66 FR 43186, August 17, 2001

DEPARTMENT OF COMMERCE

International Trade Administration

(C-122-839)
 
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

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.

ACTION: Notice of preliminary affirmative countervailing duty 
determination and preliminary affirmative critical circumstances 
determination.

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SUMMARY: Preliminary Determination: The Department of Commerce (the 
Department) preliminarily determines that countervailable subsidies are 
being provided to producers and exporters of certain softwood lumber 
products (subject merchandise) from Canada. For information on the 
estimated countervailing duty rate, please see the ``Suspension of 
Liquidation'' section of this notice. For information on critical 
circumstances, see the ``Critical Circumstances'' section of this 
notice.

EFFECTIVE DATE: August 17, 2001.

FOR FURTHER INFORMATION CONTACT: Eric B. Greynolds at (202) 482-6071 or 
Stephanie Moore (202) 482-3692, Office of AD/CVD Enforcement VI, Group 
II, Import Administration, International Trade Administration, U.S. 
Department of Commerce, Room 4012, 14th Street and Constitution Avenue, 
NW., Washington, DC 20230.

SUPPLEMENTARY INFORMATION:

Petitioners

    The petition in this investigation was filed 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. The Coalition for Fair Lumber 
Imports Executive Committee is comprised of Hood Industries, 
International Paper Company, Moose River Lumber Company, New South 
Incorporated, Plum Creek Timber Company, Polatch Corporation, Seneca 
Sawmill Company, Shearer Lumber Products, Shuqualak Lumber Company, 
Sierra Pacific Industries, Swift Lumber Incorporated, Temple-Inland 
Forest Products, and Tolleson Lumber Company, Incorporated. On April 
20, 2001, the petition was amended to include the following four 
companies individually as petitioners: Moose River Lumber Co., Shearer 
Lumber Products, Shuqualak Lumber Co. and Tolleson Lumber Co., Inc. 
These parties are collectively referred to as the petitioners.

Case History

    Since the publication of the notice of initiation in the Federal 
Register (see Notice of Initiation of Countervailing Duty 
Investigation: Certain Softwood Lumber Products from Canada, 66 FR 
21332 (April 30, 2001) (Initiation Notice)), the following events have 
occurred: On May 1, 2001, we issued countervailing duty questionnaires 
to the Government of Canada (GOC).\1\ On June 28, 2001, we received 
questionnaire responses from the GOC and from the Provincial 
Governments of Alberta, British Columbia, Manitoba, New Brunswick, 
Newfoundland, Nova Scotia, Ontario, Prince Edward Island, Quebec and 
Saskatchewan. We also received responses from the Northwest Territories 
and the Yukon Territory. On July 23, 2001, we issued supplemental 
questionnaires to the GOC and to the provincial governments. On August 
6, 2001, we received supplemental

[[Page 43187]]

questionnaire responses from the GOC and the provincial governments.
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    \1\ Upon the issuance of the questionnaire, we informed the 
Government of Canada that it was the government's responsibility to 
forward the questionnaires to each of the provinces and territories.
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    On May 10, 2001, the Natural Resources Defense Council, the 
Defenders of Wildlife, the Northwest Ecosystem Alliance, along with the 
Grand Council of the Cree and the Interior Alliance, submitted new 
subsidy allegations. Supplementary information on these allegations was 
filed on June 1, 2001, and on June 15, 2001, the Nishnawbe Aski Nation 
submitted an additional subsidy allegation.\2\ Based upon the 
information on the record, we have decided not to initiate 
investigations of these allegations. See August 9, 2001, Memorandum to 
Melissa G. Skinner from Team on New Subsidy Allegations, which is on 
public file in the Central Records Unit (CRU), Room B-099, of the 
Department of Commerce.
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    \2\ None of these parties qualify as an interested party 
pursuant to section 771(9) of the Act. However, the Natural 
Resources Defense Council, Defenders of Wildlife, and the Northwest 
Ecosystem Alliance can be considered consumer organizations under 
section 777(h) of the Act. The Grand Council of the Cree, the 
Interior Alliance, and the Nishnawbe Aski Nation do not qualify as 
consumer organizations under section 777(h) of the Act.
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    On June 5, 2001, petitioners also submitted additional subsidy 
allegations. Based upon the information on the record, we have decided 
to initiate investigations on only certain of the new subsidy 
allegations made by petitioners. See id.
    On June 5, 2001, we issued a partial extension of the due date for 
this preliminary determination from June 27, 2001 to July 27, 2001. See 
Certain Softwood Lumber Products From Canada: Extension of Time Limit 
for Preliminary Determination in Countervailing Duty Investigation, 
(Extension Notice) 66 FR 31617 (June 12, 2001).
    On July 23, 2001, we extended the due date of this preliminary 
determination by an additional 13 days to August 9, 2001. See Certain 
Softwood Lumber Products From Canada: Extension of Time Limit for 
Preliminary Determination in Countervailing Duty Investigation, 66 FR 
39146 (July 27, 2001).
    On July 27, 2001, we amended our Initiation Notice, to exempt 
certain softwood lumber products from the Provinces of New Brunswick, 
Nova Scotia, Prince Edward Island, and Newfoundland (the Maritime 
Provinces) from this investigation. This exemption does not apply to 
softwood lumber products produced in the Maritime Provinces from Crown 
timber harvested in any other Province. See Amendment to the Notice of 
Initiation of Countervailing Duty Investigation: Certain Softwood 
Lumber Products from Canada, 66 FR 40228 (August 2, 2001).

The Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the statute are 
references to the provisions effective January 1, 1995, the effective 
date of the amendments made to the Tariff Act of 1930 (the Act) by the 
Uruguay Round Agreements Act (URAA). In addition, unless otherwise 
indicated, all citations to the CVD regulations are to the regulations 
codified at 19 CFR part 351 (2001).

Scope of the Investigation

    The products covered by this investigation are softwood lumber, 
flooring and siding (softwood lumber products). Softwood lumber 
products include all products classified under headings 4407.1000, 
4409.1010, 4409.1090, and 4409.1020, respectively, of the Harmonized 
Tariff Schedule of the United States (HTSUS), and any softwood lumber, 
flooring and siding described below. These softwood lumber products 
include:
    (1) Coniferous wood, sawn or chipped lengthwise, sliced or peeled, 
whether or not planed, sanded or finger-jointed, of a thickness 
exceeding six millimeters;
    (2) Coniferous wood siding (including strips and friezes for 
parquet flooring, not assembled) continuously shaped (tongued, grooved, 
rabbeted, chamfered, V-jointed, beaded, molded, rounded or the like) 
along any of its edges or faces, whether or not planed, sanded or 
finger-jointed;
    (3) Other coniferous wood (including strips and friezes for parquet 
flooring, not assembled) continuously shaped (tongued, grooved, 
rabbeted, chamfered, V-jointed, beaded, molded, rounded or the like) 
along any of its edges or faces (other than wood mouldings and wood 
dowel rods) whether or not planed, sanded or finger-jointed; and
    (4) Coniferous wood flooring (including strips and friezes for 
parquet flooring, not assembled) continuously shaped (tongued, grooved, 
rabbeted, chamfered, V-jointed, beaded, molded, rounded or the like) 
along any of its edges or faces, whether or not planed, sanded or 
finger-jointed.
    Although the HTSUS subheadings are provided for convenience and 
U.S. Customs purposes, the written description of the merchandise under 
investigation is dispositive.

Scope Issues

    In the Initiation Notice, we invited all interested parties to 
raise issues and comment regarding the product coverage under the scope 
of this investigation. We received numerous comments, including scope 
clarification requests, scope exclusion requests, and requests for 
determinations of separate classes or kinds. The requests covered 
approximately 50 products, ranging from species, like Western red cedar 
and Douglas fir, to fencing products, bed frame components, pallet 
stock, and joinery and carpentry products.
    In our review of the comments, we found that certain products, 
raised by several respondents, are acknowledged by petitioners as being 
outside the scope of the investigation. Those products fall into the 
following two groups:
    A. Products made of lumber, but in which the lumber has been 
processed into another product, and are classified as such in the 
HTSUS:
    1. Trusses;
    2. I-Joist beams;
    3. Pallets;
    4. Fence pickets;
    5. Bed frames;
    6. Garage doors;
    7. Large edge-glued lumber panels, used in furniture or door 
manufacturing, classified under HTSUS item 4421;
    8. Properly classified complete door frames;
    9. Properly classified complete window frames;
    10. Properly classified furniture.
    B. Products that are outside the scope, but only if they meet 
certain requirements:
    1. Truss kits: If they constitute a full package of the exact 
number of pieces necessary to create a truss of a specified length and 
height. The kit must contain all of the pieces of the truss, cut with 
the appropriate angles, as well as all the necessary metal and wood 
scabs, so that the only thing that is needed is actual assembly. Such 
kits will also be packaged together and conform to a particular design 
or plan
    2. Unassembled pallet kits: If they include the exact number of 
pieces for a complete pallet, bundled together. A kit will not include 
any pieces over 48" in length, the decking will be 1" or less in 
nominal thickness, and the three pieces of dimension lumber used for 
runner or ``stringers'' (which are 2" in nominal thickness) must 
already have the large notches which are used by a fork lift to lift a 
pallet (each notch is 1\1/2\" deep by 8" wide).
    3. ``Stringers'' (pallet components used for runners) if they are 
no longer than 48" and have precut notches for the fork lift, each 
notch is 1\1/2\" deep and 8" wide.
    4. Bed frame kits: If all the pieces required to make the bed frame 
are packaged together and no further processing is required, with none 
of the

[[Page 43188]]

components exceeding 1" in nominal thickness or 83" in length.
    5. Radius-cut bed frame components, not exceeding 1" in nominal 
thickness or 83" in length.
    6. Dog-eared fence pickets, no more than 1" thick (nor more than 4" 
wide), 6 feet or less in length. The dog-ear cut measures at least \3/
4\".
    We have preliminarily determined that the products listed in groups 
(A) and (B) above are outside the scope of this investigation. With 
regard to all other products, we have determined that, because of the 
large number of requests, the even larger number of products, and, in 
some instances, deficiencies in the information currently on the 
record, it is not practicable for the Department to complete the 
analysis of each request by the issuance of the notice of preliminary 
determination. Therefore, we have requested additional information. 
(See August 9, 2001, Memorandum to Bernard T. Carreau from Maria MacKay 
on Requests for Scope Exclusions in the Antidumping and Countervailing 
Duty Investigations on Softwood Lumber from Canada, which is on public 
file in the CRU.)

Exclusions

    In our notice of initiation, we asked for comments on a system to 
process the expected large number of exclusion requests. This request 
had the purpose of ensuring that the Department had the opportunity to 
process the highest number of requests, but did not in any way imply 
that companies could not submit a request for exclusion in accordance 
with the CVD Regulations, at any time prior to the preliminary 
determination.
    We received comments from respondents and petitioners. The GOC 
proposed a system of streamlined procedures. Under this system, 
applications for exclusion would be pre-approved by the GOC and 
submitted to the Department grouped into categories with identical 
relevant facts, accompanied by a set of government certifications. The 
Department could then consider the criteria and the process for 
categorizing the companies to determine whether the group as a whole 
should be excluded. On the other side, petitioners argued that the 
Department does not have the authority under the URAA to grant 
exclusions in an aggregate case. The petitioners also emphasized that, 
should the Department decide to entertain company exclusion requests, 
(1) the required certifications must categorically indicate freedom 
from subsidization of the requester, its affiliates, and, if the 
requester is not a lumber producer, its lumber suppliers; and (2) the 
Department must have verified that the excluded company's output is 
free from subsidization. In addition, petitioners argued that the 
production/sales of any excluded company must be removed from the 
denominator before calculating a country-wide rate. Respondents argued 
to the contrary that the statute requires the country-wide rate to be 
based on ``industry-wide'' data.
    On July 27, 2001, the Department amended its initiation and 
exempted the Maritimes from investigation, a decision which affected 
hundreds of Canadian lumber producers. See 66 FR 40228, August 2, 2001. 
After exempting the Maritime Provinces from the investigation, the 
Department notified the GOC that its proposal with respect to non-
Maritime Provinces would somewhat facilitate the task of reviewing 
numerous company-specific exclusion requests, but requested that the 
applications include all certifications required in section 351.204 of 
the CVD Regulations. The deadline for the submission of the requests 
for consideration in the final determination is August 31, 2001; 
however, the Department also provided a deadline for submission of 
applications which the Department would make every effort to consider 
before the issuance of its preliminary determination (see August 1, 
2001, Memorandum to Bernard T. Carreau from Melissa G. Skinner on 
Requests for Exclusion of Individual Companies from the Countervailing 
Duty Investigation on Softwood Lumber from Canada and Letter from 
Bernard T. Carreau to Paul Bailey, Embassy of Canada, re: 
Countervailing Duty Investigation: Certain Softwood Lumber from Canada, 
which are on public file in the CRU.)
    On August 8, 2001, the GOC submitted 95 company-specific 
applications for exclusion. The applications are grouped under six 
headings: two cover 78 independent re-manufacturers, three cover 13 
lumber producers, purchasing logs at arm's length, from private lands, 
or from U.S. suppliers, and the last group covers 4 companies asking 
for exclusion based on receipt of de minimis subsidies.
    While the original intent of the GOC was to make it possible for 
the Department to review the criteria on a group-wide basis, rather 
than by individual applications, we found that this approach would not 
allow for a thorough analysis of this submission primarily for two 
reasons: (1) Within the groups there were underlying issues requiring 
specific information that was not provided (for instance, a number of 
companies within all groups indicated that they had affiliates, and yet 
certifications were not provided in most instances for those 
companies); and (2) we found inaccuracies in the documentation 
submitted (for instance, company certifications that did not cover the 
entire period of investigation and government certifications not 
covering all the programs under investigation). Therefore, the analysis 
required an examination of each individual request.
    Because of the time constraints, we focused on the groups that were 
the most manageable. We looked at the applications of the lumber mills 
that purchased logs in arm's-length transactions, from private lands, 
and that used U.S. origin logs only. We found only one company, 
Frontier Lumber, that meets the requirements for exclusion. For all 
other applications, either the requester had affiliated companies for 
which proper certification was not provided, or the requester did not 
specifically indicate whether or not it had operated as a non-producing 
exporter during the period of investigation, or the company 
certification was incomplete. A complete analysis of the requests is 
provided in the August 9, 2001 Memorandum to Bernard T. Carreau from 
Maria MacKay and Gayle Longest on Company Exclusion Requests in the 
Countervailing Duty Investigation on Softwood Lumber from Canada, which 
is on public file in the CRU.
    Those companies included in the August 8, 2001, request that were 
not preliminarily excluded from the investigation as a result of 
today's preliminary determination, as well as any additional companies 
that will have submitted proper exclusion requests before the August 
31, 2001, deadline will be given the opportunity to address 
deficiencies in their request to determine whether they should be 
excluded in the final determination. We intend to continue working 
closely with both the individual requesters and the GOC on this issue 
as the investigation proceeds.

Injury Test

    Because Canada is a ``Subsidies Agreement country'' within the 
meaning of section 701(b) of the Act, the International Trade 
Commission (ITC) is required to determine whether imports of the 
subject merchandise from Canada materially injure or threaten material 
injury to a U.S. industry. On May 23, 2001, the ITC's preliminary 
determination finding that there is a reasonable indication that an 
industry in the United States is being threatened with material injury 
by reason of

[[Page 43189]]

imports from Canada of subject merchandise was published in the Federal 
Register. See 66 FR 28541.

Alignment With Final Antidumping Duty Determination

    On August 8, 2001, petitioners submitted a letter requesting 
alignment of the final determination in this investigation with the 
final determination in the companion antidumping duty investigation. 
Therefore, in accordance with section 705(a)(1) of the Act, we are 
aligning the final determination in this investigation with the final 
determination in the antidumping duty investigation of certain softwood 
lumber products from Canada.

Period of Investigation

    The period of investigation (POI) for which we are measuring 
subsidies is April 1, 2000, through March 31, 2001, which is the most 
recently completed fiscal year of the GOC.

Critical Circumstances

    The petition contains allegations of critical circumstances, as 
defined by section 703(e) of the Act, with respect to imports of 
certain softwood lumber products from Canada. See Petitions for 
Antidumping and Countervailing Duties: Certain Softwood Lumber Products 
from Canada, Case Nos. A-122-838 & C-122-839 at Vol. IA I-50 to I-57 
(April 2, 2001).\3\ On June 28, 2001, July 17, 2001, and August 7, 
2001, the petitioners provided the Department with additional 
submissions supporting those allegations. See Letters from Dewey 
Ballantine LLP to the Secretary dated June 28, 2001, July 17, 2001, and 
August 7, 2001.
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    \3\ For the scope of the products covered by this investigation, 
see Initiation Notice 66 FR 21332; Amendment to the Notice of 
Initiation of Countervailing Duty Investigation: Certain Softwood 
Lumber Products From Canada, 66 FR 40228 (August 2, 2001).
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    In a submission dated July 27, 2001, respondents argued that the 
statutory prerequisites for the Department to make a critical 
circumstances determination are not present. The respondents contend, 
among other things, that: (i) There are no subsidies inconsistent with 
the Subsidies Agreement; (ii) the alleged Ontario program was 
terminated in 1995; (iii) the alleged programs are not specific; (iv) 
any benefit that could be calculated for the alleged Quebec programs 
would be de minimis; and (v) there has been no surge in imports. See 
Letter from Weil Gotshal Manges LLP to the Secretary dated July 27, 
2001.\4\
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    \4\ On July 26, 2001, West Frazier Mills Ltd. requested that the 
Department make a company-specific critical circumstances 
determination. As stated the Initiation Notice, we are conducting 
this investigation on an aggregate basis in accordance with section 
777A(e)(2)(B) of the Act and thus, did not request company specific 
information relating to critical circumstances. Our critical 
circumstances determination is based upon aggregate data. As it is 
not practicable for the Department to investigate every lumber 
company in Canada, it is not practicable for the Department to make 
company-specific critical circumstance determinations.
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    In accordance with 19 CFR 351.206(c)(2)(i), because the petitioners 
submitted a critical circumstances allegation more than 20 days before 
the scheduled date of the preliminary determination, the Department 
must issue a preliminary critical circumstances determination not later 
than the date of the preliminary determination.
    Section 703(e)(1) of the Act provides that the Department, upon 
receipt of a timely allegation of critical circumstances, will 
determine whether there is a reasonable basis to believe or suspect 
that:
    (A) The alleged countervailable subsidy is inconsistent with the 
Subsidies Agreement, and
    (B) There have been massive imports of the subject merchandise over 
a relatively short period.
    The purpose of the critical circumstances provisions is to ensure 
that massive imports following the filing of a petition do not 
``undermine seriously the remedial effect of the countervailing duty 
order to be issued * * *'' See section 705(b)(4)(A)(i) of the Act; see 
also, Statement of Administrative Action (SAA) at 877 (``Critical 
circumstances determinations focus on whether an order's effectiveness 
is undermined by increasing shipments prior to the effective date of 
the order''). Thus, where critical circumstances exist, to preserve the 
remedial effect of the order, the statute provides for the extension of 
the provisional measures period to cover imports prior to the 
preliminary determination.
    The purpose of the Department's preliminary critical circumstances 
determination is to preserve the possibility of this retroactive relief 
where there is reasonable cause to believe or suspect that such relief 
may be warranted by taking the limited step of suspending liquidation 
of entries during the period ninety days prior to the preliminary 
determination. Section 703(e)(2) of the Act and 19 CFR 351.206(a). The 
Department's analysis is limited to the two factors set forth in 
section 703(e)(1). For purposes of a final determination whether 
retroactive relief is warranted, other factors are considered by the 
ITC in its final determination. See section 705(b)(4)(A)(ii) of the 
Act.
    We note that the focus of the first statutory criterion is the 
nature of the alleged countervailable subsidy, i.e., whether the 
alleged countervailable subsidy is one that is inconsistent with the 
Subsidies Agreement. This investigation includes two programs alleged 
to be prohibited export subsidies: (1) The Development Corporations of 
the Government of Ontario Export Support Loan; and (2) Export 
Assistance from Investissement Quebec (previously Export Assistance 
from the Societe de Developpement Industriel du Quebec). See Notice of 
Initiation, 66 FR at 21333-34.\5\ As discussed below in the analysis of 
the subsidy programs, the Department has preliminarily determined that 
Export Assistance from Investissement Quebec is a countervailable 
export subsidy. There is no question that export subsidies are 
inconsistent with the Agreement. Therefore, this prong of the statute 
is satisfied.
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    \5\ Although originally listed as two separate programs, 
evidence placed on the record indicates that these two programs have 
been combined into a single export subsidy program administered 
through Investissement Quebec. See GOC Questionnaire Response, SDI/
IQ Narrative at 5 (June 28, 2001).
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    Although respondents do not contest that export subsidies are 
inconsistent with the Agreement, they argue that an affirmative 
preliminary determination of critical circumstances requires that the 
benefit from such programs be above de minimis. We note, however, that 
section 703(e)(A) refers only to an alleged countervailable subsidy 
inconsistent with the Subsidies Agreement. Section 771(5) of the Act 
defines a ``countervailable subsidy'' as a financial contribution by 
the government that confers a benefit and is specific. The level of the 
benefit provided is not part of that definition. Moreover, even if the 
benefit to the subject merchandise from a particular subsidy program is 
de minimis, that benefit is countervailed if the overall subsidy rate 
is above de minimis. Thus, whether a particular program meets the 
definition of countervailable subsidy and the level of the benefit 
provided are two separate issues, only the first of which must be 
addressed in the preliminary determination on critical circumstances. 
Therefore, under a plain reading of the statute, a preliminary 
determination that an alleged subsidy inconsistent with the Agreement 
has provided a de minimis

[[Page 43190]]

benefit to the subject merchandise does not preclude an affirmative 
preliminary determination of critical circumstances.
    The Department has examined critical circumstances in only two 
other preliminary CVD determinations under the current Act.\6\ In both 
cases, the overall preliminary determination was negative; therefore, 
there was no basis to impose any provisional measures. See Preliminary 
Negative Countervailing Duty Determination: Certain Laminated Hardwood 
Trailer Flooring From Canada, 61 FR 59079, 59085 (November 20, 1996); 
Preliminary Negative Countervailing Duty Determination: Elastic Rubber 
from India, 63 FR 67457, 67458 (December 7, 1998).
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    \6\ Although the Department initiated critical circumstances 
investigations with respect to Venezuela and Thailand in Notice of 
Initiation of Countervailing Duty Investigations: Certain Cold-
Rolled Flat-Rolled Carbon Quality Steel Products from Brazil, 
Indonesia, Thailand and Venezuela, 64 FR 34204 (June 25, 1999), the 
cases were terminated because the ITC found that the subject imports 
from those countries were negligible. See Certain Cold-Rolled Steel 
Products from Argentina, Brazil, China, Indonesia, Japan, Russia, 
Slovakia, South Africa, Taiwan, Turkey, and Venezuela, 64 FR 41458 
(July 30, 1999).
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    The cases relied upon by respondents pre-date the URAA, which 
amended the critical circumstances provisions and included, for the 
first time, the definition of a countervailable subsidy discussed 
above. The Department believes that the approach taken in the pre-URAA 
cases would represent an inappropriate interpretation of the current 
statute. To follow the approach taken in that line of cases, we would 
have to go beyond the definition of countervailable subsidy and read 
into the current preliminary critical circumstances provisions a 
requirement that could frustrate the purpose of preserving the 
possibility of retroactive relief through the limited step of 
suspending liquidation pending the outcome of the full investigation.
    In accordance with the statute and regulations, subsequent to the 
issuance of our preliminary determination, we will have an opportunity 
to verify the information concerning these subsidy programs and the 
parties will have an opportunity to present written briefs and have a 
public hearing to further examine the issue of critical circumstances. 
However, at this preliminary stage, based upon the available 
information, the Department has a reasonable basis to believe or 
suspect that there are alleged countervailable subsidies inconsistent 
with the Subsidies Agreement. Therefore, the first prong of section 
703(e)(1) of the Act is satisfied.
    In determining whether there are ``massive imports'' over a 
``relatively short period,'' pursuant to section 703(e)(1)(B) of the 
Act, the Department normally compares the import volume of the subject 
merchandise for three months immediately preceding the filing of the 
petition (i.e., the base period) with the three months following the 
filing of the petition (i.e., the comparison period).
    Section 351.206(h)(1) of the CVD regulations provides that, in 
determining whether imports of the subject merchandise have been 
``massive,'' the Department normally will examine: (i) The volume and 
value of the imports; (ii) seasonal trends; and (iii) the share of 
domestic consumption accounted for by the imports. As noted above, the 
Department's analysis is limited to whether there were massive imports. 
Some factors that respondents urge the Department to consider are not 
relevant to that inquiry and, therefore, have not been factored into 
this analysis. Whether those factors may be relevant to the ITC's final 
inquiry is, of course, a matter for the ITC to determine.
    In addition, Sec. 351.206(h)(2) of the CVD regulations provides 
that an increase in imports of 15 percent or more during the 
``relatively short period'' of time may be considered ``massive.'' 
Section 351.206(i) of the CVD regulations defines ``relatively short 
period'' as normally being the period beginning on the date the 
proceeding begins (i.e., the date the petition is filed) and ending at 
least three months later.
    Based upon U.S. Census import data and an examination of the 
information on the record of the investigation, we find that there is a 
seasonal element that affects imports of lumber from Canada. See 
Critical Circumstances Preliminary Determination Memorandum from 
Bernard T. Carreau to Faryar Shirzad for a detailed discussion of this 
issue. Furthermore, both petitioners and respondents acknowledge that 
lumber is a product for which demand is subject to seasonal shifts, 
and, therefore, it is appropriate to use a seasonal methodology to 
examine whether massive imports occurred with respect to lumber imports 
from Canada. Accordingly, to address any distortions caused by seasonal 
trade fluctuations in our analysis of import increases, we constructed 
and then applied a seasonal adjustment factor. We selected the standard 
seasonal adjustment program used by significant statistical agencies, 
including the Bureau of Census, the Bureau of Labor Statistics and 
Statistics Canada, and calculated a seasonal adjustment factor of 12.00 
percent. This factor is based on the six-year time period 1995 through 
2000. See Critical Circumstances Preliminary Determination Memorandum, 
which is on the public file in the CRU.
    As discussed above, on July 27, 2001, the Department amended its 
notice of initiation of the CVD investigation to exempt the Maritime 
Provinces (New Brunswick, Nova Scotia, Prince Edward Island, and 
Newfoundland) from this investigation. We compared the import volume 
during the period January through March 2001 (the base period) with the 
seasonally adjusted import volume during the period April 2001 through 
June 2001 (the comparison period), and found that, relative to the 
first quarter, lumber imports from Canada, net of the Maritime 
Provinces, increased by 23.34 percent in the comparison period.
    Therefore, pursuant to section 703(e) of the Act and 
Secs. 351.206(h) and (i) of the CVD Regulations, we preliminarily 
determine that there have been massive imports of lumber from Canada 
over a relatively short period of time. Therefore, we find that the 
second prong of the statute has been satisfied.
    As a result of this analysis, we find that both prongs of the 
statute regarding critical circumstances have been met. Therefore, we 
preliminarily determine that critical circumstances exist.
    We will make a final determination concerning critical 
circumstances when we make our final determination of countervailable 
subsidies.

Subsidies Valuation Information

Aggregation

    In the Initiation Notice, we stated that due to the extraordinarily 
large number of Canadian producers, we anticipated that we would 
conduct this investigation on an aggregate basis consistent with 
section 777A(e)(2)(B) of the Act. No one objected. We did receive a 
request from Canfor Corporation (Canfor) for a company-specific rate. 
Canfor requested a company-specific questionnaire be issued or, in the 
alternative, that it be allowed to respond to the questionnaire 
provided to the GOC. We did not issue a company-specific questionnaire, 
nor did Canfor submit a voluntary response. Thus for the purposes of 
this preliminary determination, we have aggregated the subsidy 
information on an industry-wide basis. Specifically, we used the 
information provided by the GOC and the provincial governments and 
calculated one subsidy rate for the Canadian softwood lumber industry 
for

[[Page 43191]]

exports of softwood lumber to the United States.

Allocation Period

    Under Sec. 351.524(d)(2) of the CVD Regulations, we will presume 
the allocation period for non-recurring subsidies to be the average 
useful life (AUL) of renewable physical assets for the industry 
concerned, as listed in the Internal Revenue Service's (IRS) 1977 Class 
Life Asset Depreciation Range System, as updated by the Department of 
the Treasury. The presumption will apply unless a party claims and 
establishes that these tables do not reasonably reflect the AUL of the 
renewable physical assets for the company or industry under 
investigation, and the party can establish that the difference between 
the company-specific or country-wide AUL for the industry under 
investigation is significant.
    In this investigation, the Department is considering non-recurring 
subsidies. Regarding non-recurring subsidies, we have allocated, where 
applicable, all of the non-recurring subsidies provided to the 
producers/exporters of subject merchandise over the AUL listed in the 
IRS tables for the softwood lumber industry. Therefore, in accordance 
with Sec. 351.524(d)(2) of the CVD Regulations, the Department is using 
an allocation period of 10 years. No interested party has challenged 
the 10 year AUL derived from the IRS tables.

Benchmarks for Loans and Discount Rate

    Because this investigation is conducted on an aggregated basis 
(except as otherwise discussed below), for those programs requiring a 
Canadian dollar-denominated discount rate or the application of a 
Canadian dollar-denominated, long-term benchmark interest rate, we used 
for our preliminary determination the national-average interest rates 
on commercial long-term, Canadian dollar-denominated loans as reported 
by the GOC. The information reported by the GOC was for fixed-rate 
long-term debt.
    Some of the investigated programs provided long-term loans to the 
softwood lumber industry with variable interest rates instead of fixed 
interest rates. Because we were unable to gather information on 
variable interest rates charged on commercial loans in Canada, we have 
used as our benchmark for those loans the rate applicable to long-term 
fixed interest rate loans for the POI as reported by the GOC.

Recurring and Non-Recurring Benefits

    The major subsidy allegations in this investigation are the timber 
management systems maintained by the provinces. Petitioners have 
alleged that the stumpage fees paid to harvest and cut timber by 
softwood lumber producers, which are set by the provincial governments, 
confer a countervailable benefit on the production and exportation of 
the subject merchandise. This type of subsidy constitutes the provision 
of a good or a service under section 771(5)(D)(iii) of the Act. Under 
Sec. 351.524(c)(1) of the CVD Regulations, subsidies conferred by the 
government provision of a good or service provide recurring benefits. 
Therefore, any benefits conferred by the provinces' administered 
stumpage programs have been expensed in the year of receipt.
    The Department is also investigating a number of other programs 
which provide grants to producers and exporters of softwood lumber. 
Under Sec. 351.524 of the CVD Regulations, benefits from grants can 
either be classified as providing recurring or non-recurring benefits. 
Recurring benefits are expensed in the year of receipt, while grants 
providing non-recurring benefits are allocated over time corresponding 
to the AUL of the industry under investigation. However, under 
Sec. 351.524(b) of the CVD Regulations, grants which provide non-
recurring benefits will also be expensed in the year of receipt if the 
amount of the grant under the investigated program is less than 0.5 
percent of relevant sales during the year in which the grant was 
approved (referred to as the 0.5 percent test). Except where 
specifically noted in this preliminary determination, the grants 
provided under the investigated programs were less than 0.5 percent of 
the relevant sales of softwood lumber, and, thus, were expensed in the 
year of receipt.

Subsidy Rate Calculation

    In this preliminary determination, we are investigating programs 
administered both by the GOC as well as by the individual provinces. 
For the programs administered by the GOC, we divided the aggregate 
benefit conferred by each of the federal programs by the total value of 
Canadian softwood lumber sales. For programs administered by the 
relevant provinces, we calculated the program subsidy rate by dividing 
the aggregate benefit conferred by each specific provincial program by 
the total sales of softwood lumber from that province (or total export 
sales of softwood lumber if the provincial program was an export 
subsidy). We did not, as requested by respondents, calculate province-
specific rates. To calculate the overall subsidy conferred on the 
subject merchandise from all investigated countervailable subsidy 
programs, we weight-averaged each provincial subsidy program by the 
provinces' relative shares of total U.S. exports of the investigated 
subject merchandise, which, as explained above, does not include 
exports from the Maritime Provinces.
    As noted above, one company, Frontier Lumber, qualified for a 
company exclusion. Our normal practice would be to deduct that 
company's sales from our sales denominator in calculating the Canada-
wide subsidy rate. However, given the size of the company's sales, we 
have not made an adjustment because any adjustment would have no effect 
on the calculated subsidy rate for any of the investigated programs.

I. Provincial Stumpage Programs Preliminarily Determined To Confer 
Subsidies

    Petitioners have alleged that the stumpage programs administered by 
the provinces of British Columbia, Quebec, Ontario, Alberta, Manitoba, 
and Saskatchewan provide Canadian softwood lumber producers with 
countervailable benefits.\7\ Petitioners allege that, through the 
provincially-administered stumpage systems, the provinces provide 
softwood lumber producers with wood fiber for less than adequate 
remuneration through the selling of rights to harvest timber on 
government-owned (or Crown) forest lands.
---------------------------------------------------------------------------

    \7\ Petitioners have also alleged that a ban on the export of 
logs provides a benefit to softwood lumber producers. However, we 
have not addressed this allegation in this determination because any 
conceivable benefit provided through a log ban would already be 
included in the calculation of the stumpage benefit based upon our 
selected market-based benchmark prices for stumpage.
---------------------------------------------------------------------------

    Petitioners have also made the same allegation with respect to the 
Yukon Territory, Northwest Territories, and timber sold on federal 
land. However, we have not examined these stumpage programs in this 
determination because the amount of exports from the two Territories 
and from federal land is insignificant. Thus, these programs would have 
no measurable effect on any subsidy rate calculated for this 
investigation. We will revisit this issue for the final determination.
    In order to confer a countervailable benefit, a program must be 
provided to a specific enterprise or industry or group of enterprises 
or industries, it

[[Page 43192]]

must provide a financial contribution, and it must confer a benefit. We 
address each criterion below.

Specificity

    Subsidies contingent upon export performance or the use of domestic 
goods over imported goods are by definition deemed to be specific in 
accordance with section 771(5A) of the Act. For other subsidies, in 
accordance with section 771(5A)(D)(i) of the Act, if the law enacting 
the program expressly limits the subsidy program to an enterprise or 
industry, the program is de jure specific. However, when the law 
enacting the program does not expressly limit the subsidy program to an 
enterprise or industry, then the Department applies the criteria listed 
under section 771(5A)(D)(iii) of the Act to determine whether the 
program is specific based upon the actual manner in which the program 
is used. The examination of specificity under section 771(5A)(D)(iii), 
referred to as a de facto specificity analysis, provides for the 
following:

    Where there are reasons to believe that a subsidy may be 
specific as a matter of fact, the subsidy is specific if one or more 
of the following factors exists:
    (I) The actual recipients of the subsidy, whether considered on 
an enterprise or industry basis, are limited in number.
    (II) An enterprise or industry is a predominant user of the 
subsidy.
    (III) An enterprise or industry receives a disproportionately 
large amount of the subsidy.
    (IV) The manner in which the authority providing the subsidy has 
exercised discretion in the decision to grant the subsidy indicates 
that an enterprise or industry is favored over others.

    The statute states that any reference under section 771(5A)(D) to 
an enterprise or industry includes a group of enterprises or 
industries. In accordance with Sec. 351.502(a) of the CVD Regulations, 
the Department, in analyzing whether a subsidy is de facto specific, 
will examine the factors contained in section 771(5A)(D)(iii) of the 
Act sequentially. In addition, Sec. 351.502(a) provides that, if a 
single factor warrants a finding of specificity, the Department will 
not undertake further analysis.
    Congress, in the SAA explained how the Department's specificity 
analysis should be conducted. See Statement of Administrative Action 
accompanying H.R. 5110, H.R. Doc. No. 316, Vol. 1, 103d Congr., 2d 
Sess. 911-955 (1994). The SAA states that the specificity test should 
be applied ``in light of its original purpose, which is to function as 
an initial screening mechanism to winnow out only those subsidies which 
truly are broadly available and widely used throughout an economy.'' 
See SAA at 929. The SAA also provides that, because the weight accorded 
to the individual de facto specificity factor is likely to differ from 
case to case, clause (iii) of section 771(5A)(D) ``makes clear that the 
Department will find de facto specificity if one or more of the factors 
exists.'' Id. at 931. With respect to the type of subsidy program at 
issue in this investigation, the SAA states that ``where a government 
confers a subsidy through the provision of a good or service, the fact 
that the use of the subsidy may be limited due to the inherent 
characteristics of the good or service in question would be irrelevant 
for the purposes of a de facto specificity analysis.'' Id. at 932.
    To determine whether the provincial stumpage programs are specific 
under the law, we examined the programs based upon the criteria set 
forth under section 771(5A)(D)(iii) of the Act. Information on the 
programs is contained in the provincial government responses.
    A review of the responses from the provincial governments shows 
that there are two different types of companies which benefit from the 
investigated stumpage programs: (1) Sawmills and (2) pulp and paper 
mills.\8\ Therefore, there are two types of users (or beneficiaries) of 
the provincial stumpage programs. Almost all of the softwood timber 
harvested on Crown land in each of the investigated provinces is 
harvested by, or on behalf of, sawmills and pulp mills. In addition, 
the substantial majority of harvested timber in each of these provinces 
is cut for sawmills producing the subject merchandise.
---------------------------------------------------------------------------

    \8\ In Lumber III (Final Affirmative Countervailing Duty 
Determination: Certain Softwood Lumber Products from Canada, 57 FR 
22570; 22580 (May 28, 1992), we referred to the specific class of 
stumpage beneficiaries as the pulp and paper products and solid wood 
products industries, which was defined as the primary timber 
processing group (i.e., sawmills and pulp and paper mills).
---------------------------------------------------------------------------

    Because there are only two industries, sawmills and pulp mills, 
that use provincial stumpage programs, we preliminarily determine that 
the provincial stumpage programs are specific under section 
771(5A)(D)(iii)(I) of the Act.

Financial Contribution

    In addition to being specific, a countervailable subsidy program 
must provide a financial contribution. Section 771(5)(D)(iii) of the 
Act states that the provision of a good or service (other than general 
infrastructure) by a government constitutes a financial contribution 
under the statute. 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 Act. 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.

Benefit

    After determining that the provincial stumpage programs are 
specific under section 771(5A)(D)(iii) of the Act, and that these 
programs provide a financial contribution in the form of the provision 
of a good or service under section 771(5)(D)(iii) of the Act, we must 
then determine whether this specific financial contribution provides a 
benefit.
    Under section 771(5)(E)(iv) of the Act, a benefit is conferred by a 
government when the government provides the good or service for less 
than adequate remuneration. Section 771(5)(E) further states that the 
adequacy of remuneration

shall be determined in relation to prevailing market conditions for 
the good or service being provided * * * in the country which is 
subject to the investigation or review. Prevailing market conditions 
include price, quality, availability, marketability, transportation, 
and other conditions of * * * sale.

    The word ``remuneration'' is defined as ``[payment] for goods 
provided, services rendered, or losses incurred.'' American Heritage 
Dictionary. The question presented is what constitutes ``adequate'' 
payment for a good or service. To discern the meaning of the word 
``adequate,'' we must look to the wording of this particular provision 
of the statute, the corresponding provision in the WTO Subsidies 
Agreement upon which the statute is based, and the larger context in 
which this provision appears.
    In interpreting the phrase ``less than adequate'' remuneration, we 
must also bear in mind the purpose of section 771(5)(E). The purpose is 
to determine whether the recipient of the financial contribution--in 
this case a good or service--has received a benefit. A benefit is 
something that is favorable or advantageous. A review of section 
771(5)(E) shows that the term ``benefit'' is used to mean something 
better than the recipient could otherwise obtain in the market, e.g., a 
government interest rate lower than the commercial rate for a 
comparable loan. Section 771(5)(E)(iii). Therefore, we also

[[Page 43193]]

interpret ``adequate'' remuneration to be remuneration that is market-
based.
    This interpretation of the term ``adequate remuneration'' is 
further consistent with the larger context in which this provision 
appears both in the statute and the Subsidies Agreement. In addition to 
the case where goods or services are provided for less than adequate 
remuneration, section 771(5)(E) of the Act refers to three other 
instances of a countervailable benefit and provides guidance on how to 
measure those benefits. In the case of an equity infusion, paragraph 
(i) provides that a benefit exists ``* * * if the investment decision 
is inconsistent with the usual investment practice of private 
investors, * * *, in the country in which the equity infusion is 
made.'' In the case of a loan, paragraph (ii) provides that a benefit 
exists ``* * * if there is a difference between the amount the 
recipient of the loan pays on the loan and the amount the recipient 
would pay on a comparable commercial loan that the recipient could 
actually obtain on the market.'' In the case of a loan guarantee, 
paragraph (iii) provides that a benefit exists ``* * * if there is a 
difference, * * *, between the amount the recipient of the guarantee 
pays on the guaranteed loan and the amount the recipient would pay for 
a comparable commercial loan if there were no guarantee by the 
authority.'' These provisions reflect almost verbatim the language of 
paragraphs (a), (b), and (c) of Article 14 of the Subsidies Agreement.
    The point of comparison for measuring the benefit from these types 
of subsidies is the marketplace free of government interference. 
References in the statute and the Subsidies Agreement to the ``usual 
investment practice of private investors,'' ``commercial loans'' that 
can actually be obtained ``on the market,'' and a ``comparable 
commercial loan if there were no guarantee by the authority'' support 
this conclusion. It follows from this central principle--common to all 
the other provisions under the benefit section, both in the statute and 
the Subsidies Agreement--that the adequacy of remuneration must be 
measured by reference to the marketplace free of government 
interference.
    Additional support for this conclusion is found in the chapeaus of 
section 771(5)(E) and Article 14 of the Subsidies Agreement. The 
introduction to the benefit section in the statute states that ``A 
benefit shall normally be treated as conferred where there is a benefit 
to the recipient [.]'' Similarly, the title of Article 14 is 
``Calculation of the Amount of a Subsidy in Terms of the Benefit to the 
Recipient.'' From the perspective of the recipient of a subsidy, the 
true measure of the benefit derived from any government largesse is by 
reference to what the recipient would have had to pay for the physical 
or financial good or service in the marketplace, absent any government 
involvement. Thus, while one could argue that, from the government's 
perspective, remuneration could be considered ``adequate'' as long as 
it covers the costs to the government of providing the good or service, 
the cost-to-government standard is wholly inappropriate from the 
perspective of the private recipient. This is because the cost to the 
government does not necessarily measure the price at which the private 
recipient could have obtained the good or service in the marketplace 
free of government interference.
    The concept of benefit in the statute derives from the Subsidies 
Agreement. A recent WTO dispute settlement panel stated that:

benefit clearly encompasses ``some form of advantage''; (the 
authority 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 * * * the only 
logical basis for determining the position the recipient would have 
been in absent the financial contribution is the market.''

Canada--Measures affecting the Export of Civilian Aircraft, (WT/DS70/R, 
para 9.112).
    The WTO Appellate Body stated:

* * * 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 favorable than those 
available to the recipient in the market.

Id. (WT/DS70/AB/R, para 157) (emphasis added).
    Section 771(5)(E)(iv) ensures that, whatever standard is used to 
assess the adequacy of the remuneration required by the government, 
that standard must be reasonable and must take into account the market 
factors in the country under investigation that could affect the 
measurement of the adequacy of the remuneration. For example, the 
commercial benchmark must be derived from comparable sales, i.e., sales 
where the prevailing conditions of sale are comparable to the sales by 
the government, or sales that can be adjusted to achieve comparability.
    It is not necessary that the benchmark come from sales of the good 
or service within the country under investigation, as respondents 
argue. The statute requires that the analysis be made ``in relation 
to'' prevailing market conditions in the country under investigation, 
not ``in'' the country under investigation. Thus, we find no basis in 
the statute for the restrictive reading proposed by respondents. 
Moreover, such a restrictive reading would place beyond the reach of 
the countervailing duty law any government supplier that dominates the 
market for a particular input and then provides that input to producers 
at beneficial prices. Under such a reading, subsidy disciplines would 
only be available to remedy situations where the government has 
subsidized only an incidental part of the market for a particular 
input. We may not interpret the statute in a manner that would 
frustrate its very purpose. See Goodman Manufacturing v. United States, 
69 F.3d 505 (Fed. Cir.1995) (``Statutory interpretation is a holistic 
endeavor. A provision that may seem ambiguous in isolation is often 
clarified by the remainder of the statutory scheme--because * * * only 
one of the permissible meanings produces a substantive effect that is 
compatible with the rest of the law.'' (citation omitted)).
    In sum, the key elements of a methodology to determine whether a 
government has provided a good or service at less than adequate 
remuneration as required by section 771(5)(E) are: (1) The 
comparability of prevailing market conditions; and (2) a market-based 
standard. These elements are reflected in the methodologies established 
in the Department's Regulations.
    Section 351.511(a)(2) of the CVD regulations sets forth three 
methodologies for determining whether a government good or service is 
provided for less than adequate remuneration. These methodologies are 
listed in hierarchical order: (1) Market prices from actual 
transactions within the country under investigation; (2) world market 
prices that would be available to purchasers in the country of 
exportation; or (3) an assessment of whether the government price is 
consistent with market principles.
    This hierarchy is based on a logical preference for achieving the 
objectives of the statute. The simplest means of determining whether 
the government required adequate remuneration is by comparison with 
private transactions for a comparable good or service in the country. 
Thus, the first methodology in the hierarchy calls for a comparison 
with an actual market-determined price from a private supplier either 
within the

[[Page 43194]]

country under investigation, or from outside the country in the form of 
an actual import. Both transactions constitute market prices in the 
country. This methodology is first in the hierarchy because observed 
prices from actual transactions in the country are the most direct and 
reliable indicator of a market-determined price that is available to 
the producer in question. The second methodology calls for world market 
prices that would be available to the producer in question. This 
approach is also market-based, but it potentially introduces additional 
variables with respect to availability, comparability, and the market-
determined nature of the prices. Nevertheless, world market prices 
still constitute a reasonable approach because they can reflect market-
based prices for a comparable good or service that would be available 
in the country. The third methodology, which requires an assessment of 
whether the government's price is consistent with market principles, is 
used only where an appropriate benchmark is unavailable either in-
country or abroad for comparison purposes.
    The first preference, specified under Sec. 351.511(a)(2)(i), is to 
compare the government price with a market-determined price resulting 
from actual transactions in the country in question. Such a price could 
include prices stemming from actual transactions between private 
parties, actual imports, or in certain circumstances, actual sales from 
competitively-run government auctions. In considering such transactions 
or sales, the Department will take into account product similarity; 
quantities sold, imported, or auctioned; and other factors affecting 
comparability.
    Further guidance on the use of market-determined prices stemming 
from actual transactions within the country is provided in the Preamble 
to the CVD Regulations. See ``Explanation of the Final Rules `` of the 
Countervailing Duties, Final Rule, 63 FR 65348 (November 25, 1998) (the 
Preamble). According to the Preamble, prices from a government auction 
would be appropriate where the government sells a significant portion 
of the good or service through competitive bid procedures that are open 
to everyone, that protect confidentiality, and that are based solely on 
price.
    The Preamble also states that the Department normally will not 
adjust such market-determined prices under this methodology to account 
for government distortion of the market because such distortion will 
normally be minimal as long as the government involvement in the market 
is not substantial. If the government provider constitutes a majority, 
or a substantial portion of the market, then such prices in the country 
will no longer be considered market-based and will not be an 
appropriate basis of comparison for determining whether there is a 
benefit.
    The second approach in the regulatory hierarchy is the use of world 
market prices that would be available to purchasers in the country of 
exportation (emphasis in the Preamble). The Preamble states that, where 
it is reasonable to conclude that actual prices within the country 
under investigation are significantly distorted as a result of the 
government's involvement in the market, the Department will resort to 
world market prices. For example, in Live Cattle from Canada, we 
stated: ``* * * when confronted with an adequate remuneration issue, 
the Department will normally seek to measure the adequacy of 
remuneration by comparing the government price to market-determined 
prices within the country. However, in certain situations, market 
prices may not exist in the country or it may be difficult to find a 
`market' price that is independent of market distortions caused by 
government actions.'' See Final Negative Countervailing Duty 
Determination; Live Cattle From Canada, 64 FR 57040, 57056 (October 22, 
1999).
    The regulation also states that, where there is more than one 
commercially available world market price, the Department will average 
such prices to the extent practicable, making due allowance for factors 
affecting comparability. Such averaging would only be called for where 
we conclude that more than one world market price, i.e., prices from 
more than one foreign source, would be commercially available to 
purchasers in the country of exportation.
    It is important to note that, if the private prices within the 
country subject to investigation were in fact market-based, they would 
necessarily reflect the world market price available in the country of 
exportation. Therefore, there should be no difference between the 
private prices in the country of exportation and world market prices, 
except for import taxes. To the extent there are any differences, this 
just underscores the distorted nature of the private prices where the 
government dominates a particular sector of the economy.
    In selecting a world market price, the Department will examine the 
circumstances in the case to determine if a purchaser in the country 
could obtain the good or service on the world market. Normally, such a 
world market price is a market-based price at which the good or service 
could be imported. Thus, it should also indicate the price of that good 
or service that we would find in the exporting country if that price 
were market-based. As discussed in the Preamble, the Department will:

consider whether the market conditions in the country are such that 
it is reasonable to conclude that a purchaser in the country could 
obtain the good or service on the world market. For example, a 
European price for electricity normally would not be an acceptable 
comparison price for electricity provided by a Latin American 
government, because electricity from Europe in all likelihood would 
not be available to consumers in Latin America. However, as another 
example, the world market price for commodity products, such as 
certain metals and ores, or for certain industrial and electronic 
goods commonly traded across borders, could be an acceptable 
comparison price for a government-provided good, provided that it is 
reasonable to conclude from record evidence that the purchaser would 
have access to such internationally traded goods.

    This approach is reasonable and consistent with the intent of the 
statute since it furthers the statutory directive that subsidization be 
measured on a market basis and in relation to prevailing market 
conditions.
    To determine whether the provincial governments have provided a 
countervailable benefit to Canadian softwood lumber producers, we must 
examine whether stumpage was provided to softwood lumber producers for 
less than adequate remuneration. As we have noted above, the Department 
must first determine whether there are market prices within Canada 
which can be used to measure whether the provincial stumpage programs 
provide a good or service for less than adequate remuneration.
    The Provinces of Alberta, Ontario and Quebec have provided private 
stumpage prices charged within their respective provinces. British 
Columbia provided stumpage prices set by government auction. As a 
starting point, these prices reported by all four Provinces would be 
considered prices based upon actual transactions within the country 
under investigation, as described in our regulations. However, an 
examination of the information on the record demonstrates that the 
private stumpage prices reported by the Provinces do not constitute 
market-determined prices within the meaning of Sec. 351.511(a)(2)(i) of 
the CVD Regulations.
    In each of the Provinces, the stumpage market is driven by the 
provincial governments' ownership and control of

[[Page 43195]]

forest land and the governments' practice of setting stumpage fees 
administratively. The fees are often set with a view towards 
traditional government economic policy goals, such as job creation, 
rather than with a view toward obtaining a market price. The provincial 
governments own a substantial majority of harvestable forest land. 
These Crown lands account for between approximately 57 and 97 percent 
of all forest land within each of the Provinces. Specifically, 
provincial, federal, and private ownership of forest resources, by 
province are:
     British Columbia--94 percent provincial, 1 percent 
federal, and 5 percent private;
     Quebec--89 percent provincial and 11 percent private;
     Ontario--83 percent provincial, 1 percent federal, and 17 
percent private;
     Alberta--57.4 percent provincial, 10.8 percent federal, 
and 28.5 percent private;
     Manitoba--94 percent provincial, 1 percent federal, and 5 
percent private; and
     Saskatchewan--97 percent provincial, 2 percent federal, 
and 1 percent private.
    In addition, the softwood harvest from Crown lands accounts for 
approximately 70 to 90 percent of the stumpage sold within each of the 
Provinces. Therefore, between 70 and 90 percent of the good or service 
within each of the provinces is provided by the government. Further, 
the apparent minimum cut requirements on public lands have the 
potential to distort timber supplies and depress prices. 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.
    We considered additional information on the record with respect to 
each of the Provinces examined for this preliminary determination. For 
example, Quebec provided a private price that was obtained via a survey 
of 81 companies that had purchased private stumpage during the POI. 
However, as even acknowledged by the Quebec Ministry of Natural 
Resources, private stumpage prices in Quebec are affected by the 
administratively-set price for public stumpage.\9\ Ontario commissioned 
a study of private stumpage sales in that Province. However, 
information in the survey indicates that many private landowners do not 
actively market their standing timber and that many sales were not 
actually contested or open to competition. None of the respondents to 
the survey indicated relying on auctions or a forester consultant to 
assess the value of the timber. In fact, only 21 percent of the 
landowners state that the price for stumpage was market-determined.
---------------------------------------------------------------------------

    \9\ See Petition at page 119.
---------------------------------------------------------------------------

    Neither Manitoba nor Saskatchewan reported prices on private 
stumpage sales within the provinces.
    British Columbia did not provide private stumpage prices. Instead, 
the Province provided prices from the auctions the government runs 
under the Small Business Forest Enterprise Program (SBFEP). As the name 
of the program indicates, the SBFEP auction is only open to small 
businesses that are registered as small business forest enterprises. 
Thus, the overwhelming majority of the purchasers of this government 
good or service is explicitly excluded from this auction. Moreover, 
only a small percentage of stumpage in British Columbia is sold via 
SBFEP auction. Therefore, the SBFEP auction prices submitted by British 
Columbia cannot be used as benchmark prices under Sec. 351.511(a)(2)(i) 
of the CVD Regulations.
    A large government presence in the market will tend to make much 
smaller private suppliers price-takers. While it is not unusual for 
small suppliers to be price-takers even in a market with no government 
involvement, the government-dominated market will distort the market as 
a whole if the government does not sell at market-determined prices. In 
such a situation, true market prices may not exist in the country, or 
it may be difficult to a find a ``market'' price that is independent of 
the distortions caused by the government's action. In fact, where the 
market for a particular good or service is so dominated by the presence 
of a government monopoly or near monopoly, the remaining private prices 
in the country in question cannot be considered to be market-based. 
Such circumstances are present in this investigation. Because of the 
provincial governments' control of the market through a system of 
administratively-set prices and other market distorting measures, there 
is no market-determined price for stumpage within Canada that is 
independent of the distortion caused by the governments' interference 
in the market. Therefore, we preliminarily determine that we cannot use 
the 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 programs 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 U.S. stumpage would be available to softwood lumber 
producers in Canada at the same prices available to U.S. lumber 
producers.\10\ Furthermore, as demonstrated below, information on the 
record indicates that stumpage in the United States along the border 
with Canada is comparable to Canadian stumpage. Therefore, for purposes 
of this preliminary determination, we have measured the adequacy of 
remuneration of the provincial stumpage programs by comparing the 
stumpage fees charged by the provincial governments with market-
determined prices for stumpage available in the United States. As 
explained in more detail in the benefit sections of each province, as a 
calculation matter, we only compared stumpage prices in each Canadian 
province with stumpage prices in states bordering that province. For 
example, we compared British Columbia prices with prices available in 
Washington and Idaho, and we compared prices in Quebec with prices 
available in Maine.
---------------------------------------------------------------------------

    \10\ We note, however, that Canadian stumpage generally is not 
available to U.S. lumber producers because of restrictions on log 
exports.
---------------------------------------------------------------------------

    There are no restrictions on obtaining stumpage on private and 
state lands in the United States. Furthermore, timber harvested in the 
United States is imported into Canada, and imports from the United 
States account for almost 100 percent of all Canadian timber imports. 
Such imports represent a decision made by Canadian mills to purchase 
U.S. stumpage instead of Canadian stumpage. Finally, we note that some 
of the largest softwood lumber producers in Canada have operations in 
both Canada and in the United States and obtain stumpage in both 
countries.
    The United States, like Canada, is one of the world's largest 
softwood timber producers, and the North American softwood timber 
region is geographically separated from other softwood timber markets 
throughout the world. Thus, given the costs of transporting timber 
across the ocean, it is unlikely that Canadian softwood lumber 
producers would obtain stumpage from a country other than the United 
States. For these reasons, we preliminarily determine that it is 
reasonable to conclude that the world

[[Page 43196]]

market prices of stumpage in the United States would be available to 
softwood lumber producers in Canada, and that it is neither necessary 
nor desirable to include any other world market prices in the benchmark 
price.
    We also conclude that the price for stumpage in the United States 
is a market-determined price. The majority of softwood-producing forest 
land in the United States is held by private concerns. Furthermore, 
stumpage for harvestable timber, whether sold from private parties or 
from state land, is sold through an open competitive process available 
to all buyers. Thus, the stumpage prices in the United States, unlike 
those in Canada, are set by market forces.
    The cross-border stumpage prices that we have used are based on 
sales from state lands. While our preferred benchmark would be a 
weighted average of both state and private prices in the United States, 
we have been unable at this time to locate adequate private sales data, 
except for sales in Maine. Therefore, for purposes of this preliminary 
determination, we have used sales data from only state lands.
    Public land stumpage fees, such as those available on state lands, 
accurately reflect market-based prices because they are determined by 
public auctions available to all comers. These sales involve 
competitive bidding where most purchasers have the choice of buying 
public or private stumpage. Moreover, it is reasonable to conclude, for 
purposes of this preliminary determination, that stumpage fees from 
public lands are a suitable benchmark because the total volume of 
timber cut from public land constitutes a minority of the amount of 
total timber sold in the United States, making private timber sales the 
primary driver of stumpage fees in the timber market overall. Although 
we maintain that stumpage rates from state lands are an appropriate 
benchmark under these circumstances, we intend to continue examining 
sources for timber prices from private lands in the United States for 
use in the final determination.
    We have received numerous comments on whether cross-border prices 
can serve as a benchmark to measure the benefit conferred from the 
provincial stumpage programs. The petitioners support the use of cross-
border prices, while respondents oppose it.
    In addressing this issue, it is useful to start with the different 
legal frameworks governing this investigation as compared with Lumber 
III. The final determination in Lumber III was made in 1992, before the 
amendments to the Act as a result of the URAA. At the time of Lumber 
III, the provision of a good or service was a benefit if it was 
provided at preferential rates. The methodology used by the Department 
to determine whether the good was provided at preferential rates was 
set forth in the ``Preferentiality Appendix'' and in section 355.44(f) 
of the then Proposed CVD Regulations.\11\ According to this 
methodology, the Department would measure whether the government 
provided a good or service at a preferential rate based upon, in order 
of preference, the following benchmarks: (1) The price the government 
charges to other parties for the identical or similar good; (2) the 
price charged by other sellers within the same political jurisdiction 
(i.e, country under investigation); (3) the government's cost of 
providing the good or service; or (4) the price paid for that good 
outside the country under investigation.
---------------------------------------------------------------------------

    \11\ These Proposed CVD Regulations were never adopted by the 
Department.
---------------------------------------------------------------------------

    There are several important differences between the discarded 
preferentiality standard and the current adequate remuneration 
standard. Preferentiality is a measure of price discrimination, i.e., 
whether a government is favoring some buyers over others with lower 
prices. Indeed, the first choice under the preferentiality methodology 
was to use another government price as a benchmark to determine whether 
the investigated program provides a benefit. This was the benchmark 
used by the Department in Lumber III, and it provided a measure of 
price discrimination, or preferentiality. It cannot be said to measure 
adequate remuneration.
    With the changes in the CVD law as a result of the URAA, and the 
Subsidies Agreement upon which the URAA is based, the price 
discrimination test was dropped in favor of adequate remuneration. 
Under this standard, the government price must be compared with a 
market-determined price. It is no longer sufficient to say that the 
government does not discriminate among buyers. Rather, as discussed 
above, we must determine whether the government is receiving adequate 
remuneration, i.e., a market-based price.
    As noted above, under the adequate remuneration methodology, if 
there is no market-determined price within the country under 
investigation, the Department seeks a price on the world market (if one 
is available). However, under the preferentiality methodology, the use 
of a price on the world market was the last alternative. The 
preferentiality methodology required the Department to measure the 
benefit from the government's provision of a good or service by 
comparing the government's price for that good to its cost of providing 
that good before using a world market price. Therefore, under the 
preferentiality methodology, the Department was effectively precluded 
from using a price from the world market in most cases.
    Many comments made by respondents criticize the use of a cross-
border price by reference to contrary statements made by the Department 
in Lumber III and prior lumber cases. However, contrary statements in 
the past by the Department with respect to cross-border prices were 
made in the context of a different legal framework. Furthermore, those 
statements reflected a preferentiality hierarchy that put world market 
prices last, in many instances effectively precluding the use of world 
market prices, for the simple reason that world market prices are the 
least appropriate measure of price discrimination by the government of 
the exporting country.
    Respondents further point out that there is no unified North 
American market for stumpage because each individual stand of timber is 
unique due to a variety of factors such as species combination, 
density, quality, size, age, accessibility, terrain and climate. While 
we agree in part with this statement, the differences in individual 
stands of timber are just as applicable to comparisons within Canada as 
they are with cross-border comparisons. For example, private lands in 
Quebec tend to be located in the southern portion of the province, 
whereas Crown lands tend to be located north of the St. Lawrence. All 
parties agree that the topography, climate, and biological 
characteristics of trees in northern and southern Quebec are very 
different. In fact, information on the record indicates that the 
terrain, climate, and mix of species in southern Quebec are much more 
similar to those in Maine than they are to those in the northern part 
of the province.
    Further, despite statements that the Department may have made in 
earlier lumber cases, the fact that individual stands may be to some 
extent unique does not mean that all stands are so dissimilar as to 
render any stumpage price comparisons meaningless and unreasonable. 
Rather, information on the record indicates that, despite minor 
differences, many softwood lumber stands in Canada and the United 
States are in fact sufficiently similar to allow appropriate 
comparisons of stumpage prices across borders.
    As a general matter, there is nothing about the border between the 
United

[[Page 43197]]

States and Canada that would affect the comparability of trees grown on 
either side. Except for the Great Lakes, there is no significant body 
of water or mountain range that defines the border between the two 
countries. For the most part, the border is an artificial line drawn as 
a result of a series of political compromises reached throughout the 
two countries' histories.
    While there may be some information on the record that is 
conflicting, based on an analysis of all of the facts on the record, we 
preliminarily determine that the timber in Canada is comparable to that 
in the northern border states of the United States with respect to 
quality, species, terrain, availability, and marketability. This is why 
we have chosen stumpage prices from states which border Canada as 
appropriate benchmark prices. We have also, where possible, made 
comparisons on a species-specific basis, and we have accounted for 
numerous other adjustments claimed by the Provinces, as explained below 
in the narrative descriptions of the individual provincial stumpage 
programs. We welcome comments from the parties as to whether additional 
adjustments are warranted.
    Respondents also argue that stumpage in the United States is not 
available to purchasers in Canada and that therefore the Department may 
not consider the price of stumpage in the United States to be an 
appropriate benchmark. These arguments are clearly at odds with the 
language of the statute and the CVD Regulations, and they are at odds 
with the factual findings discussed above. The location of the good is 
not the relevant point of the regulation, it is the availability of the 
price for that good. Furthermore, as discussed above, we have concluded 
that U.S. stumpage is in fact available to Canadian lumber producers. 
For instance, Canadian border mills routinely obtain U.S. stumpage, 
underscoring the fact that U.S. stumpage prices are actually paid by 
Canadian producers.
    In fact, U.S. prices are very much an ``in-country'' price from the 
perspective of many Canadian mills, including some of the largest 
mills. U.S. prices are a routine part of the business calculations of 
many Canadian mills, particularly the border mills in Quebec, mills 
located in the Maritimes, and the large multinational mills in the 
Pacific northwest. Regardless of where the Canadian purchaser is 
located, the purchaser has access to U.S. stumpage and can offer bids 
at any U.S. public auctions. Indeed, we have already received, and we 
anticipate receiving still more, exclusion requests from companies 
located near the U.S. border that routinely use both U.S. and Canadian 
stumpage. Thus, U.S. prices are clearly part of the prevailing market 
conditions in Canada.
    The Department notes, as the above analysis makes clear, that there 
is little difference between actual import transactions under the first 
tier and world market prices under the second tier of the adequate 
remuneration hierarchy. While the regulation draws a distinction 
between an actual, observable import transaction and a world market 
price that would be available to producers in the country, the fact is 
that world market prices are also based on actual transactions equally 
available in Canada. For this reason, we maintain that there is no 
practical distinction between a market stumpage price in Canada (if 
such a price existed) and a market stumpage price in the United States 
that is available to Canadian producers. Because there is no meaningful 
commercial distinction between the two, any effort to draw a legal 
distinction between them represents a hypertechnical reading of the 
statute that elevates form over substance.
    Respondents also object to using prices of imported logs. 
Presently, there is inadequate information on the record of this 
investigation regarding U.S. logs imported into Canada. Thus, we did 
not consider imported log prices as a benchmark for this preliminary 
determination. However, we note that the CVD Regulations provide for 
the use of import prices, and we will continue to examine information 
related to actual log imports into Canada. We note that, when a 
Canadian producer imports logs from the United States, that producer 
has paid for U.S. stumpage. If the costs of harvesting, transportation, 
and profit, are deducted from the price of the logs, whether the U.S. 
logs are purchased in Canada or in the United States, the price of the 
U.S. stumpage is derived. Therefore, we believe there is a reason to 
consider there to be no difference between the purchase of stumpage in 
the United States and the purchase of logs imported into Canada from 
the United States.
    Thus, after considering the information on the record, we 
preliminarily determine that cross-border stumpage prices are the 
appropriate comparison prices to measure whether the provincial 
governments have provided a good or service to softwood lumber 
producers at less than adequate remuneration. For each of the 
provincial stumpage programs, we have compared the administratively-set 
stumpage price charged to softwood lumber producers with the cross-
border stumpage benchmark prices. Using this methodology, we 
preliminarily determine that each of the provincial stumpage programs 
provides a benefit to Canadian softwood lumber producers by providing 
stumpage for less than adequate remuneration.
    In conclusion, we preliminarily determine that the provincial 
stumpage programs are countervailable because they are specific under 
section 771(5A)(D) of the Act, they provide a financial contribution 
under section 771(5)(D)(iii) of the Act, and they confer a benefit 
under section 771(5)(E)(iv) of the Act.
    Below, we describe the stumpage programs for each of the 
investigated provinces and provide the calculated ad valorem subsidy 
rate for these programs.
1. Province of Quebec
    The Government of Quebec (GOQ) makes standing timber on Crown land 
available to those parties that have purchased harvesting rights. These 
rights, often referred to as stumpage rights, apply to a particular 
area of Crown land and entitle the purchaser to harvest standing timber 
at a price that is set by the GOQ's Ministry of Natural Resources 
(MRN), the agency responsible for administering the sale of standing 
timber on Crown lands. The price that the MRN charges for stumpage 
rights varies depending on where the timber stand is located. In 
previous years, the MRN divided the Crown lands into 28 zones and 
charged different prices for each zone. According to the GOQ, these 
zones, or tariffing zones, delineated areas that were similar in terms 
of climate, tree size, topography, species mix, etc. Until 1999, the 
tariffing zones contained both Crown and private lands. However, in 
1999 the GOQ amended the Forestry Act, the legislation that governs the 
sale of standing timber on Crown land. Pursuant to this amendment, the 
GOQ expanded the number of tariffing zones in April of 2000 to 161 in 
order to ensure maximum homogeneity in each zone. Further, as a result 
of the amendment, privately-owned forests were no longer located within 
any of the tariffing zones.
    In Quebec, there are four ways through which the MRN sells stumpage 
rights: Timber Supply and Forest Management Agreements (TSFMAs), Forest 
Management Contracts (FMCs), Annual Forest Management Permits (AFMPs), 
and public auctions.
    TSFMA licences account for virtually all standing timber harvested 
on Crown lands. During the POI, TSFMAs

[[Page 43198]]

accounted for 95 percent of the softwood Crown timber harvested. A 
TSFMA allows the holder to obtain an annual management permit to supply 
a wood processing plant or mill. A TSFMA also authorizes the volume at 
which particular species can be harvested. In order to obtain a TSFMA, 
the applicant must own a wood processing mill. In return for the 
stumpage rights, the holder of the TSFMA must carry out certain types 
of silviculture treatments, as specified in the agreement with the MRN, 
required to achieve a pre-established annual yield. The GOQ credits a 
portion of these silviculture costs towards the payment of the stumpage 
fees owned under the TSFMA. In addition, the MRN mandates the holder of 
the TSFMA to build and maintain the roads leading to and through the 
logging sites, and submit five-year and annual forest plans for 
required silviculture activities. TSFMA holders are also required to 
contribute to the forest fire protection agency Societe de protection 
des forets contre le feu (SOPFEU), the insect and disease protection 
agency Societe de protection des forets contre le insectes et les 
maladies (SOPFIM), and the Forestry Fund. The overall term of the TSFMA 
is 25 years. However, every five years from the effective date of the 
agreement, the term of a TSFMA can be renewed for an additional 25 
years, provided that the holder of the TSFMA has fulfilled its 
obligations under the agreement.
    FMCs are similar to TSFMAs in that they are also subject to the 
stumpage prices charged by the MRN. In addition, holders of FMCs are 
responsible for the same types of silviculture activities as those 
covered by TSFMAs. The MRN usually enters into FMCs with non-profit 
organizations or municipalities. FMCs normally cover relatively small 
forest areas. During the POI, FMCs accounted for less than one percent 
of the softwood Crown timber harvest.
    Standing timber on Crown lands is also available through AFMPs. 
Pursuant to sections 79, 93, 94, 95, and 208 of the Forest Act, AFMPs 
permit the harvest of less desirable forms of timber, often referred to 
as slash and cull, for use in energy production and metallurgical 
purposes. The MRN issues AFMPs provided that it deems the production of 
the applicant sufficient and that the slash and cull harvest promotes 
the growth of stands in a particular forest area. Less than one percent 
of the standing timber in Quebec is harvested under AFMPs.
    The fourth method involves the sale of standing timber on public 
reserves through public auctions. Public reserves are forest areas in 
which no timber supply and forest management agreement is in force. 
However, while these public auctions are permissible under GOQ law, the 
MRN has yet to sell any publicly-owned timber under this method.
    Aside from managing the sale of standing timber on Crown lands, the 
MRN collects information on the price of standing timber in private 
forests. Private market prices for standing timber are obtained through 
a survey of companies that purchase standing timber from private 
forests. The Quebec Institute of Statistics (the Institute), under the 
aegise of the MRN, conducts a census of all purchases of privately-held 
timber every 3 years. Between each census, the MRN conducts a survey of 
private purchasers using randomly selected respondents. These surveys 
are based on actual transactions of private purchasers and mainly cover 
the purchase of trees in the spruce, pine, and fir species group. The 
most recent analysis of private stumpage prices in Quebec took place in 
2000. Of the 190 major companies trading standing timber, 81 responded 
to the survey. All companies included in the survey have traded at 
least 4,000 cubic meters of standing timber in the last four years. The 
GOQ states that the survey covered the private forest in its entirety 
as well as all 15 territories managed by private wood producers' 
syndicates and marketing boards.\12\
---------------------------------------------------------------------------

    \12\ There are 15 wood producers' syndicates and marketing 
boards in Quebec. Membership is voluntary. Their task is to 
represent their members in dealings with Federal and local 
governments on matters related to silviculture, forest management, 
forest policies, laws, environmental certification, registration of 
forest producers, resource sustainability, and tax issues.
---------------------------------------------------------------------------

    Once the survey is complete, the Institute compiles a value for 
each private forest territory covered by a syndicate or wood producer's 
marketing board. The Institute then weights these values by the volume 
of timber purchased by each respondent. The GOQ explains that the 
purpose of this step is to improve the statistical accuracy in the 
calculation of the average market value of standing timber in private 
forests. The Institute then obtains a single, province-wide average of 
the survey respondents, referred to as the Market Value of Standing 
Timber (MVST), by attributing a weight corresponding to the total 
trading volume for each wood producers' association territory.
    The MRN, as required by the Forestry Act, uses a system called the 
parity technique to determine the stumpage value the MRN charges to 
TSFMA and FMC licences. Under the parity technique, the MRN employs a 
complex formula which adjusts the private MVST in order to account for 
relative differences that exist between the private MVST and the 
tariffing zone to be appraised. The MRN then calculates an individual 
stumpage rate that will be charged in each tariffing zone.
    The MRN employs the parity technique by gauging the operating costs 
for each of the 161 tariffing zones, the private forest (where costs 
are lowest), and at the northernmost limit of demand (where costs are 
highest). These operating costs include harvest costs, road 
construction and maintenance costs, transportation costs to mill and 
market, logging camp costs, and specific tenure costs. The GOQ states 
that the operating costs are derived from cost indices that quantify 
the average biophysical characteristics of each zone (i.e., average 
tree volume, topographical and soil conditions, average transportation 
distances, etc.). The MRN then calculates the difference between the 
costs at the northernmost limit of demand and each tariffing zone's 
operating costs, as well as the difference between costs at the 
northernmost limit of demand and costs in the private forest. The ratio 
of the former to the latter represents the operating cost adjustment 
for each tariffing zone. The MRN then calculates a base MVST for the 
northernmost limit of demand. With this data, the MRN determines the 
MVST (i.e., the stumpage price) for each tariffing zone by multiplying 
the operating cost adjustment by the difference between the private and 
northern limit MVSTs and adding that product to the MVST at the 
northernmost limit of demand. The resulting stumpage prices cannot 
exceed the average market value of standing timber in private forests, 
nor can they fall below a minimum stumpage rate (discussed below).
    In addition to making an adjustment for relative operating costs, 
the characteristics of wood from each tariffing zone are compared with 
those of wood from the private forest to determine their impact on 
processing costs and the value of the products they are able to 
produce. According to the GOQ, this quality adjustment, introduced in 
1999, takes into account the impact of average diameter, species 
distribution, rot percentages, and log taper on log processing costs 
and sawn product value. The GOQ states that consideration of these 
characteristics, which are quantified into a public quality and private 
quality index, allow the value of wood in each tariffing zone to be 
adjusted according to the

[[Page 43199]]

differences between the quality of standing timber in both types of 
forests. The GOQ states that quality adjustments can alter the MVST as 
much as plus or minus C$5 per cubic meter.
    Upon establishing the operating and quality adjustments, the MRN 
calculates a minimum stumpage rate. The GOQ states that for the fir-
spruce-jack pine-larch species group, the minimum stumpage rate is 
comprised of the average cost of silviculture treatments in the common 
areas forming the northernmost demand limit. A basic rate of C$1 per 
cubic meter ($1996), indexed annually pro-rata to changes in the market 
value of private forest standing timber, is included in the minimum 
stumpage rate. The GOQ states that during the POI, the minimum stumpage 
unit rate was C$3.53 per cubic meter.
    Lastly, the MRN indexes the MVSTs that are charged in each of the 
tariffing zones on the first of each quarter in order to account for 
any price changes in the private forest market price that may have 
occurred since the most recently completed census or survey of private 
market prices.
    As explained above, the MRN calculates an administered stumpage 
price for each tariffing zone. According to the MRN, there is no 
distinction between sawlogs and pulplogs when setting the stumpage 
price. Thus, to arrive at the administered stumpage rates used in our 
stumpage calculations, we divided the total softwood stumpage fees paid 
by TSFMA permit holders during the POI for each species by the total 
softwood stumpage harvested under TSFMAs during the POI for each 
species. In this manner, we obtained a weighted-average stumpage price 
per species that was paid by TSFMA permit holders during the POI. 
According to information submitted by the GOQ, the softwood stumpage 
harvested under TSFMAs is equal to the total timber harvested for 
lumber processing plants (i.e., processing plants that produce the 
subject merchandise). Therefore, we have not incorporated the stumpage 
fees paid by FMC permit holders into the Province-wide administered 
stumpage rate.
    Under TSFMAs, each TSFMA holder must become a member of SOPFEU and 
pay the corresponding dues. The Department granted this adjustment in 
Lumber III and we have granted it in this preliminary determination. 
See 57 FR 22570 at 22600. To make the adjustment, we divided the total 
dues incurred by TSFMA holders during the POI by the total harvest 
under TSFMAs during the POI.
    In addition, TSFMA holders must belong to SOPFIM and pay its 
membership fees. The Department granted this adjustment in Lumber III 
and we have granted it in this preliminary determination. See 57 FR 
22570 at 22600. We adjusted for this obligation by dividing the sum of 
all membership fees paid by TSFMA permit holders during the POI by the 
total harvest under TSFMAs during the POI.
    Prior to fiscal year 1996-1997, the cost of the forestry fund was 
borne entirely by the MRN. However, beginning in fiscal year 1997-1998, 
the MRN required TSFMA holders to contribute to the Forestry Fund. The 
Fund provides financial support for seedling production, inventory 
data, and forestry research activities. Because this is a cost imposed 
on TSFMA holders by the GOQ, we have made an adjustment for the Fund by 
dividing the TSFMA holders' total contributions during the POI by the 
total harvest under TSFMAs during the POI.
    TSFMA holders construct and maintain primary, secondary, and 
tertiary roads for their logging operations. Because those roads are 
available for public use, they must meet government standards. We 
granted this adjustment in Lumber III. See 57 FR 22570 at 22598. We 
have granted a similar adjustment in this preliminary determination. 
The GOQ provided the cost per cubic meter of primary, secondary, and 
tertiary road construction and maintenance, and we have made an 
adjustment based on those costs. In Lumber III, the Department did not 
grant an adjustment for primary road construction and maintenance. See 
57 FR 22570 at 22599. However, for purposes of this preliminary 
determination, we have included primary road construction and road 
costs in the road adjustment because the GOQ was unable to provide a 
breakout of its primary and secondary costs. During verification, we 
will further examine the differences in infrastructure and a breakout 
of primary and secondary road construction and maintenance costs.
    We note that for purposes of this preliminary determination, we 
have not made an adjustment for haulage roads. According to the GOQ, 
haulage roads are final branches of a road network the surface of which 
is composed entirely of natural materials. The GOQ further explains 
that haulage roads are generally used for one year or less. At this 
time, we preliminarily determine that haulage roads must be constructed 
and maintained each time a timber stand is harvested, as opposed to 
more permanent primary, secondary, and tertiary roads, and, thus, are 
costs that are borne by all timber harvesters regardless of the level 
of development of the roads that are within the area in which the 
standing timber is located and regardless of whether the standing 
timber was purchased from public or private sources.
    We further note that prior to the issuance of our final 
determination, we will examine whether purchasers of stumpage in 
private forests in Maine incur road construction and maintenance costs 
and, if so, the amount of those costs and the extent to which they 
should offset the road construction and maintenance adjustment granted 
to producers in Quebec.
    Under the TSFMA tenure arrangement, companies must perform 
silviculture treatments in order to achieve a sustained yield. The GOQ 
indicates that it credits most of the silviculture costs towards the 
stumpage dues paid by TSFMA permit holders. However, the GOQ also 
states that it does not credit certain costs. Specifically, these 
expenses pertain to control and planning costs associated with 
silviculture activities and to costs associated with the transportation 
of seedlings.
    Regarding the control and planning costs, the GOQ submitted a study 
conducted on behalf of the MRN by Del Degan, Masse et Associes inc. 
that covered fiscal year 1997-1998. This study analyzed the supply 
costs of harvesting softwood species and poplars found on Quebec's 
Crown land.\13\ In particular, the study indicates the unit cost 
difference between the amount of silviculture costs borne by TSFMA 
permit holders and the amount of silviculture costs credited by the 
GOQ. In Lumber III, 57 FR 22570 at 22600, we granted such control and 
planning adjustments. For purposes of this preliminary determination, 
we have granted the difference between silviculture costs incurred and 
silviculture credits received by TSFMA permit holders as an adjustment. 
To make this adjustment, we converted the costs from the 1997-1998 MRN 
fiscal year study into POI-dollars using the Canadian Industrial 
Product Price Index for Wood Industries as reported by Statistics 
Canada.
---------------------------------------------------------------------------

    \13\ This study was included as part of the public version of 
Quebec's August 6, 2001 supplemental questionnaire response.
---------------------------------------------------------------------------

    In Lumber III, we determined that replanting is a silviculture 
requirement of TSFMA holders and although seedlings were provided to 
TSFMA holders by the GOQ, tenure holders were required to transport 
them from

[[Page 43200]]

government nurseries to harvest sites. See Lumber III, 57 FR 22570 at 
22600. The GOQ has stated that it did not credit costs associated with 
the transportation of seedlings during the POI. Consistent with our 
approach in Lumber III, we have adjusted the administered stumpage 
price to reflect the cost for transportation of seedlings. The GOQ 
states that it does not monitor seedling transportation costs because 
they are not compensated by dues credits. However, the GOQ supplied the 
seedling transportation cost that was used in Lumber III. For purposes 
of the preliminary determination, we have used the seedling 
transportation cost from Lumber III. We have converted this unit cost 
figure, which was originally reported in the Quebec Calculation 
Memorandum from the final determination of Lumber III, into POI-dollars 
using the Canadian Industrial Product Price Index for Wood Industries 
as reported by Statistics Canada.
    As explained above, we have preliminarily determined that stumpage 
prices in the United States provide the most accurate benchmark. In the 
case of Quebec, it is bordered by four states: New York, Vermont, New 
Hampshire and Maine. While data on stumpage prices are available for 
all four states, our preliminary analysis of the data available to us 
at this time indicates that the data for Maine are the most 
comprehensive. For example, New York, Vermont, and New Hampshire are 
based on a limited number of survey respondents while the stumpage 
prices collected by the Maine Forest Service (MFS) are based on 
approximately 3,000 landowner reports received by the MFS that reported 
stumpage sales in 2000. In addition, among the four states, Maine has 
the longest border with Canada. Prior to our issuance of the final 
determination we will further examine our decision to use Maine data as 
the benchmark stumpage price as well as our decision not to use the 
data from New York, Vermont, and New Hampshire.
    The MFS report provided weighted-average prices for each species in 
Maine in U.S. dollars per thousand board feet (MBF). We converted these 
U.S. prices into Canadian dollars using the average exchange rate for 
calendar year 2000 as reported by the Central Bank of Canada. Next, we 
converted these figures from MBF into cubic meters using the conversion 
factor of 5.66. We note that this is the same conversion factor that 
was used by the ITC. See Conditions Relating to the Importation of 
Softwood Lumber into the United States, USITC Publication 1241, April 
1982, which was placed on the record of this investigation on August 9, 
2001. We then calculated the difference (unadjusted) between provincial 
and Maine stumpage prices for each softwood species harvested in 
provincial forests. To arrive at a weighted price difference, we 
weighted each species' price difference in proportion to its share of 
the TSFMA harvest for fiscal year 2000-2001. We then reduced this 
weighted price difference by the amount of each adjustment described 
above to arrive at the adjusted price difference.
    To calculate the benefit under Quebec's stumpage system, we first 
multiplied the adjusted price difference described above by the total 
softwood harvested by TSFMAs during the POI. Next, we calculated the 
provincial benefit by dividing the product of the adjusted price 
difference and the total softwood harvested by TSFMAs during the POI by 
the total value of softwood lumber shipments plus the total value of 
by-products for the POI. This methodology of calculating the benefit is 
similar to the one used in Lumber III. See 57 FR 22570 at 22577. During 
verification, we will further examine the figures used in the 
denominator of the provincial benefit calculation. Next, as explained 
in the ``Subsidy Rate Calculation'' section of this notice, we weight-
averaged the benefit from this provincial subsidy program by the 
province's relative share of total U.S exports. The preliminary 
countervailable subsidy for the provincial stumpage programs can be 
found in the ``Country-Wide Rate for Stumpage'' section, below.
2. Province of British Columbia
    Although there are 11 forms of agreements that authorize the 
granting of rights to harvest Crown timber in British Columbia (eight 
are in the form of licences and three provide harvesting rights in the 
form of permits), there are three main types: (1) Tree Farm Licenses, 
(2) Forest Licenses, and (3) Timber Sale Licenses.
    Tree Farm Licenses (TFLs) are area-based tenures. Licensees occupy 
and continuously manage forests in a specific area. Each TFL specifies 
a term of 25 years and describes the Crown and private lands included 
within the license. The licensees are responsible for costs associated 
with planning and inventories. These would include Forest Development 
Plans, Management Plans, various resource inventories and assessments, 
as well as other costs including road building, harvesting, basic 
silviculture, stumpage and annual rent.
    Forest Licenses are volume-based tenures in that they confer the 
right to harvest a certain amount of timber each year within a given 
Timber Supply Area without designating a specific area of land. A 
Forest License has a maximum duration of 20 years. Approval to harvest 
specific timber under a Forest License is accomplished though the 
issuance of Cutting Permits. The licensees are responsible for costs 
associated with planning, road building, harvesting, basic 
silviculture, and payment of stumpage and annual rent.
    Timber Sale Licenses grant the right to harvest timber within a 
specific Timber Supply Area or TFL Area. Timber Sale Licences have a 
maximum term of 10 years. Section 20 and 23 sales typically have a one-
year term; Section 21 sales have terms averaging 4 or 5 years. Section 
20 and 21 are under the Small Business Forest Enterprise Program 
(SBFEP). Section 20 licenses are awarded to the bidder with the highest 
bonus bid, which is the amount the bidder is willing to pay on top of 
the upset rate (minimum rate). Section 21 bidders compete on the basis 
of a set of criteria which includes bonus bids, employment, new capital 
investment, existing plant, proximity of the plant to the timber 
supply, the value added through the manufacturing process, and similar 
criteria. Section 23 sales involve very small volumes harvested for 
salvage purposes.
    The timber pricing system for all tenures are generally determined 
by two appraisal systems, the Comparative Value Pricing (CVP) system 
and the Market Pricing System (MPS). The CVP system is used to set 
stumpage for all tenures except (1) competitive Timber Sale Licenses 
issued under sections 20 and 21 of the SBFEP, and (2) those qualifying 
under the ``Coast Hemlock Strategy.'' Under these exceptions, the MPS 
is used. The CVP is a means of charging specific stumpage prices 
according to the relative value of each stand of timber being sold. 
Comparative value prices are established so that the average rate 
charged will equal a pre-set target rate per cubic meter. The relative 
value of each stand depends upon estimates of the selling price and the 
cost of producing the end products. Two base rates are established for 
the province, one for the Coast average market value zone (the Coast), 
and the other for the remainder of the province (the Interior).
    The MPS, established in January, 1999, uses results of the SBFEP 
section 20 auction sales to set the ``upset'' stumpage rate for 
upcoming ``competitive'' timber sales under sections 20 and 21. MPS 
estimates the

[[Page 43201]]

site-specific value of standing timber directly from recent auction 
sales. The resulting estimate is then discounted to set the upset 
(minimum) price, and the winning bidder typically adds a bonus bid to 
determine the total stumpage charge. In addition, section 21 is not 
only awarded to the highest bidder; other factors such as employment, 
new capital investment, existing plant, proximity of the plant to the 
timber supply, and the value added through the manufacturing process 
are taken into account. Based on volume, sections 20 and 21 represented 
approximately 11 percent of the total softwood harvested during the 
POI. Further, all individuals and companies under the SBFEP combine to 
hold approximately 13 percent of B.C.''s Allowable Annual Cut (AAC). 
There is no estimate of the volume of softwood harvested under the 
``Coast Hemlock Strategy'' during the POI. However, because it is an 
MPS ``pilot'' project that is currently being evaluated to determine 
whether it will be expanded, contracted or canceled, the volume should 
be a relatively small amount. Also, during the POI, the province sold 
6.4 percent of the total log harvest through Section 20. Therefore, the 
CVP system appears to be the method used to determine the vast majority 
of administratively-set stumpage rates.
    Since the government provides stumpage at administratively-set 
prices that, even after accounting for differences in forest management 
and harvesting obligations (as described below), are generally lower 
than the benchmark stumpage prices that the government obtains from 
other companies, we preliminarily determine that the B.C. provincial 
government is providing stumpage for less than adequate remuneration.
    We used as our volume information for British Columbia softwood 
logs (including sawlogs and veneer, and excluding pulplogs) harvested 
by the major tenure holders in the province during the POI. We also did 
not include timber harvested on private or federal lands, both of 
which, represent small percentages of softwood sawlogs harvested in 
B.C. (approximately 10 percent and less than one percent by volume, 
respectively, province-wide). We included in our administratively-set 
prices stumpage sold through the SBFEP.
    Although the price-determining factors are different between 
administratively-set stumpage sales in B.C. and market-driven stumpage 
sales in Washington state, an examination of stumpage prices alone is 
not sufficient to determine whether timber is provided for less than 
adequate remuneration. Tenure holders in B.C. are required to fulfill 
certain forest management and timber-harvesting obligations, including 
silviculture and other forest management activities. Therefore, it is 
necessary to factor in certain cost adjustments to the administered 
prices in B.C. to reflect the costs of certain mandatory activities 
that are not factored into the administered price.
    For the following adjustments made by the Department, with the 
exception of reported annual rents, we relied on cost data submitted by 
respondents, and taken from surveys conducted by the Ministry of 
Forests (MOF) for Coastal B.C., summarized and reviewed by 
Pricewaterhouse Coopers (PwC), and a survey developed and conducted 
directly by PwC for Interior B.C. The PwC report represents data from 
calendar year 2000. PwC was engaged by the MOF to collect and review 
certain cost data from major license holders specifically for purposes 
of this investigation. We did not include any cost adjustments 
associated specifically with the SBFEP. For all adjustments, we relied 
on costs borne by major tenure holders, since respondents provided cost 
data based on survey responses of major tenure holders.
    For the Coastal survey, PwC summarized and reviewed survey 
responses conducted by the MOF. Major licensee cost data was summarized 
for the Head Office, Forestry, and Engineering Component (i.e., General 
and Administrative, Engineering and Forest Management Costs) from 
licensees whose calendar year 2000 volume equaled approximately 50 
percent of the total volume during the period. With regard to the 
Logging Operations Component (i.e., Road Construction and Routine Road 
Maintenance), PwC reviewed responses from licensees whose calendar year 
2000 harvest volume totaled approximately 21 percent of the entire 
harvest volume for the year.
    For the Interior, since a calendar year 2000 survey has not yet 
been completed by the MOF, an independent survey was developed and 
conducted by PwC. Responses were compiled from major licensees whose 
calendar year 2000 harvest volume equaled approximately 63 percent of 
the total harvest volume.
    In responding to the surveys, no licensees reported any operations 
on private lands for the Interior. However, Coastal data includes costs 
incurred on Crown and any private lands a licensee may own, but this is 
limited to holders of Tree Farm Licenses. Respondents point out that 
costs per cubic meter with regard to forest management 
responsibilities, including silviculture and road construction and 
maintenance, would generally be the same for both private and Crown 
land within a Tree Farm Area, since the licensee responsibilities 
mandate the same activities in the same areas (i.e., private land 
within a Tree Farm Area is subject to the same standards as Crown land 
within a Tree Farm Area). Therefore, consistent with our determination 
in Lumber III, we have not accounted separately for the fact that a 
small percentage of private cost data is included in the Coastal B.C. 
survey information reported by respondents.
    Based on the cost data submitted by respondents, we made the 
following adjustments to the administered prices in order to obtain an 
appropriate comparison with the benchmark prices:
    (1) Annual ground rents, reported on a per cubic meter basis, were 
included as an adjustment because they are charges for reserving the 
use of the resource under license, and are imposed whether or not 
timber is harvested.
    (2) Major tenure holders are required to perform certain activities 
pertaining to the reforestation of their timber stands. These 
activities, referred to as silviculture, are broken down into two 
types--basic and incremental. Major tenure holders must perform basic 
silviculture, which includes surveying, site preparation, planting, 
brushing, weeding, spacing and seedling. Incremental silviculture 
activities, which are not required by law, take place after the 
establishment of a free growing crop of trees. These activities are not 
the responsibility of tenure holders. In limited instances, a licensee 
may perform incremental silviculture on a voluntary basis. We added 
basic silviculture costs incurred by major tenure holders to the 
administered rate since major licensees are required to perform these 
activities, whereas private harvesters in Washington state are not 
required to do so. For Coastal B.C., we took the reported basic 
silviculture costs and divided by the reported production volume to 
arrive at a per cubic meter cost. We applied the same calculation for 
the Interior, based on reported cost and volume information contained 
in the PwC survey results. We included an adjustment for reported field 
overhead and general and administrative expenses associated with these 
activities. We made no adjustment for costs related to incremental 
silviculture activities for either the Coast or Interior because major 
tenure holders are not required to perform these activities.
    (3) Major tenure holders are required to perform forest protection 
activities on Crown lands, including fire prevention

[[Page 43202]]

and suppression, and pest management activities. Initial fire 
suppression, maintaining specified equipment levels and fire readiness 
plans are obligations of licensees. Major licensees are also required 
to combat and extinguish all fires in their operating areas. If the 
fires are not successfully controlled by the licensees, tenure holders 
are billed by the Ministry for the costs of any additional measures 
that need to be taken. As for insect and disease protection measures, 
these are generally carried out by licensees. As a result, we have 
included adjustments for these additional costs for both Coastal B.C. 
and Interior B.C., as well as adjustments for the allocation of general 
and administrative activities associated with these activities. To 
arrive at per cubic meter costs for these activities, we have taken the 
reported costs from survey respondents and divided by the reported 
production volume for those respondents.
    (4) There are certain general classifications of roads associated 
with logging in B.C. Primary (mainline) roads are intended for regular 
and ongoing traffic. These are roads that require extensive 
engineering, excavation and construction. Secondary, or operational, 
roads are generally intended for a lower volume of traffic, and built 
on a less permanent basis than a mainline road. Cutblock, or on-block, 
roads enable harvesting to take place on a single cutblock, and are 
often only sufficient for the movement of crews and equipment. These 
are temporary roads (typically used for a single season) that require 
little, if any, maintenance.
    Respondents report that major tenure holders are responsible for 
building and maintaining mainline, operational and cutblock roads. All 
Crown lands are generally for public use, except where safety concerns 
may prevent their use. Respondents provided information on road and 
bridge building and maintenance costs for major licensees, indicating 
that maintenance of all forest roads is the responsibility of the 
industrial user, and that roads used by major tenure holders require 
ongoing maintenance.
    Private harvesters in Washington state often must factor in costs 
for construction and maintenance associated with all roads not 
considered to be primary roads. Therefore, we included as an adjustment 
only that portion of the reported costs for road and bridge building, 
road and bridge maintenance, deactivation (the removal of the road 
surface and sub-surface, including culverts, to return the roaded area 
to its original natural state), field overhead and general and 
administrative expenses that relate to mainline roads only. Since the 
Government of British Columbia (GBC) did not provide a full breakdown 
for mainline and operational road costs for both the Coast and 
Interior, we relied on cost information provided in the Coastal survey 
response of the PwC report to determine the applicable road cost 
adjustments to make to the Coastal and Interior administratively-set 
stumpage prices.
    In the Coastal survey response, major licensees reported a majority 
of their road expenses broken down by mainline, operational and major 
bridge construction. Based on this reported data, we added the mainline 
and major bridge construction costs and divided our sum by the total 
road costs of Coastal survey respondents to arrive at a percentage of 
the total road costs for which Coastal B.C. major licensees are 
responsible for but which private harvesters are not. Without having a 
complete itemization of mainline and operational road costs, we then 
applied this percentage to the total reported road costs, per cubic 
meter, to arrive at the applicable adjustment to include for Coastal 
B.C. Next, we applied this calculated percentage to the submitted per 
cubic meter road costs of Interior B.C. survey respondents, as well, 
since road construction and maintenance costs were not reported 
separately by road type (primary/mainline, secondary/operational, 
etc.). We used this percentage to determine applicable adjustments for 
road and bridge building, road and bridge maintenance, deactivation, 
field overhead and general and administrative expenses.
    Cost data reported by respondents does not include any construction 
or maintenance costs incurred on cutblock, or onblock, roads. We will 
further examine. We note that we will examine closely at road 
construction and maintenance cost data.
    (5) We have included costs reported as ``Sustainable Forest 
Management'' costs, as submitted by respondents. These costs include 
preparation of forest development plans, management plans, silviculture 
prescriptions and cutting permits. Interior costs include post-logging 
treatments, including mistletoe eradication, as well as landing/
roadside burning and rehabilitation. Respondents state that these costs 
are assumed by industry without reimbursement, credit against stumpage 
or other offset. We note that while private harvesters bear certain 
costs relating to operational planning and land treatment, the 
mandatory costs borne by major tenure holders are, in large part, 
unique to those licensees. Based on these factors, we have 
preliminarily granted adjustments for forest resource management 
activities and an allocation of the general and administrative expenses 
have been added to include the costs of these activities.
    We have not included any adjustments to administratively-set prices 
for costs related to timber sales, such as scaling, residue and waste 
management and cruising, engineering and layout. While the GBC reported 
that major licensees bear the costs of planning, engineering and 
layout, cruising, scaling (including the cost of operating scale sites) 
and residue and waste surveys, we see no reason to believe that private 
harvesters would not bear many of these same costs. Indeed, there are 
several costs related to auction sales that are borne by private 
harvesters, including costs of evaluating the timber offered for sale. 
Therefore, we have not included these adjustments for either the Coast 
or Interior. We will examine this at verification.
    To obtain benchmark prices that can be compared to 
administratively-set B.C. prices, we used data from the Washington 
State Department of Natural Resources (WDNR), as compiled in the 
Stumpage Price Report (March 31, 2001), published by the Timber Data 
Company. The WDNR data is derived from stumpage sold by public auction 
or a sealed bidding procedure. There are no restrictions concerning who 
may place a bid, including any foreign entity.
    In order to determine our benchmark prices to compare to stumpage 
prices in Coastal B.C. and Interior B.C., we first calculated weighted-
average prices, by volume sold during the POI, for each of the major 
species in Washington, separately for Western and Eastern Washington. 
For Western Washington, which is comparable to the B.C. Coast, we 
looked at Douglas fir, true fir/hemlock and red cedar/cypress. For 
Eastern Washington, which is comparable to the B.C. Interior, we 
examined Douglas fir/larch, hemlock/true fir, ponderosa pine, 
lodgepole/spruce and red cedar.
    Certain species volume and price data was reported for Coastal and 
Interior B.C. for which we did not have Washington state volume and 
price data in the Stumpage Price Report. These species made up only a 
very small percentage of the volume harvested. For the Coast, cypress 
accounted for approximately 4.3 percent of the Coastal sawlog harvest, 
while spruce accounted for 2.8 percent. We conferred with a forestry 
official who explained that, of the Western Washington species for 
which we have data, cypress is most similar in its uses and 
characteristics to

[[Page 43203]]

red cedar (see ``Calculation of Stumpage Subsidy in British Columbia'' 
Memo to the File from Team, dated August 8, 2001). Therefore, for 
purposes of this preliminary determination, we have used the Western 
Washington red cedar price data to compare to Coastal B.C.''s price 
data for cypress. In the case of spruce, we compared the prices we had 
for Coastal B.C. spruce to Eastern Washington price data contained in 
the Stumpage Price Report for purposes of the preliminary 
determination. Similarly, red cedar made up 2.8 percent of the sawlog 
harvest for Interior B.C., yet we did not have price data for red cedar 
in Eastern Washington. Therefore, for purposes of the preliminary 
determination, we used as a proxy Western Washington red cedar prices 
to compare to red cedar in Interior B.C. We will attempt to gather more 
precise information regarding these species comparisons prior to the 
final determination.
    We compared B.C. and WDNR data separately for the Coast and 
Interior. We compared the stumpage prices reported for the species in 
B.C. to the prices reported in Washington state, weight-averaged by 
volume sold during the POI. We then converted the prices for each 
species from U.S. dollars per thousand board feet to Canadian dollars 
per cubic meter using monthly exchange rates from the Bank of Canada 
for the POI and the conversion factor described above (see discussion 
of Quebec's stumpage system and calculations). We compared the prices 
for each species or species group in both the Coast and the Interior to 
arrive at price differences for those species or species groups. Next, 
we weight-averaged the price differences of all included species or 
species groups by the harvested volumes of individual species or 
species groups in British Columbia. On this basis, we arrived at per-
unit price differences for Coastal and Interior B.C.
    In order to determine the ad valorem subsidy rate for B.C. 
stumpage, we first took our calculated per-unit price differences for 
both areas, and factored in all necessary adjustments, which are 
detailed above. We next multiplied the total provincial harvest of 
softwood logs for the POI by the reported percentage of the harvest 
going to sawmills to arrive at a total sawmill harvest for the POI. We 
multiplied the resulting figure by the per-unit price differences, 
factoring in adjustments, to arrive at the total benefits for Coast and 
Interior. We then added the benefits together for the Coast and 
Interior and divided the sum by the combined total value of softwood 
lumber and by-product shipments within B.C. Next, as explained in the 
``Subsidy Rate Calculation'' section of this notice, we weight-averaged 
the benefit from this provincial subsidy program by the province's 
relative share of total U.S exports. The preliminary countervailable 
subsidy for the provincial stumpage programs can be found in the 
``Country-Wide Rate for Stumpage'' section, below.
3. Province of Ontario
    The Government of Ontario (GOO) makes standing timber on Crown land 
available to those parties who have purchased harvesting rights. These 
rights, often referred to as stumpage rights, apply to a particular 
area of Crown land and entitle the purchaser to harvest standing timber 
at a price that is set by the GOO's Ministry of Natural Resources 
(OMNR), the agency responsible for administering the sale of standing 
timber on Crown lands. The GOO maintains two main types of tenure 
arrangements under the Crown Forest Sustainability Act (CFSA): (1) 
Section 26 Sustainable Forest Licenses (SFLs) and (2) Section 27 Forest 
Resource Licenses (FRLs). Section 26 SFLs are set for an original 20-
year term, which are extendable indefinitely and are not transferable. 
Four percent of Section 27 FRL holders and 41 percent of Section 26 SFL 
holders are integrated.
    Generally, an SFL covers all forest land in a management unit. The 
GOO reported that SFLs cover 90 percent of the Crown timber land 
designated as management units. According to the GOO, SFL holders are 
responsible for forest planning, information gathering, monitoring, 
basic silviculture, and road building costs. However, the GOO 
reimburses many silviculture costs. Section 27 FRLs are set for terms 
up to 5 years, can be extended for 1 year, and are not transferable. 
Typically, a FRL covers only part of a management unit, and timber 
amounts and species are specified. The areas of some FRLs overlap with 
SFL areas, but, in such instances, different stands are covered.
    To get either license, one must own a resource processing facility 
or must have access to a market (i.e., an established arrangement with 
a facility to supply wood). Under the CFSA, mills can also gain timber 
under non-tenure arrangements, through Section 25 Supply Agreements and 
Supply Commitment Letters. According to the available information on 
the record, very little standing timber is harvested under Section 25 
Supply Agreements or Supply Commitment letters.
    In Ontario, lumber producers obtain the forest products they need 
in five ways: (1) They pay the Government of Ontario stumpage dues and 
harvest timber directly from their tenures on Crown lands; (2) they 
purchase logs at arm's-length from a company that harvested it from 
Crown lands; (3) they pay stumpage dues and harvest timber from private 
timber owners; (4) they purchase logs from a company that harvested 
timber from private lands; and (5) they import logs from the United 
States.
    The GOO stated that it does not distinguish between saw logs and 
pulp logs; therefore, in its response to the questionnaire it reported 
timber harvest data based on whether the log was destined for a saw 
mill or a pulp and paper mill. The value data reported does not include 
``in-kind'' services provided by tenure holders, however, the GOO has 
provided certain estimates of the total value of services that tenure 
holders are obligated to provide. The GOO reported that 30 percent of 
the softwood timber harvested from Crown lands is resold by the tenure 
holders to third parties.
    The GOO reported that integrated and non-integrated firms pay the 
same price for stumpage, which is different than what the Department 
found in the Lumber III investigation. Stumpage fees are charged after 
measurement has occurred, which can occur at the logging site, but 
usually occurs at the destination mill. Ministry or company officials 
conduct the actual scaling (measurement). The licensee pays the scaling 
costs. Measurement can occur quickly or may be delayed for months due 
to the weather.
    The GOO reported that the overall provincial price for stumpage on 
Crown lands that it charges is calculated according to four component 
charges: (1) The minimum charge, (2) the forest renewal charge, (3) the 
forest futures charge, and (4) the residual value charge. Ontario 
reports that some of these component charges differ depending on end 
product market prices. Ontario contends that prices paid for stumpage 
represent only a portion of the value received by the province from 
tenure holders, with the additional value coming from ``in-kind'' 
payments, which are discussed in the Ontario adjustments section below.
    The minimum charge is set administratively every year depending on 
the species and the destination of the harvested timber, i.e., whether 
it is destined for a saw mill or a pulp and paper mill. The GOO states 
that the primary reason for this charge is to generate a secure source 
of revenue regardless of market conditions. During the POI, the minimum 
charge for 97 percent of Crown timber was set at C$3.28 per cubic 
meter, and the

[[Page 43204]]

minimum charge for three percent of Crown timber was set at C$0.59 per 
cubic meter. According to the GOO questionnaire response, the Annual 
Area Charge that the Department found in Lumber III was combined with 
this charge in 1997.
    The GOO reported that this charge generates funds necessary to 
cover costs of renewing harvest area. This charge covers silviculture 
costs, and, since 1997, has been determined annually for each 
management unit and each species within the unit. According to GOO, the 
monies collected from each management unit go into the Forest Renewal 
Trust Fund for use for forest renewal costs within that specific 
management unit.
    The third component of the overall provincial stumpage price is the 
forestry futures charge, which is the same for all management units and 
species within the province and is set annually. Money collected from 
this charge is paid into the Forestry Futures Trust Fund and is to be 
used for costs relating to pest control, fire, natural disaster, stand 
management, and the silviculture expenses of insolvent licensees. 
During the POI, the charge was C$0.48 per cubic meter. In response to 
questions in the Department's supplemental questionnaire, the GOO 
indicated that this charge has not changed since the Fund was 
established in 1995.
    The fourth component of the stumpage charge is the residual value 
charge, which is assessed when the price of end-forest products 
produced with timber reaches a certain level determined by the OMNR. 
For softwood lumber, the RV charge is assessed when the estimated price 
a softwood mill receives for lumber exceeds C$351.97 per thousand board 
feet. This charge is determined on a monthly basis according to a 
formula.
    The GOO reports that basic silviculture, not incremental 
silviculture, is required to be performed on all harvested Crown land 
requiring renewal in order to achieve a sustained yield. The GOO 
reports that the aims of basic silviculture are to ensure the stand 
regenerates quickly, the desired species regenerates in the area, the 
trees in the stand reach the appropriate size, and the stand 
regenerates with optimum tree density. Basic silviculture may include, 
among other things, site preparation, direct seedling and planting, 
tree improvement, vegetation management, and thinning.
    The GOO claims that all harvesters of Crown timber are required to 
pay the full cost of basic silviculture. Section 26 and 27 tenure 
holders pay this through the portion of stumpage (i.e., the forest 
renewal charge) deposited into the Forest Renewal Trust Fund; the 
forest renewal charges on Crown lands still in transition from OMNR 
management to a SFL tenure holder are paid into the Special Purpose 
Account. After performing silviculture activities, the tenure holders 
submit bills to the Ministry of Natural Resources and are reimbursed in 
full for their eligible silviculture costs. According to the GOO, basic 
silviculture expenditures eligible for reimbursement include: Cone 
collection, seed extraction, tree improvement, stock purchase/delivery, 
tree planting, seedling, scarification, site preparation (including 
mechanical and chemical burn), tending, tree marking, modified harvest 
cutting, and silvicultural surveys. Tenure holders also can charge the 
province an additional 10 percent overhead for silviculture management.
    Because Ontario tenure holders are reimbursed for 100 percent of 
the costs of basic silviculture from the Forest Renewal Trust Fund, we 
made an adjustment by subtracting the total value of the forest renewal 
charges collected during the POI. In addition, we made a further 
adjustment to the administered stumpage price to account for 
reimbursement of silviculture overhead costs. We made this adjustment 
for the reimbursement of silviculture overhead by deducting 10 percent 
of the value of the forest renewal charges collected during the POI. 
During verification, we will further examine the silviculture costs 
required by the OMNR and reimbursements made.
    Ontario claims that license holders make in-kind payments to the 
province because of the following requirements: (1) Road construction 
and maintenance; (2) forest management planning; (3) forest protection 
(fire and insect protection costs); and (4) First Nations relations. 
Total in-kind payments are estimated by the GOO on a per unit basis of 
C$2.33 per cubic meter for the POI. The GOO claims that SFL holders and 
FRL holders have similar obligations on tenures, claiming that FRL 
holders have them indirectly through harvesting arrangements with 
overlapping SFL holders.
    As explained above, the administered stumpage price for each 
management unit is based on a mixture of general charges and charges 
specific to a particular management unit, species, and destination 
mill. To arrive at a single province-wide administered stumpage rate 
for use in our stumpage calculations, we divided the total softwood 
stumpage fees paid by both SFL and FRL tenure holders during the POI by 
the total softwood harvested during the POI. We then added to this 
administered stumpage rate adjustments (on a per cubic meter basis) for 
public stumpage obligations that would not be incurred, according to 
our preliminary analysis, by private harvesters in the United States.
    The GOO considers expenses regarding road construction and 
maintenance requirements as ``in-kind'' contributions. The GOO 
categorizes primary roads as permanent roads, which are constructed, 
maintained and used as the main all-weather access system for the 
management unit. Secondary roads are categorized as branches of main 
roads which are designed to provide 5 to 15 years of all-weather access 
for the public. Tertiary roads are temporary access roads, which are 
used for several years and then abandoned.
    The GOO reported that primary and secondary roads are identified in 
20-year management plans submitted with Section 26 SFL licenses. 
Section 26 SFL license holders are required to build and maintain 
roads, while Section 27 FRL license holders are responsible for all new 
forest roads. SFL holders construct and maintain primary, secondary, 
and tertiary roads for their logging operations. Since those roads are 
available for public use, they must meet government standards. In a 
study by KPMG, the GOO provided data on the cost per cubic meter of 
road construction and maintenance, according to the following formula: 
100 percent of primary road construction, 50 percent of secondary road 
construction and none for tertiary road construction costs. We have 
made an upward adjustment to the administered stumpage price based on 
those reported costs. During verification, we will further examine the 
differences in infrastructure and of primary and secondary road costs.
    The GOO stated that the cost of forest management planning is 
included in the industry obligations in Canada. The CFSA requires that 
forest management plans be prepared and approved following the Forest 
Management Planning Manual (FMPM). The FMPM requires, among other 
things, an environmental, social, and economic description of the 
management unit, long-range sustainability planning for a 20-year 
period, designation of areas of operation, and a description of the 
program for monitoring forest management operations. We have made an 
upward adjustment for the Forest Management Planning costs by dividing 
the total estimated value of forest management planning costs during 
the

[[Page 43205]]

POI by the total softwood harvest. During verification, we will further 
examine the forest management planning obligations.
    Other requirements on tenure holders established by the OMNR 
include assistance with fire suppression (i.e., assisting the OMNR in 
the prevention and initial fighting of forest fires). According to the 
GOO's June 28, 2000 questionnaire response, the amount of costs 
incurred for fire pertain to both SFL and FRL holders. We have made an 
upward adjustment for the fire protection costs by dividing the total 
estimated value of fire and insect protection costs during the POI by 
the total softwood harvest volume during the POI.
    The GOO reports that tenure holders provide training and education 
for First Nation individuals, and provide financial support for 
activities such as the maintenance of native heritage sites. According 
to the GOO's June 28, 2000 questionnaire response, the amount of costs 
incurred for First Nation relations includes both SFL and FRL holders. 
We have made an upward adjustment for this cost by dividing the total 
estimated value of these costs during the POI by the total softwood 
harvest during the POI.
    We preliminarily determine that stumpage prices in the United 
States provide the most accurate benchmark. Although data on stumpage 
prices are available for other states, we preliminarily determine that 
the data we collected for Michigan and Minnesota are the most suitable 
for comparison purposes. Michigan and Minnesota are the states in 
closest proximity to Ontario, and the data we used reflected actual 
sales, appraisals and volumes harvested. Prior to our issuance of the 
final determination, we will further examine our decision to use this 
Michigan and Minnesota data for comparison purposes.
    In order to calculate our cross-border benchmark, we used the 
Minnesota 2000 Corrected Public Stumpage Price Review and Price Index 
(Minnesota Price Review) published by the Division of Forestry, 
Minnesota Department of Natural Resources. The Minnesota Price Review 
lists average prices and volumes for all timber sold on state and 
federal public lands within Minnesota as well as 10 counties in 
Minnesota, as provided by the Minnesota Department of Natural 
Resources, from January 2000 through December 2000. We also used a 
report from the Michigan Department of Natural Resources, Forest 
Management Division (Michigan Stumpage Price Report) which lists 
average stumpage prices for all sales from state lands from April 1, 
2000 to March 31, 2001. As each source reported average prices for each 
species in U.S. dollars per thousand board feet, where possible we 
calculated a weighted-average of the prices for softwood sawlogs for 
each of the species categories reported by Ontario. We then converted 
these prices from US$/MBF to C$/m\3\ using a conversion factor of 5.66 
cubic meters to thousand board feet, and the average exchange rate for 
the POI as reported by the Bank of Canada.
    We calculated the benefit conferred under Ontario's stumpage 
program by first taking the difference between the U.S. benchmark 
stumpage price and the adjusted administered stumpage price on a per 
cubic meter basis. We then multiplied per unit benefit by Ontario's 
total softwood sawtimber harvest volume in cubic meters to derive the 
total benefit from Ontario's stumpage program.
    In Lumber III, the Department calculated the program rate by 
dividing ``the total benefit by the value of certain softwood lumber 
products (at the first mill/planing mill stage) plus the value of by-
products that are produced during the lumber production process and 
sold by lumber producers.'' See Lumber III, 57 FR 22570 at 22576. 
Similarly, to calculate the program rate, we divided the total benefit 
by the total value of Ontario's softwood lumber production plus the 
total value of Ontario's softwood lumber by-products for the POI. Next, 
as explained in the ``Subsidy Rate Calculation'' section of this 
notice, we weight-averaged the benefit from this provincial subsidy 
program by the province's relative share of total U.S. exports. The 
preliminary countervailable subsidy for the provincial stumpage 
programs can be found in the ``Country-Wide Rate for Stumpage'' 
section, below.
4. Province of Alberta
    The province of Alberta provides stumpage under three main tenure 
arrangements: (1) Forest Management Agreements (FMAs), (2) Timber Quota 
Certificates (quotas), and (3) Commercial Timber Permits (CTPs). FMAs 
are mainly used by integrated and larger timber companies, quotas are 
used more by medium-sized companies, and CTPs primarily are used by 
smaller ones.
    An FMA is a long-term (20 years and renewable) agreement between 
the Government of Alberta (GOA) and a company. The terms and conditions 
are fully negotiated and approved by the Provincial Cabinet. FMA 
holders gain the right to harvest timber with the approval of an annual 
operating plan. An FMA includes the obligation to manage, on a 
sustained yield basis, the timber within the Agreement Area.
    FMAs are provided to companies that require the security of a long-
term tenure. In addition to paying stumpage fees, FMA holders are 
responsible for a number of in-kind services, including construction 
and maintenance of roads, reforestation of all areas harvested, and any 
other obligations required by the Department of Alberta Sustainable 
Resource Development (ASRD). Under the FMA tenure arrangement, recent 
negotiations have led to an agreement to use regulation rates on many 
FMAs (i.e., the rates set out in the Timber Management Regulation (the 
TMR)). Since 1994, dues for coniferous timber harvested under the 
authority of a FMA and consumed in sawmills usually are paid at the 
general rates of timber dues as set out in the TMR. FMAs generally have 
agreed to pay regulation rates for pulpwood as well. The timber dues 
paid by FMA holders can also be negotiated between the ASRD and the FMA 
holder.
    A quota certificate is a long-term (up to 20 years and renewable) 
right to harvest a share of the annual allowable cut (AAC) as 
established by the ASRD. A timber license is required for a quota 
holder to harvest the timber. Quota holders are responsible for road 
construction and maintenance, reforestation of all areas harvested, and 
operational planning. Quotas are sold by public tender or at an auction 
to the highest bidder. The charge for competitively sold quotas 
includes the timber dues as set out in the TMR, holding and protection 
charges, and a bonus price. The quota gives the holder license to 
harvest specific species and maintain utilization standards. For each 
year that a quota is granted, the holder must prepare and submit, for 
ASRD approval, an annual operating plan. There were no quotas sold 
during the POI; however, there were outstanding quotas. Together, FMA 
and quota holders accounted for approximately 92 percent of the 
softwood sawlog harvest on provincial forest lands in fiscal year 2000-
2001.
    CTPs are short-term (averaging 2-3 years) tenure arrangements used 
to allocate smaller volumes of timber. CTPs are sold either directly or 
at a public auction. Non-competitively-sold CTPs must pay the timber 
dues as set out in the TMR. There are two types of competitively-sold 
CTPs. The first type includes a bid price on top of the upset price, 
which is the lowest price a seller will accept, as well as other costs 
related to in-kind services. The second type of competitively-sold CTPs 
includes a bid price on top of the

[[Page 43206]]

minimum auction price, other costs related to in-kind services, and the 
TMR rate for timber dues. A CTP holder must also pay annual holding and 
protection charges. If the CTP holder does not also hold another major 
tenure (i.e., an FMA or a quota), the CTP holder must pay a 
reforestation levy. In addition, a CTP holder must provide an annual 
operating plan, which includes harvesting and road construction and 
maintenance. Three hundred eighty-four coniferous CTPs were sold during 
the POI.
    The administered price for non-negotiated FMAs and quota tenure 
holders is set by using the TMR timber dues and in-kind cost 
adjustments. Timber dues, as established in Schedule 3 of the TMR, 
describe the method of calculation of the rates of dues payable for 
coniferous timber used to make lumber products in a given month based 
on an average price for lumber in that month. This average is 
calculated by taking the weekly price for 1000 board feet of kiln-
dried, 2x4, Standard and Better, Western Spruce-Pine-Fur for the last 
week ending in the month preceding the payment month and for the three 
immediately preceding weeks, as shown in the publication Random Lengths 
Lumber Report. These four weekly prices are converted to Canadian funds 
and then averaged. This amount is found in Schedule 3, Table Part A and 
Part B, Column 1.\14\ Schedule 3 provides the general rate of timber 
dues for coniferous timber used to make lumber, pulp, or roundwood 
timber products. The figures provided in Schedule 3 are the same for 
pulpwood and sawlogs.\15\ Column 1 provides a range of C$/1000 board 
feet; the averaged amount as noted in Column 1 has a corresponding 
cubic meter value in Column 2. Column 2 represents the timber dues that 
an FMA tenure holder pays for billed volume of softwood timber. The 
timber dues are determined after the product has been produced. In 
addition, Schedule 6 covers the timber dues for timber used to make 
veneer.
---------------------------------------------------------------------------

    \14\ Table Part A covers the first 107,296 m3 of 
roundwood, while Part B covers excess over 107,296 m3 of 
roundwood.
    \15\ We note that under FMAs, prices charged for timber used in 
pulp production are the same as timber dues charged for roundwood 
and chips. The GOA has indicated that sawlogs and pulplogs are 
indistinguishable prior to processing; the distinction in name 
relates exclusively to their ultimate mill destination. In this 
investigation, subject merchandise does not include pulpwood. 
Normally, we would make an adjustment to exclude pulpwood; however, 
since the GOA does not differentiate between pulplogs and sawlogs, 
we are not making such an adjustment.
---------------------------------------------------------------------------

    To derive Alberta's administratively-set stumpage rate that we used 
in our calculations, we divided the total timber dues charged to FMA, 
quota, and CTP tenure holders during the POI for each species by the 
total softwood stumpage billed under each tenure during the POI for 
each species. In this manner, we obtained a weighted-average stumpage 
price per species that was paid by tenure holders during the POI. To 
this number, we added per unit adjustment costs.
    Although the price-determining factors are different between 
administratively-set stumpage sales in Alberta and market-driven 
stumpage sales in Montana state (see Cross-border Benchmark Stumpage 
Price section below), an examination of stumpage prices alone is not 
sufficient to determine whether timber is provided for less than 
adequate remuneration. Major tenure holders in Alberta are required to 
fulfill certain forest management and timber-harvesting obligations, 
including silviculture and forest management activities. Therefore, we 
preliminarily determine that it is necessary to factor in certain cost 
adjustments to the administered prices in Alberta to reflect the costs 
of certain mandatory activities that are not factored into the 
administered price.
    For the following adjustments made by the Department, we relied on 
cost data submitted by respondents. For adjustments, we relied on costs 
borne by tenure holders, since respondents provided cost data based on 
an independent consultant's report provided to the province by tenure 
holders. During verification, we will further examine all of the 
adjustments.
    As explained below, we have made adjustments for road construction 
and maintenance, basic reforestation, forest management planning, fire, 
insect and disease costs, environmental protection costs, and holding 
and protection charges.
    Respondents report that major tenure holders are responsible for 
all costs associated with building and maintaining roads. Respondents 
stated that access for timber harvesting and extraction is completed at 
the expense of the stumpage holder and that the province does not build 
or maintain any access for the harvesting of timber.
    We have no information on costs that private harvesters in Montana 
must pay for construction and maintenance associated with roads. 
Therefore, we included as an adjustment the entire cost of road 
building and maintenance as reported by respondents.
    Major tenure holders are required to perform certain activities 
pertaining to the reforestation of their timber stands. These 
activities, referred to as silviculture, are broken down into two 
types--basic and intensive. As stated in the TMR and the GOA's August 
6, 2001 supplemental questionnaire response, major tenure holders must 
perform basic silviculture, which includes regeneration or 
reforestation surveying, site preparation, planting, brushing, weeding, 
spacing and seedling trees, and stand cleaning. Intensive reforestation 
activities, which are not required by the GOA, include pruning, 
fertilizing, pre-commercial thinning, spacing, weeding, and genetics. A 
licensee may perform intensive silviculture on a voluntary basis.
    We added basic reforestation costs incurred by major tenure holders 
to the administered rate since major licensees are required to perform 
these activities, whereas private harvesters in Montana are not 
required to do so. We made no adjustment for costs related to 
incremental silviculture activities because major tenure holders are 
not required to perform these activities.
    Reforestation levies are charged to CTP tenure holders if the 
tenure holder does not concurrently hold an FMA or a quota. If a CTP 
licensee also holds an FMA, then all reforestation activities are the 
responsibility of the FMA holder. If a CTP is held by a quota holder, 
then it depends on the type of quota whether or not the CTP holder will 
be responsible for paying a levy or will be responsible for completing 
reforestation activities. If a CTP holder is obligated to pay a levy, 
he will pay this levy to the Forest Resource Improvement Association of 
Alberta (FRIAA), who will carry out the reforestation work. We took the 
total value of the reforestation levies paid during the POI and added 
it to the other adjustments.
    Forest management planning, as noted in the FMA Regulations at 
10(1), states that a company must submit for the Minister's approval a 
preliminary forest management plan (FMP) within twelve months. This 
includes a description of the managing method used for the timber 
harvesting. After 36 months, the company must submit a detailed FMP for 
a one full rotation and it must identify a sustainable AAC. The FMP 
includes reforestation and management practices, harvesting schedule 
and road developments.
    Major tenure holders are required to perform forest protection 
activities on Crown lands, including fire prevention and suppression, 
and pest management activities. Initial fire suppression, maintaining 
specified equipment levels and fire readiness plans are obligations of 
licensees. Major licensees are also required to combat and extinguish 
all fires in their operating areas. As for

[[Page 43207]]

insect and disease protection measures, such as spraying or surveys to 
measure the level and extent of infestation by a particular insect or 
disease, these are generally carried out by licensees. As a result, we 
have included adjustments for these additional costs for all tenure 
holders as well as adjustments for the allocation of general and 
administrative activities associated with these activities.
    Environmental costs include those expenses paid by the tenure 
holder in order to coordinate and comply with federal and provincial 
environmental regulations.
    According to the GOA's supplemental questionnaire response, holding 
and protection charges are an additional form of cash payment paid by 
tenure holders. The charge is for holding the timber stumpage rights 
and for a portion of the costs of protecting the land base. Moreover, 
the rates for holding and protection charges for CTPs and quotas are 
prescribed by the TMR, while the holding and protection charges for 
FMAs are specified in the FMA agreement.
    For the reasons stated below, we did not make adjustments for 
intensive reforestation, Geographic Information System (GIS) costs, 
forest care, overlapping tenure costs, scaling, inventory, and land use 
administration.
    We did not include intensive reforestation because this level of 
reforestation is not mandated by the GOA for tenure holders. GIS is a 
computer system capable of assembling, storing, manipulating, and 
displaying geographically referenced information. Respondents stated 
that GIS is used in forestry to manage forests for timber and non-
timber purposes. We preliminarily determine that costs related to GIS 
are not mandatory and are not borne exclusively by tenure holders in 
Alberta.
    Respondents stated in their supplemental questionnaire response 
that Forest Care is a certification program developed by member 
companies of the Alberta Forest Products Association as part of their 
commitment to protect the environment and sustain the public forest. 
Based on the information provided by respondents, we preliminarily 
determine that costs related to Forest Care are not mandatory and are 
not borne exclusively by tenure holders in Alberta.
    Respondents stated in their supplemental questionnaire response 
that in Alberta one tenure may overlap with another and that the costs 
of managing this overlap would normally be borne by the landowners. 
However, based on the information provided by respondents, we 
preliminarily determine that costs related to overlapping tenures are 
not mandatory and are not borne exclusively by tenure holders in 
Alberta.
    Based on the information provided by respondents, we preliminarily 
determine that costs related to scaling are not mandatory and are not 
borne exclusively by tenure holders in Alberta.
    Moreover, we did not make an adjustment for costs related to 
inventory because we preliminarily determine that these costs are not 
mandatory and are not borne exclusively by tenure holders in Alberta.
    Due to insufficient information on the record, we have 
preliminarily determined not to adjust for land use administration 
costs. We note that this and all other adjustments, both allowed and 
not allowed, will be examined at verification.
    In Table 19, Exhibit AB-S-43, of the GOA's June 28, 2001 
questionnaire response, we discovered that some softwood lumber was 
harvested from deciduous dispositions without paying stumpage. We 
calculated the benefit for these free trees by multiplying the 
benchmark stumpage rate by the amount harvested for free, and we added 
this benefit into the calculation of our total benefit.
    As explained above, we have preliminarily determined that stumpage 
prices in the United States provide the most accurate benchmark. In the 
case of Alberta, we are using data from the state of Montana, which 
borders Alberta, to calculate our cross-border benchmark. We obtained 
this data from the Stumpage Price Report (March 31, 2001), published by 
the Timber Data Company. From the Stumpage Price Report we obtained the 
total weighted-average price for all species of timber in Montana, as 
provided by the United States Forest Service (USFS) and the Montana 
Department of Natural Resources and Conservation (DNRC), from April 
2000 through March 31, 2001. We converted these figures from MBF to 
cubic meters using the conversion factor of 5.66. We also converted the 
data from U.S. dollars to Canadian dollars, using monthly average 
exchange rates from the Bank of Canada in effect during the POI, in 
order to derive our basic stumpage rate in C$/m\3\ for each species.
    In order to compare the species mix in Alberta and Montana, we 
calculated the difference between provincial and Montana stumpage rates 
for each softwood species harvested in provincial forests. We took the 
difference for each species category and multiplied it by Alberta's 
billed timber volume for each species category to arrive at the 
weighted benefit. We multiplied this amount by the portion of Alberta's 
species mix to derive a weighted-average benefit amount per species 
category.
    To calculate the benefit under Alberta's stumpage system, we first 
multiplied the adjusted price difference described above by the total 
softwood harvest billed by tenure holders during the POI. Next, we 
calculated the provincial benefit. We note that in Lumber III, we 
calculated the provincial benefit by dividing ``the total benefit by 
the value of certain softwood lumber products (at the first mill/
planing mill stage) plus the value of by-products that are produced 
during the lumber production process and sold by lumber producers.'' 
See Lumber III, 57 FR 22570 at 22576. Consistent with that approach, we 
calculated a stumpage benefit amount and added the free trees from 
hardwood stands benefit in order to derive the total benefit. We took 
the total benefit and divided by the value of softwood lumber products 
plus the value of by-products to derive the provincial benefit rate. 
Next, as explained in the ``Subsidy Rate Calculation'' section of this 
notice, we weight-averaged the benefit from this provincial subsidy 
program by the province's relative share of total U.S. exports. The 
preliminary countervailable subsidy for the provincial stumpage 
programs can be found in the ``Country-Wide Rate for Stumpage'' 
section, below.
5. Province of Manitoba
    The Government of Manitoba (GOM) states that the province owns 94 
percent of the forest lands and the federal government owns one 
percent. Private woodlot owners own the remaining 5 percent of forests.
    The GOM makes standing timber available to those parties that have 
purchased harvesting rights. These rights entitle the purchaser to 
acquire timber at a price, known as the stumpage price, set by the 
Forestry Branch of the Department of Conservation, the agency 
responsible for administering the sale of standing timber of Crown 
lands.
    In Manitoba, there are three ways to acquire timber cutting rights: 
(1) A Forest Management License (FML); (2) a Timber Sales Agreement 
(TSA); or (3) a Timber Permit (TP). An FML is a long-term (up to 20 
years) license, which may be renewed every five years, to harvest a 
stated volume of timber in a particular area. Licensees must manage 
their area

[[Page 43208]]

to ensure the (i) sustained yield, (ii) achievement of the maximum 
growth potential, (iii) a mandated standard of environmental quality, 
and (iv) and public right of access for recreational and other uses of 
the forest. The licensee must submit an annual operating plan and 
additional harvesting reports to the Forestry Branch. Stumpage must be 
paid within 30 days of the end of each quarter in which the timber is 
cut and scaled.
    The TSA is a short-term (up to five years) right to harvest a 
stated volume of timber in a specific area generally issued to small 
and medium sized operators. There were 204 such agreements in effect 
during the POI. Licensees with TSAs harvest both hardwood and softwood. 
Similar to the FMLs, the TSA holders must have an annual operating 
plan. Like FML holders, the stumpage must be paid within 30 days of the 
end of each quarter in which the timber is cut and scaled.
    The TPs are short-term (up to one year) licenses where license 
holders can only harvest a very small amount of timber. TP holders 
generally use the license to harvest firewood (softwood and hardwood) 
for their own use. Stumpage must be paid when the permit is issued. 
There were 2,617 permits in effect during the POI.
    Manitoba also has a quota system. The quota is a five-year 
renewable fixed allocation of timber; whereas, a TSA or TP provides 
direct access to the timber. The GOM states that all but a few quota 
holders also have timber sale agreements.
    Tenure holders pay stumpage fees at either the standard provincial 
rate or a rate negotiated with the province. The Forestry Service has 
divided the province into eight different forest regions. The standard 
provincial rate varies depending on which of the forest regions the 
timber is harvested from and whether the wood type is Aspen/Poplar or 
all wood other than Aspen/Poplar. Otherwise, the rates do not vary by 
species or grade. The GOM used a base rate set by administrative 
determination for calculating the stumpage price for TS holders and TP 
licensees. The base rates were then adjusted according to changes in a 
weighted average of two Statistics Canada industrial product price 
indices to derive an annual rate.
    The GOM reports the per unit stumpage amounts by dividing the total 
value of stumpage collected by the total quantity on a tenure and 
species-specific basis. These values include a Fire Protection Charge 
(FPC) for holders of TSAs and FMLs. TSAs and TPs also pay a Forest 
Renewal Charge (FRC) to the province. The values do not include the un-
reimbursed costs that FMLs incur for renewal activity (i.e., basic 
silviculture).
    In the case of Manitoba, we are using data from the state of 
Minnesota, which borders Manitoba, to calculate our cross-border 
benchmark. We based the Minnesota stumpage prices on the Minnesota 2000 
Corrected Public Stumpage Price Review and Price Index (Minnesota Price 
Review) published by the Division of Forestry, Minnesota Department of 
Natural Resources. The Minnesota Price Review lists average prices and 
volumes for all timber sold on state and federal public lands within 
Minnesota as well as 10 counties in Minnesota, as provided by the 
Minnesota Department of Natural Resources, from January 2000 through 
December 2000.
    We preliminarily determine that there are certain costs that Crown 
timber harvesters absorb that Minnesota harvesters do not; therefore, 
we are adding in certain adjustments to the derived basic stumpage rate 
for Manitoba. In terms of adjustments, the GOM provided details about 
the un-reimbursed costs of basic silviculture activities performed by 
Tolko, the only FML that harvests softwood sawtimber. The GOM said data 
from Tolko's Annual Operating Report. We weighted the un-reimbursed per 
unit costs reported for Tolko by the percentage of total volume that 
the FML softwood harvest represents and added this amount to the 
administered stumpage price.
    The GOM states that the TSA and TP holders pay the province fees 
related to basic silviculture; however, such fees are already included 
in the stumpage. An upward adjustment to the administered stumpage 
price would be double-counting.
    We are including the following costs in the adjustment: (1) General 
silviculture; (2) site preparation; (3) scarification; (4) tree 
planting; (5) seedling purchase; (6) regeneration surveys; (7) 
silviculture projects; (8) cost of developing the annual report; and 
(9) forestry administration. Although the GOM reported the total 
amounts that Tolko incurred for expenses related to tree improvement 
and herbicide release, we did not include these expenses because the 
amounts were so small that their inclusion would not have any impact on 
the calculation. In fact, the GOM did not calculate a per unit amount 
for these because the amounts were insignificant.
    We did not include expenses related inventory because it is an 
industry-wide cost and is borne by benchmark harvesters. We did not 
include the expenses of a Geographic Information System and dwarf 
mistletoe control because these expenses were not required by the 
tenure arrangement. We did not include the expenses incurred by the 
government for renewal of areas outside of FMLs because it is an 
expense incurred by the government; not an unreimbursed expense 
incurred by the licensee.
    The GOM states that FML and TSA tenure holders bore the expenses 
for additional in-kind costs that for which the GOM does not reimburse 
the tenure holders. Although the tenure holders incur substantial in-
kind costs, the GOM was unable to report the costs of these activities 
because tenure holders are required to report their commercial forest 
activities, but not the cost of those activities. We will examine this 
issue further at verification.
    Manitoba reports the stumpage volume and value by tenure type and 
species. The GOM states that the species harvested in Manitoba are 
white and black spruce and jack pine (collectively ``spruce/pine''). 
However, Manitoba also includes an ``other'' category. We will examine 
the species-makeup of this category at verification.
    To calculate the benefit, we derived a species-specific (i.e., 
``spruce/pine'' and ``other'') per unit stumpage cost in Manitoba by 
summing the species value over volume. Next, we calculated an average 
``spruce/pine'' price, weighted by the percentage of spruce and pine 
volume. The GOM reported the per unit costs incurred by Tolko as a 
ratio of its costs over its sawlog harvest. In order to apply this 
adjustment, we weighted the per unit cost by the percentage of the 
total harvest that the FML harvest represents to account for the fact 
that the TSA and TP holders do not incur this cost. We added these 
revised adjustments to the ``spruce/pine'' stumpage price and the 
``other'' price.
    As a benchmark for the ``spruce/pine'' rate, we calculated a 
weighted average price of species identical (i.e. white and black 
spruce, and jack pine) to the species in Manitoba. We then took the 
difference between the benchmark and the administratively-set stumpage 
rate. We classified the remaining species found in the Minnesota Price 
Review in an ``other'' category which we used as a benchmark for the 
``other'' category found in Manitoba. Again, we took the difference 
between the administratively-set stumpage rate and the benchmark 
stumpage rate. We weight-averaged the two differences by the volumes of 
``spruce/pine`` and ``other'' found in Manitoba. Next, we multiplied 
this rate by the softwood sawlog harvest to

[[Page 43209]]

derive the total benefit. We then divided the benefit by the value of 
Manitoba's total softwood lumber shipments (including the by-products). 
During verification, we will further examine the figures used in the 
denominator of the provincial benefit calculation. Next, as explained 
in the ``Subsidy Rate Calculation'' section of this notice, we weight-
averaged the benefit from this provincial subsidy program by the 
province's relative share of total U.S. exports. The preliminary 
countervailable subsidy for the provincial stumpage programs can be 
found in the ``Country-Wide Rate for Stumpage'' section, below.
6. Province of Saskatchewan
    In Saskatchewan, the northern half of the province is designated as 
Forest Crown land. According to the Government of Saskatchewan (GOS), 
only the lower third of this land contains harvestable timber. This 
harvestable area where commercial forestry activities occur is referred 
to as the Commercial Forest Zone (CFZ). The CFZ comprises approximately 
12 million hectares. Of this amount, the GOS states that 55 percent 
contains productive or harvestable land. The GOS states that there are 
no private lands within the CFZ. In Saskatchewan, all private lands are 
generally located south of the CFZ. According to information submitted 
by the GOS, Crown lands accounted for approximately 89 percent of the 
softwood sawlogs harvested in Saskatchewan during the POI. Private and 
Federal lands accounted for 9 and 1 percent of the softwood sawlog 
harvest, respectively.
    The right to harvest timber on Crown lands, or stumpage, can only 
be acquired by a license pursuant to Saskatchewan's Forest Resources 
Management Act. These licenses come in three forms: Forest Management 
Areas (FMAs), Forest Product Permits (FPPs), and Term Supply Licenses 
(TSLs). The Saskatchewan Environment and Resource Management Department 
(SERM) is the government agency responsible for the administration of 
provincial timber programs, which includes setting the price of 
stumpage in the province.
    FMAs grant the licensee the right to harvest Crown timber for a 
term not exceeding 20 years. At every fifth year of the FMA, the term 
may be extended for an additional 5 years. According to the GOS, the 
FMAs set out the rights and responsibilities of the licensee which, in 
particular, focus on the long-term sustainable use of Crown land 
covered by the agreement. The GOS negotiates the terms of FMAs with 
each license. Thus, no standard terms or conditions apply to FMAs.
    All FMAs, however, must pay certain charges. FMA licensees are 
charged forest management fees. These fees vary across the province in 
relation to the preponderance of timber types within the FMA and the 
costs associated with reforestation of the species that exist there. 
Forest management fees, also referred to as forest renewal fees, are 
used to conduct the province's basic silviculture programs, which 
include surveys, site preparation, mechanical brushing, cone 
collection, chemical brushing, planting, fertilizer, spacing, 
administrative costs, seedlings, and other miscellaneous costs.
    Four FMAs were in effect during the POI: the Mistik Management FMA, 
the L&M Wood Products FMA, the Weyerhaeuser FMA, and the Pasquia-
Porcupine FMA, which is also a FMA of Weyerhaeuser. All four of these 
FMA licensees own their own mills. According to information submitted 
by the GOS, these four FMAs accounted for approximately 86 percent of 
the softwood sawlog harvest in the CFZ. The GOS states that its policy 
is to grant FMAs to large mills requiring large volumes of timber and 
that it requires FMA licensees to operate their facilities on a regular 
basis. Failure to do so could result in the termination of the FMA and 
the loss of the licensee's tenure. The GOS states that the requirement 
relates to the province's responsibilities as a landowner as well as to 
good forest management practices.
    FPPs are the second type of stumpage license issued by the GOS. 
FPPs are annual licenses that confer the right to harvest specified 
forest products. Each FPP expires on either the date specified on the 
permit or at the end of the GOC's fiscal year, whichever comes first. 
FPPs cannot be renewed. Approximately 700 FPPs were issued during the 
POI. During the POI, FPPs accounted for 14 percent of the province's 
softwood sawlog harvest. The terms and conditions of FPPs vary in 
accordance with the type of forest product harvested. The GOS states 
that it allows FPP licensees to operate in FMA areas. In those 
instances, the FPPs must pay forest management fees to the FMA 
licensee. The rates charged to the FPPs are equal to those charged to 
the FMAs by the GOS. The FMAs then forward these fees to the GOS. FPPs 
operating on lands not covered by a FMA are required to pay forest 
management fees directly to the province.
    TSLs are similar to FMAs, but have a term of 10 years. As is the 
case with FMAs, TSLs must pay processing facility and forest management 
fees. There was only one TSL in effect during the POI, Green Lake Metis 
Wood Products of Green Lake. The GOS states that this facility was 
destroyed by a fire during the POI, and thus, only operated on a 
limited basis during this period. The GOS states that the amount of 
fees paid by this TSL licensee during the POI was negligible.
    The SERM also charges licensees stumpage dues on harvested trees. 
There are two steps to the SERM's method of setting stumpage rates. 
These steps apply to all tenure arrangements. The first part is a base 
rate of dues which applies to each cubic meter harvested during the 
year. The second part is an incremental rate which applies to a 
percentage of product value above a threshold trigger price. 
Information from the GOS indicates that the incremental rates for 
softwood sawlogs are a partial function of lumber prices as reported in 
Random Lengths Lumber Report, an industry trade publication. With 
respect to the stumpage dues paid by FMAs, the GOS states that while 
each FMA uses the same basic structure, each FMA has individually 
negotiated its base and incremental stumpage rate with the province. 
These negotiated dues vary among FMAs according to tree size and 
species. The GOS states that these negotiated rates reflect the 
relative value of the timber included in the FMA license and that the 
licenses are negotiated in an arm's-length transaction.
    Payments of stumpage dues vary according to license. FMA licensees 
submit their base dues on a monthly basis. Incremental dues are paid 
either monthly or quarterly in accordance with the terms of the 
particular FMA. FPP licensees have three payment options. FFP licensees 
may pay stumpage dues: (1) When the permit is issued, (2) in equalized 
payments for a maximum of three equalized payments throughout the year, 
or (3) monthly, based on the timber scaled during that period. Up-front 
payment and equalized payment options are calculated based on the total 
volume of timber included in the FPP. The amount of dues payable is 
determined through scaling the amount of timber harvested. The GOS 
states that scaling is conducted by licensed scalers.
    To derive Saskatchewan's administratively-set stumpage rate, we 
divided the total value of softwood sawlogs, by species, by the total 
volume harvested, by species, to derive the per unit price per species. 
We categorized the species in two sets: (1) A Douglass/Larch/Tamarack 
(DLT) mix; and (2) a Spruce-Pine-Fir (SPF) mix, which includes white 
spruce, jack pine, black

[[Page 43210]]

spruce, and balsam. Additionally, we included the total volume of 
veneer logs harvested in our calculation of the per unit stumpage 
price. To arrive at a per unit stumpage price for veneer logs, we 
weight-averaged the per unit prices by volume. We then included the per 
unit amounts for veneer logs in the per unit stumpage price for SPF.
    We obtained a weighted-average stumpage rate per species category 
by taking the stumpage price for DLT and SPF, which included veneer 
logs, mixes and divided by total volume harvested as attributable to 
category mix. To this stumpage rate we added per unit adjustment costs, 
in order to derive Saskatchewan's administratively-set stumpage rate.
    Tenure holders in Saskatchewan are required to fulfill and/or pay 
for certain forest management and timber-harvesting obligations, 
including silviculture and forest management activities. Therefore, we 
preliminarily determine that it is necessary to factor in certain cost 
adjustments to the administered prices in Saskatchewan to reflect the 
costs of certain mandatory activities that are not factored into the 
administered price.
    For the following adjustments, we relied on cost data submitted by 
respondents. For all adjustments, we relied on costs borne by the 
tenure holders, since respondents provided cost data based on the 
responses of the tenure holders.
    We have made adjustments for forest management planning and basic 
silviculture. For the calculation of the total forest management fee, 
we multiplied the per-unit forest management fee, for FMAs and FPPs, 
and the total volume of sawlogs and veneer logs harvested during the 
POI. We then added the basic silviculture costs incurred by FMA tenure 
holders, as reported by the GOS, to the total forest management fees 
paid during the POI to arrive at the total value of adjustments during 
the POI.
    In addition to the fees paid by FMA and FFP license holders, 
described above, the GOS stated that FMA and FPP licensees must also 
pay as a condition of their license several in-kind costs related to 
forest management. These include, but are not limited to, long-term 
operation, planning, environment plans, periodic independent audits of 
forest management activities and scaling-related costs, including 
payments for scaling services, scaler training, and scaling plans. In 
addition, the GOS states that FPPs are also required to pay road user 
fees as determined by local governments within the province. We did not 
make an adjustment because there is not enough information on the 
record that would allow us to quantify these in-kind costs. We will 
further examine this issue during verification.
    As explained above, we have preliminarily determined to use 
stumpage prices in the United States for our benchmark. In the case of 
Saskatchewan, we are using data from the state of Montana, which 
borders Saskatchewan, to calculate our benchmark. We obtained this data 
from the Stumpage Price Report. Specifically, we used the weighted-
average prices for each species in Montana, as provided by the United 
States Forest Service (USFS) and the Montana Department of Natural 
Resources and Conservation (DNRC), from April, 2000 through March, 
2001. We converted these figures from thousand board feet to cubic 
meters using the conversion factor of 5.66. We also converted the 
prices from U.S. dollars to Canadian dollars, using monthly average 
exchange rates from the Bank of Canada in effect during the POI, in 
order to derive our basic stumpage rate in C$/m\3\ for each species.
    We then calculated the difference between provincial and Montana 
stumpage rates for each species harvested in provincial forests. To 
arrive at a weighted average price differential, we weighted each 
species mix's price differential in proportion to its share of 
Saskatchewan's harvested volume for the POI to arrive at an overall 
per-unit price differential.
    In order to calculate the benefit under Saskatchewan's stumpage 
system, we first took our calculated per unit price differential and 
factored in necessary adjustments, which are detailed above. We next 
multiplied the per unit price differential by the harvested volume to 
arrive at the total benefit. We calculated the provincial rate by 
dividing the total benefit by the value of softwood lumber shipments, 
including the value of by-product shipments. Next, as explained in the 
``Subsidy Rate Calculation'' section of this notice, we weight averaged 
the benefit from this provincial subsidy program by the province's 
relative share of total U.S. exports. The preliminary countervailable 
subsidy for the provincial stumpage programs can be found in the 
``Country-Wide Rate for Stumpage'' section, below.

Country-Wide Rate for Stumpage

    The preliminary countervailable subsidy rate for the provincial 
stumpage programs is 19.21 percent ad valorem.

II. Other Programs Preliminarily Determined To Confer Subsidies

Programs Administered by the Government of Canada

1. Non-Payable Grants and Conditionally Repayable Contributions From 
the Department of Western Economic Diversification
    According to the response of the GOC, the Western Diversification 
Program (WDP) was introduced in 1987, and is administered by the 
Department of Western Economic Diversification, a department of the 
GOC. The WDP supports projects that promote or enhance economic 
development or diversification in Western Canada, including the 
initiation, promotion or expansion of enterprises, the establishment of 
new businesses, research and development activities, and the 
development of business infrastructure. As part of its mandate to 
assist in the development of Western Canada, the WDP provides non-
repayable contributions (grants) to companies located in Western 
Canada.
    According to the GOC, seven companies in the softwood lumber 
industry have received grants in the last ten years, the period 
corresponding to the AUL of the softwood lumber industry.
    We preliminary determine that this program is specific under 
section 771(5A)(D)(iv) of the Act because assistance under this program 
is limited to designated regions in Canada. In addition, the provision 
of grants by the GOC constitutes a financial contribution as provided 
within the meaning of section 771(5)(D)(i) of the Act.
    Both recurring and non-recurring grants were provided under this 
program. In accordance with Sec. 351.524 (a) and (b)(2) of the CVD 
Regulations, all grants provided under this type of program are 
expensed in the year of receipt. Therefore, to calculate the benefit 
during the POI, we summed the amount of grants provided to all 
producers/exporters of softwood lumber during the POI and divided that 
amount by the f.o.b. value of total sales of softwood lumber for the 
POI. Using this methodology, we preliminarily determine the 
countervailable subsidy from this program to be less than 0.005 percent 
ad valorem.
2. Federal Economic Development Initiative in Northern Ontario (FedNor)
    FedNor is an agency of Industry Canada, a department of the GOC, 
which encourages investment, innovation, and trade in Northern Ontario. 
Specifically, FedNor's mandate

[[Page 43211]]

is to promote economic growth, diversification, job creation and 
sustainable, self-reliant communities in Northern Ontario. According to 
the response of the GOC, FedNor has historically provided assistance to 
not-for-profit entities and to small businesses. In March 1996, FedNor 
was re-engineered so that nearly all direct funding to commercial 
businesses was eliminated. According to the GOC, most of FedNor's 
assistance is provided to Community Futures Development Corporations 
(CFDCs). CFDCs are not-for-profit community organizations.
    CFDCs undertake strategic community planning activities, provide 
small business counseling and advisory services, and offer commercial 
loans to small and medium-sized businesses. Besides contributing to the 
operating costs of the CFDCs, FedNor also provides investment funds to 
the CFDCs in Northern Ontario that are used by the CFDCs to provide 
loans to small and medium-sized businesses in the region. According to 
the response of the GOC, once FedNor provides funds to the CFDCs, 
FedNor has no involvement in any lending decisions made by the CFDCs. 
FedNor usually will only require that the interest rate charged by the 
CFDCs on its loans be at least the prime rate plus two percent.
    The GOC stated in its response that during the ten year period 
corresponding to the AUL, FedNor provided direct assistance, in the 
form of grants, to entities in the softwood lumber industry on six 
occasions. In addition, according to the response of the GOC, the CFDCs 
had 40 loans outstanding during the POI to companies that are producers 
of softwood lumber.
    Because this program is limited to certain regions in Ontario, we 
preliminarily determine that assistance provided under FedNor is 
specific within the meaning of section 771(5A)(D)(iv) of the Act. With 
respect to the loans provided under this program by the CFDCs, we 
preliminary determine that no benefit is provided within the meaning of 
section 771(5)(E)(ii) of the Act because the reported interest rates 
charged on each of these loans is equal to or higher than the interest 
rate charged on comparable commercial loans, as noted in the 
``Benchmark for Loans and Discount Rate'' section, above. However, with 
respect to the grants provided by FedNor, we preliminarily determine 
that a financial contribution within the meaning of section 
771(5)(D)(i) of the Act has been provided to the softwood lumber 
industry.
    In accordance with Sec. 351.524 of the CVD Regulations, all grants 
provided under this program are expensed in the year of receipt. 
Therefore, to calculate the benefit provided under this program, we 
summed the amount of grants provided to all producers/exporters of 
softwood lumber during the POI and divided that amount by the f.o.b. 
value of total sales of softwood lumber for the POI. Using this 
methodology, we preliminarily determine the countervailable subsidy 
from this program to be less than 0.005 percent ad valorem.

Programs Administered by the Province of British Columbia

1. Forest Renewal B.C.
    In June 1994, the GBC enacted the Forest Renewal Act to renew the 
forest economy of British Columbia by, among other things, improving 
forest management of Crown lands, supporting training for displaced 
forestry workers, and promoting enhanced community and First Nations 
involvement in the forestry sector. To achieve these goals, the Forest 
Renewal Act created Forest Renewal B.C., a Crown corporation. The 
corporation's strategic objectives are implemented through three 
business units: the Forests and Environment Business Unit, the Value-
Added Business Unit, and the Communities and Workforce Business Unit. 
While much of the activities of Forest Renewal BC are unrelated to the 
provision of assistance to softwood lumber producers, petitioners 
allege that this agency provided both grants and loans to producers of 
softwood lumber.
    According to the GBC's response, Forest Renewal B.C. generally does 
not make direct loans to individual softwood lumber companies. Instead 
it provides funds to community groups and independent financial 
institutions, which may provide loans to companies involved in softwood 
lumber production. Forest Renewal B.C. has made direct loans and 
provided loan guarantees directly to softwood lumber producers on four 
occasions. In each of these instances, the loan assistance was provided 
in conjunction with the Job Protection Commission. See ``Job Protection 
Commission'' section, below. With respect to the loans provided by 
Forest Renewal B.C. (through intermediaries or direct), we 
preliminarily determine that no benefit is provided within the meaning 
of section 771(5)(E)(ii) because the reported interest rates charged on 
each of these loans is equal to or higher than the interest rate 
charged on comparable commercial loans, noted in the ``Benchmark for 
Loans and Discount Rate'' section, above.
    According to the GBC's response, Forest Renewal B.C. has provided 
grants directly to softwood lumber producers. These grants have been 
provided to softwood lumber producers in two ways: (1) As part of ad 
hoc arrangements between Forest Renewal B.C. and softwood lumber 
companies, and (2) as part of established grant programs to support 
activities such as business development, industry infrastructure, 
training, and marketing. Because direct grant assistance is provided 
only to support the forest products industry, we preliminarily 
determine that these grants are specific under section 771(5A)(D)(iv) 
of the Act. The provision of these grants constitute a financial 
contribution within the meaning of section 771(5)(D)(i) of the Act.
    As noted in the ``Recurring and Non-recurring Benefits'' section of 
this notice, all grants provided under this program are expensed in the 
year of receipt. Certain marketing grants were provided for programs 
supporting exports to Asian markets. In accordance with 
Sec. 351.525(a)(4) of the CVD Regulations, we did not include marketing 
grants tied to Asian markets in our benefit calculations because they 
were tied to particular markets and thus, only benefitted sales to 
those markets. To calculate the benefit provided under this program, we 
summed the amount of grants provided to all producers/exporters of 
softwood lumber during the POI (other than those tied to Asian markets) 
and divided that amount by the f.o.b. value of total sales of softwood 
lumber for the POI for the Province of British Columbia. Next, as 
explained in the ``Subsidy Rate Calculation'' section of this notice, 
we weight-averaged the benefit from this provincial subsidy program by 
the province's relative share of total U.S. exports. Using this 
methodology, we preliminarily determine the countervailable subsidy 
from this program to be 0.09 percent ad valorem.
2. Subsidies to Skeena Cellulose Inc. (Skeena)
    Petitioners alleged that the Province of British Columbia provided 
Skeena with millions of dollars in aid in an attempt to save the 
company from bankruptcy. According to the response of the government, 
the agency responsible for administering the province's assistance to 
Skeena was the British Columbia Ministry of Employment and Investment 
(MEI). Skeena is primarily a pulp company but it does operate sawmills 
which produce

[[Page 43212]]

subject merchandise. The assistance provided to Skeena by the MEI was 
in the form of grants for road building, equity investment, payments 
made in connection with wage concessions by the company's pulp mill 
workers, and general stumpage reductions affecting low-grade hemlock 
used in pulp production. In addition, MEI provided certain loans, and 
guaranteed certain loans from Skeena's creditors, most of which were 
provided for the company's pulp operations.
    According to the GBC's response, the province's involvement in 
Skeena was not in accordance with any specific provincial government 
program. Because the assistance provided to Skeena by MEI was not 
provided under a general government program, but was instead provided 
under an ad hoc assistance plan tailored specifically for Skeena, we 
preliminarily determine MEI's assistance to the company to be specific 
under section 771(5A)(D) of the Act. We also preliminarily determine 
that through the direct transfers of funds, the Province of British 
Columbia provided a financial contribution to Skeena under section 
771(5)(D)(i) of the Act.
    As noted in the ``Recurring and Non-recurring Benefits'' section of 
this notice, all grants were expensed in the year of receipt. With 
respect to the provision of grants, the only grants provided to Skeena 
during the POI were made with respect to road building. Because Skeena 
is primarily a pulp and paper company, to determine the benefit 
conferred upon subject merchandise, we first pro-rated the amount of 
the grant by the percentage of softwood lumber sales to Skeena's total 
sales for the POI.\16\ After determining the percentage of the grant 
attributable to Skeena's softwood lumber production, we divided that 
amount by the f.o.b. value of total sales of softwood lumber for the 
POI for the Province of British Columbia. Next, as explained in the 
``Subsidy Rate Calculation'' section of this notice, we weight-averaged 
the benefit from this provincial subsidy program by the province's 
relative share of total U.S. exports. Using this methodology, we 
preliminarily determine the countervailable subsidy from the grants 
provided by MEI to be less than 0.005 percent ad valorem.
---------------------------------------------------------------------------

    \16\ Under our standard methodology, we do not pro-rate 
subsidies received by investigated companies by subject and non-
subject merchandise. However, we have had to depart from this 
standard practice in this investigation because this investigation 
is conducted on an aggregate basis.
---------------------------------------------------------------------------

    With respect to the equity investment by MEI, we preliminarily 
determine that no countervailable benefit was provided to Skeena 
because MEI purchased the already-existing Skeena shares from third 
parties. Thus, no additional equity funds were actually invested in 
Skeena, and there is no financial contribution. We also preliminarily 
determine that the payments made in connection with wage concessions by 
the company's pulp mill workers and general stumpage reductions 
affecting low-grade hemlock used in pulp production did not provide a 
benefit to softwood lumber production because this assistance was tied 
to non-subject merchandise.
    Finally, as noted above, loans and loan guarantees were also 
provided to Skeena by MEI. Two of the loans provided to Skeena under 
this program were tied to Skeena's pulp mills, and thus, did not 
provide a benefit to softwood lumber under Sec. 351.525 of the CVD 
Regulations.
    In addition, MEI purchased two of Skeena's loans from the Royal 
Bank. MEI purchased the loans held by the Royal Bank for approximately 
40 cents on the dollar. These loans were not tied to specific 
operations of Skeena, and thus, benefitted all of the company's sales, 
including softwood lumber. When MEI purchased these two loans from the 
Royal Bank, Skeena was obligated to make payment on the loans to the 
province rather than to the Royal Bank. According to the response from 
the GBC, Skeena now makes payments on these loans to the province 
pursuant to the same commercial terms as applied when the Royal Bank 
held these loans. However, although interest was paid on these loans at 
commercial interest rates, the repayment of principal on these two 
purchased loans is based upon Skeena's cash flow. For purposes of this 
preliminary determination, we find that these two loans did not provide 
a countervailable benefit. However, we will examine the purchase of 
these two loans during verification to determine whether a 
countervailable benefit was provided to Skeena during this transaction.
    With respect to the four loan guarantees provided to Skeena by MEI, 
one of the guarantees was provided specifically to the company's pulp 
operations, and thus, did not provide a benefit to the subject 
merchandise pursuant to Sec. 351.525 of the CVD Regulations. Regarding 
the other three loans, the guarantees resulted in a lower interest rate 
charged to Skeena by the commercial bank, and guarantee fees payable to 
the government. However, we preliminarily determine that no benefit is 
provided within the meaning of section 771(5)(E)(ii) because the 
reported interest rates charged on each of these loans is equal to or 
higher than the interest rate charged on comparable commercial loans. 
See ``Benchmark for Loans and Discount Rate'' section, above.

Programs Administered by the Province of Quebec

1. Private Forest Development Program
    The Private Forest Development Program (PFDP) promotes the 
development of private forest resources in Quebec. Specifically, the 
PFDP provides silviculture support to private woodlot owners through 
payments, either made directly to forest engineers or via reimbursement 
to the woodlot owner, for silviculture treatments executed on private 
land. This program is funded by both the provincial government through 
the Ministere des Ressources naturelles (MRN) and by sawmill operators. 
The majority of the program funds come from the MRN. However, under the 
authority of the MRN, wood processing plant operators are charged a fee 
of C$1.45 for each cubic meter of timber acquired from private land. 
This fee is used to fund the PFDP.
    According to the GOQ response, there are approximately 13,000 
forest producers (i.e., registered forest landowners) which receive 
financial assistance each year under the PFDP. The average financial 
assistance received by a producer is less than C$3,000 in any given 
year. According to the GOQ response, there are approximately 50 
sawmills that receive assistance from the program every year.
    Because assistance under this program is limited to private woodlot 
owners, we preliminarily determine that assistance provided under this 
program is specific under section 771(5A)(D) of the Act. In addition, 
payments by PFDP constitute a financial contribution under section 
771(5)(D)(i) of the Act. The amount of the benefit conferred under this 
program to softwood lumber producers is equal to the grant of funds 
provided to the producers under the PFDP during the POI.
    Respondents argue that no benefit is provided under this program to 
sawmill operators because they are required to make contributions to 
PFDP for lumber harvested on private land. Respondents state that the 
sawmill operators' contributions were greater than the amount of 
silviculture reimbursements the mills received under this program 
during the POI. However, every holder of a wood processing plant 
operating permit must pay the fee of C$1.45 for every cubic meter of 
timber acquired from a private forest, regardless of whether or not 
that mill owns private

[[Page 43213]]

forest land. The sawmill operators that received assistance under the 
PFDP received assistance not because they used timber from private 
forest lands but because they owned private forest land. Therefore, we 
preliminarily determine that the fees paid to harvest timber from 
private land do not qualify as an appropriate offset to the grants 
received under the PFDP pursuant to section 771(6) of the Act. Section 
771(6) of the Act specifically enumerates the only adjustments that can 
be made to the benefit conferred by a countervailable subsidy and such 
fees do not qualify as an offset.
    According to the GOQ's response, there were approximately 50 
softwood lumber producers that received assistance under this program 
during the POI. However, the response only provides the amount of 
grants received by the 35 largest producers. Therefore, to estimate the 
amount of the grants received by the other 15 producers, we assumed 
that they received the average grant amount received by the other 35 
softwood producers. We will examine this closely at verification. We 
combined our estimate with the amount reported in the response to 
obtain a total amount of grants provided to softwood lumber producers 
during the POI. As explained in the ``Recurring and Non-recurring 
Benefits'' section of this notice, these grants were expensed in the 
year of receipt.
    To calculate the benefit provided under this program, we summed the 
amount of grants provided to all producers/exporters of softwood lumber 
during the POI and divided that amount by the f.o.b. value of total 
sales of softwood lumber for the POI for the Province of Quebec. Next, 
as explained in the ``Subsidy Rate Calculation'' section of this 
notice, we weight-averaged the benefit from this provincial subsidy 
program by the province's relative share of total U.S. exports. Using 
this methodology, we preliminarily determine the countervailable 
subsidy from this program to be 0.01 percent ad valorem.
2. Export Assistance Under the Societe de Developpement Industrial du 
Quebec/Investissement Quebec (SDI)
    The SDI export assistance program was established in 1994 and 
expired in 1998, when it was replaced by export assistance under 
Investissement Quebec (IQ). The objective of SDI, as established in its 
founding legislation, was to promote the ``economic development of 
Quebec, particularly by encouraging the development of businesses, the 
growth of exports, [and] research and development of new techniques.'' 
During its existence, SDI worked mainly with businesses whose growth 
was dependent on technological innovation and exports.
    IQ was also established, in part, to facilitate export activities. 
IQ works with private financial institutions by assuming risks to 
support projects that might otherwise be cancelled or postponed. IQ 
assistance is geared mainly to companies whose operations create a 
significant impact in terms of innovation and exports. Export 
assistance is provided by IQ's small-and medium-sized businesses (SMB) 
program which is fundamentally similar to the SDI export assistance 
program. During the POI, there were three outstanding long-term loan 
guarantees provided to softwood lumber producers in Quebec.
    Because this program provides assistance to exporters, we 
preliminarily determine it to constitute an export subsidy under 
section 771(5A)(B) of the Act. To determine whether the loan guarantees 
provided a benefit, in accordance with section 771(5)(E)(iii) of the 
Act, we first calculated the amount of interest charged, plus the 
guarantee fees paid. Because information on the record indicates that 
the SDI/IQ program provides export guarantees for projects considered 
too risky for private financial institutions, we have preliminarily 
determined that the national average benchmark described in the 
``Benchmarks for Loans and Discount Rates'' section of this notice, is 
an inappropriate benchmark for this program. In order to approximate 
the interest rate that would have been charged the loan guarantee 
recipients under this program, we have constructed a benchmark interest 
rate based on default rates for companies at various levels of risk. 
Using this benchmark, we preliminarily determine that the amount of 
interest and fees paid under the guaranteed loans is less than the 
amount of interest that would have been paid under a commercial 
interest rate. Therefore, this program confers a benefit. We divided 
the benefit amount by the value of total exports of softwood lumber for 
the POI for the Province of Quebec. We then weighted this provincial 
rate by Quebec's share of softwood lumber to the United States during 
the POI. Using this methodology, we preliminarily determine a benefit 
of less than 0.005 percent.

III. Programs Preliminarily Determined to be Not Countervailable

1. Funds for Job Creation by the Province of Quebec

    Quebec's Ministere des Ressources Naturelles administers this 
program but entrusts the program's operation to Rexforet Inc., a 
subsidiary of SGF Rexfor, and to Quebec's Conference of Forest 
Cooperatives (known by the French abbreviation, CCFQ). CCFQ is an 
umbrella organization of 41 forest cooperatives. These cooperatives are 
private, non-profit, community-based entities organized to pool the 
resources of land owners and forest operators and to provide support 
for forestry operations. This program was created in 1994 to train and 
develop manpower and respond to the anticipated shortage of qualified 
forest management workers by training unemployed individuals and 
fostering their integration into regular work teams.
    Eligibility for training under this program is limited to 
unemployed individuals. Eligibility to provide training is limited to 
forest cooperatives and nonprofit organizations having the ability to 
provide the necessary level of training. Training assistance under this 
program is limited to unemployed individuals, and does not relieve 
companies of training costs that they normally would be obligated to 
pay. In accordance with Sec. 351.513 of the CVD Regulations, we 
preliminarily determine that this program does not provide a 
countervailable benefit.

2. Sales Tax Exemption for Seedlings by the Province of Ontario

    The Retail Sales Tax Act (RSTA) provides the legal authority for 
the Province of Ontario to collect taxes on sales and certain services 
in Ontario. The Retail Sales Tax Branch of the Ontario Ministry of 
Finance is responsible for the administration of the RSTA. Article 2 of 
RSTA establishes that sales of tangible personal property and certain 
services are subject to an eight percent tax to be borne by the 
purchaser. However, exemptions to the sales tax are provided under 
Article 7 of the RSTA, that lists exemptions of the sales tax for 
numerous categories of goods and services.
    Paragraph 64 of Article 7 provides that the sales of cones, 
cuttings, seeds and seedlings for planting in a Crown forest by a 
forest resource license holder are included in this list of exemptions. 
This exemption became effective on May 3, 2000. Prior to May 3, 2000, 
the forest license holders were required to pay sales tax on seedling 
purchases in connection with their reforestation

[[Page 43214]]

obligations. However, under the Crown Forest Sustainability Act, 
Ontario reimburses license holders for reforestation expenses. 
Therefore, prior to the tax exemption, the license holders would pay 
the sales tax on seedlings and get reimbursed for the sales tax as part 
of their reimbursement of reforestation expenses. The reimbursement of 
reforestation expenses to forest license holders under the Crown Forest 
Sustainability Act is accounted for in our calculation of the benefit 
conferred by Ontario's stumpage program.
    The tax exemption for seedlings is part of the Province of 
Ontario's general provision for sales tax and sales tax exemptions 
under the RSTA. Therefore, to determine whether the sales tax exemption 
on seedlings is specific, the Department is required under section 
771(5A)(D) of the Act to examine this exemption in connection with the 
sales tax exemptions provided under the RSTA. An examination of the 
items exempted from the sales tax under the RSTA shows that eligible 
exemptions are numerous and cover hundreds of items across a wide-range 
and multitude of industries. Further, an examination of the RSTA shows 
that the actual recipients of the sales tax exemptions are not limited 
in number, nor limited by enterprise or industry. In addition, the 
recipients of the sales tax exemption on seedlings have not received a 
predominant or disproportionate share of tax exemptions under the RSTA. 
Therefore, we preliminarily determine that this sales tax exemption 
program is not specific under section 771(5A)(D) of the Act. Thus, we 
preliminarily determine that this program is not countervailable.

IV. Programs Preliminarily Determined Not To Confer A Benefit

1. Assistance Under Article 7 of the SDI

    Assistance under Article 7 was administered by the SDI, a 
government corporation. In 1998, Article 7 of SDI was replaced by 
Article 28, that is administered by Investissement Quebec. Under 
Article 7, SDI provided financial assistance in the form of loans, loan 
guarantees, grants, assumption of interest expenses, and equity 
investments to projects that would significantly promote the 
development of Quebec's economy. According to the GOQ's response, prior 
to authorizing assistance, SDI would review a project to ensure that it 
had strong profit potential and that the recipient business possessed 
the necessary financial structure, adequate technical and management 
personnel, and the means of production and marketing required to 
complete the proposed project. The Article 28 program operates in 
fundamentally the same manner as Article 7.
    During the POI, softwood lumber companies had outstanding loans 
under Article 7. There were no outstanding loans under Article 28. No 
other assistance was provided to softwood lumber companies under 
Article 7. To determine whether these loans provided a benefit to the 
softwood lumber industry, in accordance with section 771(5)(E)(ii) of 
the Act, we compared the interest rates charged on the Article 7 loans 
to the benchmark interest rate charged on comparable commercial loans 
as described in the ``Benchmarks for Loans and Discount Rates'' section 
of this notice. Using this methodology, we preliminarily determine that 
no benefit was provided by these loans because the interest rates 
charged under this program were equal to or higher than the interest 
rates charged on comparable commercial loans. Because we preliminarily 
determine that no benefit is provided under this program during the 
POI, there is no need to address the issue of specificity.

2. Redemption of Preferred Stock Held by SDI

    Petitioners alleged that in 1994, Tembec Inc. (Tembec) redeemed 
preferred stock with a face value of C$80 million held by SDI in 
exchange for only C$20 million of Tembec's Class A voting shares. 
Petitioners alleged that through this transaction, the Province of 
Quebec, acting through SDI, a government-owned corporation, provided 
Tembec with a financial contribution of C$60 million, which represents 
the difference between the value of the redeemed preferred stock and 
the Class A voting shares of Tembec. Petitioners alleged that a benefit 
is provided to the subject merchandise because Tembec is a softwood 
lumber producer.
    According to the government response, Temboard and Company Limited 
Partnership (Temboard Partnership) was formed in April 1988, for the 
purpose of constructing and operating a paperboard mill. Tembec was one 
of the two limited partners of Temboard Partnership. Tembec Inc. 
produces a number of forest products including softwood lumber. In 
November 1988, a credit agreement was signed between Temboard 
Partnership and SDI. The SDI loans provided under this credit 
arrangement were for the construction and start-up of the new 
paperboard mill of Temboard Partnership. Interest on the SDI loans was 
capitalized until the outstanding debt of the SDI loans to Temboard 
Partnership reached C$80 million. As a result of adverse conditions 
affecting the operations of Temboard Partnerships, one of the partners 
withdrew from the partnership and wrote off its investment in May 1991. 
Tembec decided to continue providing support to the paperboard mill 
company, and, therefore, became the sole owner of Temboard Partnership.
    In September 1991, Temboard was incorporated and assumed all of the 
assets and liabilities of the Temboard Partnership. Temboard Inc. then 
incorporated a wholly-owned entity, Temfin Inc. (Temfin) for the sole 
purpose of refinancing Temboard's debt, primarily through the issuance 
of ``Distressed Preferred Shares'' to its commercial bank creditors and 
to SDI. In subsequent years, the financial condition of Temboard Inc. 
continued to deteriorate, which required another restructuring of the 
troubled paperboard mill company. In 1994, because of the financial 
condition of Temboard Inc., SDI exchanged its Distressed Preferred 
Shares, which held a nominal value of C$80 million, for two million 
publicly listed Tembec Class A common shares. This exchange required 
Tembec Inc. to issue capital of C$20 million.
    As noted above, we are conducting this investigation on an 
aggregate basis. Therefore, we must examine and determine whether there 
is any benefit conferred on production and exportation of subject 
merchandise from Canada from this company-specific subsidy allegation. 
These complex financial transactions between Tembec, its subsidiaries 
and SDI are tied to loans made by SDI to Temboard, a paperboard 
company, and to the conversion of that long-term debt into shares 
issued to SDI. Because this subsidy allegation is tied to non-subject 
merchandise, under Sec. 351.525 of the CVD Regulations, we 
preliminarily determine that this alleged subsidy does not provide a 
benefit to subject merchandise.

3. Assistance from the Societe de Recuperation d'Exploitation et de 
Developpement Forestiers du Quebec (Rexfor)

    Petitioners alleged that SGF Rexfor, Inc. (Rexfor) acts as a 
conduit for passing funds to the lumber industry. They further alleged 
that Rexfor itself is a producer of subject merchandise and, thus, it 
is likely that Rexfor has received, and is currently receiving and 
issuing below-market loans to lumber producers.
    According to the GOQ's response, Rexfor is a corporation all of 
whose

[[Page 43215]]

shares are owned by the Societe Generale de Financement du Quebec 
(SGF). SGF is an industrial and financial holding company that finances 
economic development projects in cooperation with industrial partners. 
The former Societe de Recuperation d'Exploitation et de Developpement 
Forestiers du Quebec was created in 1969, and Rexfor was created in 
1998, when the former company was merged with three other Crown 
corporations into SGF. Rexfor is SGF's vehicle for investment in the 
forest products industry.
    According to the GOQ's response, Rexfor receives and analyzes 
investment opportunities and determines whether to become an investor 
either through equity or participative subordinated debentures. 
Debentures are used as an investment vehicle when Rexfor determines 
that a project is worthwhile, but is not large enough to necessitate 
more complex equity arrangements. Rexfor has invested in companies 
involved in paper production, panel production, hardwood and softwood 
sawmills, newsprint, bio-pesticides, composites, engineered wood 
products, electronic measuring equipment, and forestry equipment.
    According to the GOQ's response, Rexfor has no outstanding loans 
and advances provided by the GOQ. During the POI, Rexfor had two long-
term loans (debentures) outstanding to softwood lumber producers. We 
are not investigating equity investments made in softwood lumber 
producers by Rexfor because (i) there was no such allegation, and (ii) 
there is not any information on the record to suggest that Rexfor's 
investment decisions were inconsistent with the usual investment 
practice of private investors as required under section 771(5)(E)(i) of 
the Act.
    Because assistance from Rexfor is limited to companies in the 
forest products industry, we preliminarily determine that this program 
is specific under section 771(5A)(D) of the Act. With respect to the 
long-term loans provided by Rexfor, these loans qualify as financial 
contributions under section 771(5)(D) of the Act. To determine whether 
these loans provided a benefit to the softwood lumber industry in 
accordance with section 771(5)(E)(ii) of the Act, we compared the 
interest rates charged on the Rexfor loans to the benchmark interest 
rates charged on commercial loans as described in the ``Benchmarks for 
Loans and Discount Rates'' section of this notice. Using this 
methodology, we preliminarily determine that no benefit was provided by 
these loans because the interest rates charged under this program were 
equal to or higher than the interest rates charged on comparable 
commercial loans.
    One of the loans provided by Rexfor was provided to a company which 
subsequently entered bankruptcy negotiations with Rexfor and other 
creditors. However, the settlement with the creditors was subsequent to 
the POI. Thus, there is no need to examine whether a benefit was 
provided to that softwood lumber producer by Rexfor as a result of the 
creditor settlement.

V. Programs Preliminarily Determined Not To Be Used

1. Canadian Forest Service Industry, Trade and Economics Program

2. Loan Guarantees To Attract New Mills From the Province of Alberta

VI. Program Which Has Been Terminated

1. Export Support Loan Program From the Province of Ontario

VII. Program for Which Additional Information Is Needed

1. Job Protection Commission

    The British Columbia Job Protection Commission (the Commission) was 
created in 1991, pursuant to The Job Protection Act, to minimize job 
loss, particularly in one-industry communities, and to reduce the 
negative effect on regional and local communities when companies 
encounter financial difficulties. According to the GBC response, the 
Commission acts as a facilitator between debt holders, other B.C. 
government agencies, and private financial institutions, and the 
troubled companies and their employees. The Commission assists in 
designing a work-out plan that will allow the companies to continue as 
going concerns and improve their financial conditions. According to the 
GBC response, the Commission may make recommendations to the various 
parties and debt-holders, but each debt-holder makes its own decision 
as to its role in any company work-out or restructuring. Several 
companies involved in the production of softwood lumber participated in 
restructuring plans under this program. In addition, two other softwood 
lumber producers received loans under programs administered by the 
Commission.
    We determine that additional information is needed before we can 
determine whether countervailable benefits are provided by the Job 
Protection Commission.

Verification

    In accordance with section 782(i) of the Act, we will verify the 
information submitted by respondents prior to making our final 
determination.

Suspension of Liquidation

    In accordance with 777A(e)(2)(B) of the Act, we have calculated a 
single country-wide subsidy rate to be applied to all producers and 
exporters of the subject merchandise from Canada. This rate is 
summarized in the table below:

------------------------------------------------------------------------
             Producer/exporter                    Net subsidy rate
------------------------------------------------------------------------
All Producers/Exporters...................  19.31% ad valorem.
------------------------------------------------------------------------

    In accordance with section 703(e)(2), the Department has issued a 
preliminary affirmative countervailing duty determination, and a 
preliminary affirmative critical circumstances determination on certain 
softwood lumber products from Canada. We are directing the U.S. Customs 
Service to suspend liquidation of all entries of the subject 
merchandise from Canada, that are entered, or withdrawn from warehouse, 
for consumption on or after 90 days prior to the date of publication of 
this notice in the Federal Register. We will instruct the U.S. Customs 
Service to require a cash deposit or bond for such entries of the 
subject merchandise in the amount indicated above. This suspension will 
remain in effect until further notice.
    As indicated above, the Department exempted softwood lumber 
products from the Maritime Provinces from this investigation. This 
exemption, however, does not apply to softwood lumber products produced 
in the Maritime Provinces from Crown timber harvested in any other 
province. Additionally, as explained above in the ``Exclusions'' 
section of the notice, we are excluding one company, Frontier Lumber. 
Therefore, we are directing the U.S. Customs Service to exempt from the 
suspension of liquidation only entries of softwood lumber products from 
Canada which are accompanied by an original Certificate of Origin 
issued by the Maritime Lumber Bureau (MLB), and those of Frontier 
Lumber. The MLB certificate will specifically state that the 
corresponding entries cover softwood lumber products produced in the 
Maritime Provinces from logs originating in Nova Scotia, New Brunswick, 
Prince Edward Island, Newfoundland, or the state of Maine.

ITC Notification

    In accordance with section 703(f) of the Act, we will notify the 
ITC of our

[[Page 43216]]

determination. In addition, we are making available to the ITC all non-
privileged and non-proprietary information relating to this 
investigation. We will allow the ITC access to all privileged and 
business proprietary information in our files, provided the ITC 
confirms that it will not disclose such information, either publicly or 
under an administrative protective order, without the written consent 
of the Assistant Secretary for Import Administration.
    In accordance with section 705(b)(2) of the Act, if our final 
determination is affirmative, the ITC will make its final determination 
within 45 days after the Department makes its final determination.

Public Comment

    In accordance with 19 CFR 351.310, we will hold a public hearing, 
if requested, to afford interested parties an opportunity to comment on 
this preliminary determination. Any requested hearing will be held at 
the U.S. Department of Commerce, 14th Street and Constitution Avenue, 
NW., Washington, DC 20230. Individuals who wish to request a hearing 
must submit a written request within 30 days of the publication of this 
notice in the Federal Register to the Assistant Secretary for Import 
Administration, U.S. Department of Commerce, Room 1870, 14th Street and 
Constitution Avenue, NW., Washington, DC 20230. The time, date, and 
place of the hearing will be announced after the Department has 
conducted its verification of the questionnaire responses. However, any 
party that wants to participate in a hearing must submit a written 
request within the time period specified above.
    Requests for a public hearing should contain: (1) The party's name, 
address, and telephone number; (2) the number of participants; and, (3) 
to the extent practicable, an identification of the arguments to be 
raised at the hearing. In addition, ten copies of the business 
proprietary version and six copies of the non-proprietary version of 
the case briefs must be submitted to the Assistant Secretary. The date 
for submission of the case briefs will be scheduled when the Department 
announces the date of the hearing. As part of the case brief, parties 
are encouraged to provide a summary of the arguments not to exceed five 
pages and a table of statutes, regulations, and cases cited. Ten copies 
of the business proprietary version and six copies of the non-
proprietary version of the rebuttal briefs must be submitted to the 
Assistant Secretary no later than seven days from the date of filing of 
the case briefs. An interested party may make an affirmative 
presentation only on arguments included in that party's case or 
rebuttal briefs. Written arguments should be submitted in accordance 
with 19 CFR 351.309 and will be considered if received within the time 
limits specified above. Please note that an interested party may still 
submit case and/or rebuttal briefs even though the party is not going 
to participate in the hearing.
    This determination is published pursuant to sections 703(f) and 
777(i) of the Act.

    Dated: August 9, 2001.
Faryar Shirzad,
Assistant Secretary for Import Administration.
[FR Doc. 01-20674 Filed 8-16-01; 8:45 am]
BILLING CODE 3510-DS-P