its second submission about the
    USDOC's preliminary adjustments. Although the United States could
    refute those claims, they are not before the Panel for the simple
    reason that Canada has not challenged those adjustments in this
    proceeding. Canada's eleventh hour attempt to expand the Panel's
    terms of reference is improper and should, therefore, be rejected.

25. Moreover, Canada cites its criticisms of the adjustments in an
    attempt to bolster its argument that the use of a cross-border
    comparison is prohibited *per se*. In doing so, Canada attempts to
    give the impression that the study relied upon by Canada to support
    this argument is the only record evidence on this issue. In fact,
    the record at the time of the preliminary determination contains
    extensive evidence that the US stumpage prices in contiguous states
    provide a very reasonable and logical basis for determining the
    market value of Canadian timber.

26. Canada also accuses the United States of engaging in post hoc
    rationalizations. Canada has not, however, claimed that the
    preliminary determination is inconsistent with Article 22 of the SCM
    Agreement regarding public notice and explanation of determinations.

27. The United States would now like to turn the Panel's attention to
    certain record facts before the USDOC at the time of the preliminary
    determination. The debate over the record facts has primarily
    centered on two issues: processing requirements imposed on tenure
    holders by the provincial governments and private stumpage prices in
    Canada.

#### Processing Requirements - Independent Loggers

28. With respect to tenure processing requirements and the existence of
    so-called independent loggers, the United States would stress at the
    outset that the benefit calculation was based solely on the volume
    of Crown timber that went into the production of softwood lumber.
    Data pertaining to other tenure types, to timber from private lands
    or to timber going to the production of other types of products are
    entirely irrelevant.

29. In addition, the record at the time of the preliminary determination
    indicates that the vast majority of Crown timber obtained by lumber
    producers was provided by the provinces directly to those producers.
    The record also indicates that, due to the restrictions imposed by
    the provinces, any truly arm's-length transactions for the small
    amount of timber that a lumber producer may have acquired outside
    its own tenure are insignificant. In short, the record at the time
    of the preliminary determination does not indicate that pass-through
    is an issue, nor did Canada raise it as an issue until the day
    before the preliminary determination.

#### Private Prices

30. Canada attempts to argue around the fact that only three provinces
    provided any information concerning non-government prices for
    stumpage. The fact remains that Alberta provided a single estimated
    stumpage value for all species and quality of trees; a value that is
    calculated by the province for the purpose of settling disputes over
    damaged timber. The United States provided the Panel with a copy of
    the Resource Information Systems study, which Ontario submitted to
    the USDOC. I refer the Panel to the United States' previous comments
    on the study and to the study itself, which we believe confirm the
    validity of the USDOC's assessment. With respect to Quebec, the
    United States notes that the record evidence of suppression of
    private stumpage prices that the United States has cited is only a
    sample of the record evidence.

31. Moreover, as discussed previously, this was not the only evidence on
    the record. Other facts concerning the governments' position as the
    dominant supplier of timber are consistent with the various
    statements on the record concerning price suppression. All of the
    evidence of the dominant influence of the provincial government on
    private stumpage prices, taken together, is more than sufficient to
    support the USDOC's preliminary determination that private prices
    could not logically serve as a valid market benchmark.

### Standard of Review

32. As previous panels have recognized, what constitutes sufficient
    evidence to support a determination varies depending on the nature
    of the determination in question. At the time of the preliminary
    determination the investigation was, of course, incomplete. Canada
    appears to be asking the Panel to resolve the outstanding issues and
    render its own findings of fact. Accordingly, Canada has spent a
    great deal of time explaining the facts and statements it provided
    to the USDOC prior to the preliminary determination and even
    supplementing those facts with references to evidence submitted
    *after* the preliminary determination. In this proceeding, however,
    the preliminary record must speak for itself.

33. The question in this proceeding is whether Canada has established,
    based on the evidence before the USDOC at the time of the
    preliminary determination, that there is a breach of the cited WTO
    provisions. If there is a reasonable basis for the preliminary
    determination, as there is in this case, there can be no breach of
    the SCM Agreement. Moreover, Canada, as the complainant, bears the
    burden of establishing a *prima facie* case of a breach. Therefore,
    if the balance of evidence is inconclusive with respect to a
    particular claim, Canada must be held to have failed to establish
    that claim.

34. It is the view of the United States that an objective assessment of
    this matter, as presented here and in our prior submissions, and a
    proper application of the standard of review will lead the Panel to
    conclude that Canada has not established a breach of the cited WTO
    provisions.

# ARGUMENTS OF THE THIRD PARTIES

1.  The arguments of the third parties, the European Communities, India
    and Japan, as contained in their written submissions and oral
    statements are summarized below.

## third party written submission of the european communities

35. In its written submission, the European Communities made the
    following arguments.

### Scope of the term "good" under Article 1.1(a)(1)(iii) of the SCM Agreement 

36. The question whether stumpage is covered by the term "goods" can be
    determined at least in two different ways:

37. First, stumpage presupposes the provision of land on which the
    harvester exercises its right. As "land" is an "immovable" good,
    Article 1.1(a)(1)(iii) of the SCM Agreement may apply. The term
    "good" is commonly defined as, *inter alia*, "property or
    possessions; esp. movable property, saleable commodities,
    merchandise, wares" or "tangible or moveable personal property,
    other than money; esp., articles of trade or items of merchandise".
    The French text of the SCM Agreement uses the term "biens", which is
    defined as, *inter alia*, "domaine, possession, propriéte". Finally,
    the Spanish version refers to the word \"bienes\", which encompasses
    "inmobiliario\" as well as \"mobiliario". Therefore, from the
    ordinary meaning of the word the term "goods" can not only apply to
    "movable" but also to "immovable" objects, including "land".

38. Contextually, such an understanding is corroborated by Article
    1.1(a)(1)(iii) of the SCM Agreement*,* which refers to "(...) goods
    or services *other than general infrastructure* (...)" (emphasis
    added). According to this wording even streets, railways or
    channels - which are all immovable objects -- are to be considered
    as a "good" to the extent that they are not "general". It follows *a
    contrario* that any "individual" immovable object may also be
    covered by Article 1.1(a)(1)(iii) of the SCM Agreement*.*

39. Second, stumpage gives a right to harvest a movable "good", i.e. the
    log, but it does not provide the object as such. In the EC's view
    even a "right to a good" might be sufficient for
    Article 1.1(a)(1)(iii) of the SCM Agreement because if one were to
    deny such a possibility Members could easily circumvent the
    obligations of the Agreement. As the economic consequences would be
    the same in both instances, the SCM Agreement should apply equally
    to both cases.

40. In the light of the complex nature of stumpage, the EC cautions that
    it would be necessary to carefully assess all the rights and
    obligations related to stumpage in the light of Article
    1.1(a)(1)(iii) of the SCM Agreement. This is especially true because
    each province maintains a specific stumpage system. In this respect,
    the EC notes that all of the Canadian stumpage programmes appear to
    provide the beneficiary with the right to cut trees on certain
    "land". Furthermore, stumpage seems to be closely related to a
    defined movable good, which is the actual log to be harvested. In
    that respect, the EC finds it pertinent that, according to the main
    parties, the stumpage fee is calculated on the basis to the volume
    of the trees cut down and that applicants for stumpage are usually
    required to own a wood-processing facility.

### Determination of a "benefit" under Article 1.1(b), 14(d) of the SCM Agreement

41. The starting point for the benefit analysis under Article 14(d) of
    the SCM Agreement should be the prices in the country of provision,
    here Canada. This is not contested by the main parties.

42. The term "distortion", which is used by the United States, is not
    mentioned in Article 14(d) of the SCM Agreement as being relevant to
    the benefit analysis. The EC considers that much care should be paid
    in determining the correct benchmark for the existence and amount of
    a benefit. As Article 14(d) of the SCM Agreement does not set
    explicitly forth a hierarchy of methodologies, the Panel should
    refrain from imposing any such hierarchy.

43. Article 14(d) of the SCM Agreement requires investigating
    authorities to use domestic price information as long as these
    prices are *market*-driven and *prevailing*. The notion of market
    implies "an opportunity for buying and selling", "a place or group
    with a demand for a commodity or service or sale as controlled by
    supply and demand". Indeed, where prices are controlled or imposed
    by the government and not market-driven, i.e., not freely negotiated
    between suppliers and purchasers, such prices would not fulfil the
    key "market" criterion under Article 14(d) of the SCM Agreement. In
    that respect, the EC would agree with the United States that in case
    of a state monopoly, there would be no *market* conditions in the
    country of provision.

44. Yet, this might be a rather exceptional situation. In the case at
    hand, the United States has not shown that the price for private
    stumpage in Canada is not market-driven. The United States has not
    demonstrated that the prices paid for stumpage rights on private
    lands, which may amount to 10 -- 30 per cent of the provincial
    markets in Canada, are no longer determined by supply and demand.

45. Where the government manages the supply of natural resources from
    state owned property, it may be that the domestic industry satisfies
    additional demands from the private market or through the
    importation of additional resources. The EC fails to see why those
    domestic prices should *not* be assumed to be driven by supply and
    demand. Also, the EC does not understand why those private stumpage
    prices are not *prevailing*.

46. Thus, the mere assumption that prices on the private stumpage market
    are affected by the governmental stumpage system is not sufficient
    to establish that no domestic *market* within the meaning of Article
    14(d) of the SCM Agreement exists.

47. Regarding the consideration of world market prices in the benefit
    determination under Article 14(d) of the SCM Agreement, the EC
    suggests to distinguish two situations. First, imports at world
    market prices may form part of the domestic market conditions.
    Second, world market prices may be a last resort where no domestic
    market exists.

48. The expression "market conditions in the country of provision" in
    Article 14(d) of the SCM Agreement is sufficiently broad to allow
    the consideration of world market prices. The term "market" defined
    as "an opportunity for buying and selling" suggests that world
    market prices may be relevant if the product at hand is commercially
    available to the recipient in the country of provision.

49. The consideration of all commercially available prices is clearly
    allowed in the benefit analysis under Article 14(b) and (c) of the
    SCM Agreement which only refer to "the market" but do not contain
    any territorial restriction. The principal relevance of world market
    prices is also recognised in the benchmark for export subsidies
    defined in item (d) of the Illustrative list of export subsidies in
    Annex I of the SCM Agreement. There, the domestic market price is
    only a relevant benchmark "provided such terms or conditions are
    more favourable than those commercially available on world markets
    to their exporters".

50. A proper analysis of the "market conditions in the country of
    provision" may thus include all commercially available alternative
    sources for the recipient, including the price for imports into that
    market.

51. The EC considers that the United States did not sufficiently explain
    why prices for imports from the United States into Canada are not
    "distorted" by the Canadian stumpage schemes or by the different
    market conditions in the United States Where imports take place, the
    respective prices form part of the "prevailing market conditions in
    the country of provision", i.e., Canada, and should have been
    considered together with the price information on private stumpage.

52. If the Panel found that the US correctly dismissed all price
    information relating to the domestic market, including also the
    prices in Canada's maritime provinces, the EC takes the view that
    world market prices may serve as a subsidiary means of establishing
    the existence of a benefit.

53. As shown above, the text of Article 14(d) of the SCM Agreement does
    not exclude the recourse to world market prices as a benchmark. The
    alternative use of the cost to government standard does not
    necessarily measure the price at which the private recipient could
    have obtained the good or service in the marketplace absent the
    financial contribution. According to Appellate Body jurisprudence,
    the existence of a benefit must be measured from the perspective of
    the recipient. To serve that purpose, there is a logical preference
    for taking account of actual prices at which the recipient might
    have obtained the good, because a cost to government standard
    appears to be a less precise measure whether the recipient is better
    off.

54. Finally, the EC emphasises that price information is not the sole
    criterion to determine the prevailing market conditions in the
    country of origin. Article 14(d) of the SCM Agreement requires the
    investigating authority to assess the adequacy of the remuneration
    in relation to all factors affecting the "prevailing market
    conditions for the good in question in the country of provision".
    These include not only the price, but according to Article 14(d) of
    the SCM Agreement also "quality, availability, marketability,
    transportation and other conditions of purchase or sale".

55. A high standard of demonstration is placed on the investigating
    authority through the introductory sentence of Article 14(d) of the
    SCM Agreement. Thus, great care should be taken before rejecting
    benchmarks in the country of exportation, particularly if this
    ultimately leads to the use of the petitioner's prices in the
    country of exportation.

### The determination of a "pass-through" Benefit

56. The EC reserves its position on this claim because it is linked to
    Canada's allegation that no expedited reviews are foreseen under US
    law where the investigation has been conducted on an aggregate
    basis.

### No application of Article 20.6 of the SCM Agreement to provisional countervailing duties

57. A critical circumstances determination under Article 20.6 of the SCM
    Agreement cannot apply to a provisional countervailing duty. Apart
    from the plain language of Article 20.6 of the SCM Agreement, which
    only relates to "definitive" countervailing duties, the context as
    well as the purpose of this provision prevent any other approach.

58. Article 20.1 of the SCM Agreement provides for the general rule that
    neither provisional nor definitive duties shall be applied
    retroactively. This concept reflects a fundamental WTO principle.
    Therefore, exceptions to this rule should be stated *expressis
    verbis* in the Agreement and they should be interpreted narrowly.
    Article 20.6 of the SCM Agreement is such an exception regarding
    definitive countervailing duties. Thus, any extension of this
    provision to provisional countervailing duties by way of analogy
    would run counter to this general principle.

59. Furthermore, the retroactive application of provisional measures
    under Article 20.6 of the SCM Agreement would contradict the time
    constraints set out in Article 17.3 of the SCM Agreement. Under this
    provision provisional measures shall not be applied any earlier than
    60 days from the date of initiation of the investigation. Yet, if
    Article 20.6 of the SCM Agreement were applicable to provisional
    measures, provisional duties could be imposed 90 days before the
    application of a provisional measure, thus, even to imports that
    enter before the time of the initiation of the investigation. While
    it is true that Article 20.6 of the SCM Agreement provides exactly
    for this consequence in case of a definitive countervailing duty, it
    has also to be born in mind that Article 17.3 of the SCM Agreement
    contains a specific time frame for provisional measures. What is
    more, by its very nature provisional measures may be reversed in the
    final determination. Yet, a retroactive application of a provisional
    measure would place an additional burden on the exporter if this
    provisional duty would be reversed in the final definitive
    determination.

### Requested recommendation

60. Canada's requested recommendation would involve an element of
    retroactivity, which is contrary to the general prospective nature
    of WTO remedies.

## third party oral statement of the european communities

61. The European Communities, in its oral statement, made the following
    arguments.

### Introduction

62. In its written submission, the EC has already addressed certain
    legal issues, in particular on:

-   the interpretation of the term \"good\" under Article 1.1(a)(1)(iii)
    of the SCM Agreement;

-   the determination of a \"benefit\" in the meaning of Article 14(d)
    of the SCM Agreement;

-   the restricted application of Article 20.6 of the SCM Agreement to
    \"definitive\" countervailing duties.

    1.  In its oral statement, the EC does not intend to dwell further
        on these aspects, but rather address two equally important
        questions of the case, i.e.:

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-   Canada\'s claim on the impermissible \"pass through\" determination
    of the benefit, and

-   The scope of Article 19.3 of the SCM Agreement in view of an
    expedited review.

### A \"pass-through\" benefit determination

1.  In its first written submission, Canada takes issue with the US
    determination that the \"financial contribution\" to timber
    harvesters conferred a \"benefit\" on softwood lumber producers. In
    Canada\'s view, the United States incorrectly concluded that the
    benefit to harvesters \"passes through\" to softwood lumber
    producers. Such a determination could according to Canada only be
    made under Article 1.1(a)(1)(iv) of the SCM Agreement, which
    conditions were not fulfilled in the case at hand[^15].

#### Article 1.1(a)(1)(iv) of the SCM Agreement not the relevant benchmark for a \"pass through\" benefit determination

2.  In the EC\'s view, Canada erred in its assumption that the
    determination of a \"pass through\" benefit must be based
    exclusively on Article 1.1(a)(1)(iv) of the SCM Agreement.

3.  First, Canada\'s position conflicts with the circumstance that under
    Article 1 of the SCM Agreement the term \"financial contribution\"
    and the notion of a \"benefit\" have to be clearly distinguished.
    Article 1.1(a)(1)(iv) of the SCM Agreement is only relevant with
    regard to the \"financial contribution\", as is evidenced by the
    chapeau of Article 1.1(a)(1) of the SCM Agreement. Furthermore, in
    the case *Brazil -- Aircraft* the Appellate Body considered it as a
    \"mistake\" to \"import the notion of benefit into the definition of
    a financial contribution\"[^16].

4.  Article 1.1(a)(1)(iv) of the SCM Agreement cannot, therefore, be
    relevant for the determination of whether a \"benefit\" \"passes
    through\" from one recipient to another. The EC would underline
    that, in particular, there is no requirement of identity between the
    recipient of a \"financial contribution\" and the \"benefit\"
    thereby conferred. For instance, the case *Brazil -- Aircraft*
    involved an export credit programme where the government issued
    bonds to a financing bank. The beneficiary, and therefore, recipient
    of the benefit, however, was the aircraft manufacturer.

5.  Second, the EC notes that the purpose of Article 1.1(a)(1)(iv) of
    the SCM Agreement is to clarify under which conditions payments made
    by private bodies can be imputed to governments. Governments do not
    escape their obligations under the SCM Agreement by using a private
    entity to confer a \"financial contribution\".

6.  Yet, the case at hand differs from this scenario. The Canadian
    government does not use timber harvesters to distribute \"financial
    contributions\". Timber harvesters rather act autonomously when
    entering into contractual relationships with lumber producers.

7.  The EC, therefore, considers that Article 1.1(a)(1)(iv) of the SCM
    Agreement is not relevant in this case.

#### Determination of a \"benefit\" according to Article 1.1(b) of the SCM Agreement

8.  In the EC\'s view any \"benefit\" determination, including a case of
    an alleged \"pass through\", has to abide by the normal rules as
    laid down in Article 1.1(b) and 14 of the SCM Agreement. Therefore,
    it is essential to determine whether the downstream producer has
    received a \"benefit\" and whether a causal link between the
    \"financial contribution\" and the \"benefit\" exists.

9.  In this context, the EC would recall the jurisprudence on Article
    VI:3 of GATT 1947, which might give further guidance on this issue.
    In *United States -- Pork from Canada*, the panel explicitly stated
    that a countervailing duty may only be imposed on a downstream
    product \"if a subsidy has been determined to have been bestowed on
    the production of \[that product\]\".[^17] It further held that any
    subsidy granted to the upstream producer could only be considered to
    be bestowed on the downstream producer if this has led to a decrease
    in the level of prices for the primary product below the level that
    would be commercially available from other sources of supply.[^18]

10. The EC considers that in the case at hand, the United States appears
    not to have carried out a proper \"pass through\" analysis with
    respect to those producers operating at arm\'s length from Canadian
    harvesting companies. It has also not correctly determined the
    existence of a \"benefit\" for downstream producers under Article
    14(d) of the SCM Agreement[^19] nor established a causal linkage
    between the \"financial contribution\" and the \"benefit\".

### The scope of Article 19.3 of the SCM Agreement for an \"expedited review\"

11. Canada claims that the United States implemented incorrectly Article
    19.3 of the SCM Agreement by denying the possibility of an
    individual expedited review in case of an investigation that was
    conducted on a country-wide basis.[^20] Canada argues that Article
    19.3 of the SCM Agreement applies also to provisional measures by
    virtue of Article 17.5 of the SCM Agreement.[^21]

12. Article 19.3 second sentence of the SCM Agreement refers only to a
    \"definitive countervailing duty\". Yet, as Article 17.5 of the SCM
    Agreement provides that \"the *relevant* provisions of Article 19
    shall be followed in the application of provisional measures\"
    (emphasis added) the key issue before the Panel is to determine
    whether Article 19.3 second sentence of the SCM Agreement is
    pertinent.

13. In the EC\'s view, Article 19.3 second sentence of the SCM Agreement
    does not apply to provisional countervailing duties. The EC basis
    its conclusion on the following reasons:

14. First, the plain language of Article 19.3 second sentence of the SCM
    Agreement refers, *expressis verbis*, only to a \"definitive\"
    countervailing duty. This restriction is all the more significant as
    Article 19 of the SCM Agreement elsewhere uses the broader notion of
    \"countervailing duties\" without any further indication whether
    this encompasses \"provisional\" as well as \"definitive\" duties.
    The explicit limitation in Article 19.3 therefore strongly indicates
    that Article 19.3 second sentence of the SCM Agreement applies only
    to \"definitive\" countervailing duties and cannot be one of the
    \"relevant provisions\" under Article 17.5 of the SCM Agreement.

15. Secondly, the predecessor to Article 19.3 of the SCM Agreemen6t,
    Article 4.3 of the Tokyo Round Subsidies Agreement, did not mention
    the requirement of expedited review. Article 5.4 of the Tokyo Round
    Subsidies Agreement, which is the predecessor to Article 17.5 of the
    SCM Agreement, could therefore not refer to such an obligation
    simply because it did not exist. To restrict Article 19.3 second
    sentence of the SCM Agreement to \"definitive\" countervailing
    duties (as the language indicates) would thus be in line with the
    legal situation, which existed already under the Tokyo Round
    Subsidies Agreement. Indeed, if the drafters of the SCM Agreement
    had intended to broaden the scope of Article 17.5 one would have
    expected to do so explicitly.

16. Finally, the EC considers that the restriction of an expedited
    review to \"definitive countervailing duties\" is also justified in
    view of the specific nature of a provisional measure. In fact, every
    provisional measure is by itself subject to a review because the
    investigating authorities will always have to determine whether or
    not they impose a definitive countervailing duty. In this respect,
    the EC notes that Article 17.4 of the SCM Agreement limits the
    application of a provisional measure to a maximum of four months.
    Thus, extending Article 19.3 second sentence of the SCM Agreement to
    provisional measures would place a heavy burden on the investigating
    authorities as they were at the same time obliged to complete the
    normal countervailing duty investigation.

### Conclusion

17. To sum up, the EC considers that

-   the determination of a \"pass through\" benefit has to establish,
    first, a benefit within the meaning of Article 14(d) of the SCM
    Agreement and, second, a causal link between the \"financial
    contribution\" and the \"benefit\".

-   Article 19.3 second sentence of the SCM Agreement does not apply to
    \"provisional\" countervailing duties.

## third party oral statement of india

1.  India did not make a written submission. In its oral statement,
    India made the following arguments.

2.  This dispute raises several issues of systemic interest. One such
    issue is whether the SCM Agreement permits the use of
    \"cross-border\" benchmarks to find and measure \"benefit\".

3.  In this dispute, the USDOC sought to establish that Canadian
    stumpage practices \"conferred\" a benefit by comparing stumpage
    charges levied in Canada with stumpage prices levied in certain
    parts of the United States, on the basis that such prices are
    \"commercially available world market prices...\" to softwood lumber
    producers in Canada. Finding the US stumpage prices to be higher
    than the charges levied in Canada, the USDOC concluded that Canadian
    stumpage charges conferred a benefit. The USDOC thus derived the
    \"stumpage subsidy\" from the comparisons of stumpage charges in
    Canada and cross-border prices for stumpage in the United States.

4.  India does not consider that the SCM Agreement permits such
    comparison.

5.  Article 1.1 of the SCM Agreement provides that a subsidy exists
    where there is a financial contribution by a government and \"a
    benefit is thereby conferred\". The Appellate Body considered the
    meaning of \"benefit\" in Article 1 of the SCM Agreement in the
    dispute, *Canada -- Aircraft* (DS70). According to the Appellate
    Body, \"the word \'benefit\', as used in Article 1.1(b) implies some
    kind of comparison. This must be so, for there can be no \'benefit\'
    to the recipient unless the \'financial contribution\' makes the
    recipient \'better off\' than it would otherwise have been, absent
    that contribution. In our view, the marketplace provides an
    appropriate basis for comparison in determining whether a
    \'benefit\' has been \'conferred\', because the trade-distorting
    potential of a \'financial contribution\' can be identified by
    determining whether the recipient has received a \'financial
    contribution\' on terms more favourable than those available to the
    recipient in the market\".[^22]

6.  In the case of a government provision of goods, the question is
    therefore whether the purchaser of a good from the government is
    \"better off\" than other purchasers who buy the same good from
    other sellers in the country subject to the investigation. This is
    confirmed by Article 14(d) of the SCM Agreement, which sets out
    guidelines to calculate the amount of a subsidy based on a \"benefit
    to the recipient\" test in cases of an alleged government provision
    of goods. It provides that:

\"(d) the provision of goods or services or purchase of goods by a
government shall not be considered as conferring a benefit unless the
provision is made for less than adequate remuneration, or the purchase
is made for more than adequate remuneration. The adequacy of
remuneration shall be determined *in relation to prevailing market
conditions* for the good or service in question *in the country of
provision or purchase* (including price, quality, availability,
marketability, transportation and other conditions of purchase or
sale)\". (Emphasis added.)

7.  The words or Article 14(d) are clear and unambiguous. The expression
    \"in the country of provision or purchase\" means \"in the country
    of provision or purchase\". It does not mean prevailing market
    conditions in *some other country*. Similarly, Article 14(d) does
    not allow adequacy to be determined as against market conditions
    *internationally*. We agree with Canada that nothing in the text,
    context, object and purpose of Article 14(d) of the SCM Agreement
    permits reading \"in\" as anything other than \"in\"; \"in\"
    manifestly does not mean \"out\"; \"in the country\" does not admit
    of \"cross-border\" analysis. Therefore, it is not open to an
    investigating authority to look outside the country of provision.

8.  For the purposes of Part V of the SCM Agreement, the proper
    benchmark in a provision of goods context is therefore the home
    market price of a good, and not its price in some other market. A
    cross-border analysis using transactions in another country is thus
    inconsistent with Articles 1 and 14 as interpreted by the Appellate
    Body, and viewed in context and in the light of the object and
    purpose of the SCM Agreement.

## Third party written submission of japan

9.  In its third party written submission, Japan made the following
    arguments. Japan did not make an oral statement.

### Introduction

10. A standing timber price, which is included in log production cost,
    generally forms a part of production cost of lumber. Assuming that
    the cost of processing logs into lumber is fixed, when a standing
    timber price gets higher, the production cost of lumber using that
    standing timber as raw material would rise, and it works on the
    direction where production of lumber is discouraged. On the
    contrary, when the standing timber price is set significantly low,
    the production cost of lumber would also remain low, and it works on
    the direction that production of lumber is encourage. It can also
    lead to lowering a price of lumber by producers.

11. The issue before this Panel, however, is not the adequacy of
    Canadian lumber export pricing itself. Issues presented in this
    proceeding are whether the United States may countervail the
    stumpage programmes of Canadian provinces in accordance with the
    provisions of the SCM Agreement and Article VI:3 of GATT 1994.

12. Japan has no intention to argue whether assessment of underlying
    facts in the specific circumstances of this case is consistent with
    the SCM Agreement. This case, however, raises certain important
    systemic issues. In the interests of the sound interpretation of the
    SCM Agreement, Japan respectfully submits the following comments.

### Arguments

#### Indirect Subsidies

13. According to Canada, provincial stumpage programmes are granted to
    timber harvesters, and timber is further processed by downstream
    producers in Canada into lumber, some of which in turn are exported
    to the United States.

14. Article VI:3 of GATT 1994 and footnote 36 of the SCM Agreement
    provide that an importing Member may impose countervailing duties on
    a product for the purpose of offsetting any subsidy granted (or
    bestowed), \"directly or *indirectly, on* the manufacture,
    production or export of\" such product. (Emphasis added.)

15. Article VI:3 and footnote 36 also provide that in order to be
    countervailable a subsidy does not have to be granted directly on
    manufacture of a product. Such subsidy may be granted on exported
    products \"indirectly\". A subsidy may be countervailable even if
    the subsidy is granted on manufacture of exported products through
    something else. For example, a subsidy may be countervailable when
    the subsidy is granted to the raw material supplier upon its sales
    of its raw material to producers of an exported product, if a
    benefit accrues to such producers by the subsidy. But it should be
    noted that the term \"indirectly\" may not be construed beyond its
    meaning.

16. Japan respectfully requests that this Panel make its finding on the
    countervailability of the Canadian stumpage programme based on our
    consideration stated above.

#### Existence of a financial contribution by a government

17. Canada claims that stumpage programmes are not governmental
    provision of \"goods or services other than general infrastructure\"
    in Article 1.1(a)(1)(iii) of the SCM Agreement, and thus the
    provincial governments have not provided \"a financial
    contribution\" under Article 1.1(a)(1) of the SCM Agreement. Canada
    further claims that the stumpage is a right to exploit an *in situ*
    natural resource, and therefore, this right is not a good or service
    within the meaning of Article 1.1(a)(1)(iii) of the SCM
    Agreement[^23].

18. Canada explained in paragraph 33 of its first submission that timber
    harvesters are given the right to harvest standing timber under
    stumpage programmes. These harvesters pay actual stumpage charges to
    provincial governments not when they acquire and maintain the right
    to harvest standing timber, but when they cut and acquire the
    timber. The amount of consideration is decided by multiplying the
    wood volume by unit prices defined by the provincial government.
    Although stumpage could be a \"right\" instead of \"good\" itself as
    Canada mentioned, a person given such a right will acquire the
    timber after all.

19. Japan respectfully requests that this Panel provide its finding of
    whether this stumpage should be distinguished from governmental
    provision of \"goods or services other than general
    infrastructure\".

#### Benefits conferred

20. The other question that Japan wishes to address in this submission
    is how \"financial contribution\" of a good should be adequately
    measured. This question is equivalent to whether the provision of a
    good is made for less than adequate remuneration \"in relation to
    *prevailing market conditions* for the good or service in question
    *in the country of provision or purchase* (including price quality,
    availability, marketability, transportation and other conditions of
    purchase or sale)\" (emphasis added) under Article 14(d) of the SCM
    Agreement.

21. The USDOC found in its preliminary determination that the financial
    benefit conferred by the Canadian provincial governments be valued
    by comparing the stumpage charge with stumpage prices in the United
    States with comparable forests[^24]. Canada claims that this
    \"cross-border\" analysis is inconsistent with Article 14(d) of the
    SCM Agreement because the Article does not mean that adequacy can be
    based on prevailing market conditions in some other country or
    internationally[^25].

22. In Japan\'s view, this Article means that the adequacy of
    remuneration be based, in principle, on prevailing market conditions
    in the territory of the exporting Member. Firstly, the text of
    Article 14(d) does not explicitly permit \"cross-border\" analysis.
    Secondly, the interpretation by the United States of Article 14(d)
    would create incongruous results. When the interpretation by the
    United States is strictly followed, in order to avoid granting a
    subsidy, a Member would be required to review prices in all foreign
    markets, to which a product would be exported, when the Member sells
    or purchases the product. This interpretation imposes an
    unreasonable burden on Members.

23. However, the question whether \"cross-border\" analysis has no
    ground for justification under any circumstances, or if it is ever
    permissible, and what are the conditions for a Member to use such an
    analysis, still remains. Japan hopes this question would be properly
    addressed in this Panels findings.

# interim review

1.  On 19 August 2002, the United States submitted a written request for
    review by the Panel of particular aspects of the interim report
    issued on 26 July 2002. Canada did not provide any comments on the
    interim report. Canada commented on the United States\' request for
    interim review on 26 August 2002. Neither party requested an
    additional meeting with the Panel.

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24. We have reviewed the comments presented by the United States and the
    reaction thereto by Canada and have finalized our report. We note
    that in response to the comments received, the Panel corrected
    typographical and other clerical errors throughout the interim
    report.

25. The United States requested changes to the last sentence of
    paragraph 7.59 of the interim report. The United States posited that
    the Panel should have declined to consider the issue of adjustments
    to the benchmark price used by the USDOC, as this issue did not form
    part of the Panel\'s terms of reference. Canada urged the Panel to
    reject the United States\' suggestion. Canada argued that its claim
    relating to the USDOC\'s determination and measurement of benefit
    was sufficiently identified in its request for establishment of a
    panel. According to Canada, the US was confusing \"claims\" and
    \"legal arguments\". We considered that paragraph 7.59 of the
    interim report referred to certain [arguments]{.underline} which had
    been developed by Canada before us as part of its
    [claim]{.underline} relating to the measurement of benefit by the
    USDOC. In particular, we were of the view that Canada\'s arguments
    concerning the appropriateness of the adjustments used by the USDOC
    to calculate the benchmark stumpage price formed part of Canada\'s
    claim concerning the benchmark for measuring the benefit, as set
    forth in its panel request. Canada developed a number of arguments
    under this claim, and as we had already found against the US on this
    claim on the basis of other more principal arguments, we saw no
    reason to address this additional Canadian argument in support of
    its claim. We have adjusted the drafting of paragraph 7.59 to
    clarify this point.

26. The United States further took issue with the Panel\'s statement in
    the first sentence of paragraph 7.74. According to the US, it had
    not conceded, as the Panel suggested, that in a certain number of
    cases the lumber producers were independent from the tenure
    harvesters and may have had to pay an arm\'s-length price to obtain
    the allegedly subsidized logs from the harvesters. The US also
    commented that the last sentence of the preceding paragraph 7.73
    referred to arm\'s-length purchases of timber from private lands or
    from US suppliers, not purchases of Crown timber. The US therefore
    requested the Panel to revise the first sentence of paragraph 7.74.
    Canada commented that in its view the Panel\'s factual conclusion in
    paragraph 7.74 was correct and that the US was simply disagreeing
    with the Panel\'s appreciation of the evidence on the record.
    Moreover, Canada argued that the passage quoted by the Panel in the
    last sentence of paragraph 7.73 also referred to lumber producers
    purchasing logs at arm\'s-length in addition to lumber producers
    purchasing logs from private lands and US suppliers. We considered
    that the facts set out in paragraph 7.73, which had been confirmed
    by the US in its answers to questions from the Panel, were not
    contested. According to these uncontested facts, a certain
    percentage of Crown timber harvest is done by independent harvesters
    (i.e. harvesters that are not related to lumber producers). As the
    evidence on the record showed, this percentage differed from
    province to province. In the first sentence of paragraph 7.74, we
    only summarized that the factual information provided to us by the
    US in the course of the proceedings showed that in a certain number
    of cases, the lumber producers were independent from the tenure
    harvesters and may have had to pay an arm\'s-length price to obtain
    the logs from the harvesters. We acknowledge that the US has on
    various occasions during the proceedings argued that the evidence
    does not support Canada\'s claim that there is a significant volume
    of Crown timber that the provincial governments provide to truly
    independent loggers who then sell the timber at arm\'s-length to the
    lumber mills. However, as paragraph 7.74 did not state that the US
    conceded that there was a significant number of such transactions
    nor that the US conceded that these transactions were \"actual\"
    arm\'s-length transactions between \"truly\" independent harvesters,
    we saw no reason to amend the text of paragraph 7.74 as suggested by
    the US.

27. The United States finally requested a change to footnote 146
    regarding the US position. We decided to amend this sentence taking
    into account the comment made.

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I.  

# FINDINGS

1.  Canada is challenging the imposition of provisional measures by the
    United States on imports of softwood lumber from Canada on the basis
    of the United States Department of Commerce (USDOC) Preliminary
    Countervailing Duty Determination (hereafter: the \"Preliminary
    Determination\") and the USDOC Preliminary Determination of Critical
    Circumstances (hereafter: the \"Preliminary Critical Circumstances
    Determination\"). In addition, Canada is challenging certain
    provisions of the US laws and regulations concerning expedited and
    administrative reviews. We will discuss these three sets of claims
    in the order in which they were presented to us by Canada. We will
    therefore first address the first set of claims which relates to the
    preliminary findings and determinations of the USDOC concerning
    subsidization of softwood lumber from Canada as set out in the USDOC
    Preliminary Determination. We will then discuss the second set of
    claims which concerns the USDOC\'s preliminary determination of the
    existence of critical circumstances which formed the basis for the
    retroactive application of provisional measures in this case.
    Finally, we will examine the third and final set of claims which
    refers to the consistency of the US legislation with the WTO
    Agreement, in particular, US countervailing duty laws and
    regulations on expedited and administrative reviews as well as the
    application of the legislation in the challenged investigation of
    softwood lumber from Canada.

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1.  As a preliminary matter, we note that in the course of these
    proceedings, we decided to accept for consideration one unsolicited
    *amicus curiae* brief from a Canadian non-governmental organization,
    the *Interior Alliance*. This brief was submitted to us prior to the
    first substantive meeting of the Panel with the parties and the
    parties and third parties were given an opportunity to comment on
    this *amicus curiae* brief. After this meeting, we received three
    additional unsolicited *amicus curiae* briefs. For reasons relating
    to the timing of these submissions, we decided not to accept any of
    these later briefs.

## CLAIMS RELATING TO THE PRELIMINARY COUNTERVAILING DUTY DETERMINATION

### Introduction

2.  Canada is challenging the USDOC\'s Preliminary Countervailing Duty
    Determination with respect to certain softwood lumber from Canada of
    9 August 2001. Canada argues that the USDOC preliminary findings and
    determinations and the imposition of provisional measures by the US
    are inconsistent with its obligations under the Agreement on
    Subsidies and Countervailing Measures (\"SCM Agreement\") because:

    a.  the Canadian \"stumpage\"[^26] practices in question are not
        "subsidies" as defined in Article 1 of the SCM Agreement.
        Specifically:

-   "stumpage" is not a "financial contribution" within the meaning of
    Article 1.1(a) of the SCM Agreement*,*

-   even if stumpage were a financial contribution, the USDOC\'s
    determination and measurement of a "benefit" is based on a
    "cross-border" methodology that is not permitted by the SCM
    Agreement, and

-   even if a cross-border methodology were permitted, the USDOC\'s
    determination assumes holders of harvesting rights pass through an
    alleged benefit to softwood lumber producers, without any basis for
    the assumption;

    a.  the USDOC impermissibly inflated the alleged subsidy rate by
        calculating a country-wide rate based on only a portion of
        Canadian production and exports of softwood lumber[^27], and

    b.  the USDOC impermissibly inflated the provisional measures
        imposed by applying them on an entered value basis after having
        calculated the subsidy rate using first mill value.

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    1.  Canada therefore requests that the Panel find that the
        Preliminary Countervailing Duty Determination of the United
        States in the softwood lumber case violates Articles 10, 14,
        17.1, 17.2, 17.5, 19.4 and 32.1 of SCM Agreement and Article
        VI:3 of the GATT 1994.

    2.  The United States asserts that the USDOC correctly determined
        the existence of a subsidy to Canadian softwood lumber producers
        in accordance with the SCM Agreement as it found that the
        Canadian provincial stumpage programmes conferred a benefit on
        Canadian softwood lumber producers. The US therefore requests
        the Panel to reject all of Canada\'s claims relating to the
        Preliminary Countervailing Duty Determination.

### Claim 1: inconsistent finding of the existence of a financial contribution.

#### Arguments of the parties

##### Canada

3.  Canada considers that the USDOC erred in determining that
    \"stumpage\" is a financial contribution in the form of the
    provision of a good by the government.[^28] Canada argues that the
    practice of stumpage, which it views as a right to exploit an in
    situ natural resource, or more specifically, the right to harvest
    standing timber, is not a financial contribution. According to
    Canada, it is a form of a property right which cannot be equated to
    the provision of a good or a service by the government as required
    by Article 1.1(a)(1)(iii) SCM Agreement.[^29] In Canada\'s view,
    rights such as *profits à prendre* and licences (two different forms
    of stumpage) are not included within the scope of the
    Agreement.[^30] In Canada\'s view, the ordinary meaning of a
    \"good\" in the SCM and GATT/WTO context is tangible or movable
    personal property; and as an intangible real property right,
    stumpage is thus not a good. Canada also refers to the negotiating
    history of Article 14 SCM Agreement in support of its argument that
    harvesting rights like stumpage are not \"goods\".[^31] Canada
    submits that even if one were to consider that in fact it is
    standing timber, rather than harvesting rights, which is made
    available through the tenure or licence agreements, standing timber
    is not a \"good\" in the sense of Article 1.1(a)(1)(iii) SCM
    Agreement. Furthermore, in Canada\'s view, the term \"goods\" in
    Article 1.1(a)(1)(iii) SCM Agreement has the same meaning and scope
    as \"products\" used elsewhere in the SCM Agreement and the WTO
    Agreement, in particular Article II of GATT 1994, i.e. tradeable
    items with an actual or potential customs classification. According
    to Canada, standing timber which cannot be traded across borders is,
    for this reason as well, not a \"good\" in the sense of
    Article 1.1(a)(1)(iii) SCM Agreement.

4.  In addition, Canada submits, to \"provide goods\" implies a positive
    action on the part of the government in respect of the goods
    themselves, and not any other action that merely allows someone to
    obtain goods or which has the same economic effect as the government
    action which consists of providing goods.[^32] Canada asserts that
    the United States\' broad interpretation of the word \"provide\" as
    \"to make available\" is untenable, for it offers an interpretation
    of the term \"provide\" that makes little sense in context and that
    is not consistent with the way that term is used throughout the WTO
    Agreement. Throughout the WTO Agreement, the word \"provide\" is
    used to indicate the giving of something, rather than more generally
    enabling someone to obtain or produce something. According to
    Canada, the more common meaning of \"provide\" is \"supply\".[^33]
    Canada argues that, given the use of the word \"purchase\" as an
    opposite of \"provide\" in subparagraph (iii), this sense of
    provide, implying to give or to sell, is far more contextually
    logical than the general term \"make available\". Canada further
    asserts that the proposed United States interpretation encompasses a
    range of government actions that go far beyond those contemplated
    under Article 1.1(a)(1)(iii) SCM Agreement. According to Canada, to
    \"*make available* services\", for example, would include in the US
    interpretation any circumstance in which a government action makes
    possible the receipt of services. Canada submits that the financial
    contribution test is not concerned with the *consequences* of a
    government action, however, but with those actions themselves.[^34]

5.  Canada submits therefore that the USDOC Preliminary Determination
    that the right to harvest standing timber (stumpage) constitutes a
    \"financial contribution\" is inconsistent with Article 1.1(a) SCM
    Agreement and as a result violates Articles 10, 17.1(b), 17.5, 19.4
    and 32.1 of the SCM Agreement and Article VI:3 of GATT 1994.

##### United States

6.  The United States is of the view that the Canadian provincial
    stumpage programmes provide a financial contribution, in the form of
    a good, standing timber, to the softwood lumber producers in Canada.
    The United States argues that the ordinary meaning of a \"good\"
    includes an \"identified thing to be severed from real
    property\".[^35] According to the United States, Canada is elevating
    form over substance when it argues that stumpage only confers the
    *right to harvest* timber. In the view of the United States, there
    is no meaningful distinction between providing standing timber as
    such or providing the right to harvest standing timber as the clear
    purpose of the stumpage programmes is to provide timber to Canadian
    mills that make lumber or wood pulp. According to the United States,
    the ordinary meaning of \"to provide\", the verb used in Article
    1.1(a)(1)(iii) SCM Agreement, is \"to make available\".[^36] In the
    US view, Canada is certainly making the standing timber available to
    the loggers by providing the right to harvest the timber standing on
    Crown land.

7.  The US argues that there is no \"natural resources\" exception in
    the SCM Agreement, and that the provision of a good, like timber,
    thus constitutes a financial contribution in the sense of
    Article 1.1(a)(1)(iii) SCM Agreement. The only exception provided
    for in the Article is for general infrastructure. The United States
    asserts that the context, object and purpose of Article 1 SCM
    Agreement confirm that if the government provides a good in the form
    of a natural resource which constitutes the major input for a
    product, this practice is covered by Article 1 SCM Agreement as it
    is a practice through which the government has the ability to
    provide an advantage that would not be available on the market.
    According to the US, the \"negotiating history\" to which Canada
    refers in support of its argument that harvesting rights are
    excluded from the scope of Article 1 SCM Agreement is an informal
    discussion paper which does not shed light on the consensus view.
    The United States therefore requests the Panel to reject Canada\'s
    claim concerning the USDOC\'s Preliminary Determination of the
    existence of a financial contribution.

#### Analysis

8.  Canada claims that the USDOC Preliminary Determination that the
    Canadian provincial stumpage programmes constitute a financial
    contribution in the form of the provision of a good is inconsistent
    with Article 1.1 (a) SCM Agreement. Article 1.1 SCM Agreement
    provides as follows:

*Article 1*

*Definition of a Subsidy*

"1.1 For the purpose of this Agreement, a subsidy shall be deemed to
exist if:

> (a)(1) there is **a financial contribution by a government** or any
> public body within the territory of a Member (referred to in this
> Agreement as \"government\"), i.e. where:
>
> \(i\) a government practice involves a direct transfer of funds (e.g.
> grants, loans, and equity infusion), potential direct transfers of
> funds or liabilities (e.g. loan guarantees);
>
> \(ii\) government revenue that is otherwise due is foregone or not
> collected (e.g. fiscal incentives such as tax credits);
>
> **(iii) a government provides goods or services other than general
> infrastructure, or purchases goods;**
>
> \(iv\) a government makes payments to a funding mechanism, or entrusts
> or directs a private body to carry out one or more of the type of
> functions illustrated in (i) to (iii) above which would normally be
> vested in the government and the practice, in no real sense, differs
> from practices normally followed by governments;

or

> (a)(2) there is any form of income or price support in the sense of
> Article XVI of GATT 1994;

and

> \(b\) a **benefit** is thereby conferred." (emphasis added)

9.  Article 1.1 SCM Agreement defines a subsidy as a financial
    contribution by the government which confers a benefit. An
    investigating authority, in a countervailing duty (CVD)
    investigation will thus as a first step need to establish the
    existence of a financial contribution by the government.
    Subparagraph (iii) of Article 1.1(a)(1) SCM Agreement states that a
    financial contribution exists if the government provides \"goods or
    services other than general infrastructure\". In its Preliminary
    Determination, the USDOC stated that :

\"We preliminarily determine that the provision of stumpage by the
provincial governments constitutes the provision of a good or service
under section 771(5)(D)(iii) of the \[*Tariff Act of 1930*\]. Thus, we
preliminarily determine that the provincial governments have provided a
financial contribution as defined under section 771(5)(D) of the Act to
Canadian softwood lumber producers.\"[^37]

10. In order to determine whether the USDOC correctly concluded that
    \"stumpage\" by the government constitutes the \"provision\" to the
    Canadian softwood lumber industry of a \"good\", in the sense of the
    SCM Agreement, we consider that it is important to first clarify the
    exact meaning and operation of the Canadian provincial stumpage
    programmes in question. We will then examine whether these stumpage
    programmes constitute the \"provision of a good\" in the sense of
    Article 1.1(a)(1)(iii) SCM Agreement. We recall that in the
    interpretation of this provision we are guided by the customary
    rules of interpretation of public international law, as laid down in
    Articles 31 and 32 of the Vienna Convention on the Law of Treaties.
    Article 31 of the Vienna Convention on the Law of Treaties provides
    that \"a treaty shall be interpreted in good faith in accordance
    with the ordinary meaning to be given to the terms of the treaty in
    their context and in light of its object and purpose\".

\(i\) [How do the stumpage programmes operate]{.underline}?

11. On the basis of the information and documents on the record of the
    investigation concerning the operation of stumpage programmes,
    including the forest legislation and various timber sales agreements
    submitted by Canada[^38], and as clarified by the parties before us,
    we understand that most forest land in the covered provinces[^39] of
    Canada is Crown land[^40] and that interested persons who want to
    harvest on such Crown land have to enter into tenure or licensing
    agreements with the provincial governments.[^41] In general, such
    tenure and licensing agreements, the terms of which may vary
    slightly from province to province, allow the licensee or tenure
    holder (hereafter referred to as the \"tenure holder\") to harvest
    the standing timber on a particular parcel of Crown land. In return,
    the tenure holders commit themselves to a number of obligations,
    including at a minimum (i) service and maintenance obligations, such
    as road-building and maintenance, and protection against fire,
    disease, and insects; (ii) implementation of forestry management and
    conservation measures, including silviculture and reforestation;
    and (iii) payment of a volumetric "stumpage charge " that is levied
    upon the exercise of the harvesting right.

12. The Canadian provinces as the owners of the land and the trees
    standing thereon typically employ these tenure arrangements or
    licenses to confer rights to harvest standing timber. Canada agrees
    that if any company wants to log trees standing on Crown land for
    *inter alia* further processing or sale, it will have to enter into
    tenure or license stumpage agreements with the provincial
    government. Canada further acknowledges that the tenure agreements
    contain various processing requirements as well as certain minimum
    and maximum cut requirements. For example, tenure agreements in
    Alberta, Ontario and Québec contain maximum cut limits. According to
    Canada, Ontario and Québec have no minimum cut requirements. Canada
    further asserts that some of Alberta's tenures also contain minimum
    cut requirements, but that they are not enforced. In British
    Columbia, licensees under certain designated types of tenures are
    subject to minimum cut requirements, which require the harvester to
    harvest plus or minus 50 per cent of the annual allowable cut for
    that licensee in any given year, and plus or minus 10 per cent over
    a five year period.[^42]

\(ii\) [Do stumpage programmes provide standing timber]{.underline}?

13. Canada seems to suggest that a distinction should be made between a
    government extending a right to take the trees from its land, and
    that government selling the trees as such. In our view, however, and
    according to the record, the trees which grow on the publicly owned
    Crown land are government owned.[^43] We consider that there are a
    number of ways in which the government may be providing timber, by
    auctioning off the trees as such, by entering into short term tenure
    agreements or by concluding long term tenure or licence agreements.
    The conclusion of tenure or licence agreements is in our view one
    way in which the government supplies timber. When the government
    enters into a contract with a harvesting company whereby it allows
    this company to exercise this right and to cut the trees, it is in
    fact supplying trees, standing timber, to such companies.[^44] The
    fact that the main purpose of the stumpage programmes is to provide
    trees to harvesting companies is confirmed by the various processing
    requirements as well as the minimum and maximum cut requirements in
    most stumpage agreements.[^45] In fact, if a company does not cut
    and process a certain number of trees for a determined period of
    time, it risks losing the licence. We wish to note that we do not
    deny that the Canadian provinces may well be pursuing broader
    forestry management policy goals in addition to ensuring the
    appropriate exploitation of the forestry resources when entering
    into stumpage arrangements with the harvesting companies. Indeed, it
    is normal that when a government makes a financial contribution,
    including where it provides a subsidy, that there is a mix of policy
    objectives. However, the fact of the matter remains that, from the
    harvesting company\'s point of view, the only reason to enter into
    such tenure or licensing agreements is to cut trees for processing
    or sale. As Canada acknowledged, the main interest of tenure holders
    is the end-product of the harvest.[^46] Ultimately, and in this
    context, from the tenure holder\'s point of view, there is no
    difference between receiving from the government the right to
    harvest standing timber and the actual supply by the government of
    standing timber through the tenure holder\'s exercise of this right.

14. Canada argues that even if one were to accept that the issuance of
    harvesting rights by the provincial governments is equal to the
    provinces making standing timber available to the loggers, this
    still does not qualify as the \"provision\" of a good. According to
    Canada, \"to provide\" means \"to give\" or \"to sell\" and not just
    \"to make available\". We note that both parties agree that the
    ordinary meaning of the verb \"to provide\" is \"to supply\".[^47]
    Canada is right that the provinces do not provide logs to lumber
    producers when they make it possible for timber harvesters to
    harvest trees.[^48] In our view, however, the issue is whether the
    provinces supply standing timber, not logs, to the tenure holders
    who harvest the trees and turn the timber into logs. In our view the
    only way to supply *standing* timber to harvesting companies is by
    allowing them to harvest the timber. We consider that this is
    precisely what the stumpage agreements do. We therefore find that
    standing timber is provided to the tenure holders through the
    provincial stumpage programmes.

15. In sum, and in the context of Article 1.1(a) (1)(iii) SCM Agreement,
    we are of the view that where a government allows the exercise of
    harvesting rights, it is providing standing timber to the harvesting
    companies.[^49] From the perspective of the harvesting company the
    situation is clear: most forest land is Crown land, and if the
    company wants to cut the trees for processing or sale, it will need
    to enter into a stumpage contract with the provincial government,
    under which it will have to take on a number of obligations in
    addition to paying a stumpage fee for the trees actually harvested.
    We thus view the service and maintenance obligations, the
    obligations to undertake various forestry management, conservation
    and other measures, combined with the stumpage fees required by the
    stumpage agreements, as the price the tenure holder has to pay for
    obtaining and exercising its harvesting rights.

\(iii\) [Is standing timber a \"good]{.underline}\"?

16. We recall that Article 1.1 (a) (1) (iii) SCM Agreement provides
    that:

"1.1 For the purpose of this Agreement, a subsidy shall be deemed to
exist if:

> (a)(1) there is **a financial contribution by a government** or any
> public body within the territory of a Member (referred to in this
> Agreement as \"government\"), i.e. where: ...
>
> **(iii) a government provides goods or services other than general
> infrastructure, or purchases goods;**

17. We concluded above that when a provincial government enters into
    tenure or licence stumpage agreements, it is in fact \"providing\"
    the trees that stand on Crown land. The question we will need to
    answer next is whether the USDOC correctly determined that the
    supply of standing timber through the provincial stumpage programmes
    constitutes the provision of a good under Article 1.1(a)(1)(iii) SCM
    Agreement, in short, whether standing timber is a \"good\" in the
    sense of this provision.[^50]

18. The term \"goods\" has been defined in many ways in various
    dictionaries. Black\'s Law Dictionary, for example, defines
    \"goods\" as \"tangible or movable personal property other than
    money; especially articles of trade or items of merchandise ‹goods
    and services›\".[^51] Black\'s Law Dictionary adds that \"\[g\]oods
    means all things, including specially manufactured goods, that are
    movable at the time of identification to a contract for sale and
    future goods. The term includes the unborn young of animals, growing
    crops, and other identified things to be severed from real property
    ...\".[^52]

19. Other dictionaries define a \"good\" as \"personal property having
    intrinsic value but \[usually\] excluding money, securities, and
    negotiable instruments.\"[^53] The ordinary meaning of the word
    \"goods\" is thus very broad and in and of itself does not seem to
    place any limits on the kinds of \"tangible or movable personal
    property, other than money\" that could be considered a \"good\".

20. In Article 1.1(a)(1)(iii) SCM Agreement, \"goods\" is used in the
    context of \"goods or services other than general infrastructure\".
    We consider that the context in which the term \"goods\" is used in
    Article 1.1(a)(1)(iii) SCM Agreement confirms the broad ordinary
    meaning of \"goods\" as tangible or movable personal property, other
    than money. In our view, the sentence \"goods or services other than
    general infrastructure\" refers to a very broad spectrum of things a
    government may provide. The fact that the only exception provided
    for in subparagraph (iii) is general infrastructure reinforces our
    view concerning the unqualified meaning of the term goods as used in
    this provision.

21. The object and purpose of Article 1.1 SCM Agreement is to provide a
    definition of a subsidy for the purposes of the SCM Agreement.
    Article 1.1(a)(1) SCM Agreement provides that the first element of a
    subsidy is a \"financial contribution by the government\".
    Subparagraphs (i) through (iv) then explain that a financial
    contribution can exist in a wide variety of circumstances including,
    of course, the direct transfer of funds. But subparagraphs (ii)
    and (iii) show that a financial contribution will also exist if the
    government does not collect the revenue which it is entitled to or
    when it gives something or does something for an enterprise or
    purchases something from an enterprise or a group of enterprises.
    Subparagraph (iv) ensures that government directed transfers
    effected through a private entity do not thereby cease to be
    government transfers.[^54] In other words, Article 1.1(a)(1) SCM
    Agreement provides that a *financial* contribution can exist not
    only when there is an act or an omission involving the transfer of
    money, but also in case goods or certain services are provided by
    the government. In short, Article 1.1(a)(1)(iii) SCM Agreement in
    its context and in light of its object and purpose establishes that
    a *financial* contribution also exists in case *goods* or *services*
    are provided which can be valued and which represent a value to the
    beneficiary in question. The word \"goods\" in this context of
    \"goods or services\" is intended to ensure that the term financial
    contribution is not interpreted to mean only a money-transferring
    action, but encompasses as well an in-kind transfer of resources,
    with the exception of general infrastructure.

22. Canada argues that rights to exploit *in situ* natural resources are
    not covered by Article 1.1(a)(1) (iii) SCM Agreement. Canada can not
    point to any provision in particular in the Agreement in support of
    this view, but instead reaches this conclusion on the basis of a
    working paper from the time of the Uruguay Round negotiations which
    explicitly mentioned *harvesting rights* separately from goods or
    services.

23. We note that the text of the SCM Agreement does not in any way
    provide an exception for the right to exploit natural
    resources.[^55] The only exception from the term \"goods or
    services\" provided for in Article 1.1(a)(1)(iii) SCM Agreement is
    general infrastructure, not natural resources. Moreover, the paper
    referred to by Canada in support of its argument that harvesting
    rights are not covered by Article 1.1(a)(1)(iii) SCM Agreement,
    called Discussion Paper No. 6, is an \"informal discussion paper\"
    from the Chairman of the Negotiating Group on Subsidies and
    Countervailing Measures dated 4 September 1990, which together with
    six other "informal discussion papers" was circulated in preparation
    for the issuance of a revised version of the Chairman's draft text
    of the SCM Agreement.[^56] Canada argues that this Discussion Paper
    reflects an understanding at the time of the SCM Agreement
    negotiations of the fundamental difference between tangible
    commercial inputs and intangible real property rights.[^57] We note
    however that, as stated in the Chairman's Note accompanying the
    discussion paper, this paper was circulated solely to "facilitate"
    discussions and that it did not reflect the Chairman's view of "what
    may be included in the subsequent revision\", nor did it \"have any
    status relating \[it\] to the Chairman's paper.\"[^58] The Note
    further states that some of the views expressed in the discussion
    papers "are purposefully provocative in order to make evident
    technical complexities and/or workability (or its lack) of certain
    approaches."[^59] In our view, this Discussion Paper thus has little
    if any probative value, especially in light of the fact that the
    reference to \"harvesting rights\" as separate from \"goods\" was
    not included in the final text of the Agreement.[^60]

24. Canada further argues that the reference in Article 1.1(a)(1)(iii)
    SCM Agreement to the provision of \"goods\" is to be interpreted as
    referring to tradable products for which there is a tariff line.
    Canada\'s argument in favour of such a very narrow interpretation of
    the word *goods* is basically that, in Canada\'s view, it is used
    throughout the GATT and WTO Agreements as an equivalent of
    *products* on which tariff concessions may be given under Article II
    GATT 1994.[^61] Canada thus submits that standing timber which is
    not capable of being traded across borders is not a \"good\".

25. In our view however, although in many cases the general word
    \"good\" may indeed be used as an equivalent of the term
    \"products\", this does not imply that this necessarily is always
    so, precisely because \"goods\" is a term with a broad and general
    meaning. Canada refers to certain provisions which contain the term
    \"imported goods\", and concludes on that basis that wherever the
    term \"goods\" is used in the Agreement, it refers to products which
    are capable of being imported and traded across borders. We find no
    basis for such a conclusion in the text of the SCM Agreement.
    Although \"goods\" in Article 1.1(a)(1)(iii) SCM Agreement certainly
    includes tradable products, there is no reason to limit its meaning
    to only such products, particularly where the immediate context in
    which the term is used does not suggest such a limitation. In
    particular, this provision states that when the government provides
    \"goods or services\", this constitutes a financial contribution.
    The \"goods\" in question are not imported or exported, simply
    provided by the government, and nothing suggests therefore that the
    goods in question need to be tradeable products with a potential or
    actual tariff line. Goods in this context are distinguished from
    services, and in our view the two cover the full spectrum of in-kind
    transfers the government may undertake by providing resources to an
    enterprise. Our view is reinforced by the fact that there is only
    one exception among all possible goods and services that could be
    provided by the government - general infrastructure -- which is
    explicitly defined as not constituting a financial contribution. We
    thus find that there is no basis in the text of the SCM Agreement to
    conclude that \"goods\" in Article 1.1 is limited to products with
    an actual or potential tariff line.

26. In sum, we find that through the Canadian provincial government
    stumpage programmes, Crown timber is being supplied to the tenure
    holders. Standing timber is the valuable input for logs which may be
    processed by sawmills into softwood lumber.[^62] In light of our
    finding that there is no basis in the text of the SCM Agreement to
    limit the term \"goods\" to tradeable products with a potential or
    actual tariff line, we consider that standing timber, trees, are
    goods in the sense of Article 1.1(a)(1)(iii) SCM Agreement.[^63]

#### Conclusion

27. We therefore conclude that the Canadian provincial stumpage
    programmes involve the provision by the government of standing
    timber and, as such, the provision of a good in the sense of Article
    1.1(a)(1)(iii) SCM Agreement. We therefore find that the USDOC
    determination that the provision of stumpage constituted a financial
    contribution, in the form of the provision of a good or service, is
    not inconsistent with Article 1.1 SCM Agreement, and therefore
    reject Canada\'s claims in this respect.

### Claim 2: inconsistent determination of benefit 

#### arguments of the parties

##### Canada

28. Canada argues that, even if one were to accept that the provision of
    stumpage constitutes a financial contribution in the form of the
    provision of a good under Article 1.1(a)(1)(iii) SCM Agreement, the
    USDOC erred in finding that the Canadian provincial stumpage
    programmes *conferred a benefit*. The USDOC compared the Canadian
    stumpage prices to those charged in the United States, which, in the
    USDOC\'s view, correspond with \"commercially available world market
    prices\". Canada is of the view that the USDOC's use of a benchmark
    for determining benefit based on conditions outside the country of
    the alleged provision of goods, was inconsistent with Article 14(d)
    SCM Agreement. Canada asserts that whether a \"benefit\" is
    conferred by the alleged provision of goods by the government
    (stumpage) depends on whether the Canadian producers were better off
    than other purchasers who buy the same good from other sellers *in
    the country subject to the investigation*.[^64] Canada argues that a
    cross-border analysis using transactions in another country to
    determine the existence of a benefit, and to measure it, is
    inconsistent with Article 1 and Article 14 (d) SCM Agreement.[^65]

29. Canada further asserts that there was sufficient information on the
    record concerning private stumpage prices in Canada that could have
    been used by USDOC in determining the amount of the alleged
    benefit.[^66] Canada submits that neither Article 1 nor Article 14
    SCM Agreement presumes the existence of \"distortion\" of any kind
    simply because there is a financial contribution by the government,
    nor does either permit dismissing an in-country benchmark because of
    a presumption that that benchmark is or might be \"tainted\" or
    \"distorted\" by the financial contribution in question.[^67]

30. In addition, Canada argues, there are a number of factual
    differences between the rights and obligations involved in acquiring
    harvesting rights in the United States and in Canada which
    invalidate the use of the United States\' system as a benchmark and
    which demonstrate that cross-border comparisons make no economic
    sense.[^68] Canada asserts that a wide variety of complex factors
    affect stumpage rates, such as locational characteristics, timber
    characteristics, measurement systems, operating costs, differences
    in economic conditions and tenure holders' rights and obligations.
    In Canada's view, the USDOC failed to make proper adjustments and
    ignored other obvious differences between the two markets.

31. Canada, therefore, claims that the USDOC Preliminary Determination
    which measured the benefit under the \"adequacy of remuneration
    standard\" by reference to conditions in another country rather than
    the prevailing market conditions in Canada is inconsistent with
    Articles 1 and 14 SCM Agreement.

##### United States

32. The United States observes that, in accordance with Article 14 (d)
    SCM Agreement, the adequacy of the remuneration and the existence of
    a benefit must be determined \"*in relation to* the prevailing
    market conditions in the country under investigation\" and not
    necessarily \"*in* the country under investigation\".[^69] The US
    argues that this \"market\" benchmark may refer to the entire market
    available to the subsidized producers.[^70] According to the US, the
    concept of \"prevailing market conditions in the country of
    provision\" is sufficiently broad to permit consideration of prices
    for competitive goods commercially available on the world markets to
    purchasers in the country of provision.[^71] The US argues that
    commercially available goods, both imported and domestic, compete in
    the domestic market and together constitute the supply available to
    purchasers in the country of provision, that is, goods that the
    purchaser could obtain in the market absent the government\'s
    financial contribution.[^72]

33. According to the US, in this particular case, the provincial
    governments completely dominate the market in those provincial
    markets and are virtually the sole providers of timber. In the US\'
    view, the evidence indicates that Canadian provincial governments so
    dominate the Canadian market for timber[^73] that below--market
    government prices suppress prices in the small private market for
    timber in Canada. Therefore, the US submits, in the absence of
    market prices in Canada, the use of other prices commercially
    available to Canadian lumber producers on world markets is the only
    reasonable alternative. In light of the object and purpose of
    Article 14 SCM Agreement it would not make sense to use prices
    determined or influenced by the government to measure the adequacy
    of the remuneration for the goods. According to the US, the
    comparison in Article 14 (d) SCM Agreement is intended to identify
    the potentially trade-distorting artificial advantage resulting from
    the government\'s provision of a good, and the market conditions
    referred to in Article 14 (d) SCM Agreement thus relate to what the
    market price would have been absent the financial contribution. The
    US asserts that the USDOC used stumpage prices in various US states
    with comparable forests and adjusted such prices to reflect
    prevailing market conditions in Canada.[^74] According to the US,
    the USDOC\'s use of US prices is supported by ample record evidence
    indicating that many Canadian companies do, in fact, import US logs
    and bid on US stumpage.[^75] The US submits that US timber is
    therefore "commercially available" to Canadian lumber mills, and in
    light of the specific facts of this case, the USDOC\'s use of US
    prices for stumpage that is commercially available to lumber
    producers in Canada was appropriate and consistent with Article
    14(d) SCM Agreement.

34. In any case, the US submits, only three provinces (Alberta, Quebec
    and Ontario) provided any information on private stumpage prices and
    such limited information was inadequate to serve as a benchmark for
    those provinces. Similarly, the US notes that it had no or
    insufficient information on stumpage prices in the Maritime
    provinces, the lumber originating from which the USDOC excluded from
    the investigation on the grounds that it was not subsidized.

35. For all these reasons, the US requests the Panel to reject Canada\'s
    claim concerning the inconsistency of the use of US stumpage prices
    as a benchmark to measure the amount of benefit conferred on
    Canadian lumber producers through the provincial stumpage
    programmes.

#### Analysis

36. Article 1.1 SCM Agreement provides that a subsidy in the sense of
    the SCM Agreement shall be deemed to exist when a financial
    contribution confers a benefit. In light of our findings above
    concerning the USDOC Preliminary Determination that the provision of
    stumpage by the Canadian provincial governments constitutes a
    financial contribution by the government under
    Article 1.1(a)(1)(iii) SCM Agreement, we will therefore need to
    examine whether the USDOC determination that this financial
    contribution conferred a benefit was made in a manner consistent
    with the US obligations under the Agreement. The issue before us is
    whether the USDOC determined the existence and amount of benefit to
    the Canadian softwood lumber producers in a manner consistent with
    Articles 1.1 and 14 of the SCM Agreement. We recall that Canada
    raises two claims relating to the USDOC\'s benefit determination.
    First, Canada challenges the use of US stumpage prices as the
    benchmark to assess the adequacy of the remuneration and thus the
    existence and amount of the benefit. We will discuss this claim in
    this section. Second, Canada claims that the USDOC failed to
    properly examine and properly determine that the benefit was
    conferred on the producers of the subject merchandise, softwood
    lumber. This claim will be discussed in the following section.

37. In its Preliminary Determination, the USDOC compared the stumpage
    fees set by the Canadian provincial governments with stumpage sales
    prices in the United States in order to determine the amount of
    benefit to Canadian lumber producers. According to the USDOC, \"The
    point of comparison for measuring the benefit from these types of
    subsidies is the market-place free of government
    interference\".[^76] The USDOC concluded that:

\"there is no market determined price for stumpage within Canada that is
independent of the distortion caused by the government\'s interference
in the market. Therefore we preliminarily determine that we cannot use
private transaction prices provided by the provincial governments.

Information on the record of this investigation indicates that there are
prices from the world market for comparable goods which can be used to
determine whether the provincial stumpage programmes provide a good or
service to softwood lumber producers for less than adequate
remuneration. For the reasons detailed below, we preliminarily determine
that stumpage prices from the United States qualify as commercially
available world market prices because it is reasonable to conclude that
US stumpage would be available to softwood lumber producers in Canada at
the same prices available to US lumber producers\".[^77]

38. Canada argues that as a matter of principle a cross-border price
    analysis is not permitted under Article 14 (d) SCM Agreement. Even
    if it were in theory permitted, Canada submits that there was
    sufficient evidence on the record of private stumpage prices in
    Canada which, in accordance with Article 14 (d) SCM Agreement could
    have and should have been used by the USDOC in determining benefit.
    In addition, Canada argues that in any event, under the facts of
    this case, the specific US benchmark used, was not an appropriate
    benchmark because of the factual difficulty in comparing prices for
    standing timber in the US and Canada.

39. The US argues that the benchmark used by the USDOC is consistent
    with the guidelines of Article 14 (d) SCM Agreement since the US
    stumpage prices are commercially available to Canadian lumber
    producers and, therefore, constitute part of the prevailing market
    conditions for the sale of stumpage in Canada.[^78] The US submits
    that the USDOC properly rejected private prices for domestic timber
    as a benchmark because the weight of the evidence at the time of the
    Preliminary Determination indicated that such prices were driven by
    the government‑provided timber, the financial contribution at
    issue.[^79] Thus, in the US view, such prices are uninformative as
    to the adequate remuneration inquiry, i.e., a comparison of the
    government price to prices otherwise available in the market
    *absent* the financial contribution.

40. Article 14 (d) is the relevant provision in the SCM Agreement for
    measuring the amount of benefit to the recipient by determining
    whether the government has provided a good or service, within the
    meaning of Article 1.1(a)(1)(iii) SCM Agreement, for less than
    adequate remuneration. Article 14 (d) SCM Agreement provides as
    follows:

*Article 14*

*Calculation of the Amount of a Subsidy in Terms*

*of the Benefit to the Recipient*

For the purpose of Part V, any method used by the investigating
authority to calculate the benefit to the recipient conferred pursuant
to paragraph 1 of Article 1 shall be provided for in the national
legislation or implementing regulations of the Member concerned and its
application to each particular case shall be transparent and adequately
explained. Furthermore, any such method shall be consistent with the
following guidelines:

> \(a\) government provision of equity capital shall not be considered
> as conferring a benefit, unless the investment decision can be
> regarded as inconsistent with the usual investment practice (including
> for the provision of risk capital) of private investors in the
> territory of that Member;
>
> \(b\) a loan by a government shall not be considered as conferring a
> benefit, unless there is a difference between the amount that the firm
> receiving the loan pays on the government loan and the amount the firm
> would pay on a comparable commercial loan which the firm could
> actually obtain on the market. In this case the benefit shall be the
> difference between these two amounts;
>
> \(c\) a loan guarantee by a government shall not be considered as
> conferring a benefit, unless there is a difference between the amount
> that the firm receiving the guarantee pays on a loan guaranteed by the
> government and the amount that the firm would pay on a comparable
> commercial loan absent the government guarantee. In this case the
> benefit shall be the difference between these two amounts adjusted for
> any differences in fees;
>
> **(d) the provision of goods or services or purchase of goods by a
> government shall not be considered as conferring a benefit unless the
> provision is made for less than adequate remuneration, or the purchase
> is made for more than adequate remuneration. The adequacy of
> remuneration shall be determined in relation to prevailing market
> conditions for the good or service in question in the country of
> provision or purchase (including price, quality, availability,
> marketability, transportation and other conditions of purchase or
> sale). (emphasis added)**

41. Article 14 (d) SCM Agreement thus provides that the provision of
    goods by a government shall not be considered as conferring a
    benefit unless the provision is made for less than *adequate
    remuneration*. The adequacy of the remuneration charged by the
    government shall be determined \"**in relation to the prevailing
    market conditions for the good or service in question in the country
    of provision or purchase (including price, quality, availability,
    marketability, transportation and other conditions of purchase or
    sale)\".** We find that the text of Article 14 (d) SCM Agreement is
    very clear: the adequacy of remuneration is to be determined in
    relation to *prevailing market conditions* for the good or service
    in question *in the country of provision or purchase.* It further
    specifies market conditions that have to be taken into account:
    price, quality, availability, marketability, transportation and
    other conditions of purchase or sale. The text of the Agreement thus
    clearly requires that the prevailing market conditions to be used as
    a benchmark are those in the country of provision of the goods, in
    this case Canada. The words \"in relation to\" in our view, mean
    \"on the basis of\" or \"in comparison with\" and indicate in this
    context that the adequacy of the remuneration charged by the
    government is to be compared with the prevailing market conditions
    in the country of provision. We therefore disagree with the US that
    \"the prevailing market conditions in the country of provision are a
    reference point, not necessarily an end-point for the market
    benchmark\".[^80] The prevailing market conditions in the country of
    provision *are* the benchmark and operate as the reference point or
    the point of comparison for the adequacy of the remuneration. We
    therefore find, on the basis of a plain reading of Article 14 (d)
    SCM Agreement, that the ordinary meaning of this provision excludes
    an analysis based on market conditions other than those in the
    country of provision of the goods, i.e. Canada.

42. We note that, in its arguments before us, the US \"agree\[d\] with
    Canada that, as the text of Article 14 (d) states, the relevant
    \'prevailing market conditions\' are those in the country of
    provision, not some other country\".[^81] The US argues however that
    \"\[b\]ecause US stumpage prices are commercially available to
    Canadian lumber producers, they fall within the universe of
    benchmarks that can be considered for purposes of measuring the
    benefit from provincial stumpage, consistent with Article 14(d) of
    the SCM Agreement.\"[^82] The issues in dispute are thus (i) whether
    the concept of \"prevailing market conditions in the country of
    provision\" includes *world market prices*, as the US is suggesting,
    and hence whether US stumpage prices are part of the prevailing
    market conditions in Canada, and, if so, whether a price benchmark
    for the purposes of Article 14 (d) SCM Agreement can be
    *exclusively* based on such prices; and (ii) whether the USDOC had
    valid reasons in this case to disregard Canadian private stumpage
    prices.

\(i\) [Are US prices part of the prevailing market conditions in
Canada]{.underline}?

43. In our view, there is no basis in the text of the SCM Agreement to
    conclude that the market conditions in the country of provision
    could mean anything else than the conditions prevailing in the
    market of that country, and not those prevailing in some other
    country. Article 14 (d) SCM Agreement does not just refer to
    \"market conditions\" in general, but explicitly to those prevailing
    \"in the country of provision\" of the good. The US argues, that
    because \"conditions of purchase or sale\" and \"availability\" are
    listed as market conditions in Article 14 (d) SCM Agreement, US
    stumpage which is available to Canadian producers and which may be
    purchased by Canadian producers is part of the market conditions in
    Canada. However, the fact that a good may also be bought on a market
    outside the country of provision, does not, in our view, imply that
    the prices for those goods in that other country become part of the
    market conditions \"in the country of provision\". To accept the US
    argument would imply that the phrase \"prevailing market conditions
    in the country of provision\" in fact refers to the world market
    conditions for the good in question, which is not what the text of
    the SCM Agreement says. In light of the clear language of Article
    14 (d) SCM Agreement, the \"availability\" of the good, the
    \"conditions of purchase or sale\", the \"price\", are various
    aspects of the market conditions existing in the country of
    provision, and refer to the price for the good in that country, its
    availability in that country, the conditions of sale as they are
    prevailing in that country. In our view, the bracketed language in
    Article 14 (d) SCM Agreement specifies what the market conditions
    referred to in the preceeding sentence are, and, as is the case for
    the \"market conditions\", they also all relate to the country of
    provision, and not some other country.

44. We consider that a proper interpretation is one which gives meaning
    to all the terms in the treaty and does not reduce certain parts of
    the treaty to redundancy or inutility.[^83] We consider that the US
    is reading Article 14 (d) SCM Agreement to mean that the benchmark
    to be used should be \"market conditions\" in general. In our view,
    to adopt the US approach that the market refers to the entire market
    available to the allegedly subsidized producers, would effectively
    read out of the SCM Agreement the explicit reference to the country
    of provision, as the country the prevailing market conditions of
    which have to be used as a benchmark.

45. In support of its argument that the \"market\", as generally
    referred to in the SCM Agreement, is not restricted to the exporting
    country, but rather \"encompasses the entire market available to the
    subsidized producer or exporter\", the US refers to item (d) of the
    Illustrative List of Export Subsidies of Annex I of the SCM
    Agreement. We note that item (d) of the Illustrative List
    establishes conditions under which certain instances of provision of
    goods constitute *export* subsidies. Thus, item (d) is concerned
    with a significantly different situation from that addressed by
    Article 14 (d). While it is true that item (d) of the Illustrative
    List contains explicit language requiring as a second part of the
    test that it establishes that the terms of provision of the good be
    more favourable \"than those commercially available *on world
    markets*\", we recall that item (d) of the Illustrative List is not
    before us in this dispute. The text of Article 14 (d) SCM Agreement,
    the provision that is before us, does not provide for such a world
    market test. The fact that in the different context of criteria for
    a similar measure to constitute a prohibited export subsidy there is
    an explicit requirement to look at commercially available world
    market prices, cannot mean that any reference to the \"market\" in
    the SCM Agreement necessarily refers to the world market, or some
    portion thereof, particularly when the language in the provision
    clearly states otherwise.[^84] We note that the prices of *imported*
    goods in the market of provision can indeed form part of the
    prevailing market conditions in the sense of Article 14 (d) SCM
    Agreement.[^85] But this is not the same as the price for those
    goods prevailing in the country of export. Nor does this imply that
    import prices necessarily can be the exclusive basis to determine
    prevailing market conditions. To us, the US chain of reasoning seems
    to be the following: Canadian lumber producers can purchase standing
    timber and logs in the United States, and some do, therefore, the
    prevailing US stumpage prices form \"part of\" the prevailing market
    conditions for stumpage in Canada, and therefore US stumpage prices
    represent and can be used as the exclusive benchmark for the
    prevailing market conditions for stumpage in Canada. For the reasons
    set forth above, we cannot accept such reasoning. In sum, we find
    that US stumpage prices cannot be considered to constitute
    prevailing market conditions in Canada, the country of provision of
    the good (standing timber).

\(ii\) [Did there exist valid reasons not to use Canadian private
stumpage prices]{.underline}?

46. The US justifies its reliance on US prices as the benchmark by
    arguing that, although the use of Canadian private stumpage prices
    would have been the preferred option to calculate the amount of
    benefit, in this particular case it was not possible to use such
    prices as the benchmark because they were distorted and suppressed
    by the very large number of government sales. According to the US,
    the trade-distorting potential of the government's provision of a
    good can be identified only by reference to an independent market
    price, i.e., a price that is unaffected by the very trade distortion
    the test is designed to identify.[^86]

47. In our view, however, the \"prevailing market conditions\" of
    Article 14 (d) SCM Agreement do not refer to a theoretical market
    free of government interference as the US seems to be suggesting.
    Article 14 (d) SCM Agreement provides that the \"prevailing\" market
    conditions in the country of provision of the goods are to form the
    basis for the comparison. The ordinary meaning of the term
    \"prevailing\" market conditions is the market conditions \"*as they
    exist\"* or \"*which are predominant\"*.[^87] Considering that the
    only qualifier used to the \"market conditions\" in question is that
    they be \"prevailing\", we are of the view that the text of Article
    14 (d) SCM Agreement does not in any way require the \"market\"
    conditions to be those of a hypothetical undistorted or perfectly
    competitive market.

48. Moreover, the chapeau of Article 14 SCM Agreement clearly states
    that Article 14 SCM Agreement establishes guidelines for the
    calculation of \"benefit\" *to the recipient*.[^88] We are of the
    view that in order to calculate the benefit to the recipient, an
    authority is to compare the price the recipient paid the government
    with the prices prevailing in other market transactions. We do not
    consider that the goal of the examination of the benefit enjoyed by
    the recipient is to determine what the market price would have been
    absent the government\'s financial contribution, as the US is
    suggesting[^89], or to measure the trade distorting potential of the
    government\'s financial contribution.[^90] The text of Article 14
    SCM Agreement does not require a general \"*but for\"* test to the
    prevailing market conditions. We are thus of the view that Article
    14 (d) SCM Agreement does not require that the authority construct a
    market price that could have existed but for the government\'s
    involvement, nor does it allow the authority to decline to use
    in-country prices because they may be affected by the government\'s
    financial contribution.

49. We consider that if the drafters of the SCM Agreement had wanted to
    exclude the use of market prices in case of price suppression due to
    the government's involvement, they would have explicitly provided
    so, but they have not. The opposite is the case. As we found above,
    when it comes to the market conditions, the only qualifier in the
    text of the Agreement is \"prevailing\". Thus, the market conditions
    are those that are actually existing in the country and are those
    faced by the recipient of the financial contribution. The reference
    prices are those that the producer would have had to pay if it had
    to buy the goods now provided by the government from a different and
    independent seller.

50. We wish to note that even if in certain exceptional circumstances it
    may prove difficult in practice to apply Article 14 (d) SCM
    Agreement, that would not justify reading words into the text of the
    Agreement that are not there or ignoring the plain meaning of the
    text. In our view, the text of Article 14 SCM Agreement leaves no
    choice to the investigating authority but to use as a benchmark the
    market, for the good (or service) in question, *as it exists* in the
    country of provision.

51. Canada also argues that the USDOC was not justified in rejecting
    private stumpage sales in Canada as providing a benchmark for market
    conditions in Canada. We note that the USDOC in its preliminary CVD
    determination found that

\"the softwood harvest from Crown lands accounts for approximately 70 to
90 per cent of the stumpage sold in each province. Therefore, between 70
and 90 per cent of the good or service within each of the provinces is
provided by the government.\"[^91]

52. We conclude from this statement in the Preliminary Determination
    that between 10 and 30 per cent of the good within each province was
    not provided by the government. In the course of the proceedings
    before us, we requested further clarification from the parties as to
    the record evidence on the percentage of softwood lumber harvest in
    each province in Canada that took place on Crown land versus private
    land. The US stated that the evidence on the record at the time of
    the Preliminary Determination indicated that private stumpage sales
    represented 2 per cent in Alberta, 6 per cent in Manitoba, 8 per
    cent in Ontario, 10 per cent in British Columbia, 10 per cent in
    Saskatchewan and 17 per cent in Quebec.[^92]

53. Finally, the US argues that as a practical matter, the USDOC could
    not have calculated the benefit on the basis of the private sales
    prices even if it had wanted to, since the Canadian provinces failed
    to provide the necessary information. We note first of all that,
    while the US has argued before us that private sales data were not
    provided, it is clear from the Preliminary Determination that this
    was not an element in the USDOC\'s decision to use a cross-border
    price analysis. In fact the USDOC clearly acknowledged that the
    Canadian provinces reported private stumpage prices but that \"an
    examination of the information on the record demonstrates that the
    private stumpage prices reported by the Provinces do not constitute
    market determined prices ...\".[^93] The alleged lack of information
    is thus not mentioned by the USDOC as a consideration which led to
    its decision to use a cross-border price analysis. In any case, even
    the US acknowledges that at least two provinces (Quebec and Ontario)
    did provide private market standing timber prices.[^94]
    Nevertheless, even for those two provinces no private stumpage sales
    data were used as a benchmark, because of the alleged price
    suppression.[^95]

54. Accordingly, based on our interpretation of the text of
    Article 14(d) SCM Agreement, which does not require the prevailing
    market conditions to be those of an \"undistorted\" market, we
    consider that the USDOC provided no rationale in the context of
    Article 14 (d) SCM Agreement for rejecting Canadian private stumpage
    prices as the basis for calculating the benefit.[^96]

55. We note, moreover, that the domestic markets of the member countries
    of the WTO are not identical -- nor are they expected to be -- and
    that there is nothing in the WTO or SCM Agreement indicating that,
    in order to qualify as such, markets must meet specific qualitative
    requirements, as the US would seem to suggest. A contrary conclusion
    would lead to a result in which the importing country would have a
    very broad scope to choose another market, including its own, in
    order to determine benefit. Such a result would clearly distort the
    letter and purpose of Article 14 (d) and vitiate its intended
    application. We further note that using the US methodology for
    determining a benefit from the provision of government-owned
    resources that are not in themselves tradable across borders and not
    sold at public auction would lead to the virtual automatic
    determination of the existence of subsidization in a resource-rich
    exporting country, even where the perceived price difference was
    simply a reflection of the exporting country\'s comparative
    advantage in the product

#### Conclusion

56. We therefore find that by using prevailing *US* stumpage prices,
    which by definition do not constitute the prevailing market
    conditions in *Canada*, the USDOC acted inconsistently with
    Article 14 and 14 (d) SCM Agreement in determining the benefit to
    the recipient, and therefore also acted inconsistently with Article
    1.1 SCM Agreement in determining the existence of a subsidy. As for
    the issue of the appropriateness of the actual adjustments used to
    calculate the benchmark stumpage prices in this case, our
    understanding is that Canada raised this point as factual support
    for its basic legal argument that the cross-border methodology used
    by the USDOC was invalid, and that Canada has raised no separate
    claim in this regard. Given this, and given our conclusion above, we
    do not need to consider this issue.

### Claim 3: failure to examine and determine the existence of benefit to the producers of the subject product

#### Arguments of the parties 

##### Canada

57. Canada asserts that the USDOC impermissibly assumed that the alleged
    financial contribution to timber harvesters through the stumpage
    rights conferred a benefit on the downstream producers of softwood
    lumber. Canada notes that standing timber is harvested and processed
    into logs which are then processed in sawmills and pulp mills to
    produce a wide variety of products including softwood lumber, and
    that the lumber may then be sold at arm\'s-length as an end-product
    or sold to re-manufacturing industries that make a vast array of
    products. Canada argues that it is not the case, as the US is
    suggesting, that all tenure or licence agreements require
    tenure/licence holders to own a sawmill. Nor are there in general
    any requirements either by law or by the terms of tenure that
    require tenure holders to sell to specific mills or to sell at
    specific prices or under specific terms and conditions. Canada
    argues that only in certain cases are tenure holders required to
    construct or maintain a facility with the ability to mill harvested
    timber.[^97] Stumpage tenure holders are therefore in general free
    to sell their logs to unrelated sawmills.[^98]

58. Canada asserts that the evidence on the record demonstrates that a
    significant portion of harvesting is done by entities operating at
    arm\'s-length from lumber producers, and logs produced by such
    independent entities are sold to lumber producers in arm\'s-length
    transactions. In such cases, according to Canada, the USDOC should
    have conducted a pass-through analysis to determine whether the
    alleged benefit from the stumpage programmes was passed through to
    the lumber producers.

59. Canada argues that the record indicates that for British Columbia,
    30.09 per cent of timber from Crown licenses was harvested by
    companies that do not have sawmills (33.0 per cent if private land
    logging is included); in Quebec, apart from a certain type of
    tenures (Timber Supply Forest Management Agreement (TSFMA) tenures
    in particular), 27 per cent of the provincial harvest was sold
    through arm\'s-length transactions from private lands and Forest
    Management Contracts (FMC); in Ontario, 30 per cent of harvested
    timber from Crown land was sold to third parties who processed it
    into forest products; in Alberta, 6 per cent of total softwood logs
    harvest were sold at arm\'s-length in the sense that the
    transactions were between totally unrelated parties. Canada argues
    in addition that at least 8 primary mills requested an exclusion as
    they purchased all their log inputs in arm\'s-length transactions.
    Canada further asserts that a large number of unaffiliated
    remanufacturers purchase lumber in arm's-length transactions from
    lumber producers. Canada argues that in those arm's-length
    transactions, any alleged benefit to the lumber producers would not
    be passed through to the remanufacturers and that, therefore,
    remanufactured products cannot be presumed to be subsidized.[^99] In
    any case, Canada submits, even prices between related parties may
    and often are also arm\'s-length prices because they are freely
    negotiated without regard to any relationship of the parties.[^100]

60. According to Canada, when transactions take place at arm\'s-length,
    the recipient of a subsidy is presumed to have retained the benefit.
    Canada submits that since the USDOC failed to conduct an analysis of
    whether any benefits were passed along in such arm\'s-length
    transactions in the case at hand, its finding of a benefit conferred
    to the Canadian softwood lumber producers by the alleged provision
    of stumpage to the upstream log producers is inconsistent with the
    SCM Agreement.[^101]

##### United States

61. The United States proffers two main arguments against the need for a
    pass-through analysis for determining benefit to the lumber
    producers. First, the US argues that no truly arm\'s-length
    transactions between independent harvesters and independent lumber
    mills existed. Second, the US asserts that a pass-through analysis
    was not required in this case as the investigation was conducted on
    an aggregate basis.

62. Concerning the first point, the US argues that no pass-through
    analysis was required because the subsidies were bestowed directly
    on the producers of the subject merchandise, since the entity
    receiving the financial contribution (standing timber) and the
    entity receiving the benefit (a below-market stumpage price) are
    \"generally one and the same\".[^102] The United States asserts that
    a very significant number of timber harvesters also own sawmills and
    are therefore at the same time producers of softwood lumber. In
    other words, according to the US, most lumber producers are also
    harvesters of standing timber, which they obtain through the
    conclusion of tenure agreements with the Canadian provincial
    governments. The United States asserts that in fact each Canadian
    province generally requires that tenure holders be sawmills or own a
    sawmill.[^103] The small portion of Crown timber harvested by tenure
    holders that do not own sawmills is subject to restrictions that tie
    the timber to specific sawmills in Canada.[^104] In such
    circumstances, the US argues, the loggers and the lumber producers
    (sawmills) are thus not operating at arm\'s-length with each
    other[^105], and there is no need to examine the pass-through issue.
    Thus, according to the US, the evidence indicates that there are
    virtually no truly arm's‑length transactions between harvesters and
    lumber mills, and the independent logger is therefore "largely a
    myth".[^106]

63. The US argues that, in Canada\'s view, in two other situations
    involving arm\'s-length transactions a pass-through analysis was
    required:(i) in case logs are harvested by one sawmill and then sold
    at arm\'s-length to another sawmill, and (ii) when lumber is sold at
    arm\'s-length to companies that produce remanufactured lumber
    products. The US submits that in those two situations, no
    pass-through analysis is required in an aggregate case as all of the
    entities involved are producers of the subject merchandise.[^107]
    The US is of the view that for remanufacturers who produce
    merchandise within the scope of the investigation, it is only in the
    context of determining a company-specific subsidy rate that a
    pass-through analysis may be necessary. [^108] The US asserts that,
    as a result, the USDOC did not request any information on these
    types of transactions. According to the US, the precise amount of
    the benefit received by individual producers (for example, whether
    the benefit stayed with the original recipient or "travelled to" the
    purchaser) would only be determined in a company-specific review.

64. In sum, the US argues that, given this evidence, it was not
    necessary for the USDOC to conduct a pass-through analysis in order
    to determine the existence of benefit to Canadian softwood lumber
    producers by the government provision of stumpage.[^109]

#### Analysis

65. Article 1.1 (b) SCM Agreement establishes that a subsidy shall be
    deemed to exist if there is a financial contribution by the
    government and a benefit is thereby conferred on the producers of
    this subject product, in this case softwood lumber. The USDOC
    determined that the provision of stumpage, standing timber,
    constituted a financial contribution by the government. However, the
    subject product of the USDOC's countervailing duty investigation is
    the downstream product, softwood lumber, which is processed from
    logs, which in turn have been processed from standing timber. The
    various forms of stumpage agreements in the form of tenures or
    licenses are all concluded between timber harvesting
    companies/loggers and the provincial governments.

66. We consider that the question before us is whether under the facts
    of this case, the USDOC was required to examine whether, in certain
    transactions covered by the investigation, some or all of the
    alleged benefit to the tenure holders from the stumpage programmes
    was passed through to the producers of the subject merchandise
    exported to the US. These transactions were not only the case where
    a sawmill buys logs in an arm's-length transaction but also where a
    re-manufacturer buys lumber for further processing in an
    arm's-length transaction. Thus, conceptually, for some
    remanufactured products that are subject merchandise the issue of
    quantifying pass-through of benefit could involve two separate
    arm's-length transactions.

67. We note that the US agrees that if a government makes a financial
    contribution to an entity which does not produce the subject
    merchandise, it would be necessary to analyze whether that financial
    contribution benefitted another entity that does produce the subject
    merchandise.[^110] The US also acknowledges that, in theory, an
    arm's‑length transaction between an independent tenure holder and an
    unrelated lumber mill may give rise to the issue of whether the
    financial contribution to the tenure holder conferred a benefit on
    the lumber producer.

68. We are of the view that an authority may not assume that a subsidy
    provided to producers of the \"upstream\" input product
    automatically benefits unrelated producers of downstream products,
    especially if there is evidence on the record of arm\'s-length
    transactions between the two.[^111] Rather, we consider that in such
    circumstances the investigating authority should examine whether and
    to what extent the subsidies bestowed on the upstream producers
    benefited the downstream producers. In this respect, we recall that
    in the *US -- Lead and Bismuth II* case (WT/DS138/AB/R) the
    Appellate Body concluded in a different context involving subsidies
    provided to entities subsequently privatized, that an entity other
    than the original recipient of the subsidy should not be deemed to
    have received a benefit in the case where an arm\'s-length price was
    paid to acquire the entity that had received the subsidies:

"68. The question whether a \"financial contribution\" confers a
\"benefit\" depends, therefore, on whether the recipient has received a
\"financial contribution\" on terms more favourable than those available
to the recipient in the market. In the present case, the Panel made
factual findings that UES and BSplc/BSES paid fair market value for all
the productive assets, goodwill, etc., they acquired from BSC and
subsequently used in the production of leaded bars imported into the
United States in 1994, 1995 and 1996. [We, therefore, see no error in
the Panel\'s conclusion that, in the specific circumstances of this
case, the \"financial contributions\" bestowed on **BSC** between 1977
and 1986 could not be deemed to confer a \"benefit\" on UES and
**BSplc/BSES**.]{.underline} (emphasis added)[^112]

69. Canada and the US agree that the evidence on the record demonstrates
    that a large number of tenure holders own a sawmill and are thus at
    the same time softwood lumber producers. It is clear that in such
    circumstances of complete identity between the tenure holder/logger
    and the lumber producer, no pass-through analysis is required.
    Canada argues however that in a significant number of cases, lumber
    producers purchase logs at arm\'s-length from unrelated tenure
    holders. In addition, Canada argues that logs are traded at
    arm\'s-length between lumber producers and that lumber is sold at
    arm\'s-length by sawmills to remanufacturers who also produce the
    subject merchandise. According to Canada, in all these situations,
    USDOC failed to examine whether the subsidy passed through to the
    producers of the subject merchandise, softwood lumber. The US
    submits that the evidence does not support Canada\'s argument
    concerning independent loggers. As far as the two other categories
    is concerned, the US submits that the question of pass-through is
    moot in an aggregate investigation since all of the entities
    concerned are also producers of the subject merchandise.

70. We first examine the evidence on the record with regard to the
    relationship between the lumber producers and the tenure
    holders/loggers. The USDOC Preliminary Determination and additional
    clarifying statements of the US in the current proceedings reveal
    that not all logging companies are at the same time softwood lumber
    producers. For Ontario, the USDOC states in its Preliminary
    Determination that lumber producers may obtain the forest products
    they need in five ways. One such way is to pay the government
    stumpage fees and harvest the timber themselves, but another way is
    to purchase logs at arm\'s-length from a company that harvested them
    from Crown lands.[^113] As the US clarified before the Panel, the
    record shows that for British Columbia, between 9 and 17 per cent of
    Crown timber harvest is done by independent harvesters.[^114] For
    Alberta, the US states that 95 per cent of softwood timber was
    provided to tenure holders who own sawmills. This suggests that some
    5 per cent of the timber provided would have been sold to sawmills
    by unrelated loggers. For Saskatchewan and Manitoba, the US gives a
    similar figure of 95 per cent of softwood timber which was provided
    to entities that also hold provincial licences to operate
    sawmills.[^115] The USDOC also acknowledged that it received a
    number of company specific requests for exclusion, thirteen of which
    from companies \"purchasing logs at arm\'s-length, from private
    lands, or from US suppliers\".[^116]

71. We find that the US has thus conceded before us that in a certain
    number of cases, the lumber producers were independent from the
    tenure harvesters and may well have had to pay an arm\'s-length
    price to obtain the allegedly subsidized logs from the harvesters.
    Nothing in the record indicates, and the US does not argue, that in
    such cases where the harvesters and lumber producers are unrelated,
    the USDOC examined whether the prices charged between the harvester
    and its customer, the unrelated lumber producer, were at
    arm\'s-length, and hence whether any benefit passed through. We find
    that in such circumstances, where a downstream producer of subject
    merchandise is unrelated to the allegedly subsidized upstream
    producer of the input, an authority is not allowed to simply assume
    that a benefit has passed through. We further consider that
    conducting the investigation on an aggregate basis versus a
    company-by-company basis is irrelevant to this issue. The fact that
    in the large majority of cases the lumber producers and the
    harvesters are related, does not imply that it is no longer
    necessary in cases where there is no such relationship to examine
    and determine whether a benefit existed for the independent
    producers of the subject merchandise including independent
    re-manufacturers. By failing to examine whether the independent
    lumber producer paid arm\'s-length prices for the logs that they
    purchased, the USDOC determined the benefit to the producers of the
    subject merchandise inconsistently with the SCM Agreement.

72. The US argues, with regard to the situations of sawmills buying logs
    from other sawmills at arm\'s-length and of remanufacturers
    purchasing lumber from unrelated sawmills, that no pass-through
    analysis was required as all of the entities involved are producers
    of the subject merchandise. In sum, the US position, both in the
    investigation and before us, is that in an aggregate case, no
    pass-through analysis is necessary where all of the entitities
    involved are producers of the subject merchandise. We find no basis
    in the SCM Agreement for this argument, however. In our view, the
    purpose of the original investigation is precisely to determine
    whether and to what extent a subsidy has been granted to the
    producer of the subject merchandise. An authority cannot simply
    assume the existence of such a benefit in the original
    investigation. As the Appellate Body in the *Lead and Bismuth* Case
    stated:

\"In an original investigation, the investigating authority must
establish that  *all*  conditions set out in the *SCM Agreement*  for
the imposition of countervailing duties are fulfilled.\"[^117]

73. Here we recall that any calculation of the rate of subsidization in
    a countervailing duty investigation involves three distinct steps.
    First is the calculation of the total amount of the subsidy provided
    during the period of investigation (the establishment of the
    numerator of the equation). Second is the calculation of the total
    amount of relevant sales to which the subsidy amount can be
    attributed (the establishment of the \"sales denominator\"). Third
    is the calculation of the rate of subsidization, by dividing the
    subsidy amount numerator by the denominator of relevant sales. The
    result is an *ad valorem* rate of subsidization of the subject
    merchandise.[^118]

74. In this dispute, the US seems to be approaching the issue of
    pass-through of benefits as if it can be resolved solely by
    correctly identifying the value of relevant sales of the subject
    merchandise (softwood lumber) to be used as the denominator. This
    appears to be the reasoning behind the US position that a
    pass-through analysis for the purchases of inputs by unrelated
    producers of softwood lumber would be unnecessary where the
    calculation is performed on an aggregate basis. We disagree. In our
    view, the issue of pass-through has to do in the first instance with
    correctly establishing the amount of the subsidy benefiting the
    producers of the subject merchandise, i.e. the numerator. That is,
    alleged benefits from the stumpage programmes can only be included
    in the total subsidy amount to the extent that they benefit the
    producers of the subject merchandise, softwood lumber. Where a given
    producer of the subject merchandise itself harvests logs, and thus
    itself is the recipient of the alleged benefit, the entire amount of
    the alleged benefit to that recipient can be included in the subsidy
    amount (numerator) without further analysis. Where, however, a
    producer of softwood lumber does not itself harvest logs, but
    instead buys logs or lumber from unrelated suppliers, any alleged
    benefit from the stumpage programmes that may have benefitted the
    producer of the logs or lumber involved could only be included in
    the total subsidy amount to the extent that it has been established
    as a factual matter that the purchaser has received some or all of
    the benefit.

75. We find particularly important in this respect that, as Canada
    pointed out[^119], prior to the Preliminary Determination, the USDOC
    had applications for exclusion from 98 producers who purchased logs
    or lumber from unrelated suppliers.[^120] Of these, 78 were
    remanufacturers unrelated to firms with harvesting rights and at
    least 8 were first mills that purchased all of their log inputs from
    unrelated suppliers. In light of the fact that, at the Preliminary
    Determination, the USDOC had knowledge of a sizeable number of
    lumber producers purchasing log and lumber inputs from unrelated
    suppliers allegedly at arm's-length, the USDOC should have examined,
    in calculating the total amount of the alleged subsidy, whether and
    to what extent any benefit passed through to those lumber producers.

#### Conclusion

76. In sum, we find that in this case, there was evidence on the record
    of a certain amount of sales by producers of logs that did not own a
    lumber-processing facility, and were not related to the downstream
    lumber producers to which they sold their logs. In addition, there
    is evidence on the record that USDOC was aware of the fact that a
    number of lumber producers buy logs or lumber inputs from unrelated
    sawmills We therefore find that, given such record evidence, the
    absence of any examination of these transactions by the USDOC was
    not consistent with the SCM Agreement. The USDOC should have
    examined, in the original investigation, whether, in cases where the
    tenure holders were not at the same time processing the logs in
    their own sawmills, the lumber producers benefited from the
    financial contribution given to the tenure holders. We therefore
    conclude that the USDOC imposed a provisional countervailing duty
    without determining the existence and amount of the benefit
    conferred on the allegedly subsidized product, and, therefore, in a
    manner inconsistent with the SCM Agreement.[^121]

### Claim 4: impermissible application of a provisional duty in excess of the subsidy rate

#### Arguments of the parties

##### Canada

77. Canada argues that the US [calculated]{.underline} the subsidy rate
    of 19.31 per cent *ad valorem* on a [first mill]{.underline} basis,
    but [applied]{.underline} it on [an entered value]{.underline} basis
    with the effect of significantly increasing the provisional measures
    applied to a considerable portion of Canadian exports of softwood
    lumber to the United States. Canada argues that in all of the
    subsidy calculations, the denominator was the value of sawmill
    (first mill)[^122] exports. Nevertheless, in a decision
    memorandum[^123] accompanying the USDOC\'s instructions to Customs,
    the USDOC claims that the record for the Preliminary Determination
    supports the collection of countervailing duty deposits on an
    entered value basis. Canada submits that this practice implies that
    the importer of the value-added product faces an actual duty of
    above 19 per cent of the first mill value. This application of a
    duty in excess of the rate is inconsistent with the SCM Agreement.

78. Canada asserts that the statement by Statistics Canada on which the
    USDOC based its decision in this regard, which stated that the data
    provided related to both first-mill and
    \"re-manufactu*[rers]{.underline}*\" reflects a typographical error.
    Canada argues that, in actuality, the statement which caused the
    alleged confusion intended to say that "it was not possible to
    exclude 're-manufactu*[res]{.underline}* from its results." Canada
    argues that the actual calculation methodology in the survey makes
    clear that the data provided were in fact from a survey of
    "sawmills" (also noted as "first mills"), and that the discussion of
    the methodology further intended to explain that the data also
    included a small portion of remanufactured products that were
    produced *by the sawmills*. According to Canada, this is because
    Statistics Canada stated that it was unable to isolate the small
    portion of further millwork or value added that was performed
    *within* the sawmills, and therefore, such values were included in
    the reported data. Canada argues that it explained this clearly in
    its 21 August and 27 August submissions to the USDOC, *prior to* the
    time at which the USDOC issued its Customs instructions implementing
    the decision on a final mill basis.[^124] However, Canada submits,
    even though Canada had fully explained that the data used in the
    preliminary calculations did not contain any final mill sales, the
    United States applied provisional measures on a final mill basis.

##### United States

79. The United States submits that the USDOC calculated the duty based
    on the total value of all sales (first mill and remanufactured)
    which was the information requested from and provided by Canada in
    the Questionnaire.[^125] The US argues that the Canadian argument is
    flawed since the USDOC at the time of making its determination did
    not know and could not know that the information provided by Canada
    only referred to first mills, since Canada only informed the USDOC
    of this for the first time after the Preliminary Determination. As
    this is evidence and information not before the USDOC at the time of
    the determination, the Panel cannot take it into account when
    reviewing the USDOC's Preliminary Determination.[^126]

#### Analysis

80. In light of our finding above concerning the USDOC's incorrect
    determination of the amount of benefit which formed the basis for
    the calculation of the countervailing duty rate, we consider that it
    is not necessary for us to address this claim in order to resolve
    the dispute before us and we therefore decide to apply judicial
    economy in respect of this claim.

### Conclusion on Canada\'s claims relating to the Preliminary Countervailing Duty Determination.

81. In light of our conclusions above that the USDOC Preliminary
    Countervailing Duty Determination

-   was not inconsistent with Article 1.1(a) SCM Agreement when it found
    that the provision of stumpage constituted a financial contribution,
    in the form of the provision of a good or service;

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-   failed to determine the existence and amount of benefit to the
    producers of the subject merchandise on the basis of the prevailing
    market conditions in Canada as required by Article 1.1 (b) and
    Article 14 and 14(d) SCM Agreement; and

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```
-   failed to establish that a benefit in the sense of Article 1.1 (b)
    SCM Agreement was conferred to certain producers of the subject
    merchandise, since the USDOC did not examine whether a benefit was
    passed through by the unrelated upstream producers of log inputs to
    the downstream producers of the subject merchandise;

we conclude that the USDOC\' s imposition of provisional countervailing
measures was inconsistent with the US\' obligations under Articles 1.1
(b), 14, 14 (d) SCM Agreement as well as Articles 10 and 17.1 (b) of the
SCM Agreement, as these provisional measures were imposed on the basis
of an inconsistent preliminary determination of the existence of a
subsidy.[^127] We do not consider it necessary to address Canada\'s
additional claims regarding the consistency of USDOC\' s actions with
Articles 17.2, 17.5, 19.4 and 32.1 of the SCM Agreement and Article VI:3
of GATT 1994. In light of our conclusions above, we do not find it
necessary either to rule on Canada\'s claim that the USDOC instructions
transmitted to the United States Customs Service on 4 September 2001,
imposed provisional measures in excess of the subsidy preliminarily
found to exist in a manner inconsistent with Articles 10, 17.2, 17.5,
19.4 and 32.1 of the SCM Agreement and Article VI:3 of GATT 1994.

## CLAIMS RELATING TO THE PRELIMINARY CRITICAL CIRCUMSTANCES DETERMINATION AND THE RETROACTIVE APPLICATION OF PROVISIONAL COUNTERVAILING MEASURES

1.  The second set of claims of Canada relates to the USDOC Preliminary
    Critical Circumstances Determination which formed the basis for the
    retroactive application of provisional measures in this case. Canada
    argues, first , that the SCM Agreement does not under any
    circumstances allow for the retroactive application of provisional
    measures, and thus considers that the USDOC Preliminary Critical
    Circumstances Determination is inconsistent with the SCM Agreement.
    In addition, Canada argues that the retroactive application of the
    provisional measures violated the disciplines of Article 17 SCM
    Agreement. Finally, Canada submits that, in any event, and even if
    we were to find that the SCM Agreement would in certain
    circumstances allow for the retroactive application of provisional
    measures, the USDOC failed to establish the existence of critical
    circumstances which would have justified the retroactive application
    of the provisional measures in question.

### Claim 1: retroactive application of provisional measures is inconsistent with Article 20.6 SCM Agreement and violates Article 17.3 and 17.4 SCM Agreement.

#### Arguments of the parties 

##### Canada

2.  Canada is challenging the USDOC Preliminary Critical Circumstances
    Determination on the basis of which the United States retroactively
    applied the provisional measures to entries occurring 90 days prior
    to the date of publication of the preliminary determinations, *i.e.*
    entries occurring in the period of May 19 through August 16, 2001.

3.  According to Canada, a retroactive application of provisional
    measures inevitably violates Article 20.6 SCM Agreement as this
    provision only allows for the retroactive application of
    [definitive]{.underline} duties. Canada argues that the plain and
    ordinary meaning of the terms of Article 20.6 SCM Agreement, read in
    context and in the light of the object and purpose of the provision,
    make clear that only definitive countervailing duties, if warranted,
    can be applied retroactively, and that retroactive application of
    provisional measures is simply not permitted. In addition, Canada
    argues that Article 17.3 SCM Agreement provides that provisional
    measures shall not be applied sooner than 60 days from the date of
    initiation of the investigation. Due to the Preliminary Critical
    Circumstances Determination, provisional measures in this case were
    applied to entries occurring within 90 days prior to the date of
    publication of the Preliminary Determination (17 August 2001), i.e.
    as of 19 May 2001. As a consequence, the date of application of
    provisional measures in this case was less than a month after the
    initiation (23 April 2001), thereby violating Article 17.3 SCM
    Agreement, which provides that provisional measures shall not be
    applied sooner than 60 days from the date of initiation of the
    investigation. In addition, Canada submits that Article 17.4 SCM
    Agreement provides that the maximum period of application of
    provisional measures is 4 months following the Preliminary
    Determination. According to Canada, as the US applied provisional
    duties retroactively for 90 days in addition to the 4 month period
    following the Preliminary Determination, provisional measures were
    applied for almost 7 months thereby violating Article 17.4 SCM
    Agreement. Accordingly, Canada argues, not only is the retroactive
    application of provisional measures not permitted under Article 20.6
    SCM Agreement, but any such action by the United States also
    constitutes a violation of Article 17.3 and 17.4 of the SCM
    Agreement.

4.  Canada therefore considers the USDOC\'s Preliminary Critical
    Circumstances Determination to be inconsistent with Articles
    17.1(b), 17.3, 17.4, 17.5, 19.4 and 20.6 of the SCM Agreement.

##### United States

5.  The United States is of the view that the retroactive application of
    provisional measures, in this case in the form of suspension of
    liquidation and the posting of a bond or cash deposits, is allowed
    under Article 20 SCM Agreement. The United States argues that both
    suspension of liquidation of import entries and the posting of bonds
    or cash deposits are necessary to ensure that it retains the
    possibility of exercising the right to retroactive relief provided
    for in Article 20.6 SCM Agreement. Suspension of liquidation alone
    would not be sufficient, the United States asserts, since, if no
    amount is guaranteed by a cash deposit or bond, Article 20.3 SCM
    Agreement would, on its face, preclude the collection of duties
    retroactively. The retroactive application of provisional measures
    is thus necessary, according to the US, to preserve the possibility
    and the ability to exercise the retroactive definitive remedy.[^128]
    According to the United States, Article 20 SCM Agreement provides an
    exception to the timing provisions of Article 17.3 and 17.4 SCM
    Agreement relating to the maximum duration of the provisional
    measures and the earliest possible date of application of such
    measures. The US argues that Article 20.1 and 20.6 SCM Agreement
    establish an exception which, although not altering the date when
    provisional measures may be imposed, expands the universe of
    "entries" of the subject merchandise to which those measures
    apply.[^129]

6.  In sum, according to the United States, where provisional measures
    are imposed in accordance with the requirements of Article 17 SCM
    Agreement (i.e. after preliminary determinations of subsidization
    and injury), Article 20.1 SCM Agreement permits a Member to expand
    the scope of these provisional measures to encompass entries during
    the 90 days prior to the preliminary determination if there is
    sufficient evidence that the circumstances described in Article 20.6
    SCM Agreement exist.

#### Analysis

##### Does Article 20.6 SCM Agreement allow for the retroactive application of provisional measures?

7.  The USDOC made a preliminary determination of the existence of
    critical circumstances on the basis of which it ordered the
    retroactive application of provisional measures. The USDOC
    accordingly directed the US Customs Service to suspend liquidation
    of all entries of the subject merchandise from Canada, entered or
    withdrawn from warehouse for consumption on or after 90 days prior
    to the date of publication of the Preliminary Determination, and
    instructed Customs to require a cash deposit or bond for such
    entries of the subject merchandise.[^130] The US argues that both
    suspension of liquidation and the posting of bonds or cash deposits
    are necessary to ensure the possibility of exercising the right to
    retroactive definitive relief provided for in Article 20.6 SCM
    Agreement. Thus, for the US, the USDOC Preliminary Critical
    Circumstances Determination is consistent with Article 20.6 SCM
    Agreement.

8.  Article 20 SCM Agreement provides as follows:

*Article 20*

*Retroactivity*

20.1 Provisional measures and countervailing duties [shall only be
applied to products which enter for consumption after the time when the
decision under paragraph 1 of Article 17 and paragraph 1 of Article 19,
respectively, enters into force, subject to the exceptions set out in
this Article.]{.underline}

20.2 Where a final determination of injury (but not of a threat thereof
or of a material retardation of the establishment of an industry) is
made or, in the case of a final determination of a threat of injury,
where the effect of the subsidized imports would, in the absence of the
provisional measures, have led to a determination of injury,
countervailing duties may be levied retroactively for the period for
which provisional measures, if any, have been applied.

20.3 If the definitive countervailing duty is higher than the amount
guaranteed by the cash deposit or bond, the difference shall not be
collected. If the definitive duty is less than the amount guaranteed by
the cash deposit or bond, the excess amount shall be reimbursed or the
bond released in an expeditious manner.

20.4 Except as provided in paragraph 2, where a determination of threat
of injury or material retardation is made (but no injury has yet
occurred) a definitive countervailing duty may be imposed only from the
date of the determination of threat of injury or material retardation,
and any cash deposit made during the period of the application of
provisional measures shall be refunded and any bonds released in an
expeditious manner.

20.5 Where a final determination is negative, any cash deposit made
during the period of the application of provisional measures shall be
refunded and any bonds released in an expeditious manner.

20.6 In critical circumstances where for the subsidized product in
question the authorities find that injury which is difficult to repair
is caused by massive imports in a relatively short period of a product
benefiting from subsidies paid or bestowed inconsistently with the
provisions of GATT 1994 and of this Agreement and where it is deemed
necessary, in order to preclude the recurrence of such injury, to assess
countervailing duties retroactively on those imports, [the definitive
countervailing duties may be assessed on imports which were entered for
consumption not more than 90 days prior to the date of application of
provisional measures.\"]{.underline} (emphasis added)

9.  As its text indicates, Article 20.1 SCM Agreement provides that
    provisional measures and countervailing duties shall only be applied
    to products entering the country following the imposition of such
    measures, \"*subject to the exceptions set out in this Article\"*.
    While Article 20.2 and Article 20.6 SCM Agreement provide for
    explicit exceptions in the case of the *definitive* countervailing
    duties, we find no similar exceptions relating to provisional
    measures. Article 20.2 SCM Agreement sets forth the circumstances in
    which definitive countervailing duties may be applied retroactively
    for the period during which provisional measures were applied.[^131]
    Similarly, in critical circumstances, Article 20.6 SCM Agreement
    allows for the definitive duties to be assessed on imports which
    entered the country from 90 days prior to the date of application of
    the provisional measures.

10. Pursuant to the Preliminary Critical Circumstances Determination,
    the USDOC ordered the retroactive imposition of provisional measures
    in the form of the suspension of liquidation and a cash deposit or
    bond requirement. The US acknowledges in this dispute that such
    measures constitute provisional measures within the meaning of
    Article 17 SCM Agreement.[^132] We are of the view that the only two
    exceptions to the general rule of non-retroactivity of Article 20.1
    SCM Agreement as set forth in Article 20.2 and 20.6 SCM Agreement do
    not apply to provisional measures, but concern definitive
    countervailing duties only. On the basis of the clear language in
    the SCM Agreement, we therefore consider that the general rule of
    non-retroactivity applies to provisional measures, without
    exceptions. We therefore find that the retroactive application of
    the provisional measure imposed by the USDOC is inconsistent with
    Article 20.6 SCM Agreement.

11. We agree with the United States that a Member is allowed to take
    measures which are necessary to preserve the right to later apply
    definitive duties retroactively. In our view, an effective
    interpretation of the right to apply definitive duties retroactively
    requires that a Member be allowed to take such steps as are
    necessary to preserve the possibility of exercising that right. What
    kind of measures may thus be taken by the Member concerned will have
    to be determined on a case-by-case basis. In this case, the US
    argues that both suspension of liquidation and the posting of a cash
    deposit or bond are necessary for the US authorities to be able to
    collect the duties retroactively. According to the United States,
    without suspension of liquidation, the products will have
    definitively entered the country and no duties can be assessed on
    such entries after liquidation. The United States further argues
    that the posting of a bond or a cash deposit is equally necessary
    because Article 20.3 SCM Agreement would not allow the retroactive
    duty collection beyond the amount guaranteed by the cash deposit or
    bond. In the view of the United States, if no cash deposit or bond
    is required, Article 20.3 SCM Agreement would imply that no
    definitive countervailing duty for the period preceding the
    Preliminary Determination could be levied either.

12. We are not convinced by the US argument in respect of the posting of
    cash deposits or bonds. We consider that Article 20.3 SCM Agreement
    states that if the amount guaranteed by the cash deposit is lower
    than the definitive countervailing duty, the difference shall not be
    collected. If the reverse is true, the excess amount shall be
    reimbursed and the bond released in an expeditious manner. Article
    20.3 SCM Agreement thus concerns the wholly different issue of how
    to deal with a discrepancy between the provisional and the final
    rates of the countervailing duty. It does not address the
    retroactive imposition and collection of definitive duties for the
    period before the application of provisional measures. Article 20.6
    SCM Agreement provides that definitive duties may in certain
    circumstances be assessed on imports which were entered for
    consumption from 90 days *prior to the date of application of
    provisional measures*.

13. The text thus clearly indicates that the Agreement allows for the
    retroactive application of definitive duties at a time when
    [no]{.underline} provisional measures were in place and thus
    [no]{.underline} provisional duties were collected. To accept the US
    argument that Article 20.3 SCM Agreement would preclude a Member
    from collecting definitive duties for the period prior to the date
    of application of provisional measures, would mean that a Member
    doing what Article 20.6 SCM Agreement expressly allows for, would be
    violating the Agreement nevertheless. We cannot accept an
    interpretation which leads to this contradictory result. We consider
    that the principle of effective treaty interpretation requires the
    treaty interpreter to \"read all applicable provisions of a treaty
    in a way that gives meaning to *all* of them, harmoniously.\"[^133]

14. We therefore find that the USDOC retroactive application of
    provisional measures is inconsistent with Article 20.6 SCM
    Agreement, as this provision allows for the retroactive application
    of [definitive]{.underline} duties only. In our view, and leaving
    aside the question which sorts of actions of a conservatory nature a
    Member would be allowed to take in order to preserve the right to
    apply definitive duties retroactively, provisional measures such as
    the requirement of a cash deposit or the posting of a bond are not
    necessary to preserve the right to apply definitive duties
    retroactively under the SCM Agreement.[^134]

##### Does the retroactive application of provisional measures also violate the disciplines of Article 17 SCM Agreement. 

15. We next turn to Canada\'s claim pursuant to Article 17.3 and 17.4
    SCM Agreement in respect of the date of application and the duration
    of the provisional measures in this case. These provisions read as
    follows:

\"17.3 Provisional measures shall not be applied sooner than 60 days
from the date of initiation of the investigation.

17.4 The application of provisional measures shall be limited to as
short a period as possible, not exceeding four months\".

16. In our view, Article 17.3 and 17.4 SCM Agreement are unambiguous,
    clearly specifying that provisional measures shall not be applied
    sooner than 60 days after initiation and their application shall be
    limited to maximum 4 months. Article 20.1 SCM Agreement provides
    that provisional measures may be applied only to products which
    entered the country after the time when the decision under paragraph
    1 of Article 17 SCM Agreement was taken, subject to the exceptions
    set out in that Article. In respect of the starting-point for the
    application of provisional and final measures, Article 20 SCM
    Agreement thus establishes two exceptions to the general rule of
    non-retroactivity of final countervailing duties and no exceptions
    to the general rule of non-retroactivity of provisional measures.
    Nothing in Article 20 SCM Agreement provides an exception to the
    rules relating to the minimum period between initiation and
    application of provisional measures or the maximum period of
    application of such measures as provided for in Article 17.3 and
    17.4 SCM Agreement.

17. The USDOC initiated its countervailing duty investigation on 23
    April 2001, and applied retroactive provisional measures on imports
    entering from 19 May 2001, i.e. less than 60 days after initiation.
    The USDOC applied provisional measures on imports entering from 19
    May 2001, until 14 December 2001, which is 4 months after the
    Preliminary Determination. In total, the provisional measure thus
    covered imports for a period of almost 7 months. We therefore find
    that the US application of provisional measures during the period
    prior to the 60 days after initiation, and for longer than 4 months
    is inconsistent with Article 17.3 and 17.4 SCM Agreement.

18. We consider that the US argument that the period of application in
    Article 17.4 SCM Agreement refers to the period during which cash
    deposits or bonds are taken rather than the period during which the
    affected imports enter for consumption would have the effect of
    nullifying the provision, particularly in light of Article 20.1 SCM
    Agreement. We cannot accept such an interpretation which would
    reduce a provision of the treaty to redundancy or inutility.[^135]
    The US interpretation would allow significantly more than 4 months
    worth of entries to be covered by a provisional measure. For
    example, under this interpretation, a decision under Article 17.1
    SCM Agreement could be taken after 60 days, following which the
    importing country would wait say 3 months before \"applying\" the
    provisional measures for 4 months, including retroactively to
    imports entering after the date of the decision. In our view this
    would render meaningless the disciplines imposed by Article 17 SCM
    Agreement.

#### Conclusion

19. In sum, we find that the United States\' application of provisional
    measures in the form of cash deposits or bonds under the USDOC
    Preliminary Critical Circumstances Determination is inconsistent
    with Article 20.6 SCM Agreement, as this provision does not allow
    for the retroactive application of provisional measures. In
    addition, we find that the provisional measures at issue were
    applied in violation of Article 17.3 and 17.4 SCM Agreement as they
    were imposed less than 60 days after initiation and covered imports
    for a period of more than four months.

### Claim 2: USDOC failed to establish critical circumstances under Article 20.6 SCM Agreement

#### Arguments of the parties

##### Canada

20. Canada argues that even if, in theory, retroactive application of
    provisional measures were permitted under Article 20.6 SCM
    Agreement, the USDOC Preliminary Critical Circumstances
    Determination is still inconsistent with Article 20.6 SCM Agreement
    since the USDOC failed to establish the existence of critical
    circumstances.

21. Canada asserts that the Investissement Quebec Small and Medium
    Businesses Guarantee programme (the \"IQ SMB\" programme) upon which
    the USDOC Preliminary Critical Circumstances Determination was based
    is not a prohibited export subsidy, as it is contingent upon
    developing markets outside Quebec, not outside Canada. Therefore the
    determination that the alleged massive imports have benefitted from
    subsidies bestowed inconsistently with the provisions of GATT 1994
    and of the SCM Agreement is, in Canada\'s view, flawed. In any case,
    Canada submits, even if the IQ SMB programme were a prohibited
    subsidy, the amount of the subsidy found (0.005 per cent) is
    *de minimis.* Canada argues that Article 11.9 SCM Agreement provides
    that a *de minimis* rate is an insufficient basis for applying any
    countervailing measure whether final or provisional, and the
    determination was thus made in the absence of any critical
    circumstances in the sense of Article 20.6 SCM Agreement.[^136]

22. Canada argues that even if the IQ SMB Guarantee programme were a
    prohibited export subsidy, Articles 17.5 and 19.4 SCM Agreement, as
    well as Article 20.6 SCM Agreement, require that the rate to be
    applied retroactively to this programme should have been no more
    than the rate of subsidization under this programme, i.e.
    0.005 per cent rather than the country-wide rate of 19.3 per cent.
    Canada argues that the text of Article 20.6 SCM Agreement allows for
    the retroactive application of only the rate that is commensurate
    with the benefit bestowed by the alleged prohibited subsidy. By
    applying a duty at this higher rate, the US countervailed to an
    amount in excess of that required to \"preclude the recurrence of
    the injury\" caused by such subsidies in \"critical circumstances\",
    which is the object and purpose of Article 20.6 SCM Agreement. The
    US thus violated Article 20.6 SCM Agreement as well as Articles 17.5
    and 19.4 SCM Agreement.

23. Canada further asserts that countervailing measures were applied
    retroactively without a finding by USDOC or USITC of \"injury which
    is difficult to repair\" or that the retroactive application of the
    duties was \"necessary to preclude the recurrence of such injury\"
    in violation of the explicit requirements of Article 20.6 SCM
    Agreement. Canada adds that the USDOC itself admitted as much, as it
    acknowledged that these findings would have to be made by the USITC
    at the time of the final critical circumstances determination.[^137]

24. Canada submits that the USDOC\'s finding of \"massive imports\" is
    flawed as it is based on all imports from Canada while the SMB
    subsidy programme applies only to shipments from Quebec. Moreover,
    in Canada\'s opinion, the increase in imports of 23.34 per cent
    following the petition was not due to the alleged export subsidy of
    a de minimis level but rather to the anticipated and then actual
    expiration of the Softwood Lumber Agreement between the US and
    Canada, which first sharply reduced exports in the first quarter of
    2001 and whose actual expiry led to an increase in the second
    quarter. Canada submits that the retroactive application of
    provisional measures in the absence of \"massive imports of a
    product benefitting from subsidies paid or bestowed inconsistently
    with the GATT 1994 and the SCM Agreement\" is in violation of
    Article 20.6 SCM Agreement.

25. Canada finally argues that if it is permissible to include for
    purposes of determining massive imports, shipments that have not
    benefitted from the prohibited subsidy, an authority should include
    [all]{.underline} such shipments and not just the portion of such
    shipments that an authority needs in order to find a high rate of
    subsidization. Canada asserts that the finding of \"massive
    imports\" violates Article 20.6 SCM Agreement, as it did not include
    all shipments from Canada, but rather excluded imports from the
    Maritime provinces, which would have resulted in a negative
    \"massive imports\" finding under the SCM Agreement.

##### United States

26. The United States argues that there existed a sufficient basis for a
    preliminary critical circumstances determination, especially as in
    its view the evidentiary standard in the case of a preliminary
    determination should be lower than in case of a final determination.

27. According to the US, one Canadian provincial subsidy programme was
    an Article 3- inconsistent export subsidy which was meant to promote
    economic development in Quebec by encouraging growth of exports. The
    US argues that the existence of a prohibited export subsidy suffices
    to preserve the possibility of retroactive application later, and
    the fact that this programme's subsidy rate was *de minimis* is not
    relevant in this respect.

28. The US further submits that, as no methodology is prescribed in the
    SCM Agreement for determining the existence of "massive imports", it
    was reasonable for the USDOC to consider an increase of 23 per cent
    as massive. The US notes that the USDOC's analysis in this respect
    took the expiration of the Softwood Lumber Agreement between Canada
    and the US into account and came to the conclusion that it did not
    have the distorting effect Canada is alleging.

29. The US finally notes that the USITC had already made a preliminary
    finding of injury before the USDOC made its Preliminary Critical
    Circumstances Determination. According to the US, the remaining
    conditions for the retroactive application of definitive duties,
    relating to injury which is difficult to repair, are necessarily
    determinations that can only be made at the time of the final
    determination. For the purpose of the Preliminary Critical
    Circumstances Determination and the retroactive application of
    provisional measures, the preliminary determination of injury by the
    USITC was sufficient.

#### Analysis

30. Canada argues that \"\[e\]ven if the Panel found that provisional
    measures could be applied retroactively under Article 20.6, Commerce
    had not established the existence of any or all of the elements
    required under that provision\".[^138] In light of the fact that we
    uphold Canada\'s principal claim by finding that the Agreement does
    not allow for the retroactive application of provisional measures,
    we do not consider it necessary for the resolution of the dispute
    before us to address the arguments made by the parties concerning
    the specific hypothetical conditions that would need to be met for
    such inconsistent measures to be applied. For this reason we apply
    judicial economy and do not rule on this claim.

### Conclusion on Canada\'s claim concerning the USDOC Preliminary Critical Circumstances Determination 

31. In light of the conclusions above, we find that the United States\'
    retroactive imposition of provisional measures on the basis of the
    USDOC Preliminary Critical Circumstances Determination is
    inconsistent with Article 20.6 SCM Agreement, as there does not
    exist a basis for the retroactive application of provisional
    measures in the SCM Agreement. Moreover, the retroactive application
    of provisional measures in the form of a cash deposit or bond in
    this case violated Article 17.3 and 17.4 SCM Agreement, as the
    measures covered imports for a period of almost seven months and
    were applied before sixty days after the initiation of the
    investigation. In light of this finding, we do not consider it
    necessary or appropriate to examine Canada\'s claims with regard to
    a violation of Articles 17.1 (b), 17.5 and 19.4 SCM Agreement and
    Article VI:3 GATT 1994.

## claim of Inconsistent CVD Law concerning Expedited and Administrative Reviews

#### Arguments of the parties

##### Canada

32. Canada claims that US countervailing duty law[^139] violates the
    United States\' obligations under the WTO because it fails to
    provide for company-specific expedited reviews and \"administrative
    reviews\"[^140] in countervailing duty cases in which the
    investigation was conducted on an aggregate basis[^141], and because
    it mandates that a single country-wide duty rate calculated in an
    administrative review supersedes all individual rates previously
    determined in the countervailing duty proceeding.[^142] Canada
    considers that these measures are inconsistent with US obligations
    under Article VI:3 of GATT 1994 and Articles 10, 19.3, 19.4, 21.2
    and 32.1 of the SCM Agreement.[^143]

33. In particular, Canada submits that the US legislation is in
    violation of Article 19.3 SCM, which according to Canada provides
    that exporters \"not actually investigated\" are entitled upon
    request, with \"no exceptions\" to an \"expedited review\" to
    establish an individual countervailing duty rate for that
    exporter.[^144] Canada further submits that the US legislation is in
    violation of Article 21.2 SCM Agreement, which in Canada\'s view
    entitles exporters and producers to a \"company-specific
    administrative review\" upon request, again with \"no
    exceptions\".[^145]

34. Canada submits that by maintaining legislation which is inconsistent
    with the SCM Agreement, the US also failed to ensure the conformity
    of its laws, regulations and administrative procedures with its
    obligations under the SCM Agreement in violation of Article XVI:4
    WTO Agreement and Article 32.5 SCM Agreement.

35. Canada further submits that, since the USDOC conducted the softwood
    lumber investigation on a country-wide basis, the cited US
    legislation denies expedited reviews and company specific
    administrative reviews to the exporters concerned in the
    investigation, which in turn will necessarily amount to a duty being
    applied to certain exporters in excess of their individual duty
    rate. This, Canada argues, is in violation of Articles 19.3, 21.2
    and 19.4 SCM Agreement.

36. According to Canada, the US statute, Section 777A(e)(2)(B), by
    failing to explicitly provide for company-specific expedited and
    administrative reviews where an investigation has been conducted on
    an aggregate basis, makes such reviews impossible. Canada further
    submits that Section 351.213(b) of the USDOC Regulations
    specifically denies exporters and producers an \"administrative
    review\" if the investigation was conducted on an aggregate basis.
    Finally, Canada argues, the requirement of Section 351.213 (k) (2)
    of the Regulations, that a single country-wide duty rate calculated
    in an administrative review supersede all individual rates
    previously established through expedited reviews, undoes the benefit
    of the expedited review under Article 19.3 SCM Agreement, and
    prevents exporters from obtaining an individual rate in an
    administrative review.

##### United States

37. The US argues that the US laws and regulations referred to by Canada
    do not constitute mandatory legislation, and therefore cannot be
    challenged as such before a WTO panel.[^146]

38. In particular, the US argues, US law does not prohibit the conduct
    of such reviews. The United States maintains that the USDOC
    Regulations cited in Canada\'s claim do not apply to cases in which
    investigations are conducted on an aggregate basis -- a very rare
    situation - and the fact that no regulations concerning expedited or
    administrative reviews have yet been promulgated for this situation
    does not mean that such reviews are prohibited. Rather, the US
    submits, Section 751 of the US Tariff Act provides for a broad
    authority to conduct reviews, and does not require further
    regulations to be implemented by the USDOC. The US further notes its
    view that Article 21.2 SCM Agreement in any case does not imply an
    unfettered right to a review in all cases upon request as Canada
    seems to be suggesting. The US asserts that Canada also is mistaken
    when it claims that a decision by USDOC to conduct an investigation
    on an aggregate basis necessarily implies the denial of an expedited
    review or a company-specific \"administrative review\".

#### Analysis

39. Canada argues that the US laws and regulations are inconsistent with
    Articles 19.3 and 21.2 SCM Agreement relating to expedited and
    administrative reviews respectively.

40. With regard to expedited reviews, Article 19.3 SCM Agreement
    provides as follows:

\"When a countervailing duty is imposed in respect of any product, such
countervailing duty shall be levied, in the appropriate amounts in each
case, on a non‑discriminatory basis on imports of such product from all
sources found to be subsidized and causing injury, except as to imports
from those sources which have renounced any subsidies in question or
from which undertakings under the terms of this Agreement have been
accepted. [Any exporter whose exports are subject to a definitive
countervailing duty but who was not actually investigated for reasons
other than a refusal to cooperate, shall be entitled to an expedited
review in order that the investigating authorities promptly establish an
individual countervailing duty rate for that exporter]{.underline}\".
(emphasis added)

41. Article 21.2 SCM Agreement concerning certain kinds of reviews
    provides that:

\"The authorities shall review the need for the continued imposition of
the duty, where warranted, on their own initiative or, provided that a
reasonable period of time has elapsed since the imposition of the
definitive countervailing duty, upon request by any interested party
which submits positive information substantiating the need for a review.
Interested parties shall have the right to request the authorities to
examine whether the continued imposition of the duty is necessary to
offset subsidization, whether the injury would be likely to continue or
recur if the duty were removed or varied, or both. If, as a result of
the review under this paragraph, the authorities determine that the
countervailing duty is no longer warranted, it shall be terminated
immediately\".

42. Due to the US laws and regulations\' alleged inconsistencies with
    Articles 19.3 and 21.2 SCM Agreement, Canada also alleges that the
    US violates Article 32.5 SCM Agreement, which provides as follows:

\"Each Member shall take all necessary steps, of a general or particular
character, to ensure, not later than the date of entry into force of the
WTO Agreement for it, the conformity of its laws, regulations and
administrative procedures with the provisions of this Agreement as they
may apply to the Member in question.\"[^147]

43. Canada further, and finally, alleges that because exporters in the
    lumber case are denied by [US law]{.underline} the possibility of
    expedited reviews and company-specific administrative reviews, the
    United States also violates Articles 10, 19.4 and 32.1 SCM Agreement
    and Article VI:3 of GATT 1994. Article 19.4 SCM Agreement provides
    that no countervailing duty shall be levied in excess of the amount
    of the subsidization found to exist, calculated per unit of the
    subsidized exported product. Canada argues that the legislatively
    required denial of the reviews at issue will necessarily result in a
    violation of Article 19.4 SCM Agreement as certain exporters will be
    subject to countervailing duties in excess of their rates of
    subsidization. As a consequence, according to Canada, Articles 10
    and 32.1 SCM Agreement are violated, as these provisions require
    Members to ensure conformity with the SCM Agreement and Article VI:3
    of GATT 1994 in conducting investigations and applying
    countervailing duties.

##### Mandatory versus discretionary legislation

44. We consider that it is a well established GATT/WTO practice that
    legislation can only be challenged as such before a WTO panel, when
    it is mandatory in nature and *requires* the violation of the
    Agreement. As the Appellate Body in the *United States -- 1916 Act*
    stated:

\"88. As indicated above, the concept of mandatory as distinguished from
discretionary legislation was developed by a number of GATT panels as a
threshold consideration in determining when legislation as
such -- rather than a specific application of that legislation -- was
inconsistent with a Contracting Party\'s GATT 1947 obligations. The
practice of GATT panels was summed up in *United States -- Tobacco*  as
follows:

... panels had consistently ruled that legislation which mandated action
inconsistent with the General Agreement could be challenged as such,
whereas legislation which merely gave the discretion to the  *executive
authority * of a contracting party to act inconsistently with the
General Agreement could not be challenged as such; only the actual
application of such legislation inconsistent with the General Agreement
could be subject to challenge. (emphasis added)

89\. Thus, [the relevant discretion, for purposes of distinguishing
between mandatory and discretionary legislation, is a discretion vested
in the  *executive* *branch * of government]{.underline}\". (footnotes
omitted) (emphasis added)[^148]

45. We thus consider that legislation which merely gives the executive
    authority the discretion, either through silence or otherwise, to
    act inconsistently with the Agreement cannot as such be challenged
    before a Panel, i.e. independent of its actual application in a
    particular case.

46. The question before us is thus whether the US laws and regulations
    on administrative and expedited reviews are inconsistent with the
    SCM Agreement by mandating a violation of the relevant provisions of
    the SCM Agreement. Canada challenges the following US legislative
    provisions as inconsistent with the obligations of the United States
    under the SCM Agreement:

-   Section 777A(e)(2)(A) and (B) of the Tariff Act of 1930, as
    interpreted by the Statement of Administrative Action (SAA)(pages
    941-942); and

-   the Department of Commerce Regulations at 19 C.F.R. Section
    351.214(k) and Section 351.213(b) and (k)[^149]

##### The US Statute and the Statement of Administrative Action

1.  Sections 777A(e)(2)(A) and (B) of the US Tariff Act provide as
    follows:

\" (e) Determination of Countervailable Subsidy Rate.

. . .

\(2\) Exception. If the administering authority determines that it is
not practicable to determine individual countervailable subsidy rates
under paragraph (1) because of the large number of exporters or
producers involved in the investigation or review, the administering
authority may

\(A\) determine individual countervailable subsidy rates for a
reasonable number of exporters or producers by limiting its examination
to

\(i\) a sample of exporters or producers that the administering
authority determines is statistically valid based on the information
available to the administering authority at the time of selection, or

\(ii\) exporters and producers accounting for the largest volume of the
subject merchandise from the exporting country that the administering
authority determines can be reasonably examined; or

\(B\) determine a single country-wide subsidy rate to be applied to all
exporters and producers.\"

2.  The relevant part of the SAA reads as follows:

\"Section 265 (1) of the implementing bill repeals section 706 (a)(2).
It eliminates the presumption in favor of a single country-wide CVD rate
and amends section 777A of the Act to establish a general rule in favor
of individual CVD rates for each exporter or producer individually
investigated. \[...\] In addition, instead of examining a limited number
of individual exporters and producers, section 777 A (e)(2)(B) would
permit Commerce to calculate, on the basis of aggregate data, a single
country-wide subsidy rate to be applied to all exporters and producers
of the subject merchandise.\"[^150]

3.  Section 777 of the US Tariff Act of 1930 does not deal with the
    conduct of administrative or expedited reviews as such, but merely
    provides for the possibility in investigations and reviews to
    calculate the rate of subsidization on an aggregate basis and to
    determine a country-wide subsidy rate. In our view, the SAA[^151]
    only confirms that although no longer the rule, it remains possible
    to conduct an investigation or a review on an aggregate basis and
    determine a country-wide duty rate. Nothing in the statute or the
    SAA indicates that expedited reviews or company-specific
    administrative reviews are necessarily excluded where an
    investigation has been conducted on an aggregate basis. In other
    words, neither the statute nor the SAA on its face appears to
    prohibit the USDOC from conducting such reviews where the
    investigation has been conducted on an aggregate basis.

##### USDOC Regulations

4.  We now consider whether the US Department of Commerce Regulations
    cited by Canada prohibit the USDOC from conducting either expedited
    reviews or company-specific \"administrative reviews\", and if so,
    whether any such prohibition would violate Articles 19.3 or 21.2 SCM
    Agreement, as Canada alleges.

*(a) Expedited reviews*

5.  With regard to expedited reviews, Canada alleges that USDOC
    Regulations Section 351.214(k)(l) prohibits the conduct of expedited
    reviews where an investigation has been conducted on an aggregate
    basis.

6.  We recall the relevant part of Article 19.3 SCM Agreement, namely
    that any exporter whose exports were not actually investigated for
    reasons other than a refusal to cooperate is \"*entitled*\" to an
    expedited review to establish an individual countervailing duty
    rate. To us, this text makes clear that an expedited review to
    establish an individual countervailing duty rate must be conducted,
    upon request, for any exporter of the type referred to in Article
    19.3 SCM Agreement. Thus, the question before us is whether the
    relevant regulations prohibit the USDOC from conducting such reviews
    in aggregate cases.

7.  Section 351.214(k)(1) of the USDOC Regulations provides in relevant
    part:

> > \(k\) *Expedited reviews in countervailing duty proceedings for
> > noninvestigated exporters*. (1) *Request for review.* If, in a
> > countervailing duty investigation, the Secretary limited the number
> > of exporters or producers to be individually examined under section
> > 777A(e)(2)(**A**) of the Act, an exporter that the Secretary did not
> > select for individual examination or that the Secretary did not
> > accept as a voluntary respondent (*see* § 351.204(d)) may request a
> > review under this paragraph (k).

8.  Canada argues that because this regulation refers only to expedited
    reviews in the case of investigations conducted on the basis of the
    exception set forth in Section 777A(e)(2)(**A**) of the Act
    (sampling), it is impossible for the USDOC to conduct such reviews
    in investigations conducted on the basis of the *other* exception in
    the statute (aggregate cases), which is provided for in
    Section 777A(e)(2)(**B**) of the Act. Canada bases this argument on
    the fact that expedited reviews are expressly provided for in the
    Regulations, except in respect of aggregate cases. In Canada\'s
    view, it is a basic principle of statutory construction that if a
    right is provided for in certain circumstances, its deliberate
    exclusion in other circumstances must be given meaning, in
    particular, that no such right exists in those other cases. Thus,
    Canada argues, Section 351.214(k)(1), by providing for expedited
    reviews for cases other than aggregate cases, precludes the
    possibility of such reviews in aggregate cases.

9.  The United States responds that Section 351.214(k)(1) does not cover
    aggregate cases. According to the United States, the fact that the
    USDOC has not issued regulations to cover such cases, which are
    rare, does not justify Canada\'s conclusion that US law prohibits
    expedited reviews in aggregate cases. The United States further
    argues that the USDOC has broad discretion under the statute, in
    particular Section 751 of the US Tariff Act (which is not before us
    in this dispute), to conduct the kinds of reviews required by the
    SCM Agreement.[^152] According to the US, Section 751 of the Tariff
    Act provides the USDOC with ample authority to fulfil all of the
    United States' obligations under the SCM Agreement, with regard to
    expedited and administrative reviews alike.

10. We note that the regulation at issue in respect of Canada\'s claim
    concerning expedited reviews, Section 351.214(k)(l) USDOC
    Regulations, addresses only one of the two situations identified in
    the US statute as an exception to the general rule of
    company-specific rates of subsidization. Namely, this regulation
    addresses the exceptional situation of an investigation conducted on
    the basis of some sort of a sample. Canada would have us infer, *a
    contrario*, that the silence of this regulation and the absence of
    any other in respect of the other exceptional situation -- an
    investigation conducted on an aggregate basis -- means that the
    USDOC is prohibited by law from conducting expedited reviews in such
    a situation. We find Canada\'s *a contrario* argument to be
    unjustified. We consider that the fact that no regulation exists
    regarding the apparently rare case of aggregate investigations does
    not imply that the USDOC is required by law to deny any requests for
    expedited review where an aggregate countervailing duty rate has
    been applied. In other words, the USDOC Regulations are simply
    silent on the issue.

11. We thus agree with the US that the fact that the USDOC has not
    elected to codify specific rules for handling what could potentially
    be an extremely large number of expedited reviews in an aggregate
    case does not in any way diminish the Department's statutory
    authority to conduct such reviews.[^153] We therefore find that the
    fact that 19 C.F.R. § 351.214(k)(1) does not specifically address
    the possibility of expedited reviews in aggregate cases does not
    prohibit such reviews. In fact, as Canada acknowledged in the course
    of the second meeting with the Panel, \"with respect to expedited
    reviews, we note that the United States has in fact posted a notice
    indicating that it will accept requests for such reviews in the
    *Lumber IV* case.\"[^154] We consider that this is further evidence
    of the fact that the US laws and regulations challenged by Canada do
    not require the authority to deny any expedited reviews in case of
    an aggregate investigation. We consider that the fact that no
    regulation exists regarding the apparently rare case of aggregate
    investigations, does not imply that exporters are denied by law the
    right to an expedited review where an aggregate countervailing duty
    rate was applied. The US laws and regulations cited by Canada thus
    do not mandate a violation of the requirement under Article 19.3 SCM
    Agreement to conduct an expedited review in order that the authority
    promptly establish an individual countervailing duty rate for any
    exporter whose exports are subject to a definitive countervailing
    duty but who was not actually investigated for reasons other than a
    refusal to cooperate. For this reason also, we do not find that the
    USDOC is required by law to violate Article 19.4 SCM Agreement in
    the softwood lumber case by inevitably levying countervailing duties
    in excess of the amount of the subsidy found.

12. In sum, we find that the above-cited US laws and regulations
    concerning expedited reviews do not mandate a violation of Article
    19.3 SCM Agreement, or thereby, of Article 19.4 SCM Agreement, and
    thus reject Canada\'s claims in this respect.

*(b) Company specific \"administrative reviews\"*

13. Canada submits that Article 21.2 SCM Agreement, read in the light of
    Article 21.1 SCM Agreement, contains the clear obligation to provide
    company-specific \"administrative reviews\" i.e., calculation of
    duty rate for a given period, upon request, without exceptions.
    Thus, Canada argues, the United States must provide for, and
    conduct, administrative reviews *upon request* to determine not only
    whether countervailing duties are necessary at all, but also to
    establish company-specific rates*.* Canada asserts that there are no
    exceptions to the US obligation to provide for administrative
    reviews.[^155]

14. According to Canada, under US law, contrary to the clear obligation
    in Article 21.2 SCM Agreement, an administrative review is not
    available to an exporter (nor to a producer, domestic interested
    party, foreign government, or importer) where the USDOC has
    conducted its investigation or prior administrative review under
    Section 777A(e)(2)(B) of the Act (*i.e.* where the USDOC has
    established a country-wide rate).

15. Canada further argues that because US law prohibits such
    company-specific administrative reviews, it also violates the
    requirement in Article 19.3 SCM Agreement to conduct expedited
    reviews upon request. Here, Canada argues, because exporters and
    producers are denied an administrative review (to finalize the rate
    of duty collection) if the investigation was conducted on an
    aggregate basis, this means that an exporter or producer would still
    be denied the opportunity to obtain a *final* individual
    countervailing duty rate, contrary to Article 19.3 SCM Agreement,
    even if that exporter or producer were given the right to an
    expedited review to establish an individual *cash deposit* rate.
    Canada further argues that, as a result, Article 19.4 SCM Agreement
    is also violated, as the legislatively required denial of the
    reviews at issue will necessarily result in a violation of 19.4 SCM
    Agreement since certain exporters will be subject to countervailing
    duties in excess of their rates of subsidization.

16. The United States argues, in the first instance, that Article 21.2
    SCM Agreement does not contain the obligation asserted by Canada.
    The United States notes that what its law refers to as
    \"administrative reviews\" are the annual reviews that it conducts
    to finalize the duty collection rate under its retrospective duty
    assessment system. In the US view, these sorts of reviews are not
    covered by Article 21.2 SCM Agreement. Rather, according to the
    United States, Article 21.2 SCM Agreement provides for, and
    requires, three completely different types of review: reviews to
    determine (1) whether the continued imposition of the duty is
    necessary to offset subsidization; (2) whether the injury would be
    likely to continue or recur if the duty were removed or varied;
    or (3) both.[^156] Furthermore, the United States argues, even if
    Canada were correct that Article 21.2 SCM Agreement does require
    administrative reviews in the US sense of the term, Section 751(a)
    of the Tariff Act gives the USDOC ample discretion to conduct
    administrative reviews.

17. The legislative provisions cited by Canada as violating US
    obligations in respect of administrative reviews are Section
    351.213(b) subparagraphs (1) and (2), and Section 351.213(k)
    subparagraph (2) of the USDOC Regulations.

18. Section 351.213(b) subparagraphs (1) and (2) of the USDOC
    Regulations provide as follows:

> \(b\) *Request for administrative review.* (1) Each year during the
> anniversary month of the publication of an antidumping or
> countervailing duty order, a domestic interested party or an
> interested party described in section 771(9)(B) of the Act (foreign
> government) may request in writing that the Secretary conduct an
> administrative review under section 751(a)(1) of the Act of specified
> individual exporters or producers covered by an order ([except for a
> countervailing duty order in which the investigation or prior
> administrative review was conducted on an aggregate
> basis]{.underline}), if the requesting person states why the person
> desires the Secretary to review those particular exporters or
> producers.
>
> \(2\) During the same month, an exporter or producer covered by an
> order ([except for a countervailing duty order in which the
> investigation or prior administrative review was conducted on an
> aggregate basis]{.underline}) may request in writing that the
> Secretary conduct an administrative review of only that person.
>
> \(3\) During the same month, an importer of the merchandise may
> request in writing that the Secretary conduct an administrative review
> of only an exporter or producer ([except for a countervailing duty
> order in which the investigation or prior administrative review was
> conducted on an aggregate basis]{.underline}) of the subject
> merchandise imported by that importer. (emphasis added)

19. Section 351.213(k) subparagraph (2) on administrative review
    provides:

> \(2\) *Application of country-wide subsidy rate.* With the exception
> of assessment and cash deposit rates of zero determined under
> paragraph (k)(1) of this section, if, in the final results of an
> administrative review under this section of a countervailing duty
> order, the Secretary calculates a single country-wide subsidy rate
> under section 777A(e)(2)(B) of the Act, [that rate will supersede, for
> cash deposit purposes, all rates previously determined in the
> countervailing duty proceeding in question]{.underline}. (emphasis
> added)

20. Canada further asserts that the only requests the Secretary of the
    USDOC will consider for an individual administrative review in cases
    where administrative reviews are conducted on an aggregate
    (country-wide) basis, are those for individual assessment and cash
    deposit rates of zero under subparagraph (1) of Section 351.213(k)
    and even then, "only to the extent practicable." This regulation
    provides in relevant part as follows:

\"(k) *Administrative reviews of countervailing orders conducted on an
aggregate basis --* (1) *Request for a zero rate.* Where the Secretary
conducts an administrative review of a countervailing duty on an
aggregate basis under section 777A(e)(2)(B) of the Act, the Secretary
will consider and review requests for individual assessment and cash
deposits of zero to the extent practicable....\"

21. In view of the nature of Canada\'s claim the first question that we
    must address is the nature of the obligations under Article 21.2 SCM
    Agreement, and in particular, whether that provision requires
    \"administrative reviews\" as that term is used in this dispute,
    i.e. the yearly review procedure undertaken by the United States in
    its retrospective duty assessment system. Here, we agree with the
    United States that Article 21.2 SCM Agreement deals with different
    kinds of review mechanisms, requiring the authority to provide for
    the right of interested parties to request the authorities to
    examine whether the continued imposition of the duty is necessary to
    offset subsidization, whether the injury would be likely to continue
    or recur if the duty were removed or varied, or both. Thus, the
    first type of review addresses the question of whether subsidization
    is present at all, while the second type of review, by its very
    terms, has to do primarily with injury questions, that is, the
    effect on the domestic industry of changing or removing entirely the
    countervailing duty. This second type of review thus does not have
    to do with finalizing the rate of countervailing duty during a
    particular period for which estimated duties have been collected,
    but rather with the underlying need and rationale, from the
    standpoint of the affected domestic industry, for maintaining a
    countervailing duty. In short, Article 21.2 SCM Agreement is silent
    on the question of \"administrative reviews\".

22. In the USDOC Regulations, Section 351.213 quoted above deals with
    administrative reviews under Section 751 (a) of the US Tariff Act
    entitled \"periodic review of amount of the duty\" and sets forth
    the yearly duty assessment and review mechanism as part of the US
    retrospective duty assessment system. Section 751 (b) of the Tariff
    Act entitled \"reviews based on changed circumstances\" provides
    that the US International Trade Commission shall upon receipt of a
    substantiated request from an interested party review whether
    revocation of the order is likely to lead to the continuation or
    recurrence of injury.[^157] In our view, Section 751 (b) of the
    Tariff Act is the relevant provision of the US legislation
    implementing the US obligations under Article 21.2 SCM Agreement to
    review the need for continued imposition of the duty, *inter alia*
    upon request from an interested party to examine whether injury
    would be likely to continue or recur if the duty were removed or
    varied. Leaving aside the question of whether the US legislation
    provides for detailed regulations to deal with all the rights
    exporters are entitled to in this context, we find that the US
    statute allows the investigating authority to provide for and
    conduct reviews consistently with the SCM Agreement.

23. In addition, we consider that although Section 351.213 (b) states
    that the rules relating to administrative duty assessment reviews
    are not applicable to cases where the original investigation or the
    prior administrative review was conducted on an aggregate basis, it
    does not restrict the USDOC \'s authority to conduct reviews, nor
    does it require the authority to deny interested parties the right
    to request reviews in the sense of Article 21 SCM Agreement. We
    further note that subparagraph (k) of the same Section 351.213
    provides an opportunity for exporters to request reviews where their
    subsidy rates are zero.[^158] We consider that this review
    possibility tracks Article 21.2 SCM Agreement which provides for
    reviews to determine *inter alia* whether the continued imposition
    of the duty is necessary to offset subsidization.[^159]

24. We conclude that with regard to \"administrative reviews\", the
    challenged USDOC Regulations specify the rules that apply to a
    certain kind of review, and do not on their face alter the general
    statutory requirement to conduct reviews in the sense of Article 21
    SCM Agreement. In our view, and in light of the broad statutory
    authority for the US authorities to conduct administrative reviews
    under Section 751 of the Tariff Act, and the specific provision in
    the Regulations which allows for review requests in case of a zero
    duty rate, we do not consider that the US laws and regulations
    mandate the executive authority to deny interested parties the
    opportunity to request a review of the need for the continued
    imposition of the duty under Article 21.2 SCM Agreement. In the
    absence of provisions in the legislation which require the executive
    authority to act in violation of the SCM Agreement, we reject
    Canada\'s claim in this respect.

25. We next consider Canada\'s claim that the alleged prohibition under
    US law of company-specific administrative reviews in aggregate cases
    also violates Article 19.3 SCM Agreement, by foreclosing the
    possibility in such cases that the results of expedited reviews
    would ever give rise to company-specific final countervailing duty
    rates, and Article 19.4 SCM Agreement, as certain exporters will be
    subject to countervailing duties in excess of their rates of
    subsidization. As we have found that the legislation challenged by
    Canada does not mandate a violation of Article 21.2 SCM Agreement,
    and that the USDOC has broad discretion to conduct reviews under
    Article 21 SCM Agreement, we also reject this claim. In addition,
    and more specifically, we note that Section 351.213(k) subparagraph
    (2), cited by Canada in connection with this claim, does not
    directly address the situation alluded to by Canada, and thus does
    not mandate the violation alleged by Canada. In particular, this
    regulation provides that where an administrative review is conducted
    on an aggregate basis, the final results of that review will
    supersede the previously-established countervailing duty rates. This
    regulation therefore does not address, or contain any requirements
    regarding, the circumstances under which an administrative review
    will be conducted on an aggregate basis.

26. Finally, Canada challenges what it views as the inevitable denial of
    expedited reviews and company-specific \"administrative reviews\" in
    the current softwood lumber investigation as a necessary result of
    the USDOC\'s decision to conduct this countervailing duty
    investigation on an aggregate basis. In light of the fact that at
    the time of the Preliminary Determination which is under review by
    the panel, no final determination had yet been made, no reviews of
    such a determination could have actually been requested, let alone
    denied, nor has Canada argued that this has happened.

27. Therefore, given our finding that the laws and regulations cited by
    Canada do not preclude the USDOC acting consistently with the US\'
    obligations under Articles 19.3 and 21 SCM Agreement with respect to
    expedited and administrative reviews, we consider that it is not
    appropriate to rule on a potential denial of a request for review if
    no such request has even been made. The WTO dispute settlement
    system allows a Member to challenge a law as such or its actual
    application in a particular case, but not its possible future
    application.

28. In sum, we find that the US laws and regulations challenged by
    Canada do not require the executive authority to violate Articles
    19.3 and 21.2 SCM Agreement in respect of the reviews required
    thereby, and are therefore not inconsistent with the SCM Agreement.

#### Conclusion

29. For the reasons set forth above, we find that the US laws and
    regulations on Expedited and Administrative Reviews as challenged by
    Canada do not constitute a violation of the provisions of Articles
    19 and 21 SCM Agreement in respect of the reviews required thereby,
    and we therefore reject all of Canada\'s claims in this respect.

# Conclusions and recommendations

1.  In light of the findings above that the USDOC Preliminary
    Countervailing Duty Determination

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(a) was not inconsistent with Article 1.1 (a) SCM Agreement when the
    USDOC found that the provision of stumpage constituted a financial
    contribution, in the form of the provision of a good or service;

(b) failed to determine the existence and amount of benefit to the
    producers of the subject merchandise on the basis of the prevailing
    market conditions in Canada as required by Article 1.1 (b) and
    Article 14 and 14 (d) SCM Agreement; and

(c) failed to establish that a benefit was conferred to certain
    producers of the subject merchandise as the USDOC did not examine
    whether a benefit was passed through by the unrelated upstream
    producers of log inputs to the downstream producers of the subject
    merchandise;

    we conclude that the USDOC\'s imposition of provisional measures
    based on the preliminary countervailing duty determination was
    inconsistent with the US obligations under Articles 1.1 (b), 10, 14,
    14 (d), and 17.1(b) SCM Agreement. In light of our conclusion, we
    apply judicial economy, and therefore do not rule on Canada\'s claim
    that the USDOC instructions transmitted to the United States Customs
    Service on 4 September 2001, imposed provisional measures in excess
    of the subsidy preliminarily found to exist in a manner inconsistent
    with Articles 10, 17.2, 17.5, 19.4 and 32.1 of the SCM Agreement and
    Article VI:3 of GATT 1994.

    1.  In light of the findings above concerning the USDOC Preliminary
        Critical Circumstances Determination, we conclude that the
        retroactive imposition of a provisional measure on the basis of
        the USDOC Preliminary Critical Circumstances Determination is
        inconsistent with Articles 20.6, 17.3, and 17.4 SCM Agreement.
        In light of this conclusion, we decide to apply judicial economy
        and therefore do not rule on Canada\'s claim that the USDOC
        failed to establish the existence of critical circumstances
        under Article 20.6 SCM Agreement in its Preliminary Critical
        Circumstances Determination.

    2.  Finally, in light of the findings above concerning the US
        countervailing duty laws and regulations, we conclude that the
        US laws and regulations challenged by Canada on expedited and
        administrative reviews are not inconsistent with the SCM
        Agreement as they do not require the executive authority to act
        in a manner inconsistent with the US obligations under Articles
        19 and 21 of the SCM Agreement concerning expedited and
        administrative reviews. As a result we also reject Canada\'s
        claims that the United States has failed to ensure that its laws
        and regulations are in conformity with its WTO obligations as
        required by Article 32.5 of the SCM Agreement and Article XVI:4
        of the WTO Agreement.

    3.  Under Article 3.8 of the DSU, in cases where there is
        infringement of the obligations assumed under a covered
        agreement, the action is considered *prima facie* to constitute
        a case of nullification or impairment of benefits under that
        agreement. Accordingly, we conclude that, to the extent the
        United States has acted inconsistently with the provisions of
        the SCM Agreement, it has nullified or impaired benefits
        accruing to Canada under that Agreement. We recommend that the
        Dispute Settlement Body request the United States to bring its
        measure into conformity with its obligations under the SCM
        Agreement.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

[^1]: WT/DS/236/1.

[^2]: WT/DS/236/2.

[^3]: The countervailing duty investigation concerned in this dispute is
    sometimes referred to as the \"*Lumber IV*\" investigation.

[^4]: US Department of Commerce, *Notice of preliminary affirmative
    countervailing duty determination, preliminary affirmative critical
    circumstances determination, and alignment of final countervailing
    duty determination with final antidumping duty determination:
    Certain softwood lumber products from Canada*, Exhibit CDA-1, p.
    43,188.

[^5]: In response to a question from the Panel, Canada stated that it
    was not pursuing a claim pertaining to specificity in this dispute.
    (Canada\'s Answers to Questions from the Panel after the Second
    Meeting with the Panel, answer to question 36 from the Panel
    following the second meeting, Annex B-1.)

[^6]: Article 5 of the SCM Agreement.

[^7]: *Canada Aircraft - Measures Affecting the Export of Civilian
    Aircraft*, WT/DS70/R, Report of the Panel, as affirmed by the
    Appellate Body, adopted 20 August 1999, para. 9.112.

[^8]: Emphasis added.

[^9]: *Canada - Measures Affecting the Importation of Milk and the
    Exportation of Dairy Products*, WT/DS103/AB/RW, Report of the
    Appellate Body, adopted on 3 December 2001, para. 84.

[^10]: *United States - Antidumping Measures on Stainless Steel Plate in
    Coils and Stainless Steel Sheet and Strip from Korea*, WT/DS179/R,
    Report of the Panel, adopted 2 February 2001, para. 6.29.

[^11]: *United States - Measures Affecting Imports of Woven Wool Shirts
    and Blouses from India*, WT/DS33/AB/R, Report of the Appellate Body,
    adopted 23 May 1997, page 18; *E.C. - Measures Concerning Meat and
    Meat Products (Hormones)*, WT/DS26,48/AB/R, Report of the Appellate
    Body, adopted 13 February 1998, para. 250.

[^12]: In response to a question from the Panel, Canada indicated that
    it was no longer pursuing this claim. (Canada\'s response to
    Question 37 from the Panel following the second meeting, Annex B-1.)

[^13]: Article 5, SCM Agreement.

[^14]:
    > Canada asserts violations of Articles 10 and 32.1 of the SCM
    > Agreement, which are dependent on the more specific claims
    > addressed herein. The dependent claims are therefore also without
    > merit for the reasons stated above.

[^15]: Canada\'s first written submission, paras. 54 to 68.

[^16]: Appellate Body Report, *Brazil -- Export Financing Programme for
    Aircraft,* WT/DS46/AB/R, adopted 20 August 1999, para. 157.

[^17]: GATT Panel Report, *United States -- Countervailing Duties on
    Fresh, Chilled and Frozen Pork from Canada*, DS7/R, adopted 11 July
    1991, BISD 38/30, para. 4.5.

[^18]: *Id*., para. 4.9.

[^19]: EC third party submission, paras. 10 to 35.

[^20]: Canada\' first written submission, paras. 147 to 178.

[^21]: *Id.,* footnote 87.

[^22]: Appellate Body Report, *Canada -- Measures Affecting the Export
    of Civilian Aircraft,* WT/DS70/AB/R, adopted 20 August 1999, para.
    157.

[^23]: Canada\'s first written submission, at para. 34.

[^24]: US first written submission at para. 50.

[^25]: Canada\'s first written submission at para. 44.

[^26]: Canada uses this term to refer to the \"right to harvest standing
    timber on Crown land\". Canada\'s First Written Submission, para.
    18.

[^27]: This claim by Canada related to the exclusion of the Maritime
    provinces from the country-wide duty rate. In response to a question
    from the Panel after the second meeting, Canada stated that it was
    \"no longer pursuing its claims in respect of the "Maritimes"
    question in this proceeding\". Canada\'s Answers to Questions from
    the Panel after the Second Meeting, para. 69. In light of this
    statement, we consider that there is no need for us to address this
    claim, and neither will we make any ruling in respect of this claim.

[^28]: The USDOC Preliminary Determination equates stumpage to the
    provision of a good. See USDOC Preliminary Countervailing Duty
    Determination (\"USDOC Preliminary Determination\"), 66 Fed. Reg.,
    p. 43,192. (Exhibit CDA-1). Canada submits that Commerce's legal
    analysis and conclusion with respect to the requirement of a
    "financial contribution" consists, in its entirety, of two
    sentences:

    \"We preliminarily determine that the provision of stumpage by the
    provincial governments constitutes the provision of a good or
    service under section 771(5)(D)(iii) of the \[Tariff Act of 1930, as
    amended\]. Thus, we preliminarily determine that the provincial
    governments have provided a financial contribution as defined under
    section 771(5)(D) of the Act to Canadian softwood lumber
    producers.\"

[^29]: In Canada's view, the cutting down of timber is the point at
    which the "goods" -- logs- are produced from natural resources.

[^30]: Canada notes that a stumpage charge is not money paid to obtain
    the right to harvest timber, but rather a levy on the exercise of
    the existing right to harvest timber. According to Canada, it should
    be viewed as a form of revenue collection by the government and the
    equivalent of a tax. Canada\'s Oral Statement at the First Meeting
    of the Panel with the Parties (hereafter: \"Canada\'s First Oral
    Statement\"), para. 13.

[^31]: Canada\'s First Written Submission, para. 30. According to
    Canada, an earlier draft of what later became Article 14 SCM
    Agreement mentions harvesting rights separately from \"goods or
    services\". This, in Canada\'s view, demonstrates that harvesting
    rights are a category separate from goods. Canada argues that, as
    harvesting rights are not mentioned in Article 1.1(a)(1) (iii) SCM
    Agreement, but only \"goods or services\", the granting of
    harvesting rights cannot constitute the provision of a financial
    contribution under subparagraph (iii) of Article 1.1 SCM Agreement.
    Exhibit CDA-20, p.17.

[^32]: Canada rejects the United States argument that "the economic
    consequence of providing a good and providing a right to a good are
    exactly the same." In Canada\'s view, this argument follows the same
    faulty logic of the earlier argument of the United States before the
    *Export Restraints* panel that, "an export restraint is
    'functionally equivalent' to an entrustment of or direction to a
    private body to provide goods domestically." Canada\'s Second
    Written Submission, para. 12, referring to *United States --
    Measures Treating Export Restraints as Subsidies*, Report of the
    Panel, WT/DS194/R, adopted 23 August 2001, at para 8.22.

[^33]: Canada points out that the Concise Oxford Dictionary does not
    list "make available" as a meaning for "provide". See *The Concise
    Oxford Dictionary of Current* English, 8^th^ ed. (Oxford: Clarendon
    Press, 1990), at 962. (Exhibit CDA-79)

[^34]: Canada\'s Second Written Submission, para. 13.

[^35]: *Black's Law Dictionary*, 7^th^ ed. (St. Paul: West, 1999), p.
    701 --702. Exhibit CDA-17.

[^36]: The US argues that according to the *New Shorter Oxford English
    Dictionary*, "provides" means to "make available" in addition to
    "supply or furnish for use." Exhibit US-5.

[^37]: USDOC Preliminary Determination, p. 43,192.

[^38]: Exhibits CDA-63, 64, 67and 68 are some examples of such
    provincial tenure agreements which, according to Canada, are
    generally representative of the long term and short term tenures
    found in Canada.

[^39]: We recall that the USDOC Preliminary Determination excluded
    softwood lumber from the Maritime provinces.

[^40]: The term Crown land refers to land that is not privately owned.

[^41]: Exhibit CDA-69 for example includes Alberta\'s Forest Act. Under
    this Act, the Crown may provide the exploitation of timber in one or
    more of the following ways: through forest management agreements;
    through the sale of timber quota certificates; and through the
    issuance of timber permits.

[^42]: Canada\'s Answers to Questions from the Panel after the Second
    Meeting, paras. 33 --36.

[^43]: ^?^ Canada states that "the Canadian provinces have title to the
    majority of public property and exercise exclusive jurisdiction to
    legislate in relation to the development, conservation and
    management of\" *inter alia* forestry resources. According to
    Canada, \"In the various provincial systems, the provinces retain
    ownership of the land, typically employing tenure agreements or
    licences that confer rights to exploit the resource". Canada's
    Answers to Questions from the Panel after the First Meeting, paras.
    21 -22.

[^44]: It is interesting to note in this respect that a Canadian court
    has recognized that \"Stumpage is the price a licensee must pay the
    Crown for its timber\". *British Columbia v. Canadian Forest
    Products* (8 February 1998). US Answers to Questions from the Panel
    after the First Meeting, para.13, footnote 31.

[^45]: A discussion of the minimum and maximum cut requirements per
    province may be found in Canada\'s Answers to Questions from the
    Panel after the Second Meeting, paras. 33 --36.

[^46]: Canada\'s Answers to Questions from the Panel after the Second
    Meeting, para. 37.

[^47]:
    > *The Concise Oxford Dictionary*, ninth edition, Clarendon Press,
    > Oxford p. 1102. See US Second Written Submission, footnote 5;
    > Canada\'s Second Written Submission, para 13.

[^48]: Canada\'s Oral Statement at the Second Substantive Meeting of the
    Panel with the Parties, para 22.

[^49]: We note that of course there will be technical differences
    between the various ways of supplying timber, which will no doubt be
    reflected in for example the costs for obtaining the timber.

[^50]: We recall that Article 3.2 DSU requires a panel to interpret the
    Agreement in accordance with customary rules of interpretation of
    public international law, as laid down in Articles 31 and 32 of the
    Vienna Convention on the Law of Treaties. Article 31 of the Vienna
    Convention on the Law of Treaties provides that \"a treaty shall be
    interpreted in good faith in accordance with the ordinary meaning to
    be given to the terms of the treaty in their context and in light of
    its object and purpose\".

[^51]: *Black's Law Dictionary*, p. 701 (Exhibit CDA-17). See also *New
    Shorter Oxford English Dictionary* (Oxford: Clarendon Press, 1993),
    p. 1116 ("Saleable commodities; merchandise, wares; \[in singular\]
    a type of merchandise") (Exhibit CDA-18).

[^52]: *Black's Law Dictionary*, p. 701 (Exhibit CDA-17).

[^53]: *Webster's Ninth New Collegiate Dictionary* (Markham:
    Merriam-Webster, 1991), p. 527. (Exhibit CDA-19).

[^54]: We note here the finding of the Panel in the case *United States
    -- Measures Treating Export Restraints as Subsidies*, that
    \"Subparagraph (iv) ensures that the same kinds of *government*
    transfers of economic resources, when undertaken through explicit
    *delegation of* *those* functions to a private entity, do not
    thereby escape disciplines\". Panel Report, *United States --
    Measures Treating Export Restraints as Subsidies*, WT/DS 194/R,
    adopted 23 August 2001, para. 8.73.

[^55]: We agree with the Appellate Body that \"a proper interpretation
    is first of all a textual interpretation\". Appellate Body Report,
    *Japan -- Taxes on Alcoholic Beverages*, WT/DS8/AB/R, WT/DS10/AB/R,
    WT/DS11/AB/R, adopted 1 November 1996, page 17.

[^56]: In particular Canada relies on the proposed draft for Article 14
    .4 (A) which read in relevant part:

    \"(a) the amount of subsidy arising from government provision of
    goods, services, *or extraction/harvesting rights* shall be
    determined by comparing the difference between prices charged by the
    government to certain enterprises within its jurisdiction and the
    benchmark price ...\"

[^57]: "Article 14: 'Criteria for the calculation of the amount of a
    subsidy'," Informal Discussion Paper No. 6, Negotiating Group on
    Subsidies and Countervailing Measures, 4 September 1990, p. 17
    (Exhibit CDA-20). Discussion Paper No. 6 was based on US practice in
    subsidy calculation. See T.P. Stewart, ed., *The GATT Uruguay Round:
    A Negotiating History (1986-1992)* (Boston: Kluwer, 1993), p. 935
    (Exhibit CDA-21).

[^58]: Informal Discussion Paper: Note by the Chairman, Negotiating
    Group on Subsidies and Countervailing Measures, 4 September 1990
    (Exhibit CDA-20).

[^59]: *Id*

[^60]: Neither do we consider that it is our task to guess what the
    drafters could have meant, if anything, by not explicitly mentioning
    harvesting rights alongside of \"goods or services\" in Article
    1.1(a)(1)(iii) SCM Agreement. What is clear from the text of this
    provision of the SCM Agreement is that harvesting rights are not
    excluded in the same way as general infrastructure is.

[^61]: Canada argues that \"this meaning of the term "goods" as articles
    of trade or saleable commodities is the only meaning that could have
    been intended by the negotiators of the WTO Agreements. The term
    "goods" is used throughout the Agreements, yet is nowhere defined.
    As evidenced by the "General interpretative note to Annex 1A" to the
    WTO Agreement "goods" subject to the GATT 1994 are those things in
    respect of which a tariff binding may be negotiated: in other words,
    tradable things. Accordingly, things that are inherently incapable
    of being traded across borders are not "goods" *for the purposes of
    the WTO Agreements*.\" Canada\'s First Oral Statement, para. 21.

[^62]: We note that even Canada seems to acknowledge that \"goods\" in
    subparagraph (iii) refers to \"inputs\". Canada\'s Answers to
    Questions from the Panel after the First Meeting, para. 7.

[^63]: We note that in its Sale of Goods Act, the Canadian province of
    British Columbia, the prime exporter of softwood lumber to the US,
    defines \"goods\" as including \"growing crops, \[...\], and things
    attached to or forming part of the land that are agreed to be
    severed before sale or under the contract of sale\". This definition
    seems to include standing timber as a good.

[^64]: Canada\'s First Written Submission, para. 43.

[^65]: Canada also refers to the protocol of accession of China which
    explicitly, and in its view, exceptionally allows for the use of a
    benchmark outside of China. In Canada\'s view, there would be no
    need to include such a provision in a protocol of accession if, as
    the US is arguing, the language of Article 14 already allows for the
    use of cross-border benchmarks.

[^66]: Canada provides a complete discussion of the data provided by the
    Canadian provinces in this respect in its Second Written Submission,
    paras. 53 --62.

[^67]: Canada\'s Second Written Submission, para. 35. Canada notes that
    the USDOC did not have any evidence of alleged price suppression,
    but simply relied on a erroneous translation of a letter of the
    Quebec Minister of Natural Resources which formed part of the
    petition, which in fact merely stated that public land stumpage
    charges could have an indirect influence on the private market.
    Canada argues that a doctoral thesis further relied on in this
    respect by the United States before the Panel is outdated and the
    information on which it is based has earlier been rejected by the
    USDOC in the earlier investigation of imports of lumber from Canada
    (*Lumber II)* as evidence of alleged price suppression.

[^68]: This, Canada argues, USDOC recognized in the first three
    investigations on imports of lumber from Canada (*Lumber* *I --III)*
    in which, in an identical factual setting, it rejected the use of
    cross-border benchmarks. Canada discusses the practical problems
    relating to the use of US benchmarks in this case in its Second
    Written Submission paras. 44 -- 52.

[^69]: According to the US, \"in relation to\" means \"with reference
    to\" and thus, under Article 14 (d) the prevailing conditions in the
    country of provision are a reference point, not necessarily an end
    point, for the market benchmark. US First Written Submission, para.
    43

[^70]: The US refers to the Appellate Body report in the case *Canada --
    Measures Affecting the Importation of Milk and the Exportation of
    Dairy Products* (\"*Canada --Dairy*\"), *Recourse to Article 21.5
    DSU* (DS103AB/RW, para 84) and item (d) of the Illustrative List of
    Export Subsidies in Annex I SCM Agreement.

[^71]: US Oral Statement at the Second Meeting of the Panel with the
    Parties (\"US Second Oral Statement\"), para. 7.

[^72]: US Second Oral Statement, para. 8.

[^73]: In para. 26 of its Answers to Questions from the Panel after the
    First Meeting, the US argues that the Canadian provincial
    governments\' share of the market was 90 per cent or more.

[^74]: The US refers to the Report of the Panel in *Canada-Dairy* in
    support of its argument in this respect. Panel Report, *Canada --
    Dairy*, WT/DS103/R, adopted as modified by WT/DS103/AB/R on
    27 October 1999, para. 7.54.

[^75]: US Second Written Submission, para. 27; US Second Oral Statement,
    para. 18.

[^76]: USDOC Preliminary Determination, p. 43193.

[^77]: USDOC Preliminary Determination, p. 43195.

[^78]: US Answers to Questions from the Panel after the Second Meeting,
    para. 85

[^79]: US Answers to Questions from the Panel after the Second Meeting,
    para. 92.

[^80]: US First Written Submission, para. 43.

[^81]: US Answers to Questions from the Panel after the Second Meeting,
    para. 82

[^82]: US Second Written Submission.

[^83]: As the Appellate Body stated in the *United States -- Standards
    for Reformulated and Conventional Gasoline* case: \"... One of the
    corollaries of the 'general rule of interpretation' in the Vienna
    Convention is that interpretation must give meaning and effect to
    all the terms of the treaty. An interpreter is not free to adopt a
    reading that would result in reducing whole clauses or paragraphs of
    a treaty to redundancy or inutility.\" Appellate Body Report,
    *United States -- Standards for Reformulated and Conventional
    Gasoline* case, WT/DS2/AB/R adopted on 20 May 1996, p.23.

[^84]: The US has also referred to various statements of the Panel and
    the Appellate Body in the *Canada -- Dairy* case. We are of the view
    that these reports are of little, if any relevance to the case in
    question as both dealt with certain provisions concerning export
    subsidies under the Agreement on Agriculture. We note that the Panel
    report was overturned on appeal, and that the Appellate Body itself
    rejected the use of world market prices as a benchmark. See
    Appellate Body Report, *Canada --Dairy*, WT/DS103/AB/RW, adopted on
    18 December 2001, para. 84.

[^85]: We note that in its Third Party submission, the European
    Communities submits that "a proper analysis of the "market
    conditions in the country of provision" may include all commercially
    available alternative sources for the recipient, including the price
    for imports into that market". European Communities Third Party
    Submission, para. 26.

[^86]: We note, however, that, as mentioned earlier (para. 7.36 of our
    Report), the United States has recognised that US timber is
    commercially available to Canadian lumber mills. This assertion
    would contradict the US rejection of the existence of a competitive
    timber and /or lumber market in Canada.

[^87]: Concise Oxford Dictionary, Ninth Edition, p. 1084..

[^88]: We note that the US agrees that \"As stated in the chapeau to
    Article 14, and confirmed by the Appellate Body, the benefit for
    purposes of paragraph 1 of Article 1 is the benefit to the
    recipient.\" US Answers to Questions from the Panel after the First
    Meeting, para. 41. The Appellate Body in the *Canada -- Measures
    Affecting the Export of Civilian Aircraft* case interpreted the term
    "benefit" in the SCM Agreement in the following manner:

    \"157. We also believe that the word \"benefit\", as used in
    Article 1.1(b), implies some kind of comparison. This must be so,
    for there can be no \"benefit\" to the recipient unless the
    \"financial contribution\" *makes the recipient \"better off\" than
    it would otherwise have been, absent that contribution.* In our
    view, the marketplace provides an appropriate basis for comparison
    in determining whether a \"benefit\" has been \"conferred\", because
    the trade-distorting potential of a \"financial contribution\" can
    be identified by determining whether the recipient has received a
    \"financial contribution\" *on terms more favourable than those
    available to the recipient in the market*.\" (emphasis added)

    Appellate Body Report*, Canada -- Measures Affecting the Export of
    Civilian Aircraft,* WT/DS70/AB/R, adopted 20 August 1999, para. 157.

[^89]: US Answers to Questions from the Panel after the First Meeting,
    paras. 23 -- 24.

[^90]: We thus disagree with the US that the market conditions referred
    to in Article 14 (d) SCM Agreement relate to what the market price
    would have been absent the financial contribution.

[^91]: USDOC Preliminary Determination, p. 43195.

[^92]: US Answers to Questions from the Panel after the First Meeting,
    para. 39. At the second meeting, we asked both parties the similar
    question of what percentage of the softwood harvest for sawmills
    took place on Crown land. Both parties provided essentially the same
    figures as in the US response at the first meeting. The one
    significant difference is that Canada reported that in respect of
    Quebec, 77 per cent of the logs processed in sawmills came from
    Crown land, and 23 per cent came from private land or from outside
    Quebec. The difference between the 23 per cent figure reported by
    Canada and the 17 per cent reported by the United States as the
    non-Crown timber harvest is accounted for by timber from outside
    Quebec that was processed in Quebec. US and Canada\'s answers to
    question 1 of the second set of questions. Exhibits US-55 and
    CDA-107.

[^93]: USDOC Preliminary Determination, p. 43194.

[^94]: US Answers to Questions from the Panel after the First Meeting,
    para 29. In fact the US admits that a third province, Alberta also
    provided some private sales information, but asserts that \"the only
    information Alberta provided was a two page excerpt from a KPMG
    survey\" without any supporting evidence or source information. US
    Answers to Questions from the Panel after the First Meeting , paras.
    30 -31

[^95]: US Answers to Questions from the Panel after the First Meeting,
    para. 40. In addition, Canada notes that the four primary exporting
    provinces, among which British Columbia - which represents about 60
    per cent of Canada\'s softwood lumber production according to the
    US - provided information to the USDOC demonstrating that they were
    operating their stumpage systems consistently with market
    principles. Canada adds that the information that for example
    British Columbia provided consisted of data on the volume and value
    of competitive sales of stumpage, sold through a competitive auction
    on the basis of price. Canada\'s Answers to Questions from the Panel
    after the First Meeting, paras. 62 --67.

[^96]: The USDOC determined that \"since stumpage fees on public lands
    are the price driver for the stumpage market in those Provinces, we
    conclude that the stumpage fees on private lands are largely
    derivative of the public land prices and are therefore distorted\",
    and for that reason decided that they could not be used as a
    benchmark to determine the amount of benefit to the lumber
    producers. USDOC Preliminary Determination, p. 43195.

[^97]: Canada\'s Answers to Questions from the Panel after the First
    Meeting, para. 33.

[^98]: Canada\'s Answers to Questions from the Panel after the First
    Meeting, para. 34. According to Canada, the exception is Quebec
    where under the Timber Supply Forest Management Agreement mills hold
    the tenure and timber harvested under that tenure must be processed
    at that mill.

[^99]: Canada\'s Second Written Submission, para. 83.

[^100]: Canada\'s Answers to Questions from the Panel after the First
    Meeting, para. 49 --61.

[^101]: Canada argues that a subsidy is either direct in the case it
    confers a benefit on the recipient thereof (Article 1.1(a)(iii)), or
    is indirect in case a private entity is entrusted or directed by
    government to provide goods in a manner that confers a benefit
    (Article 1.1 (a) (iv)). In Canada\'s view, since in this case the
    alleged financial contribution (standing timber) was provided to the
    log producers and not to the downstream lumber producers, Article
    1.1(a)(iv) SCM concerning indirect subsidies applies. In such a
    case, Canada argues, an investigating authority must also always
    establish both elements of a subsidy as regards a downstream
    producer that has allegedly been subsidized: a financial
    contribution to that downstream producer, and a benefit. According
    to Canada, in addition to failing to determine any benefit, the
    USDOC failed to establish that the lumber producers received a
    financial contribution, as it did not demonstrate that the Canadian
    provinces directed the log producers to provide a financial
    contribution (logs) to the lumber producers. Canada\'s Answers to
    Questions from the Panel after the First Meeting, para. 81.

[^102]: US Answers to Questions from the Panel after the First Meeting ,
    para. 43.

[^103]: US Answers to Questions from the Panel after the First Meeting,
    para. 1.

[^104]: US Answers to Questions from the Panel after the First Meeting,
    para. 9.

[^105]: US Answers to Questions from the Panel after the First Meeting,
    para. 87.

[^106]: US Answers to Questions from the Panel after the First Meeting,
    para. 44.

[^107]: US Answers to Questions from the Panel after the First Meeting,
    para. 48. According to the US, \"in an aggregate case, the Commerce
    Department determines the total amount of the subsidy to producers
    of the subject merchandise and allocates that amount over all sales
    of the subject merchandise. Thus, when all of the alleged recipients
    of the financial contribution and the benefits are producers of the
    subject merchandise, no further analysis is required to perform the
    aggregate calculation. Benefits that potentially shift from one
    producer to another in an arm's-length transaction would still be
    part of the overall numerator (either remaining with the original
    recipient or "traveling to" the purchaser), as long as both
    companies produce subject merchandise\". US Answers to Questions
    from the Panel after the First Meeting, para 76.

[^108]: US Answers to Questions from the Panel after the First Meeting,
    para. 50.

[^109]: The US argues that if the government made the financial
    contribution to an entity that does not produce the subject
    merchandise, it would be necessary to analyse whether that financial
    contribution benefited another entity that does produce the subject
    merchandise. In this case, according to the US, the only allegation
    of a financial contribution to an entity that does not produce the
    subject merchandise is Canada's claim that there is a significant
    volume of Crown timber that the provincial governments provide to
    independent loggers who then sell the timber at arm's‑length to
    lumber mills. However, the US submits, the evidence does not support
    Canada's claim. The US refers to its discussion in paras. 1--11 of
    its answers to questions from the Panel. US Answers to Questions
    from the Panel after the First Meeting, paras. 46 --47.

[^110]: US Answers to Questions from the Panel after the First Meeting,
    para. 46.

[^111]: We note that in the *United States - Pork* case, the Panel
    stated that the parties \"did not dispute that Canada had granted
    subsidies to swine producers, that swine producers and pork
    producers are separate industries operating at arm's-length and that
    the subsidies granted to swine producers could have indirectly
    bestowed a subsidy on the production of pork\". For all these
    reasons, the Panel concluded that the DOC should have examined
    whether and to what extent the subsidies bestowed on the upstream
    producers benefited the downstream producers. Panel Report, *United
    States, Countervailing Duties on Fresh, Chilled and Frozen Pork from
    Canada*, DS7/R, adopted on 11 July 1991, 38S/45.

[^112]: Appellate Body Report, *United States -- Imposition of
    Countervailing Duties on Certain Hot-Rolled Lead and Bismuth Carbon
    Steel Products Originating in the UK*, (\"*US - Lead and Bismuth
    II*\"), WT/DS138/AB/R, adopted on 7 June 2000, para. 68. We further
    note that the Panel in the *US -- Lead and Bismuth II* case
    (WT/DS138/R) observed in a footnote that:

    fn 69. \" ... a \"financial contribution\" does not have to be
    bestowed directly on a company in order to confer a \"benefit\" on
    that company. For example, one company may be found to \"benefit\"
    from a \"financial contribution\" conferred on another company.
    Furthermore, in certain circumstances an untied, non-recurring
    \"financial contribution\" bestowed directly on, and benefiting, a
    prior company may be deemed to have been bestowed indirectly on the
    successor company\".

    Panel Report, *US - Lead and Bismuth II*, WT/DS138/R, adopted as
    upheld by the Appellate Body Report WT/DS138/AB/R on 7 June 2000,
    footnote 69.

[^113]: USDOC Preliminary Determination, p. 43203

[^114]: US Answers to Questions from the Panel after the Second Meeting,
    para. 18.

[^115]: US Answers to Questions from the Panel after the Second Meeting,
    paras. 21-23.

[^116]: USDOC Preliminary Determination, p. 43188

[^117]: Appellate Body Report, *US - Lead and Bismuth II*,
    WT/DS138/AB/R, adopted on 7 June 2000, para. 63.

[^118]: This is of course without prejudice to other bases for
    calculating the rate for the levying of countervailing duties such
    as on a per unit basis, by using as the denominator the number of
    units of relevant sales.

[^119]: Canada\'s Answers to Questions from the Panel at the First
    Meeting, para. 60.

[^120]: *See* Letter to the Honourable Donald L. Evans from Weil,
    Gotshal & Manges, Certain Softwood Lumber From Canada: Company
    Exclusions, p. 3-4 and appendices A-F (August 8, 2001) (Exhibit
    CDA-44).

[^121]: In light of this finding, we see no need to address the issue
    raised by Canada in footnote 101.

[^122]: Sawmills produce lumber from logs and ship the lumber to either
    end-users or downstream value-added re-manufacturers (final mills)
    that use lumber inputs and produce further processed lumber
    products..

[^123]: Memorandum from M.G. Skinner, Director, Office of AD/CVD
    Enforcement VI to B.T. Carreau, Deputy Assistant Secretary, AD/CVD
    Enforcement, re "Basis of the Countervailing Duty Deposit Rate,"
    dated 31 August 2001, p. 3. (Exhibit CDA-31)

[^124]: *See, e.g.,* Letter from Weil, Gotshal & Manges, counsel for the
    Government of Canada, to the Department of Commerce regarding
    Certain Softwood Lumber Products from Canada: StatsCan Data Based on
    "First Mill" Values, dated 21 August 2001 (Exhibit CDA-96), where
    Canada explained:

    Confusion on this issue arose as a result of a statement in the GOC
    Questionnaire Response that, "\[b\]ecause the MSM does not collect
    commodity data, it was not possible to exclude 're-manufacturers'
    from its results." *See* Questionnaire Response on Behalf of the
    GOC, Volume I, Exhibit GOC-GEN-2 ("Calculation Methodology Summary")
    (28 June 2001) \[Exhibit US-13\]. As was explained in the meeting
    with the Department, however, this statement does not mean that the
    data on the record relate to any manufacturers other than
    "sawmills." Rather, when read in context (*i.e.*, in relation to the
    Monthly Survey of Manufacturing for the Sawmills industry), the
    explanation simply indicates that, if a primary sawmill performed
    additional manufacturing within its own mill, such additional
    millwork would be included in the data, because commodity details on
    the production of sawmills are not broken out in the survey. Any
    such further processed products of the sawmills would, moreover, be
    "first mill" products. As is demonstrated in the Attachment to this
    letter, the reported StatsCan data, which was limited to NAICS
    subsection 321111, do not contain any sales or production
    information for "remanufacturers."

    *See also* Letter to the Honourable Donald L. Evans from Weil
    Gotshal and Manges (27 August 2001) (Exhibit CDA-46) ("As explained
    in \[Canada's August 15, 2001 (Exhibit CDA-45) and 21 August 2001
    (Exhibit CDA-96)\] submissions, with the exception of insignificant
    amounts for first-mill further manufactured products, these data do
    not include shipments made by 'remanufacturers.'")

[^125]: The US argues that the USDOC asked for information on total
    value of sales and specifically requested to include information on
    remanufactured products, and that Canada replied that the
    information provided included both. US First Written Submission,
    footnotes 84 -85; Exhibit US-12 and US -13.

[^126]: The US refers to the Panel report in *US -- Measure Affecting
    Imports of Woven Wool Shirts and Blouses from India*, which stated
    that: \"When assessing the WTO compatibility of the decision to
    impose national trade remedies, DSU panels do not reinvestigate the
    market situation but rather limit themselves to the evidence used by
    the importing Member in making its determination to impose the
    measure. In addition, such DSU panels, contrary to the TMB, do not
    consider developments subsequent to the initial determination. In
    respect of the US determination at issue in the present case, we
    consider, therefore, that this Panel is requested to make an
    objective assessment as to whether the United States respected the
    requirements of Article 6.2 and 6.3 of the ATC at the time of the
    determination\". Panel Report, *US -- Measure Affecting Imports of
    Woven Wool Shirts and Blouses from India,*WT/DS33/R, adopted as
    modified by Appellate Body Report WT/DS33/AB/R on 23 May 1997, para.
    7.21.

[^127]: Article 10 SCM Agreement provides that \"Members shall take all
    necessary steps to ensure that the imposition of a countervailing
    duty on any product of the territory of any Member imported into the
    territory of another Member is in accordance with the provisions of
    Article VI of GATT 1994 and the terms of this Agreement.
    Countervailing duties may only be imposed pursuant to investigations
    initiated and conducted in accordance with the provisions of this
    Agreement and the Agreement on Agriculture\".

    Article 17.1 (b) SCM Agreement states that \"provisional measures
    may be applied only if:

    \(b\) a preliminary affirmative determination has been made that a
    subsidy exists and that there is injury to a domestic industry
    caused by subsidized imports;\"

[^128]: The United States acknowledges that there is no equivalent to
    the early measures provision of Article 10.7 Anti-Dumping Agreement,
    but argues that this only implies that a critical circumstances
    determination in the countervailing duty context may not be made as
    early as in the anti-dumping context where Article 10.7 Anti-Dumping
    Agreement allows Members to take precautionary measures \"after
    initiation of the investigation\". US Answers to Questions from the
    Panel after the Second Meeting, para. 57.

[^129]: US First Written Submission, footnote 103. Thus, according to
    the US, in a case of retroactive application, the period of 4 months
    during which the provisional measures are applied remains the same,
    but the amount of entries covered becomes larger.

[^130]: USDOC Preliminary Determination, p. 43215

[^131]: We note that the use of the term \"countervailing duties\" in
    Article 20.2 SCM Agreement reflects the distinction made in Article
    20.1 SCM Agreement between \"provisional measures\" on the one hand
    and \"countervailing duties\" on the other. It is clear from the
    immediate context of the term \"countervailing duties\" in Article
    20.2 SCM Agreement that this term refers to definitive duties, as
    the text of the provision juxtaposes the terms countervailing duties
    and provisional measures. \"Countervailing duties\" in the context
    of Article 20.2 SCM Agreement thus refers to definitive duties only.

[^132]: United States Answers to Questions from the Panel after the
    First Meeting, para. 52.

[^133]: Appellate Body Report, *Korea- Definitive Safeguard Measure on
    Imports of Certain Dairy Products,* WT/DS98/AB/R, adopted on 12
    January 2000, para. 81.

[^134]: We consider that the US argued before us that both the
    suspension of liquidation and the bond or cash deposit requirement
    are necessary conservatory measures, and we therefore have treated
    them jointly. We note on the other hand that Canada recognised that
    in a retrospective duty assessment system, Members \"may keep
    liquidation open for a long enough period that would allow the
    retroactive imposition of definitive duties following a critical
    circumstances determination\". Canada\'s Answers to the Questions
    from the Panel after the Second Meeting, para. 65.

[^135]: Appellate Body Report, *United States -- Standards for
    Reformulated and Conventional Gasoline*, WT/DS/2/AB/R, adopted on 20
    May 1996, p. 23.

[^136]: Canada asserts that the USITC recognized as much in a case
    involving certain steel products from Korea (Exhibit CDA -- 36).

[^137]: USDOC Preliminary Determination, p. 43189.

[^138]: Canada\'s First Written Submission, para. 116.

[^139]: The relevant US law is found in Section 777 A (e) (2) (A) and
    (B) Tariff Act of 1930 and USDOC Regulations at 19 C.F.R. Sections
    351.214 (k) (1) with regard to expedited reviews and section 351.213
    (b) and (k) concerning administrative reviews.

[^140]: Canada does not define the term \"administrative review\", which
    is not a term found in the SCM Agreement. From its arguments before
    us, we understand Canada uses this term to refer to the reviews
    conducted to finalize the rate of duty collection under the
    retrospective duty assessment system used by the United States in
    applying countervailing duties. This is the meaning that we ascribe
    to this term in our findings.

[^141]: We understand Canada to use the term \"aggregate\" to refer to
    an investigation where instead of individual rates of subsidization
    being calculated, an overall average rate or \"country-wide\" rate
    is calculated, for the purpose of applying countervailing duties.

[^142]: Canada asserts that under US law the only exception is for
    requests for administrative review concerning zero or *de minimis*
    subsidies, and even there, only where practicable.

[^143]: In its Request for Establishment of a Panel (WT/DS236/2), Canada
    also cites Article 21.1 SCM Agreement in connection with its claims
    concerning US legislation. Canada does not pursue an allegation of a
    violation of this provision in its submissions in this dispute,
    however. Rather, it argues in its oral statement at the first
    meeting that Article 21.2 SCM Agreement should be read in
    conjunction with Article 21.1 SCM Agreement as meaning that the
    review obligations in Article 21.2 SCM Agreement relate not only to
    whether countervailing duties should continue, but also to the level
    at which duties should continue to be imposed. Canada\'s First Oral
    Statement, para. 106. We therefore do not address any allegation of
    violation of Article 21.1 SCM Agreement in our findings.

[^144]: First Written Submission of Canada, paras. 163 - 165.

[^145]: First Written Submission of Canada, paras. 166 - 168.

[^146]: The United States further considers that the Panel should
    decline to address Canada\'s challenge to these laws and regulations
    as applied because, in the absence of any final measures at the time
    of the request for establishment of this case, no reviews have been
    initiated yet. Canada is thus, in the US view, seeking an advisory
    opinion from the Panel. US First Written Submission, para. 102.

[^147]: Canada also alleges on the same basis a violation of Article
    XVI:4 of the WTO Agreement.

[^148]: Appellate Body Report, *United States -- Anti-Dumping Act of
    1916*, WT/DS136/AB/R and WT/DS162/AB/R, adopted 26 September 2000,
    paras. 88 -- 89.

[^149]: 19 C.F.R. §§ 351.213(b) and (k) and 351.214(k). (Exhibit CDA-39)

[^150]: "Statement of Administrative Action" in *Message from the
    President of the United States Transmitting the Uruguay Round
    Agreements, Texts of Agreements Implementing Bill, Statement of
    Administrative Action and Required Supporting Statements*, H.R. Doc.
    No. 103-316, vol. 1, p. 941 (1994). (Exhibit CDA-38)

[^151]: We note that as was recognized by the Panel in the *United
    States -- Anti-Dumping Measures on Certain Hot-Rolled Steel Products
    from Japan* case, the SAA is \"an authoritative expression by the
    Administration concerning its views regarding the interpretation and
    application of the Uruguay Round agreements, both for purposes of US
    international obligations and domestic law\". Panel Report, *United
    States -- Anti-Dumping Measures on Certain Hot-Rolled Steel Products
    from Japan,* WT/DS184/R, adopted as modified by Appellate Body
    Report WT/DS184/AB/R on 23 August 2001, para. 7.198.

[^152]: The US argues that Section 751 of the US Tariff Act authorizes
    reviews to "determine the amount of any net countervailable subsidy"
    at least annually, upon request. It also authorizes reviews of "new
    shippers," defined as exporters and producers that did not export
    the subject merchandise to the United States during the period of
    investigation and were not affiliated with exporters or producers
    who did. In addition, the United States argues, the statute
    authorizes the USDOC to conduct a review "whenever \[Commerce or the
    ITC\] receives information concerning, or a request from an
    interested party for a review . . . which shows changed
    circumstances sufficient to warrant a review of," *inter alia*, a
    countervailing duty order. US First Written Submission, para. 110.

[^153]: The US asserts that it is a long-established principle of US law
    that administrative agencies have the discretion to promulgate
    formal procedures or to proceed on a case-by-case basis, especially
    when the agency has not had sufficient experience with a particular
    issue to formulate binding regulations. *See Securities & Exchange
    Commission v. Chenery Corporation,*, 332 US 194, 202-203 (1947). US
    First Written Submission, para. 112.

[^154]: Canada\'s Oral Statement at the Second Meeting, para. 71
    referring to USDOC , *Countervailing Duty Order on Softwood Lumber
    Products from Canada: Request for Expedited Review*, available
    online at http://www.ia.ita.doc.gov/lumber/expedite/ index.html
    (posted 24 May 2002). (Exhibit CDA-103).

[^155]: Canada\'s Oral Statement at the Second Meeting, para. 78

[^156]: According to the United States, the USDOC has the discretion
    under US law to conduct the first type of review, while the second
    type of review, falls under the authority of the US International
    Trade Commission.

[^157]: Section 751 (a) (1) and 751 (b) (1) of the US Tariff Act of
    1930, as amended, provide as follows:

    SEC. 751. ADMINISTRATIVE REVIEW OF DETERMINATIONS

    \(a\) PERIODIC REVIEW OF AMOUNT of DUTY. -

    \(1\) IN GENERAL. - At least once during each 12-month period
    beginning on the anniversary of the date of publication of a
    countervailing duty order under this title or under Section 303 of
    this Act, an anti-dumping duty order under this title or a finding
    under the Anti-Dumping Act, 1921, or a notice of the suspension of
    an investigation, the administering authority, if a request for such
    a review has been received and after publication of notice of such
    review in the Federal Register, shall

    (A) review and determine the amount of any net countervailable
    subsidy,

    \(B\) review, and determine (in accordance with paragraph (2)), the
    amount of any anti-dumping duty, and

    \(C\) review the current status of, and compliance with, any
    agreement by reason of which an investigation was suspended, and
    review the amount of any net countervailable subsidy or dumping
    margin involved in the agreement, and shall publish in the Federal
    Register the results of such review, together with notice of any
    duty to be assessed, estimated duty to be deposited, or
    investigation to be resumed.

    \[...\]

    \(b\) REVIEWS BASED ON CHANGED CIRCUMSTANCES. -

    \(1\) IN GENERAL. - Whenever the administering authority or the
    Commission receives information concerning, or a request from an
    interested party for a review of -

    \(A\) a final affirmative determination that resulted in an
    anti-dumping duty order under this title or a finding under the
    Anti-Dumping Act, 1921, or in a countervailing duty order under this
    title or Section 303,

    \(B\) a suspension agreement accepted under Section 704 or 734, or

    \(C\) a final affirmative determination resulting from an
    investigation continued pursuant to Section 704(g) or 734(g), which
    shows changed circumstances sufficient to warrant a review of such
    determination or agreement, the administering authority or the
    Commission (as the case may be) shall conduct a review of the
    determination or agreement after publishing notice of the review in
    the Federal Register.

    We note that the relevant section in the USDOC Regulations dealing
    with changed circumstances reviews is Section 351.216 which has not
    been challenged by Canada.

[^158]: US Answers to Questions from the Panel after the First Meeting,
    para. 63.

[^159]: We note that the second leg of the review under Article 21.2 SCM
    Agreement relates to the injury analysis which in the US is not
    performed by the USDOC, but by the US International Trade Commission
    (USITC). We note that Canada is not challenging the USITC
    Regulations.