WORLD TRADE  
ORGANIZATION  WT/DS264/R 
13 April 2004 
 (04-1429) 
 Original: English 
 
 
     
 
    
 
  
UNITED STATES – FINAL DUMPING DETERMINATION 
ON SOFTWOOD LUMBER FROM CANADA  
(WT/DS264) 
 
 
Report of the Panel 
 
 
 
 
 WT/DS264/R 
Page i   
 
 TABLE OF CONTENTS 
Page  
 
I. INTRODUCTION ................................................................................................................... .1 
A. COMPLAINT OF CANADA ..............................................................................................................1  
B. ESTABLISHMENT AND COMPOSITION OF THE PANEL ...................................................................1  
C. PANEL PROCEEDINGS ..................................................................................................................1  
II. FACTUAL ASPECTS ..............................................................................................................1  
III. PARTIES' REQUESTS FOR FIND INGS AND RECOMMENDATIONS.........................3  
A. CANADA ............................................................................................................................... .......3  
B. UNITED STATES ...........................................................................................................................4  
IV. ARGUMENTS OF THE PARTIES ........................................................................................4  
A. FIRST WRITTEN SUBMISSION OF CANADA ....................................................................................4  
B. FIRST WRITTEN SUBMISSION OF THE UNITED STATES ..................................................................9  
C. FIRST ORAL STATEMENT OF CANADA ........................................................................................15  
1. Initiation and Termination of the Investigation...................................................................15  
2. Like Product and Product under Consideration .................................................................16  
3. Failure to Account for Dimensional Differences..................................................................17  
4. Zeroing of Negative Margins .................................................................................................18  
5. Company-specific Issues........................................................................................................ .18 
D. FIRST ORAL STATEMENT OF THE UNITED STATES ......................................................................19  
1. Opening Statement of the United States of America at the First Meeting of the 
Panel.......................................................................................................................... ...............19  
2. Closing Statement of the United States of America at the First Meeting of the 
Panel.......................................................................................................................... ...............22  
E. SECOND WRITTEN SUBMISSION OF CANADA ..............................................................................23  
1. Initiation and Termination of the Investigation...................................................................23  
2. Like Product................................................................................................................... .........24  
3. Due Allowance for Di mension Di fferences ...........................................................................25  
4. Commerce's Practice of "Zeroing" Violated Articles 2.4 and 2.4.2 of the AD 
Agreement ............................................................................................................................... .28 
5. Company-specific Issues........................................................................................................ .29 
(a) The Allocation of Interest Expense for Abitibi.........................................................................29  
(b) The Allocation of G&A Expenses for Tembec.........................................................................30  
(c) The Allocation of G&A E xpenses for Weyerhaeuser...............................................................30  
(d) West Fraser's By-product Revenue Offset................................................................................31  
(e) Tembec's By-product Revenue Offset ......................................................................................32  
(f) Slocan's Futures Revenue Offset ..............................................................................................33  WT/DS264/R 
Page ii  
 
F.
 SECOND WRITTEN SUBMISSION OF THE UNITED STATES ...........................................................33  
1. Initiation ..................................................................................................................... .............33  
2. Product under Consideration ................................................................................................35  
3. Due Allowance for Dimensio nal Characteristics..................................................................35  
4. Calculation of Overall Dumping Margin..............................................................................36  
5. Company-specific Issues........................................................................................................ .37 
G. SECOND ORAL STATEMENT OF CANADA ....................................................................................40  
1. Initiation and Termination of the Investigation...................................................................40  
2. Zeroing........................................................................................................................ .............41  
3. Like Product................................................................................................................... .........42  
4. The Adjustment for Dimension Required by Article 2.4 of the AD Agreement ................43  
5. Company-specific Issues........................................................................................................ .43 
H. SECOND ORAL STATEMENT OF THE UNITED STATES ..................................................................46  
1. Opening Statement .............................................................................................................. ...46 
2. Closing Statement .............................................................................................................. .....53  
V. ARGUMENTS OF THE THIRD PARTIES ........................................................................53  
A. THIRD PARTY WRITTEN SUBMISSION OF THE EUROPEAN COMMUNITIES ...................................53  
1. The Legal Scope of Article 5.2 of the AD Agreement ...........................................................53  
(a) The Obligations under Article 5.2 of the AD Agreement ..........................................................53  
(b) Article 5.2 of the AD Agreement  Only Imposes an Obligation on the Applicant.....................54  
2. The Scope of Article 5.8 of the AD Agreement ......................................................................55  
3. The Practice of "Zeroing" – Violation of Articles 2.4 and 2.4.2 of the  AD 
Agreement ............................................................................................................................... .55 
B. THIRD PARTY WRITTEN SUBMISSION OF JAPAN ........................................................................56  
1. Article 2 of the AD Agreement Prohibits the Authorities from Zeroing Negative 
Margins........................................................................................................................ ............56  
2. DOC's Calculation of Selling, Admini strative and General Expenses is 
Inconsistent with Article 2.2.1.1. of the AD Agreement ........................................................57  
3. DOC's Practice on Valuation of by-products Revenues is Inconsistent with 
Article 2.2.1.1 of the AD Agreement .......................................................................................58  
(a) DOC's Established Practice on Valuation of Sal es of by-products to Affiliated Parties ..........58  
(b) The Limit on the Authorities' Discretion under the AD Agreement ..........................................58  
(c) DOC's Valuation of Wood Chips, to which DOC Applied its Established Practice, is 
Inconsistent with Article 2.2.1.1 of the AD Agreement ............................................................59  
C. THIRD PARTY ORAL STATEMENT OF THE EUROPEAN COMMUNITIES .........................................59  
1. Article 5.2 of the AD Agreement .............................................................................................59  
2. Article 5.3 of the AD Agreement .............................................................................................60  
3. Article 5.8 of the AD Agreement .............................................................................................60     WT/DS264/R 
Page iii 
 
 
4. The Practice of "Zeroing" – Violation of Articles 2.4 and 2.4.2 of the AD 
Agreement ............................................................................................................................... .61 
D. THIRD PARTY ORAL STATEMENT OF JAPAN ...............................................................................62  
1. The Basic Principle of Good Faith ........................................................................................62  
2. Prohibition of Zeroing ......................................................................................................... ...63 
3. Calculation of Selling, General and Administrative Expenses ...........................................64  
4. Revaluation of by-product .....................................................................................................6 4 
5. Conclusion ..................................................................................................................... ..........65  
VI. INTERIM REVIEW...............................................................................................................65  
VII. FINDINGS....................................................................................................................... ........69  
A. INTRODUCTION .........................................................................................................................69  
B. GENERAL ISSUES .......................................................................................................................70  
1. Rules of Treaty Interpretation...............................................................................................70  
2. Standard of Review............................................................................................................. ....71  
3. Burden of Proof................................................................................................................ .......72  
4. Presentation of Facts in Proceedings.....................................................................................72  
C. PRELIMINARY OBJECTIONS ........................................................................................................73  
1. Introduction................................................................................................................... ..........73  
2. Terms of Reference............................................................................................................. ....73  
(a) Factual B ackground ............................................................................................................. .....73  
(b) Arguments of the Parties....................................................................................................... ....74  
(c) Evaluation by the Panel ........................................................................................................ ....74  
3. Introduction of Evidence that was not before the Investigating Authority.......................77  
(a) Factual B ackground ............................................................................................................. .....77  
(b) Arguments of the Parties....................................................................................................... ....77  
(c) Evaluation by the Panel ........................................................................................................ ....78  
D. CLAIM 1: ARTICLE 5.2 – APPLICATION DID NOT C ONTAIN INFORMATION 
"REASONABLY AVAILABLE TO THE APPLICANT ".......................................................................80  
(a) Factual B ackground ............................................................................................................. .....80  
(b) Arguments of the Parties/Third Parties.....................................................................................80  
(c) Evaluation by the Panel ........................................................................................................ ....81  
E. CLAIM 2: ARTICLE 5.3 – ALLEGEDLY INSUFFICIENT EVIDENCE TO JUSTIFY 
INITIATION OF AN INVESTIGATION ............................................................................................86  
(a) Factual B ackground ............................................................................................................. .....86  
(b) Arguments by the Parties/Third Parties ....................................................................................86  
(c) Evaluation by the Panel ........................................................................................................ ....88  
F. CLAIM 3:  ARTICLE 5.8 – "SUFFICIENCY OF EVIDENCE " OF DUMPING AT AND AFTER 
INITIATION OF INVESTIGATION ...............................................................................................101  WT/DS264/R 
Page iv  
 
(a)
 Factual B ackground ............................................................................................................. ...101  
(b) Arguments of the Parties/Third Parties...................................................................................101  
(c) Evaluation by the Panel ........................................................................................................ ..102  
G. CLAIM 4:  ARTICLE 2.6 - "LIKE PRODUCT " AND "PRODUCT UNDER CONSIDERATION " ...........103  
(a) Factual B ackground ............................................................................................................. ...103  
(b) Arguments of the Parties....................................................................................................... ..103  
(c) Evaluation by the Panel ........................................................................................................ ..104  
H. CLAIM 5: ARTICLE 2.4 – ADJUSTMENT FOR DIFFERENCES IN PHYSICAL 
CHARACTERISTICS ..................................................................................................................108  
(a) Factual B ackground ............................................................................................................. ...108  
(b) Arguments of the Parties....................................................................................................... ..110  
(c) Evaluation by the Panel ........................................................................................................ ..110  
I. CLAIM 6: ARTICLES 2.4 AND 2.4.2  – ZEROING ........................................................................118  
(a) Factual B ackground ............................................................................................................. ...118  
(b) Arguments of the Parties/Third Parties...................................................................................118  
(c) Evaluation by the Panel ........................................................................................................ ..120  
J. CLAIM 7: ARTICLES 2.2, 2.2.1,  2.2.1.1,  2.2.2  AND 2.4 – ALLOCATION OF FINANCIAL 
EXPENSES :  ABITIBI .................................................................................................................128  
(a) Factual B ackground ............................................................................................................. ...128  
(b) Arguments of the Parties/Third Parties...................................................................................129  
(c) Evaluation by the Panel ........................................................................................................ ..130  
K. CLAIM 8: ARTICLES 2.2, 2.2.1,  2.2.1.1,  2.2.2  AND 2.4 – DETERMINATION OF GENERAL 
& ADMINISTRATIVE EXPENSES : TEMBEC ...............................................................................134  
(a) Factual B ackground ............................................................................................................. ...134  
(b) Arguments of the Parties/Third Parties...................................................................................135  
(c) Evaluation by the Panel ........................................................................................................ ..136  
L. CLAIM 9: ARTICLES 2.2, 2.2.1,  2.2.1.1,  2.2.2  AND 2.4 – DETERMINATION OF GENERAL 
& ADMINISTRATIVE EXPENSES : WEYERHAEUSER .................................................................142  
(a) Factual B ackground ............................................................................................................. ...142  
(b) Arguments of the Parties/Third Parties...................................................................................142  
(c) Evaluation by the Panel ........................................................................................................ ..143  
M. CLAIM 10: ARTICLES 2.2, 2.2.1,  2.2.1.1  AND 2.4 – REASONABLE AMOUNTS FOR BY -
PRODUCT REVENUES FROM THE SALE OF WOOD CHIPS :  TEMBEC AND WEST FRASER ...........148  
(a) Factual B ackground ............................................................................................................. ...148  
(b) Arguments of the Parties/Third Parties...................................................................................150  
(c) Evaluation by the Panel ........................................................................................................ ..152  
N. CLAIM 11: ARTICLES 2.2, 2.2.1,  2.2.1.1,  2.2.2  AND 2.4 – DIFFERENCE IN PRICE 
COMPARABILITY ARISING FROM PROFITS ON FUTURES CONTRACTS :  SLOCAN ....................164     WT/DS264/R 
Page v 
 
 
(a) Factual B ackground ............................................................................................................. ...164  
(b) Arguments of the Parties....................................................................................................... ..165  
(c) Evaluation by the Panel ........................................................................................................ ..165  
O. CLAIM REGARDING ARTICLE VI OF GATT  1994  AND ARTICLES 1, 9.3 AND 18.1  OF 
THE AD AGREEMENT ................................................................................................................171  
(a) Arguments of the Parties....................................................................................................... ..171  
(b) Evaluation by the Panel ........................................................................................................ ..171  
VIII.  CONCLUSIONS AND RECOMMENDATIONS..............................................................172  
A. CONCLUSIONS .........................................................................................................................172  
B. NULLIFICATION OR IMPAIRMENT .............................................................................................173  
C. RECOMMENDATION .................................................................................................................173  
IX. DISSENTING OPINION BY ONE MEM BER OF THE PANEL REGARDING 
CANADA'S CLAIM ON ZEROING ..................................................................................174  
 WT/DS264/R 
Page vi  
 
LIST OF ANNEXES 
 
ANNEX A 
 
PARTIES' AND THIRD PARTIES' RESPONSES TO  
QUESTIONS FROM THE FIRST MEETING 
 
Contents Page 
Annex A-1 Responses of Canada to questi ons posed in the context of the first 
substantive meeting of the Panel A-2 
Annex A-2 Responses of the United States to questions posed in the context of 
the first substantive meeting of the Panel A-82 
Annex A-3 Responses of the European Co mmunities to questions posed in the 
context of the first substantive meeting of the Panel A-117 
Annex A-4 Responses of Japan to questions  posed in the context of the first 
substantive meeting of the Panel A-121 
 
 
ANNEX B 
 
PARTIES' RESPONSES TO QUESTIONS  
FROM THE SECOND MEETING 
 
Contents Page 
Annex B-1 Responses of Canada to ques tions posed in the context of the 
second substantive meeting of the Panel B-2 
Annex B-2 Responses of the United States to questions posed in the context of 
the second substantive meeting of the Panel B-35 
 
 
ANNEX C 
 
PARTIES' COMMENTS ON REPLIES TO QUESTIONS 
FROM THE SECOND MEETING 
 
Contents Page 
Annex C-1 Comments of Canada on respon ses of the United States to questions 
posed in the context of the second substantive meeting of the Panel C-2 
Annex C-2 Comments of the United States on responses of Canada to questions 
posed in the context of the second substantive meeting of the Panel C-13 
Annex C-3 Letter of the United States expressing objections to the comments 
of Canada on responses of the United States to questions posed in the context of the second substantive meeting of the Panel C-17 
Annex C-4 Letter of Canada replying to  the objections of the United States 
regarding the comments of Canada on responses of the United States to questions posed in the context of the second 
substantive meeting of the Panel C-18 
    WT/DS264/R 
Page vii 
 
 
  
ANNEX D 
 
REQUEST FOR THE ESTABLISHMENT 
OF A PANEL 
 
Contents Page 
Annex D Request for the Establishment of  a Panel – Document WT/DS264/2 D-2 
 
 WT/DS264/R 
Page viii  
 
TABLE OF CASES CITED IN THIS REPORT 
 
Short Title Full Case Title and Citation 
Argentina – Ceramic Tiles  Panel Report, Argentina – Definitive Anti-Dumping Measures on Imports of 
Ceramic Floor Tiles from Italy , WT/DS189/R, adopted 5 November 2001 
Argentina – Poultry Panel Report, Argentina – Definitive Anti-Dumping Duties on Poultry from 
Brazil , WT/DS241/R, adopted 19 May 2003 
Argentina – Preserved Peaches  Panel Report, Argentina – Definitive Safeguard Measure on Imports of Preserved 
Peaches , WT/DS238/R, adopted 15 April 2003 
EC – Bananas III  Appellate Body Report, European Communities – Regime for the Importation, Sale 
and Distribution of Bananas , WT/DS27/AB/R, adopted 25 September 1997, 
DSR 1997:II, 591 
EC – Bed Linen  Panel Report, European Communities – Anti-Dumping Duties on Imports of Cotton-
Type Bed Linen from India , WT/DS141/R, adopted 12 March 2001, as modified by 
the Appellate Body Report, WT/DS141/AB/R, DSR 2001:VI, 2319 
EC – Bed Linen  
(Article 21.5 – India)  Panel Report, European Communities – Anti-Dumping Duties on Imports of Cotton-
Type Bed Linen from India – Recourse to Article 21.5 of the DSU  by India , 
WT/DS141/RW, adopted 24 April 2003, as modified by the Appellate Body 
Report, WT/DS141/AB/RW  
EC – Hormones  Appellate Body Report, EC Measures Concerning Meat and Meat Products 
(Hormones) , WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, 
DSR 1998:I, 135 
EC – Tube or Pipe Fittings Panel Report, European Communities – Anti-Dumping Duties on Malleable Cast 
Iron Tube or Pipe Fittings from Brazil , WT/DS219/R, adopted 18 August 2003, as 
modified by the Appellate Body Report, WT/DS219/AB/R 
Egypt – Steel Rebar  Panel Report, Egypt – Definitive Anti-Dumping Measures on Steel Rebar from 
Turkey , WT/DS211/R, adopted 1 October 2002 
Guatemala – Cement I  Panel Report, Guatemala – Anti-Dumping Investigation Regarding Portland 
Cement from Mexico , WT/DS60/R, adopted 25 November 1998, as modified by the 
Appellate Body Report, WT/DS60/AB/R, DSR 1998:IX, 3797 
Guatemala – Cement II  Panel Report, Guatemala – Definitive Anti-Dumping Measures on Grey Portland 
Cement from Mexico , WT/DS156/R, adopted 17 November 2000, DSR 2000:XI, 
5295 
India – Patents (US)  Appellate Body Report, India – Patent Protection for Pharmaceutical and 
Agricultural Chemical Products , WT/DS50/AB/R, adopted 16 January 1998, 
DSR 1998:I, 9 
India – Quantitative Restrictions  Appellate Body Report, India – Quantitative Restrictions on Imports of 
Agricultural, Textile and Industrial Products , WT/DS90/AB/R, adopted 
22 September 1999, DSR 1999:IV, 1763 
Indonesia – Autos  Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry , 
WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R and Corr.1, 2, 3, and 4, adopted 23 July 1998, DSR 1998:VI, 2201 
Japan – Alcoholic Beverages II  Appellate Body Report, Japan – Taxes on Alcoholic Beverages , WT/DS8/AB/R, 
WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, 97  
Korea – Dairy  Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of 
Certain Dairy Products , WT/DS98/AB/R, adopted 12 January 2000, DSR 2000:I, 3 
Mexico – Corn Syrup  Panel Report, Mexico – Anti-Dumping Investigation of High Fructose Corn Syrup 
(HFCS) from the United States , WT/DS132/R and Corr.1, adopted 
24 February 2000, DSR 2000:III, 1345    WT/DS264/R 
Page ix 
 
 
Short Title Full Case Title and Citation 
Thailand – H-Beams  Appellate Body Report, Thailand – Anti-Dumping Duties on Angles, Shapes and 
Sections of Iron or Non-Alloy Steel and H-Beams from Poland , WT/DS122/AB/R, 
adopted 5 April 2001 
US – Carbon Steel  Appellate Body Report, United States – Countervailing Duties on Certain 
Corrosion-Resistant Carbon Steel Flat Products from Germany , WT/DS213/AB/R 
and Corr.1, adopted 19 December 2002 
US – Cotton Yarn Appellate Body Report, United States – Transitional Safeguard Measure on 
Combed Cotton Yarn from Pakistan , WT/DS192/AB/R, adopted 5 November 2001 
US – DRAMS  Panel Report, United States – Anti-Dumping Duty on Dynamic Random Access 
Memory Semiconductors (DRAMS) of One Megabit or Above from Korea , 
WT/DS99/R, adopted 19 March 1999, DSR 1999:II, 521 
US – Gasoline  Appellate Body Report, United States – Standards for Reformulated and 
Conventional Gasoline , WT/DS2/AB/R, adopted 20 May 1996, DSR 1996:I, 3 
US – Hot-Rolled Steel  Panel Report, United States – Anti-Dumping Measures on Certain Hot-Rolled Steel 
Products from Japan , WT/DS184/R, adopted 23 August 2001 as modified by the 
Appellate Body Report, WT/DS184/AB/R 
US – Line Pipe  Appellate Body Report, United States – Definitive Safeguard Measures on Imports 
of Circular Welded Carbon Quality Line Pipe from Korea , WT/DS202/AB/R, 
adopted 8 March 2002  
US – Offset Act  (Byrd Amendment
 ) Appellate Body Report, United States – Continued Dumping and Subsidy Offset Act 
of 2000 , WT/DS217/AB/R, WT/DS234/AB/R, adopted 27 January 2003 
US – Shrimp  Appellate Body Report, United States – Import Prohibition of Certain Shrimp and 
Shrimp Products , WT/DS58/AB/R, adopted 6 November 1998, 
DSR 1998:VII, 2755 
US – Softwood Lumber II Panel Report, United States – Measures Affecting Imports of Softwood Lumber 
from Canada  ("US – Softwood Lumber II "), adopted 27 October 1993, 
BISD 40S/358 
US – Stainless Steel  Panel Report, United States – Anti-Dumping Measures on Stainless Steel Plate in 
Coils and Stainless Steel Sheet and Strip from Korea , WT/DS179/R, adopted 
1 February 2001, DSR 2001:IV, 1537 
US – Steel Plate  Panel Report, United States – Anti-Dumping and Countervailing Measures on Steel 
Plate from India , WT/DS206/R and Corr.1, adopted 29 July 2002 
US – Wool Shirts and Blouses  Appellate Body Report, United States – Measure Affecting Imports of Woven Wool 
Shirts and Blouses from India , WT/DS33/AB/R and Corr.1, adopted 23 May 1997, 
DSR 1997:I, 323 
 WT/DS264/R 
Page x  
 
TABLE OF ABBREVIATIONS USED IN THIS REPORT 
 
Abbreviation Full Title / Meaning 
Abitibi  Abitibi-Consolidated Inc., one of the Canadian producers and exporters of 
softwood lumber subject to investigation  
AD Agreement Agreement on Im plementation of Article VI of the General Agreement on 
Tariffs and Trade 1994  
BC British Columbia 
Canfor  Canfor Corporation, one of the Canadian producers and exporters of 
softwood lumber subject to investigation  
CME Chicago Mercantile Exchange 
COGS Cost of Goods Sold 
Commerce or DOC United States Department of Commerce  
DIFMER or difmer Differences in Merchandise  
DSB Dispute Settlement Body 
DSU Understanding on Rules and Procedures Governing the Settlement of 
Disputes  
EC European Communities 
ESPF Eastern spruce-pine-fir, a type of three  
Final Determination Decision imposing definitiv e anti-dumping measures on certain softwood 
lumber products from Canada as published in p. 15539 et seq.  of the 
Federal Register on 2 April 2002 (Exhibit CDA-1), as amended by a notice 
published in p. 36068 et seq . of the Federal Register on 22 May 2002 
(Exhibit CDA-3)  
FPG Tembec's Forest Product Group division, which includes Tembec's 
softwood lumber business 
GAAP Generally Accepted Accounting Principles 
G&A General and Administrative costs (Article 2.2.2 of the AD Agreement ) 
GATT 1994 General Agreement on Tariffs and Trade 1994  
IDM DOC's "Issues and Decision Memorandum for the Antidumping Duty 
Investigation of Certain Softwood Lumber Products from Canada" of 21 March 2002 (Exhibit CDA-2)  
IP International Paper, one of the applicant companies 
ITC United States International Trade Commission 
MBF Thousand Board Feet, unit used to measure softwood lumber's volume     WT/DS264/R 
Page xi 
 
 
Abbreviation Full Title / Meaning 
Panel Request Request for the Establishment of a Panel contained in document 
WT/DS264/2 
PIR Pacific Inland Resources, is a sawmill owned by West Fraser in BC 
POI Period of Investigation 
Preliminary Determination Decision imposing prelim inary anti-dumping measures on softwood lumber 
products from Canada as published in p. 56062 et seq.  of the Federal 
Register on 6 November 2001 (Exhibit CDA-11, as re-submitted on 30 June 2003) 
QRP Quesnel River Pulp, a paper mill affiliated to West Fraser 
SCM Agreement Agreement on Subsidies and Countervailing Measures  
SG&A Selling, General and Administrative costs (Article 2.2.2 of the AD 
Agreement ) 
Slocan  Slocan Forest Products Ltd., one of the Canadian producers and exporters 
of softwood lumber subject to investigation  
SPF Spruce-pine-fir, a type of tree 
Tariff Act United States Tariff Act of 1930, as amended (Exhibit CDA-7) 
Tembec Tembec Inc., one of the Canadian  producers and exporters of softwood 
lumber subject to investigation 
Vienna Convention  Vienna Convention on the Law of Treaties   (see footnote 168 of this 
Report) 
West Fraser West Fraser Mills Ltd., one of  the Canadian producers and exporters of 
softwood lumber subject to investigation  
Weldwood Weldwood of Canada Ltd., one of the Canadian producers and exporters of 
softwood lumber subject to investigation 
WSPF Western-spruce-pine-fir, a type of tree  
Weyerhaeuser Canada Weyerhaeuser Canada Ltd., one of the Canadian producers and exporters of 
softwood lumber subject to investigation 
Weyerhaeuser US or Weyerhaeuser 
Company  Weyerhaeuser Company, parent co mpany of Weyerhaeuser Canada 
WTO World Trade Organization 
WTO Agreement Marrakesh Agreement Esta blishing the World Trade Organization  
 
  WT/DS264/R 
 Page 1 
 
 
I. INTRODUCTION 
A. COMPLAINT OF CANADA  
1.1 On 13 September 2002, Canada requested cons ultations with the Government of the 
United States pursuant to Article 4 of the DSU , Article XXII of the GATT 1994  and Article 17 of the 
AD Agreement , concerning the Final Determination of sales at less than fair value with respect to 
certain softwood lumber products from Canada published in the Fede ral Register on 2 April 2002, and 
amended on 22 May 2002, pursuant to section 735 of the Tariff Act.1   
1.2 On 11 October 2002, Canada and the United Stat es held the requested consultations, but 
failed to reach a mutually satisfactory resolution of the matter.   
1.3 On 6 December 2002, Canada requested the est ablishment of a panel to examine the matter.2   
B. ESTABLISHMENT AND COMPOSITION OF THE PANEL  
1.4 At its meeting on 8 January 2003, the DSB establis hed a Panel in accordance with Article 6 of 
the DSU  and pursuant to the request made by Canada in document WT/DS264/2. 
1.5 At that meeting, the parties to the dispute al so agreed that the Panel should have standard 
terms of reference. The terms of reference are, therefore, the following: 
"[t]o examine, in the light of the relevant  provisions of the covered agreements cited 
by Canada in document WT/DS264/2, the ma tter referred by Canada to the DSB in 
that document, and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements". 
1.6 On 25 February 2003, the parties agreed to the following composition of the Panel:
3 
Chairman: Mr. Harsha V. Singh 
Members: Mr. Gerhard Hannes Welge 
  Mr. Adrián Makuc 
1.7 The Panel was formally composed on 4 March 2003. 
1.8 The European Communities, India and Jap an reserved their third-party rights. 
C. PANEL PROCEEDINGS  
1.9 The Panel met with the parties on 17-18 June 2003 and 11-12 August 2003.  The Panel met 
with third parties on 18 June 2003.   
1.10 On 16 January 2004, the Panel provided its inte rim report to the parties.  See Section VI, 
infra .   
II. FACTUAL ASPECTS 
2.1 On 2 April 2001, an anti-dumping application was filed with DOC and the ITC by the 
Coalition for Fair Lumber Imports Executive Committ ee,  the United Brotherhood of Carpenters and 
                                                      
1 WT/DS/264/1. 
2 WT/DS/264/2.     
3 WT/DS/264/3. WT/DS264/R 
Page 2  
 
Joiners and the Paper, Allied-Industrial, Chemical and Energy Workers International Union, with the 
subject merchandise certain softwood lumb er products imported from Canada.   
2.2 On 23 April 2001, DOC initiated the investiga tion and published the Notice of Initiation on 
30 April 2001.
4  Due to the large number of exporters of the subject merchandise, DOC limited its 
investigation to the six largest producers and expor ters of Canadian softwood lumber, namely, West 
Fraser, Slocan, Tembec, Abitibi, Ca nfor and Weyerhaeuser Canada. 
2.3 The scope of the investigation was defi ned in the Notice of Initiation as follows: 
"[t]he products covere d by this investigation are softwood lumber, flooring and siding 
(softwood lumber products). Softwood lu mber products include all products 
classified under headings 4407.1000 , 4409.1010, 4409.1090, a nd 4409.1020, 
respectively, of the HTSUS, and any softwood lumber, flooring and siding described 
below. These softwood lumber products include:  (1) Coniferous wood, sawn or chipped lengt hwise, sliced or peeled, whether or not 
planed, sanded or finger-jointed, of a thickness exceeding six millimeters; 
(2) Coniferous wood siding (i ncluding strips and friezes for parquet flooring, not 
assembled) continuously shaped (tongued, gr ooved, rabbeted, cham fered, V-jointed, 
beaded, molded, rounded or the like) along any of its edges or faces, whether or not planed, sanded or fingerjointed; 
(3) Other coniferous wood (including stri ps and friezes for parquet flooring, not 
assembled) continuously shaped (tongued, gr ooved, rabbeted, cham fered, 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 st rips and friezes for parquet flooring, not 
assembled) continuously shaped (tongued, gr ooved, rabbeted, cham fered, V-jointed, 
beaded, molded, rounded or the like) along any of its edges or faces, whether or not 
planed, sanded or fingerjointed".
5 
2.4 The period of investigation for the dumping de termination was established as 1 April 2000 to 
31 March 2001.  
2.5 DOC issued its Preliminary Determination on 31 October 2001, which was published in the 
Federal Register on 6 November 2001.6  It issued a determination on the scope of the products 
covered by the investigation on 12 March 2002, an d held a hearing on the matter on 19 March 2002.7 
2.6 The final anti-dumping duty order was publishe d in the Federal Register on 2 April 20028, 
and amended on 22 May 20029, imposing anti-dumping duties, ranging from 2.18 per cent to 
12.44 per cent on Canadian softwood lumber producer s and exporters.  The final scope of the anti-
dumping order included a number of product exclusions.10 
                                                      
4 Exhibit CDA-9, Initiation, p. 21328 et seq . 
5 Id., p. 21329. 
6 Exhibit CDA-11, Preliminary Determination, p. 56062 et seq . 
7 Exhibit CDA-1, Final Determination, Federal Register, Vol. 67, No. 99, p. 15539. 
8 Id., p. 15539, et seq . 
9 Exhibit CDA-3, Amended Final Determination.  See para. 7.139, infra , for the amended scope of the 
final anti-dumping duty order.  
10 Ibid.  WT/DS264/R 
 Page 3 
 
 
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS  
A. CANADA  
3.1 Canada requests the Panel in its first written submission to: 
(a) find that the Petition filed by the US domestic industry did not contain "such 
information as [was] reasonably available" to the Petitioner, nor did it contain 
adequate and accurate evidence of dumping sufficient to justify the initiation of the 
investigation, thereby rendering the initiati on inconsistent with US obligations under 
Articles 5.2 and 5.3 of the AD Agreement ; 
(b) find that DOC failed to terminate the investig ation for lack of sufficient evidence of 
dumping thereby rendering the conduct of the dumping investigation inconsistent 
with US obligations under Article 5.8 of the AD Agreement ; 
(c) find that DOC erroneously determined th ere to be only one like product and product 
under consideration, thereby rendering the c onduct of the investigation inconsistent 
with US obligations under Articles 2, 3, 4.1, 5, 6.10 and 9 of the AD Agreement ;  
(d) find that DOC applied a number of im proper methodologies in calculating normal 
value and export price that resulted in unf air comparisons between the two, thereby 
rendering dumping determinations  inconsistent with US obligations under Articles 1, 
2.1, 2.2, 2.2.1, 2.2.1.1, 2.2.2, 2.4, and 2.4.2 of the AD Agreement .  In particular DOC: 
(i) failed to make due allowance for differences that affected price 
comparability, in particular differe nces in physical characteristics 
(i.e., thickness, width and length) of softwood lumber products; 
(ii) illegally "zeroed" negative margins of dumping; 
(iii) failed to calculate and/or allocate reasonable amounts for administrative, 
selling and general expenses in computing costs for specific exporters, including an improper allocation for financial expenses and for litigation settlement expenses involving product liab ility claims for a non-investigated 
product; 
(iv) failed to apply reasonable amounts for by-product revenues from the sale of 
wood chips, as offsets in calculating costs;  and 
(v) failed to offset a difference in price comparability arising from futures 
contracts profits after concluding that such a difference existed. 
(e) find that the United States acted incons istently with its obligations under 
Articles VI:1 and VI:2 of GATT 1994 and Articles 1, 9.3 and 18.1 of the 
AD Agreement ; 
(f) recommend to the DSB that the United States bring its measure into conformity with 
its obligations under the WTO, that it re voke the anti-dumping order in respect of 
softwood lumber from Canada, and that it re turn the cash deposits collected pursuant 
to an illegal investigation and an  illegal determina tion of dumping. WT/DS264/R 
Page 4  
 
B. 
UNITED STATES  
3.2 The United States requests that the Panel re ject Canada's claims in their entirety.11 
IV. ARGUMENTS OF THE PARTIES 
4.1 The arguments of the parties are set forth in th eir written and oral submissions to the Panel, 
and in their answers to questions and in their co mments thereon.  The parties' arguments as presented 
in their submissions are summarised in this sec tion.   The summaries are based on the executive 
summaries submitted by the parties.  The parties' written answers to questions and comments thereon 
are set forth in the Annexes to this Report. ( See list of annexes at page vii, supra )   
A. FIRST WRITTEN SUBMISSION OF CANADA  
4.2 The following are Canada's arguments in its first written submission: 
4.3 On 21 March 2002, for the first time in the long-standing softwood lumber dispute between 
Canada and the United States, a final dumping find ing was announced against Canadian imports of 
softwood lumber into the United States. 
4.4 More particularly, on 2 April 2002, DOC's12 final affirmative determination of dumping 
against certain softwood lumber products from Canada was published in the Federal Register.13  The 
"softwood lumber products" covered by DOC's single-determination were  defined extremely broadly, 
and covered multiple tariff classifications and diverse products ranging from standard dimension 
framing lumber used in home construction, to en gineered wood products such as finger-jointed 
flangestock, and further manufactured products in cluding mattress box spring frame components, as 
well as railroad ties, shelving, siding, decking, flooring and moulding. 
4.5 Notwithstanding that there are hundreds of Cana dian exporters of softwood lumber to the 
United States, only six Canadian exporters namely, West Fraser, Slocan, Tembec, Abitibi, Canfor and 
Weyerhaeuser Canada (6 mandatory respondents or r espondents) were assessed individual margins of 
dumping.14  The average margin of dumping for these 6 respondents was used to establish the "all 
others" rate for all other exporters.15 
                                                      
11 US first written submission, para. 254. 
12 DOC is the investigating authority in the United States that determines whether dumping exists. 
13 Exhibit CDA-1, Final Determination.  The notice was accompanied by  DOC's IDM (Exhibit 
CDA 2), dated 21 March 2002.  On 22 May 2002, the United States published the Amended Final Determination (Exhibit CDA-3). 
14 Article 6.10 of the AD Agreement provides that:  
 
"[t]he authorities shall, as a rule, determine an individual margin of dumping for each known 
exporter or producer concerned of the product under investigation.  In cases where the number 
of exporters, producers, importers or types of products involved is so large as to make such a determination impracticable, the authorities may limit their examination either to a reasonable 
number of interested parties or products by using samples which are statistically valid on the 
basis of information available to the authorities at the time of the selection, or to the largest 
percentage of the volume of the exports from the country in question which can reasonably be 
investigated."    
In the Final Determination, the six mandatory respondents were assessed the following margins of 
dumping: Abitibi – 12.44 per cent;  Canfor – 5.96 per cent;  Slocan – 7.71 per cent;  Tembec – 10.21 per cent;  West Fraser – 2.18 per cent; Weyerhaeuser – 12.39 per cent ( Exhibit CDA-3, Amended Final Determination). 
15 An "all others" margin of dumping of 8.43 per cent was applied to all other Canadian exporters of 
certain softwood lumber products.  Ibid.  WT/DS264/R 
 Page 5 
 
 
4.6 Article VI:2 of GATT 1994  allows Members of the WTO to impose anti-dumping duties to 
"offset or prevent dumping".  Article 1 of the AD Agreement  requires that anti-dumping measures be 
applied only under the circumstances provided for in Article VI of GATT 1994 and pursuant to 
investigations initiated and conducted in accordance with the provisions of the AD Agreement . 
4.7 Canada requested consultations with the United States on 13 September 2002 pursuant to 
Article 4 of the DSU , Article XXII of GATT 1994 and Article 17 of the AD Agreement.   Consultations 
were held on 11 October 2002.  Un fortunately, those consultations fa iled to settle the dispute.  On 
19 December 2002, Canada made its first Panel Request pursuant to Articles 4 and 6 of the DSU , 
Article XXIII of GATT 1994 and Article 17 of the AD Agreement .  The DSB established the Panel on 
8 January 2003.  The terms of reference of th e Panel are as set out in Article 7.1 of the DSU . 
4.8 In the Final Determination, DOC committed a num ber of fundamental errors that render the 
imposition of anti-dumping duties on softwood lumber  from Canada by the United States inconsistent 
with US obligations under both GATT 1994 and the AD Agreement : 
(a) the Petition16 filed by the US domestic industry did not contain "such information as 
[was] reasonably available" to the Petitioner17, nor did it contain adequate and 
accurate evidence of dumping sufficient to ju stify the initiation of the investigation, 
thereby rendering the initiation inconsiste nt with US obligations under Articles 5.2 
and 5.3 of the AD Agreement ; 
(b) DOC failed to terminate the investigation fo r lack of sufficient evidence of dumping 
thereby rendering the conduct of the dumpi ng investigation inconsistent with US 
obligations under Article 5.8 of the AD Agreement ; 
(c) DOC erroneously determined there to be  only one like product and product under 
consideration, thereby rendering the conduct of  the investigation inconsistent with US 
obligations under Articles 2, 3, 4.1, 5, 6.10 and 9 of the AD Agreement ;  and 
(d) DOC applied a number of improper methodologies in calculating normal value and 
export price that resulted in unfair comparisons between the two, thereby rendering 
dumping determinations inconsis tent with US obligations under Articles 1, 2.1, 2.2, 
2.2.1, 2.2.1.1, 2.2.2, 2.4, and 2.4.2 of the AD Agreement .  In particular DOC: 
(i) failed to make due allowance for differences that affected price 
comparability, in particular differe nces in physical characteristics 
(i.e., thickness, width and length) of softwood lumber products; 
(ii) illegally "zeroed" negative margins of dumping; 
(iii) failed to calculate and/or allocate reasonable amounts for administrative, 
selling and general expenses in computing costs for specific exporters, including an improper allocation for financial expenses and for litigation settlement expenses involving product liab ility claims for a non-investigated 
product; 
                                                     
 
16 The "Petition" is the written appli cation filed on behalf of the domestic industry in the United States 
to initiate a dumping investigation.   
17 The major applicant (or "Petitioner", as referred to  in the United States) was the "Coalition for Fair 
Lumber Imports Executive Committee", an association of  US softwood lumber producers established for the 
purposes of pursuing trade actions against Canadian soft wood lumber products.  The petition was also filed by 
the United Brotherhood of Carpenters and Joiners; a nd the Paper, Allied-Industrial, Chemical and Energy 
Workers International Union. WT/DS264/R 
Page 6  
 
(iv) failed to apply reasonable amounts for by-product revenues from the sale of 
wood chips, as offsets in calculating costs;  and 
(v) failed to offset a difference in price comparability arising from futures 
contracts profits after concluding that such a difference existed. 
4.9 With respect to Canada's first claim regarding the failure of DOC to initiate the investigation 
in accordance with US WTO obligations, the Petiti oner offered no specific evidence related to any 
particular company in Canada to show actual dumpi ng.  The Petitioner provided no evidence of actual 
Canadian producer prices or costs to support its dum ping allegations.  Yet, evidence showed that one 
of the leading members of the petitioning coalition's Executive  Committee, IP, wholly owned 
Weldwood, one of the major Canadian exporters of softwood lumber to the United States.  The 
Petitioner had in its possession and control Weldw ood data.  For this reason alone, DOC ought to 
have concluded that the Petitioner had in its po ssession detailed and better data on actual Canadian 
producer prices and costs, and that, therefore, the Petition did not contain such information as was reasonably available to the Petitioner.  DOC's deci sion to initiate the investigation was based on the 
Petitioner's misrepresentation that it did not have access to such information, and, therefore, that it 
was entitled to rely on other less probative informati on to support its dumping allegation.  Even when 
DOC learned of the existence of such information, DOC failed to seek to obtain such information.  
DOC itself admitted that it did not seek further information.
18 
4.10 An objective investigating authority evaluating a ll of this evidence could not have determined 
that the Petition contained (i) such information as w as reasonably available to the Petitioner, or (ii) 
adequate and accurate evidence of dumping sufficient to initiate the investigation.  Failure to meet 
these two requirements meant that DOC had an obliga tion not to initiate the investigation, and where 
the investigation had already been initiated, DOC had an obligation to terminate it upon learning of 
the deficiencies in the information put forward by the Petitioner, or, at the very least, to address the 
deficiencies in the Petition.  The WTO has ruled that  an applicant cannot provide just any information 
or documentation to justify the initiation of an investigation.19 
4.11 Notwithstanding the disparate nature of differe nt softwood lumber pr oducts covered by the 
Petition, DOC determined there to be only one "p roduct under consideration" and one "like product" 
(i.e., all "softwood lumber products").  DOC, ther efore, conducted only one investigation on all 
softwood lumber products ranging from dimensional lumber to further manufactured products and 
even engineered wood products.  The exporter parti es to the investigation (i.e., the respondents) 
requested DOC to determine that certain products were so distinct from the general category of 
"softwood lumber" that they deserved to be recognized  as distinct "products under consideration" and 
"like products" from softwood lumber, with differe nt attributes, requiring distinct analysis and 
treatment.  DOC either ignored these requests or dism issed them without proper  justification.  DOC's 
finding that all softwood lumber products are pa rt of a "continuum of products" is an obvious 
contradiction to the evidence of record, and is contrary to the AD Agreement . 
4.12 DOC further erred by failing to make due allowa nce in normal values for physical differences 
in softwood lumber products to maintain price comp arability and to ensure a fair comparison between 
normal value and export price.  The evidence before  DOC showed that the value of softwood lumber 
varies depending on the size of the product (including differences in thickness, width and length), and 
DOC itself acknowledged this to be the case.20  There was, therefore, no justification for ignoring 
                                                      
18 Exhibit CDA-4, NAFTA Anti-Dumping Panel Hearing Transcript, Vol. 1, p. 158.   
19 Regarding the standard of sufficiency of evidence to justify initiation of an investigation, the panel in 
Mexico – Corn Syrup , para. 7.94, considered "instructive" the panel's reference in Guatemala – Cement I,  
para. 7.55 to the GATT panel's decision in US – Softwood Lumber II  that "‛sufficient evidence' clearly had to 
mean more than mere allegation or conjecture, and could not be taken to mean just 'any evidence.'" 
20 Exhibit CDA-2, IDM, Comment 8, p. 51 when it states that:  WT/DS264/R 
 Page 7 
 
 
these differences, and comparing prices for differe nt-sized products without adjusting for such 
product differences.  An objective investigating au thority evaluating the evidence could not have 
determined that size differences in softwood lumb er were irrelevant and that adjustments were, 
therefore, not necessary.  The WTO has ruled that a ll differences affecting price comparability must 
be accounted for.21   
4.13 In EC – Bed Linen , the Appellate Body found the practi ce of "zeroing" negative margins of 
dumping to be inconsistent with the AD Agreement .  The Appellate Body held that the requirement in 
Article 2.4.2 of the AD Agreement  to compare weighted average normal values and weighted average 
export prices of "all comparable transactions" precl udes the practice of "zeroing" by which negative 
margins of dumping are disregarded.22  The Appellate Body also ruled that "zeroing" results in an 
"unfair comparison" between normal value and export price, and is, therefore, inconsistent with 
Article 2.4 of the AD Agreement .  DOC admits that it "zeroed" negative margins of dumping in the 
anti-dumping investigation against all softwood lumber imports from Canada.23  As a result, the 
dumping margins found by DOC for each company i nvestigated and the "all others rate" were 
inflated.  The US practice is inconsiste nt with Articles 2.4 and 2.4.2 of the AD Agreement  for the 
same reasons the Appellate Body condemned the EC's practice in EC – Bed Linen . 
4.14 A number of other calculations, comparisons a nd determinations made by DOC rest on 
impermissible interpretations of the AD Agreement , were made without a proper establishment of the 
facts and/or were based on an evaluation of the facts that was neither unbiased nor objective.  Accordingly, these methodologies and the ultimate dete rminations cannot be upheld by the Panel in 
light of the applicable standard of review under Article 17.6 of the AD Agreement . 
4.15 DOC computed costs of production for individual softwood lumber products both for 
purposes of determining whether sales in the Canadi an domestic market were made at prices below 
costs of production under Article 2.2.1 of the AD Agreement  and for purposes of computing normal 
value under Article 2.2 when there were no sales of softwood lumber in the Canadian domestic 
market or where such sales did not permit a pr oper comparison.  In computing such costs of 
production DOC was obligated to include reasonable amounts for SG&A costs. 
4.16 The AD Agreement  provides that such costs must be calculated on the basis of records kept by 
the exporter and/or data made available by the exporter to the investigating authority during the 
course of the investigation.  In each case, the am ounts for SG&A costs must be based on actual data 
and must reasonably reflect the costs associated with the production and sale of the product under consideration in the country of origin.  Where cost  allocations become necessary, the investigating 
authority must consider all available evidence on th e proper allocation of costs.  Thus, G&A expenses 
                                                                                                                                                                    
 
 
"[s]pecifically, in this case, where products have differences in dimension (i.e., length, width 
or thickness) we recognize that these physical differences could result in differences in market value."  
 
21 Appellate Body Report,  US  – Hot-Rolled Steel , paras. 176-177, where the Appellate Body found that 
"Article 2.4 expressly requires that 'allowances' be made for ' any other differences  which are also demonstrated 
to affect price comparability". (emphasis added)   There are, therefore, no di fferences "affec[ting] price 
comparability" which are precluded, as such, from being the object of an "allowance".  See also  Panel Report, 
Argentina – Ceramic Tiles, paras. 6.113-6.116, where the panel found that the investigating authority "acted 
inconsistently with Article 2.4 by failing to make adjustments for physical di fferences affecting price 
comparability". 
22 Appellate Body Report,  EC – Bed Linen , para. 66.  See also Panel Report, EC – Tube or Pipe Fittings , 
where the panel found at para. 7.218 that: "[r]egardless of the magnitude of its effects, "zeroing" constitutes a 
violation of the obligations imposed by Article 2.4.2 of the Agreement per se ". 
23 See Exhibit CDA-2, IDM, Comment 12, pp. 65-66 and Exhibit CDA-5, NAFTA Anti-Dumping 
Panel Hearing Transcript, Vol. I, pp. 231-233. WT/DS264/R 
Page 8  
 
not associated with the production or sale of the product must not be included in the calculation of the exporter's costs.  DOC committed several egregious erro rs in its calculations, which, in all instances, 
resulted in an inflation of individual exporters' costs of production and margins of dumping.   
4.17 In regard to Abitibi, DOC allocated financia l expense to softwood lumber that did not 
"reasonably reflect the costs associated with the production and sale of the product under 
consideration".  DOC incorrectly deemed financial costs to be allocable to all aspects of Abitibi's 
operations in proportion to cost of sales, notwith standing un-rebutted evidence that all its production 
and sale of non-subject products, including ne wsprint, pulp and value-added papers, were 
significantly more capital intensive relativ e to cost of sales than was lumber. 
4.18 DOC's calculations of Tembec's "administra tive, selling and general costs" were not 
reasonable in that they were not based on actual da ta that Tembec had provided to DOC in relation to 
the production and sale of the prod uct under consideration.  Instead , DOC calculated these costs based 
on the production of all products produced worl dwide by Tembec, the major proportion of which 
consisted of pulp, paper and chemicals, which incu rred significantly different G&A expenses than the 
production and sale of softwood lumber in Canada. 
4.19 In regard to Weyerhaeuser Canada, DOC allocat ed a portion of certain charges associated 
with the settlement of legal claims of Weyerh aeuser Company's (Weyerhaeuser Canada's parent 
company) sales of hardboard siding (not a softwood lu mber product) in the United States, as part of 
Weyerhaeuser Canada's G&A costs.  These costs bore no relationship whatsoever to Weyerhaeuser 
Canada's cost of production of softwood lumber.  As the record demonstrat es, the litigation settlement 
expenses were not a company-wide expense that  related to the production and sale of softwood 
lumber;  rather they were related to the production and sale of an unrelated product, hardboard siding. 
4.20 DOC treated revenue offsets from wood chip sales  from West Fraser a nd Tembec in a manner 
that did not "reasonably reflect the costs associated  with the production and sale of the product under 
consideration," as required under Article 2.2.1.1 of the AD Agreement .  In West Fraser's case, DOC 
failed to calculate revenues from wood chip sales on th e basis of records kept by the company, even 
though those records showed that West Fraser's sales were made at "market prices" and reasonably 
reflected the costs associ ated with the production and sale of softwood lumber.  In Tembec's case, 
DOC rejected fully documented actual market pri ces from arm's length transactions entered into by 
Tembec with third parties, and instead used internal  transfer prices that were arbitrary and well below 
market prices. 
4.21 Finally, DOC improperly refused to allocate Sl ocan's futures contract revenues that were 
related to the production and sale of softwood lumber .  DOC was required to make an adjustment to 
take into account these revenues.  DOC was require d to account for these revenues, as an offset to 
financial or selling expenses, or th rough some other reasonable method. 
4.22 It is clear that the investigation should not ha ve been initiated.  Moreover, rectification of 
other errors reveal either that imports of Canadi an softwood lumber into the United States are not 
being dumped, or that the margins of dumping established by DOC for each respondent and the "all 
others rate" have been artificially inflated.  Conse quently, the United States acted inconsistently with 
its obligations under Articles VI:1 and VI:2 of GATT 1994 and Articles 1, 9.3 and 18.1 of the 
AD Agreement .  The Panel should, therefore, recommend to the DSB that the United States bring its 
measure into conformity with its obligations unde r the WTO, that it revoke the anti-dumping order in 
respect of softwood lumber from Canada, and that it  return the cash deposits collected pursuant to an 
illegal investigation and an illega l determination of dumping.  WT/DS264/R 
 Page 9 
 
 
B. FIRST WRITTEN SUBMISSION OF THE UNITED STATES  
4.23 The following are the arguments of the Unite d States in its first written submission: 
4.24 Pursuant to a properly initiated investiga tion, Commerce concluded, in its Final 
Determination published on 2 April 2002, that soft wood lumber from Canada was being sold in the 
United States for "less than fair value".24  Commerce found dumping with respect to each of the six 
Canadian respondents accounting for the largest am ount of production in Canada: (1) Abitibi, (2) 
Canfor, (3)  Slocan, (4) Tembec, (5) West Fraser, and (6) Weyerhaeuser Canada.25 
4.25 In general, Canada's claims of error in th e initiation and conduct of the softwood lumber 
investigation concern the sort of fact-bound decisions  that any investigating authority must make in 
the course of an anti-dumping investigation.  Am ong other things, Canada challenges how Commerce 
defined the scope of the product it investigated, how it determined the sufficien cy of the evidence to 
initiate an investigation, and how  it calculated various costs and adjustments.  The claims are 
disparate, but they share a common theme.  In much  of its argument, Canada is asking the Panel to 
place itself in the shoes of Commerce and make new determinations, as if it were the investigating authority.  As such, these claims are inconsiste nt with the applicable standard of review.
26 
4.26 An anti-dumping proceeding is a complex matter,  involving hundreds, if not thousands, of 
individual decisions that come together to yield a fina l determination.  It is not inconceivable that two 
different investigating authorities would look at the same facts and reach different conclusions.  
Recognizing that possibility, the AD Agreement  provides that an authority's proper establishment of 
the facts and unbiased and objective evaluation "sha ll not be overturned" "e ven though the panel 
might have reached a different conclusion".27  Nevertheless, in this dispute, Canada raises a number of 
claims that effectively ask this Panel to subs titute its evaluation of the facts for Commerce's 
evaluation of the facts.  Canada has even sought to introduce new claims not contained in its Panel 
Request and new evidence not made available to Commerce in the underlying investigation. 
4.27 The Panel first should rule, as a preliminary ma tter, that certain claims Canada makes in 
connection with its argument concerning the scope of the "product under consideration" are beyond 
the Panel's terms of reference.  In its Panel Request, Canada claimed th at Commerce "erroneously 
determined there to be a single like product (under US law, termed 'class or kind' of merchandise) 
rather than several distinct like products", and that this determination violated  Articles 2.6, 4.1, 5.1, 
5.2, 5.3, 5.4, and 5.8 of the AD Agreement  and Article VI:1 of the GATT 1994 .28  In its first written 
submission, Canada adds to this claim, now  alleging that "in defining the 'product under 
consideration'," Commerce violated all of Article 2 of the AD Agreement  (not just Article 2.6), 
Article 3, all of Article 4 (not just Article 4.1), all of  Article 5 (not just Articles 5.1, 5.2, 5.3, 5.4, and 
5.8), Article 6.10, and Article 9."29  Canada's expansion of its claim through its first written 
submission is fundamentally at odds with the require ment that a complaining Member state its claims 
clearly in its panel request, citing the particular  provisions it alleges to have been violated.30  That  
requirement "defin[es] the terms of reference of a panel and ... inform[s] the respondent and the third 
parties of the claims made by the complainant".31  Here, Canada did not clai m violations of provisions 
                                                      
24 Exhibit CDA-1, Final Determination, and Exhibit CDA-2, IDM, as amended (Exhibit CDA-3).   
"Fair value" is the US law term corresponding to "norma l value," as that term is used in Article VI of the GATT 
1994  and in the AD Agreement . 
25  Exhibit CDA-3, Amended Final Determination .  
26 Article 17.6(i) of the AD Agreement . 
27 Ibid. 
28 WT/DS264/2, para. 2. 
29 Canada first written submission, paras. 115 and 142. 
30 Article 6.2 of the DSU  states that a request for a panel "shall ... identify the specific measures at issue 
and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly". 
31 Appellate Body Report, Korea – Dairy , para. 124. WT/DS264/R 
Page 10  
 
other than those cited in its Panel Request.  Acco rdingly, the Panel should decline to consider the 
additional claims raised for the first tim e in Canada's first written submission. 
4.28 As a second preliminary ruling, the Panel shoul d decline to consider Exhibit CDA-77.  In 
introducing this exhibit, Canada improperly asks th e Panel to consider evidence that was not made 
available to Commerce in the underlying investigati on.  Specifically, this evidence consists of a 
regression analysis performed by one of the Canadi an respondents that purports to manipulate certain 
data used in Commerce's normal value and net realizab le value calculations.  It is presented here to 
support Canada's claim that Commerce erred in not  making due allowance for particular physical 
differences in softwood lumber that Cana da alleges affect price comparability.
32  However, it was not 
made available to Commerce during the underlying investigation.  Under Article 17.5(ii) of the 
AD Agreement , a panel's review of an anti-dumping investig ation is to be based upon "the facts made 
available in conformity with appropriate domes tic procedures to the authorities of the importing 
Member".  Consideration of Canada's new evidence is  inconsistent with that provision.  Further, in 
asking the Panel to consider this new evidence, Cana da effectively is asking the Panel to undertake its 
own establishment and evaluation of the fact s, contrary to Article 17.6(i) of the AD Agreement .  
Accordingly, the Panel should decline to consider Exhibit CDA-77. 
4.29 The standard of review applicable to the presen t dispute is set forth in Article 17.6 of the 
AD Agreement .  With respect to findings of fact, Article 17.6(i) provides that the question is whether 
an investigating authority's establishment of the f acts was proper and whether its evaluation of those 
facts was unbiased and objective.  Conversely, the question is not whether a panel would have 
established the facts or evaluated those facts in the same way as the investigating authority.  As the 
Appellate Body and other panels re peatedly have observed, a panel's role is not to find and evaluate 
facts de novo .33 
4.30 With respect to interpretations of the AD Agreement , the question under Article 17.6(ii) is 
whether an investigating authority's interpretation is permissible.  Article 17.6(ii) acknowledges that 
there may be provisions of the AD Agreement that "admit[] of more than one permissible 
interpretation".  Where that is the case, and wher e an investigating authority has adopted one such 
interpretation, the panel should find that in terpretation to be consistent with the AD Agreement .34 
4.31 Canada's first claim is that Co mmerce should have declined to initiate its investigation (or 
terminated the investigation once it did initiate) be cause the application for relief by US softwood 
lumber producers (in US law terms, "the petition") di d not include certain info rmation alleged to have 
been reasonably available to the petitioners (sp ecifically, cost and price data for Weldwood, a 
subsidiary of petitioner IP).  The Panel should rej ect this argument, because the applicable standard 
for initiation under Article 5.3 of the AD Agreement  (and for continuation of an investigation under 
Article 5.8) – the "sufficient evidence" standard – was met.  There is no obligation under the AD 
Agreement  for an investigating authority to decline to initia te or to decline to continue an investigation 
on the grounds that the application did not include evidence beyond what is sufficient to warrant 
initiation or continuation. 
4.32 In this case, petitioners included in their petition evidence from mu ltiple, independently 
reliable sources demonstrating prices for which soft wood lumber was being sold in Canada, costs of 
production of softwood lumber in Canada, and prices for which softwood lumber was being sold for 
                                                      
32 Canada first written submission, para. 148, note 139. 
33 See, e.g. , Appellate Body Report, US – Hot-Rolled Steel , para. 55; Appellate Body Report, Thailand 
– H-Beams , paras. 114 and 117; Panel Report, US – Steel Plate , para. 7.6. 
34 Panel Report, Argentina – Poultry , para. 7.341 and note 223:  
 
"[w]e recall that, in accordance with  Article 17.6(ii) of the AD Ag reement, if an interpretation 
is 'permissible', then we are compelled to accept it". 
  WT/DS264/R 
 Page 11 
 
 
export to customers in the United States.  This evid ence demonstrated, first, that softwood lumber was 
being sold in Canada for prices belo w cost of production.  Accordingl y, pursuant to Article 2.2 of the 
AD Agreement , the evidence substantiated reliance on c onstructed (normal) value as a basis for 
determining whether there was dumping of softwo od lumber.  Second, the evidence in the petition 
demonstrated that export prices for softwood lumber were below constructed normal value – i.e., that 
softwood lumber was being dumped in the United States. 
4.33 The Weldwood data could not ha ve contradicted the data included in the petition, or 
otherwise detracted from its adequacy and accuracy.  At most, the Weldwood data would have given Commerce information about a single producer in a ma rket consisting of hundreds of producers.  This 
would have been in addition to the country-wide da ta from diverse sources actually included in the 
petition.  Whatever a single company's data migh t have shown, it could not have negated the 
sufficiency of the country-wide data actually in the petition demonstrating dumping of the subject 
product. 
4.34 Article 5.2 of the AD Agreement  does not require Commerce to reject a petition that excludes 
some data, even though the data included are suffici ent to warrant initiation of an investigation, and 
even though the excluded data could not have nega ted the sufficiency of the included data.  The 
question for Commerce in deciding whether to initiate an investigation is set forth in Article 5.3.  That 
question is whether the evidence in the petition is su fficient to warrant initiation.  Similarly, under 
Article 5.8, the question whether to continue or terminate an investigation hinges on sufficiency.  
Canada's suggestion that the AD Agreement  contains a standard for in itiation and continuation of an 
investigation other than sufficient evid ence is unfounded and should be rejected. 
4.35 Canada's second claim is that Commerce  defined the scope of the "product under 
consideration" (by which Canada appears to mean  the product under investigation – in this case, 
softwood lumber) too broadly.  Canada cites no provision of the AD Agreement  governing the way in 
which an investigating authority defines the pr oduct under investigation.  Instead, it asserts the 
existence of an obligation to explain how differe nt articles within the product under consideration 
"closely resemble each other"
35, contends that Commerce violated that obligation, and maintains that 
violation of that obligation violated various articles of the AD Agreement  (several of which were not 
identified in Canada's panel request, and none of which provide rules for identifying the product under 
investigation). 
4.36 The short answer to Canada's scope argumen t is that there is no obligation under the 
AD Agreement  to define the "product under considera tion" in the manner Canada proposes.  The 
absence of an obligation is demonstrated by the di verse practice of WTO Members, including Canada.  
Without an obligation there can be no violation. 
4.37 Furthermore, the test actually applied by Commerce in defining the scope of the product 
under consideration in this case was clearer and more detailed than the vague "close resemblance" test 
that Canada proposes.  In determining whether pa rticular products were properly within the scope, 
Commerce considered (1) the general physical charact eristics of the product, (2) the expectations of 
the ultimate purchaser, (3) the ultimate use of the pr oduct, (4) the channels of trade in which the 
product is sold, and (5) the manner in which the product is advertised and displayed.  With respect to 
the particular softwood lumber products that Cana da claims should have been excluded – Western 
Red Cedar, Eastern White Pine, softwood lumber bo ards used in bed frames, and softwood lumber 
boards used in finger-jointed flangestock – Commerce evaluated the five factors and found the 
resemblances to other examples of softwood lumber  sufficiently great to preclude subdivision into 
multiple products under consideration. 
                                                      
35 Canada first written submission, para. 125. WT/DS264/R 
Page 12  
 
4.38 Canada's third claim is that, in comparing (nor mal) value to export price, Commerce violated 
Article 2.4 of the AD Agreement  by not adjusting for differences in the dimensions of softwood 
lumber.  The Panel should reject this claim, because Canadian respondent s failed to show that 
differences in the dimension of the softwood lumber compared in this case affected price comparability.  Commerce's decision not to make due allowance absent such a showing did not 
violate Article 2.4. 
4.39 Article 2.4 requires that, in comparing expor t price and normal value, an investigating 
authority make "[d]ue allowance" for certain differences in the particular products being compared.  The requirement to make due allowance appli es only to "differences which affect price 
comparability," and the determination whether to make  due allowance is to be made "in each case, on 
its merits".  Other panels have explained that due  allowance for physical or other differences that 
affect price comparability is not automatic.
36  Any claimed adjustment must be established on a case-
by-case basis and is warranted only to the exte nt the differences affect price comparability. 
4.40 In this case, the evidence made available to Commerce did not su bstantiate an adjustment for 
dimensional differences.  Commerce did take dime nsions – along with eight other categories of 
physical traits – into account in developing "mat ching" criteria (i.e., criteria for determining which 
articles to compare in the first place).  Applying th ese criteria, Commerce compared transactions with 
identical product characteristics wherever possible.  Where an identical match was not available for a 
given transaction, Commerce relied on a tran saction with the next most similar product 
characteristics.  This process minimized product physical differences, including dimensional 
differences, in the transactions being compared.  U ltimately Commerce concluded that "there appears 
to be little, if any difference in home market prices that  is attributable to differences in dimensions of 
the products compared, especially where those dimensional differences were minor".37 
4.41 In stark contrast to the investigating authority in Argentina — Ceramic Tiles38, a case on 
which Canada relies heavily39, the investigating authority in the present case sought and evaluated 
extensive data regarding many physical characteris tics, including dimensional differences.  However, 
the Canadian respondents failed to make the requ isite showing that the dimensional differences 
affected price comparability.  Therefore, under Artic le 2.4, Commerce was not required to make any 
adjustment for such differences. 
4.42 Canada's fourth claim is that, in combini ng individual dumping margins to determine an 
overall dumping margin, Commerce did not prope rly take account of non-dumped products, 
inconsistent with Article s 2.4 and 2.4.2 of the AD Agreement .  The Panel should reject this claim, 
because Articles 2.4 and 2.4.2 do not address the manne r in which particular model-specific or level-
of-trade-specific dumping margins, for example,  are combined to determine an overall dumping 
margin.  Moreover, by arguing that the phrase "all co mparable export transactions" refers to "[a]ll 
sales of goods falling within the scope of an investigation"40, Canada deprives the term "comparable" 
in Article 2.4.2 of any meaning, instead making it equivalent to the term "all", which immediately 
precedes it. 
4.43 The comparison obligations contained in Article 2.4.2 are "[s]ubject to the provisions 
governing fair comparison in paragraph 4".  Thus , Article 2.4 provides explicit context for the 
methods for establishing the existence of dumping under  Article 2.4.2.  This context means that, under 
the instruction in Article 2.4.2 to compare "weight ed average normal value with a weighted average 
                                                      
36 See, e.g. , Panel Report, EC – Tube or Pipe Fittings , para. 7.158; Panel Report, Egypt – Steel Rebar , 
para. 7.352. 
37 Exhibit CDA-2, IDM, Comment 8. 
38 Panel Report, Argentina – Ceramic Tiles . 
39 See, e.g. , Canada first written submission, para. 150. 
40 Id., para. 171.  WT/DS264/R 
 Page 13 
 
 
of prices of all comparable export transactions", not  all export transactions will be equally comparable 
with all normal value transactions.  Consequently , once the comparison has been identified pursuant 
to Article 2.4, it would be improper to compare a weighted average normal value with respect to one 
model or one level of trade to a weighted average of  prices for a different model or different level of 
trade.  Yet, Canada's prescription for combining particular dumping margins for purposes of 
developing a single, overall dumping margin would require precisely that, contrary to Articles 2.4.2 
and 2.4. 
4.44 That Articles 2.4.2 and 2.4 do not mandate a pa rticular method for combining model-specific, 
level-of-trade-specific individual dumping marg ins to establish a single, overall margin is 
corroborated by the negotiating history of the AD Agreement .  The negotiating history demonstrates 
that the question whether to address the methodolog y at issue here was squarely presented to the 
negotiators, and that the text was not modified (as compared to the AD Agreement 's predecessor, the 
GATT Anti-Dumping Code ) to prohibit this methodology.  Further, the negotiating history 
demonstrates that insertion of the word "compara ble" into Article 2.4.2 was intended precisely to 
ensure that the term "all" not be interpreted as im plying that average export price is to be established 
on the basis of sales both within and outside of the category of comparison. 
4.45 Canada's claim relies exclusively on th e Report of the Appellate Body in EC – Bed Linen .  
The United States was not a party to that dispute and is not bound by the report in that matter.  As the Appellate Body has explained, dispute settlement re ports "are not binding, except with respect to 
resolving the particular dispute between the parties to that dispute".
41  Moreover, the Appellate Body 
Report in EC-Bed Linen  did not address several of the textual arguments presented by the 
United States in this matter.  That is additi onal reason not to treat that Report as dispositive. 
4.46 Finally, Canada makes six company-specific claims, five of which relate to Commerce's 
calculations of cost of production and constructed (normal) value, and one  of which relates to 
Commerce's denial of a claim for an adjustment for differences in terms and co nditions of sale.  These 
claims improperly urge the Panel to adopt alternativ e evaluations of the facts,  rather than demonstrate 
that Commerce improperly established the facts or ev aluated them in a biased and non-objective way. 
4.47 Commerce computed cost of production for indi vidual softwood lumber articles for purposes 
of (a) determining whether sales in the Canadian dom estic market were made at prices below cost of 
production, and (b) computing normal value, in accordance with Article 2.2 of the AD Agreement , 
when there were no sales of softwood lumber in the Canadian domestic market or when such sales did 
not permit a proper comparison.  In computing th ese costs, Commerce included reasonable amounts 
for SG&A costs, as provided under Articles 2.2, 2.2.1 and 2.2.1.1. 
4.48 Canada argues that, in calculating G&A costs, Co mmerce violated Articles 2.2, 2.2.1, 2.2.1.1, 
2.2.2, and 2.4 of the AD Agreement.  Many of Canada's arguments erroneously assume that 
Commerce applied its standard cost calculation me thodologies to individual lumber producers without 
determining the appropriateness of these methodologies in light of the circumstances of each 
producer.  However, as discussed at length in th e Final Determination, Commerce only applied its 
standard methodologies after careful consideration of the facts in each case. 
4.49 As a general matter, Canada's claims that Commerce's calculations of normal value violated 
Article 2.4 of the AD Agreement  are misplaced.  Article 2.4 relates to a fair comparison between 
                                                      
41 Appellate Body Report, Japan–Alcoholic Beverages , p. 14 (footnote omitted); see also, Appellate 
Body Report,  US – Shrimp , paras. 107-109 (extending the reasoning of Japan – Alcoholic Beverages  to 
Appellate Body reports); Panel Report, Argentina - Poultry , para. 7.41 (panel not bound by adopted WTO panel 
reports). WT/DS264/R 
Page 14  
 
normal value and export price once normal value has been properly determined .  Article 2.4 does not 
relate to what is at issue here – i.e., the prope r determination of normal value in the first instance.
42 
4.50 In calculating cost of production for Abitibi, Co mmerce allocated financial costs (i.e., interest 
on borrowed funds) based on COGS (the same a llocation method used for all respondents).  
Commerce made this allocation after considerin g Abitibi's arguments that its lumber producing 
division was less asset-laden than its other divisions .  Commerce used a COGS allocation, rather than 
the allocation urged by Abitibi, because the COGS allo cation better reflected the fact that financial 
costs are general costs, relating to the overall cash  needs of the company as whole.  Also, Commerce 
determined that its method better accounted for the fa ct that money is fungible – that is, that borrowed 
funds may be used to purchase assets or fund ongoi ng operations.  Moreover, Commerce's allocation 
method accounted for differing asset values, inasmuch  as more asset-laden divisions would have 
higher depreciation expenses, which would increase the cost of manufacturing products in those 
divisions, resulting in a proportionately greater alloca tion of financial cost than to less asset-laden 
divisions. 
4.51 In calculating cost of production for Tembec, Commerce determined a reasonable amount for 
G&A costs based on Tembec's books and records that were shown to be in accordance with Canadian 
GAAP, consistent with Article 2.2.1.1 of the AD Agreement .  Canada argues that, instead of relying 
on Tembec's books and records, Commerce should have  relied on a separate statement of division-
specific costs.  However, as that separate statement was unaudited and never shown to be in accordance with Canadian GAAP, Commerce appropriate ly declined to rely on it.  Finally, G&A 
costs are, by definition, company-wide costs, rather  than costs attributable to a particular product or 
division.  Thus, it was proper for Commerce to re ly on Tembec's company-wide books and records, 
rather than a separate, division-specific statement. 
4.52 In calculating cost of production for Weyerh aeuser Canada, Commerce included within G&A 
costs an apportioned amount of litigation settlement costs reported in the books and records of the 
company's parent, the Weyerhaeuser Company.  Ca nada argues that these costs related to production 
of goods other than softwood lumber and, therefore,  should not have been allocated to the cost of 
producing softwood lumber.  However, litigation cost s are quintessential general costs, relating to a 
company as a whole.  In this case, the litigation co sts were incurred years after production of the good 
at issue (hardboard siding) and could not reasonably be considered a cost of producing that good.  Indeed, Weyerhaeuser Company's own audited financial statement treated these costs as general costs.  
Thus, it was appropriate under Articles 2.2, 2.2.1,  and 2.2.1.1 for Commerce to allocate a portion of 
Weyerhaeuser Company's company-wide legal cost s to Weyerhaeuser Canada's cost of producing 
softwood lumber. 
4.53 In calculating respondents' costs of production of softwood lumber, Commerce treated sales 
of wood chips (a by-product in the production process) as an offset, reducing a given respondent's 
total cost of production.  Canada claims that Comme rce erred in its calculation of the wood chip offset 
for respondents West Fraser and Tembec.  In bot h cases, Commerce's calculation was consistent with 
Articles 2.2, 2.2.1, and  2.2.1.1 of the AD Agreement  and should be upheld. 
4.54 In the case of West Fraser, the issue for Comme rce was how to measure sales of wood chips 
by the company to affiliated companies.  To dete rmine whether sales to aff iliates reflected market 
prices for wood chips, Commerce compared those sal es to West Fraser's sales to non-affiliated 
entities, as recorded in West Fr aser's records.  Commerce found that West Fraser's sales to non-
affiliated entities were at market prices and that  these sales, therefore, represented an appropriate 
benchmark for determining whether sales to affiliate d entities were at market prices.  Applying this 
benchmark, Commerce found certain of West Fraser's sales to affiliated entities (in Alberta) to be at 
market prices, and relied in part on those sales in  calculating the offset.  Commerce found other sales 
                                                     
 
42 Panel Report, EC – Tube or Pipe Fittings , para. 7.140.  WT/DS264/R 
 Page 15 
 
 
to affiliated entities (in BC) not to be at market prices, and made adjustments based on the benchmark 
of non-affiliated sales.  Consistent with Article 2.2.1.1, Commerce made its  calculation based on data 
from the producer's own records. 
4.55 In the case of Tembec, the issue was how to measure the value of transfers of wood chips 
between divisions within the company.  Comme rce analyzed the wood chip sales transactions 
between Tembec's sawmills and its pulp mill division to  evaluate whether the in ternally set transfer 
prices were reasonable.  Commerce found that prices recorded in Tembec's books  for the transfer of 
wood chips between Tembec divisions reasonably refl ected the actual cost of producing wood chips 
and, therefore, consistent with Article 2.2.1.1, re lied on those prices in establishing a wood chip offset 
for Tembec. 
4.56 Finally, Canada argues that Commerce failed to properly account for profits from respondent 
Slocan's sales of lumber futures contracts.  In  Commerce's investigation, Slocan requested two 
directly contradictory treatments for these profits.  Fi rst, Slocan asked that the profits be treated as an 
offset to direct selling expenses in the US market, as an adjustment for the conditions and terms of 
sale.  Alternatively, Slocan asked that the profits be treated as an offset to financing costs in the 
calculation of cost of production.  However, as Commerce found, Slocan's futures contract profits 
were not directly related to any particular sales of softwood lumber and, therefore, were not an 
appropriate basis for adjustment under Slocan's firs t theory.  On the other hand, since the profits 
amounted to sales revenue (albeit, not direct  sales revenue), they would not have been an appropriate 
basis for offsetting cost of production.  As Slocan fa iled to substantiate an offset under either theory, 
Commerce properly declined to grant an offset. 
4.57 For the foregoing reasons, the US requests the Panel to reject Canada's claims in their 
entirety. 
C. FIRST ORAL STATEMENT OF CANADA  
4.58 In its first oral statement, Cana da made the following arguments:   
4.59 The Panel's role pursuant to Article 17.6(i) is to determine whether Commerce properly 
established the facts and evaluated the facts in an  objective and unbiased manner.  By reviewing the 
record pursuant to Article 17.6(i), the Panel is not engaging in a de novo  review.  The rule of 
Article 17.6(ii) only comes into play when a Panel c oncludes that there is "more than one permissible 
interpretation," after  the application of the customary rules of treaty interpretation codified in 
Articles 31 and 32 of the Vienna Convention .  An approach of total defere nce is inconsistent with the 
WTO jurisprudence on this issue. 
1. Initiation and Termination of the Investigation 
4.60 Articles 5.2 and 5.3 are separate obligations.  U nder Article 5.2, the investigating authority 
must decide whether to accept or reject the applic ation on the basis of whether it contains such 
information as is reasonably available to the appli cant on dumping, injury and causation.  Only once 
the investigating authority has determined that the requirements of Article 5.2 have been met, can it 
move on to Article 5.3 to conduct a further examinat ion of the information in the application to assess 
whether it is adequate and accurate and, theref ore, sufficient to initiate the investigation. 
4.61 Article 5.2(iii) requires that, if the information is  of a kind or category of information set out 
in Article 5.2 and it is reasonably available to the app licant, then it is of the kind or category that must 
be included in the application.  Article 5.2(iii) requires information on prices; it does not allow an 
applicant to pick and choose  what information on prices it provides.  Actual transaction prices for 
sales of lumber in the relevant markets was "reasona bly available" to the Pe titioner and ought to have 
been provided to the investigating authority.  The application did not contain transaction-specific WT/DS264/R 
Page 16  
 
evidence identifying a single Canadian exporter or provide any specific examples of price or cost.  
The Petitioner's claim that such information was not "reasonably available" is simply not credible and 
should never have been accepted by Commerce. 
4.62 Commerce also initiated the investigation b ased on insufficient evidence of dumping, 
contrary to Article 5.3.  Article 5.3 requires that an investigating authority objectively judge whether 
the application contains sufficient evidence of dumpi ng, injury and causal link between the two.  The 
investigating authority cannot simply accept the ev idence in the application.  Had Commerce fulfilled 
this obligation, it would have di scovered that the Petitioner failed to provide extremely important 
information.  A further examination of the informat ion in the application should have revealed that 
one of Canada's largest producers, Weldwood, is wholly owned by the leader of the Petitioner, IP.  
Weldwood's data, if obtained, woul d have provided specific instances of Canadian and US prices and 
Canadian costs for the identical merchandise, and would have enabled Commerce to properly assess 
the adequacy and accuracy, and, th erefore, the sufficiency of th e information provided in the 
application.   
4.63 The information included in the application essentially amounted to nothing more than 
surrogate or secondary information considering wh at could and should have been provided.  For 
instance, it was demonstrated that the Random Lengths data contained in the application commingled 
Canadian and US producer prices, and, thus, were  not representative of Canadian sale prices.  An 
objective and unbiased investigating authority could not have concluded that there was "sufficient 
evidence" of dumping to initiate.  
4.64 Pursuant to Article 5.8, the investigating aut hority must terminate the investigation as soon as 
it is satisfied that there is not sufficient evidence of dumping or injury to justify proceeding with the 
case.  This obligation applies both prior to initiation and throughout the investigation.  A Canadian 
respondent informed Commerce of th e nature of the relationship be tween Weldwood and IP, two days 
after initiation.  Commerce did nothing with this information.  Commerce also rejected Weldwood's 
subsequent attempt to file data regarding actual sales transactions.  Thus the United States failed to 
comply with Article 5.8. 
2. Like Product and Product under Consideration 
4.65 Commerce defined the "product under considera tion" and the "like product" as "all softwood 
lumber" and conducted a single anti-dumping investig ation.  Commerce's broad definitions did not 
identify a cohesive group of products that share common characteristics for either the "product under 
consideration" or the "like product".  Conseque ntly, Commerce did not meet the requirements of 
Article 2.6. 
4.66 The Article 2.6 definition of "like product" lim its its scope and diversity.  When, as here, the 
scope and diversity of the "product under considera tion" is overly broad, the "like product" may be 
neither identical to, nor have characteristics clos ely resembling, the product under consideration and 
the requirement of Article 2.6 cannot be satisfied .  The terms "product under consideration" and the 
"like product" must be limited to a single grou p of products sharing common characteristics.  
Otherwise Article 2, which describes the dumping comparison between the "like product" and the 
"product under consideration" would allow dumping co mparisons between sales of products that have 
no close resemblance to each other.  Similarly, Artic les 3, 4 and 5 would permit injury analyses that 
would cover multiple industries. 
4.67 Canada's interpretation of Article  2.6 would not yield dozens or hundreds of discrete products.  
The United States found that at least 90 per cent of the products covered in the "product under 
consideration" consist of commod ity dimension lumber.  The application presented data only on the 
pricing of standard 2x4 SPF products that the United States has characterized as "representative 
softwood lumber products".  The "product under consideration" should ha ve been limited to  WT/DS264/R 
 Page 17 
 
 
commodity dimension lumber, which is a defined and cohesive group of products according to the 
applicable legal criteria in the United States of  physical characteristics, end uses, purchaser 
expectations, channels of distribution, advertisi ng and display, and price.  Instead, Commerce added 
in another 10 per cent of products that do not r esemble commodity dimension lumber, including 
especially the four products in dispute.   
4.68 Commerce erroneously identified isolated charac teristics of different products within the 
"product under consideration" and then determined  whether there was a comparable "like product" 
with the same isolated characteristics within the dive rse group.  This test, as applied, is not legally 
permissible under Article 2.6 because it fails to limit  the anti-dumping investiga tion to a grouping of 
imported products that all share characteristics closely resembling each other.  Bed frame 
components, finger-jointed flangestock, Eastern White Pine, and Western Red Cedar do not share 
common characteristics with commodity dimension lumber, and are substantially unlike 90 per cent of the products in the application. 
3. Failure to Account for Dimensional Differences 
4.69 When comparing normal value to export price, Article 2.4 requires an adjustment for all 
differences that affect price comparability.  Differe nces in physical characteristics are identified as a 
difference affecting price compar ability.  The United States incorr ectly argues that the evidence 
before Commerce did not support the conclusion that dimension affected price.  The record before Commerce consisted of complete sales data for the si x largest producers in Canada, showing all prices 
of all different products differentiated by dime nsion, among other charact eristics.  These data 
demonstrated that dimensional differences affected  price.  Canadian companies and US petitioners 
agreed on this point. 
4.70 Indeed, Commerce determined that, when co mparing domestic and export selling prices 
between markets, products had to  be matched based on width, thickness, and length, among other 
matching criteria.  Given that the only differences that matter for matching purposes are those that affect price, Commerce effectively determined that dimensional differences affected price 
comparability.  It conducted itself accordingly duri ng the investigation.  Commerce's position that 
dimension affects price for matching but not for th e adjustment for dimensional differences indicates 
a failure of objectivity. 
4.71 Despite acknowledging that physical differences co uld result in differences in market value, 
Commerce concluded that there was no information on the record by which it could calculate an 
adjustment for differences in dimension based either on cost or value.  Thus it did not say that such an 
adjustment was not warranted, but that it could not calculate one.  Commerce also asserted that the 
adjustment it could not calculate would, in any event, be minor.  However, Article 2.4 makes no 
distinction for minor price effects, nor is there evidence that the price effects were minor. 
4.72 The United States presented two diversionary argu ments.  First, it argues that Article 2.4 
applies only when there is a particular pattern in the pricing.  That prices do not match in a single 
procession of lower prices for smaller pieces and higher  prices for larger pieces of softwood lumber is 
irrelevant to the premise that dimensions affect price.  Second, the United States argues that price 
differences based on dimension fluctuated.  Article 2. 4 does not require a uniform price differential as 
a precondition to "due allowance" for differences wh ich affect price comparability.  The issue is 
whether differences in physical characteristics affe ct price comparability and thus have a distorting 
effect.  Moreover, since annual average prices for each product of each exporter were compared, an 
annual average adjustment could reasonably have been made, and was required to be made by 
Article 2.4.  Commerce did not consider fluctua tion in prices to be an obstacle for other price 
comparison purposes.  Just as annual average export prices and normal values were computed, so too could Commerce have calculated an annual average adjustment for dimensional differences between 
two non-identical products. WT/DS264/R 
Page 18  
 
4. Zeroing of Negative Margins 
4.73 Canada has demonstrated that the US practice of "zeroing" negative margins of dumping 
contravenes Articles 2.4 and 2.4.2 of the AD Agreement .  The United States is now saying that the 
interpretation by the Appellate Body in EC – Bed Linen  is a misinterpretation of Articles 2.4 and 2.4.2 
and that the Report of the Appellate Body in EC – Bed Linen  should not be relied upon by the Panel.  
However, the United States itself has acknowledged th at adopted reports should be taken into account 
where they are relevant to any subsequent dispute,  especially where a report of the Appellate Body is 
concerned.  The zeroing methodology applied by Commerce in this case is the same as was 
considered by the Appellate Body in EC – Bed Linen . 
4.74 The United States looks to the negotiating history of the AD Agreement .  However, pursuant 
to Article 32 of the Vienna Convention , the negotiating history of the text of an agreement is only 
relevant as a supplementary means of interpretation.  In Canada's view, the text itself of Articles 2.4 
and 2.4.2 is clear and the Appellate Body so found in EC – Bed Linen . 
5. Company-specific Issues 
4.75 Under Articles 2.2.1.1 and 2.2.2 a cost is  "associated with" and data will "pertain to" 
production where the cost and data relate to th e costs for producing and selling the product.  
Article 2.2.1.1 also requires that "[a]uthorities sh all consider all available evidence on the proper 
allocation of costs, including that which is made av ailable by the exporter and producer..".  Article 2.4 
requires that the comparison between export price an d normal value shall be "fair".  Commerce failed 
to meet these requirements. 
4.76 Commerce miscalculated Abitibi's interest expe nses to softwood lumber by (1) failing to 
comply with its obligations under Article 2.2.1.1 to "consider all available evidence on the proper 
allocation of costs", and by (2) failing to comply with  its obligations under Article 2.2.1.1 and 2.2.2 to 
use a methodology that resulted in an allocation that  "reasonably reflects" the costs "associated with" 
and "pertaining to" the "production and sale of soft wood lumber".  The US submission confirms that 
Commerce did not consider the merits of the reco rd evidence regarding Abitibi in selecting its COGS 
allocation methodology.  Moreover, the record ev idence establishes that a COGS-based allocation 
was distortive and over-allocated interest expenses to Abitibi's softwood lumber operations relative to 
its non-investigated products – pulp, paper, and newsprint. 
4.77 In calculating Tembec's G&A expenses, Commerce rejected G&A data from Tembec's FPG 
(which was accurate and reliable and used by Co mmerce for all purposes except for calculating G&A) 
in favour of company-wide G&A data that overwhe lmingly reflected the cost of producing pulp, 
paper and chemicals worldwide, not only softwood lumber produced in Canada.  In doing so, 
Commerce failed to calculate a G&A amount that "r easonably reflected" Tembec's cost of production 
and sale of softwood lumber contrary to Article 2.2. 1.1 and included costs in Tembec's G&A that did 
not pertain to Tembec's cost of producing and se lling softwood lumber contrary to Article 2.2.2. 
4.78 For Weyerhaeuser Canada, Commerce imprope rly included an amount for litigation 
settlement costs incurred by Weyerhaeuser Compa ny for claims related to its hardboard siding 
products sold in the United States in prior year s.  The G&A expense Commerce calculated did not 
reasonably reflect Weyerhaeuser Canada's costs for producing and selling softwood lumber, but 
included data that pertained to the production a nd sale of other products than softwood lumber, 
contrary to Articles 2.2.1.1 and 2.2.2.  Commerce incorrectly found that Weyerhaeuser Company treated the settlement claims as G&A on its records.   The US first written submission does not point 
to any relationship between the hardboard sidi ng settlement costs and Weyerhaeuser Canada's 
softwood lumber production.  WT/DS264/R 
 Page 19 
 
 
4.79 For Tembec, Commerce improperly established a by -product offset by relying on internal 
transfer prices that were significantly lower than  unaffiliated sales prices.  In doing so, Commerce 
acted inconsistently with Article 2.2.1.1 because the record evidence clear ly established that the 
internal prices were undervalued.  The significan t difference between internal prices and market 
prices cannot be attributed to profit as the US purpor ts.   By-products have neither profits nor costs 
and Commerce made no findings about profits.  The US assertions that Tembec provided inadequate 
and "self-serving" data on purchases from unaffiliated companies are untrue and were never raised by Commerce.  Commerce had the burden to advise Te mbec if it found any data were inadequate. 
4.80 For West Fraser, Commerce improperly rejected data recorded on West Fraser's books for 
wood chip sales made to affiliated parties in BC on the grounds that the sales underlying those data 
were made at inflated non-market prices.  This was not an unbiased and objective examination of the 
record as a whole and resulted in a determination of  costs, contrary to Article 2.2.1.1.  Commerce 
ignored 99.7 per cent of the record evidence on BC market prices in finding incorrectly that West 
Fraser's affiliated sales were not reflective of BC market prices.  The United States blames West 
Fraser for Commerce's own failure in evaluating the evidence.  The tiny quantity of West Fraser's 
unaffiliated chip sales in BC on which Commerce relied was self-evident and Commerce's own 
verification report shows that it was put on notice by West Fraser's officials that over half of those sales were made early in the period of investigati on, when prices were lowest.  Commerce also re-
valued certain sales to an affiliated pulp mill that  Commerce verified reflected market prices.  
Commerce never raised an issue that any of th ese data was selectively provided and West Fraser 
never had the opportunity to provide any further evidence.  
4.81 In calculating Slocan's costs and margin of dumping, Commerce ignored revenues generated 
from Slocan's futures contracts and failed to make an adjustment for a diffe rence that affected the 
price comparability of Slocan's sales, contrary to Ar ticle 2.4.  Alternatively, Commerce calculated an 
amount for Slocan's financial costs that failed to reasonably reflect its costs for producing and selling 
lumber contrary to Article 2.2.1.1.  Commerce co mpletely discarded these data, effectively rejecting 
data on Slocan's records despite an express finding that those records related to Slocan's lumber 
activities.  This was neither an unbiased nor objective evaluation of the facts. 
D. 
FIRST ORAL STATEMENT OF THE UNITED STATES  
4.82 The following summarizes the United States' argu ments in its first oral opening and closing 
statements: 
1. Opening Statement of the United States of America at the First Meeting of the Panel 
4.83 In its first written submission, the US requests tw o preliminary rulings.  First, Canada has, in 
its first written submission, improperly added to the li st of provisions it claimed in its Panel Request 
were violated by virtue of Commerce's definition of the product under consid eration.  In response, 
Canada protests that it has not added an y claims but only "additional arguments".43  However, 
statements that actions were "inconsistent with US obligations" under particular articles of a WTO 
agreement plainly amount to claims under those articles.  
4.84 The requirement that treaty provisions forming the basis of a claim be expressly identified in 
a panel request is by now well-established.  The A ppellate Body made a findi ng on this exact issue in 
its recent report in US – Carbon Steel.44  
4.85 Canada purports to rely on the Appellate Body report in Korea – Dairy .  In that case, the 
Appellate Body took it as a given that listing of the treaty provisions at issue was "a minimum 
                                                      
43 Canada response to the US preliminary objections, paras. 2 and 13. 
44 Appellate Body Report, US – Carbon Steel , para. 172. WT/DS264/R 
Page 20  
 
prerequisite".
45  The factors that Canada cites in paragr aph 6 of its 10 June 2003 response come into 
play only if that minimum prerequisite has been met, which was not the case here.  
4.86 The United States' second request for a prelim inary ruling is with respect to Canada's 
improper introduction in its first submission of f acts not available to Commerce in the underlying 
investigation.  Specifically, Canada put before th e Panel Exhibit CDA-77, a regression analysis.  This 
analysis was prepared by respondent Tembec six m onths after the investigation was completed.  
Canada's attempt to have the Panel consider this ex hibit is simply not consistent with Article 17.5(ii) 
of the AD Agreement . 
4.87 Canada claims that respondents did not present the exhibit to Commerce, because 
Commerce's decision to deny a price-based adjustment  for dimensional differen ces was "unexpected".  
That claim is not credible.  Commerce's requireme nts for establishing such an adjustment are clear 
from its questionnaire and its regulations.  Had the Tembec regression been presented to Commerce 
during the investigation, Commerce could have evalua ted it to clarify and identify the data used as 
well as the fundamental assumptions employed. 
4.88 Contrary to Canada's assertion46, this regression analysis is not the "exact same type of 
document" that was at issue in the EC – Bed Linen case.  At issue in EC – Bed Linen  was a table 
summarizing the declarations of industry support, ev idence that had always been available to the EC 
investigating authority.47  The regression analysis is not a mere summary table. 
4.89 On Canada's challenge to Commerce's initiati on of its investigation, the standard, in 
Article 5.3 of the AD Agreement , is "whether there is sufficient ev idence to justify the initiation of an 
investigation".  A similar sufficiency standard gove rns a determination of whether to terminate an 
investigation under Article 5.8.  Neither provision requires evidence greater th an sufficient evidence.  
4.90 Canada relies primarily on Article 5.2, arguing that an investigating authority should decline 
to initiate an investigation unless the application contains  all information reasonably available to the 
petitioners regarding dumping, injury, and causal link.   However, Article 5.2 describes the contents of 
an application for a dumping investigation.  It does not contain a standard for accepting or rejecting an 
application.  That standard is set forth in Article 5.3. 
4.91 Canada rests its argument on the reference in the chapeau  of Article 5.2 to "such information 
as is reasonably available to the a pplicant" on matters listed in the f our sub-paragraphs that follow.  
Canada improperly reads the word "all" into this  phrase.  In fact, the reference to information 
"reasonably available" simply sets a limitation on what  is expected of petitioners.  Yet, Canada turns 
this limitation into a limitless obligation.  
4.92 The evidence of dumping in the softwood lu mber petition was sufficient to support 
initiation.48  The evidence included country-wide, indust ry-wide cost and price data from multiple 
reliable sources.49  The information that Canada claims  was improperly excluded could not have 
altered the adequacy and accuracy of the information actually included.   
4.93 On "product under consideration", Canada rests its argument primarily on Article 2.6 of the 
AD Agreement .  Yet, Article 2.6 contains no obligation at all on how an investigating authority is to 
                                                      
45 Appellate Body Report, Korea – Dairy , para. 124. 
46 Canada response to the US preliminary objections, para. 27. 
47 Panel Report, EC – Bed Linen , paras. 6.42-6.43 and Annex 2-2 thereto. 
48 Canada does not challenge the sufficiency of the application with regard to injury and causal link.  
Accordingly, the US confines its discussion to evidence of dumping. 
49 US first written submission, paras. 50-62.  WT/DS264/R 
 Page 21 
 
 
define the product under consideration in an inv estigation.  That understanding of Article 2.6 is 
reflected in the diverse practices of many WTO Members, including Canada itself.   
4.94 Under Article 2.6, the existence of a "product u nder consideration" is ta ken as a given.  No 
matter how an investigating authority defines the pr oduct under consideration, that becomes the basis 
for determining whether other products are "like products". 
4.95 Canada appears to turn the text of Article 2. 6 on its head.  Instead of taking "product under 
consideration" as the starting point, Canada seems to take "like product" as the starting point and 
argue that "like product" constrains how an investigating authority defines the product under 
consideration.  
4.96 Canada contends that the Canadian responde nts were entitled to an adjustment to home 
market softwood lumber prices whenever the produc ts compared had any dimensional differences.  
However, the Canadian respondents were unable to substantiate price adjustment claims during the 
investigation. 
4.97 Consistent with Article 2.4, Commerce ma kes price adjustments for differences in the 
physical characteristics of merchandise when a party demonstrates that a physical difference between 
the product sold in the US market and the product sold  in the foreign market has an effect on prices.  
But such an Article 2.4 adjustment is not automatic.50  
4.98 In the majority of product comparisons, Co mmerce compared softwood lumber products of 
identical thickness, width and length.  If identic al products were not available for comparison, 
Commerce matched products with the most similar dimensional characteristics available.  
4.99 On the question of calculation of the overall dumping margin for a given producer, 
Article 2.4.2 does not require Commerce to offset a dumping margin found on one particular model 
with non-dumping amounts found on anot her model.  When the criteria of Article 2.4 are considered, 
not all export transactions will be equally comparab le with all normal value transactions.  Moreover, 
Canada's concept of a "negative margin" or an offset appears nowhere in the AD Agreement . 
4.100  Under the Tokyo Round Anti-Dumping Code , many Contracting Parties made dumping 
calculations by comparing weighted-average norma l values to individual export transactions, granting 
no offset for any export transaction that was not du mped.  Article 2.4.2 required Members to change 
the dumping margin calculation, but not in the way Canada asserts.  With respect to the methodology 
at issue here, Article 2.4.2 requires Members to establish margins of dumping by comparing 
weighted-average normal values with weighted aver ages of "all comparable export transactions".   
4.101  Rather than calculating dumping margins for each individual export transaction, as before, 
Members are now required to weight average "all comparable export transactions" – in other words, 
all export transactions of the same model sold at the same level of trade.  Improperly focusing on the 
word "all" deprives the term "comparable" of any meaning.  It also nullifies the opening phrase in 
Article 2.4.2, which reads:  "Subject to the provi sions governing fair comparison in paragraph 4".  
4.102  Canada relies heavily on the Appellate Body Report in EC – Bed Linen.   While that Report 
dealt with the calculation of the overall dumping margin  by the EC, the Report is not an interpretation 
of the AD Agreement  with any broader applicability.  Taking a fresh look at the issues is particularly 
appropriate in this case, because the United States was not a party to the EC – Bed Linen  dispute, and 
that Report does not address many of the textual arguments presented by the United States in its first written submission.  
                                                     
 
50 Panel Report, EC – Tubes or Pipe Fittings , para. 7.158. WT/DS264/R 
Page 22  
 
4.103  Canada makes a number of company-specific claims.  The AD Agreement  provides only 
general guidance on how an investigating authority is to establish a producer's cost of production.  
There are no specific rules on issues such as a llocation of general and administrative costs and 
calculation of offsets.  What Canada seeks is  to have the Panel re-weigh the evidence. 
2. Closing Statement of the United States of America at the First Meeting of the Panel 
4.104  Canada's acknowledgement that facts are always relevant in considering the issues presented 
underscores that this Panel is not considering questi ons in the abstract but in a particular factual 
context.  
4.105  On its requests for preliminary rulings, the United States noted with interest Canada's 
statement that it will be submitting a seven page  expert's memorandum explaining the methodology 
applied to create Exhibit CDA-77.  The very fact th at Canada's expert requires seven pages to explain 
the methodology underscores the US point that the exhibit is new evidence.   
4.106  There has been some discussion of standard of review.  Contrary to Canada's assertion, the 
United States does not advocate "total deference" .  US discussion on this point has emphasized the 
highly fact-specific nature of the issues presente d and observed that re-weighing the evidence, as 
Canada has urged, finds no basis in Article 17.6 of the AD Agreement . 
4.107  On Commerce's methodology for calculating an overall dumping margin for a given producer, 
Canada took issue with US relian ce on negotiating history as additiona l support for US interpretation 
of Article 2.4.2.  Canada  argues that, in light of EC – Bed Linen , the ordinary meaning of Article 2.4.2 
is clear, but is contrary to US interpretation, and,  therefore, US recourse to negotiating history is not 
appropriate.  The flaw in this reas oning is the premise that the meaning of Article 2.4.2 is clear simply 
because the Appellate Body has spoken to the question.   
4.108  On initiation, as Canada acknowledged during US discussion of Guatemala – Cement , no 
panel has found an obligation on investigating authorities separate from the obligation under 
Article 5.3.  This is with good reason, as Article 5.2 imposes no such obligation.  
4.109  Also on initiation, discussion before the Panel highlighted the flaw in Canada's contention 
that Commerce did not rely on "actual transactions" in its decision to initiate.  It did rely on actual 
transactions, as reflected in published da ta and affidavits from US producers. 
4.110  When asked about its own practice regardi ng initiation, Canada stated that once the 
investigating authority is seized of jurisdiction ove r an investigation, it does not "look back" to the 
petition.  That strikes us as being at odds with the rule of continuous evaluation of a petition that 
Canada advocates under Article 5.8. 
4.111  With respect to product under consideration, Canada argues that the concept "like product" 
delimits the concept "product under consideration".  But, it is undeniable that, under Article 2.6, 
"product under consideration" is the point of refe rence for defining like product.  Under Canada's 
interpretation, there is no logical end to this loop. 
4.112  Moreover, in its presentation, Canada went beyond arguing that Article 2.6 imposes limits 
and asserted where those limits should have been dr awn in this case.  Without any basis in the AD 
Agreement , it purported to identify a "core" category comprising "90 per cent of the products 
covered," and alleged that "Commerce added in anothe r 10 per cent of products".51  In telling the 
Panel where to draw the line, Cana da is improperly urging the Panel to find facts as if it were the 
investigating authority.   
                                                      
51 Canada first oral (opening) statement, paras. 34 and 35.  WT/DS264/R 
 Page 23 
 
 
4.113  Canada suggests that the absence of any limits on an investigating authority's definition of the 
"product under consideration" could lead to "absur d result[s]".  However, the absurd circumstances 
that Canada hypothesizes simply are not at issue here. 
4.114  Regarding Canada's claim for an  adjustment for differences in dimension, Canada has made 
several misleading and unsubstantiated assertions.  For example, Canada's oral statement claims that, 
"[t]he United States contravened Article 2.4 by not  taking into account dimension of softwood lumber 
in comparing export price to normal value".  Ho wever, Commerce took dimension into account by 
accepting dimension in its model match methodology.  
4.115  Similarly, Canada argues that all the parti es, including the US petitioners, asserted that 
dimension affected price52, but cites to no record evidence of this.  The parties did not express a 
common view.  Canada now concedes that "the market established prices based on the supply and 
demand for each product, not because one product is smaller or larger than the other".53 
4.116  Canada argues that the United States must be  found to have concluded, in effect, that 
differences in dimension affected price comparab ility because Commerce accept ed dimension in its 
product matching hierarchy.  However, Commerce' s matching criteria do not dictate what price 
adjustment it must make.  Canada confuses two sep arate decisions made by Commerce.  The product 
matching decision is made early in the investigation,  before facts relevant to price comparability are 
gathered and evaluated. 
E. SECOND WRITTEN SUBMISSION OF CANADA  
4.117  In its second written submission, Cana da made the following arguments: 
1. Initiation and Termination of the Investigation 
4.118  In initiating and later failing to terminate the i nvestigation, Commerce violated Articles 5.2, 
5.3 and 5.8 of the AD Agreement .   
4.119  The United States violated Article 5.2 because Commerce initiated the investigation in spite 
of the undisputed fact that the Applicant had info rmation about costs, as well as home market and 
export prices reasonably available to it that it did not provide to Commerce as part of its 
"Application".  
4.120  The United States asserts that Article 5.2 do es not impose an obligation on investigating 
authorities.  The US position is untenable because the AD Agreement  only concerns obligations on 
Members.  Its position is also belied by the decision in US – 1916  Act (Japan) in which the 
United States itself was held to violate Article 5.2.  
4.121  The United States also asserts that a breach of Article 5.2 has no consequences and that the 
sole obligation on investigating authorities under the combination of Articles 5.2 and 5.3 is to ensure 
that an application contains sufficient eviden ce to justify initiation.  To the contrary, a Vienna 
Convention  analysis of Article 5.2 demonstrates that it is  an independent obligation and further, that 
the failure to comply with Article 5.2 means that  an investigating authority cannot initiate an 
investigation.   
4.122  The United States violated Article 5.3 because an  objective investigating authority could not 
have found that there was sufficient evidence to justify initiating the investigation based on the 
Application.  Under Article 5.3, Commerce was re quired to assess whether the evidence provided by 
                                                      
52 Id., para. 54. 
53 Id., para. 59. WT/DS264/R 
Page 24  
 
the Applicant on home market prices, export prices, and costs were adequate, accurate and therefore 
sufficient, to justify initiation.   
4.123  The Applicant's cost data were flawed in at least four ways: first, the Applicant based its 
allegations of BC and Quebec producers' costs on US surrogate companies that were not representative of Canadian companies based on size ; second, Commerce initiated the investigation 
without any evidence before it of how the Appli cant calculated the manufacturing costs of the US 
surrogate companies for the SPF species or of how co mpany costs were then a llocated to the specific 
products for which the cost models had been constr ucted; third, both the BC and Quebec cost models 
used data from less than a full year despite the kn own seasonality of lumber mills' operations; fourth, 
there were no home market prices for western SPF availa ble to test whether sales of this product were 
below cost.    
4.124  The home market and export price information in  the Application were also insufficient to 
justify initiation.  Commerce initiated the investigati on despite the fact that the Application contained 
no evidence of any actual sales transactions involvi ng identified Canadian companies either in the 
domestic Canadian market or the American export ma rket.  Despite US  assertions to the contrary, the 
Application contained no evidence of western SPF transaction prices in BC.  The evidence on prices 
consisted of estimates from an industry publicatio n and unsubstantiated anecdotal reports in two 
affidavits.  Such evidence is not sufficient to justify initiation.  
4.125  The United States violated Article 5.8 becau se Commerce failed, after initiation, in its 
ongoing obligation to assess the sufficiency of the evidence of dumping in the light of the Weldwood information provided to it and to terminate the in vestigation as an objective investigating authority 
would have.  Contrary to the US view, the obliga tion in Article 5.8 cannot be made to depend on an ex 
post facto  assessment of the relative merits of information,  particularly where, as here, the information 
at issue has never been analyzed. 
2. Like Product 
4.126  An application for the imposition of anti-dumping duties must identify the proposed "product 
under consideration".  Article 2.6 expressly requires that a like product be "identical" to the product 
under consideration, i.e., alike in all respects to th e product under consideration, or in the absence of 
such a product, another product which, although not a like in all respects, h as characteristics closely 
resembling those of the product under consideration.   
4.127  The plain language of Article 2.6 suggests a mul ti-step process.  First, the investigating 
authority must identify the characteristics of the pr oduct under consideration.  Second, it must identify 
the characteristics of each product proposed for inclus ion in the like product.  Third, it must determine 
whether the characteristics of each are identical or, if not, then closely resembling those of the product 
under consideration. 
4.128  Commerce never defined the characteristics of the product under consideration, nor did 
Commerce compare the characteristics of each chal lenged product with those of the product under 
consideration as a whole.  Instead, Commerce identif ied as subsets of the product under consideration 
various softwood lumber products.  It then comp ared isolated characteristics of each challenged 
Canadian product to isolated characteristics of  products selected from within the "product under 
consideration", considered to be "like" the challe nged products.  That analysis failed to establish the 
single, closely resembling, "like product" requi red by Article 2.6.  No "close resemblance" 
exemplified by a set of shared common charact eristics, was established between the challenged 
products and the product u nder consideration.   
4.129  The United States uses the Diversified Products criteria to determine whether the product 
under consideration described in an anti-dumpi ng petition comprises one or multiple "classes or  WT/DS264/R 
 Page 25 
 
 
kinds" of merchandise but subordinated these criteria to a "no clear dividing line"/"continuum" test.  
For bed frame components, finger-jointed flangestoc k, Eastern White Pine and Western Red Cedar, 
the United States examined whether each of these clo sely resembled a limited (and varying) subset of 
products belonging to the product under consid eration (i.e., those products "nearby on the 
continuum").    
4.130  Commerce found a single product under considera tion based on the common "characteristic" 
of the diversity – non-commonality – of the products sought to be covered by the applicant.  A proper 
like product analysis in respect of the US market was never done.   
4.131  The ordinary meaning of "characteristics closely resembling those of the product under 
consideration" requires a comparison of the characteristics of the putative like product to the 
characteristics of the product under consideration.  In order to determine the ordinary meaning of 
"characteristics closely resembling those of the pr oduct under consideration", one must compare the 
characteristics of the putative like product to th ose of the product under consideration.  The 
characteristics, defined as essential or distinctive traits , must be those of the "like product," and must 
be "very nearly identical" to the characteristics of the "product under consideration".  This 
understanding is consistent with that  expressed in the panel decision in Indonesia – Autos , in the 
context of the term "like product" in the SCM Agreement .   
4.132  Article 2.6 establishes a preference for "alike in  all respects".  This context reinforces the 
ordinary meaning of "characteristics closely resemb ling".  When the products are not "alike in all 
respects," then their characteristics (i.e., essential or  distinctive traits) must resemble each other so 
closely (i.e., as near as can be) that the products are nearly identical.   
4.133  The application requirements in Article 5.2(i) and (iv) and the industry support requirements 
of Article 5.4 depend upon the definition of the "like product".  Were the like product defined too 
broadly, then it would lead to irrational results.   
4.134  The "continuum" or "no clear dividing line" test is contrary to the plain meaning of 
Article 2.6.  It tests only whether the item claimed to be a separate product sh ares some characteristics 
with some other item in the "diversity of product".  It does not test whether the item claimed to be a 
separate product has characteristics (i.e., essential or distinctive traits) that closely resemble those of 
the product under consideration.  
4.135  A failure to define the like product in accordance with the criteria of Article 2.6 means also 
that the product under consideration has not been properl y defined.  This leads to other violations of 
the AD Agreement .  The investigating authority must assess industry support and the other application 
requirements of Articles 5.2, 5.3, and 5.4 separately for each like product.  Should those requirements 
not be met with respect to a like product, the inves tigating authority may not initiate an investigation 
with respect to the product under consideration a nd must redefine the scope of the product under 
investigation.  The improper definition of the like pr oduct, contrary to Article 2.6, would also vitiate 
the investigation, the establishment of dumping, the calculation of the anti-dumping margins and the 
imposition of anti-dumping duties in respect of th e product under consideration, in violation of 
Articles 1, 9.3 and 18.1 of the AD Agreement .  Therefore, a failure to define like products in 
accordance with the requirements of Article 2.6 must be corrected. 
3. Due Allowance for Dimension Differences 
4.136  Dumping is a measure to counter price discrimination between markets.  To measure price 
discrimination, one must compare prices that are co mparable, such that any difference in the price of 
goods in two markets cannot be attributed to other f actors, such as differences in taxes, or physical 
differences in the products compared.  In the absence of such a "fair comparison," in which 
differences in products are adjusted, one cannot possibl y measure price discrimination.  Article 2.4 of WT/DS264/R 
Page 26  
 
the AD Agreement  expressly requires not only a "fair compar ison (...) between the export price and 
the normal value", but also that "[d]ue allowan ce shall be made in each case, on its merits, for 
differences which affect price comparability, includ ing differences in conditions and terms of sale, 
taxation, levels of trade, quantities, physical char acteristics, and any other differences which are also 
demonstrated to affect price comparability".   
4.137  The present case involves the requirement of "due  allowance" for differences in physical 
characteristics; specifically, differences in the thic kness, width, or length (collectively, "dimension") 
of products sold in the United States and Canada  that Commerce compared without any adjustment 
and thus without "due allowance".  With respect to differences in physical characteristics, Article 2.4 
imposes an affirmative obligation upon the investiga ting authority; it does not establish an evidentiary 
standard for an individual res pondent in domestic proceedings. 
4.138  In making price-to-price comparisons, Articles 2.1 and 2.6 require the investigating authority 
to compare identical products sold in the importing country and in the home market, and permits comparisons of prices of non-identical products only if identical products cannot be compared.  When 
prices of identical products are compared, there is no issue.  When prices of non-identical products are 
compared, "due allowance" for the difference must be made under Article 2.4.   
4.139  The United States acted inconsistently with Article 2.4 in making price comparisons of 
products with differences in dimension that Co mmerce quite explicitly identified as non-identical 
products, yet treating them as if they were identi cal by failing to make an adjustment for such 
dimensional differences.  
4.140  Commerce used each of the three dimension char acteristics to distinguish between identical 
and non-identical products.  Based on its so-called "m atching criteria", Commerce regarded lumber 
products to be identical only if they were identical  with respect to all elev en characteristics, which 
included the same thickness, the same width, and the same length.   
4.141  Dimension affects both supply and demand, and thus price.  The physical dimensions of a 
particular lumber product affect the use to which the lumber can be put, thereby creating different 
demand for different dimensions.  On the supply side , the raw materials used to produce lumber vary 
in diameter and length, and trees of different diam eter and length will have different costs and yield 
lumber of different dimension.  Dimension thus affects both demand and supply, which, elementary 
economics teaches, necessarily aff ects price and price comparability. 
4.142  The United States provides to the Panel computer output showing a sample of average gross 
unit prices of random products in the Canadian home market for different respondents in the 
proceedings before Commerce.  The United States also points the Panel to the gross prices in the 
home market, which are rather meaningless as they ar e unadjusted for other differences affecting price 
comparability, including differences in freight char ges, volume discounts, selling expenses, and the 
like among individual sales.  In any event, in every instance in which products vary only by dimension, the prices to which the United States looks differ.  They are never the same.   
4.143  Canada has also provided the Pa nel with further graphical repr esentations of Commerce's own 
pricing data (using the meaningful, net prices after adjustments) as well as statistical representations of Commerce's Tembec data, demonstrating, thro ugh regression analyses, that dimension affects 
price.  In addition, instead of the random product examples Commerce selected, Canada provided examples of non-identical products Commerce actua lly compared, along with their net Canadian 
prices.  These charts and graphs of data alr eady before Commerce are simply illustrative and 
cumulative.   
4.144  Commerce unwaveringly accepted thickness, widt h, and length as important matching 
characteristics throughout its investigation, from its questionnaire, to its Preliminary and Final  WT/DS264/R 
 Page 27 
 
 
Determinations.  Because Commerce refused to compute either a cost-based or price-based adjustment for differences in dimension, Commerce refused to compare prices of any products that 
differed in any dimension characteristics.  No one subsequently challenged or  disputed this express 
factual finding that dimension affected price, nor did Commerce abandon it in its Final Determination.   
4.145  The very same evidence that established that th ickness, width, and length should be used as 
matching characteristics, and their order in the matc hing hierarchy, establishes that an adjustment was 
necessary before prices of non-identical products could be compared.   
4.146  Based on its failure to adjust for dimensi onal differences, Commerce made a substantial 
number of non-identical comparisons that, in turn, significantly distorted the margins Commerce computed using such comparisons.  Canada also  provided examples of some of the non-identical 
comparisons Commerce actually made.  This informat ion quickly dispels the suggestions made by the 
United States that few non-identical comparisons were  made, that the dimensi onal differences in these 
comparisons all were "minor", and that these "minor " differences did not impact price comparability.  
Commerce did not do any analysis. 
4.147  The data first show that, for each company,  Commerce made significant numbers of non-
identical comparisons.  Indeed, for two compan ies, the number of non-identical comparisons 
exceeded the number of identical comparisons.  Mo re importantly, for every company, the dumping 
margin calculated for non-identical companies fa r exceeded the margin cal culated for identical 
comparisons.  For every single company, the non- identical margin was at least double that for 
identical comparisons.  In some cases it was four to seven times as high.   
4.148  Canada has established its prima facie case that Commerce compared prices of products 
Commerce itself defined as non-identical, without due  allowance for physical differences as required 
by Article 2.4.  Canada has also supplied ev idence, from the record before Commerce, that 
dimensional differences affect price comparability, a nd that all parties before Commerce agreed that 
this was so.   
4.149  The argument that Canadian respondents did not meet the burden of proof is an ex post facto  
justification for the Commerce determination and, as such, cannot be considered by the Panel.  The 
Panel is to review the decision "made at the time of the determination as set forth in a public notice or 
in any other document of a public or confidentia l nature", as was confirmed by the panel in Argentina 
– Poultry .  
4.150  The United States offers no alternative explan ation for the fact it implicitly acknowledges, 
i.e., that lumber products of differe nt dimension exhibited different prices at any given time.  There is 
no alternative theory for why the prices of softw ood products of different dimension differ – other 
than that dimension affects price comparability. 
4.151  The US argument that the eviden ce showed that prices for different dimension lumber "were 
not stable or predictable" cannot derive from any failure of the Canadian respondent companies to 
provide evidence or analysis.  Thus, the United Stat es, without notice to the parties, established a 
specific evidentiary burden, inconsistent with Article 2.4 that would be virtually impossible to meet.   
4.152  The fact that neither Canadian nor US pri ces for any investigated lumber product were 
predictable or stable over the POI did not prev ent Commerce from comparing prices for purposes of 
measuring dumping, and it cannot be allowed to  prevent Commerce from making due allowance for 
product differences, particularly, where, as here, the comparisons made are of annual weighted-
average prices.  Commerce has not required showings  of consistent and pred ictable price differences 
for any of the other product characteristics for which it did make an adjustment for product 
differences.  WT/DS264/R 
Page 28  
 
4.153  Commerce had the necessary evidence; it simp ly resisted basing any adjustment for 
dimension on differences in value (price).   
4. Commerce's Practice of "Zeroing" Violated Articles 2.4 and 2.4.2 of the AD Agreement  
4.154  Commerce violated Article 2.4.2 in calculati ng margins of dumping for Canadian lumber 
when it changed to zero any intermediate stage margins resulting from comparisons in which export 
price exceeded normal value.  In conducting this zer oing, it failed to consider fully "all comparable 
export transactions" as required by Article 2.4.2 in  conducting its comparison of weighted average 
export price with weighted average normal value.   
4.155  The mechanics of the US practice as describ ed by Canada are not contested by the 
United States, and were acknowledged by Commerce during the investigation.  Furthermore, the 
United States has not denied that its practice is iden tical to that engaged in by the EC and found by the 
Appellate Body in EC – Bed Linen to be inconsistent with the term s of Article 2.4 and 2.4.2 of the AD 
Agreement .   
4.156  The terms "[a]ll comparable export transactions" require inclusion of export transactions that 
result in positive intermediate margins as well as tho se that result in negative intermediate margins.  
The US practice of zeroing, which introduces an ar tificial distinction betw een positive and negative 
intermediate margins, fails to account for all comparable export transactions, in violation of 
Article 2.4.2.  By converting intermediate ma rgins from model comparisons to zero where export 
price exceeds normal value, the United States gives l ess weight to these models and transactions in 
conducting its overall comparison.  C onverting negative margins to zero in effect decreases the true 
export price, which was greater than normal va lue to a value equal to the normal value. 
4.157  Furthermore, zeroing fails to compare a "weight ed average" normal value with a "weighted 
average" of prices of all comparable export transac tions, as required by Article 2.4.2.  Due to the 
conversion of some intermediate margins to zero, the overall margin of dumping that results does not 
reflect an actual average, in violation of Article 2.4.2.   
4.158  However, the US claim that Article 2.4.2 only addresses intermediate stage calculations is 
contradicted by the express terms of Article 2.4.2,  which establishes a single standard for the margin 
calculation applicable to all stages of the calculation.   
4.159  When Article 2.4.2 is read in conjunction with the terms of Article 2.1, the implausibility of 
the US interpretation of Article 2.4.2, as limited to intermediate stage calculations, is revealed.  These 
margins, aptly describ ed by the Panel in EC – Bed Linen  as margins of price difference, are of only 
secondary importance to Article 2.4.2.  To suggest that  they are the sole concern of its requirements is 
to ignore the most basic purpose of these provisions: to set rules governing how investigating 
authorities are to determine margins of dumping.   
4.160  The same claim made by the United States in th is case was considered and rejected by the 
Appellate Body in EC – Bed Linen .  Adopted Appellate Body repor ts should be taken into account 
where, as in this case, they are relevant to a subsequent dispute.   
4.161  
The AD Agreement  expressly provides that a comparison be made of weighted averages of 
US price and normal value for "all comparable expor t transactions".  The ordinary meaning of these 
terms supports a finding that zeroing violates the AD Agreement .  Any ambiguity or manifest 
absurdity that the United States might claim derive s not from the text but from its own unilateral 
interpretation of Article 2.4.2.      
4.162  Canada's interpretation of Article 2.4.2 does not  deprive the term "comparable" of operative 
meaning.  Canada agrees with the United States th at Article 2.4.2 applies to intermediate stage  WT/DS264/R 
 Page 29 
 
 
comparisons.  For those comparisons, "comparable" ensures that model-specific comparisons only include transactions meeting the requirements of "price comparability" contained in Article 2.4.  
"[All]" ensures that all the transactions meeting tho se requirements of comparability are used.      
4.163  For final stage comparisons, "comparable" describes the transactions compared at the 
intermediate stage and the nature of the transactions  within the like product. "[All]" operates to ensure 
that all transactions are considered, and none ar e excluded.  The United States argued in its first 
written submission that Article 2.4.2 "mak[es] plain that not all export transactions are 'comparable'."  The United States now claims that all export tran sactions are comparable, although not "equally 
comparable".  If all export transactions were comp arable, then it would be hard to understand how the 
inclusion of the word "comparable" could, as the United States contended in its first written 
submission, demonstrate that the word "all" has a limited application, namely only to a subset of 
transactions which are "comparable".  Ultimately , the United States fails to refute Canada's 
demonstration that Commerce's overall comparison, in cluding at the final stage of the process, did not 
result in a "fair comparison" within the meaning of Article 2.4.  
5. Company-specific Issues 
(a) The Allocation of Interest Expense for Abitibi 
4.164  In making this claim, Canada does not ask that the Panel choose between methodologies as 
the United States contends.  Rather, Canada argues that Commerce failed to meet its express obligations under Articles 2.2.1.1 and 2.2.2.  At the outset, in its determin ation, Commerce offers 
generic rationales that fail to show that it considered  the evidence before it.  Abitibi demonstrated that 
its newsprint and pulp and paper operations were far more cap ital intensive and required more 
financing than its lumber operations and that this difference was not captured in a COGS allocation.  
It also demonstrated that includi ng depreciation expense in COGS in no way corrects this distortion or 
in any way adjusts for differences in asset requireme nts.  Commerce was not guided in its selection of 
an allocation methodology by the specific evidence  that had been submitted in this case.  The 
evidence showed that the investigating authority:   (1) mandated an allocation methodology at the 
outset of a case before even gathering information,  (2) failed to make case-specific factual findings, 
(2) applied generic reasoning in defence of its me thodology, and (4) asserted that established practice 
would be followed because it is cons istent and predictable.  This c onstitutes a failure to "consider all 
available evidence on the proper allocation of costs" as required by Article 2.2.1.1. 
4.165  Further, Abitibi's assets are predominantly long-term and the asset requirements of its 
different business segments are very different, which differences are not reflected in COGS.  The fatal 
problem with a COGS methodology is that it consid ers only current expenses, and effectively ignores 
the true, full costs of long-term capital assets.  Further, the Panel must consider that Abitibi will sell 
the lumber soon after it is produced and then get pa id.  Thus, unlike capital assets which need to be 
financed for the full year and longer, current pr oduction expenses only need to be financed until 
payment is received.  Thus, the "cash needs" or capital needed to finance current expense is an 
amount much less than the annual total of tho se expenses because it takes into account inventory 
turnover time.  This is shorter for lumber than ot her products Abitibi sells.  In ignoring this for 
Abitibi, Commerce grossly over-weighted current expe nses in its allocation, since the working capital 
"cash needed" to finance current expenses over one year  is not the total of such expenses, but rather 
that total divided by the inventory turnover time.  Failure to consider these factors resulted in an 
interest expense that was not related to Abitibi' s cost to produce softwood lumber, contrary to 
Article 2.2.1.1. 
4.166  
Commerce's COGS methodology also skewed the allocation of interest expenses to lumber in 
this case because Abitibi's lumber operations require  7.6 per cent of the company's total assets and 
therefore 7.6 per cent of its total financial expense.   By allocating to lumber 13.6 per cent of total WT/DS264/R 
Page 30  
 
expense, as demonstrated, Commerce included costs that did not "pertain to" the production and sale of lumber contrary to Article 2.2.2. 
4.167  To date, the United States has failed to addr ess any of the factual evidence or arguments 
presented above.  It has responded by offering genera lizations that do not withstand scrutiny, or by 
mischaracterizing Canada's or Abitibi's arguments. 
(b) The Allocation of G&A Expenses for Tembec 
4.168  The United States continues to seek to ju stify Commerce's findings by arguing that 
Commerce's method was predictable and therefore more  reliable, that the FPG data were unreliable 
because they were unaudited and divisional da ta.  These arguments do not support Commerce's 
rejection of the FPG's data as a basis for determining Tembec's G&A. 
4.169  Article 2.2.2 of the AD Agreement  requires Commerce to calculate G&A expenses based on 
actual data pertaining to the production and sales of  the like product.  The G&A expenses from both 
the FPG and the overall company are verified and on the record (i.e., they both satisfy the "actual 
data" requirement).  Commerce defended the use of Tembec's company-wide data by stating that its 
"consistent and predictable method is to calculate  the rate based on the company-wide G&A costs 
incurred by the producing company…"  In this case,  however, its method effectively required reliance 
on data that did not pertain to the production an d sale of softwood lumber and distorted Tembec's 
margin of dumping in violation of Article 2.2.2.  It also resulted in the calculation of costs that were not "associated with" the actual cost to Tembec for producing and selling softwood lumber, contrary 
to Article 2.2.1.1. 
4.170  Commerce calculated Tembec's G&A rate b ased on the company-wide G&A expenses even 
though Tembec submitted documented evidence th at its pulp and paper operations incurred 
significantly higher G&A expenses than its lumber operations, as well as evidence on the reliability of 
the FPG data.  Using the more accurate and reflectiv e data from the FPG would have resulted in lower 
costs which, ultimately, would have resulted in a lower margin for Tembec.  The United States now offers, as an additional defence of its practice, that  Tembec's FPG G&A data were "not audited" and 
not kept in accordance with Canadian GAAP.  First, this defence is a post hoc rationalization of 
Commerce's determination.  Second, as elaborated in Canada's response to question 54 of the Panel, 
the FPG data were audited.  Finally, the FPG data were maintained in accordance with GAAP.  
(c) The Allocation of G&A Expenses for Weyerhaeuser  
4.171  The United States argues that the hardboard siding charge is a general expense attributable to 
Weyerhaeuser Canada's cost of producing softwood.  The United States' only support for this claim is 
that the hardboard siding expense is really a "leg al" expense.  However, the USD130 million charge 
for hardboard siding settlements does no t reflect lawyer salaries, copying of briefs, travel to court, or 
other types of "legal" expenses that are often consider ed to be "general".  As described on page 51 of 
Weyerhaeuser Company's financial statement, the ha rdboard siding charge was unique.  The charge 
was specifically meant to fund future claims relate d to hardboard siding.  The expense was not even 
incurred in the year Weyerhaeuser Company took the charge; it was simply meant to reflect the 
contingency on its books.  In rea lity, the expense affected one line of business, in the United States, 
that was unrelated to Canadian softwood lumber – nothing more. 
4.172  The United States further tries to justify Comm erce's classification of the hardboard siding 
expense as a general expense based on the claim that doing so is "supported by Weyerhaeuser 
Company's own books and records" and that We yerhaeuser Company describes the expense as 
"generally incidental to its business".  On th e contrary, Weyerhaeuser Company's consolidated 
financial statement provides separate line items for Weyerhaeuser Company's SG&A expenses and its hardboard siding settlement expense.  The evid ence also demonstrates only one other line-item  WT/DS264/R 
 Page 31 
 
 
expense (the integration expense) was included in Commerce's G&A calculation.  Further, the 
language that the costs are "generally incidental  to its business", as the full quote demonstrates, was 
referenced in terms of pending and th reatened environmental litigation.   
4.173  Finally, the United States hinges its entire argument on the belief that Canada cannot 
demonstrate that the settlement charge relates to th e production and sale of hardboard siding.  Such an 
approach is inconsistent with  Articles 2.2.2 and 2.2.1.1, the findings of the panel in Egypt – Steel 
Rebar , and Commerce's own practice.  As stated in Egypt – Steel Rebar , a cost may be attributed to 
the production and sale of the like product only if the facts of the case point out that the cost was 
associated with the product under investigation.  A pplied to the hardboard siding settlement charge, 
the United States may not base its decision to incl ude the charge on the fact that Weyerhaeuser 
Company did not demonstrate that the charge relate s to production activity, or that it normally treats 
these types of expenses in this manner.  The har dboard siding expense is a settlement fund concerning 
a product unrelated to the like product, produced  in the United States by Weyerhaeuser Company.  
Accordingly, the hardboard siding expense did not "pertain to" the production and sale of softwood 
lumber as required by Article 2.2.2.  Nor did incl uding this expense result in  a cost that "reasonably 
reflected" Weyerhaeuser Canada's co sts "associated with" the production and sale of softwood lumber 
in accordance with Article 2.2.1.1.  US findings in this regard were neither a proper establishment of 
the facts nor an evaluation of the facts that was unbiased and objective. 
4.174  The US arguments also fail to properly iden tify Weyerhaeuser Company's burden during the 
investigation.  Weyerhaeuser Company was required to demonstrate that the expense was not related 
to the production and sale of Canadian softwood lumber, nothing more.  Commerce never requested 
additional information to add to this record evid ence.  Finally, the US argument violates Commerce's 
own practice.  When Commerce calculates G&A for a parent company that owns the producer or 
exporter under investigation, as here, Commerce has recognized that G&A expense items are not 
considered fungible in nature.  The United Stat es never addresses this policy in its first written 
submission or response to the Panel's questions.  Th e record in this case demonstrates that for other 
"general" expenses, Commerce in fact followed this policy.   
(d) West Fraser's By-product Revenue Offset 
4.175  Canada argues that Commerce improperly igno red relevant record evidence concerning 
99.7 per cent of BC wood chip prices.  In response,  the United States characterizes Canada's claim as 
an "argument that Commerce should have preferred one  source of evidence," and alleges that such an 
argument is a "request to find facts de novo ".  This characterization is incorrect.  Canada argues that 
Commerce was required to consider all relevant record  evidence.   A panel must "consider whether all 
the evidence was considered, including facts which might detract from the decision actually reached" 
in determining whether an investigating authorit y was unbiased and objective.  The United States also 
is incorrect in alleging that Canada is seeking a de novo review of the record evidence.  Canada has 
made a prima facie case showing that the evidence on BC market prices is inconsistent with 
Commerce's determination that West Fraser's chip sal es to affiliated parties were made at inflated 
prices.  It falls within the Panel's competence to find that this determination does not constitute an 
"unbiased and objective" evaluation of that evidence.      
4.176  Canada demonstrated that the data Comme rce relied upon did not provide a reasonable 
benchmark for BC market prices.  Canada showed th at the majority of West Fraser's wood chip sales 
to unaffiliated parties were made through the McBride mill pursuant to a pre-existing contract early in 
the POI, when prices were lowest.   Canada also showed that the volume of West Fraser's sales to 
unaffiliated parties represented just 0.28 per cent of West Fraser's total BC wood chip sales.   
4.177  First, the United States argues that these are ne w arguments that were not advanced by West 
Fraser itself.  As Commerce used a country-wide comparison in its Preliminary Determination, 
however, there was no reason why West Fraser would have argued that its sales to unaffiliated parties WT/DS264/R 
Page 32  
 
in BC were too small or unrepresentative.   Sec ond, the United States asserts that Commerce acted 
reasonably because West Fraser's unaffiliated transa ctions within BC were found to be commercial 
transactions.  As record evidence shows that the ma jority of West Fraser's BC sales to unaffiliated 
parties were made during the first two months of the POI, when prices were lowest, the average price of those sales cannot reflect market prices for the POI.  Third, the Unite d States claims that "[s]o long 
as the wood chip transactions were commercial in na ture, the actual volume of those transactions is 
irrelevant".  This assertion, however, is not consis tent with an investigating authority's obligations 
under the AD Agreement .  Under Commerce's interpretation, even one non-representative arm's length 
transaction could serve as a reasonable benchmark for market prices for a POI of an entire year.  Finally, the United States observes that Canada has not made arguments concerning West Fraser's 
unaffiliated sales from its PIR sawmill.  That observati on is correct, and the reason for this is simple: 
unaffiliated sales from PIR did not distort Commerce's analysis.        
4.178  Commerce applied inconsistent benchmarks to  Canfor and West Fraser in determining 
whether their respective chip sales to unaffiliated parties were made at market prices.  The 
United States defends this action by arguing "[unaff iliated] sales in BC made by West Fraser were of 
its own product mix, and thus the best evidence of th e value of an offset in West Fraser's process".  
This argument is a false, post hoc justification for Commerce's dissimilar treatment of West Fraser.  
Commerce did not find that West Fraser's wood ch ip sales to unaffiliated parties provided a better 
benchmark because they reflect West Fraser's "own  product mix", and identified no evidence that 
West Fraser's wood chips somehow differed from those of Canfor or other producers.   
4.179  Canada also showed that Commerce re-valued cer tain chip sales made by West Fraser to an 
affiliate, QRP, even though Commerce recognized that those sales had been made at market prices.  In 
response, the United States argues Canada is reque sting the Panel to find that data from QRP was 
"more relevant".  Canada does not argue that these da ta were "more relevant".  Rather, Canada argues 
that Commerce unreasonably revalued wood chip sal es made by this large sawmill to an affiliated 
customer, even though Commerce itself specifically recognized that the prices QRP paid West Fraser 
were not inflated.  The US argument does not address this inconsistency.  At the very least, this 
evidence must be considered in determining wh ether the finding was based on an unbiased and 
objective evaluation of the reco rd evidence as a whole.   
(e) Tembec's By-product Revenue Offset 
4.180  Commerce had two alternatives for the data it w ould use to calculate Tembec's  by-product 
revenue offset.  Commerce had to c hoose between using internal transf er prices or unaffiliated prices 
for wood chip purchases.  Commerce used one appr oach for Tembec and the opposite approach for 
West Fraser for the same overall purpose: artif icially inflating both companies' margins. 
4.181  The United States argues that "the difference betw een the (...) internal surrogate for cost and 
the external market price is the equivalent of "p rofit" in the normal setting where costs and sales 
prices are known".
  This post hoc rationalisation must be rejected.  The difference between internal 
prices and market prices cannot be attributed to pr ofit.   By-products, by definition, have neither 
profits nor costs.  Furthermore, Commerce made no findings about profits.   
4.182  Canada submits that market price is the appropriate benchmark for valuing by-product 
revenue offsets.  Article 2.2.1.1 requires Commerce to base its cost calculations on the records kept 
provided that they "reasonably reflect the costs associated with the production and sale of the 
product".  The internal transfer pricing in Tembec 's books and records does not reasonably reflect the 
costs associated with the production of softwood lu mber because the wood chip pricing therein does 
not reasonably reflect the market value of the by-product.   
4.183  There are three flaws in the US argument that Tembec made its best assessment of a surrogate 
for cost when it set its internal transfer price.   First, Commerce made no such finding.  Second, there  WT/DS264/R 
 Page 33 
 
 
is no record evidence upon which such a finding c ould have been made.  Third, the argument assumes 
that Tembec's accountants would assign a cost to a by-product when GAAP provides that no costs are assigned to by-products. 
4.184  The United States claims that "there ar e no easy methods to assess value under such 
conditions" and that, because Co mmerce used the company's own valuation, it determined a 
reasonable figure for by-product revenue.
  These claims were not advanced by Commerce in the IDM, 
and they are not correct.  It would have been very  easy to assess the value of the wood chips by using 
the records kept by Tembec of its unaffiliated sales and purchases of wood chips.   
(f) Slocan's Futures Revenue Offset 
4.185  Commerce rejected Slocan's position that futures revenue formed part of direct selling 
expenses.  In doing so, Commerce asserted that it did not consider the revenue to "result from and 
bear a direct relationship to [a] particular sale in question".  This is not correct.  Article 2.4 requires 
that "[d]ue allowance shall be made … for di fferences which affect price comparability".  The 
ordinary meaning of this provision cannot support the US interpretation.  Article 2.4 does not refer to 
"particular sales transactions", and no reasonable interpretation of the textual language of this 
provision would read in such a specific requirement.    
4.186  The United States argues that Article 2.4 presumes a request for adjustment and a 
demonstration of effect on price comparability.  Th is interpretation contradicts the ordinary meaning 
of Article 2.4.  The United States was required to ma ke due allowance for all differences that affected 
price comparability.  In this context, the "differe nces" referred to include the "conditions and terms of 
sale, taxation, levels of trade, quantities, physi cal characteristics and any other differences".   
4.187  Article 2.4 provides a non-exhaustive list of differe nces that affect price comparability.  It is 
apparent that there is a broad requirement to adju st for any differences affecting price comparability.  
Moreover, Article 2.4 clearly envisages overlap between the "differences" under this provision.   In 
other words, it would not matter whether Slocan sepa rately demonstrated that its futures revenue was 
a "condition of sale" in the US market.  Slocan's futures trading activity was either a "condition" of 
US sales, an "other difference" affe cting price comparability, or both. 
F. SECOND WRITTEN SUBMISSION OF THE UNITED STATES  
4.188  In the second written submission, the United St ates addresses points raised by Canada at the 
first substantive meeting and in  Canada's 30 June responses to  the Panel's questions.  The 
United States asserts that statements made by Ca nada at the first substa ntive meeting and in its 
responses do nothing to change the conclusion the Pane l should reach.  With respect to each claim, the 
United States contends that Canada either has failed to identify an obligation implicated by 
Commerce's action, or, where it has identified an obligation, it has failed to demonstrate how Commerce's actions were inconsistent with that oblig ation, and it has asked the Panel to engage in de 
novo  fact-finding. 
1. Initiation 
4.189  Canada's argument regarding Article 5.2 of the AD Agreement  is flawed for at least two 
reasons.  First, Canada  incorrectly reads into th at provision an obligation on investigating authorities 
independent of the obligation under Article 5.3 to determine whether there is  sufficient evidence to 
initiate an investigation.  Where Article 5 impo ses an obligation on investigating authorities, the 
obligation  is unmistakable.  By contrast, Article 5.2 makes no reference at all to the authorities, but 
simply describes the contents of an application.  This fact is not inconsequential given that this 
description of the application's contents necessarily  informs the inquiry into  accuracy and adequacy 
and sufficiency under Article 5.3.  WT/DS264/R 
Page 34  
 
4.190  The second flaw in Canada's argument is that  it improperly reads the word "all" into the 
phrase "such information as is reasonably available".  It suggests that the exclusion of any reasonably 
available information from the application, no matte r how minor, would be grounds for declining to 
initiate, even if the information included in the a pplication were sufficient to demonstrate dumping, 
injury, and causal link.  
4.191  Under Article 5.3, Canada disputes the suffi ciency of the evidence supporting initiation and 
argues that the Weldwood data would have provi ded a superior basis for deciding whether to 
initiate.
54  However, the Weldwood data necessarily w ould have represented the experience of only a 
single company, rather than the diverse cost and pric e data actually set forth in the application.  But, 
even assuming, arguendo , that Canada's assessment in this respect is correct, it has no bearing on the 
question before this Panel.   
4.192  The evidence that Commerce reli ed upon to initiate included data from the lumber industry 
publication Random Lengths.  Canada incorrectly asserts that Random Lengths "commingles" 
Canadian and US data.  Its assertion that the Random Lengths data are "not actual transaction prices" 
but "informal estimates" is also incorrect.  More over, Canada's questioning of the reliability of 
Random Lengths  data is contradicted by its ow n reliance on that very same source.55  
4.193  Canada also argues that the application de monstrated dumping of only a limited number of 
categories of lumber.56  Canada's argument assumes the correctness of its own claim regarding the 
product under consideration; that is, it assumes that each "category" of softwood lumber in fact constitutes a separate "product under consideration"  and thus requires a separate demonstration of 
dumping for purposes of initiation.  However, Ca nada's product-under-consid eration argument has no 
basis in the AD Agreement .  
4.194  Finally, Canada argues that Commerce's initiatio n was tainted by a lack of evidence of home 
market sale prices in BC.
57  The application contained evidence of home market sales below cost in 
Quebec.  This provided a basis for using cons tructed value to establish normal value.  The AD 
Agreement  does not require investigating authorities to conduct separate cost  tests on different 
markets within "the domestic market of the exporting country".  
4.195  Commerce's establishment of the facts with respect  to softwood lumber costs was also proper.  
Canada's claim that the application "fail[ed] to have  costs of significant or representative producers" is 
incorrect for two reasons.58  First, with respect to the vast majo rity of costs, data from US mills were 
used only to provide production factors, which were  then valued using data Canada does not dispute 
are representative of Canadian costs of production.59  Second, the US mills whose data were used in 
the cost model were themselves significant a nd representative producers of softwood lumber. 
4.196  Finally, Canada's allegation that "Commerce re lied upon an average freight cost from Quebec 
to the United States including in that average an estimate for freight cost from the Maritime 
provinces"60 is demonstrably false.  The cited affidavit provides separate  per-MBF freight rates for 
shipment to Boston from four regions, one  of which is the Maritime Provinces.61  
                                                      
54 See, e.g. , Canada first written submission, paras. 86, 95, and 99; Canada response to question 9 of the 
Panel, paras. 45-49. 
55 Canada response to question 4 of the Panel, paras. 6-7. 
56 Canada response to question 8 of the Panel, paras. 28-30. 
57 See, e.g. , Canada response to question 19 of the Panel , para. 61. 
58 Canada response to question 8 of the Panel, paras. 34-35. 
59 See US first written submission, paras. 53-54 and exhibits cited therein. 
60 Canada response to question 8 of the Panel, para. 40. 
61 Exhibit CDA-41, Petition Exhibit VI.C-9, para. 4.  WT/DS264/R 
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2. Product under Consideration 
4.197  Canada has not identified an obligation arising out of Article 2.6 of the AD Agreement  that the 
United States violated in this case.  Canada's shift from one theory to another reflects its inability to 
identify any violation.  
4.198  This is underscored by its 30 June 2003 response to a question on this very subject.  Canada 
first attempts to parse the phrase "characteristics closel y resembling" in Article 2.6.  It concludes that 
the phrase "must mean that the essential, distinctive tra its of one product must be very nearly identical 
to the essential, distinctive traits of the other product".62  In fact, this conclusion is not borne out by 
the definitions of key terms Canada cites.  
4.199  Canada then proceeds to posit a problem that might occur if the product under consideration 
in a given case were defined too broadly, usin g a hypothetical case comprising automobiles and 
bicycles.63  There are several problems with this hy pothetical example.  First, whatever the 
appropriate analysis of an investigation that mi ght treat automobiles and bicycles as a single product 
under consideration would be, that is not the case pr esented here.  Second, Canada's own analysis of 
its hypothetical begs the question of how Article 2.6 directs an authority to determine the appropriate 
number of products under consideration in a given case.  Third, Canada fails to consider the 
implications that a narrow definition of product under consideration would have on the very same 
standing and injury determina tions to which it alludes. 
3. Due Allowance for Dimensional Characteristics 
4.200  Commerce acted consistently with Article 2.4 of the AD Agreement  in its consideration of the 
dimensional characteristics of softwood lumber.  Ca nada contends that the respondent companies had 
no notice of Commerce's intent to consider whether or not a price adjustment should be granted for 
dimensional differences.64  Its claim of procedural unfairness – specifically, that the United States 
violated Article 6 of the AD Agreement  – is a new claim that falls outside the Panel's terms of 
reference. 
4.201  In its response to the Panel's questions, Cana da provided a seven-page consultant's report 
(contained in Exhibit CDA-129) to explain the re gression analysis contained in Exhibit CDA-77.  
Canada's reason for presenting the regression analysis  (and the consultant's background report) for the 
first time in this dispute, instead of during the inv estigation, is that "no one reasonably doubted that 
the inclusion of dimension for model matching w ould not mean its inclusion in adjustments for 
physical differences".65  Canada's position is belied by the reco rd.  The parties' submissions during the 
investigation evidence their awar eness that whether or not an adjustment would be made for 
differences in dimension was an open question.   
4.202  Canada misinterprets Commerce's inclusion of physical characteristics in the product 
matching methodology as an acknowledgement that di mensional differences had an effect on price 
comparability, requiring "due a llowance" under Article 2.4.66  However, Commerce cannot be deemed 
to have concluded that dimension affected pr ice comparability simply by having made a product 
matching determination.  Commerce accepted that dimensional characteristics were significant for 
product matching purposes, at the behest of the parties,  but without scrutiny of the price or cost data 
specifically relevant to dimension.  Even assuming arguendo , that Commerce implicitly 
acknowledged that dimension affects price comparability, it made the due allowances that Article 2.4 
                                                      
62 Canada response to question 20 of the Panel, para. 64. 
63 Id., para. 65. 
64 Canada response to question 4 of the Panel, paras. 4 and 5. 
65 Id., para. 4. 
66 Canada response to question 22 of the Panel , para. 86.   WT/DS264/R 
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requires by comparing products on the basis of criteria that included dimension.  In contrast to the Argentina authority in Argentina – Ceramic Tiles , by conducting a model-by-model comparison, and 
matching not only identical softwood lumber dimensi ons, but also, where identical dimensions were 
not available for matching, the most similar dimensions possible, Commerce fully accounted for 
dimensional differences. 
4.203  For "affect price comparability" under Article 2.4 to have any meaning, there must be some 
connection established between the di fferences in physical characteristics at issue and prices.  As the 
respondents were aware, differences in dimensio n did not yield variable cost of manufacturing 
differences, and therefore Commerce did not have the means to connect differences in price with 
differences in dimension according to its norma l practice.   The connection between physical 
differences and price had to be established in some other fashion in order to justify an adjustment. 
4.204  This is not a case in which Commerce either fa iled to ask for data, or asked for data the 
respondents never provided, and therefore record evidence does not exist.  Commerce reached its 
conclusion based on a review of th e information contained in the re spondents' cost and sales databases 
conducted in the normal course of the investigation.
67  
4.205  In response to the Panel's request to the Un ited States for the "number of comparisons" of 
softwood lumber made involving different dimensi ons, Canada provided its ow n distorted response.  
First, Canada presented only the number of compar isons made, without weighting the results by 
volume.68  Because the dumping margins are calculated acco rding to the volume of US sales, a simple 
number of comparisons does not reflect the relative significance of the identical, similar, and constructed value comparisons in the margin. 
4.206  Canada also provided several charts showing price differences in the Canadian market for 
several softwood lumber products.  However, the pri ce differences reflected in those charts may not 
be attributable to differences in dimension, but to the fact that the sales were made outside the 
ordinary course of trade.
69  Other comparisons on the record show no discernible pattern between 
dimension and price.  They show minimal price di fferences for differences in dimension, significant 
fluctuations, and smaller lumber pieces selling for higher prices than large lumber pieces.  This other 
record evidence demonstrates the selective nature of Canada's charts.   
4. Calculation of Overall Dumping Margin 
4.207  On the issue of Commerce's calculation of th e overall dumping margin, the issue is whether 
Articles 2.4 and 2.4.2 of the AD Agreement  contain an affirmative obligation for Members to offset 
margins of dumping established after comparing weighted-average normal values to weighted 
averages of all comparable export transactions with any non-dumping amounts found in such 
comparisons.  There is no basis for such an obligation in the AD Agreement . 
4.208  While it is clear that Canada disagrees with th e United States on the existence of such an 
obligation (for purposes of this dispute), it is not  clear that the disagreement extends beyond this 
dispute.  Canadian administrative practice shows that  Canada's interpretation of Articles 2.4 and 2.4.2 
is similar to the United States' interpretation.70  It is not clear how Canada reconciles its interpretation 
of Articles 2.4 and 2.4.2 for purposes of its own i nvestigations with its interpretation of those 
provisions in the present case. 
                                                      
67 Exhibit CDA-2, IDM, Comment 4, note 60.  
68 Canada response to question 25 of the Panel, para. 97. 
69 See Exhibit US-76, pp.1-4 illustrating this point.   
70 See Exhibit US-78, "Margins of Dumping" section of "Statement of Reasons, Concerning the making 
of a final determination of dumping with respect to Fres h Tomatoes, Originating in or Exported from the United 
States of America, Excluding  Tomatoes for Processing".  WT/DS264/R 
 Page 37 
 
 
4.209  Further, Canada has stated positions th at are: (a) inconsistent with the EC – Bed Linen  Report 
and (b) internally inconsistent.  First, after relying heavily on the Appellate Body Report in EC – Bed 
Linen , Canada is now espousing positions  at odds with that report.  Canada now agrees with the 
United States that a two-stage process for determin ing whether a producer or exporter has engaged in 
dumping is appropriate under Ar ticles 2.4 and 2.4.2 of the AD Agreement .71  However, the Appellate 
Body, in arriving at its finding in EC – Bed Linen found "nothing in Article 2.4.2 to support the notion 
that, in an anti-dumping investigation, two different stages are envisaged or distinguished [...], nor to 
justify the distinctions [...] among types or models of the same product on the basis of these 'two 
stages'".72  Thus, Canada now appears to agree w ith the United States that the reasoning in EC – Bed 
Linen does not account for the need to make multiple  comparisons in order to comport with 
Articles 2.4 and 2.4.2 of the AD Agreement . 
4.210  Second, Canada is not completely consistent  in its position regarding a two-stage dumping 
analysis.  In particular, at paragraph 109 of its r esponse to question 31 of the Panel, Canada seems to 
take the position that a two-stage analysis is required by the AD Agreement .  Yet, in the same 
response, and without citation or explanation, Ca nada claims that "the resulting dumping margin 
should be the same whether the authority ca rries out its calculation in one stage or two"73 and that, in 
this case, the first stage "divided the single like product into multiple models as an expedient  that 
permitted appropriate compar isons between identical or most similar products".74 (emphasis added)  
Nowhere does Canada reconcile these positions. 
4.211  Although Canada took issue with the appropria teness of the United States' reference to 
negotiating history of Articles 2.4 and 2.4.2 of the AD Agreement75, Article 32 of the Vienna 
Convention expressly provides for recourse to the negotiating history in order to confirm the ordinary 
meaning of treaty terms in their context and in li ght of the treaty's object and purpose.  Canada does 
not refute the substance of th e relevant negotiating history. 
5. Company-specific Issues 
4.212  Canada misconstrues Articles 2.2.1.1 and 2.2.2 of the AD Agreement  as mandating particular 
methodologies other than the methodologies Commerce actually used.  In fact, Articles 2.2.1.1 and 
2.2.2 provide investigating authorities with genera l guidance as to the calculation of production costs 
and constructed value.  
4.213  Canada raises the issue whethe r Commerce's decision to allocate Abitibi's financial costs  
using a COGS methodology was consistent with  Articles 2.2.1.1 and 2.2.2.  Commerce fully 
considered Abitibi's "asset-based" allocation proposal , but disagreed that assets alone should govern 
how financial costs were allocated.76  Canada argues that the COGS allocation is unreasonable, not 
because it fails to include a value for capital assets,  but because it fails to consider all assets to a 
sufficient degree.77  For example, Canada argues that th e COGS methodology fails to consider non-
depreciable assets.  However, the record reflects that  the vast majority of Abitibi's assets – and all of 
its "capital assets" – were depreciable assets.78  
4.214  Whether or not Abitibi's asset-based cost alloca tion methodology was a reasonable alternative 
to Commerce's COGS methodology is not the issue be fore this Panel.  However, even on its own 
terms, Canada's argument is flawed, because it is based on the unsubstantiated premise that Abitibi's 
                                                      
71 Canada responses to questions 28, 29, 30 and 31 of the Panel, paras. 101, 105-107, and 109. 
72 Appellate Body Report, EC – Bed Linen , para. 53. 
73 Canada response to question 31 of the Panel, para. 110. 
74 Id., para. 111. 
75 Canada first oral (opening) statement, paras. 67-68. 
76 Exhibit CDA-2, IDM, Comment 15. 
77 Canada response to question 52 of the Panel, para. 146.  
78 Exhibit CDA-82, Abitibi's Consolidated Financial Statement, p. 35.   WT/DS264/R 
Page 38  
 
financial costs relate solely to its assets.  Be cause money is fungible, financial costs cannot be 
attributed to any one expenditure – whether to as set purchases or to any other particular investment.
79  
Rather, and consistent with Canadian GAAP's tr eatment of financial costs as a general cost, 
Commerce concluded that financial costs relate to  Abitibi as a whole and are reflective of Abitibi's 
overall borrowing needs.  
4.215  Canada raises the issue whether Commerce's calculation of Tembec's G&A costs  – based on 
the company-wide costs reported in Tembec's aud ited financial statement – was inconsistent with 
Articles 2.2.1.1 and 2.2.2.  Ca nada cites to no authority for the proposition that, as an accounting 
matter, a company can incur G&A costs on a divisional basis.   
4.216  Canada was unable to provide evidence that Tembec's "divisional G&A" was in accordance 
with Canadian GAAP.80  Instead, Canada argues that an asser tion in an unaudited portion of Tembec's 
financial statement establishes that the "divisi onal G&A" is in accordance with Canadian GAAP.81  
However, this note to the audited financial statemen ts does not address directly Tembec's treatment of 
its G&A costs, nor does the reco rd establish that Tembec's "div isional G&A" was among the items 
audited.82  Canada argues that, because Tembec's overall G&A cost was audited, the G&A cost that 
Tembec attributed to various divisions must also have been audited83, but that conclusion does not 
logically follow.  The fact that an audited financ ial statement properly records a company's total G&A 
costs does not mean that the comp any's internal allocation of those costs among divisions has been 
audited.  
4.217  Regarding Weyerhaeuser Canada's G&A costs , Canada appears to reason that G&A costs 
that are not related exclusively  to the production and sale of softwood lumber must not be included in 
a calculation of those production costs.84  This reasoning misapprehends th e very nature of G&A cost.  
General expenses are, by definition, expenses incurre d for the benefit of a corporate group as a whole 
and are not specific to one or another product line.  A requirement that general expense be directly 
related to the good produced would make it impossi ble to allocate general expense within a company 
that produces many goods because a direct relations hip would never be identifiable.  This would 
render meaningless the requirement of Article 2.2 that "a reasonable amount for administrative, 
selling and general costs" be included in a company's cost calculation.  
4.218  In previous submissions, the United States has re ferred the Panel to Note 14 of Weyerhaeuser 
Company's audited financial statement, explaining  the general nature of the company's litigation 
costs.85  In its most recent submission, Canada repli es that the statement in Note 14 "was not made in 
the context of the hardboard siding claim".86  However, Note 14 plainly is attached to the line item in 
Weyerhaeuser Company's financial statement pertai ning to the hardboard siding litigation.  Canada 
also adds that Note 14 "neither attributes the e xpenses to any particular portion of Weyerhaeuser's 
business nor the business as a whole.  It simply acknowledges that the company incurred certain 
costs".87  But, this is not a basis for excluding the co st from G&A costs.  If it were, then litigation 
expenses and other expenses that are general in na ture would avoid inclusion in calculation of a 
company's total SG&A cost simply by virtue of their characterization on a company's books and 
records. 
                                                      
79 US first written submission, paras. 192-193. 
80 Canada response to question 53 of the Panel, paras. 149-154. 
81 Id., para. 149. 
82 Exhibit US-12, Tembec's Annual Report, "Auditors' Report," p. 34. 
83 Canada response to question 53 of the Panel, para. 150. 
84 See, e.g.,  Canada response to question 60 of the Panel, paras. 163-64. 
85 See US response to question 41 of the Panel, para. 65, note 41, citing Exhibit CDA-101, 
Weyerhaeuser 2000 Annual Report, note 14, p. 75.  
86 Canada response to question 60 of the Panel, para. 164. 
87 Ibid.  WT/DS264/R 
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4.219  Canada maintains that these costs had a "clear  association with the production and sale of 
non-like product…"88  What Canada does not explain is how litigation occurring years after a good's 
production can be clearly associated with its production.  
4.220  The AD Agreement  is silent as to how investigating authorities should calculate by-product 
offsets to production costs.   Article 2.2.1.1 addresses the "costs associated with the production and 
sale" of the product under consideration and does not address consideration of the "market value" of 
offsets to those costs.  "Market value" is different from "cost".  Market value will include the cost of a 
good, but it will also include other elements , such as selling expenses and profit.   
4.221  Applying market value as a benchmark, Commerce determined that West Fraser's BC 
affiliated transactions did not reasonably reflect the value of the wood chips.89  Thus, Commerce 
valued the  by-product  offset for both affiliated and unaffiliate d transactions using the "average sales 
price" for wood chips derived from the unaffiliated BC transactions.90 
4.222  Canada now acknowledges that West Fraser ne ver argued to Commerce that some of its 
unaffiliated (McBride mill) transactions were unr epresentative of a market value for wood chips.91  It 
argues that, because West Fraser had a large amount  of affiliated transactions during the period of 
investigation, it is "self-evident" that Commerce should have questioned the use of West Fraser's 
unaffiliated transactions for valuing wood chips in BC.92  However, West Fraser's unaffiliated 
transactions were significant in number and value.   Even if the quantity of transaction had been 
smaller, this fact, in and of itself, would not ha ve called into question the commercial nature of the 
unaffiliated transactions. 
4.223  Canada also argues that Commerce should have  compared the values of West Fraser's wood 
chips to the values of all wood chips on the record, including t hose values reflected in the books and 
records of Tembec, Canfor, Abitibi, and Weyerhauser Canada.93  Canada cites to no provision of the 
AD Agreement  requiring that analysis.  
4.224  Finally, Canada argues that Commerce "blindly adhered" to its methodology for valuing 
affiliated transactions.94  However, Commerce's methodology in BC (and applied to Alberta 
transactions as well) was based on an objec tive review of the firm's books and records.95    
4.225  In the case of Tembec, the question is Commerce' s valuation of interdivisional transfers of 
wood chips.  A value for an interdivisional transf er of a by-product recorded on a company's books 
and records may be a reasonable reflection of the "costs associated with the production and sale" of 
the by-product, even if that value is less than market value.  In this case, Commerce determined that 
the price paid by Tembec's pulp mills to its sawmills was a reasonable amount.96  
4.226  Canada claims that Tembec's inter-divisional transactions were "arbitrary".97  B u t ,  n o  
provision in the AD Agreement  requires an investigating author ity to replace a company's own 
valuation of inter-divisional transfer s of a product with the market value for sales of the same product.  
Costs of production are commonly lower than the mark et value of a product, due to profit paid by an 
unaffiliated purchaser to its supplier.  
                                                      
88 Canada response to question 58 of the Panel, para. 159. 
89 Exhibit CDA-2, IDM, Comment 11.  See also US first written submission, paras. 218-229. 
90 Ibid. 
91 Canada response to question 65 of the Panel, para. 168, note 168. 
92 Ibid. 
93 Canada response to question 66 of the Panel , paras. 170-171. 
94 Id., paras. 170 and 172. 
95 Exhibit CDA-2, IDM, Comment 11. 
96 Id.  See also US first written submission, paras. 230-244. 
97 Canada response to question 71 of the Panel, para. 179. WT/DS264/R 
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4.227  With respect to Slocan , Canada asserts that Commerce should have made some adjustment 
for futures contract profits, even though Slocan itsel f failed to substantiate ei ther of the alternative 
treatments it sought.  As the panel in Egypt – Steel Rebar  noted, responding parties have an obligation 
to assert and to justify the information and arguments required to prove their claims.
98  Slocan 
requested two alternative and directly contradictor y treatments of its hedging profits, but the evidence 
did not support either claim.99 
4.228  Neither Slocan nor Canada has explained how Slocan's futures contracts could "affect" any 
specific prices to US customers, given that no sale or shipment of softwood lumber and no payment for lumber actually occurred under the contracts.
100  Canada has not identified a sale of lumber to a 
customer in the United States for which Slocan's futures contracts were a condition and term of 
sale.101  Absent such a showing in the investigation,  there was no basis fo r an adjustment for 
differences in conditions and term s of sale under Article 2.4. 
4.229  Commerce also found, consistent with Article 2.2 of the AD Agreement , that the futures 
contracts were not linked to production, since the profits amounted to sales revenue (even though they 
were not tied to any particular sale of lumber in the United States).  Thus, Commerce properly 
declined to use selling revenue to offset fina nce expenses included in Slocan's production costs.102 
G. SECOND ORAL STATEMENT OF CANADA  
4.230  In its second oral statement, Canada made the following arguments: 
1. Initiation and Termination of the Investigation 
4.231  The United States breached the AD Agreement  because the investigation was initiated and 
then continued in a manner that did not respect US obligations under Articles 5.2, 5.3 and 5.8. 
4.232  The panel in Guatemala – Cement I  held that, even though the evidence needed to justify 
initiation is not the same as that needed to justif y a preliminary or final determination, the "subject 
matter, or type, of evidence needed to justify initiation is the same as that needed to make a 
preliminary or final determination of dumping". (emphasis in original) 
4.233  The United States has claimed that the applica tion "contained data on cost of production, 
home market sales, and export price for many co mpanies in the two largest lumber-producing 
provinces in Canada".  However, the United States has now conceded this statement is untrue.   
4.234  Commerce initiated the investigation without an y domestic sales info rmation from BC – by 
far the largest lumber-producing province in Cana da.  The sole allegation of dumping against BC 
producers was based on a constructed value comparis on.  Article 2.2.1 permits an authority to 
disregard price-to-price comparisons and resort to constructed value comparisons "only if" the 
authority has properly determined that home market sales are made below cost.  As there were no BC 
home market prices, Commerce had no legal basis for using the BC constructed value comparison as 
evidence of dumping to justify initiation.   
4.235  With respect to Quebec, the decision to initiate was improper because the estimate of 
producers' costs rested on assertions and not on evid ence.  When the appli cant's Quebec home market 
sales information is compared with its export price information, there is no dumping.  Initiation rested 
                                                      
98 Panel Report, Egypt – Steel Rebar , para. 7.3. 
99 See Exhibit CDA-2, IDM, Comment 21.  
100 See US first written submission, paras. 249-250.   
101 Ibid. 
102 Id., para. 252.  WT/DS264/R 
 Page 41 
 
 
on constructed value comparisons, which, in turn, rested on the Applicant's estimate or model of 
Quebec producer costs. 
4.236  There were no data on how costs of productio n were incurred by Canadian mills before 
Commerce at initiation.  The Applicant's cost m odel was based, in significant part, on information 
from two US mills chosen as surrogates to  model the costs of Quebec mills.   
4.237  The Applicant noted that softwood lumber manufacturing costs vary significantly by producer 
based on a number of identified factors.  Commerce failed to ensure that the two US surrogate mills 
chosen were representative of Quebec  mills, at least regarding the factors identified by the Applicant.  
The Applicant simply asserted, and Commerce accepted, that the US surrogate mills were 
representative.  Commerce had no evidence befo re it to support such a conclusion.   
4.238  Further, the Applicant did not provide any info rmation on how the costs of the US surrogate 
mills were allocated to the products at issue.   
4.239  The United States, hiding behind the pretense of confidentiality, has not provided the Panel 
with any information that was before Commerce ab out the two US surrogate mills.  These US mills 
were at the heart of Commerce's decision to initiate .  Canada has not seen, and the Panel still does not 
have before it, basic information in the hands of the United States, such as th e names of the US mills 
and what Commerce knew about those mills.  The United States has responde d to Canada's claims 
with nothing but assertions.  
4.240  The cost information that form ed the basis of Commerce's decision to initiate was neither 
accurate nor adequate.  Therefore, it was not su fficient to justify initiation under Article 5.3. 
4.241  Turning to Article 5.2, these are the facts: the United States has admitted that the Application 
contained information indicating that Weldwood, a major Canadian producer, was owned by the 
Applicant IP; the Weldwood-IP relationship establish es that actual cost and price information from a 
major Canadian producer was readily available to the Applicant; and the Applicant did not provide 
such information to Commerce.  The undisput ed facts establish a breach of Article 5.2. 
4.242  Concerning Article 5.8, given the lack of actual Canadian transaction price and cost data in 
the Application, Commerce was required to consid er the Weldwood information.  Any other result 
renders ineffective the ongoing obligation to te rminate an investigation in Article 5.8. 
2. Zeroing 
4.243  The logic of the Appellate Body in EC – Bed Linen  is clear.  However, the United States 
argues that this clearly established interpretation sh ould be rejected.  Yet the United States does not 
deny that its practice is identical  to that formerly used by the EC, until ruled inconsistent with 
Article 2.4.2.   
4.244  In its essence, the US argument attempts to take Article 2.4.2 out of context, to read meaning 
into individual words when a plain reading of the whole of the article establishes a meaning that the 
United States does not wish to support.  The plai n meaning of "all comparable export transactions" 
requires inclusion of export transactions that resu lt in positive margins as well as those that result in 
negative margins.  
4.245  The Appellate Body, in EC – Bed Linen , noted that the language of Article 2.4.2 did not 
fragment the margin calculation process, as the United States suggests it does.  Article 2.4.2, seen in 
the light of Article 2.4, requires that Members conduct a fair comparison of all comparable export 
transactions when determining the margin of dumpi ng, regardless of methodology.  Article 2.4.2 is WT/DS264/R 
Page 42  
 
not limited to a particular methodology, or to a partic ular stage of a methodology.  Rather, it is general 
in its terms, applying universally to dumping comparisons.   
4.246  The United States asks this Panel to turn to nego tiating history.  The text of Article 2.4.2 is 
clear and requires no resort to negotiating history.  Besides, the negotiating history does not sustain the US position. 
3. Like Product 
4.247  The Application in this case covered a wide range of products.  It covered not only 
construction lumber, but also each of the four products at issue – bed-frame components, finger-
jointed flangestock, Eastern White Pine and West ern Red Cedar.  Under Article 2.6, Commerce was 
obligated to determine the corresponding "like produc t" produced in the United States.  It must do so, 
among other reasons under Articles 5.2, 5.3 and 5. 4, to assess the thoroughness and accuracy of the 
application and the level of industry support.   
4.248  The plain and controlling language is the text of Ar ticle 2.6.  By virtue of this provision, it is 
necessary that all products within the like product have  identical or closely resembling characteristics.  
Thus, the investigating authority must either de termine that the like product and the product under 
consideration are "identical in all respects", or determine that the like product has "characteristics 
closely resembling those of the product under consideration".   
4.249  Thus the investigating authority must identify the characteristics of th e product claimed to be 
a separate like product, identify the characteristics th at define the product under consideration, and 
compare the characteristics of the claimed separa te like product to those of the product under 
consideration.  This is not what Commerce did.   
4.250  The United States can only offer its so-called "class or kind" analysis, pursuant to the 
Diversified Products  criteria, as its Article 2.6 determination.  That determination contains no relevant 
analysis or determination justifyi ng its treatment of all softwood lumb er products in the United States 
as like the product under consideration.   
4.251  In this case, the United States subordinated its use of the Diversified Products  criteria to a "no 
clear dividing line"/"continuum" test and used such cr iteria only to examine whether characteristics of 
each of the challenged products resembled some char acteristics of an isolated product chosen for its 
similarity to the challenged products.  Commerce found a single like product based on the common "characteristic" of the very diversity  – the great variety – of the products that the applicant sought to 
cover.  The effect of the test applied by Commer ce was that the more that was included in the product 
under consideration, the more likely there would be  discrete characteristics somewhere within that 
great pool of products to match ag ainst some disputed product.   
4.252  The United States never tested, as it was required to do under Article 2.6, whether bed-frame 
components, finger-jointed flangestock, Eastern White  Pine or Western Red Cedar were identical to 
the product under consideration, or had character istics closely resembling those of the product under 
consideration. 
4.253  Commerce's failure to compare, in a consistent  manner, bed-frame components, finger-jointed 
flangestock, Eastern White Pine and Western Red Ce dar to all of the products  covered by the product 
under consideration is a breach of Article 2.6.  Th ese four imported products do not closely resemble 
the rest of the product under consideration, and thus Commerce should have considered separately 
whether the application was adequate to  initiate an investigation of them.  
4.254  Once Commerce recognized that there were mu ltiple, distinct "like products" supposedly 
corresponding to the product under consideration, there should have  been several consequences.   WT/DS264/R 
 Page 43 
 
 
Under Articles 5.2, 5.3 and 5.4, the investigating authority must examine the sufficiency of the application and the level of industry support sep arately for each of these distinct like products.  
Commerce did neither.  
4. The Adjustment for Dimension Required by Article 2.4 of the AD Agreement  
4.255  In the underlying investigation, the Applicant asser ted that, to develop a useful price analysis, 
"[a] very
 precise comparison of products is necessary".  It then specified products by thickness, width 
and length, among others, as factors essential to pri ce analysis.  The ITC, in the injury inquiry, 
determined that "lumber prices generally differ s ubstantially depending on gr ades and dimensions".  
Canadian and US producers alike commented that th ickness, width and length affect prices at which 
they sell lumber.  Industry publications showed diffe rent values for lumber of different dimensions.  
Commercial invoices specify dimension.  The pricin g data collected by Commerce from each of the 
six companies investigated show each producer selli ng lumber of different dimensions for different 
prices.  The evidence of record for the impact of di mension was incontrovertible.  In contrast, there is 
no evidence to support the notion that dimension does not affect price. 
4.256  Commerce made a significant number of price comparisons between products sold in the 
United States and Canada that differed in dimens ion, whether measured by volume or number of 
comparisons.  The facts establish a prima facie  breach of the requirement of Article 2.4 that the 
investigating authority make due allowance for di fferences in physical characteristics affecting price 
comparability.  The United States does not refute the se facts.  Instead, the Un ited States appears to 
assert that there are exceptions to the requirement of Article 2.4.  The United States argues that 
Article 2.4 does not apply when there has been  an attempt to match products by model; the 
differences among the products are minor; or the pr ice relationships among physically different 
products are not "stable or predictable".  Alterna tively, the United States suggests that the Canadian 
respondents did not meet their burden of providing a "means to connect" differences in price to 
differences in dimension.  None of these putative exceptions or requirements can be sustained. 
4.257  First, the "due allowance" requirement in Article  2.4 is comprehensive.  It does not permit an 
authority to ignore differences remaining after model matching, or otherwise.  Second, as to "minor" 
differences in physical characteristics, Canada has already shown that Article 2.4 contains no such 
exception.  Third, nothing in the language of Article  2.4 permits an investigating authority to limit due 
allowance to those differences that "affect price co mparability in a stable and predictable manner".  
Finally, the new putative "means to connect" requirement is an ex post facto  rationalization by the 
United States of its refusal to make an adjustment. 
5. Company-specific Issues 
4.258  For Abitibi, Canada has demonstrated th at Commerce's reasons for using a COGS 
methodology contain no analysis of Abitibi's evid ence and cannot meet the standard imposed by 
Article 2.2.1.1 or the Appellate Body's ruling in US – Cotton Yarn that an authority consider all facts .  
Canada has also demonstrated that the COGS a pproach, as applied to Abitibi, is contrary to 
Articles 2.2, 2.2.1.1 and 2.2.2.  Interest expen se is a function of two things: the amount of money 
needed to produce a product, and the amount of time for which that money is needed.  Cash is needed 
to fund both current manufacturing costs and asset acquisitions.  Commerce's COGS methodology, 
however, considers the financing of only current manufacturing costs, and does not fully consider 
financing needs, nor accurately reflect the length of  time for which that financing is required.  A 
COGS-based allocation does not reflect all cash n eeds in general, or the relative cash needs of 
Abitibi's product lines in particular.  In Abitibi's ca se, the asset category was far more significant – 
Abitibi had to finance CAN$11 billion in assets but only CAN$4 billion in current manufacturing costs.  Moreover, Abitibi's production of pulp, pa per and newsprint required significantly greater 
assets than did its production of softwood lumber.  A total asset-based allocation, by comparison, considers not just fixed or capital assets but th e financing of all current manufacturing expenses plus  WT/DS264/R 
Page 44  
 
all assets.  It also considers the amount of time th at money is needed for each type of expense.  All 
current production expenses are fully taken into account because every expense incurred to produce a 
good is included in the value of assets.  Given Abitib i's facts, the COGS methodology resulted in an 
allocation of financial expenses that were not asso ciated with and did not pertain to the production 
and sale of softwood lumber. 
4.259  For Tembec, Commerce improperly rejected FPG G&A data to establish G&A expense, using 
company-wide data instead.  The FPG's data we re actual amounts pertaining to the production of 
softwood lumber, including a portion of company h eadquarters G&A expense.  There is no evidence 
to suggest that Tembec used distortive procedur es to allocate the company-wide expenses to the 
division nor did Commerce point to any.  Commerce rejected those recorded data, not because of any 
fault with the data itself, but because it has a st andard practice of using company-wide G&A data.  
The majority of Tembec's products were pulp, paper and chemicals, were sold outside North America 
and incurred proportionately higher G&A expenses comp ared to lumber.  Commerce, therefore, did 
not use an alternative reasonable set of data – it ch ose distorted costs that overstated G&A attributable 
to lumber and calculated costs that failed to "p ertain" only to softwood lumber, contrary to 
Articles 2.2.1.1 and 2.2.2.  US arguments for rejec ting the FPG data are undermined by the fact that 
Commerce used divisional data for all lumber cost calculations except G&A a nd financial expenses.  
Further, the United States ignores the fact th at different business segments producing different 
products can incur G&A, in addition to G&A for the company as a whole, and record it as Tembec 
does.  The US position that the FPG data were unusab le because they were unaudited has no basis in 
Article 2.2.1.1.  A note in Tembec's financial repor t indicates that the data  were maintained in 
accordance with GAAP.  Moreover, Commerce itself ne ver made any reference to the statements 
being unaudited in its Final Determinati on, and the Panel should disregard this ex post facto  
justification by the United States. 
4.260  For Weyerhaeuser, Commerce included a hardboard siding cost, related exclusively to 
Weyerhaeuser US's production and sales activities in  the United States, in Weyerhaeuser Canada's 
G&A cost for softwood lumber, contrary to Articl es 2.2.2 and 2.2.1.1.  Canada has shown that 
Weyerhaeuser Company's records did not treat the hardboard siding expense as G&A allocable to all 
of its subsidiaries.  Cost Verification Exhib it 26 breaks down the elements of Weyerhaeuser 
Company's G&A expense and does not include the ha rdboard siding expense.  Moreover, Canada has 
shown that whether a cost is G&A does not elim inate the need to show a connection between a 
portion of that cost and the product under investigation, as required by Articles 2.2.1.1 and 2.2.2.  An 
expense must at the very least relate to the cost  of producing and selling the product.  The US position 
assumes that any G&A cost, including all those incurred by  companies merely affiliated with the 
producer or exporter in question, benefits  the company as a whole  and is allocable to all subsidiaries.  
This also breaches the Article 2.2 requirement that the amount allocated for G&A must be 
"reasonable".  In this instance, the hardboard expense related only to the production and sales 
activities of Weyerhaeuser US in the United States, and was not a G&A expen se incurred on behalf of 
its subsidiaries.  Finally, the United States never res ponds in any of its submissions to the fact that 
Commerce's traditional practice has been to exclude unrelated parent company G&A, finding on 
numerous occasions that not all G&A is fungible. 
4.261  The by-product  offset claims turn on the level of reliance that should be placed on the 
records of a producer.  In relation to West Fraser , the United States asserts that it was acceptable for 
Commerce to use unrepresentative unaffiliated sales as the basis for rejecting all of West Fraser's 
records for affiliated sales in BC.  In contrast, th e United States insists that it must use Tembec's 
records even though its internal transfer prices were set far below market value. 
4.262  Canada first turns to the by-product offset claim relating to West Fraser.  Article 2.2.1.1 states 
that the records kept by a producer are the preferre d source for cost of production data provided that 
these records reasonably reflect the cost of produc tion.  The cost of production is calculated by 
aggregating the costs and offsets associated with th e production of the product under consideration.   WT/DS264/R 
 Page 45 
 
 
As a consequence, the records relating to the cost s and offsets that comprise the cost of production 
must also be accurate.  Commerce rejected West Fr aser's records for affilia te wood chip sales in BC 
after determining that they did not reflect market va lue.  The issue in this case is whether an unbiased 
and objective investigating authority could have fo und that these affiliate wood chip sales did not 
reflect market value. 
4.263  The United States continues to emphasise that West Fraser never argued that its unaffiliated 
sales were unrepresentative.  This argument, however, is incorrect.  In fact, West Fraser's officials 
stated at verification that McBride sales were unrepresentative of the period of investigation.  
Moreover, Commerce's conduct also led West Fraser to believe that it had accepted these affiliated 
transactions. 
4.264  The United States also asserts that Commerce re viewed West Fraser's unaffiliated transactions 
and found them to be commercial transactions that reflected a market value.  There is no evidence of 
any such "review" by Commerce.  Commerce's own verification report shows that it was aware that 
the majority of West Fraser's unaffiliated sales we re suppressed by a long-term contract.  The record 
also shows that unaffiliated sales from McBride o ccurred only during the first two months of the 
period of investigation, when wood chip prices were  at their lowest.  If Commerce had reviewed this 
evidence, it could not have concluded that th ese sales were representative of "market value". 
4.265  The second by-product offset claim relates to  Tembec.  Commerce's reliance on Tembec's 
records to calculate the by-product offset for wood chips violates Article 2.2.1.1.  In the underlying 
investigation, Commerce ignored verified record  evidence concerning the market value of wood 
chips.  Instead, Commerce relied on Tembec's internal  transfer prices that were set far below market 
value. 
4.266  Article 2.2.1.1 requires an investigating authorit y to calculate costs and offsets that reasonably 
reflect the cost of production of the product under cons ideration, in this case softwood lumber.  When 
calculating costs, the offsets to those costs, such as those for by-products, must be reflected 
accurately.  Thus, to reasonably reflect the cost of production for softwood lumber, it is necessary to 
determine the value for the by-products, which is their market price. 
4.267  The United States asserts that Commerce is only re quired to determine the "surrogate" cost of 
an offset in inter-divisional transfers.  The US  position ignores the critical distinction between a by-
product and a co-product.   By-pr oducts do not have their own costs,  nor do they generate their own 
profits.  If they did, there would be no practical  difference between by-products and co-products.  The 
US position is also inconsistent with Article 2.2.1. 1 because the fiction of a "surrogate" cost for an 
offset ignores the requirement that the costs must reasonably reflect the cost of production of the 
product under consideration.  The offset for by-produc ts is market value.  Article 2.2.1.1 does not 
waive this requirement for internal transfers. 
4.268  Article 2.4 requires Commerce to make due allo wance for any differences that affect price 
comparability.  Slocan provided Commerce with evidence concerni ng the revenues it earns through 
futures hedging activities in the US market.  Th ese futures contracts affect price comparability 
between the Canadian and US markets.  Commerce's failure to make any adjustment for these 
revenues is inconsistent  with Article 2.4. 
4.269  Article 2.4 is open-ended and requires an investigating authority to adjust for any difference 
that affects price comparability.  Moreover, Article 2.4 also envisages overlap between a listed 
difference  and any "other" difference  under this provision.  Footnote 7 provides "that some of the 
above factors  [in Article 2.4] may overlap …".  Applied to the present situation, Slocan's futures 
activities may constitute a "condition" of sale, an "o ther" difference affecting price comparability, or 
both.  The relevant point is that Slocan sought an ad justment for an identified difference.  Even if the WT/DS264/R 
Page 46  
 
concept of "direct selling expenses" as defined under US domestic law has a more restrictive meaning, 
it is irrelevant and not before this Panel. 
H. 
SECOND ORAL STATEMENT OF THE UNITED STATES  
4.270  In its second oral opening and closing statem ents, the United States made the following 
arguments:   
1. Opening Statement 
4.271  At this stage in the proceedings, the United St ates recognizes that the issues have been laid 
out in great detail and are well known to the Panel.  However, in its responses to questions and in its 
rebuttal submission, Canada has made numerou s statements that (1) wrongly assert that the 
United States concedes or acknowledges certain points; (2) take US statements out of context; or (3) 
otherwise mischaracterize the arguments of the United States.  The effect of these misstatements is to 
seriously distort the facts and issues.  The Un ited States will address Canada's most significant 
misstatements to clarify the facts and the issues in this dispute. 
4.272  First, it is necessary to revisit briefly the issue of the appropriate standard of review .   In the 
first written submission of the United States, the United States recalled the explanation of the 
Appellate Body and several panels that Article 17.6(i) precludes de novo  review of an investigating 
authority's findings of fact.  The United States also noted that, notwithstanding this limitation, Canada 
seemed to be asking the Panel to decide certain questions as if it were the investigating authority.  For 
example, the United States pointed to Canada's reque st that the Panel examine "whether the authority 
has given proper weight to the facts".  In the US  answers to the Panel's questions, the United States 
identified other instances in which Canada appears to be asking for de novo  review of Commerce's 
findings of fact.  The United States cited, for example, Canada's presentation to the Panel of a 
regression analysis that was not before Commerce in the softwood lumber investigation, along with a 
seven-page expert's memorandum.  The United St ates also cited arguments Canada made in 
connection with certain company-specific calculation i ssues.  Now, in its rebuttal submission, Canada 
accuses the United States of arguing "that Commerce has absolute discretion and must be accorded 
absolute deference on questions of fact".103  This accusation is patently false.  The United States has 
never urged the standard  Canada alleges.  
4.273  On the question of Commerce's initiation of the softwood lumber investigation Canada has 
made arguments under Articles 5.2, 5.3, and 5.8 of the AD Agreement .  Canada argued that 
Commerce violated Article 5.2 by initiating on the basis of an application that lacked certain 
information alleged to be reasonably available to one of the applicant companies.  The US response 
was two-fold.  First, the United States argued that Article 5.2 does not impose an obligation on 
investigating authorities independent of the obligati on under Article 5.3 to "examine the accuracy and 
adequacy of the evidence provided in the application to determine whether ther e is sufficient evidence 
to justify the initiation of an investigation".  Wher e various paragraphs of Ar ticle 5 impose obligations 
on investigating authorities, they do so in unmistakabl e terms.  Article 5.2 contains no such mandate.  
It describes the contents of an application and th ereby provides context for an authority's obligation 
under Article 5.3.  
4.274  Second, the United States argued that Canada im properly read into Article 5.2 a requirement 
that an application contain all information reasonably available to the applicant on the subjects 
enumerated in that provision.  However, Article 5. 2 states only that "[t]he application shall contain 
such information as is reasonably available to the applicant" on certain specified matters.  The phrase 
"such information as is reasonably available" does not mean all information that is reasonably 
available.    
                                                      
103 Canada second written submission, para. 6.  WT/DS264/R 
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4.275  In its rebuttal submission, Canada made sever al statements regarding the US argument on 
Article 5.2 that call for reply.  First, Canada incorrectly asserted that Commerce "admits knowing at 
the time of initiation" that the Application "did not contain certain highly pertinent transaction-
specific information, reasonably available to the Applicant in violation of Article 5.2".104  The 
statement from which Canada infers this supposed admission is not an admission of the relevance of 
the Weldwood data, nor of any obligation on the investigating authority under Article 5.2.  
4.276  Second, Canada erroneously characterizes the US  argument as rendering Article 5.2 a nullity.  
Canada argues that, unless Article 5.2 imposes a fre e-standing obligation on in vestigating authorities 
it is "reduced to redundancy and inutility".  This theo ry fails to read Article 5.2 in its context.  In 
particular, it fails to consider the relationship betw een Article 5.2 and Article 5.3.  By specifying the 
information that must be contained in an applica tion, Article 5.2 informs the sufficiency inquiry an 
authority must undertake pursuant to Article 5.3.  Therefore, Article 5.2 is not rendered a nullity, as 
Canada contends. 
4.277  In its rebuttal submission, Canada argues that if a document purporting to be an "application" 
under Article 5.1 does not contain "such information as is reasonably available to the applicant" on 
the matters described in Article 5.2, then it is not in fact an "application" and cannot serve as the basis 
for initiation by way of "application".105  This is a variation on Canada's argument that an 
investigating authority must prove a negative be fore initiating.  Aside from its impracticability, 
Canada's suggestion would require a pre-initiation investigation that simply is not contemplated by 
the AD Agreement . 
4.278  Next, the United States responds to Canada's conten tion that its interpretation of Article 5.2 is 
supported by the panel report in US – 1916 Act (Japan) .106  The report in that matter is not relevant to 
this dispute and certainly does not support the pr oposition that Article 5. 2 imposes an independent 
obligation on investigating authorities.  The panel in the US – 1916 Act (Japan) dispute said nothing 
about obligations of investigating author ities under Article 5.2.  It spoke of a complainant  respecting 
obligations under that provision.  
4.279  As a final note on this provision, the United St ates observe that Canada persists in its 
argument that Article 5.2 requires an applicant to provide all information reasonably available to it on 
the specified subjects.  It bases this assertion enti rely on the word "such" in the phrase "such 
information as is reasonably available to the applican t".  Nothing in the definition of that word even 
suggests the word "all".  Thus, even if the Panel we re to find an obligation on investigating authorities 
under Article 5.2, that obligation would not be violat ed by an initiation based on an application that 
did not contain all information reasonably available to the applicant. 
4.280  Canada has also argued that Commerce initiate d the softwood lumber investigation based on 
insufficient evidence of dumping, in violation of  Article 5.3.  On rebuttal, Canada raises new 
objections to the evidence of dumping in the application.  For example, Canada misleadingly asserts that there was no actual cost data for purposes of initia tion.  It is true that, in evaluating the petition, 
Commerce relied on usage factors  from US mills.  However, all significant production costs  were 
valued on the basis of actual cost data from Canadi an sources.  Canada's claim that the usage factor 
data in the petition were "not representative" is equally misleading. Canada purports to measure 
representativeness of the data in the application re lative to the six companies that were ultimately 
examined during the investigation.  But, the selection of companies after initiation to serve as respondents has nothing to do with the data relied on prior to initiation.  Commerce's decision to 
initiate was based on costs and prices for a broad range  of producers.  Canada also continues to assert 
that the application contained insufficient ev idence on prices to justify initiation, dismissing 
                                                     
 
104 Id., para. 10. 
105 Id., para. 21. 
106 Id., paras. 16, 24. WT/DS264/R 
Page 48  
 
applicant's use of  Random Lengths  data by questioning whether they represent actual transactions.  
The United States has responded to this allegati on in prior submissions, demonstrating that Random 
Lengths  data do represent actual transactions. 
4.281  Finally, Canada continues to argue that Co mmerce violated Article 5.8 by declining to 
evaluate "the Weldwood data or an y other data that may have been available in the light of the 
ongoing sufficiency of evidence requirement".
107  This argument is flawed for several reasons.  First, 
the United States explained that these data could not  have negated the sufficiency of the data on which 
Commerce relied at the time of initiation because th ey reflect the experience of a single company, 
whereas the data actually relied upon for initiation re flected the experience of a broad cross-section of 
Canada's lumber producing and exporting industry.  Second, Canada ignores the fact that Weldwood's 
data were submitted two months af ter the initiation of the investigation, as a "voluntary" response.  
The data were received concurrent ly with the submissions of the si x examined Canadian respondents, 
each of whose data demonstrated dumping.  In light of the evidence of dumping obtained during the investigation, it is not at all clear how Canada believes the United States violated its obligation under 
Article 5.8.  That provision requires terminati on of an investigation "as soon as the authorities 
concerned are satisfied that there is not sufficient evidence of either dumping or of injury to justify 
proceeding with the case".  Yet, here, the eviden ce accumulated during the investigation reenforced 
rather than weakened the basis for concluding that there was dumping.  Canada seems to argue that, 
having received the Weldwood data, Commerce should ha ve looked back to determine whether there 
would have been sufficient evidence to initiate ha d the data been included in the petition.  But, 
Article 5.8 contains no such look-back requirement. 
4.282  Turning to Canada's  product-under-consideration claim , Canada claims that Commerce's 
identification of "softwood lumber products" as a single product under consideration amounted to a 
violation of Article 2.6.  The United States has re sponded by explaining that Article 2.6 contains no 
obligation on how an investigating authority is to  identify the product under consideration in an anti-
dumping investigation.  This point is underscored by the fact that, in pending negotiations, certain 
WTO Members have proposed that there should be such an obligation.  Such a proposal would be 
superfluous if the obligation already existed.  Even Canada acknowledges that the support for its 
theory is mere inference, rather than any express rule.
108 
4.283  In its rebuttal submission, Canada focuses on two US statements.  In each case, Canada 
mischaracterizes the statement, reading it in is olation and assigning a significance clearly not 
warranted when the statement is read in context.  First, Canada focuses on the US statement that "[a]s 
part of its analysis in determining whether 'cl ear dividing lines' exist within the product under 
consideration identified within the pe tition, Commerce reviews [the] five [ Diversified Products ] 
factors".109  Canada asserts that this means th at Commerce "subordinated its use of the Diversified 
Products  criteria to a 'no clear dividing line'/'continuum' test".110  But, Canada misunderstands the 
analysis that was actually applied.  It is clear from both the Scope Memorandum and the Final 
Determination that Commerce applied the Diversified Products  criteria to each of the four products at 
issue.  In other words, Commerce's assessment of  whether there are "clear dividing lines" between 
products is part of  the Diversified Products analysis, not subordinate to that analysis. 
4.284  The second statement on which Canada focuses in  its rebuttal is Commerce's statement that 
"[p]aradoxically, it is as much the diversity  of lumber production as the characteristics that all 
softwood lumber have in common that leads us to continue to treat all softwood lumber as a single 
class or kind of merchandise".111  Canada erroneously takes a p assing observation by Commerce and 
                                                      
107 Canada second written submission, para. 63. 
108 Id., para. 70. 
109 Id., para. 70 and note 66 ( citing  US first written submission, para. 103). 
110 Id., paras. 70, 87. 
111 Id., paras. 71, 87.  WT/DS264/R 
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treats it as if it were the very foundation for Commerce's d ecision.  Read in context, it is clear that this 
is not the case.  Commerce expressly acknowledged th at it could not base its determination on the 
diversity of characteristics among lumber products.  Rather, it recognized an obligation under its own 
practice to apply the Diversified Products  factors.  
4.285  Moreover, even on its own terms, Canada's product-under-consideration claim must fail.  
Canada infers from Article 2.6 a rule governing the definition of th e product under consideration.  
Although none of the key terms in Article 2.6 refe r to the quality of two things being identical, 
Canada somehow infers a requirement "that the essen tial, distinctive traits of one product must be 
very nearly identical  to the essential distinctive traits of the other product".112 (emphasis added)  Not 
only is such a requirement entirely absent from Article 2.6, even an inference of such a requirement is 
not supported by the language of Article 2.6. 
4.286  Finally, in its rebuttal submission, Canada seeks support for its position from the panel report 
in Indonesia – Autos .113  Its reliance on that case is misplaced for at least two reasons.  First, and most 
importantly, the panel in Indonesia – Autos  was not reviewing an investigating authority's 
determination under the standa rd in Article 17.6 of the AD Agreement .  Second, unlike the present 
case, there was no question in Indonesia – Autos as to the identity of the product under consideration.  
4.287  The next issue is Canada's "due allowance for physical differences" claim .  Canada's claim 
under Article 2.4 of the AD Agreement  is that Commerce was required to make calculation 
adjustments to account for certain dimensional diffe rences in the transactions it compared.  But 
Canada omits critical pieces of the puzzle which, when put in their proper place, reveal that width, thickness and length were  taken into account in the product comparisons.   
4.288  Canada's submissions also contain significant di stortions of fact and mischaracterizations of 
the US position.  For example, Canada continues to  grossly misrepresent the impact on the margin of 
the non-identical dimensional comparisons made.  Understood correctly, the vast majority of 
comparisons weighted by volume were of identical softwood lumber products, thereby significantly limiting the impact of these non-identical comparisons .  Second, Canada mistakenly claims that the 
United States has created a new, unattainable standa rd for establishing price adjustments for physical 
differences, requiring a showing of stable prices.  Ca nada has entirely misread the US submissions.  In 
doing so, it is asking this Panel to find that Articl e 2.4 mandates an automatic price adjustment for 
physical differences, irrespective of the impact of such differences on price comparability.  As the 
panel in Egypt – Rebar  explained, under Article 2.4, a due allowa nce is warranted only if an effect on 
price comparability is demonstrated.
114 
4.289  What the United States has argued, and what Canada is unable to refute, is that prices of 
softwood lumber products of different dimensions relative to each other must show some discernible 
relationship .  The only specific evidence Canada arguably  provided demonstrating an effect on price 
comparability is a regression analysis based on data of one respondent company.  It was presented for 
the first time to this Panel, and thus, as the Unite d States explained in prior submissions, may not be 
considered by the Panel in its examination, under Ar ticle 17.5(ii).  For all physical characteristics, 
except dimension, Commerce had cost data to connect  the physical differences to the impact on price, 
pursuant to its normal methodology.  Therefore, Commerce's treatment of dimension was necessarily 
distinct from its treatment of other physical char acteristics.  Because the Canadian respondents failed 
to demonstrate that dimensional differences affect ed price comparability, Commerce was not required 
to make a price adjustment under Article 2.4.   
                                                      
112 Canada second written submission, para. 76. 
113 Id., paras. 78-81 (discussing Panel Report, Indonesia – Autos ). 
114 Panel Report, Egypt–Steel Rebar , para. 7.352. WT/DS264/R 
Page 50  
 
4.290  The United States turns now to Canada's claim regarding calculation of the overall dumping 
margin .  Canada has failed to establish that the AD Agreement  requires Members to offset dumping 
margins with non-dumping amounts found in distinct comparisons.  Throughout this proceeding, the 
United States has maintained that (1) Articles 2.4 a nd 2.4.2 do not create an offset obligation; (2) the 
EC – Bed Linen Appellate Body Report is not binding on th e Panel, and the Panel should not rely on 
it; and (3) the negotiating history confirms the US in terpretation, that Article 2.4.2 was crafted to 
address the symmetry of comparisons in dumping calculations, not the offset issue. 
4.291  In its rebuttal submission, the United States dem onstrated that Canada effectively is seeking 
to isolate different parts of the phrase "all comp arable export transactions" for different purposes.  
Under Canada's theory, the term "comparable" export transactions would apply in the first stage of the 
dumping calculation, and "all" export transactions woul d apply in the second stage.  In its rebuttal 
submission, rather than explain or justify this position, Canada takes a new position.  Now, it would 
have the Panel find that the meaning of each term – "all" and "comparable" – changes depending on 
the stage of the calculation.  Canada's theory that the same word takes on a different meaning 
depending on the stage of the dumping calculation at issue finds no support in ordinary rules of treaty 
interpretation. 
4.292  Moreover, Canada's new theory fails to address th e fact that under Article 2.4.2 there are three 
alternative bases for establishing dumping margins.   Two of those bases provide for comparisons 
using individual export transactions.  The availab ility of these transaction-specific options makes it 
clear that Article 2.4.2 applies to the first stage of the calculation – that is, prior to the establishment 
of an overall margin.  At the same time, it is e qually clear that Article 2.4.2 does not address how 
these transaction-specific margins ar e to be combined to establish an overall margin.  Under Canada's 
argument, the first basis for establishing dumping margins – the weighted average-to-weighted 
average basis – would apply to both stages of the calcula tion.  However, the other two bases for 
establishing dumping margins plainly apply only to the first stage.  Thus, Canada's theory leads to an interpretation of Article 2.4.2 in which the scope of  the obligation differs depending on the basis for 
establishing dumping margins.  Yet, the provision itself does not support such differential 
interpretation. 
4.293  With respect to the Appellate Body Report in EC – Bed Linen , the United States has just two 
points to make.  First, Canada mistakenly asserts th at the United States has not denied that its practice 
is identical to the EC's practice addressed in EC – Bed Linen .  Here again, Canada mischaracterizes a 
statement by the United States where the United Stat es explained that, without access to the details of 
the EC calculation, the US could not assess the simila rities or differences in the practices.  Second, 
Canada argues that as an adopted Appellate Body Report, EC – Bed Linen should be taken into 
account where it is relevant.  As discussed in th e US first written submission, the concept of stare 
decisis does not apply to WTO disputes.
115  This Panel is not bound to follow EC – Bed Linen .  Like 
the panel in Argentina – Preserved Peaches116, the Panel should not refrain from re-evaluating an 
adopted report where appropriate.  The United States respectfully suggests that, in this case, such re-
evaluation is appropriate.  The Panel should find that EC – Bed Linen is not persuasive. 
4.294  With respect to the negotiating history of Article  2.4.2, there are two points to make.  First, 
Canada does not dispute that the AD Agreement  negotiations clearly distinguished between two 
separate issues: (1) the symmetry of comparisons, and (2) whether offsets would be required when combining the results of comparisons.  Canada  improperly seeks to use language addressing the 
symmetry issue to create an obliga tion with respect to o ffsets.  Second, Canada suggests that the 
United States' reference to the negotiating history is  based upon an ambiguity or manifest absurdity, 
which Canada claims derives from "the Unite d States' own unilateral interpretation of 
                                                     
 
115 US first written submission, paras. 173-177. 
116 Panel Report, Argentina – Preserved Peaches , para. 7.24.  WT/DS264/R 
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Article 2.4.2".117  To the contrary, the United States refers  to the negotiating history to confirm the 
ordinary meaning of the terms of Article 2.4.2.  Given Canada's own practice and the practice of other 
Members in calculating overall dumping margins118, the US interpretation can hardly be described as 
"unilateral". 
4.295  Finally, in its rebuttal submission, Canada ass erts that offsets are required by the "fair 
comparison" language in Article 2.4.  However, Canada has not articulated the basis for this 
argument, other than its reliance on EC – Bed Linen .  The fair comparison language does not stand 
alone but is contained within Article 2.4.  That provision tells an authority how to achieve a fair 
comparison by making due allowance for differences in comparisons which affect price comparability.  By making Article 2.4.2 subject to Article 2.4, the Members ensured that any 
transactions being compared, either individually or as a weighted average, would have been identified 
and, as appropriate, adjusted in accordance with the pr ovisions of Article 2.4.  Nothing in Article 2.4 
requires an offset of non-dumped amounts against dumping margins.   
4.296  Canada makes a number of company-specific claims .  Throughout these claims, Canada 
argues that the United States ignored record ev idence and instead, blindly applied standard 
methodologies.  Commerce applied its standard met hodologies only after careful consideration of the 
record evidence.  In addition, it is important to ma ke clear that Commerce did in fact depart from its 
standard methodologies, and in significant respects, where the facts warranted.   
4.297  In its first written submission, Canada argue d that the COGS methodology for allocating 
Abitibi's financial expenses was unreasonable, because it ignored the lower capital asset 
requirements of its softwood lumber division.  Ca nada now argues that an allocation based on COGS 
that included depreciation costs was unreasonable, because it did not consider asset values to a 
sufficient  degree.  Specifically, Canada argues that financ ial costs must be allocated based solely on 
total asset values.  However, Canada's argume nt only has merit if one accepts the underlying 
assumption that financial costs are related only to assets.  The United States rejects this assumption 
because of the fungibility of money, a concept with  which Canada explicitly agrees.  COGS includes 
all the direct production costs associated with pr oducing goods, as well as accounting for most assets 
through the inclusion of depreciation expenses.   Depreciation expenses reasonably account for 
Abitibi's assets because, as Canada admits, the vast majority of Ab itibi's assets are capital assets that 
are depreciated.  
4.298  Canada also argues that Commerce over-allocated general costs for Tembec.  Canada rests its 
argument on the fact that Commerce refused to base Tembec's G&A costs on division-specific 
accounting records.  As the United States has explai ned, Commerce properly rejected this argument, 
because general costs relate to the company as a whol e rather than a particular product or division.  
Moreover, even if the United States assumed that gene ral costs could be attributed to divisions within 
a company, neither Tembec nor Canada has presente d any evidence to suggest that Tembec's division-
specific internal books were a reasonable basis upon which to calculate cost s.  First, Tembec's 
division-specific records were not audited.  Moreve r, unlike audited financial statements, internal, 
division-specific records are not intended as obj ective measures of a company's performance.  
4.299  Canada also argues that Commerce over-allocated  G&A expenses when it allocated a portion 
of litigation costs incurred by Weyerhaeuser Canada's parent company to softwood lumber.  
Canada argues that even if these settlement costs were  general costs, they did not pertain to softwood 
lumber.  Canada's argument is inconsistent with th e basic definition of "general cost," because general 
costs do not pertain more or less to a particular produ ct but instead relate to a company as a whole.  It 
is uncontested that Weyerhaeuser Canada's pare nt company performed functions on behalf of 
Weyerhaeuser Canada.  Thus, consistent with this  fact, Commerce included an apportioned amount of 
                                                     
 
117 Canada second written submission, para. 149. 
118 US second written submission, paras. 60-63. WT/DS264/R 
Page 52  
 
the parent company's G&A expenses, including a porti on of the litigation costs, within Weyerhaeuser 
Canada's G&A, resulting in a reasonable allocati on of Weyerhaeuser Company's general costs to 
softwood lumber consistent with the AD Agreement . 
4.300  During the period of investigation, West Fraser sold wood chips to affiliated companies in 
BC.  In determining whether a company's records reasonably reflect costs associated with production 
and sale of a product, Commerce considers whether transactions between affiliated parties occurred at 
arm's length prices.  Here, it concluded that West Fraser's affiliated sales did not occur at arm's length prices.  Thus, it relied on West Fraser's unaffiliated sal es of chips in valuing the offset.  It found these 
sales to non-affiliates to be arm's-length commercial transactions at market prices and, as such, the 
best benchmark for West Fraser's affiliated sales.  Canada now acknowledges that West Fraser indeed 
never argued to Commerce that some of its unaffiliated (McBride mill) transactions were 
unrepresentative of a market value for wood chips.  It now argues that, because West Fraser had a 
large amount of affiliated transac tions during the period of investig ation, it is "self-evident" that 
Commerce should have questioned the use of West Fr aser's unaffiliated transactions for valuing those 
wood chips in BC.  Contrary to Canada's assertions , however, West Fraser's unaffiliated transactions 
were significant in number and value relative to We st Fraser's total wood ch ip sales.  Moreover, the 
mere existence of a large volume of affiliated tran sactions in BC during the period of investigation 
does not call into question the legitimacy of the mark et value of wood chips that West Fraser sold to 
unaffiliated parties.  Nor are they called into questio n by the fact that sales from one of the two mills 
occurred early in the period of investiga tion, pursuant to a pre-existing contract. 
4.301  Canada also challenges how Commerce measur ed the value of transfer prices of Tembec's 
wood chips  between its divisions.  Commerce analyzed  the wood chip sales transactions between 
Tembec's sawmills and its internal pulp mill division to evaluate whether the internal transfers of 
wood chips were reasonable approximations of th e wood chips' cost.  Commerce found that those 
internal transfer prices were reasonable and not preferential.  Canada claims that Tembec's inter-divisional transactions were "arbitrary".  In fact, Canada's only real argument is to insist that the 
United States acted in a biased and non-objective ma nner by not assessing all costs on a market value 
basis.
119  But no provision in the AD Agreement  requires an investigating authority to replace a 
company's own valuation of inter-divisional transfer s of a product with a market value for sales of the 
same product.  Costs of production are lower than a market value of a product, due to profit paid by 
an unaffiliated purchaser to the producer.  Once Co mmerce determined that the difference between 
the market value and the inter-div isional transfer value of Tembec's wood chips was reasonable, the 
analysis ended, and Article 2.2.1.1 did not require Commerce to do more. 
4.302  Commerce properly accounted for Slocan's lumber futures hedging profits , finding, 
consistent with Article 2.4, that these futures he dging profits are not a part  of any conditions and 
terms of sale of lumber to the United States.  I ndeed, these profits had no connection with any sales 
transaction or any customer.  Neither Slocan nor Ca nada has explained how the futures contracts at 
issue were terms and conditions relate d to particular sales of lumber in the United States.  Absent such 
a showing in the investigation, there was no basis for an adjustment for differences in conditions and 
terms of sale under Article 2.4.  Commerce also  found, consistent with Article 2.2 of the 
AD Agreement , that the futures contracts were not linked to production, since the profits amounted to 
revenue related to sales (even though they are not tied to any particular sale of lumber in the 
United States).  Canada assert s that Commerce should have done something , even though Slocan itself 
failed to substantiate either of th e alternative treatments that it sought.120  As the panel in Egypt – Steel 
Rebar  noted, responding parties have an obligation to assert and to justify the information and the 
arguments required to prove their claims.121  Contrary to Canada's ass ertions, there is no undefined 
                                                      
119 Canada responses to questions 70 and 72 of the Panel, paras. 178 and 180. 
120 Canada second written submission, paras. 340-342. 
121 Panel Report, Egypt– Steel Rebar , para. 7.3.  WT/DS264/R 
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duty to grant adjustments that ha ve been neither requested nor de monstrated by the respondent.122  
Therefore, Commerce properly did not grant the two offsets requested by Slocan.  
2. Closing Statement 
4.303  The United States seeks to make clear its position on the recommendation Canada is asking 
the Panel to make that the United States revoke  the anti-dumping duty order and return all cash 
deposits collected.123  Canada apparently is seeking a sugg estion rather than a recommendation, under 
Article 19.1 of the DSU .  In US – Hot-Rolled Steel , the panel rejected a request by Japan similar to 
Canada's request in this case.124   Since the US measures at i ssue already conform to the WTO 
agreements, there is no need for either a recomme ndation or a suggestion.  However, even under 
Canada's claims and arguments in this dispute, Canada's request for a suggestion would go beyond 
anything relevant to implementing a recommenda tion and instead seeks action nowhere called for 
under the WTO.   
4.304  Stepping back to consider the big picture, the United States is struck by a pattern, in which 
Canada initially takes one position, then alters that position followi ng US responses demonstrating the 
flaws in the initial position.  This is particularly noticeable when it comes to initiation, product under 
consideration, and calculation of an overall dumping margin. 
4.305  The inconsistency in Canada's argumentation is telling, because Canada appears to have 
brought this case without knowing whether and how th e United States violated its WTO obligations.  
This should give the Panel pause.  For the reas ons set forth in US submissions and statements, 
applying the Article 17.6 standard of review, th e Panel should find Comme rce's initiation and conduct 
of the lumber investigation to have been consistent with WTO obligations. 
V. ARGUMENTS OF THE THIRD PARTIES 
5.1 The arguments of the EC and Japan are set fort h in their written and oral submissions to the 
Panel, which are summarized below.  The summar ies are based on the executive summaries that the 
EC and Japan submitted to the Panel.  The third parties' written answers to questions posed by the 
Panel are set forth in the Annexes to this report ( see list of annexes at page vii, supra ).  India, also a 
third party in this dispute, did not make any written and oral submissions to the Panel, nor it answered 
to questions posed by the Panel. 
A. THIRD PARTY WRITTEN SUBMISSION OF THE EUROPEAN COMMUNITIES  
5.2 In its third party written submission, the EC made the following arguments: 
1. The Legal Scope of Article 5.2 of the AD Agreement  
(a) The Obligations under Article 5.2 of the AD Agreement  
5.3 In its first written submission, Canada did not identify the specific paragraph of Article 5.2 of 
the AD Agreement  which the United States has allegedly violat ed.  Canada thus seems to infer from 
Article 5.2 of the AD Agreement  a general and overall obligati on to provide any "reasonably 
available" information.  
5.4 The EC would oppose such an interpretation of Article 5.2 of the AD Agreement . Taking into 
account the wording and the structure of the provision it is evident that Article 5.2 of the 
                                                      
122 US responses to questions 81 and 84 of the Panel, paras. 132-138, and 146. 
123 Canada first written submission, para. 280; Canada second written submission, para. 346. 
124 Panel Report, US – Hot-Rolled Steel , paras. 8.5-8.14. WT/DS264/R 
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AD Agreement  does not contain an obligation of the applicant to provide any information that is 
reasonably available but only to the extent that it would fall under one of the paragraphs (i) to (iv).  
5.5 While the EC acknowledges that Article 5.2(i) or (ii) of the AD Agreement  ("identity of the 
applicant" and "identity of each known exporter" resp ectively) could be pertinent in a case where one 
of the companies subject to the anti-dumping investiga tion is a wholly-owned subsidiary of one of the 
applicant companies it would, however, take no vi ew given the rather peculiar circumstances of the 
case. 
(b) Article 5.2 of the AD Agreement  Only Imposes an Obligation on the Applicant 
5.6 Canada argues that Article 5.2 of the AD Agreement  imposes an obligation on the 
investigating authority.  The EC takes issue with this conclusion.  Subject of Article 5.2 of the 
AD Agreement  is "the application".  Under the third sentence of Article 5.2 of the AD Agreement  the 
application shall contain information that is "reasona bly available to the applicant".  Thus, according 
to the wording of Article 5.2 of the AD Agreement  the obligation is solely addressed to the petitioner.  
5.7 In this context, Article 5.1 of the AD Agreement  provides also relevant guidance. Under this 
provision an application should be made "by or on behalf of the domestic industry".  Therefore, any 
objective requirements that the application has to me et should be discharged by  the domestic industry, 
i.e., the applicant.  
5.8 The Guatemala – Cement I  Panel Report, quoted by Canada,  does not support Canada's 
argument.  The Panel merely stated that an inves tigating authority may be "allowed" to reject an 
application.  However, such a possibility to reject  an application does not imply that there is any 
obligation under Article 5.2 of the AD Agreement  on the investigating authority to do so.  
Furthermore, in the r espective passage of the Guatemala – Cement I Report the panel concluded that 
Article 5.2 of the AD Agreement  imposes a requirement "on the applicant", while Article 5.3 of the 
AD Agreement  is addressed to the "investigating authorit y".  The panel thus made clear that the 
content of the obligation and the addressees ar e different and should be distinguished. 
5.9 
The EC notes that the question of whether Article 5.2 of the AD Agreement  imposes an 
obligation on the investigati ng authority has been briefl y addressed in the recent case Argentina – 
Poultry .  While the panel declined to rule on this matte r, as both parties affirmatively agreed to such 
an obligation, the EC, for the reasons set out above, considers that Article 5.2 imposes no such 
obligation on the investigating auth ority.  As the EC will explain below, the issue must be addressed 
under Article 5.3 of the AD Agreement . 
5.10 Canada maintains that the United States violated Article 5.3 of the AD Agreement  by relying 
solely on the evidence and information in the ap plication and by failing to objectively judge that 
information.  Even if the applicant had provi ded all "reasonably available" information under 
Article 5.2 of the AD Agreement , this was insufficient to justify the initiation of the investigation. 
5.11 In the EC's view, Article 5.3 of the AD Agreement  imposes a comprehensive obligation on the 
investigating authority to determine whether the in itiation of an investigation would be justified in 
view of the objectively available evidence.  This  obligation does not only encompass an examination 
of the application and whether it fulfils for instan ce the requirements under Article 5.2 or Article 5.4 
of the AD Agreement  but it may also require the investigatin g authority to take further steps in 
assembling the necessary evidence befo re initiating an investigation. 
5.12 In this respect, the EC would concur with the panel findings in the recent Argentina – Poultry 
case under paragraph 7.60.  WT/DS264/R 
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5.13 Furthermore, the EC would agree with the panel findings in Guatemala – Cement I , whereby 
the question of the existence of "su fficient evidence " in a particular case has to be adjudicated in the 
light of the standard set in Article 17.6(i) of the AD Agreement . 
5.14 As a third party, the EC does not comment on whether the DOC effectively discharged its 
obligations under Article 5.3 of the AD Agreement .  
2. The Scope of Article 5.8 of the AD Agreement  
5.15 Canada argues that the United States did not abide by its obligations under Article 5.8 of the 
AD Agreement  because DOC did not terminate the inves tigation on the ground of insufficient 
evidence.  Even if DOC had initiated the inves tigation in accordance with Article 5.3 of the 
AD Agreement  it should have terminated the examination at a later stage in the light of the insufficient 
evidence on the commercial relationship and the cost and pricing data.  
5.16 Article 5.8 of the AD Agreement  thus distinguishes two scenarios: 
• either the application did not contain sufficie nt evidence in which case it should be rejected; 
or 
• during the investigation it becomes apparent th at evidence is insufficient thus requiring a 
prompt termination of the proceedings. 
5.17 Regarding the first alternative, the EC would agree with the panel findings in Mexico – Corn 
Syrup whereby Article 5.8 does not impose additional substantive obligations beyond those in 
Article 5.3 on the authority in connection with the initia tion of the investigation.  That is, if there is 
sufficient evidence to justify initia tion under Article 5.3, there is no violation of Article 5.8 in not 
rejecting the application. 
5.18 To put it differently, the EC concurs that before  an investigation is initiated Articles 5.3 and 
5.8 of the AD Agreement  have the same scope of application w ith regard to the question of whether 
there is "sufficient evidence". 
5.19 As to the second alternative, i.e., after the initia tion of the investigation, it is evident that the 
investigation must reveal "sufficient evidence" of dumping, injury and a causal link to proceed with 
the investigation and, eventually, to impose measur es.  If the investigation fails to produce this 
evidence the authorities should terminate the exam ination as promptly as possible.  Under this 
scenario, the question of whether "sufficient evidence" exists would have to be adjudicated in a more 
flexible way depending on the respective state of investigation.  
3. The Practice of "Zeroing" – Violation of Articles 2.4 and 2.4.2 of the  AD Agreement   
5.20 The EC submits that the Panel should find that the US practice of "zeroing" is incompatible 
with Articles 2.4 and 2.4.2 of the AD Agreement .  The European Communities considers that the US 
methodology for determining the numerator for the purposes of the weighted average margin 
calculation in no way differs from the EC "zeroing" methodology already found to be incompatible with Articles 2.4 and 2.4.2 of the AD Agreement  in EC – Bed Linen .  The EC compared the weighted 
average normal value and export price of different pr oduct types within the like product.  It attributed 
a zero value to any types for which the resulting dum ping margin was negative, while aggregating the 
positive dumping margins and dividing them over th e total value of the export sales to obtain a 
percentage rate of dumping.  It, thus, allowed no "offset" for negative dumping across product types.  
The United States has done exac tly the same in this case. WT/DS264/R 
Page 56  
 
5.21 The United States does not dispute the similarity of the two methodologies, but confines itself 
to rejecting the precedential value of the decision of the Appellate Body in EC – Bed Linen  and 
attempts to reargue the case.  Alt hough the Appellate Body's decision in EC – Bed Linen  only binds 
the parties to that case, the Appellate Body expects Panels to take account of the legal clarifications 
concerning Articles 2.4 and 2.4.2 of the AD Agreement .  Of course, the panels  and the Appellate Body 
may reconsider or refine certain le gal interpretations on the basis that certain legal arguments were not 
made by the parties and therefore not addressed by the Appellate Body.  However, the arguments 
advanced by the United States in a ddition to those already addressed in EC – Bed Linen  to defend its 
"zeroing" methodology are not of such a nature. 
5.22 Most of the arguments have already been addr essed by the Appellate Body, in particular those 
relating to the relevance of the product definition.   As a new argument, the United States seeks to 
question the interpretation by the Appellate Body  of the first symmetrical method set out in 
Article 2.4.2 of the AD Agreement  by arguing that Canada's arguments lead to an anomalous result in 
so far as it would lead to a prohibition of "zeroi ng" in the first symmetrical method of comparison 
while the use of "zeroing" would be left to the discretion of Members in the two other methods.  
Furthermore, the United States argue that the negotia tors did not intend to address the offset issue.  
Those arguments cannot be accepted.  
5.23 "Zeroing" is prohibited when resorting to th e first symmetrical method of comparison as a 
result of the word "all" in the sentence "a comp arison of a weighted average normal value with a 
weighted average of prices of all comparable export transactions" in Article 2.4.2 of the 
AD Agreement (emphasis added).  The second and third me thodology, however, concern situations 
not relevant to this case.  Cana da's claim is explicitly confined to the first symmetrical methodology 
(weighted average normal value/weighted average e xport prices).  The EC further notes that, in any 
case, the use of the third methodology is only allowe d in well defined circumstances and is subject to 
strict conditions.  
5.24 As to the reference to the negotiating history of the AD Agreement , the EC considers that 
according to Article 32 of the Vienna Convention , there is no need for considering the negotiating 
history of a text where the interpretation ther eof can be based on the letter as is the case for 
Article 2.4.2, first paragraph.  Therefore, the arguments advanced by the United States are of no 
relevance to the matter before this Panel. 
B. T
HIRD PARTY WRITTEN SUBMISSION OF JAPAN  
5.25 In its third party written submission, Japan made the following arguments: 
1. Article 2 of the AD Agreement Prohibits the Authorities from Zeroing Negative Margins  
5.26 Japan agrees with Canada that use of dumpi ng margins with "zeroed-out" negative margins 
for the purpose of "dumping" determination is inconsistent with the AD Agreement .  The practice of 
"zeroing" selectively calculates margins only for th ose sales of products with positive margins and 
rejects sales with negative margins.  This methodol ogy thus creates an artificially high margin.  As 
discussed below, the existence of dumping marg ins, which is the basis of the "dumping" 
determination under the AD Agreement , must be established by making a "fair comparison" across all 
product types under consideration, not some of these types.  
5.27 Article 2.1 defines that a product is dumped if th e export price is lower than its normal value.  
"A product" under Article 2.1 incorporates all types of the product that are subject to a particular anti-dumping proceeding, not some types of the product.  The Appellate Body in EC – Bed Linen 
confirmed this.  See paragraph 53 of the EC – Bed Linen Appellate Body Report.   WT/DS264/R 
 Page 57 
 
 
5.28 Article 2.1 informs the interpretation of Artic le 2.4 and the "fair comparison" and "price 
comparability" requirements.  Essentially these require ments mean that the establishment of dumping 
margins under Article 2.4 must be made by evalua ting the product under consideration as a whole, not 
just a portion of the product.  The Appellate Body in EC – Bed Linen, id., paragraph 58, stated 
"[h]aving defined the product at issue and the ' like product' on the Community market as it did, the 
European Communities could not, as a subsequent stag e of the proceeding, take the position that some 
types or models of that product had physical character istics that were so different from each other that 
these types or models were not 'comparable'.  All ty pes or models falling within the scope of a "like" 
product must necessarily be 'comparable'".  
5.29 The practice of zeroing in establishing dumping ma rgins of a product under consideration, 
therefore, is inconsistent with Article 2.4 of the AD Agreement  in conjunction with Article 2.1 thereof. 
5.30 The established practice of DOC is, however , to apply the zeroing methodology to the 
calculation of dumping margins.  The DOC's dump ing determination, which is based on dumping 
margins used by DOC, thus is inconsistent with Ar ticle 2.4 in conjunction with Article 2.1 thereof. 
5.31 Importantly, if zeroing had not been applied in th is case, certain Canadian respondents in this 
softwood lumber case would have had de minimis  dumping margin.  See Exhibit CDA-3, and 
Canada's first written submission, footnote 3.  This  could affect not only DOC's "dumping" analysis 
but also the "injury" determination, including the finding of "dumped imports", by the ITC under 
Article 3 of the AD Agreement . 
2. DOC's Calculation of Selling, Administrative and General Expenses is Inconsistent with 
Article 2.2.1.1. of the AD Agreement  
5.32 Japan respectfully requests that this Panel carefully review whether DOC satisfied its burden 
to find that respondents' SG&A in their ordinary accounting records did not reasonably reflect the costs associated with the production and sale of so ftwood lumber.  Japan also respectfully requests 
that the Panel carefully examine whether DOC co rrectly considered and evaluated all evidence 
submitted by respondents when DOC calc ulated the respondents' SG&A.   
5.33 As Canada correctly argued, Article 2.2.1.1 requires the authorities to base costs calculation 
on the "records kept by the exporter or producer under investigation, provided that such records are in 
accordance with the generally accepted accounting prin ciples".  The authorities, however, may decide 
to deviate from these accounting records if the au thorities find that these records do not "reasonably 
reflect the costs associated with the production a nd sale of the product under consideration," as 
provided in Article 2.2.1.1.  In order for the au thorities to reject a respondent's accounting records, 
therefore, the authorities must first determine b ased on the accounting records of a specific respondent 
on a case-by-case basis that the respondent's record s do not "reasonably reflect" the costs of the 
product under consideration.   
5.34 In the instant case, DOC would have acted in consistently with Article 2.2.1.1, if DOC 
requested Canadian softwood lumber respondents to  recalculate their SG&A in a predetermined 
methodology without first reviewing their recorded SG&A.    
5.35
 Furthermore, also as Canada correctly stated , Article 2.2.1.1 provides "[a]uthorities shall 
consider all available evidence on the proper alloca tion of costs, including that which is made 
available by the exporter or producer in the course of the investigation...".  Thus, the authorities are 
required to base their determination on the proper  allocation of costs, including the SG&A, upon 
reviewing all evidence made available by respondents. 
5.36 In this connection, Article 17.6(i) of the AD Agreement  provides that the authorities' 
establishment of facts must be proper and their evaluation of the facts must be unbiased and objective.  WT/DS264/R 
Page 58  
 
Although this Article is directed to the panel, th e obligation of unbiased and objective evaluation of 
facts applies equally to the authorities because the panel reviews the authorities' evaluation of facts 
through this standard.  See Appellate Body Report in US – Hot-Rolled Steel , paragraph 56. 
5.37 The authorities, therefore, must determine the SG&A based on all evidence submitted by 
respondents, and on unbiased and objective evaluation of facts.  If DOC applied its pre-determined 
methodology to a particular respondent without re viewing any evidence submitted by the respondent, 
such application would be inconsis tent with Article 2.2.1.1 of the AD Agreement  in conjunction with 
Article 17.6(i) thereof.   
3. DOC's Practice on Valuation of by-products Revenues is Inconsistent with 
Article 2.2.1.1 of the AD Agreement  
5.38 Japan agrees with Canada that the DOC's establis hed practice with respect to valuation of by-
products revenues, as applied to this case, is  inconsistent with Article 2.2.1.1 of the AD Agreement .  
Japan considers that the DOC's valu ation practice of by-products sales prices to affiliated parties is 
inconsistent with Article 2.2.1. 1 in conjunction with Article 17.6(i) thereof because the DOC's 
practice works only unfavourably to respondents.  
(a) DOC's Established Practice on Valuation of Sa les of by-products to Affiliated Parties 
5.39 It is a DOC's established practice that, where a respondent evaluates by-product value based 
on sales prices from the respondent to its affiliated pa rty ("affiliated sales price") in its cost accounting 
records, DOC considers whether it should adjust  the recorded by-products value based on the 
weighted-average sales price of identical by-p roduct from a respondent to unaffiliated parties 
("unaffiliated sales price").  DOC disregards the recorded by-product value based on the affiliated 
sales price, and instead uses an unaffiliated sales price,  if the affiliated sales price is higher than the 
unaffiliated sales price.  DOC performs this revalua tion, even if the respondent's accounting records 
are in accordance with the GAAP of the respondent's  country.  DOC, however, does not adjust the 
recorded by-product value, if the recorded affilia ted sales price is lower than the unaffiliated sales 
price. 
5.40 The value of by-product revenues offsets th e total production cost of the product under 
consideration.  See Canada's first written submission, paragr aph 233.  Thus, the lower the amount of 
the offset, the higher the cost of production of the product under consideration.  Thus, DOC's 
established practice to adjust by-p roduct value works only to increase respondents' cost of production. 
(b) The Limit on the Authorities' Discretion under the AD Agreement  
5.41 The authorities have discretion to recalculate th e respondent's recorded cost of production in 
certain situations under Article 2.2.1.1, as discu ssed above.  This discretion, however, is not 
unlimited.  The AD Agreement  does not confer unfettered discretion on the authorities to pick and 
choose whatever the methodology they fit.  As discus sed in the previous section, such discretion must 
be exercised based on proper establishment of f acts and on an unbiased and objective evaluation of 
established facts as set forth in Article 17.6(i) of the AD Agreement
.  The Vienna Convention , 
Article 26, further requires that the discretion must be exercised in good faith.   
5.42 To be unbiased, objective and fair, the authoriti es must exercise its di scretion in an even-
handed manner without favouring the in terest of any particular party in an anti-dumping proceeding.  
In this regard, the Appellate Body in US – Hot-Rolled Steel  explained at paragraph 148 "[i]f a 
Member elects to adopt general rules to prevent distortion of normal value through sales between 
affiliates, those rules must reflect, even-handedly, the fact that both high and low-priced sales between 
affiliates might not be 'in the ordinary course of trad e.'"  The Appellate Body also stated in the other  WT/DS264/R 
 Page 59 
 
 
context at paragraph 193 "[i]n short, an 'objective examination' requires that the domestic industry ,..., be 
investigated in an unbiased manner, without favour ing the interests of any interested party".   
5.43 This rule in the AD Agreement , as explained by the Appellate Body, squarely applies to the 
authorities' discretion on how to construct a respondent's cost of production.   
(c) DOC's Valuation of Wood Chips, to which DOC Applied its Established Practice, is 
Inconsistent with Article 2.2.1.1 of the AD Agreement  
5.44 DOC's established practice, as applied to this so ftwood lumber case, is contrary to this even-
handed rule.  Canada demonstrated that DOC applied its established practice in the instant case.  DOC 
re-evaluated the respondents' cost of production onl y when a recorded affiliated sales price of the 
wood chips, a by-product, was higher than the unaffili ated sales price of wood chips.  DOC did not re-
evaluated the recorded affiliated sales price when the affiliated sales price was lower than the 
unaffiliated sales price. ( See Canada's first written submission, paragraphs 237-265)  DOC's practice 
thus works only to increase the respondents' cost of production. 
5.45 If DOC considers that the unaffiliated sales price mu st be the appropriate benchmark to value  
by-products, DOC then should substitute the unaffilia ted sales price for all affiliated sales prices, 
irrespective of whether the affiliated sales price was either higher or lower than the unaffiliated sales 
price.  DOC's picking and choosing method, which was designed only to increase the cost of production and to increase the likelihood of DOC's finding of dumping in favour of the domestic 
industry, is not even-handed, and does favour the domestic industry.  Such practice is beyond the 
permissive exercise of DOC's discretion, and thus is, and was, as applied to this instant case, inconsistent with the authorities' oblig ations under Article 2.2.1.1 of the AD Agreement  in conjunction 
with Article 17.6(i) thereof.   
5.46 For the reasons set forth above, Japan respect fully requests this Panel to review the 
inconsistency of DOC's practices with Article 2.4 of the AD Agreement  in conjunction with 
Article 2.1, as well as with Article 2.2.1.1, in conjunction with Article 17.6(i). 
C. 
THIRD PARTY ORAL STATEMENT OF THE EUROPEAN COMMUNITIES  
5.47 The EC, in its oral statement, made the following arguments: 
1. Article 5.2 of the AD Agreement  
5.48 Canada argued that the United States initiated its investigation contrary to Article 5.2 of the 
AD Agreement  because the applicant did not provide all "re asonably available" information, i.e., the 
commercial relationship between the various compani es and the pricing and cost data of the exporting 
company.125  
5.49 The EC disagrees with such an interpretation of Article 5.2 of the AD Agreement .  As already 
explained in its third party submission the EC cons iders that neither the wording nor the context does 
lend support for the idea that Article 5.2 of the AD Agreement  imposes a direct  obligation upon the 
investigating authority.  
5.50 First, the EC would highlight that under the th ird sentence of chapeau of Article 5.2 of the 
AD Agreement the application "shall contain such in formation as is reasonable available to the 
applicant " (emphasis added).  Accordingly, Article 5.2 of the AD Agreement  provides for minimum 
requirements for an application that only the applican t can fulfil.  The language of Article 5.2 of the 
                                                      
125 Canada first written submission, paras. 89 et seq.  WT/DS264/R 
Page 60  
 
AD Agreement thus demonstrates that the requirements ther eunder are addressed to the applicant but 
not to the investigating authority. 
5.51 Second, Article 5.1 of the AD Agreement  elucidates that the application is made "by or on 
behalf of the domestic industry".  Therefore, any shortcoming of the application falls within the 
sphere of responsibility of the applicant but not of th e investigating authority.  The authority is simply 
not responsible for submitting an application that fulfils the requirements under Article 5.2 of the 
AD Agreement.  
5.52 The EC would therefore concur with the US position that Article 5.2 of the AD Agreement  
does not impose a specific obliga tion on investigating authorities.
126 
2. Article 5.3 of the AD Agreement  
5.53 Canada claimed that the United States violated its obligations under Article 5.3 of the 
AD Agreement  because the application did not contain "suffi cient evidence" to justify the initiation of 
the investigation.127 
5.54 The EC would refrain from commenting on the s ubstance of this claim.  However, from a 
systemic point of view, the EC would submit that Article 5.3 of the AD Agreement  is a pivotal 
provision in determining whether the investigatin g authorities correctly initiated an anti-dumping 
investigation.  In this context, other requirements  for the application, such as those referred to under 
Article 5.2 of the AD Agreement , may also become relevant.  Thus, in order to discharge its 
obligations under Article 5.3 of  the AD Agreement  the investigating will also have to take into account 
whether the application contains all necessary information as required under Article 5.2 of the 
AD Agreement.  
3. Article 5.8 of the AD Agreement  
5.55 Canada claimed that even if the US authoriti es had initiated the investigation in accordance 
with Article 5.3 of the AD Agreement  it should have terminated the ex amination at a later stage in the 
light of the insufficient evidence on the commercia l relationship and the cost and pricing data.128 In 
Canada's view the United States, therefore, vi olated its obligations under Article 5.8 of the 
AD Agreement .  
5.56 The EC would recall that Article 5.8 of the AD Agreement  provides for two alternative 
scenarios: Either the application did not contai n sufficient evidence from the outset or during the 
investigation it becomes apparent that evidence is insufficient. 
5.57 As concerns the first alternative, the EC  would agree with the Panel findings in Mexico – 
Corn Syrup which determined that Article 5.8 of the AD Agreement  did not impose an additional 
substantive obligation beyond those in Article 5.3 of the AD Agreement .129 
5.58 With regard to the second alternative, the inv estigating authorities are called upon to decide at 
the end of the anti-dumping investigation whether the imposition of anti-dumping measures would be 
justified or not.  This necessitates a determinati on on whether the investigation reveals "sufficient 
evidence" of dumping, injury and a causal link.  
                                                      
126 US first written submission, paras. 73 et seq.  
127 Canada first written submission, paras. 100 et seq.  
128 Ibid. 
129 Panel Report, Mexico – Corn Syrup , para. 7.99; confirmed by Panel Report, Guatemala – Cement II , 
paras. 8.72 et seq.   WT/DS264/R 
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5.59 The EC would note that once an investigati on has been initiated (in accordance with 
Article 5.3 of the AD Agreement) these questions typically evolve in the course of the investigation. 
Therefore, an obligation to terminate an ongoing investigation under Article 5.8 of the AD Agreement  
due to lack of "sufficient evidence" should be interp reted in a more flexible manner.  This view is 
corroborated by the first sentence of Article 5.8 of the AD Agreement  which provides that any 
termination is contingent upon whether the "authorities concerned are satisfied  that there is no 
sufficient evidence of either dumping or of injury  to justify proceeding with the case" (emphasis 
added). Accordingly, investigati ng authority have a considerable margin of discretion whether to 
terminate an investigation due to l ack of sufficient evidence or not.  
4. The Practice of "Zeroing" – Violation of Articles 2.4 and 2.4.2 of the AD Agreement  
5.60 Turning now to the US "practice of zeroing", the EC understands that the scope of this 
complaint does not concern the US statute per se .  Canada only appears to attack the practice of 
"zeroing" as relevant for original investigations.  
5.61 The EC considers that the US methodology for determining the numerator for the purposes of 
the weighted average margin calculation in no way differs from the EC "zeroing" methodology 
already found to be incompatible with Articles 2.4 and 2.4.2 of the AD Agreement in EC – Bed 
Linen .130  The EC compared the weighted average norma l value and export price of different product 
types within the like product.  It attributed a zer o value to any types for which the resulting dumping 
margin was negative, while aggregating the pos itive dumping margins and dividing them over the 
total value of the export sales to obtain a percentage rate of dumping.  It, thus, allowed no "offset" for 
negative dumping across product types.  The United States has done exactly the same in this case. 
5.62 The United States does not dispute the similarity of the two methodologies, but confines itself 
to rejecting the precedent value of th e decision of the Appellate Body in EC – Bed Linen  and attempts 
to reargue the case.131  Although the Appellate Body's decision in EC – Bed Linen  only binds the 
parties to that case, the Appellate Body expects Pa nels to take account of the legal clarifications 
concerning Articles 2.4 and 2.4.2 of the AD Agreement .  Of course, panels and the Appellate Body 
may reconsider or refine certain le gal interpretations on the basis that certain legal arguments were not 
made by the parties and therefore not addressed by the Appellate Body.  However, as already 
explained in its written brief the EC considers that none of the arguments advanced by the 
United States in addition to  those already addressed in EC – Bed Linen  to defend its "zeroing" 
methodology are of such nature. 
5.63 As regards the US arguments re lating to the product definition132, the EC notes that the 
Appellate Body clarified that the rules governin g comparison under Articles 2.4 and 2.4.2 of the AD 
Agreement  are legally separate from those concerning the definition of the product under 
consideration (and the like product according to Article 2.6 of the AD Agreement ).   
5.64 It is true that a broad determination of th e product under consideration and the like domestic 
product may lead the authority to make multiple comparisons, some of which can show negative 
dumping margins.  However, the prohibition of zeroi ng by virtue of Articles 2.4 and 2.4.2, first 
paragraph of the AD Agreement , as interpreted in EC – Bed Linen , ensures that negative dumping 
margins found for some product types will offset the positive dumping margin of others when the margin of dumping is established for the product under consideration as a whole .  As noted by the 
Appellate Body, to address in particular dumping of certain types or models of products, the 
United States investigating authorities "could ha ve defined, or rede fined the product under 
                                                     
 
130 Appellate Body Report, EC – Bed Linen , para. 47. 
131 US first written submission, para. 175. 
132 US first written submission, paras. 160-164. WT/DS264/R 
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investigation in a narrower way".
133  Yet, once the product under consideration has been defined 
broadly as in this investigation, a margin of dumping based on the first symmetrical method of 
Article 2.4.2 of the AD Agreement  must take full account of negative amounts of dumping.134  
5.65 As to the textual, contextual arguments and those relating to the negotiating history135, the EC 
refers to its third party brief.136   
5.66 In short, the EC fully supports Canada's request  that the Panel should find that the US practice 
of "zeroing" is incompatible with Articles 2.4 and 2.4.2 of the AD Agreement .  
D. THIRD PARTY ORAL STATEMENT OF JAPAN  
5.67 Japan, in its oral statement, made the following arguments: 
1. The Basic Principle of Good Faith 
5.68 Japan would like to bring the attention of this  Panel to the bedrock principle of good faith 
under Articles 26 and 31 of the Vienna Convention .  As the Appellate Body has repeatedly 
recognized, Members are obliged to perform their WTO treaty obligations in good faith.137  In US – 
Hot-Rolled Steel , for example, the Appellate Body stated that  the "organic principle of good faith" is 
"a general principle of law and a principle of genera l international law, that informs the provisions of 
the Anti-Dumping Agreement ..".138  I n  US – Shrimp,  the Appellate Body has explained that this 
general principle "prohibits the abusive exercise of a state's rights"139, and that the exercise of a state's 
right should be " fair and equitable as between the parties  and not one which is calculated to procure 
for one of them an unfair advantage in  the light of the obligation assumed".140 (emphasis in original)  
As clarified by the Appellate Body, the basic princi ple of good faith requires the authorities to act in 
an even-handed manner that respects fundamental fairness.141   
5.69 One of the expressions of this principle is Article 17.6(i) of the AD Agreement .  While this 
Article instructs the Panel to review whether the authorities evaluated facts in an unbiased and 
objective manner, this Article, at the same time, "i n effect defines when investigating authorities can 
be considered to have acted  inconsistently with the AD Agreement  in the course of their 
"establishment" and "evaluation" of the relevant facts".142  The principle of good faith therefore 
requires the authorities to exercise its discretion in an even-handed, fair, unbiased and objective 
manner under the AD Agreement .143 
5.70 This basic principle of good faith is particularly  important in the interp retation and application 
of the AD Agreement  because the authorities exercise substantial discretion under the AD Agreement .  
Keeping this in mind, individual issues should be reviewed. 
                                                      
133 Appellate Body Report, EC – Bed Linen , para. 62. 
134 The EC does not address the issue of product definition in this submission, but reserves its position. 
135 US first written submission, paras. 161 and 167 et seq . 
136 EC third party submission, paras. 36-39. 
137 See, e.g., Appellate Body Report, US – Line Pipe , para. 110 and note 117; Panel Report, US – Hot-
Rolled Steel , para. 101. 
138 Panel Report, US – Hot-Rolled Steel , para. 101. 
139 Appellate Body Report, US – Shrimp , para. 158. 
140 Id., note 156, quoting B. Cheng, General Principles of Law as Applied by International Courts and 
Tribunals  (Stevens and Sons, Ltd., 1953), p. 125. 
141 Appellate Body Report,  US – Hot-Rolled Steel,  para. 148 and note 142.  See also Appellate Body 
Report, EC – Hormones , para. 133. 
142 Appellate Body Report, US – Hot-Rolled Steel,  para. 56. 
143 Panel Report, EC – Bed Linen (Article 21.5 – India) , as modified by the Appellate Body, paras. 132-
133.  WT/DS264/R 
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2. Prohibition of Zeroing 
5.71 Japan demonstrated in its third party written submission that the zeroing practice is 
inconsistent with Article 2.4 of the AD Agreement  in conjunction with Article 2.1 thereof. 
5.72 It appears that the United States ignored the si gnificance of the chapeau of Article 2.4.  The 
general obligation of "a fair comparison" set fort h in the chapeau is another expression of the basic 
principle of good faith and fundamental fairness with  respect to the calculation of the margin of 
dumping.  In order for a comparison to be "fair", the authorities may not exercise its discretion in a manner that gives "unfair advantage" to one inte rested party.  DOC's practice of zeroing, which 
replaces negative margins with zero to calculate the margin of dumping of a product, works only to 
create and inflate the margin of dumping.  This practice cannot be viewed as "fair" under Article 2.4 
of the AD Agreement , nor consistent with the basic principle of good faith. 
5.73 The United States seems to argue that Article 2. 4.2 provides for calculation of the margin of 
dumping only on a model-specific basis.
144  The United States attempted to justify this argument, 
reading that the term "margin" in Article 2.4.2 out of context.  
5.74 Japan disagrees.  The AD Agreement  requires the authorities to establish a single margin of 
dumping of a product, and accordingly to determine "dumping" of "a product", on a company-specific 
basis.  This requirement is explicit in Article 6. 10, which states "[t]he Authorities shall, as a rule, 
determine an individual  margin of dumping for each known exporter  or producer concerned of the 
product under investigation".145  (emphasis added) The Appellate Body in EC – Bed Linen (Recourse 
to Article 21.5 DSU)  confirmed this, stating "'dumping is a de termination made with reference to a 
product from a particular producer [or] exporter[.]'"146  Japan also would like the Panel to recall that 
Article 2.1 informs Article 2.4 that the "fair comp arison" must be made with respect to the product 
under consideration as a whole , as discussed in Japan's written submission.  In sum, the AD 
Agreement  requires the authorities to calculate the margin of dumping for the product under 
consideration as a whole on a company-specific basis, not on a model-specific basis. 
5.75 The term "margins" in Article 2.4.2 is not an indication that the practice of zeroing is 
permitted.  A multiple comparison method provided in Article 2.4.2 may be used in the margin 
calculation process as a matter of the administrative convenience to take into account the differences 
in physical characteristics among several models of a product.147  Such multiple comparisons are, 
however, just in the middle of the entire process to  calculate an individual margin of dumping for an 
exporter/producer.  At the end, the authorities mu st aggregate all of these intermediate margins 
obtained from multiple comparisons to  arrive in a single margin for a producer.  The principle of good 
faith, as expressed in Article 2.4 which was informed  by Article 2.1, requires that the authorities 
calculate the margin in an even-handed manner wi thout giving unfair advantage to one interested 
party.  Article 2.4.2 is also subject to this princi ple, as the chapeau of this Article expressly provides 
"subject to the provisions governing the fair compar ison in paragraph 4".  The practice of zeroing, 
which ignores all negative margins and uses only positiv e margins for such calculation, is against the 
basic principle of good faith and Article 2.4.  
5.76 Finally, the argument by the United States on "c omparable" products is without merits.  The 
authorities may not be permitted to argue in a segment of the proceeding that "product under 
consideration" consisted of multiple  types because they are not "compa rable", and then argue in other 
segments of the proceeding that these types constitutes a comparable single product.  Throughout the 
                                                      
144 US first written submission, paras. 150-155. 
145 Article 6.10 of the AD Agreement . 
146 Appellate Body Report, EC – Bed Linen (Article 21.5 – India) , para. 143, quoting the original Panel 
Report, para. 6.136. 
147 US first written submission, para. 154. WT/DS264/R 
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investigation in question, the United States treate d the various models of softwood lumber as "a 
product" under Article 2.1 and as the like product under Article 2.6, or in US term "a class or kind of 
merchandise".
148  The United States also based its determin ation of the US domestic industry and its 
injury on the like product of softwood lumber, a single product.  In the US first written submission, responding to Canada's claim that certain typ es of softwood lumber differ from others, the 
United States argued "none of these products we re so essentially different from other products 
covered by the investigation as to warrant drawi ng 'clear dividing lines' between those products".
149  
The United States then may not be allowed to argue  conveniently only in the zeroing issue that the 
certain types of softwood lumber must be treated differently from other types.  
5.77 As such, Japan submits that the Panel reject arguments by the United States, and this Panel 
find that the zeroing practice is prohibited under Article 2.4 in conjunction with Article 2.1.  
3. Calculation of Selling, General and Administrative Expenses 
5.78 The second issue that Japan would like to address is the SG&A calculation methodology 
adopted by DOC.  Again, Japan would like to em phasize that the authoriti es are required to conduct 
an anti-dumping investigation in an even-handed,  fair, unbiased and objective manner.  In this 
connection, Article 2.2.1.1 requires the authorities to "consider all available evidence on the proper 
allocation of costs".  Consequently, to act in a fair and objective manner, the authorities must determine the proper allocation method of SG&A  upon reviewing all evidences presented by an 
exporter or producer.  The requirement for the author ities to base its determination of the allocation 
method on all evidence presented by a producer mean s that the determination must be made on a 
company-specific basis.  
5.79 In this investigation, it appears that the United States preferred to  apply its established 
"standard methodology"
150, which allocates financial expenses based on COGS.  The United States 
argues that the COGS method is proper.  The US argument, however, missed the point.  The question 
here is not whether the COGS method is proper.   The question is whether DOC determined an 
appropriate method to calculate SG&A based on all the evidence on a company-specifi c basis, or 
DOC applied its own established method wit hout considering all the evidence.   
5.80 Japan respectfully requests that the Panel re view DOC's application of its own SG&A 
calculation methodology to Canadian respondents from this viewpoint. 
4. Revaluation of by-product 
5.81 Finally, Japan submits that DOC's revaluati on of by-product, wood chip, for the purpose of 
the production cost of softwood lumber is  contrary to Article 2.2.1.1 of the AD Agreement  and the 
good faith obligation. 
5.82 It appears that the United States misunderstands the limit on the authorities' discretion under 
Article 2.2.1.1 of the AD Agreement .  Article 2.2.1.1 permits the authorities to deviate their 
production cost calculation from the respondent's r ecorded costs, if the recorded costs do not 
reasonably reflect the costs associated with the production of the product under consideration.  
Article 2.2.1.1 does not confer complete and unfettere d discretion to the authorities to determine what 
"reasonably reflect" the production of the product unde r investigation.  As discussed during the first 
substantive meeting and in Japan's third party wr itten submission, the basic principle of good faith, 
which informs the provisions of the AD Agreement , including Article 2.2.1.1, obliges the authorities 
                                                      
148 Id., para. 104.  See also paras. 103-106. 
149 Id., para. 105. 
150 Id., para. 191.  WT/DS264/R 
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to exercise their discretion in an even-handed and fair manner without giving "unfair advantage" to 
one interested party. 
5.83 DOC, applying its established practice in this case, determined that certain respondents' 
recorded wood chip valu es based on sales price to affiliated parties did not "reasonably reflect" the 
production of softwood lumber.  DOC made such revaluation, however, only where the recorded 
value was higher than the sales price to unaffiliated pa rties.  In such case, DOC  lowered the recorded 
chip value down to the sales price to unaffiliated pa rties.  DOC did not reva luate the recorded wood 
chip value, where the re corded value was lower than the sal es price to non-affiliated parties.  
According to the United States, such "understated" value is not unreasonable.151  As the wood chip 
value offsets the production cost of softwood lumber, DOC's affiliated party rule, as applied to this 
case, is designed to work only to increase the produc tion cost of softwood lumber, and thus increase 
the margins of dumping of respondents.   
5.84 The basic principle of good faith and fundamental  fairness target precisely this situation: the 
authorities' practice, which creates an "unfair advantag e" to one interested party.  To act in good faith 
and to avoid creating an "unfair advantage," the au thorities' decision standard must be even-handed 
and fair to all parties.  DOC's practice, as applied to this softwood lumber case, is contrary to this 
good faith obligation. 
5.85 Moreover, DOC's practice did not take account of usual variation of prices in the marketplace.  
The Appellate Body has explained in US – Hot-Rolled Steel , "the sales price may be lower  than the 
"ordinary course" price, if the purpose is to sh ift resources to the buyer, who then receives goods 
worth more than the actual sales price".152  DOC's practice simply re-eva luated the chip costs without 
considering any other factors affecting the sales price to affiliated party.  The DOC's practice thus has 
no justification. 
5.86 DOC's application of its own method to re-e valuate the wood chip value is, therefore, 
impermissible exercise of its discr etion under Article 2.2.1.1 of the AD Agreement  in conjunction with 
Article 17.6(i) thereof and the basic principle of good faith and fundamental fairness.  Japan thus 
submits that the Panel find that the DOC's practi ce as applied to this case is inconsistent with 
Article 2.2.1.1. 
5. Conclusion  
5.87 As such, Japan asks this Panel to find that the United States violated its WTO obligations 
under Articles 2.4 and 2.2.1.1 of the AD Agreement  in conjunction with Articles 2.1 and 17.6(i) 
thereof, and the basic principle of good faith and fundamental fairness. 
VI. INTERIM REVIEW 
6.1 On 30 January 2004, both Canada and the Un ited States submitted written requests for the 
Panel to review precise aspects of the Interim Re port issued on 16 January 2004.  As Canada did not 
direct us to the record to substantiate its comment s and proposals regarding changes to the text of the 
Interim Report, we requested Cana da on 4 February 2004 to identify exactly where in the record 
support for its requested adjustments to the Inte rim Report could be found.   Canada submitted its 
response on 6 February 2004.  On 9 February 2004, both parties submitted written comments on the 
other party's request for interim review.  Neither party requested an interim review meeting.  The 
                                                      
151 Id., para. 241. 
152 Appellate Body Report, US – Hot-Rolled Steel , para. 141. WT/DS264/R 
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Panel has carefully reviewed the arguments and pr oposed amendments to the text of the Interim 
Report, and addresses them ad seriatim , in accordance with Article 15.3 of the DSU.
153   
6.2 The United States  requests us to amend paragraph 7.32 of the Interim Report to reflect the 
fact that the regression analysis was in fact never submitted to DOC.  Canada  did not comment on 
this issue.   
6.3 We agree with the United States and, accordingl y, amended paragraph 7. 32 of this Report. 
6.4 Canada requests us to make some amendments to th e fifth sentence of paragraph 7.159; fifth, 
sixth and seventh sentences of paragraph 7.171; and fifth sentence of paragraph 7.173 of the Interim 
Report regarding our examination of "Claim 5: Artic le 2.4 – Adjustment for Differences in Physical 
Characteristics".  Canada asserts that our descrip tion of DOC's methodology used at the preliminary 
stage was not accurate and proposed wording to correct it.  The United States asserts that, through its 
proposed changes to the above-cited paragraphs of th e Interim Report, Canada apparently intended to 
clarify that certain similar product matches were po ssible and were made by DOC in the Preliminary 
Determination.  In the view of the United St ates, Canada's proposed changes do not accurately 
describe the methodology used by DOC at the prelim inary stage.  In particular, the United States 
asserts that Canada's proposals are unclear and mislead ing, because they fail either to identify the 
similar matches that DOC made in the Preliminary De termination or to adequate ly explain that similar 
matches were made only where DOC was able to qua ntify an appropriate adjustment.  Bearing in 
mind the alleged purpose of Canada's comments, the United States requests us not to accept the 
changes proposed by Canada but suggests some adju stments to the above-referred paragraphs of the 
Interim Report. 
6.5 The gist of Canada's comment is that DOC's approach at the preliminary stage be reported 
accurately in certain paragraphs of this Report.  We agree with this comment and made certain 
changes, which can be found in paragraphs 7.159, 7.171, and 7.173, infra , of this Report.  Footnotes 
310-312, 323-325 and 329, infra , have been added to those paragraphs to indicate the source of the 
information referred to in those paragraphs. 
6.6 Regarding "Claim 6: Articles 2.4 and 2.4.2 – Zeroing", the United States requests us to delete 
footnote 341 of the Interim Report (footnote 361 of th is Report).  The United States argues that it is 
not within the Panel's terms of reference to rule  on whether an offset for non-dumped comparisons is 
required when determining the overall margin of  dumping under the transaction-to-transaction and 
weighted average normal value-to-individual export transaction methodologies set forth in Article 2.4.2 of the AD Agreement .  In the view of the United States, that question need not be 
answered to resolve this dispute.  The United St ates asserts that the statement contained in the 
footnote is of additional concern because it states a conclusion without setting forth any reasons for 
that conclusion.  Finally, the United States asser ts that the discussion in footnote 341 seems to 
misconstrue the US references to the transaction- to-transaction and weighted average normal value-
to-individual export transaction methodologies.  Thus, the United States asserts that the purpose of the 
references that it made to those two methodologies in its submissions to us was "simply to illustrate 
that Article 2.4.2 contemplates multiple stages to arrive at a single anti-dumping duty margin and speaks only to alternative methodologies for performing the first stage."
154  Canada  asserts that 
Article 11 of the DSU  gives the Panel full scope to express, in footnote 341, its views as to whether 
zeroing would be permitted in the determination of a margin of dumping based on the other two 
methodologies referred to in Article 2.4.2 of the AD Agreement .  In Canada's view, a panel is free to 
set forth its interpretation of parts of a provision that are not the object of litigation when such 
interpretation is useful or necessary for the interp retation of the provision in question – in the case at 
                                                      
153 Section VI of this Report entitled "Interim Review " therefore forms part of the findings of the final 
panel report, in accordance with Article 15.3 of the DSU . 
154 US Comments on the Interim Report, par. 6.  WT/DS264/R 
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issue, Article 2.4.2 – as a whole.  In the view of  Canada, the Panel's statement in footnote 341 is 
connected logically and directly to the Panel's explanation of its legal reasoning.  Therefore, 
footnote 341 should not be removed.  Canada further argues that, it was the United States, in paragraph 151 and following of its first written submission, that referred to the other two 
methodologies provided for in Artic le 2.4.2 and first raised the issue of the relevance of these 
methodologies.  Finally, Canada argues that, the United States is making a legal argument seeking to 
have the Panel reconsider a substa ntive position related to the core of submissions on this matter.  
Canada submits that this goes beyond the scope  of the requirement of Article 15.2 of the DSU  that a 
request for review pertain to "precise aspects of the interim report". 
6.7 We have considered the parties' comments and ha ve adjusted the text of the relevant footnote 
(see note 361, infra , in this Report).  We are of the view that we are not precluded by any provisions 
of the DSU  to make the comments as reflected in this footnote. 
6.8 With respect to "Claim 7: Articles 2.2, 2.2.1, 2.2.1.1, 2.2.2 and 2.4 – Allocation of Financial 
Expenses: Abitibi",  Canada  requests us to amend the sixth sentence of paragraph 7.227 of the 
Interim Report.  Canada asserts that the parties'  positions, in relation to Abitibi's net interest 
allocation, are not reflected in that sentence.  In its first written submission, Canada submits that the 
United States asserted that "Abitibi's theory (...) incorrectly assumed that fixed-asset purchases are the 
principal activities of a company requiring working capital".
155  Canada contends that the US position 
assumes that net interest allocation is limited to fixe d assets.  In contrast, Canada asserts that it argued 
that allocated net interest expense was based on total assets, which included non-fixed assets such as 
inventories and accounts receivable.156  Canada proposes the addition of a sentence to that paragraph 
to reflect the parties' position.  The United States asserts that Canada is correct that Abitibi's 
allocation methodology was based on total assets, not fixed assets.  In the view of the United States, 
the Panel should nonetheless reject Canada's propo sed adjustment, because it states incorrectly and 
without citation that it was DOC's position that Abiti bi's interest expense allocation methodology was 
based on fixed assets, instead of total assets.  In  fact, DOC discussed Abitibi's methodology with 
regard to "assets", not "fixed assets".157  The United States asserts that Canada does not dispute this 
point in its letter dated 6 February 2004.  In this le tter Canada refers only to a statement in the US first 
written submission about the theory underlying Abitibi' s argument on allocation of interest expense.  
That sentence does not purport to describe how Abitibi allocated interest expense, according to the 
United States.  To clarify the sixth sentence in paragraph 7.227 accurately, the United States proposes 
that the Panel simply strike the term "fixed."   
6.9 At the outset, we note that paragraph 7.227 of th e Interim Report (identical paragraph in this 
Report) falls under the section "Factual Background".  This section purports to report facts that are 
relevant to our examination of the issues before us , rather than the arguments of the parties.  The 
purpose of the sixth sentence et seq.  is therefore only to describe how Abitibi computed the portion of 
the company's net interest expense related to lumber assets and operations in its questionnaire 
response.  Keeping this in mind, we do not consid er it appropriate to include in this section the 
different positions of the parties on the issues at st ake.  The arguments are reflected in the section 
"Arguments of the parties".158  In addition, the description of the methodology contained in the sixth 
sentence et seq.  of paragraph 7.227 of the Interim Report was taken directly from Abitibi's 
questionnaire response.159  Thus, we regard this to be the most objective description of how Abitibi 
proposed DOC to determine the portion of that compan y's net interest expense related to lumber.  For 
the foregoing reasons, we have not made any ch anges to paragraph 7.227 of this Report.  
                                                      
155 US first written submission, para. 192. 
156 Canada second written submission, para. 212; and Canada response to question 52 of the Panel, 
para. 146. 
157Final Determination , Comment 15, (Exhibit CDA-2).  
158 See paras. 7.230-7.232, infra . 
159 Exhibit CDA-83, Abitibi's Ques tionnaire response, p. D-44. WT/DS264/R 
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6.10 In addition to the above, the United States  requests us to clarify that the statement contained 
in the third sentence of paragraph 7.243 of the Interi m Report (identical paragraph in this Report), that 
DOC allocated 13.6 per cent of the total amount fo r financial expense to softwood lumber, was an 
assertion made by Canada.  Canada did not comment on this point.  
6.11 After examining the comment of the United States, we have concluded that  it is appropriate to 
make the requested amendment to paragraph 7.243 of this Report. 
6.12 Regarding "Claim 8: Articles 2.2, 2.2.1, 2.2.1. 1, 2.2.2 and 2.4 – Dete rmination of General & 
Administrative Expenses: Tembec", Canada  asserts that the fifth sentence of paragraph 7.246 of the 
Interim Report (identical paragraph in this Report)  contains a clerical error which has modified the 
meaning of this sentence.  According to Canada, th e internal divisional financial statements included 
all amounts for G&A costs charged by Tembec to each of its divisions, plus a properly allocated 
portion of overall corporate G&A.  Thus, Canada requ ests us to replace the word "some" in "including 
some amounts for G&A costs that are charged directly by Tembec" with the word "all".
160  I n  s o  
requesting, Canada refers us to  a citation in paragraph 209 of its first written submission.  The United 
States asserts that Canada's proposed insertion of the word  "all" in the fifth sentence is misleading.  In 
the view of the United States, Canada did not pr ovide evidence that the FPG divisional G&A properly 
included all the G&A attributable to softwood lumber.  The United States asserts that Canada's 
citation, in its 6 February 2004 le tter, to its own first written submi ssion does not change the fact that 
there was an absence of evidence in  the record on this point.  The United States, however, appears to 
propose that the term "some" is deleted. 
6.13 After considering the comments of the parties, we are of the view that the words "some", as 
reflected in paragraph 7.246 of the Interim Report (i dentical paragraph in this Report), and the word 
"all", as proposed by Canada now, might be underst ood to contain a value judgement on the part of 
the Panel.  In light of our discussion of  this issue in paragraphs 7.250-7.269, infra , which goes to the 
heart of the claim, we have replaced the word "som e" with the neutral word "those" in the fifth and 
seventh sentences of paragraph 7.246, infra , of this Report.  In addition to the above, we have added 
footnotes 382 and 383 to paragraph 7.246 of this Report to indicate the source of the information 
referred to in that paragraph.   
6.14 Canada  also refers to minor clerical errors in  the fifth sentence in paragraph 7.246 of the 
Interim Report and requests us to co rrect them, that is, to add the word "its" and to change the term 
"division" to "divisions".  The United States  agrees.   
6.15 We have therefore corrected the errors and have changed the wording accordingly ( see fifth 
sentence of paragraph 7.246, infra, of this Report). 
6.16 In addition, Canada  requests us to replace the words "[i]ns tead of" in the seventh sentence of 
paragraph 7.246 of the Interim Report, by the words "[i]n addition to".161  The United States  agrees 
with this request.   
6.17 We agree with Canada's proposal and made the requested change to the seventh sentence of 
paragraph 7.246 of this Report.   
6.18 Canada requests us to add in paragraph 7.299 of the Interim Report (identical paragraph in 
this Report) – addressing "Claim 10: Articles 2.2, 2.2.1, 2.2.1.1 and 2.4 – Reasonable Amounts for 
By-Product Revenues from the Sale of Wood Chips:  Tembec and West Fraser" – that Tembec had 
submitted information on arm's length sales by its sawm ills.  In support of its request, Canada refers 
to statements contained in paragraphs 256 a nd 302 of its first and second written submissions, 
                                                      
160 Canada first written submission, para. 209. 
161 Canada refers to Exhibit CDA-160, Tembec's Case Brief, p.4.  WT/DS264/R 
 Page 69 
 
 
respectively.  Canada also refers to DOC's di scussion and analysis found in Tembec's Cost 
Verification Report.162  T h e  United States asserts that, although it is true that Tembec submitted 
examples of sales by some of its sawmills to unaffiliated purchasers of wood chips produced by its 
sawmills, as DOC explained in the IDM, these reporte d sales and comparisons with other prices were 
selectively chosen by Tembec and were not based on a sample chosen by DOC.  The United States 
that, if the Panel were to make a modification based on Canada's proposal, the modification should 
make clear comparisons with other prices were selectively chosen by Tembec. 
6.19 We note Canada's statement in paragraph 256 of its first writte n submission that "Tembec (...) 
makes arm's length sales of wood chips at market pri ces in Western Canada."  The correctness of this 
statement is not disputed by the United States.  B earing this in mind, we agree with the change, as 
shown in paragraph 7. 299 of this Report, infra .  We note the US request that we add a reference to the 
fact that Tembec had submitted a selective number of examples of arm's length sales by its sawmills 
to unaffiliated purchasers.  The United States direct s us to DOC's findings in Comment 11 of the 
IDM.163  However, the only reference we could find in the section containing DOC's findings on this 
issue to data selectively provided by Tembec con cerns information regarding prices for wood chip 
purchases made by its pulp mills from unaffiliated parti es.  For this reason, the addition proposed by 
the United States has not been accepted. 
6.20 For the sake of clarity, we have made minor adjustments to paragraphs 7.24, 7.30, 7.98, 
7.168, 7.255, 7.260, 7.263, 7.285, 7.331, 7.344, 7.366, and 7.373-7.374 of the Interim Report (which correspond to paragraphs 7.24, 7.30, 7.98, 7.168, 7. 255, 7.260, 7.263, 7.285, 7.333, 7.336, 7.368 and  
7.376-7.378 of this Report, respectively).  Moreove r, we have slightly amended and moved the fifth 
sentence of paragraph 7.312 of the Interim Report (i dentical paragraph in this Report) to paragraph 
7.317 of this Report.  We have also amended paragraph 7.316 of the Interim Report (identical 
paragraph in this Report) in order to take into account our interpretation of the obligation imposed by 
the proviso of Article 2.2.1.1, as set forth in para graphs 7.236-7.237 of the Interim Report (identical 
paragraphs in this Report).  As a consequence of our amendments, we have also adjusted "Section 
VIII. Conclusions and Recommendations".  
6.21 In addition to the above-cited amendments , we have added and amended a number of 
footnotes to indicate sources of the information of re cord.  Footnote 406, settin g forth  the scope of 
the examination undertaken by the Panel, has been added to this Report.  Finally, we have deleted 
some footnotes which we considered redundant.  
6.22 Finally, we have made some typographical and style-related improvements to the Interim 
Report.   
VII. FINDINGS 
A. I
NTRODUCTION  
7.1 Canada challenges DOC's final anti-dumping dut y determination with respect to certain 
softwood lumber from Canada published in  the Federal Register on 2 April 2002164, as amended on 
22 May 2002.165  Canada asserts numerous claims against the Final Determination.  Canada's first 
seven claims refer to the AD Agreement .  The first three claims relate to the initiation and non-
termination of the anti-dumping investigation.  With  respect to these claims, Canada alleges violations 
of Articles 5.2, 5.3 and 5.8 of the AD Agreement .  Canada's fourth claim is that DOC erroneously 
determined that there was a single "like pr oduct", in violation of Article 2.6 of the AD Agreement and 
                                                      
162 Exhibit CDA-112, Tembec's Cost Verification Report, p. 23-25. 
163 Exhibit CDA-2, IDM, pp. 57-62. 
164 Exhibit CDA-1, Final Determination. 
165 Exhibit CDA-3, Amended Final Determination. WT/DS264/R 
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that this non-compliance with Article 2.6 caused non -compliance with other substantive obligations of 
the AD Agreement , e.g., Articles 5.1, 5.2, and 5.4.  The fifth claim is that DOC erred by failing, in 
comparing non-identical types, to make "due allowan ce" for certain physical differences in softwood 
lumber products to maintain price comparability and to ensure a fair comparison between normal value and export price, in violation of Article 2.4 of the AD Agreement .  The sixth claim relates to 
DOC's "zeroing" of margins in comparisons where the export price was higher than the normal value, 
a methodology which Canada claims is incons istent with Articles 2.4 and 2.4.2 of the AD Agreement .  
The seventh claim consists of six company-specific issues.  Canada claims that DOC (i) failed to 
calculate and/or allocate reasonable amounts for administrative, selling and general expenses in 
computing costs for specific exports, including an improper allocation for fina ncial expenses and for 
litigation settlement expenses involving product liab ility claims for a non-investigated product; (ii) 
failed to apply reasonable amounts for by-product re venues from the sale of wood chips as offsets in 
calculating costs; and (iii) failed to offset a di fference in price comparability arising from futures 
contracts profits after concluding that such a diffe rence existed, in violation of the provisions of 
Articles 2.2, 2.2.1, 2.2.1.1, 2.2.2 and 2.4 of the AD Agreement .  Canada also claims that the above-
described violations constitute violations of the US obligations under Articl es 1, 9.3 and 18.1 of the 
AD Agreement , as well as Article VI of GATT 1994 .  
7.2 As we noted in Canada's first written submission that the provisions allegedly violated by the 
United States in some instances did not include all the provisions cited in the Panel Request, we 
requested Canada to confirm the provisi ons forming the basis of its claims.
166  We therefore limit our 
analysis and findings only to those provisions which we re referred to in Canada's restatement of its 
claims.167  
B. GENERAL ISSUES  
1. Rules of Treaty Interpretation 
7.3 Article 3.2 of the DSU  indicates that Members recognize that the dispute settlement system 
serves to clarify the provisions of the covered ag reements "in accordance with customary rules of 
interpretation of public internati onal law".  Article 31.1 of the Vienna Convention168, which is 
generally accepted as reflecting such customary rules, reads as follows: 
"[a] treaty shall be interp reted in good faith in accordan ce with the ordinary meaning 
to be given to the terms of the treaty in their context and in the light of its object and purpose". 
7.4 It is clear that interpretation must be based, fi rst and foremost, on the text of the treaty, while 
context and object and purpose may also play a role.
169  It is also well-established that these principles 
of interpretation "neither require nor condone the imputation into a treaty of words that are not there or the importation into a treaty of concepts that were not intended".
170  Furthermore, panels "must be 
guided by the rules of treaty interpretation set out in the Vienna Convention , and must not add to or 
diminish rights and obligations provided in the WTO Agreement ".171 
                                                      
166 Question 1 of the Panel to Canada. 
167 Canada response to question 1 of the Panel. 
168 Done at Vienna, 23 May 1969, 1155 U.N.T.S. 331; 8 International Legal Materials  679. 
169 Appellate Body Report, Japan – Alcoholic Beverages II , p. 11.  The Appellate Body has recently 
emphasized the importance of the "ordinary meaning" of the te rms used in the treaty text in, for example, Appellate 
Body Report, US – Offset Act (Byrd Amendment ). 
170 Appellate Body Report, India – Patents (US) , para. 45. 
171 Id., para. 46.  WT/DS264/R 
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2. Standard of Review 
7.5 In light of the claims and arguments made by the parties in the course of these Panel 
proceedings, we recall, at the outset of our examinat ion, the standard of review we are required to 
apply to the matter before us. 
7.6 Article 11 of the DSU172 sets forth the appropriate standard of  review, in general, for panels 
for all covered agreements.  Article 11 imposes upon panels a comprehensive obligation to make an 
"objective assessment of the matter", an obligation which embraces all aspects of a panel's examination of the "matter" , both factual and legal. 
7.7 Furthermore, Article 17.6(i) of the AD Agreement sets forth the special standard of review 
applicable to anti-dumping disputes.  It provides with regard to factual issues that: 
"in its assessment of the facts of the matte r, the panel shall determine whether the 
authorities' establishment of the facts was proper and whether their evaluation of 
those facts was unbiased and objective .  If the establishment of the facts was proper 
and the evaluation was unbiased and objectiv e, even though the panel might have 
reached a different conclusion, the evalua tion shall not be overturned". (emphasis 
added) 
7.8 Assuming that we conclude that the establishmen t of the facts with regard to a particular 
claim in this case was proper, we then may consid er whether, based on the evidence before the US 
authorities at the time of the determination, an  unbiased and objective investigating authority 
evaluating that evidence could have reached the c onclusions that the US authorities reached on the 
matter in question.
173 
7.9 Article 17.6(i) requires us to determine whether the investigating authority's establishment of 
the facts was proper, and whether their evaluation of  those facts was unbiased and objective.  What is 
clear from this is that we are precluded from establis hing facts and evaluating them for ourselves, that 
is, we may not engage in a de novo  review.  However, this does not limit our examination of the 
matters in dispute, but only the manner in which we c onduct that examination.  In this regard, we keep 
in mind that Article 17.5(ii) of the AD Agreement  establishes that we are to examine the matter based 
upon "the facts made available in conformity with appropriate domestic procedures to the authorities 
of the importing Member". 
7.10 With respect to questions of the interpretation of the AD Agreement , Article 17.6(ii) provides: 
"the panel shall interpret th e relevant provisions of the Agreement in accordance with 
customary rules of interpretation of public international law.  Where the panel finds 
that a relevant provision of the Agreement admits of more than one permissible 
interpretation , the panel shall find the authorities' measure to be in conformity with 
                                                      
172 Article 11 of the DSU , entitled "Function of Panels", states:   
 "[t]he function of panels is to assist the DSB in discharging its responsibilities under this 
Understanding and the covered agreements.  Acco rdingly, a panel should make an objective 
assessment of the matter before it, including an  objective assessment of  the facts of the case 
and the applicability of and conformity with th e relevant covered agreements, and make such 
other findings as will assist the DSB in making the recommendations or in giving the rulings 
provided for in the covered agreements…" 
 
173 We note that this is the same standard as that applied by the panels in Argentina – Poultry , paras. 
7.43-7.49;  and US – Stainless Steel , para. 6.3.  WT/DS264/R 
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the Agreement if it rests upon one of t hose permissible interpretations ". (emphasis 
added) 
7.11 Article 17.6(ii) requires us to apply the customar y rules of interpretation of treaties, which are 
reflected in Articles 31-32 of the Vienna Convention .  As noted above, Article 31 of the Vienna 
Convention provides that a treaty shall be interpreted in  accordance with the ordinary meaning to be 
given to the terms of the treaty in their context and in light of its object and purpose.  Thus, our task is 
in this respect no different from the task of all pane ls in interpreting the text of the WTO agreements 
pursuant to Article 3.2 of the DSU .  What Article 17.6(ii) of the AD Agreement  adds is an explicit 
acknowledgement that the relevant provision/s of the AD Agreement  may admit of more than one 
permissible interpretation, and an instruction that, if  this process of treaty interpretation leads us to the 
conclusion that the interpretation of the provision in question put forward by the defending party is 
permissible, we shall find the measure in conformity with the AD Agreement  if it is based on that 
permissible interpretation. 
7.12 Together, Article 11 of the DSU  and Article 17.6 of the AD Agreement  set out the standard of 
review we must apply with respect to both the f actual and legal aspects of our examination of the 
claims and arguments raised by the parties.
174  Therefore, we see our task as not to perform a de novo  
review of the information and evidence on th e record of the underlying final anti-dumping 
determination, nor to substitute our judgment for th at of the US authorities, even though we might 
have arrived at a different determination were we examining the record ourselves. 
3. Burden of Proof 
7.13 We recall that, in WTO dispute settlement pro ceedings, the burden of proof rests with the 
party that asserts the affirmative of a particular claim or defence.175  Canada as the complaining party 
must therefore make a prima facie  case of violation of the relevant provisions of the relevant WTO 
agreements, which the respondent mu st refute. We also note, however , that it is generally for each 
party asserting a fact, whether complainant or respondent, to provide proof thereof.176  In this respect, 
therefore, it is also for the United States to provi de evidence for the facts which it asserts.  We also 
recall that a prima facie  case is one which, in the absence of e ffective refutation by the other party, 
requires a panel, as a matter of law, to rule in favour of the party presenting the prima facie  case.  The 
role of the Panel is not to make the case for either  party, but it may pose questions to the parties "in 
order to clarify and distil the legal arguments".177  
4. Presentation of Facts in Proceedings 
7.14 During these proceedings we were on a number of  occasions directed, through footnotes, to 
annexes attached to the relevant submissions, in a general way, without clear and precise indications 
of exactly where in the annex at issue the referen ced evidence could be found.  Because some of the 
annexes contained lengthy documents, it was not al ways easy to find the evidence referenced.  
Furthermore, the arguments and/or facts were some times presented in the annexes, rather than in 
submissions themselves. 
7.15 In our view, an annex to a submission should serve  only to direct the reader to the underlying 
substantiating evidence of what has been presented in the main document , or in other words, to enable 
the reader to verify the facts.  We therefore requ ested the parties during the first substantive meeting 
with the parties to "present the facts and legal argu ments in their written and oral statements so that 
they are understandable and exhaustive by themselves" and that "the references to annexes should not 
                                                      
174 Appellate Body Report, US – Hot-Rolled Steel , paras. 54-62. 
175 Appellate Body Report, US – Wool Shirts and Blouses , p. 14, et seq . 
176 See note 175, supra . 
 177 Appellate Body Report, Thailand – H-Beams , para. 136.  WT/DS264/R 
 Page 73 
 
 
add facts or arguments only contained in those annexes, but just give the possibility to confirm what was contained in the main presentations". 
7.16 We are of the view that panels should not be expected to ferret out the facts and arguments 
from annexes to submissions, even in fact-intensive  cases such as the one at issue.  Parties should 
present the relevant facts and make their legal ar guments in submissions which are exhaustive in 
themselves, with annexes attached thereto only to substantiate the facts and/or arguments already 
presented in the submissions to which they are attached.  
C. 
PRELIMINARY OBJECTIONS  
1. Introduction 
7.17 The United States  raised two preliminary objections, but did not request us to rule on them 
on a preliminary basis.  The two objections raised are:  (i) that Canada has included in its first written 
submission claims with respect to a number of provisions of the AD Agreement that were not included 
in its Panel Request178 and are therefore outside our terms of reference179, and (ii) that Canada has 
introduced certain new evidence in the context of these proceedings which was not before the 
investigating authority during the course of the investigation.180  
2. Terms of Reference 
(a) Factual Background 
7.18 In paragraph 2 of its Panel Request181, Canada states that: 
"[DOC] erroneously determined there to be a single like product (under US law, 
termed "class or kind" of merchandise) rather than several distinct like products, 
thereby failing to assess domestic industry su pport in respect of each distinct like 
product and failing to assess the sufficiency of  evidence of dumping in respect of each 
distinct like product, thereby resulting in violations by the United States of  
Articles 2.6, 4.1, 5.1, 5.2, 5.3, 5.4 and 5.8 [of the AD Agreement] and Article VI:1 of 
the GATT 1994 .  The like product and industry support determinations by [DOC] 
were made without a proper establishment of the facts, were based on an evaluation of 
the facts that was neither unbiased nor objective and do not rest on a permissible 
interpretation of the [ AD Agreement ].  Accordingly, the like product and industry 
support determinations by Commerce cannot be  upheld in light of the applicable 
standard of review under Article 17.6".182 (emphasis added) 
7.19 In its first written submission, concerning the "like product" determination, Canada requests 
the Panel to find that: 
"DOC erroneously determined [there] to  be only one like pr oduct and product under 
consideration, thereby, rendering the conduc t of the investigation inconsistent with 
US obligations under Articles 2, 3, 4.1, 5, 6.10 and 9 [of the AD Agreement ]…"183 
(emphasis added) 
                                                      
178 WT/DS264/2.  This document is included in Annex D to this Report. 
179 US first written submission, para. 15. 
180 Id., para. 22. 
181 WT/DS264/2. 
182 Ibid. 
183 Canada first written submission, para. 279(3). WT/DS264/R 
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(b) Arguments of the Parties 
7.20 The United States asserts that Canada claims in paragraph 2 of its Panel Request that the 
United States has violated Articles 2.6, 4.1, 5.1, 5.2, 5.3, 5.4 and 5.8 of the AD Agreement and 
Article VI:1 of GATT 1994 .  However, according to the United States, Canada has added claims in its 
first written submission, by alleging that the following provisions of the AD Agreement  have also 
been violated: Article 2 (not just Article 2.6), all of Article 4 (not just Article 4.1), all of Article 5 (not 
just Articles 5.1, 5.2, 5.3, 5.4 and 5.8), as well as Articles 3, 6.10, and 9.
184  The United States 
considers that these claims fall outside the Panel's terms of reference under Article 7 of the DSU .  The 
United States points to Article 6.2 of the DSU , which states that a panel request "shall (...) identify the 
specific measures at issue and provide a brief summary of the legal basis of the complaint sufficient to 
present the problem clearly".  The United States cons iders that a panel request must always identify 
the treaty provisions claimed to have been violated185 and that, if a claim is not specified in the panel 
request, it cannot be subsequently "cured" by a co mplaining party's argumentation in its submissions 
to a panel.186  The United States therefore requests us to ru le that Canada's claims of violations of 
provisions other than those set forth in its Pane l Request are beyond our terms of reference. 
7.21 Canada contends that it has not added new claims in addition to those contained in its Panel 
Request by referring to additional provisions of the AD Agreement  in its first written submission.  
Rather, Canada has made arguments in support of the claim clearly identified in its Panel Request 
(i.e., the over-broad product coverage of the inv estigation resulting from an improper application of 
Article 2.6 "like product" definition).  Canada ass erts that in order to address whether and how the 
definition of Article 2.6 delimits the scope and range of different pr oducts an investigating authority 
may cover in a single investigation, the Panel must explore the full context of Article 2.6, including 
the manner in which the term "like product" is used throughout the AD Agreement .  The additional 
provisions referred to in its first written submis sion provide context for the interpretation of 
Article 2.6 and arguments for its claim that DOC  erred in finding only one "like product" and 
conducting only one investigation.  Furthermore, Canada asserts that  the United States did not suffer 
any identifiable prejudice as Canada has not supplem ented its claim or altered the nature of the 
alleged error in the Panel Request.   The legal basi s for Canada's claim in its first written submission 
remained Article 2.6 of the AD Agreement and the United States was clearly able to respond to 
Canada's arguments.187  Canada therefore requests us to reject the US preliminary objection. 
(c) Evaluation by the Panel 
7.22 The issue that we need to decide is whether the provisions of the AD Agreement identified in 
Canada's first written submission as allegedly being violated by the United States, but which were not 
included in Canada's Panel Request, ar e within our terms of reference. 
7.23 In examining this matter, we note the following differences  between the provisions of the AD 
Agreement  quoted by Canada in its Panel Request with regard to the "like product" issue and those 
provisions claimed by Canada as being violated in its first written submission, and in its subsequent 
replies to questions 1 and 85 of the Panel to confirm which provision s have allegedly been violated by 
the United States:  
                                                      
184 US first written submission, para. 17 which refers to Canada first written submission, paras. 11, 115, 
118, 119 and 142. 
185 Appellate Body Report, Korea – Dairy, para. 124, and also Panel Report, EC – Bed Linen , 
para. 6.17. 
186 Appellate Body Report, EC – Bananas III , para. 143. 
187 Canada response to the US preliminary objections, para. 15, and note 5 thereto.  WT/DS264/R 
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Panel Request188 First Written Submission189 Replies to questions 1 and 85 
Article 2.6 Article 2 Article 2.6 
- Article 3 - 
Articles 5.1, 5.2, 5.3, 5.4 and 5.8 Article 5 Articles 5.1, 5.2 and 5.4190 
- Article 6.10 - 
- Article 9 - 
* This table refers to those provisions of the AD Agreement  falling within the terms of reference of the Panel 
regarding the "like product" issue only  
7.24 In examining these differences, it appears to us, on its face, that Canada has, in its first written 
submission, alleged violations of  Articles 2 and 5 as a whole, rather than only the sub-sections 
claimed to have been violated in the Panel Request.  In Canada's first written submission, violations of 
provisions not included at all in the Panel Request, speci fically Articles 3, 6.10 and 9, are also alleged.  
We note that, in its restatement and confirmation of its claims contained in its replies to questions 1 
and 85, respectively, Canada has limited the scope of  its claim to an alleged violation of Article 2.6 
and, " e.g., Articles 5.1, 5.2, and 5.4".191 
7.25 It is now well-established that a panel's terms of reference are governed by the panel request. 
These terms of reference define the scope of th e dispute, and serve the due process objective of 
notifying the parties and third parties of  the nature of the complainant's case.192  I t  i s  a l s o  w e l l -
established that the identification of the treaty provision in the panel request is the minimum prerequisite for defining the terms of reference.
 193  Finally, we note that defects in a panel request 
                                                      
188 WT/DS264/2. 
189 This table reports the provisions claimed by Canada as being violated in Canada first written 
submission, Section IV. Relief Requested, paras. 279(3) and 280, rather than those referred to by the United States in para. 7.20, supra .  
190 We note that, in its response to question 1 of the Panel, para. 1(iii), Canada claims that: 
 "[n]on-compliance by the investigating authority  with the obligation contained in Article 2.6 
has also caused non-compliance with other substantive obligations of the Anti-Dumping 
Agreement , e.g., Articles 5.1, 5.2, and 5.4".   
 
191 Ibid. 
 192 We note the Appellate Body statement in US – Carbon Steel that: 
"… pursuant to Article 7 of the DSU, a panel's terms of reference are governed by the request 
for establishment of a panel.  Article 6.2 of the DSU sets forth the requirements applicable to 
such requests.  
(....) 
The requirements of precision in the request for the establishment of a panel flow from the 
two essential purposes of the terms of reference.  First, the terms of reference define the scope of the dispute.  Secondly, the terms of reference, and the request for the establishment of a 
panel on which they are based, serve the due process  objective of notifying the parties and 
third parties of the nature of a complainant's case.  When faced  with an issue relating to the 
scope of its terms of reference, a panel must scrutinize carefully the request for establishment 
of a panel "to ensure its compliance with both the letter and the spirit of Article 6.2 of the DSU". (Appellate Body Report, US – Carbon Steel , paras. 124-127) 
 
 
193 As the Appellate Body stated in Korea – Dairy : 
"[i]dentification of the treaty provisions claimed to have been violated by the respondent is 
always necessary both for purposes of defini ng the terms of reference of a panel and for 
informing the respondent and the third parties of the claims made by the complainant; such WT/DS264/R 
Page 76  
 
cannot be "cured" in subsequent submissions to a panel.  Thus, a statement in a written submission 
can be "consulted in order to confirm the meaning of  the words used in the panel request and as part 
of the assessment of whether the ability of the resp ondent to defend itself was prejudiced", but not to 
"cure" deficiencies in the panel request, or to a dd additional provisions of  a treaty allegedly being 
violated or to add additional sub-sections of  a provision included in the panel request.
194 
7.26 Canada does not contest that additional provisions of the AD Agreement have been included 
in its first written submission that were not identifie d in its Panel Request with regard to its claim on 
the scope of the investigation.  However, Canada  asserts that these "additional provisions" are cited 
only in support of its claims as set out in the Panel Request, and to put the interpretation of the 
provisions allegedly being violated in context.   
7.27 We also note that, in response to our request  to Canada to list the provisions of the AD 
Agreement  allegedly violated by the United States195, Canada states, with regard to its claim196 on the 
"like product" and "product under consideration" issue, that: 
"[t]his claim is grounded in Article 2.6.  (...) Non-compliance by the investigating 
authority with the obligation contained in Article 2.6 has also caused non-compliance 
with other substantive obligations of the Anti-Dumping Agreement, e.g ., Articles 5.1, 
5.2, and 5.4".197   
7.28 From this statement by Canada, it is clear to us that Canada does not request us to make 
findings on the additional provisions cited in its fi rst written submission with regard to the claim 
under paragraph 2 of its Panel Request. 
7.29 The Appellate Body has made it clear that th e minimum requirement that a complainant has 
to meet is the identification of the treaty provisions at  issue, and that any deficiencies in this regard 
cannot be "cured" at a later stage.  We note Canada's  clarification that the additional provisions of the 
AD Agreement  identified in its first written submission, in addition to those quoted in its Panel 
Request, are not the basis for additional claims, but ar e merely quoted in support of its arguments and 
to give context to the interpretation of the Article 2.6.  We also note Canada's confirmation that the 
legal basis for its claim regard ing the "like product" issue is an alleged violation of " e.g., Articles 5.1, 
5.2, and 5.4" of the AD Agreement .  
                                                                                                                                                                     
identification is a minimum prerequisite if the lega l basis of the complaint is to be presented at 
all". (Appellate Body Report, Korea – Dairy , para. 124) 
 
194 As the Appellate Body explained in US – Carbon Steel : 
"compliance with the requiremen ts of Article 6.2 must be demonstrated on the face of the 
request for the establishment of a panel.  Def ects in the request for the establishment of a 
panel cannot be "cured" in the subsequent submissions of the parties during the panel 
proceedings.  Nevertheless, in considering the sufficiency of a panel request, submissions and statements made during th e course of the panel pro ceedings, in particular the First Written 
Submission  of the complaining party, may be consulted in order to confirm the meaning of the 
words used in the panel request and as part of the assessment of whether the ability of the 
respondent to defend itself was prejudiced.  Moreover, compliance with the requirements of 
Article 6.2 must be determined on the merits of each case, having considered the panel request as a whole, and in the light of attendant circumstances". (footnotes omitted) (Appellate Body 
Report, US – Carbon Steel , para. 127) 
 
195 Question 1 of the Panel to Canada. 
196 WT/DS264/2, Claim under para. 2 of the Panel Request. 
197 Canada responses to questions 1 and 85 of the Panel.   WT/DS264/R 
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7.30 We therefore find that the alleged violation of Articles 2 (with the exception of Article 2.6), 3, 
5 (with the exception of Articles 5.1, 5.2, 5.3, 5.4 and 5.8), 6.10 and 9 of the AD Agreement  do not fall 
within the scope of our mandate as set out in the Panel Request.   
3. Introduction of Evidence that was not before the Investigating Authority 
(a) Factual Background 
7.31 Canada claims that the United States has violated Article 2 of the AD Agreement  in that DOC 
failed to make due allowance for differences that af fect price comparability when comparing prices of 
products sold in the United States and prices of produ cts with different physical characteristics sold in 
Canada. In support of its claim Canada attached a document, Exhibit CDA-77, purporting to substantiate its view that the record data show that the relevant physical differences between the 
products affect price comparability.  Exhibit CDA-77 is a regression analysis of the record data, 
produced by Tembec, one of the respondent companies. 
7.32 However, Exhibit CDA-77 was not submitted to DOC during the investiga tion. The record of 
the underlying investigation shows that DOC a nnounced the Final Determination in March 2002, 
whereas the document now submitted to us as Exhib it CDA-77, appears to have been prepared for 
Tembec on 4 October 2002, that is, 6 months af ter the conclusion of the investigation.  
(b) Arguments of the Parties 
7.33 The United States  asserts that Exhibit CDA-77 did not form part of the record of the 
underlying investigation, and therefore does not cons titute "facts made available in conformity with 
appropriate domestic procedures to the author ities of the importing Member" as required by 
Article 17.5(ii) of the AD Agreement .  According to the United States, Exhibit CDA-77 contains a 
statistical regression which was created more than six months after the investigation was 
completed.
198  The United States asserts that "Exhibit CDA-77 presents newly derived data calculated 
and reorganized in a different ma nner than was available to the US  investigating authority in the 
original investigation".199  As the information contained in Exhibit CDA-77 was not made available to 
the investigating authority in conformity with  the appropriate domestic procedures during the 
investigation, the United States asserts that consider ing it would be inconsistent  with Article 17.5(ii).  
In addition, the United States contends that, in ask ing us to consider this new evidence, Canada 
effectively is requesting the Panel to undertake its  own establishment and evaluation of the facts, 
contrary to Article 17.6(i).  The United States therefore requests us to decline to consider 
Exhibit CDA-77. 
7.34 Canada  responds that, although Exhibit CDA-77, as such, was not on the record when DOC 
made its final determination, all of the underlying  data used in the regression analysis were on the 
record before DOC. 200  Thus, according to Canada, Articles 17.5(ii) and 17.6(i) do not prevent us 
from considering Exhibit CDA-77.  The purpose of  submitting Exhibit CDA-77 was to enable the 
Panel to determine whether DOC's establishment of the facts was proper and whether its evaluation of 
the facts before it was unbiased and objective, pursua nt to Article 17.6(i).  Canada asserts that a 
similar issue arose before the EC – Bed Linen panel, which found that, although Article 17.5(ii) 
requires a panel to examine the matter based upon the facts made available in conformity with 
appropriate domestic procedures to the authorities of the importing Member, it does not require that a 
panel consider those facts exclusively in the format  in which they were originally available to the 
investigating authority.201  Canada also argues that, if the United States had respected its obligation 
                                                      
198 The lumber regression analysis contained in Exhibit CDA-77 is dated 4 October 2002. 
199 US first written submission, para. 27. 
200 Canada response to the US preliminary objections, para. 20. 
201 Panel Report, EC – Bed Linen , paras. 6.41-6-43.  WT/DS264/R 
Page 78  
 
under Article 6.1 of the AD Agreement  "to give all parties notice of the information which the 
authorities require and ample opportunity to present in writing all evidence which they consider 
relevant in respect of the investigation.."., Exhib it CDA-77 would have been put on the record of the 
investigation prior to the Final Determination by DOC. 
(c) Evaluation by the Panel 
7.35 The issue that we need to deci de is whether Exhibit CDA-77 is properly before us as evidence 
to substantiate Canada's claim with regard to an  Article 2.4 adjustment for physical differences 
affecting price comparability, that is, whether E xhibit CDA-77 complies with the requirements of 
Article 17.5(ii) of the AD Agreement .   
7.36 Article 17.5(ii) of the AD Agreement provides that: 
"[t]he DSB shall, at the request of the complaining party, establish a panel to examine 
the matter based upon:   
     (…)  
  (ii)  the facts made available in confor mity with appropriate domestic procedures to 
the authorities of the importing Member". 
 7.37 Article 17.5(ii) makes clear that we must exam ine the matter before us based on facts made 
available to DOC in accordance with the US do mestic procedures, and that we cannot base our 
findings on any other facts not complying with this  requirement.  Thus, we agree with a previous 
panel that we "may not, when examining a claim of violation of the AD Agreement  in a particular 
determination, consider facts or evidence presented (… ) by a party in an attempt to demonstrate error 
in the determination concerning questions that were  investigated and decided by the authorities,  
unless they had been made available in conformity  with the appropriate dom estic procedures to the 
authorities of the investigating country during the investigation ".
202 (emphasis added; footnote 
omitted)  If this were not the case, we find it difficu lt to envisage how an investigating authority could 
be expected to have taken these facts into consider ation when making its relevant determinations – the 
very reason why facts are submitted to an investigating authority. 
7.38 Canada does not dispute that CDA-77 was subm itted to DOC only on 4 October 2002, that is, 
more than 6 months after DOC published its Final Determination.  It argues, however, that the 
underlying data on which Exhibit CDA-77 was based were taken from the data base that DOC used in 
calculating the dumping margin for Tembec203, and that it therefore contains no new facts – the facts 
of the case are therefore similar to those in EC – Bed Linen.  We therefore need to determine whether 
Exhibit CDA-77 contains facts that were not befo re DOC and therefore constitutes evidence in its 
own right, and whether the releva nt finding of the panel in EC – Bed Linen is applicable to the case in 
hand. 
7.39 It is undisputed that Exhibit CDA-77 contains the results of a regression analysis performed 
by a consultant on instruction from Tembec, one of the mandatory respondent Canadian companies.  
We note that multiple regression is a statistical me thod for studying the relationship between a single 
dependent variable and one or more i ndependent variables.204  The use of regression allows the user to 
infer whether there is a positive, inverse (negativ e) or no relationship betw een the explanatory and 
dependent variables.  The procedure also enables the relationship to be me asured – how will a unit 
change in the independent variable  affect the value of the depende nt variable.  The method involved 
                                                      
202 Panel Report, US – Hot-Rolled Steel , para. 7.6. 
203 This fact is not contested by the United States. 
204 Allison, Paul A., Multiple Regression: A Primer   (Pine Forge Press, 1998).  WT/DS264/R 
 Page 79 
 
 
in establishing this relationship is fitting a line thr ough the set of points made by the independent or 
explanatory variables.  The line is fit by mini mising the squared distance between itself and the 
points.  This methodology is called the Ordinary  Least Square regression (OLS) and was used to 
produce Exhibit CDA-77.205  When a regression analysis is done, one has a choice whether it should 
involve a single equation or more, whether the model is linear or non-linear.  Furthermore, there is a 
choice of the explanatory variables to be included in the analysis. 
7.40 In our view, a regression analysis involves an an alysis of data which could be done in many 
different ways, and the choices made may have a significant impact on the conclusions drawn.  A 
regression analysis is not mere data which can be take n at face value.  Rather, further clarification is 
required, and an evaluation must be made of the proba tive value of such an analysis in light of such 
factors as the data chosen, the precise methodology used a nd the variables selected.  It is the role of an 
investigating authority to perform such an evaluatio n of the evidence placed befo re it, and the role of 
a panel to review whether the investigating authorit y's evaluation was proper in light of the standard 
of review set forth in Article 17.6(i) of the AD Agreement .  For us to consider a regression analysis 
that was not placed before the investigati ng authority would require us to perform a de novo  review 
rather than to determine whether the investigatin g authority's evaluation of the facts was proper.  
Thus, while a regression analysis may be based  upon data which are "evidence" before an 
investigating authority, we consider that the re sult of a regression analysis using those data is 
"evidence" in its own right, distinct fro m the underlying data on which it is based. 
7.41 Canada relies upon the panel report in EC – Bed Linen  for the proposition that Article 17.5(ii) 
does not preclude a panel from review ing data which are presented to it in a different format than they 
were presented to the investigating authority.206  We note, however, that th e exhibit at issue in that 
dispute was a recapitulative table of the declarations  of support for the application received from other 
domestic EC producers.  The exhibit was therefore a "marshalling" of the already submitted evidence 
and not a manipulation thereof.  It seems clear to us that that factual situation differs substantially 
from the facts of this case: the ev idence at issue was before the investigating authority during the 
investigation itself, and the very same information was submitted to the panel in a different format 
only – nothing was added to it, nor was anything s ubtracted from it.  It was therefore merely a 
"mechanical" exercise.  The same cannot be said of  the evidence in Exhibit CDA-77 – we note that 
the memorandum by the consultant who developed the regression analysis explaining how Exhibit 
CDA-77 was developed, covers seven pages, explaining the methodologies employed and the 
different options used.207  This, in itself, confirms to us that Exhibit CDA-77 contains more than the 
mere data which were already before DOC.  We are therefore of the view that Canada's reliance on 
EC – Bed Linen is misplaced. 
                                                      
205 Exhibit CDA-129, Memorandum on the Regression Analysis, p. 2. 
206 The panel in EC – Bed Linen found that: 
 
"Article 17.5(ii) of the AD Agreement provides that a panel shall consider a dispute under the 
AD Agreement 'based upon: … the facts made available in conformity with appropriate 
domestic procedures to the authorities of th e importing Member'.  It does not require, 
however, that a panel consider those facts ex clusively in the format in which they were 
originally available to the investigating authority.  Indeed, the very purpose of the submissions 
of the parties to the Panel is to marshal the relevant facts in an organized and comprehensible 
fashion in support of their arguments and to elucidate the parties' positions.  Based on our 
review of the information ... we conclude that the Exhibit in question does not contain new 
evidence.  Thus, we conclude that the form of the document, ( i.e., a new document) does not 
preclude us from considering its substance, which comprises facts made available to the 
investigating authority during the investigation.  There is in our view no basis for excluding 
the document from consideration in this proceeding, and we th erefore deny India's request". 
(emphasis in original) (Panel Report, EC – Bed Linen , para. 6.43.) 
 
207 Exhibit CDA-129, Memorandum on Regression Analysis. WT/DS264/R 
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7.42 Canada contends that the regression analysis contained in Exhibit CDA-77 could not have 
been submitted earlier, as the parties were not put on notice by DOC that it might determine to 
exclude dimension of softwood lumber as a factor  requiring a price-based Article 2.4 adjustment, 
contrary to DOC's recognition, at the preliminary de termination stage, of the need for an adjustment 
for dimension.
208  Canada requests us to "bear in mind th e US obligations under Article 6.1 of the AD 
Agreement  to give all parties notice of the information which the authorities require and ample 
opportunity to present in writing all evidence which they consider relevant in respect of the 
investigation".209  If, however, Canada believed that the United States improperly limited the evidence 
that was placed in the record of the underlying investigation on this issue, the proper course of action would have been to assert a claim in that regard.  Canada did not, however, advance any such claim in 
its Panel Request.  As there is no such claim under Ar ticle 6.1 within our term s of reference, we will 
not further consider Article 6.1. 
7.43 We therefore find that the evidence submitted to  us as Exhibit CDA-77 represents facts which 
were not made available in conformity with appropr iate domestic procedures to the authorities of the 
importing Member in accordance with the provisions of Article 17.5(ii) of the AD Agreement, and we 
will not take it into consideration. 
D. C
LAIM 1: ARTICLE 5.2 – APPLICATION DID NOT C ONTAIN INFORMATION "REASONABLY 
AVAILABLE TO THE APPLICANT " 
(a) Factual Background 
7.44 DOC received an application for the initiation of an anti-dumping investigation concerning 
certain softwood lumber products from Canada.  Th e application contained certain information on 
prices at which the product in question was sold when destined for consumption in Canada, on the 
constructed value of the product, as well as on export prices of softwood lumber exported from 
Canada to the United States.  The application w as examined by DOC and in the process a deficiency 
letter was sent to the applicant with the request to  submit additional data a nd provide clarifications 
with respect to certain matters. The applicant r esponded to the request by submitting additional data 
and clarifications. 
(b) Arguments of the Parties/Third Parties  
7.45 Canada  asserts that Article 5.2 of the AD Agreement requires that an application for initiation 
of an anti-dumping investigation contain such info rmation on prices "as is reasonably available to the 
applicant".  Canada asserts that the applicant misr epresented to DOC that it: (1) did not have access to 
Canadian producer transaction prices for softwood lumber sales in Canada; (2) had only limited 
information on prices at which Canadian softwood  lumber was exported to the United States and 
(3) did not have access to detailed Canadian prod ucer costs of production.  Specifically, Canada 
asserts that, because Weldwood is a wholly-owned s ubsidiary of an Executive Committee member of 
the Coalition, sales price and cost data of a major Ca nadian exporter were "reasonably available to the 
applicant".  Canada further alleges that the record  subsequently established that four members of the 
Coalition had in fact imported softwood lumber from Canada.  There was therefore no justification for 
failing to include the pricing and cost data on actua l sales of softwood lumber in Canada and to the 
United States, and no need for the applicant to constr uct prices or costs of Canadian softwood lumber 
sales to support the application.  Because the applica tion did not include all the information that was 
reasonably available to the applicant, it failed to me et the requirements of Article 5.2.  Canada also 
argues that DOC's failure to seek further information (i.e., actual price and cost data), including its 
blind acceptance of the applicant's claim that it did not have such information, although aware of the 
relationship between Weldwood and IP, did not co mply with the obligation under Article 5.2 to 
                                                      
208 Canada response to the US preliminary objections, para. 21. 
209 Id., para. 22.  WT/DS264/R 
 Page 81 
 
 
ensure that the application contains information wh ich is "reasonably available" to the applicant.  
According to Canada, an unbiased and objective inv estigating authority woul d not have concluded 
that the applicant had submitted informati on that was "reasonably available" to it. 
7.46 The United States  argues that the information submitted by the applicant was sufficient to 
support a decision to initiate an investigation and that the Weldwood cost and price data to which 
Canada refers could not have detracted from the sufficiency of  the evidence in the application.  
According to the United States, Article 5.2 does not require that an applicant submit certain 
information which is reasonably available to it in th e application if the information submitted as part 
of the application is sufficient to support initiation of  an investigation.  The United States also asserts 
that the information on prices which the applicant di d submit was more representative of the prices of 
the Canadian exporters of softwood lumber produc ts than that of only one Canadian producer, 
Weldwood, would have been, had it been submitted, or required to be submitted. 
7.47 As a third party, the EC argues, firstly, that Article 5.2 does not contain an obligation for the 
applicant to submit to the investigating authority any information reasonably available, but only to the 
extent that it falls under one of the elements identifie d under the paragraphs (i) to (iv) of Article 5.2, 
and secondly, that Article 5.2 imposes  an obligation only on the applicant, but not on the investigating 
authority. 
(c) Evaluation by the Panel 
7.48 The issue before us is whether the application for the initiation of the investigation underlying 
this dispute is consistent with Article 5.2 of the AD Agreement.  It seems to us that the relevant threshold 
issue is whether an application that contains informa tion on all the specific items specified in Article 5.2 
may nevertheless be inconsistent with Article 5.2 because additional info rmation regarding those 
specific items and which was reasonably available to the applicant was not included in the application.  Once we have resolved this question, we will review  the information in the application with a view to 
determining whether it included the required information.    
7.49 As a starting point, we note that Article 5.1 of the AD Agreement provides that: 
"[e]xcept as provided for in paragraph 6, an  investigation to determine the existence, 
degree and effect of any al leged dumping shall be initiat ed upon a written application 
by or on behalf of the domestic industry".
  
7.50 The application is therefore norma lly the starting-point in the process, activated by the domestic 
industry of the importing country, for examining whethe r "an investigation to determine the existence, 
degree and effect of any alleged dumping sha ll be initiated" by the investigating authority. 
7.51 We next examine the requirements, established by Article 5.2, with which an Article 5.1 
written application to initiate an investigation must comply.  Bearing in mind the rules of treaty interpretation referred to in section B.1, supra, we start our analysis with the text of Article 5.2, 
looking at the ordinary meaning of the provision.  Article 5.2 reads in relevant part as follows: 
"[a]n application under paragraph 1 shall include evidence of (a) dumping, (b) injury 
within the meaning of Article VI of GATT 1994 as interpreted by this Agreement and 
(c) a causal link between the dumped imports and the alleged injury.  Simple 
assertion, unsubstantiated by relevant eviden ce, cannot be considered sufficient to 
meet the requirements of this paragraph.   The application shall contain such 
information as is reasonably available to the applicant on the following: 
 (i) the identity of the applicant and a description of the volume and value of the 
domestic production of the like product  by the applicant.  Where a written WT/DS264/R 
Page 82  
 
application is made on behalf of the domestic industry, th e application shall 
identify the industry on behalf of which the application is made by a list of all known domestic producers of the like pr oduct (or associations of domestic 
producers of the like product) and, to the extent possible, a description of the 
volume and value of domestic production of the like product accounted for by 
such producers; 
 (ii) a complete description of the allegedly dumped product, the names of the 
country or countries of origin or expo rt in question, the identity of each 
known exporter or foreign producer and a list of known persons importing the 
product in question; 
 (iii) information on prices at which the product in question is sold when destined 
for consumption in the domestic markets of the country or countries of origin 
or export (or, where appropriate, info rmation on the prices at which the 
product is sold from the country or countries of origin or export to a third country or countries, or on the cons tructed value of the product) and 
information on export prices or, where appropriate, on the prices at which the 
product is first resold to an independent  buyer in the territory of the importing 
Member; 
(iv) information on the evolution of the volume of the allegedly dumped imports, 
the effect of these imports on prices of the like product in the domestic market 
and the consequent impact of the im ports on the domestic industry, as 
demonstrated by relevant factors and indices having a bearing on the state of 
the domestic industry, such as those listed in  paragraphs 2 and 4 of Article 3". 
7.52 From the wording of the chapeau of Article 5.2, it is clear that "an application … shall  
include evidence of (a) dumping , (b) injury … and  (c) a causal link between the dumped imports and 
the alleged injury". (emphasis added)  The ma ndatory requirement that evidence of dumping be 
included in the application is therefore quite clear.  Furthermore, it is also clear that a simple assertion 
of dumping which is not substantiate d by relevant evidence, "cannot be considered sufficient to meet 
the requirements of this paragraph".  Article 5.2 fu rther provides that "[t]he application shall contain 
such information as is reasonably available to the applicant" on the matters set out in sub-
paragraphs (i)-(iv). 
7.53 Canada initially asserted that the applicant did not submit "all of the information that was 
reasonably available to it" with respect to cost and price evidence.
210,211  "The Petition, therefore, did not 
contain "such information as [was] reasonably available to the applicant" concerning prices at which Canadian softwood lumber was being sold  in the US and Canadian markets".
212  From these statements, 
we infer that Canada initially argued  that an application should contain all information which is 
reasonably available to the applicant.213  However, from its subseq uent submissions we do not 
understand Canada to further pursue the argument that  the word "such" in "such information as is 
reasonably available to the applicant" means "all" or "any" information as is reasonably available to the applicant.
214  Nevertheless, for the sake of certainty, we  set out below the reasons why we do not believe 
                                                      
210 Canada first written submission, para. 97.   
211 We do not understand Canada to dispute that the a pplication contained information referred to in sub-
paragraphs (i) to (iv) of Article 5.2.  Canada contes ts the adequacy and accuracy of some of the information 
contained in the application.  This  issue is addressed under Claim 2, infra.  
212 Canada first written submission, para. 97.  In the same vein, WT/DS264/2, para. 1(a).  
213 Similar understanding is expressed by the United States and the EC. ( See US second written 
submission, para. 8 and EC third party submission, paras. 7-8)  
214 Canada second written submission, paras. 18-25.  WT/DS264/R 
 Page 83 
 
 
that Article 5.2 requires an applicant to submit "all"  information on the matters identified in Article 5.2 
as is reasonably available to it.     
7.54 We note that the words "such information as is reasonably available to the applicant", indicate 
that, if information on certain of the matters listed in sub-paragraphs (i) to (iv) is not reasonably 
available to the applicant in any given case, then the applicant is not obligated to include it in the 
application.  It seems to us that the "reasonably available" language was intended to avoid putting an 
undue burden on the applicant to submit information which is  not reasonably available to it.  It is not, in 
our view, intended to requir e an applicant to submit all information that is reasonably available to it.  
Looking at the purpose of the application, we are of the view that an applicat ion need only include such 
reasonably available information on the relevant matters as the applicant deems necessary to substantiate 
its allegations of dumping, injury and causality.  As  the purpose of the application is to provide an 
evidentiary basis for the initiation of the investigat ive process, it would seem to us unnecessary to 
require an applicant to submit all information reasonably available to it to substantiate its allegations.215  
This is particularly true  where such information might be redundan t or less reliable than, information 
contained in the application.  Of course, this does not mean that such inform ation will necessarily be 
sufficient to justify initiation under Article 5.3 – that is a separate question, not encompassed by the 
issue before us here, but which is the subject of our examination in paragraphs 7.71-7.127, infra . 
7.55 We therefore disagree with Canada's initial view  that the inclusion of the term "reasonably 
available" places an additional requir ement on an applicant.  In light of our analysis above, it is clear that 
Article 5.2 requires that an applica tion contain relevant evidence of dumping, injury and causation and 
that it sets forth a list of the types of information it must contain.  We believe that the words "reasonably 
available" mean that the specified information must be submitted to the  extent reasonably available to 
the applicant.  It is therefore a modulation of the re quirement to provide such in formation in light of its 
availability, so as to make the application compliant with Article 5.2 even if it does not include all the 
specified information if such information was simp ly not reasonably available to the applicant.  
7.56 Canada's interpretation would require us to co nclude that the "reasonably available" language 
serves to toughen the obligation, to such an extent that, even if all specified information is provided, the 
application would not meet the requirements of Article 5.2 if all relevant information that is "reasonably 
available" is not provided in the application.  If this  is what the drafters had intended, they could have 
included "shall contain all such information as is reasonably availa ble", rather than "such information".  
We are of the view that the drafte rs had good reasons why they did not include the word "all" in the text 
as it would mean that an investigating authority would have to review even the best-documented 
application to make sure some additional information could not have been provided.  In this very case, 
with Canada stating that the applicant compani es do regular business with Canadian companies which 
results in thousands of transactions216, it would have meant that the applicant had to submit 
information and documents covering all these transacti ons.  Furthermore, the investigating authority 
would then be required to review the information covering all these transactions for purposes of the 
initiation of an investigation, and furthermore, to ascertain whether all transactions were covered by 
this process.  In our view, such a requirement  would render the provision totally unworkable. 
7.57 Considering the requirements of Article 5.2, we are of the view that we have to establish, when 
considering the specific facts of this case, whether the application contained information on the matters 
specified in Article 5.2, in partic ular as required by sub-paragraph (iii) thereof, and not whether it 
contained all such information as is reasonably available to the applicant.  
                                                      
215 If the requirement were to be that all informati on reasonably available to  the applicant must be 
submitted in the application, it could lead to absurd results in that the applicant might be required to submit a 
large volume of information for purposes of  the initiation of the investigation. 
216 Canada first oral (opening) statement, para. 17. WT/DS264/R 
Page 84  
 
7.58 We note that Article 5.2(iii) requires in this  case that the application should contain 
information on prices at which softwood lumber is sold when destined for consumption in Canada – 
or, where appropriate, information on the construc ted value of softwood lumber in Canada – and 
information on export prices to the United States.  
7.59 We therefore now turn to the specific facts of this case to determine whether the required 
information was contained in the application.  On 2 April 2001, DOC received an application 
containing the following information:
217 
• Information on prices in the Canadian market : 
-  Average MBF prices218 for WSPF sold in BC during the last three quarters of 2000;219  
-  MBF prices, as published in Random Lengths,  a reputable industry publication, for 
the year immediately preceding the application for ESPF kiln dried, 2"x4" by 
thickness and width, in various lengths, delivered to Toronto.220   
• Information on export prices  based on Random Lengths data on multiple sales of WSPF for 
delivery to the United States:221  
-  An overall average of weekly prices re ported throughout the period of 1 April 2000 
through 31 March 2001, for a softwood lumber product: kiln-dried WSPF 2x4s "standard and better" in random lengths de livered to two major markets, Chicago and 
Atlanta, respectively; 
-  An average transaction price for kiln-dried WSPF 2x4 "standard and better" in 
random lengths delivered to Chicago during the week ending 19 January 2001;
222  
-  A price quotation affidavit from a knowledgeable industry source testifying on an 
offer from a US trading company for Cana dian WSPF kiln-dried random length 2x4s 
from BC for sale in March 2001, at a delivered  price to a specified destination in the 
US market.223  The affidavit contained information on the historical mark-up received 
by lumber wholesalers (5 per cent), and on the likely means of shipment;224 
-  A "lost sales" affidavit from a US lumber producer, reporting four separate instances 
in which the affiant lost sales on 15 Decemb er 2000, to potential customers in the 
                                                      
217 Exhibit CDA-9, Initiation, p. 21328. 
218 "MBF prices" are prices per thousand board feet.  A "board foot" is a three dimensional unit 
described as the quantity of lumber contained in a piece of  lumber 1 inch thick, twelve inches wide, and 1 foot 
long, or the equivalent in other dimensions.  (Exhibit CDA-37, Application, p. III-9.) 
219 Exhibit CDA-10, Initiation Checklist, p. 7.  Inform ation sourced from the BC Ministry of Forest's 
published market pricing system lumber values. 
220 Id., pp. 7-8. 
221 Exhibit CDA-10, Initiation Checklist, pp. 6-7. 
222 Ibid., and CDA-41, Application – Fr eight Affidavit.  The appli cant originally based the WSPF 
freight adjustment on the same freight expense they had used for the much shorter distance between Quebec and 
Boston for the ESPF adjustment.  In the application amendments of 10 April 2001, the applicant submitted 
another, allegedly "more accurate, but still very conserva tive", rate for freight between BC and US destinations 
(Exhibit CDA-40, Application Amendments).  The rate is  regarded as "conservative" because it is calculated 
based on a shorter distance than distances from any BC  point of origin to the markets to which the WSPF 
products were delivered. 
223 Exhibit CDA-10, Initiation Checklist, pp. 7-8, and Exhibit CDA-40, Application Amendments.  
224 In calculating that ex-f actory price, the applicant made an ad justment by backing out the freight 
between less-distant locations, resulting in removing less th an the actual freight charge would likely have been.   WT/DS264/R 
 Page 85 
 
 
United States (the buyers) because those bu yers reported that "Quebec producers" 
offered the same product at a price which was lower than the affiant's offering price.  
The terms were the same for both the Canadian and the US product;225  
-  Random Lengths data on export prices on multiple sales of ESPF during the period 
April 2000 to March 2001 for deliver y to two different US localities:226   
(i)  A POI average of weekly reported prices for kiln-dried ESPF 2x4s in random 
lengths delivered to Boston and the Great Lakes region, respectively; 
(ii)  A POI average of weekly reported prices for kiln-dried ESPF 2x4 8-foot 
studs delivered to Boston and the Great Lakes region, respectively; 
(iii)  An average transaction price fo r kiln-dried ESPF 2x4 8-foot PET studs 
delivered to Boston during the week of 19 January 2001.227 
• Information on the constructed value  of the product: 
-  Provincial stumpage charges in BC and Quebec in 2000;228  
-  Data on harvesting costs in BC from a 1999 independent study by a consultant of BC 
sawmills;229 
-  Data on harvesting costs for Quebec during the last quarter of 2000, from a market 
research report;230  
-  Data on direct labour costs for BC and Quebec, from surveys of  sawmills by the BC 
government and Canadian Federal government, respectively;231  
-  Data on electricity costs from a Canadian Federal Government survey of electrical 
suppliers;232  
-  Data on per-unit financial expenses from the public 2000 financial statements for 
Canadian lumber producer Tembec;233 
-  Press-clippings from daily newspapers in various Canadian cities describing 
widespread below-cost sales of  softwood lumber in Canada;234 
-  An amount for profit was substantiated by the public financial statements of Tembec, 
a major Canadian producer – the same fina ncial statements used when calculating the 
cost of production.235 
                                                      
225 Exhibit CDA-10, Initiation Checklist, pp. 7-8. 
226 Ibid. 
227 Ibid. 
228 Exhibit US-4, Application – Exhibit VI.C-2; and Exhibit US-59, Application – Exhibit VI.D-2.  
229 Exhibit US-5, Application – Exhibit VI.D-4; an d Exhibit US-6, Application – Exhibit VI.D-5. 
230 Exhibit US-7, Application – Exhibit VI.C-4.   
231 Exhibit US-8, Application – Exhibit VI.C-5; and Exhibit US-9, Application – Exhibit VI.D-6. 
232 Exhibit US-10, Application – Exhibit VI.C-6; and Exhibit US-11, Application – Exhibit VI.D-7. 
233 Exhibit US-12, Application – Exhibit VI.B-1; Exhibit US-13, Application – Exhibit VI.B-2; and 
Exhibit CDA-40, Application Amendments (revised Tembec financial calculations from Exhibit VI.B). 
234 Exhibit CDA-37, Application – Volume III; Exhibit CDA-40, Application Amendments; and 
Exhibit US-14, Application – Exhibit III-14. WT/DS264/R 
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7.60 Based on this information the applicant calcu lated estimated margins of dumping, ranging 
from 22.5 per cent to 72.9 per cent.
236 
7.61 We consider it evident from the above enumerati on that the application in this investigation 
contained information on prices at which softwood lumb er is sold when destined for consumption in 
Canada, on the constructed valu e of softwood lumber in Canada, and on export prices to the 
United States.  In light of our conclusions regardi ng the requirements of Article 5.2, we therefore find 
that the application contained the information require d by Article 5.2(iii).  Accordingly, we conclude 
that Canada has failed to establish that the Unite d States has acted inconsistently with Article 5.2.237  
E. CLAIM 2: ARTICLE 5.3 – ALLEGEDLY INSUFFICIENT EVIDENCE TO JUSTIFY INITIATION OF AN 
INVESTIGATION  
(a) Factual Background 
7.62 DOC received an application requesting it to initiate an anti-dumping investigation 
concerning allegedly dumped imports  of softwood lumber from Canada.  The application contained 
certain information on prices at which the prod uct in question was sold  when destined for 
consumption in Canada, on the c onstructed value of the product, as well as on export prices of 
softwood lumber products exported from Canada to the United States.  The application did not 
contain any price or cost information from Weld wood, a significant Canadian producer and exporter 
to the US which is wholly owned by IP, one of the applicant companies, nor did it contain any export price information on any imports of the subject pr oduct by other applicant companies from Canadian 
exporters.  The application was examined by DOC and in the process a deficiency letter was sent to 
the applicant with the request to submit additional data and provide clarifications with respect to 
certain matters.  The applicant responded to the request by submitting additional data and 
clarifications.  DOC subsequently prepared a doc ument in which it explained its analysis of the 
application and the basis for its deci sion to initiate the investigation. 
(b) Arguments by the Parties/Third Parties 
7.63 Canada claims that DOC did not properly examine the accuracy and adequacy of the 
information provided in the application and did not properly determine, based on the facts before it, 
that there was sufficient evidence to justify the initiation of the investigation, in violation of 
Article 5.3 of the AD Agreement . 
7.64 Canada asserts that an unbiased and objective i nvestigating authority would have known that 
certain highly pertinent transaction-specific informat ion reasonably available to one of the applicant 
companies (IP) through its wholly-owned Canadian  company, Weldwood, was not submitted, as the 
application contained a Canadian newspaper artic le referring to the relationship between the two 
companies.
238  Canada also asserts that, given the magnitude of the cross-border trade in lumber and 
the well-recognised fact of cross-border ownershi p, DOC ought to have concluded on further 
examination of the application that the eviden ce on dumping was inadequate, as the applicant 
companies had access to more price and cost information.  Furthermore, Canada posits that, at least four members of the Executive Committee of the Coalition for Fair Lumber Imports, one of the 
applicants, purchased and imported softwood lumber products from three of the mandatory Canadian 
respondents during the period of the investiga tion and therefore had access to export prices.
239  It was 
                                                                                                                                                                     
235 Exhibit US-12, Application – Exhibit VI.B-1; Exhibit US-13, Application – Exhibit VI.B-2; and 
Exhibit CDA-40, Application Amendments. 
236 Exhibit CDA-37, Application – Volume III. 
237 In light of our findings, we need not and do not address the question, raised by the EC, as to whether 
Article 5.2 imposes an obligation on the Member or on the applicant itself.  
238 Confirmed by the United States in its response to question 12 of the Panel, para. 12. 
239 Canada response to question 8 of the Panel, para. 17 and Canada second written submission, note 7 .  WT/DS264/R 
 Page 87 
 
 
therefore clear that the applicant had actual transactio n prices and cost data reasonably available to it 
that were not provided to DOC in its application, a fact that DOC should have been aware of when it 
examined the accuracy and adequacy  of the evidence provided in the application to determine whether 
there was sufficient evidence to justify the initiation of the investigation.   
7.65 According to Canada, price and cost informa tion were required to justify initiation under 
Article 5.3.  Finding support for its position in the Guatemala – Cement  I and Guatemala – Cement  II 
panels, Canada is of the view that an investigati ng authority must have regard to the manner in which 
the applicant justifies its allegation of dumping in order to determine whether there is sufficient 
evidence of dumping to justify initiation.240  That is, Canada asserts that, as Article 2.2 permits a 
dumping margin to be based on a constructed value comparison (as was done in the investigation at 
issue) only where there are no sales of the like produc t in the ordinary course of trade in the domestic 
market of the exporting country, and as Article 2.2. 1 sets out how the cost calculation is to be done, 
DOC was required to assess whether the evidence provi ded by the applicant on each of the relevant 
elements – home market prices, export prices and costs – was adequate, accurate and sufficient, to 
justify initiation under Article 5.3.241 
7.66 Canada states that using the applicant's Random Lengths price data for Quebec, a comparison 
of all of the Quebec ex-factory price data for ESPF (2X4, Studs&Btr, KD, RL and 2X4-8', PET, KD) 
products sold in Quebec and in the United States, s hows that the US price was consistently higher 
during the period and that there was therefore no price-to-price dumping demonstrated by the evidence in the application.
242  There was, therefore, no basis upon which to initiate the investigation 
without adequate and accurate cost data.243  Canada also challenges the accuracy and adequacy of 
certain information submitted by the applicant as evid ence to substantiate the allegation of dumping.   
7.67 According to the United States , the information actually included in the application provided 
sufficient evidence to fo rm the basis for initiation of the investigation244, and the Weldwood data – 
that Canada alleges were reasonably available to the applicant – could not have negated the 
sufficiency of the data included in the application.245 
7.68 The United States asserts that the Weldwood da ta would have represented only the experience 
of a single company and would not have represented the diverse cost and price experience actually set 
forth in the application.  The Weldwood data may or may not have constituted evidence of dumping.  
Whichever conclusion the data supported, they could not have changed the fact that other information 
in the application constituted evidence of dumping.  Even if it is assumed, arguendo , that the 
Weldwood data were of a better quality  than the data contained in the application, this has no bearing 
on the question before the Panel – Article 5.3 does not  speak to the quality of the data that form the 
basis for initiation other than requiring that they be accurate and adequate and there be sufficient 
evidence to justify initiation.  According to the Unite d States, the data submitted by the applicant were 
sufficient for purposes of initiating an investigation. 
7.69 According to the United States, DOC examin ed the application closely for purposes of 
evaluating the accuracy and adequacy of the informa tion submitted to it, compared the application's 
assertions to the evidence submitted in support of tho se assertions, and analyzed the application step-
by-step to ascertain whether there was sufficient evid ence to initiate an investigation.  As a result of 
this process, DOC required the applicant to prov ide additional data and clarifications.  DOC 
                                                      
240 Canada second written submission , paras. 30-32. 
241 Id., paras. 34-35. 
242 Id., para. 37 and Canada response to question 8 of the Panel, para. 33 and note 32 thereto.  In the 
footnote, Canada compares the prices to substantiate its point. 
243 Id, para. 38. 
244 US first written submission , paras. 52-62, and US response to question 13 of the Panel, para. 14. 
245 US first written submission, paras. 65-69, and US re sponse to question 16 of the Panel, paras. 25-30. WT/DS264/R 
Page 88  
 
summarized its analysis of the application in a nineteen-page analysis memorandum after having 
conducted its own independent anal ysis, which included adjustments to the applicant's margin of 
dumping calculations.  DOC satisfied itself as to the accuracy and adequacy  of the evidence of 
dumping submitted to it and found that the info rmation submitted was sufficient to support the 
decision to initiate the investigation. 
7.70 As a third party to this dispute, the EC submits that Article 5.3 of the AD Agreement  obliges 
an investigating authority to determine whether the initiation of an investigatio n would be justified in 
view of the objectively available evidence.  This  obligation not only encompasses an examination of 
the application and whether it fulfils for instance the requirements under Articles 5.2 or 5.3 of the AD 
Agreement,  but may also require the investigating aut hority to take further steps to assemble the 
necessary evidence before initiating an  investigation.  The EC therefore agrees with the Panel in 
Argentina – Poultry that it is not merely the accuracy and the adequacy of the evidence per se  which 
is the legal standard under Article 5.3, but the sufficiency of that evidence.
246  The EC also agrees 
with the panel in Guatemala – Cement I  that the existence of "sufficien t evidence" in a particular case 
has to be adjudicated in the light of the st andard set forth in Article 17.6(i) of the AD Agreement  and 
that the quantum and quality of evidence required at th e time of initiation is less than that required for 
a preliminary, or final, determination of dumping,  injury, and causation, made after investigation.247 
(c) Evaluation by the Panel 
7.71 The issue which we need to address under this claim is whether DOC acted consistently with 
the requirements of Article 5.3 of the AD Agreement  when it decided that there was sufficient 
evidence to initiate the investigation.  In other words, could an unbiased an d objective investigating 
authority have concluded that the application contained accurate and adequate evidence sufficient to 
justify the initiation of the anti-dumping investigation?248  We need, therefore, to address the nature of 
the obligation contained in Article 5.3 before we consider the facts of the case in light of these 
obligations to determine whet her Article 5.3 has been violated by the United States. 
7.72 We start our analysis by looking at the text of Article 5.3, which provides as follows: 
"[t]he authorities shall examine the accuracy  and adequacy of the evidence provided 
in the application to determine whether th ere is sufficient evidence to justify the 
initiation of an investigation". 
7.73 As Article 5.2 of the AD Agreement deals with the information required to be submitted as 
evidence to substantiate the allegation of dumping, and in light of our finding that the United States 
did not violate the provisions of Ar ticle 5.2, we need to address the c ontext of Article 5.3, as well as 
the relationship between Artic le 5.2 and Article 5.3. 
7.74 We note that a number of panels have addressed the different obligations contained in and the 
functions of Article 5.2 and Article 5.3 of the AD Agreement .  Article 5.2 provides that the written 
application shall contain certain evidence of dumpi ng, injury and causality in the form of specified 
information to be submitted to the extent such evid ence is reasonably available to the applicant.  At 
this stage, the only requirement is that information described in the sub-paragraphs of Article 5.2 has 
been included in the application.  This does not mean that the investigation can be initiated on the 
basis of compliance with Article 5.2 only, as Article 5. 3 makes it clear that a further step is required, 
that is, that the investigating authority has to examine the accur acy and adequacy of the evidence 
                                                      
246 Panel Report, Argentina – Poultry , para. 7.60. 
247 Panel Report, Guatemala – Cement I , para. 7.57;  confirmed in Panel Report, Mexico – Corn Syrup , 
paras. 7.94, et seq. 
248 There is no assertion in this case that DOC obtained any information independently; thus, its 
decision to initiate was based solely on the information in the application.  WT/DS264/R 
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provided in the application to determine whether ther e is sufficient evidence to justify the initiation of 
the investigation.  It is therefore clear that, an application might satisfy the requirements of Article 5.2, but  not necessarily those of Article 5.3 as the evid ence contained in the application might 
be judged by the investigating authority not to be sufficient to form the basis for initiating the 
investigation.  Although we recognize that, because the Appellate Body reversed the panel's 
conclusions in Guatemala – Cement I  on the issue of whether the dispute was properly before it, that 
panel's conclusions in this  regard have no legal status, we find its  statements on this issue instructive 
and we agree with it when it states that: 
"… the fact that the applicant has provided, in the application, all the information that 
is "reasonably available" to it on the factors set forth in Article 5.2(i) - (iv) is not 
determinative of whether there is sufficien t evidence to justify initiation. Rather, 
Article 5.3 establishes an obligation that extends beyond a determination that the 
requirements of Article 5.2 are satisfied"
249, 
and: 
"Article 5.3 is a requirement imposed on the  investigating authority:  once it has 
accepted the application, that is, determined that it contains evidence on dumping, 
injury, and causal link, as well as "such info rmation as is reasonably available to the 
applicant" on the factors set forth in Article  5.2 (i) - (iv), the investigating authority 
must undertake a further examination of the evidence and information in the application.  If the investigating authority  were to determine that the evidence and 
information in the application was not accura te, or that it was not adequate to support 
a conclusion that there was su fficient evidence to justify initiation of an investigation, 
the investigating authority would be precl uded from initiating an investigation.  Thus, 
the decision to initiate is made by refe rence to the objective sufficiency of the 
evidence in the application,  and not by reference to whether the evidence and 
information provided in the application is all that is reasonably available to the 
applicant."
250 
7.75 Although the information contained in the application therefore forms the basis for the 
determination of sufficiency of the evidence for pu rposes of the initiation of the investigation, an 
investigating authority is not precluded from gathering information itself to ensure that it is satisfied 
that it has sufficient evidence before it, although it is not obliged to do so.251 
7.76 In this case, we have found that the requirement s of Article 5.2 have been satisfied, as set 
forth in paragraph 7.61, supra .  The next question we therefore ha ve to address is whether DOC was 
entitled to conclude that there was sufficient evidence to justify the initiation of the investigation.  We 
note that DOC did not gather information on its own,  in addition to the information in the application 
as submitted to it, but that it based its decision to initiate the investigation on the information in the 
application, as supplemented by additional informat ion and clarifications submitted by the applicant 
as requested by DOC. 
7.77 Before addressing the issue of what constitutes sufficient evidence, we first need to address 
the question of "sufficient evidence" of what?  In this regard, we find the first part of Article 5.3 
instructive, where it states that "[t]he authoriti es shall examine the accuracy  and adequacy of the 
evidence provided in  the application", as well as the chapeau of Article 5.2 which states that "[a]n 
application under paragraph 1 shall include evidence of (a) dumping, (b) injury ... and (c) a causal link 
between the dumped imports and the alleged injury".   We are therefore of the view that, although 
                                                      
249 Panel Report, Guatemala – Cement I,  para. 7.49. 
250 Id., para. 7.50. (emphasis in original omitted) 
251 Panel Report, Guatemala – Cement II,  para. 8.62. WT/DS264/R 
Page 90  
 
Article 5.3 contains no express reference to evid ence of dumping, evidence on the three elements 
necessary for the imposition of an anti-dumping measur e may be inferred into Article 5.3 by way of 
Article 5.2.  Article 5.2 makes it clear that the application has to contain evidence on dumping, injury and causation, while Article 5.3 requires the investig ating authority to satisfy itself as to the accuracy 
and adequacy of the evidence to determine that  is sufficient to justify the initiation of the 
investigation.  Reading Article 5.3, in the context of Article 5.2, the evidence mentioned in Article 5.3 
can only mean evidence of dumping, injury and causation.     
7.78 What constitutes sufficient evidence to justify th e initiation of an anti-dumping investigation, 
is not defined in the AD Agreement .  However, in addressing this issue, we consider it appropriate to 
follow the approach taken by previous panels whic h have examined claims under Article 5.3 of the 
AD Agreement in that we will determine whether an unbiased and objective investigating authority 
would have found that the application contained suffi cient information to justify the initiation of the 
investigation.
252 
7.79 Having regard to our standard of review, we sh all therefore examine whether an objective and 
unbiased investigating authority, looking at the fact s before DOC at the time of the initiation of the 
investigation, could properly have determined that  there was sufficient eviden ce of dumping to justify 
the initiation of an anti-dumping investigation.  In making this determination, Article 5.3 requires an 
investigating authority to examine the accuracy and adequacy of the evidence in the application.  
Clearly, the accuracy and adequacy of the evidence is relevant to  the investigating authority's 
determination whether there is sufficient evidence to justify the initiation of an investigation.  
However, it is not merely the fact of the accuracy and adequacy of the evidence per se  which is the 
legal standard under Ar ticle 5.3, but the sufficiency  of that evidence.253  In analysing the sufficiency of 
evidence, we agree with previous panels that statements and assertions unsubstantiated by any 
evidence do not constitute sufficient eviden ce within the meaning of Article 5.3.254 
7.80 We note that, although Article 5.2 does not defi ne the term "dumping", Article 2 provides 
guidance regarding the meaning of that term for the purpose of the AD Agreement .  We agree with the 
findings of the Guatemala – Cement II panel on this issue255, which were also followed by the panel 
in Argentina – Poultry , that, in order to determine whether ther e is sufficient evidence of dumping, an 
investigating authority cannot entirely disregard the elements that configure the existence of that 
practice as outlined in Article 2.256  This does not, of course, mean th at an investigating authority must 
perform a full-blown determination of  dumping in order to initiate an investigation.  Rather, it means 
simply that an investigating authority should take  into account the general parameters as to what 
dumping is when inquiring about the sufficiency of  the evidence.  The re quirement is that the 
evidence must be such that an unbiased and objectiv e investigating authority could determine that 
there was sufficient evidence of dumping within the meaning of Article 2 to justify initiation of an 
investigation.  We will therefore follow the same appr oach in our analysis of Canada's claims.  With 
these considerations in mind, we now turn to the examination of Canada's claim. 
7.81 According to Canada, cost and price informa tion were required to justify initiation of the 
investigation under Article 5.3.  Canada is basi ng this assertion on the c ontextual relevance of 
Article 2 of the AD Agreement to an interpretation of Article 5.3, as discussed in paragraph 7.80, 
supra .  An investigating authority must therefore have  regard to the basis of  the allegation of dumping 
in order to determine whether there is sufficient evidence of dumping to justify initiation.  As the 
                                                      
252 Panel Reports, Mexico – Corn Syrup,  paras. 7.91-7.110; Guatemala – Cement II , paras. 8.29-8.58; 
and Argentina – Poultry , paras. 7.60-7.89. 
253 Panel Report, Argentina – Poultry , para. 7.60. 
254 Panel Reports, Guatemala – Cement II , paras. 8.51-8.53; and Argentina – Poultry , para. 7.60. 
255 Panel Report, Guatemala – Cement II , para. 8.35. 
256 Panel Report, Argentina – Poultry , para. 7.62.  WT/DS264/R 
 Page 91 
 
 
applicant in this case alleged that sales in Canada  were made below cost, they submitted information 
regarding constructed (normal) value in s upport of its allegation that dumping existed. 
7.82 According to Canada, Article 2, and specifically  Article 2.2, permits a dumping margin to be 
calculated based on a constructed (normal) value wh ere there are no sales of the like product in the 
ordinary course of trade in the domestic market of  the exporting country.  In order to disregard home 
market sales, Article 2.2.1 requires that there be an analysis of costs and a determination that the 
home market sales "are at prices which do not provide for the recovery of all costs within a reasonable 
period of time".  These provisions provide context fo r the sufficiency determination under Article 5.3 
in this case.  Therefore, Canada argues, DOC w as required to assess whether the evidence provided by 
the applicant on each of the relevant elements – hom e market prices, export prices and costs – were 
adequate, accurate and therefore sufficient, to justif y initiation under Article 5.3.  In Canada's view, an 
objective investigating authority co uld not have determined that th e evidence on each of the necessary 
elements provided by the applicant was sufficient to justify initiation. 
7.83 Although we agree that Article 2 provides context for the interpretation of Article 5.3, we are 
of the view that a clear distinction should be ma de between the determination of a margin of dumping 
according to the requirements of Article 2.2 for purposes of a preliminary or a final determination, 
and the evaluation of evidence of dumping for purpo ses of determining whether there is sufficient 
evidence to justify initiation of an investigation.   We note that several panels have noted the 
difference between evidence required to initiate an  anti-dumping investigation and evidence required 
to make an affirmative determina tion of dumping.  For example, in Guatemala – Cement II , the panel 
stated: 
"[w]e do not mean to suggest that an investig ating authority must have before it at the 
time it initiates an investigation evidence of  dumping within the meaning of Article 2 
of the quantity and quality that  would be necessary to support a preliminary or final 
determination.  An anti-dumping investiga tion is a process where certainty on the 
existence of all the elements necessary in order to adopt a measure is reached 
gradually as the investigation moves forward".257  
 7.84 We agree with the above position taken by panels  on this issue, namely that the quantity and 
quality of the evidence required to meet the threshold of sufficiency of the evidence is of a different 
standard for purposes of initiation of an investigation compared to that required for a preliminary or 
final determination of dumping. 
7.85 In applying these considerations to the case before us, the issue we need to address is 
therefore whether an unbiased and objective investig ating authority, could have come to the same 
conclusion as DOC did, after examining the evidence on which DOC relied for purposes of determining the sufficiency of the evidence before it in terms of Article 5.3 of the AD Agreement .   
7.86 We will first examine the issue regarding the Weldwood data.  We reca ll that Canada argues 
that the price and cost data of Weldwood, which were reasonably available to the applicant company 
"IP", should have been su bmitted in the application.
258  Canada implies that the Weldwood data were 
of a superior quality to that which were contai ned in the application and on which DOC based its 
decision to initiate the investigation.  The positio n of the United States is that the information 
contained in the application was examined by DOC and found to be sufficient to justify the initiation 
                                                      
257 Panel Report, Guatemala – Cement II , para. 8.35.  See also Panel Reports, Argentina – Poultry , 
para. 7.67 (finding evidence that sales in a major market  of exporting country, though not the entire country, 
was sufficient for initiation); and Guatemala – Cement I , para. 7.64 (evidence at initiation need not be of same 
quantity or quality as would be  necessary to support prelimin ary or final determination).  
258 The United States did not argue that the Weldwo od data was not reasonably available to the 
applicant. WT/DS264/R 
Page 92  
 
of the investigation.  According to the United St ates, the Weldwood data related only to one specific 
company and could therefore not detract from the more representative data which were actually submitted and which formed the basis for the DOC' s decision regarding the sufficiency of the 
evidence to justify initiation of the investigation. 
7.87 We recall our finding above that Article 5.2 of the AD Agreement  requires that the application 
shall contain such information which is reasonably av ailable to the applicant to substantiate its claim 
of, inter alia , alleged dumping, meaning that the application need not contain all information 
reasonably available to the applicant, but only information to support a prima facie  case.  We further 
note that Article 5.3 requires that the investig ating authority "shall examine the accuracy and 
adequacy of the evidence provided in the application to determine whether ther e is sufficient evidence 
to justify the initiation of the investigation".  From  the wording of Article 5.3, it is clear that the 
requirement is that there should be sufficient  evidence to justify the initiation of the investigation.  The 
requirement is therefore not to examine whether more probative evidence is reasonably available to 
the investigating authority, but whether an unbiased and objective investigating authority could have 
found that the evidence before it is sufficient to  justify initiation of the investigation.   
7.88 The application contained certain cost data which were constructed on the basis of part 
Canadian data and part US data and in formation, and price data sourced from Random Lengths, a 
reputable industry publication.  Canada posits that actual Canadian cost data and price information 
were available through Weldwood.  We note that th e Weldwood data would ha ve related to only one 
company, whereas the Random Lengths price information covered a large number of transactions by 
different sellers and could therefore be regarded as more representative.  As the Weldwood data were 
not examined by the DOC, it is not known whether it would have shown dumping or not.  Even if it is 
assumed that it would have shown no dumping, we are of  the view that, in principle, it could not have 
detracted from the sufficiency of the data actually  submitted in the application and the decision of 
DOC to base its initiation decision on that evidence.  Ho wever, if the data in the application had been 
shown to suffer from inadequacy and inaccuracy to such an extent that an unbiased and objective 
investigating authority could not have found that the application in this case contained sufficient 
evidence to justify its decision to initiate the inv estigation, the Weldwood da ta would have become 
relevant. 
7.89 Canada claims that, in a number of instances, the price and cost information which was 
submitted to DOC, and on which it relied to dete rmine whether the eviden ce was sufficient, was 
challengeable to such an extent that an unbiased and objective investigating authority could not have 
found that the evidence before it was sufficient to ju stify the initiation of the investigation and that 
Article 5.3 of the AD Agreement  was therefore violated by the United States. 
7.90 Although we are mindful when examining Canada's assertions regarding the sufficiency of 
the evidence on which DOC based its decision to initiate an investigation, that we are not to do a de 
novo review of the facts, we are of the view that, co nsidering Canada's challenge  of various aspects of 
the cost and price evidence, we need to examine the specific facts of this case in some detail in order 
to determine whether an unbiased and objective inv estigating authority could have come to the same 
conclusion that DOC did. 
7.91 According to Canada, the cost evidence in th e application was flawed in a number of ways 
which rendered it insufficient to support th e decision to initiate the investigation: 
(i) Efficiencies of scale of Canadi an sawmills in cost calculation 
7.92 The applicant did not provide actual cost data  for significant or representative Canadian 
producers, but based the allegations regarding the cost of BC and Quebec producers on four US mills' 
costs as surrogates.  Canada asserts that reliance on the data regarding these four mills was justified  WT/DS264/R 
 Page 93 
 
 
by "nothing more than unsubstantiated assertions  about the appropriateness of the mills chosen".259  
DOC accepted the cost data on the basis on the applic ant's assertions.  Canada asserts that these mills 
were not representative of Canadian mills based on size, as the US companies chosen as surrogates for 
Quebec costs were less than one-ten th the size of any of the six largest Canadian companies and 
smaller than over 75 per cent of all Canadian comp anies that export to the United States.  The US 
mills therefore could not have had the efficiencies  of scale of the Canadian companies, and the 
applicant's cost model therefore overestimated the costs which resulted in an inflated constructed 
(normal) value calculation. 
7.93 The United States responded that, with respect to th e majority of the costs, data from US mills 
were used only to provide production factors, which we re then valued using cost data of a Canadian 
producer.  Canada does not dispute that these cost data were representative of Canadian costs of 
production.  However, with regard to certain cost fa ctors, US data were used as the basis, and then 
adjusted to reflect Canadian costs.  According to  the United States, the US mills whose information 
was used as surrogates in this calculation were th emselves significant and representative producers of 
softwood lumber in the United States, two in a lu mbering area in the eastern United States, and two in 
a major lumbering area in the western United States.  Given the great disparity in size of lumber mills 
in both Canada and the United States, a particular US mill need not be among the largest to be both a significant and representative producer of softwood lumber for purposes of being used as a source of data representative of an equally broad range of Canadian mills. 
7.94 In considering this issue, we are mindful that we are dealing with the initiation of an 
investigation, and furthermore, we keep in mind the Article 17.6 standard of review that we have to 
apply.  It seems to us that Canada's argument revolves mainly around its assertion that the Canadian 
mills are much larger, and therefore have greater e fficiencies of scale than the US mills could have.  
Although we agree that efficiency of scale does ha ve an impact on cost, we also note that the 
applicant stated in the application that "softwood lumber manufacturing costs vary significantly by 
producer depending upon a number of factors, such as each producer's level of efficiency, type of 
equipment, physical location and wood fibre source material".
260 
7.95 In light of the nature of the lumber industr y in both the United States and Canada, and the 
dynamic interrelationship of the different cost elemen ts, we are of the view that it would almost be 
impossible for an applicant to be able to submit information to address all these variables for purposes 
of the initiation of an investigation.  We are th erefore of the view that an unbiased and objective 
investigating authority could have accepted the eviden ce of the four surrogate mills in the context of 
the normal value calculation in the application, and therefore find that DOC did not err in concluding 
that there was sufficient evidence to justify initiation on this basis.  
(ii) Calculation / allocation of costs 
7.96 Canada states that DOC initiated the investiga tion without any evidence before it of how the 
applicant calculated the cost of manufacturing of the US surrogate companies for the SPF species or 
of how company costs were then allocated to the specific products (2x4 kiln-dried dimension or stud 
lumber) for which the cost models had been constr ucted.  The United States responds that, as most 
costs were calculated on a per-species, per-MBF basis, the applicant followed the normal industry 
practice, and also that the issue of precisely how to allocate costs to products is not an issue that 
needed to be definitively resolved pr ior to initiation of the investigation.261  Canada challenges this 
statement and asserts that DOC never made such a finding.262 
                                                      
259 Canada second written submission, para. 39. 
260 Exhibit CDA-134, Application – Exhibit VI.A, p. 4-5.  
261 US second written submission, p. 9. 
262 Canada second oral (opening) statement, para. 19. WT/DS264/R 
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7.97 Recalling the fact that this issue relates to th e initiation of the investigation and the standard 
of review which we have to apply, we are of the view that it cannot be expected from an investigating 
authority to do a cost allocation in the same way as it is required to do when making a preliminary or 
a final determination of dumping.  We agree with the United States that the issue of precisely how to allocate costs to different products is not an issue that needs to be defin itively resolved prior to 
initiation of an investigation – the cost allocation in any anti-dumping investigation is normally of a 
very contentious nature, as is also  evident from this case.  We therefore find that DOC did not err in 
concluding that there was sufficient eviden ce to justify initiation on this basis.   
(iii) Period covered by the cost model data 
7.98 Canada states both the cost models cons tructed for Quebec and BC relied on certain 
manufacturing and cost data for less than a full y ear (2000).  Canada contends that the failure to 
capture costs associated with a full operating cycle for the purposes of initiation is clearly insufficient.  
Canada asserts that home construction, and thus  dimensional and stud lumber sales, is a seasonal 
business.  According to Canada, such reliance on a period less than one fiscal year is misleading and 
provides a distorted view of unit production costs.  There is no evidence on the record of any analysis 
by DOC of the adequacy of these "abbreviated" cost reporting periods.
263  The United States 
responded that the application contai ned cost data from four US mills , of which data for one covered 
the whole year, and taken as a whole, the data fro m these four mills covered the entire calendar year 
2000.264  The applicant also explained why each of th e four companies provided data for particular 
months, mainly because those were the only periods  for which the specific companies had audited 
data available.265 
7.99 In considering this issue, we note that DOC ha d cost data which, ta ken together, covered a 
whole year, and the cost data of one company co vered the whole period.  Although Canada implies 
that the seasonality of the lumber industry would affect  the information to such an extent as to render 
it insufficient, Canada has not proffered any arguments  or evidence to substantiate this view so as to 
enable us to come to a conclusion that an unbi ased and objective investigating authority could not 
have found that the information available to it was su fficient to justify initiation on this basis.  We 
therefore find that DOC did not err in concludi ng that there was suffici ent evidence to justify 
initiation on this basis.   
(iv) Home market sales informa tion for Quebec as a basis to c onclude that c onstructed value 
could be used to establish normal value for purposes of initiation  
7.100  Canada asserts that, as DOC rejected the pr ice information on western SPF submitted by the 
applicant as support for the allegation that western SPF softwood lumber was being sold below cost, 
there were no home market prices for western SPF availa ble to test whether sales of this product were 
below cost.266  As there were no home market prices, or surrogate prices, for sales of western SPF, 
there was no basis for a finding that these sales we re below the calculated costs – therefore DOC 
could not objectively have based its decision to ini tiate the investigation on the constructed value 
comparison for eastern SPF offered by the applicant.   The United States responds that Canada's 
argument incorrectly implies that the quality and qu antity of evidence at initia tion should be the same 
as at the conclusion of an investigation.  As the application contained evidence of home market sales 
below cost in Quebec, it provided a basis for us ing constructed value to establish normal value. 
                                                      
263 Canada response to question 8 of the Panel, para. 36. 
264 The mills provided cost data for the followi ng periods: East-1: July-December 2000, East-2: 
January-September 2000, West-1: July-Dec ember 2000, West-2: January-December 2000. 
265 Exhibit CDA-135, Application – Exhibit VI.C-1 and Exhibit CDA-136, Application – 
Exhibit VI.D 1. 
266 DOC rejected the submitted price information, sourced by the applicant fr om the BC Ministry of 
Forestry's published market pricing system, as the applicant did not indicate that the prices were restricted to 
sales in Canada only. (Exhibit CDA-9, Initiation, p. 21330)  WT/DS264/R 
 Page 95 
 
 
7.101  The issue that we need to address in this  instance is whether the home market sales 
information for Quebec was sufficient as a basis to conclude that constructed value could be used to 
establish normal value for purposes of initiation.  In  other words, is the information on eastern SPF 
sufficient as a basis to determine that a constructed (normal) value should be ca lculated for all subject 
softwood lumber products.  We note that a si milar issue was addressed by the panel in Argentina – 
Poultry  when it considered whether an application containing data on home market prices in a 
particular region of the exporting country was suffici ent, or whether additional price data should have 
been submitted.  The panel concluded that "it is su fficient for an investigating authority to base its 
decision to initiate on evidence concerning domestic sales in a major market of the exporting country 
subject to the investigation, without necessar ily having data for sales throughout that country".267  
Although we are conscious that the facts of Argentina – Poultry  differ from the facts of the case at 
hand, we nonetheless consider that they are sufficientl y analogous to be relevant to our analysis here. 
We note that eastern SPF softwood lumber products c onstitute one of the two major categories into 
which the subject product was divide d, and we are of the view that  there is no requirement that 
evidence of dumping of all categories or sub-sets of the imported product is necessary to justify a 
decision to initiate.  We therefore find that DOC di d not err in concluding that there was sufficient 
evidence to justify initiation on this basis. 
(v) Evidence on prices of domestic sales transactions  
7.102  According to Canada, DOC initiated the investiga tion despite the fact that the application did 
not contain evidence of actual sales transactions involving identified Canadian companies in the 
domestic Canadian market.  The evidence on prices consisted of estimates from an industry 
publication, Random Lengths , which in some instances commingled Canadian and US price data.  
Canada states that the Random Lengths  data could therefore not have been regarded as sufficient to 
justify the initiation of the investigation.  The Unite d States contests these allegations and asserts that 
the Random Lengths  data are based on actual prices and that the data do not commingle US and 
Canadian data. 
7.103  We note that there is no disagreement between the parties regarding the reliability of the 
Random Lengths  data as such.  Rather, they disagree as to wh ether the data refer to prices or informal 
estimates of prices, and whether they commingle US and Canadian price data. 
7.104  We note that Random Lengths  explains how it determines the reported price information as 
follows: 
"[t]he staff conducts hundreds  of telephone interviews w ith sellers and buyers each 
week.  (…) Information is also obtained via e-mail and fax.  
Based on information gathered from these sources, we determine the prices that 
appear in the Random Lengths price Guide.   These prices reflect sales from producers 
to their customers.   
Because of these variables, a price reporte d in Random Lengths is not the only price 
at which an item has traded.  Each price shown falls within the range of prices 
reported by our sources.  A reported price is a representative trading level for the item just prior to publication.  The reported pri ces reflect levels at which stock has actually 
traded between manufacturers and their customers. 
But keep in mind that there is no single pri ce that can fully describe the market for an 
item at a given moment, let alone on weekly basis. (…) Only through our telephone 
                                                     
 
267 Panel Report, Argentina – Poultry , para. 7.67. WT/DS264/R 
Page 96  
 
interviews can the many variables be tr acked and accounted for in determining the 
representative prices that are reported in the Price Guide"
268, 
and: 
"[a] price reported by Random Lengths is a benchmark, or indicator, of the general 
trading level of an item at the time of publication. 
A reported price is not an arithmetic average of the prices reported to the Random 
Lengths staff.  It is not the price for th e item for the week following publication (that 
is, it is not a projected price for future transac tions).  It is not the only price at which 
transactions took place during the week of publication. 
Prices reported in Random Lengths represen t transactions between manufacturers and 
their customers.".269 
7.105  After considering these explanations on how the Random Lengths  price information is 
actually collected and reflected in the weekly publica tion, we are of the view that the published price 
information, although it reflects a number of sales, and is not related to a specific sale, does reflect actual sales prices that indicate price levels at wh ich softwood lumber has actually traded between 
manufacturers and their customers.  Thus, in our view, the Random Lengths  data certainly qualifies as 
the type of price information contemplated in Article 5.2(iii) of the AD Agreement .  We are 
furthermore of the view that, in the case of a commodity product, such as softwood lumber, a 
reputable industry price publication, covering a wide  range of products, with price data over a period 
of time, might be preferable as a more representati ve source of price inform ation than price data 
sourced from a single exporter or importer. 
7.106  Canada also asserts that the Random Lengths  data commingle US data with Canadian data
270, 
as Random Lengths defines eastern SPF as: 
"[l]umber of the Spruce-Pine-Fir group produced in the eastern provinces of Canada, 
including Saskatchewan and Manitoba.  Also  used in references to some lumber 
produced in the northeastern United States".271 
7.107  The United States counters this statement by re ferring to a letter received from the publishers 
of Random Lengths  which states: 
"[e]astern S-P-F prices reported in the weekly Random Lengths Price Guides are 
representative of lumber produced in the Eastern Canadian provinces".272 
7.108  According to the United States, this defi nition itself reflects the fact that the primary  meaning 
of the term SPF is limited to certain Canadian-produ ced lumber.  Its use as a "term of the trade" in 
connection with US-produced lumber is not only sec ondary, but also separate.  As confirmation of 
this interpretation by the United States, the United States referred to a letter from Random Lengths  
which had been placed on the record of the case in a submission made by the applicant, which states:  
"[w]e do receive information about production and prices of S-P-F dimension coming 
out of mills in the New England states.  However, as we discussed, the current 
                                                      
268 Exhibit CDA-133, Random Lengths – How Reported Prices are Determined, p. 1. 
269 Id., p. 6. 
270 Canada first oral (opening) statement, para. 23. 
271 Exhibit CDA-147, Application – Exhibit III.9, p. 114. 
272 Exhibit US-1 mistakenly included a different submission made by the applicant on the same date.  
The United States provided the co rrect record document to the Panel as Exhibit US-60, p. 79.  WT/DS264/R 
 Page 97 
 
 
grading rules require that this output be designated as "SPF-S". (…) While "SPF-S" sales and prices can and do affect "Eastern S-P-F" prices and markets, we focus our information gathering and price reporting on Eastern S-P-F coming out of Eastern Canadian sawmills".
273  
7.109  Canada interprets the word "focus" as i ndicating an "unexplained degree of focus on 
Canadian data" which would lead an objective inv estigating authority to determine that these data 
should be rejected in considering whethe r to initiate an anti-dumping investigation.274 
7.110  According to the United States, however, the combination of evidence shows that Random 
Lengths  recognizes a market distinction between Ca nadian-produced and US-produced SPF and does 
not commingle data on the Canadian-produced "Eastern S-P-F" with data on US-produced (Eastern) 
"S-P-F-south" lumber.275 
7.111  Taking the facts into account, as well as that th is issue relates to the initiation of the 
investigation, and as it is clear to us that the inv estigating authority considered  this matter carefully,  
and requested clarification from the applicant276, with which it was satisfied, we are of the view that 
an unbiased and objective investigating authority co uld reasonably have concluded that the potential 
for  commingling of the data did not detract from its reliability for purposes of initiation. 
7.112  We therefore find that DOC did not err in c oncluding that there was sufficient evidence to 
justify initiation on this basis. 
(vi) Affidavits containing export price information 
7.113  Canada asserts that the two affidavits on expor t price information submitted by the applicant 
and relied upon by DOC for purposes of initiation of th e investigation were inadequate.  With respect 
to the affidavit containing BC price information, the "price quote" refers to a price quote for western 
SPF from a trading company and does not identify an y individual Canadian producer or exporter as 
the supplier of the product.277  According to Canada, neither a Canadian producer/exporter, nor a US 
company affiliated with a Canadian producer/export er provided the quote.  With respect to the 
affidavit containing a "price quote" for Quebec sales, it does not identify a Canadian producer as the 
seller of the merchandise, identifies no buyer and contains little information about the terms of the 
sale.278  According to Canada, these price quotes are lit tle more than unsubstantiated assertions which 
an objective investigating authority would have rej ected as a basis for initiation of an investigation. 
7.114  The United States asserts that the affidavit c ontaining the BC price information was made by 
a knowledgeable industry source testifying to an offer from a US trading company for Canadian western SPF kiln-dried random length 2x4s from the interior of BC for sale in March 2001 at a 
delivered price to a specified destination in the US market.
279  The affidavit also contained 
information on the historical mark-up received by lumber wholesalers, and on the likely means of shipment.  The "lost sales" affidavit regarding pr ice information from Quebec was, according to the 
United States, from a US lumber producer reporting f our separate instances in which the affiant lost 
sales on 15 December 2000 as the potential buyers reported that Quebec producers offered eastern 
SPF kiln-dried 2x4s in mid-December 2000 at the boar d foot price as reflected in the affidavit, which 
                                                     
 
273 Ibid. 
274 Canada second written submission, para. 54. 
275 US response to question 15 of the Panel, para. 23. 
276 Exhibit CDA-86, Letter from DOC to the applicant requesting information/clarification; and Exhibit 
CDA-40, Applicant's response. 
277 Exhibit US-16, Application – Exhibit VI.D-14. 
278 Canada second written submission, paras. 55-56. 
279 US first written submission, para. 59; Exhibit CDA-10, Initiation Checklist; and Exhibit US-16, 
Application – Exhibit VI.D-14. WT/DS264/R 
Page 98  
 
was lower that the affiant's price, with the term s of sale being the same, being FOB-Boston for both 
products. 
7.115  As it is not clear to us whether the Canadian cl aim rests on the fact that the affidavits were 
relied upon as evidence, or on the fact that certain in formation in the affidavits was not disclosed to 
interested parties, we will address both issues. 
7.116  We consider first the question whether an a ffidavit can be regarded as evidence regarding 
prices for purposes of the decision whether to in itiate an investigation.  We note that the AD 
Agreement does not prescribe the nature and form of the information or evidence applicants are 
required to submit, and which the i nvestigating authority must consider  in deciding whether to initiate 
an investigation.  We note the statement by the United States that: 
"[a]ffidavits from pe rsons in the industry are frequen tly used in petitions to present 
company or industry information.  The relia bility of the information derives not only 
from the fact that it is sworn testimony, but also, in a different sense, from the fact that an affiant's professional position and expe rtise in the industry gives that person 
access to such information and permits that  person to speak credibly to general 
industry practices";
280 
and that: 
"'[l]ost sales' affidavits are another common way of establishing prices of 
merchandise imported into the United States.  One way in which a producer may learn of non-published prices being quoted by foreign competitors in the U.S. market 
is when habitual customers advise that th e same goods are available at a given lower 
price from the foreign competitor.  Such communications may permit the domestic 
producer to try to match that price, but if it  is unable to sell that low, this can also 
become evidence of both export prices and injury."
281 
7.117  We note that the AD Agreement does not contain any guidance on this issue and that 
affidavits are accepted in the legal systems of ma ny jurisdictions as evidence.  In light of the 
explanations submitted by the United States, we th erefore see no reason why affidavits regarding 
price information may not be cons idered as relevant evidence in deciding whether there is sufficient 
evidence to justify the initiation of the investigation. 
7.118  On the second issue, that is, the non-disclosure of certain information regarded as confidential 
by the investigating authority, we note the fo llowing explanation submitted by the United States: 
"[a]s is generally the case, to avoid reta liation, the name, affiliation, location and 
other potential identifying characteristics of the affiant, as well as proprietary details 
with respect to the transactions at issue are given only in the Business Confidential 
versions of the exhibits.  The United Stat es has provided only the public versions of 
such documents, as they are sufficient to demonstrate the nature of the evidence 
contained in the Business Confidential versions, and because Canada has never 
contested the bona fides of the confidential affiant."282 
7.119  We note that Article 6.5 of the AD Agreement specifically requires the non-disclosure of 
confidential information, as follows: 
                                                      
280 US first written submi ssion, para. 61, note 60. 
281 Id., para. 60, note 62. 
282 Id., para. 59, note 60.  WT/DS264/R 
 Page 99 
 
 
"[a]ny information which is by nature confid ential (for example, because its disclosure 
would be of significant competitive advantage to a competitor or because its disclosure would have a significantly adverse effect  upon a person supplying the information or 
upon a person from whom that person acquired the information), or which is provided 
on a confidential basis by parties to an in vestigation shall, upon good cause shown, be 
treated as such by the authorities.  Such information shall not be disclosed without 
specific permission of the party submitting it." (footnote omitted)  
7.120  Canada has made no assertion that the informa tion that was not disclosed was incorrectly 
deemed confidential by the DOC in this instance.  Nor has Canada provided us with any evidence or 
arguments that would suggest that the information c ontained in the affidavits is untrue and therefore 
not reliable.  In examining the affidavits at issue
283, we note that the information disclosed, indicates 
the dates, the products, the origin of the products as Canada, the terms of sale and prices.  The only 
information deleted from the confidential versions of the affidavits are the names of the affiants, their 
positions, their employers, and, in one case, who made the offer to sell.  In our view, all the 
information material to the issue has been disclosed .  In these circumstances, we can see no basis for a 
conclusion that the obligatory non-disclosure of cer tain confidential information in the affidavits 
somehow undermined their reliability or relevance as ev idence of prices.  If Canada is of the view that 
the affidavits contain false or misleading informati on, we are of the view that they should have 
pursued the matter in the appropriate forum in the United States.  Canada did not submit any evidence 
to this effect.  We therefore find that DOC did not err in concluding that there was sufficient evidence 
to justify initiation of the investigation on this basis. 
(vii) Price information covered only two categories of softwood lumber 
7.121  Canada claims that the application containe d price information only on two of the seven 
categories of softwood lumber identified by the a pplicant.  The seven categories are: (1) studs;  
(2) boards;  (3) dimension lumber;  (4) timbers;  (5) stress grades;  (6) selects, and  (7) shop.284  
Pricing information and dumping calculations in the application, and on which DOC based its 
decision to initiate an investigation, covered only two narrowly defined products, namely, SPF 2x4 
kiln-dried dimension lumber, and SPF kiln-dried stud lumber, although the applicant requested DOC 
to initiate an investigation coveri ng numerous softwood lumber products.285  Canada therefore asserts 
that the evidence was not sufficient for pu rposes of an Article 5.3 determination. 
7.122  The United States asserts that, as there is no ob ligation to treat each "category as a separate 
product under consideration, it ha d no obligation to find evidence of dumping in each category in 
order to initiate an investigation."286 
7.123  Article 5.3 requires that, at initiation, there must be sufficient evidence of dumping of the 
product as a whole that an unbiased and objective inv estigating authority could conclude that there 
was sufficient evidence to justify initiation.  Clear ly, evidence of dumping regarding an insignificant 
sub-set of the imported product would not be suffici ent in this context, an argument not made by 
Canada.  We note that, in the case at hand, the categories for which pricing information was submitted, including 2x4s kiln-dried dimension soft wood lumber and 2x4 kiln-dried studs, falls within 
commonly traded softwood lumber product categories which together form the product under investigation.
287  We therefore find that DOC did not err in concluding that there was sufficient 
evidence to justify initiation on this basis. 
                                                      
283 Exhibits US-16, Application – Exhibit VI.D-14, and Exhibit CDA-45. 
284 Exhibit CDA-36, Application – Volume I. 
285 Canada response to question 8 of the Panel, para. 29. 
286 US second written submission, para. 20. 
287 US first written submission, paras. 52 and 58. WT/DS264/R 
Page 100  
 
(viii) Information on freight costs 
7.124  Canada asserts that the application did not c ontain adequate information regarding freight 
costs.
288  Although freight is a significant component of the price for lumber, Canada asserts that the 
application lacked reasonably obtainable Canadian  freight information from either of the two 
Canadian national railways and inst ead relied on freight information that was not even for Canadian 
rail or international freight.  Ca nada cites the following examples  in support of its allegation:  
• In the case of Quebec, DOC relied upon an average freight cost from Quebec to the 
United States including in that average an estimate for freight cost from the Maritime 
provinces.  In doing so, it included freight co sts unrelated to transport between Quebec and 
the United States.289  There was also no evidence to s upport the applicant's allegation that 
truck rather than rail is used by Quebec producers to ship lumber.   
• In the case of BC, DOC relied on an affidavit i ndicating that rail freight charges incurred for 
what appears to be a Southern-Yellow-Pine sh ipment which weighs considerably more than 
the WSPF for which the applicant purported to be creating a cost model.290 
7.125  The United States responds that the relevant exhi bit simply provided a rate for truck freight, 
one of the shipment methods used, based on the affiant's experience in using truck freight for 
softwood lumber in the region in question.  As no evidence was submitted to DOC that the producers 
ship lumber only by rail, or predominantly by  rail, the evidence was adequate for purposes of 
initiation.  With regard to the allegation about th e differences in weight between western SPF and the 
heavier southern Yellow Pine, the United States assert s that the affidavit provided a rail freight rate 
for softwood lumber.291  The United States stated further th at it was not necessary for DOC to search 
out information on the relative weights of different gr oups of pines, all of which are softwood lumber, 
for purposes of initiation of an investigation.292  On the issue of the freight costs from the Maritime 
Provinces, the United States contends that the fre ight affidavit that Canada relies upon provides 
separate per-MBF freight rates for shipment to Boston from four regions, one of which is the 
Maritime Provinces.  The average per-MBF freight  cost DOC relied upon for sales from Quebec to 
the United States was US$29, the average of the co st for shipment from Northern Quebec, Southern 
Quebec and the Gaspe Peninsula (also part of Queb ec).  Had the cost for the Maritime Provinces been 
included, the average would have been US$30 per MBF.293 
7.126  We note that nothing before the investigating authority indicated that only rail was used to 
transport softwood lumber, or even that rail was mo stly used.  In these circumstances, we consider 
that an objective and unbiased investigating aut hority could reasonably ha ve relied on information 
regarding truck freight rates in the context of an initiation determination.  In addition, it seems clear 
that the inclusion of some freight costs for transpor t of US produced lumber did not materially affect 
the information relied upon.  We therefore conc lude that an unbiased and objective investigating 
authority could reasonably have concluded that the information was sufficient to justify initiation on 
this basis.  We therefore find that DOC did not err in concluding that there was sufficient evidence to 
justify initiation on this basis. 
                                                      
288 Canada response to question 8 of the Panel, paras. 39-42. 
289 Exhibit CDA-41, Application – Exhibit VI.C-9. 
290 Exhibit CDA-40, Application Amendments, Attachment 1 "Average MBF per rail car is 92,160 
MBF.  Average weight is approximately 195,000 lbs", and Exhibit CDA-51, Request for Termination, pp. 29-
30. 
291 US second written submission, para. 31. 
292 We also note the following statement by the United States in para. 31 of its second written 
submission: "…the freight calculation was conservatively ba sed on costs for transport over significantly shorter 
distances than those for delivery of the US sales in the application (including from the interior of BC to Chicago 
(at least 1800 miles) and to Atlanta (at least 2444 miles))". 
293 US second written submission, para. 32.  WT/DS264/R 
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(ix) Conclusion 
7.127  After examining Canada's assertions regarding the sufficiency of the information contained in 
the application and on which DOC based its decision to  initiate the investigati on, and considering our 
comments above regarding the nature of the obligations under Articles 5.2 and 5.3 of the AD 
Agreement, we conclude that an unbiased and objective investigating authority could have concluded 
that there was sufficient evidence on dumping in the application to justify the initiation of the 
softwood lumber anti-dumping investigation at issue.  We therefore find that the United States has not violated the provisions of Article 5.3 of the AD Agreement . 
F. C
LAIM 3:  ARTICLE 5.8 – "SUFFICIENCY OF EVIDENCE " OF DUMPING AT AND AFTER 
INITIATION OF INVESTIGATION  
(a) Factual Background 
7.128  DOC initiated the anti-dumping investigation on the basis of the evidence submitted to it by 
the applicant and did not terminate the investiga tion once it became known to DOC that Weldwood, a 
major Canadian producer and exporter of softwood lumber, was wholly-owned by IP, one of the 
applicant US producers. 
(b) Arguments of the Parties/Third Parties  
7.129  Canada argues that Article 5.8 applies both prior to initiation and throughout the 
investigation.  Canada claims that DOC failed, after initiation, in its ongoing obligation to assess the 
sufficiency of the evidence of dumping  and to terminate the investigation.294  Canada asserts that, 
although evidence might have been judged sufficient at the time of initiation,  it does not mean that 
throughout the investigation there necessarily is su fficient evidence to justify proceeding with the 
investigation.  DOC was notified by the respondents of the deficiencies in the application resulting 
from the omission of the Weldwood pricing informati on.  An objective judgement of the sufficiency 
of the evidence of dumping required DOC to take in to account the impact of this omission, which was 
not done.  The relevance of evidence should not be prejudged without first having given proper 
consideration to that evidence.  Canada theref ore claims that DOC acted inconsistently with 
Article 5.8 as an objective judgement of the suffici ency of the evidence was not done once the more 
probative information was brought to the attention of DOC. 
7.130  The United States  asserts that, as the Weldwood data were not necessary to support either 
DOC's initiation, or its continuation, of the inves tigation, Canada's claim that DOC was required to 
terminate the investigation once DOC became awar e of the IP/Weldwood relationship, and therefore 
the availability of Weldwood price information, ha s no support in Article 5.8.  According to the 
United States, the application contained sufficien t information to justify the initiation of the 
investigation and the availability of the Weldwood data did not and could not render inadequate the 
information initially provided to DOC by the ap plicant.  DOC's decision not to terminate the 
investigation is therefore c onsistent with Article 5.8. 
7.131  According to the EC, as third party to the proceedings, Article 5.8 distinguishes two 
scenarios: either the application did not cont ain sufficient evidence in which case it should be 
rejected; or during the investigation it becomes appa rent that evidence is insufficient thus requiring a 
prompt termination of the proceedings.  On th e first scenario, the EC argues that before an 
investigation is initiated Articles 5.3 and 5.8 of the AD Agreement  have the same scope of application 
with regard to the question of whether there is 'su fficient evidence'.  As to the second alternative, i.e., 
after initiation, it is evident that the investigation mu st reveal "sufficient evidence" of dumping, injury 
and a causal link to proceed with the investigation.  If the investigation fails to produce this evidence, 
                                                      
294 Canada second written submission, para. 58. WT/DS264/R 
Page 102  
 
the authorities should terminate the examination as pr omptly as possible.  Under this scenario, the 
question of whether "sufficient evidence" exists woul d have to be adjudicated in a more flexible way 
depending on the respective state of investigation.   
(c) Evaluation by the Panel 
7.132  The primary issue before us, is whether Article 5.8 of the AD Agreement  imposes an ongoing 
obligation on an investigating authority to exam ine the sufficiency of the evidence on which its 
decision to initiate the investigation was based duri ng subsequent stages of the investigation and to 
terminate the investigation, if it has concluded that the evidence on which the initiation decision was 
based, was not sufficient in light of additi onal information which has come to light.  
7.133  Article 5.8 of the AD Agreement provides in relevant part as follows: 
"[a]n application under paragraph 1 shall be rejected and an investigation shall be 
terminated promptly as soon as the authorities  concerned are satisfied that there is not 
sufficient evidence of either dumping or of  injury to justify proceeding with the case." 
 
7.134  From the wording of Article 5.8, it is clear that it addresses two situations.  The first one 
addressing the situation where the application is to be rejected before the initiation of the 
investigation, and the second dealing with the term ination of the investigation after it has been 
initiated.  In addressing the first part of Canada's cl aim, relating to the initiation of the investigation, 
we note that a similar issue, was addressed by the panel in Mexico – Corn Syrup.  That panel stated 
the following regarding the obligations under Ar ticle 5.8, after having found no violation of 
Article 5.3: 
"[i]n our view, Article 5.8 does not impose additional substantive obligations beyond 
those in Article 5.3 on the authority in connection with the initiation of the investigation. That is, if there is su fficient evidence to justify initiation under 
Article 5.3, there is no violation of Artic le 5.8 in not rejecting the application."
295 
7.135  We agree with this statement.  As we f ound that an unbiased and objective investigating 
authority could have found that there was suffici ent evidence to justify the initiation of the 
investigation, and that the United States has therefore not violated Article 5.3, we find that the United States has not violated Article 5.8 with regard to the initiation of the investigation. 
7.136  We now turn to the second part of Canada's  claim, that is, whether DOC should have 
terminated the investigation on the basis that more "probative" evidence available in the form of the 
Weldwood data, rendered the evidence on the basi s of which DOC justified the initiation of the 
investigation insufficient, and th at the investigation should have  been terminated in terms of 
Article 5.8 of the AD Agreement .  
7.137  When examining the plain meaning of the relevant  text of Article 5.8, we note that it states 
that "an investigation shall be terminated as soon as the authorities concerned are satisfied that there 
is not sufficient evidence of dumping ". (emphasis added)  In our view, this means that the 
investigating authority has to terminate the inv estigation, as soon as it is satisfied that its investigation 
shows that there is not sufficient evidence of dum ping.  We can however find no basis to conclude 
that Article 5.8 imposes upon an investigating aut hority a continuing obligation after initiation to 
continue to assess the suffi ciency of the evidence in the application and to terminate the investigation 
on the grounds that other information undermines the sufficiency of that  evidence.  Once an 
investigation has been initiated on the basis of su fficient evidence of dumping, the application has 
                                                     
 
295 Panel Report, Mexico – Corn Syrup , para. 7.99; confirmed by Panel Report, Guatemala – Cement II , 
paras. 8.72 et seq.  WT/DS264/R 
 Page 103 
 
 
served its purpose.  Logically, the continuing obligation to terminate an investigation where an investigating authority is satisfied that there is not sufficient evidence to ju stify proceeding must be 
based on an assessment of the overall state of the ev idence deduced before it in the investigation, not 
on an assessment of the continuing sufficiency of the information in the application.  We are of the 
view that it could not have been the intention of th e drafters of Article 5.8 that its interpretation could 
result in that an investigation could have been initia ted on the basis of sufficient evidence, but that the 
very same investigation had to be terminated if  additional evidence was made available by the 
respondents at a later stage, while the evidence bei ng gathered during the course of the investigation, 
indicates dumping. 
7.138  Canada's claim of a violation of Article 5.8 therefore fails. 
G. C
LAIM 4:  ARTICLE 2.6 - "LIKE PRODUCT " AND "PRODUCT UNDER CONSIDERATION "  
(a) Factual Background 
7.139  The final scope of the anti-dumping duty order was determined by DOC to be as follows: 
"[t]he products covered by  this order are softwood lumber, flooring and siding 
(softwood lumber products).  Softwood lu mber products include all products 
classified under headings 4407.1000, 4409.1010, 44 09.1090 and 4 409.1020, 
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, slice or peeled, 
whether or not planed, sanded or finger-jointed, of a thickness 
exceeding six millimetres;  
  (2) coniferous wood siding (including strips and friezes for parquet 
flooring, not assembled) continuously shaped (tongued, grooved, 
rabbeted, chamfered, v-jointed, b eaded, 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, b eaded, molded, rounded or the like) 
along any of its edges or faces (o ther than wood mouldings and wood 
dowel rods) whether or not planed, sanded or finger-jointed;  and  
(4) coniferous wood flooring (incl uding strips and friezes for parquet 
flooring, not assembled) continuously shaped (tongued, grooved, 
rabbeted, chamfered, v-jointed, b eaded, molded, rounded or the like) 
along any of its edges or faces, whether or not planed, sanded or finger-jointed."
296 
(b) Arguments of the Parties 
7.140  Canada claims that DOC erroneously determined there to be a single like product 
notwithstanding the disparate nature of the softwood lumber products covered by the investigation.  
This claim is grounded in Article 2.6, in particular , the ordinary meaning of the words "characteristics 
                                                      
296 Exhibit CDA-3, Amended Final Determination, p. 36068. WT/DS264/R 
Page 104  
 
closely resembling".  Canada's position is that th e group of products within the "like product" as 
defined by DOC did not have "characteristics closel y resembling" those of the group of products in 
the "product under consideration".  The facts of the case before DOC demonstrated that bed frame 
components, finger-jointed flangestock, Eastern White Pine and Western Red Cedar did not have 
characteristics closely resembling those of the produc t under consideration and, therefore, should have 
been dealt with separately.  Non-compliance by the investigating authority with the obligation 
contained in Article 2.6 has also caused non-comp liance with other substantive obligations of the AD 
Agreement , e.g., Articles 5.1, 5.2, and 5.4.
297 
7.141  Canada asserts that an application must iden tify the proposed "product under consideration".  
Article 2.6 expressly requires that a like product be "i dentical" to the product under consideration, or 
in the absence of such a product, another produc t which, although not alike in all respects, has 
characteristics closely resembling those of the produc t under consideration.  According to Canada, the 
plain language of Article 2.6 suggests a multi-step approach: First , the investigating authority must 
identify the characteristics of the product under consideration.  Second , it must identify the 
characteristics of each product proposed for inclusion in the like product.  Third , it must determine 
whether the characteristics of each are identical or, if not, then closely resembling those of the product 
under consideration.  
7.142  According to Canada, DOC never defined the characteristics of the product under 
consideration, nor did DOC compare the characterist ics of each challenged product with those of the 
product under consideration as a whole.  Instead , DOC identified as subsets of the product under 
consideration various softwood lumber  products.  It then compared is olated characteristics of each 
challenged Canadian product to isolated characteris tics of products selected from within the "product 
under consideration", considered to be "like" th e challenged products.  That analysis failed to 
establish the single, closely resembling, "like pr oduct" required by Article 2.6.  No "close 
resemblance" exemplified by a set of shared common characteristics was established between the 
challenged products and the produc t under consideration.   
7.143  Canada further asserts that a failure to defi ne the like product in accordance with the criteria 
of Article 2.6 means also that the product under cons ideration has not been properly defined.  This 
leads to other violations of the AD Agreement .  The investigating authority must assess industry 
support and the other application requirements of Ar ticles 5.2, 5.3, and 5.4 separately for each like 
product.  Should those requirements not be met w ith respect to a like product, the investigating 
authority may not initiate an investigation with respect to the product under consideration and must 
redefine the scope of the pr oduct under consideration.   
7.144  According to the United States, Canada cites no provision of the AD Agreement  governing 
the way in which an investigating authority must define the product under investigation.  Therefore 
Canada has not identified an obligation arising out of Article 2.6 of the AD Agreement  that the 
United States violated in this case.  Instead, it asser ts the existence of an obligation to explain how 
different articles within the produc t under consideration "closely resemb le each other" and asserts that 
DOC has violated that obligation.298  The United States posits that the AD Agreement  contains no 
rules on how the product under investigation should be defined and that Canada has therefore not 
made a prima facie  case of a violation of a provision of the AD Agreement .  
(c) Evaluation by the Panel 
7.145  We first note that Canada's claim, as set out in  its Panel Request, is posited on violations of 
Articles 2.6, 4.1, 5.1, 5.2, 5.3, 5.4 and 5.8 of the AD Agreement and Article VI:1 of GATT 1994 .299 
                                                      
297 Canada response to question 1 of the Panel, para. 1(iii). 
298 Canada first written submission, para. 125. 
299 WT/DS264/2.  WT/DS264/R 
 Page 105 
 
 
However, in response to a question from the Panel, Canada restated its claim as based on Article 2.6 
of the AD Agreement only, with consequential violations of " e.g., Articles 5.1, 5.2, and 5.4".300 
7.146  We note that Article 2.6 is a definitional article, a nd as such it is not clear to us that it contains 
in itself  obligations on Members, or in any event that it could be the basis for an independent  
violation.  On the other hand, it appears to us that Canada's claim is predicated on the proposition that 
DOC took an approach to the definition of like product  which deviated from that in Article 2.6.  Thus, 
a threshold and potentially dispositive issue is whet her DOC in fact took an approach to like product 
which deviated from that of Article 2.6.  In the ev ent that we were to determine that it did not, 
Canada's claim would fail with regard  to the consequential violations.301  Accordingly, we turn to an 
examination of Article 2.6. 
7.147  Article 2.6 of the AD Agreement  provides as follows: 
"[t]hroughout this Agreement the term "lik e product" ("produit similaire") shall be 
interpreted to mean a product which is identica l, i.e., alike in all respects to the product 
under consideration, or in the absence of  such a product, another product which, 
although not alike in all respects, has charac teristics closely resembling those of the 
product under consideration." 
 
7.148  From the wording of Article 2.6, it is clear th at it addresses the issue of the definition of the 
product which is to be regarded as "alike" to th e product under consideration.  The question then 
arises as to what is the product referred to  as the "product under consideration"?   
7.149  We find guidance on this issue in the wording of Article 2.1 of the AD Agreement , which 
provides in relevant part as follows: 
"[f]or the purpose of the Agreement, a produc t is to be considered as being dumped, 
(...) if the export price of the product export ed from one country to another is less that 
the comparable price, in the ordinary course of trade, for the like product when 
destined for consumption in the exporting country. " (emphasis added) 
7.150  We note that similar terminology is us ed in the relevant provisions of the AD Agreement 
dealing with the injury analysis – Article 3.1 of the AD Agreement states that: 
"[a] determination of injury ... shall be  based on positive evidence and involve an 
objective examination of both (a) the volume of the dumped imports and the effect of 
the dumped imports on prices in th e domestic market for like products , and (b) the 
consequent impact of these imports on domestic producers of such products." 
(emphasis added) 
7.151  More generally, the term "domestic industry" in Article 4.1 of the AD Agreement  is defined in 
relevant part as referring to "domestic producers as a whole of the like product , or to those of them 
whose collective output of the products cons titutes a major proportion of the total domestic 
production of those products…".  Similarly, Article 5. 4 provides that an investigation is not to be 
initiated unless the investigating authority determines , "on the basis of an examination of the degree 
of support for, or opposition to, the ap plication expressed by domestic producers of the like product " 
that the application has been made by or on behalf of the domestic industry.  (emphasis added, 
footnote omitted)  
                                                      
300 Canada response to question 1 of the Panel, para. 1(iii). 
301 In light of this, we will not address at this stag e the exact provisions included in our mandate with 
regard to the alleged consequential violations ( see paras. 7.22-7.30, supra ). WT/DS264/R 
Page 106  
 
7.152  In our view, this means that the "like product" , for purposes of the dumping determination, is 
the product which is destined for consumption in the exporting country.  The "like product" is therefore to be compared with the allegedly dumpe d product, which is generally referred to in the AD 
Agreement as the "product under consideration".
302  In the case of the injury determination (and the 
determination of domestic industry support for the ap plication), the word "like product" refers to the 
product being produced by the domestic industry allege dly being injured by the dumped product.  In 
both instances it is clear that the starting point can only be the product allegedly being dumped and that the product to be compared to it for purposes of the dumping determination, and the product the 
producers of which are allegedly being injured by  the dumped product, is the "like product" for 
purposes of the dumping and injury determinations, respectively.  
7.153  Article 2.6 therefore defines the basis on whic h the product to be compared to the "product 
under consideration" is to be determined, that is , a product which is either identical to the product 
under consideration, or in the absence of such a product, another product which has characteristics 
closely resembling those of the product under consid eration.  As the definition of "like product" 
implies a comparison with another product, it seems clear  to us that the starting point can only be the 
"other product", being the allegedly dumpe d product.  Therefore, once the product under 
consideration is defined, the "like product" to the product under consideration h as to be determined on 
the basis of Article 2.6.  However, in our analysis of the AD Agreement , we could not find any 
guidance on the way in which the "product under consideration" should be determined. 
7.154  DOC defined the product allegedly being dumped, and therefore the "product under 
consideration", as certain softwood lumber, floori ng and siding (softwood lumber products), as fully 
described in the Notice of Initiation.
303  During the course of the investigation, DOC considered a 
number of requests to exclude certain products from the investigation.  According to the 
United States, these scope-related "requests could be classified into one of two categories: (1) scope 
exclusion requests, and (2) scope exclusion request s premised upon the theory that various products 
constitute separate classes or kinds of  merchandise when analyzed under the Diversified Products 
criteria, and as such, are outside the scope of the petition".304  As a result of these requests, certain 
softwood lumber products were excluded from the scope of the investigation.305  DOC did not, 
however, exclude bed frame components, finger-jointed  flangestock, Eastern White Pine and Western 
Red Cedar from the scope of the investigation. 
7.155  We note that Canada is not claiming that any of the individual softwood lumber products, 
constituting collectively the product under consider ation, were not identical, or not having 
characteristics closely resembling those of the product under consideration when taken on an 
individual basis.  In fact, we do not understand Ca nada to argue that, havi ng determined the product 
under consideration, DOC defined the "like product" di fferently in any respect.  Canada's argument is 
rather that the range of products included in the scope of the investigation, being the product under 
consideration, was so broad that all the indi vidual products, constituting collectively the "like 
product", were not alike to each and every of the products collectively forming the product under 
consideration as they did not have characteristics closely resembling those of each and every of the 
                                                      
 302 See also footnote 2 to the AD Agreement which states: 
 
"[s]ales of the like product destined for consumption in the domestic market of the exporting 
country shall normally be considered a sufficient quantity for the determination of the normal 
value if such sales constitute 5 per cent or more of the sales of the product under consideration  
to the importing Member, provided that a lowe r ratio should be acceptable where the evidence 
demonstrates that domestic sales at such lower ratio are nonetheless of sufficient magnitude to 
provide for a proper comparison". (emphasis added)  
 
303 Exhibit CDA-9, Initiation. 
304 Exhibit CDA 2, IDM, p. 139. 
305 Id., p. 141 and note 391.  WT/DS264/R 
 Page 107 
 
 
individual products constituting collectively the pr oduct under consideration.  In particular, it 
considers that DOC should for this reason have  excluded bed frame components, finger-jointed 
flangestock, Eastern White Pine and Western Re d Cedar from the scope of the investigation. 
7.156  As stated in paragraph 7.153, supra ,  we could find no explicit guidance in the AD Agreement 
as to how the investigating authority should define  the product under consideration.  In this case, 
DOC defined the product under consideration, certain  softwood lumber, on the basis of a technical 
definition involving narrative description and tariff classification.  For the purpose of establishing 
normal value, DOC based itself upon goods destined for consumption in the exporting country which 
fell within exactly the same definition.  Similarl y, when considering whether the application was 
made by, or on behalf of, the domestic industry, DOC  identified the domestic industry on the basis of 
the same definition.  Canada has not identifie d any instance in which DOC has defined the like 
product differently than it has defined the product u nder consideration.  Specifically, Canada has not 
suggested that there was any difference between the product under consideration and the like product 
in respect of bed frame components, finger-jointed flangestock, Eastern White Pine and Western Red 
Cedar.  In other words, having defined the "product under consideration", it seems to us that DOC has 
used an identical definition for the "like product".306  In particular, both the product under 
consideration and the like product included the pr oducts Canada argues should have been excluded 
from the investigation.  On its face, therefore, it would appear that DOC has defined the "like product" 
in this investigation in a ma nner consistent with the definition found in Article 2.6. 
7.157  Canada has a different interpreta tion of Article 2.6.  In effect, Canada considers that, rather 
than comparing the overall scope of the product under consideration with the overall scope of the like 
product, Article 2.6 requires that each individual ite m within the "like product" must be "like" each 
individual item within the "product under considerati on".  This in effect means that there must be 
"likeness" within both the product under considerati on and within the like product.  As Canada itself 
has stated, "[t]he terms 'product un der consideration' and 'like produc t' must be limited to a single 
group of products sharing characteristics".307  Once again, however, we see no basis to imply such a 
condition into the AD Agreement.  While there might be room for discussion as to whether such an 
approach might be an appropriate one from a policy pe rspective, whether to require such an approach 
is a matter for the Members to address through nego tiations.  It is not our role as a panel to create 
obligations which cannot clearly be found in the AD Agreement  itself.    
7.158  In light of our analysis, we conclude that the DOC's approach to "like product" was not 
inconsistent with the definition of "like product" in Article 2.6 of the AD Agreement.   We further note 
that all Canada's claims regarding this issue ar e dependent upon the proposition that DOC deviated 
from the approach to "like product" set forth in Arti cle 2.6.  Accordingly, we conclude that Canada 
has failed to establish that the Unite d States has acted inconsistently with Articles 2.6, 4.1, 5.1, 5.2, 
5.3, 5.4 and 5.8 of the AD Agreement and Article VI:1 of GATT 1994  by failing to exclude bed frame 
components, finger-jointed flangestock, Eastern Wh ite Pine and Western Red Cedar from the scope of 
the investigation.308 
                                                      
306 As opposed, for example, to defining the product under consideration as lighters and the like 
product as including both lighters and matches.  
307 Canada first oral (opening) statement, para. 33. 
308 We note that Canada's arguments regarding an alleged violation of Article 2.6 of the AD Agreement  
with regard to the non-exclusion of these products from the scope of the investigation as not being "like products" are based exclusivel y on the application of the Diversified Products  Doctrine, a legal concept 
developed through US domestic courts of law as a me thodology to assist DOC in defining the product under 
consideration in each investigation.  As we have found that the AD Agreement  does not contain any guidance on 
how the product under investigation should be defined, and as the Diversified Products Doctrine  is a domestic 
legal doctrine in the United States, there is no need fo r us to address the issue whether DOC followed its 
domestic procedures with regard to these products. WT/DS264/R 
Page 108  
 
H. C
LAIM 5: ARTICLE 2.4 – ADJUSTMENT FOR DIFFERENCES IN PHYSICAL CHARACTERISTICS  
(a) Factual Background 
7.159  At the outset of the investigation, DOC establis hed – in consultation with the parties – the 
distinguishing physical characteristics of softwood lumber in order to match products sold in the 
home market with those exported to the United Stat es.  These characteristics were as follows: (1) 
product category;  (2) species;  (3) grade group;  (4) grade;  (5) moisture content;  (6) thickness;  
(7) width;  (8) length;  (9) surface finish;  (10) end trimming;  and, (11) further processing.  Only where lumber shared the above 11 characteristics was a particular type considered to have identical 
physical characteristics.  In the Preliminary Determination, DOC carried out price-to-price
309 
comparisons of identical types of softwood lumber.  For comparisons of non-identical types, DOC 
first attempted to adjust normal value by the ne t difference in the variable manufacturing costs 
associated with the differences in  the physical characteristics of the two products compared.310  
However, there were a number of actual physical differences between products for which respondents 
were unable to identify a cost difference.311  In view of the above, DOC determined that "it [was] not 
appropriate to match products that do not have the following identical physical characteristics: grade, 
thickness, width and length."312  For those characteristics where the cost allocations did not generate a 
difference in variable manufacturing costs, DOC constructed (normal) values which were then 
compared to the export prices for the respective ty pes reported in the exporters' databases.  DOC's 
approach changed at the definitive stage.  At the request of some Canadian exporters, DOC acceded to 
extend price-to-price comparisons to non-identical types.  Several Canadian exporters argued that, 
were DOC to compare non-identical types, DOC should make an adjustment for differences in 
thickness, width, and length (or collectively "differences in dimension").313  For the reasons explained 
in the IDM, DOC did not make this adjustment: 
 "[a]s the parties have noted, this case involves among the most complex product 
comparisons [DOC] has faced. Where we do not have identical home market sales within the ordinary course of trade, we ha ve attempted to base normal value on sales 
of the most similar product and we have attempted to adjust for such physical 
differences where we have adequate informa tion to do so. Section 773(a)(6)(C)(ii) of 
the Act provides for an adjustment to nor mal value for differences in the physical 
characteristics of the products being compared . The statute grants [DOC] discretion to 
determine a suitable method to calculate a difmer adjustment and does not restrict 
[DOC]'s selection of an appropriate methodology to any particular approach. See, 
e.g., NTN Bearing Corp. of Am. v. United States , Slip Op. 2002-07 (CIT, January 24, 
2002) at 130.  
                                                     
 
309 By "price-to-price" we refer to comparisons of normal values based on home market (Canadian) 
lumber prices with export pr ices to the United States. 
310 Exhibit CDA-11, Preliminary Determination, p. 56,066.  See also Exhibit CDA-2, Comment 8, 
p. 51.   
311 Ibid. 
312 Ibid. 
313 The standard unit of measure in the North American lumber industry is a "board foot".  A board foot 
is the equivalent of a piece of wood 1 inch thick, 12 inches  wide, and 1 foot long.  In other words, a board foot is 
1 square foot of lumber, 1 inch thick.  Softwood lumber is therefore commonly measured and sold in terms of 
volume, usually in thousand board feet, MBF, rather than in pieces of any give n dimension (Exhibit CDA-30, 
"Buying and Selling Softwood Lumber", p. 2).  It should also be noted that lumber is extracted from logs, the 
lumber is then converted into lumber products in a sawm ill.  The different lumber products resulting from this 
production process are joint products, as a single process yields multiple products simultaneously.  How a piece of lumber is eventually deconstructed into its composite products will to some degree depend, inter alia , on 
market demand.  In other words, the same piece of lumber  can be deconstructed into different sets of products, 
depending on the demand and prices of the products which can be produced from the piece of lumber.  WT/DS264/R 
 Page 109 
 
 
As explained in the Preliminary Determination and in Policy Bulletin 92.2: 
Differences in Merchandise; 20% Rule (July 29, 1992), [DOC] has "rarely been able 
to determine the direct price effect of a difference in merchandise".  As a result, difmer "adjustments are based almost exclusively on the cost of the physical 
difference".  [DOC] ordinarily calculates its difmer adjustment on the basis of 
differences in the variable costs of manufacturing between products given that, in the 
typical antidumping investigation, [DOC] ha s found that such data approximates the 
effect that differences in physical characteristics have on product prices.  Nevertheless, in addressing comments to its proposed regulations in 1997, [DOC] 
specifically retained language preserving, as an option, the use of market value in 
measuring a difmer.  We acknowledge that  there may be circumstances in which a 
difmer based on market value may be appropriate.  Specifically in this case, where products have differences in dimension (i.e., length, width or thickness) we recognize 
that these physical differences could result in  differences in market value.  However, 
we have concluded in this case that there is no information on the record by which we 
can calculate a difmer adjustment to account  for differences in dimension based either 
on cost or value. 
We disagree with certain respondents' sugg estions on how to quantify a value-based 
difmer adjustment in this case.  First, we note that the Random Lengths data do not 
cover all of the products for which an adjust ment would be required.  Second, as we 
stated in the Preliminary Determination , we do not believe it would be appropriate to 
use the respondents' prices as a basis for calculating a difmer adjustment where there 
were home market sales outside the ordi nary course of trade during the POI for 
certain products involved here.  To do so w ould adjust normal values back to prices 
already determined to be outside the ordinary course of trade, the whole reason why we would be disregarding such prices and comparing to a similar product. Therefore, 
no value-based difmer adjustment could be calculated for many of the comparisons 
based on POI sales.  
(…) In the Final Determination , as a consequence of our having made a value-based cost 
allocation for wood and sawmill costs (see Comme nt 4), [DOC] is now able to make a 
difmer adjustment for differences in grade.  As a result, the only physical differences 
remaining for which a difmer adjustment  was potentially necessary were differences 
in dimension.  Regarding dimensions, howev er, we have determined that no difmer 
adjustment is appropriate, given that there is no basis for calculating a difmer for dimensions based on value or cost.  There are no cost-based differences with which to 
calculate a difmer for dimensional differe nces. Also, for the reasons discussed above, 
we have not used a value-based difmer.  Howe ver, in this case, to the extent that we 
compared products having different dime nsions, those differences were generally 
small.  Furthermore, as Abitibi argued, th e record shows that lumber prices for 
different products fluctuated in relation to  each other over the course of the POI.  
Consequently, there appears to be little, if an y, difference in home market prices that 
is attributable to differences in dimens ions of the products compared, especially 
where those dimensional differences were minor.  
As a result of [DOC]'s revised methodology, we have made many more comparisons 
to similar products than in the Preliminary Determination . In an effort to match sales 
of similar merchandise before resorting to constructed value, a nd consistent with 
Cemex , [DOC] has made no adjustment for differences in dimension among similar 
products. We agree with West Fraser and Slo can that such an approach is appropriate 
in these circumstances.
 WT/DS264/R 
Page 110  
 
(…) 
Therefore, for all the reasons discussed above, we have not made a value-based 
difmer adjustment for the final determination".
314 (footnotes omitted)  
(b) Arguments of the Parties  
7.160  In the view of Canada , Article 2.4 provides that, in its comparison between export price and 
normal value, the investigating authority must make  due allowance in every instance for differences 
which affect price comparability, including physical differences.  Canada contends that the fact that 
lumber size affected the price per board foot at  which softwood lumber products were sold was 
undisputed by all parties.  Canada asserts that DOC  did not conclude that differences in dimension 
could not affect market value.  In the view of Canada , DOC's decision not to grant an adjustment was 
based on the fact that DOC allegedly had no basis to  adjust for physical differences between products 
based on market value rather than because it had not  been demonstrated that those differences in 
dimension affected price comparability.  Canada assert s that it was DOC's respon sibility to obtain the 
necessary information to make a fair comparison.  In the view of Canada, DOC's premise "that there is no information on the record by which we [DOC] can  calculate a difmer" is false.  In this regard, 
Canada contends that the record is replete w ith transaction and pricing data from the Canadian 
exporters that would permit the calculation of the adjustment based on differences in market values. 
7.161  The United States acknowledges that Article 2.4 requires that due allowance be made for 
certain differences that affect price comparability.  However, the United States asserts that Article 2.4 
unambiguously provides that due allowance will be ma de in "each case, on its merits" for differences 
that are "demonstrated" to affect price comparability .  The United States asserts that the Canadian 
exporters failed to demonstrate that differences in  dimension of softwood lumber had an effect on 
price comparability in this case.  In response to an  argument of Canada, the United States asserts that 
DOC cannot be deemed to have c oncluded that dimension affected price comparability simply by 
having made a product matching de termination.  For the words "affect price comparability" under 
Article 2.4 to have any meaning, the United States claims that there must be some connection 
established between the differences in physical char acteristics at issue and prices.  This connection 
could not be established in this case.  The United St ates asserts that DOC reached its conclusion based 
on a review of the information contained in respondent s' cost and sales databas es.  The United States 
argues that Canada has tried to refute DOC's determination by selectively pointing to certain record 
data.  In the view of the United States, DOC's conc lusion in the Final Determination that differences 
in prices were not attributable to differences in dimension, especially where those differences were 
minor, is supported by the record. 
7.162  Canada asserts that DOC's administrative record reveals that it performed no analysis 
whatsoever of the non-identical comparisons generated by its product matching methodology.  
According to Canada, DOC never looked at any speci fic non-identical comparison pair or pairs it used 
to analyze pricing or other data relating to those two products in order to ascertain whether the actual 
product differences involved affected price comparability.  Canada argues that the US argument that 
the Canadian respondents failed to meet their burden of proof with respect to the demonstration that 
differences in dimension affected price comparability constitutes ex post justification which cannot be 
considered by the Panel. 
(c) Evaluation by the Panel 
7.163  In its Final Determination, DOC made pr ice-to-price comparisons between certain non
-
identical types of softwood lumber without adjus ting for differences in dimension.  Canada argues 
that Article 2.4 required DOC to grant an adjustme nt because those differences in dimension affected 
                                                      
314 Exhibit CDA 2, IDM, Comment 8, pp. 50-53.  WT/DS264/R 
 Page 111 
 
 
price comparability.315,316  The issue before us is therefor e whether the United States did not act 
consistently with its obligati ons under Article 2.4 of the AD Agreement  when it did not grant the 
adjustment for differences in dimensions requested  by the exporters where price-to-price comparisons 
of non-identical types were made. 
7.164  Article 2.4 provides in pertinent part: 
"[a] fair comparison shall be made betw een the export price and the normal value. 
(…) Due allowance shall be made in each case, on its merits, for differences which affect price comparability, including differe nces in conditions and terms of sale, 
taxation, levels of trade, quantities, physical  characteristics, and any other differences 
which are also demonstrated to affect price comparability. (…) The authorities shall 
indicate to the parties in question what in formation is necessary to ensure a fair 
comparison and shall not impose an unreason able burden of proof on those parties".  
(footnote omitted) 
7.165  Article 2.4 requires that, where there are differences  between export price and normal value 
which affect the comparability of these prices, "[d]ue  allowance shall be made" for those differences.  
We note that a difference in physical characteristics is one of the factors which may affect the 
comparability of prices.
317  We agree with the panel in EC – Tube or Pipe Fittings that the 
requirement to make due allowance for such differences, in each case on its merits , means that the 
authority must at least evaluate identified differences – in this case, differences in dimension – with a 
view to determining whether or not an adjustment  is required to ensure a fair comparison between 
normal value and export price under Ar ticle 2.4, and make an adjustme nt where it determines this to 
be necessary on the basis of its evaluation.  We consider that Article 2.4 does not require that an 
adjustment be made automatically in all cases where a difference is found to exist, but only where – 
based on the merits of the case – that difference is demonstrated to affect price comparability.  An 
interpretation that an adjustment would have to be  made automatically where a difference in physical 
characteristics is found to exist would render the te rm "which affect price comparability" nugatory.318  
                                                      
315 We do not understand Canada to claim that the United States acted inconsistently with Article 2.4 in 
not making an adjustment for differen ces in physical characteristics when identical types or models were 
compared. 
316 Although there are references in Canada's subm issions to the allocation of costs in the case of 
thickness, length and width (cost vs. value based allocatio n), we do not understand Canada to have challenged 
DOC's decision on that matter. (Canada comments on US responses to questions from the Panel, Comments to 
US response to question 102, note 25) 
317  The panel in EC – Tube or Pipe Fittings  found that: 
 
"[d]ifferences in taxation are explicitly listed as a factor that must be taken into account under 
Article 2.4 to the extent they may affect price comparability, and for which due allowance 
shall be made, in each case, on its merits". (emphasis added) (Panel Report, EC – Tube or 
Pipe Fittings , para. 7.157) 
 
318 The principle that interpretation must give meaning and effect to all the terms of a treaty is well-
established in WTO dispute settlement.  See, for instance, Appellate Body Report, US – Gasoline , para. 23.  In 
EC – Bed Linen, the Appellate Body reversed a finding of the panel on the ground that that panel "in effect, 
reads the requirement of calculating a "weighted average"  out of the text in some circumstances.  In those 
circumstances, this would substantially empty the phrase  "weighted average" of me aning".  (Appellate Body 
Report, EC – Bed Linen , para. 75)  Thus, we are precluded from adopting an interpretation of a provision in the 
AD Agreement  which would substantially empty it of meaning.  In the case before us, adopting an interpretation 
that an adjustment must be made automatically in all cases where a given difference is found to exist would, in 
our view, empty the phrase "which affect price comparabi lity" of any meaning.  We must therefore reject such 
an interpretation. WT/DS264/R 
Page 112  
 
Further, such an interpretation would make little sen se in practice, as not all differences in physical 
characteristics necessarily affect price comparability.
319  
7.166  In addition, the panel in EC – Tube or Pipe Fittings found that: 
"[t]he issue of which specific "allowances" should be made in any case depends very 
much on the particular facts of the case.  The last part of the last sentence of 
Article 2.4, that the authorities "shall not  impose an unreasonable burden of proof" on 
interested parties, does not remove the burde n from interested parties to substantiate 
their assertions concerning claimed adjustment s.  In a similar vein, an investigating 
authority in possession of the requisite information substantiating a claimed 
adjustment would not be justified in rej ecting outright that claimed adjustment.  
Thus, while it is incumbent upon the inv estigating authorities to ensure a fair 
comparison,154 so also is it incumbent upon inter ested parties to substantiate their 
assertions concerning adjustments as constructively as possible.  The duty of an investigating authority to ensure a fair co mparison cannot, in our view, signify that an 
investigating authority must accept any claimed adjustment.  Rather, the investigating 
authority must take steps to achieve clar ity as to the adjustment claimed and then 
determine whether and to what extent that ad justment is merited.  On this basis, we 
examine Brazil's claim under Article 2.4. 
154 We recall the view of the Appellate Body that  the obligation to ensure a fair comparison 
under Article 2.4 "lies on the investigating author ities" and not on exporters.  Appellate Body 
Report, US-Hot-Rolled Steel , supra , note 40,  para. 178."320  
7.167  We agree with the panel in EC – Tube or Pipe Fittings  that the requirement in the last 
sentence of Article 2.4 that the authorities "sha ll not impose an unreasonable burden of proof" on 
interested parties does not remove the burden from in terested parties to substantiate their assertions 
concerning claimed adjustments.  In line with the views expressed by that panel, we consider that 
Article 2.4 requires that investigating authorities ensu re a fair comparison, and that interested parties 
substantiate their assertions concerning adjustme nts as constructively as possible.  Based on our 
understanding of Article 2.4, we consider that the dut y of an investigating authority to ensure a fair 
comparison cannot signify that an investigating authority must grant any claimed adjustment.  On the 
other hand, we are of the view that an investig ating authority in possession of the requisite evidence 
substantiating a claimed adjustment would not be ju stified in rejecting that claimed adjustment.  
Finally, bearing in mind the text of Article 2.4, we consider that this provision does not impose on 
investigating authorities any particular method fo r examining whether any given difference affects 
price comparability.  
7.168  Before proceeding with the anal ysis, we recall that we have considered the comments of both 
parties with respect to whether certain evidence pr esented by the parties in this dispute was properly 
before us and that we have concluded in paragraph 7.43, supra,  that we are precluded from taking into 
consideration the regression analysis contained in Exhibit CDA-77.  As Exhibit CDA-186 also 
contains a regression analysis that neither Canada  nor the respondents had submitted to DOC in the 
context of the investigation, we will not consid er Exhibit CDA-186 for the same reasons we have 
rejected Exhibit CDA-77.  In its submission of 5 September 2003, we unders tand Canada to question 
whether the charts submitted by the United States as Exhibits US-42, 43, 76 and 81 are properly 
                                                      
319 For example, a difference in colour between tw o cars is undeniably a difference in physical 
characteristics, but that difference woul d not necessarily have any impact eith er on the price of the cars nor their 
cost.  The United States has provided its own example in its response to question 27 of the Panel, para. 43.  
320 Panel Report, EC – Tube or Pipe Fittings , paras. 7.157-7.158.  In the same vein, see the views 
expressed by the panel in Egypt – Steel Rebar , para. 7.352.  WT/DS264/R 
 Page 113 
 
 
before us.321  When examining this argument of Canada , we keep in mind our findings contained in 
paragraph 7.41, supra .  As it is clear to us that these charts display in graphical form data which was 
before DOC during the course of the investigation, we  are of the view that these exhibits fall within 
the same category of evidence as discussed by the panel in EC – Bed Linen .  We therefore find that 
Exhibits US-42, 43, 76 and 81 are properly before us. 
7.169  In this dispute, Canada argues that the fact that differences in dimension affected price 
comparability, where non-identical types or models were compared, was never an issue in the context 
of the investigation.  Canada asserts that, from the very outset, all parties and all US investigating 
agencies involved322 agreed that differences in dimension affected price comparability.  The 
United States, on the other hand, argues that neither the Canadian exporters – in the context of the 
investigation – nor Canada – now be fore us – demonstrated that differences in dimensions affected 
price comparability.  The parties thus disagree on whether the exporters demonstrated that the 
differences in dimensions, where non-identical typ es were compared, affected price comparability 
between the non-identical types compared.   
7.170  As previous panels have noted, Article 2.4 requires a fact-based, case-by-case analysis.  This 
is what we will do.  We will start setting out the relevant facts as submitted by the parties and, 
subsequently, we will examine them in light of  our understanding of the obligations imposed by 
Article 2.4, as set forth in paragraphs 7.165-7.167, supra .  In so doing, we must be mindful of our 
standard of review and not perform a de novo review of the facts. 
7.171  Following initiation, DOC established – in consu ltation with the parties – the distinguishing 
physical characteristics of softwood lumber in orde r to match products sold in Canada with those 
exported to the United States.  These characteristics included, inter alia , thickness, width, and length.  
Exporters were requested to cons truct code numbers in accordance with the agreed product matching 
mechanism for each distinct product.  Therefore, e ach code number represented a type with physical 
characteristics differing from products falling under any other code number.  Exporters were 
requested to prepare and submit their cost and sales databases containing information on a per-type 
basis.  At the preliminary stage, DOC carried out comparisons of identical types of softwood lumber.  
For comparisons of non-identical types, DOC first attempted to adjust normal value by the net 
difference in the variable manufacturing costs a ssociated with the differences in the physical 
characteristics of the two products compared.323  However, there were a number of actual physical 
differences between products for which respondent s were unable to identify a cost difference.324  In 
view of the above, DOC determined that "it [was] not appropriate to match products that do not have 
the following identical physical characteris tics: grade, thickness, width and length."325  For those 
characteristics where the cost allocations did not generate a difference in variable manufacturing 
costs, DOC constructed (normal) values which we re then compared to the export prices for the 
respective types reported in the exporters' databases.  The issue of the adjustment for differences in 
dimensions when comparing non-identical types was therefore not relevant at that stage. 
7.172  In their subsequent comments, various res pondents argued that DOC should move away from 
constructed (normal) values and compare non-identical types, making the necessary adjustments 
where required.  The United States asserts that DOC  considered the exporters' comments and accepted 
them.326  In so doing, DOC examined whether the adjust ment for differences in dimensions would be 
                                                      
321 Canada comments on the US responses to questions from the Panel, Comments to US response to 
question 97, para. 9 and note 11. 
322 These agencies are the ITC and DOC. 
323 Exhibit CDA-11, Preliminary Determination, p. 56066.  See also Exhibit CDA-2, Comment 8, p. 51. 
324 Ibid. 
325 Ibid. 
326 A detailed explanation of how the determination of which non-identical types should be compared 
for the purposes of the final determination can be found in the US response to question 25 of the Panel, paras. 
34-39. WT/DS264/R 
Page 114  
 
justified.  In this regard, we note that, accordi ng to US law and practice, DOC will first try to 
determine whether a given difference yields variab le cost of manufacturing differences.  If so, a 
difference in price can be connected with the differen ce at issue and an adjustment will be granted.    
However, where a given difference does not yield variable cost of manufacturing differences, DOC examines whether there are differences in market value between the non-identical types compared.  In 
the case before us, the United States asserts that DOC determined that ther e were no differences in 
variable cost of manufacturing between non-identical types compared, i. e., between types compared 
having different dimensions.  DOC also examined wh ether there were differences in market value, but 
it concluded that "in this case that there is no info rmation on the record by which we can calculate a 
difmer adjustment to account for differences in dimension based either on cost or value".
327  I n  
analysing the respondents' request for an adjustment , DOC also found that "in this case, to the extent 
that we compared products having different dime nsions, those differences were generally small.  
Furthermore, as Abitibi argued, the record shows that lumber prices for different products fluctuated 
in relation to each other over the course of the POI.   Consequently, there appears to be little, if any, 
difference in home market prices that is attributable to differences in dimensions of the products 
compared".328  Quoting the excerpts just cited, the United States argues that DOC could not find that 
the differences in dimensions were demonstrated to  affect price comparability; hence, the rejection of 
the exporters' request for an adjustment.  
7.173  We note that the situation before us is not one  in which the investigating authority did not 
undertake any step in order to ensure a "fair" compar ison, as set forth in Article 2.4.  Indeed, DOC, in 
agreement with, inter alia,  respondents, identified the physical factors which could have an impact on 
prices and compared, where possible, identical typ es, that is, types having identical physical 
characteristics – including identical dimensions – bot h at provisional and definitive stages.  At the 
provisional stage DOC decided that, because it could not find that certain differences in physical characteristics (grade and the dimensional charact eristics at issue) yielded variable cost of 
manufacturing differences, it would not compare non-identical types.
329  That is, it would for instance 
not compare two types belonging to the same pr oduct category; species; and grade group; and having 
the same moisture content; thickness; width; le ngth; surface finish; end trimming; and, further 
processing characteristics but having different grade .  For those characteristics where the cost 
allocations did not generate a di fference in variable manufacturing costs, DOC constructed (normal) 
values which were then compared to the export prices for the respective types reported in the 
exporters' databases.330  It is also clear to us that DOC changed its approach between the provisional 
and definitive stages at  the request of certain respondents.  For the purpose of the Final 
Determination, where there were no identical type s, DOC compared non-identical types.  It is 
undisputed that, in these instances, adjustments we re made to account for differences in physical 
characteristics other than differences in dimensions.  For all these differences, the United States argues DOC could determine, based on differe nces in variable cost among the compared non-identical 
types, that differences in physical characteristi cs affected price comparability and, consequently, 
made an adjustment to compare "apples-to-apples".  Th is is not disputed by Canada.  All of the above 
shows to us that DOC made significant  efforts in order to ensure that , for a very large portion of the 
comparisons made, a fair comparison was carried out, in spite of the difficult y of the exercise because 
of the many types involved.  The issue before us is  therefore very limited, in that it affects only a 
small share of the comparisons made at the definitive stage – those of non-identical types only.
331  It is 
                                                      
327 See para. 7.159, supra . 
328 Ibid. 
329 Exhibit CDA-11, Preliminary Determination, p. 56066. 
330 We do not understand Canada to have argued that DOC had not made the required adjustments 
under Article 2.4 when comparing constructed (normal) values and export prices. 
331 Comparisons of non-identical types represented less than 20 per cent of the total volume exported 
by respondents.  The precise figure cannot be provided  for confidentiality reasons.  (US response to question 25 
of the Panel, para. 40)  WT/DS264/R 
 Page 115 
 
 
only with respect to these non-identical comparison s that we are called to determine whether the 
United States acted in conformity with Article 2.4.  
7.174  Nor is the situation before us one in whic h the respondents were passive.  Quite on the 
contrary.  In its answer to a question from us limite d to the issue of the demonstration that differences 
in dimension affected price comparability, Canada has referred to (and provided copies of) more than 
20 submissions made by parties in the course of the investigation.332  In addition, Canada provided 
references of submissions made by the applicant as well as references to documents issued by DOC 
and ITC in the context of the investigation.  The amount of comments and information before the 
investigating authority was therefore considerable.  In our view, the situation before us is therefore 
quite different from that examined by the panels in Argentina – Ceramic Tiles  and Egypt – Steel 
Rebar .   
7.175  Having set the factual framework under which we  are to conduct our examination, we must 
examine relevant evidence in order to determin e whether, based on it, an unbiased and objective 
investigating authority could have  concluded that no adjustment was warranted for differences in 
dimensions when non-identical types of softwood lumber were compared.  
7.176  Bearing in mind the discussion in the IDM cited in paragraph 7.159, supra , we are in no 
doubt  that DOC "applied its mind" to the facts before  it.  In particular, DOC examined first whether 
differences in dimensions yielded variab le cost of manufacturing differences.333  T h i s  t e s t  d i d  n o t  
yield any difference.  DOC next examined th e sales databases submitted by the respondents, 
concluding that "in this case, to the extent that we compared products havi ng different dimensions, 
those differences were generally small.  Furthermor e, as Abitibi argued, the record shows that lumber 
prices for different products fluctuated in rela tion to each other over the course of the POI.  
Consequently, there appears to be little, if any, differen ce in home market prices that is attributable to 
differences in dimensions of the products compared".334  In support of these conclusions, the 
United States has provided us with copies of some comparisons looked at by DOC.  These are included in Exhibits US-42, 43, 76 and 81.  We consider that DOC's finding with respect to the 
fluctuation of lumber prices for the different typ es which are compared therein is supported by those 
charts.  A discernible pattern of price differences is in our view necessary for a conclusion that a given 
difference affects price comparability.  If, as here, prices of types compared fluctuated against each 
other, criss-crossing themselves in many instances,  without following any established pattern, we fail 
to see how an unbiased and objective investigati ng authority could be obligated to come to a 
conclusion that differences in dimension affect pric e comparability.  Bearing this in mind, we are of 
the view that an objective and unbiased investigating authority could have concluded that data before 
DOC did not demonstrate that the remaining differe nces in dimensions affected price comparability 
because those data did not demonstrate how dimensi ons affected price comparability nor that there 
was a pattern or standard devia tion that would have allowed an adjustment to be made as the 
correlations ran by DOC showed diffe rent results and random as well. 
                                                     
 
332 Canada response to question 22 of the Panel, para. 87 and Exhibit CDA-142, Respondents' Record 
Data regarding DIFMER. 
333 We note, in this regard, the following statement contained in the IDM: 
 
"[w]e do not consider it appropriate to use a value-based cost allocation method for allocating 
different costs to a large number of varying products with only minor physical differences 
(e.g., the hundreds or even thousands of differing combinations of dimensions and grade of lumber cut from logs) and no cl ear significant differ ences in value. Where minor differences 
in values occur among products having minor physical differences and are inconsistent due to 
frequent and inconsistent price fluctuations, an y resulting cost differences would be artificial 
and meaningless". (Exhibit CDA-2, IDM, Comment 4, note 60) 
 
334 See para. 7.159, supra . WT/DS264/R 
Page 116  
 
7.177  This conclusion is not altered by Canada's response to questi on 22 of the Panel, in which 
Canada refers us to a number of documents in support of its arguments .  We have carefully examined 
them.  A first group of documents, relating to the product matching mechanism, contains submissions 
of respondents and applicant and various communica tions of DOC.   A second group of submissions 
contains requests for guidance on what additional da ta should be submitted in order to permit the 
calculation of value-based adjustments for differen ces in physical characteristics.  A third group 
contains specific comments on breaks in commercia l value of softwood lumber products and on 
comparisons of prices of individual lumber products .  Finally, Canada refers to ITC and DOC's 
Preliminary Injury and Dumping Determination, respectively.  
7.178  With respect to the first group, while Canada ma y be correct that, if dimension did not affect 
price comparability, there would have been no reason to include dimension in the product matching 
mechanism, we find that the question whether those differences are actually demonstrated to affect 
price comparability must be determined in light of  positive evidence before investigating authorities.  
Thus, even if Canada's argument were correct, a concession at such an early stage of the investigation would not preclude the investigating authority to ch ange its position if positive evidence were to point 
to another conclusion.  In any event, the issue befo re us is not whether dimensional differences in the 
abstract  could affect price comparability, but whether those remaining  dimensional differences that 
existed after DOC engaged in produc t matching were demonstrated to affect price comparability.    
7.179  As far as the second group of submissions is concerned, it is undisputed that DOC had 
sufficient data before it during th e investigation to examine whethe r differences in dimensions were 
demonstrated to affect price comparability.  We do not consider that there could be data more 
probative than the actual data on costs and prices of respondents for the POI, and it is undisputed that 
those were before DOC.  In any case, we note that respondents submitted historical average price data 
as well as Random Lengths data.  Thus, we do not consider that DOC acted unreasonably in not 
giving guidance on which other add itional data could be submitted.  
7.180  Regarding the third group, Abitibi, Slocan and the applicant commented on breaks in 
commercial value of softwood lumber products, especia lly with respect to length.  Those exporters 
proposed the establishment of length bands.  In  our view, the linkage of commercial value 
considerations and length groupings was a step in the direction of demonstrating that, at least, 
differences in length could have affected pri ce comparability.  However, we note that, when 
comparing non-identical types for the purpose of the Final Determination, DOC first attempted to 
compare within the bands agreed with exporte rs, and matched across le ngth bands only when a 
similar match was not available within the band.
335  Thus, in our view, DOC addressed the concerns 
of the exporters in that regard.   
7.181  Furthermore, Abitibi referred to price comparis ons of specific models.  Abitibi submitted two 
graphs with monthly average prices during the POI for four different grades of types 2x4x8 and 2x6x16.  "For example, at the beginning, of the pe riod, in April 2000, Abitibi's average net price for 
No. 2 grade 2x4x8 was around [[****]] whereas the No. 2 2x6x16 price was [[****]].  The 
comparable figures for economy grade were [[**** ]] for the smaller size and [[****]] for the 
larger".
336  It is obvious that, in submitting the referred charts, Abitibi was in fact assessing data it had 
submitted in its databases.  Howeve r, we consider that what Abitibi did, was, at most, to advance a 
possible methodology to marshal the cost and prici ng data previously subm itted.  Canada has not 
argued, nor shown to us, that Abitibi requested DOC to analyse the data before it in the manner in 
which Abitibi had presented it, that is on a monthl y-basis, nor the reasons why DOC should have 
analysed it in such a manner.  
                                                      
335 US response to question 25 of the Panel, para. 38. 
336 For confidentiality reasons, information inside the brackets has been erased.  WT/DS264/R 
 Page 117 
 
 
7.182  Finally, Canada refers to several statements  by DOC and ITC that – it considers – concede 
that the dimensional differences at issue here affected price comparability.  Specifically, Canada 
refers to DOC's finding in the Preliminary Determination that "there are several significant differences in physical characteristics which affect price..."
337 and to the ITC's statement in its Preliminary Injury 
Determination that "[s]oftwood lumber prices genera lly differ substantially depending on grades and 
dimensions".338  We note that the first statement refers to differences in physical characteristics 
generally, and the second to grade and dimension togeth er.  Both are abstract statements about such 
differences, rather than specific statements about  the particular dimensional differences remaining 
after DOC performed product matching.  We cannot c onclude on the basis of these general statements 
that those US agencies had conceded that the pa rticular differences in dimension remaining for non-
identical matches were demonstrated  to affect price comparability.   
7.183   In sum, we do not consider that the above -examined communications show that it was 
demonstrated in the investigation that the remaini ng differences in dimension which were not resolved 
by product matching affected price comparability.  In our view, exporters could have been more 
forthcoming in suggesting ways in which DOC  should have marshalle d the data before it.339  Had the 
respondents argued that DOC should have examined data  in a particular way, in light of the specific 
facts of the case, and had DOC analysed that data in an unreasonable manner, thus determining that 
differences in dimension were not demonstrated to have affected price comparability, we might have 
found that the United States acted in consistently with Article 2.4.  This, however, we do not find to be 
the case. 
7.184  For the foregoing reasons, and keeping in mind th e standard of review we are bound to apply 
to the examination of the matter before us, we  find that Canada has not established that the 
United States acted in a manner inconsistent with Article 2.4 of the AD Agreement in not granting the 
requested adjustment for differences in dimension.340 
                                                      
337 Exhibit CDA-11, DOC's Preliminary Determination, p. 56066.  
338 Exhibit CDA-31, ITC's Preliminary Determination, p. 16. 
339 In so concluding, we note that Canada is of the view that the United States should have conducted 
its examination differently.  In particular, Canada takes issue with the US approach of using individual transaction data in the charts presented in Exhibits US-43, 76 and 81.  We ar e of the view that the United States 
used one of the possible methodologies to assess the data it had received from respondents.  We understand 
Canada to argue that it would have been more appropri ate to use monthly or annual average price data because 
"averages smooth out data fluctuations caused by the different mechanisms and times at which prices are set in 
relation to invoice date". (Canada first written submissi on, para. 148; Exhibit CDA-76, POI Average Prices for 
Different Lengths and Widths; and Canada comments to the US response to question 97 of the Panel, para. 11)  
However, Article 2.4 does not mandate the use of any particular methodology.  Furthermore, we have found in 
para. 7.176, supra,  that an objective and unbiased investigating au thority could have concluded that data before 
DOC did not demonstrate that differences in dimensions  affected price comparability.  If Canada – or the 
respondents – considered that DOC should have examined the data in another manner, they should have 
motivated to DOC why their proposed methodology should have been used.   
340 Canada asserts that: 
 
"[t]he United States had an affirmative duty under Article 6 to notify Canadian parties that it 
did not intend to use dimension for price because it had put the Canadian parties on notice to 
the contrary in the questionnaires and in every other aspect of the investigation.  All requisite 
data for the analysis were on the record.  The Canadian parties had no reason to submit analyses of the data to prove a point on which Commerce and all parties seemed to have 
agreed.  Had Commerce put the parties on notice about this issue, as required under 
Article 6.1, the respondents would have prepared  and filed with Commerce analyses similar to 
the Tembec Regression Analysis, which in any ev ent is derived entirely from record evidence 
and could have as easily been performed by Commerce itself if it had doubts about the 
importance of dimension".  (Canada response to question 4 of the Panel, para. 5) WT/DS264/R 
Page 118  
 
I. C
LAIM 6: ARTICLES 2.4 AND 2.4.2  – ZEROING  
(a) Factual Background 
7.185  In the anti-dumping investigation underlying this dispute, DOC divided the product under 
investigation into groups of identical, or broa dly similar, product types.  After making certain 
adjustments within each product type, DOC calculat ed a weighted average normal value and export 
price for each product type, and then compared th e weighted averages for each product type.  This 
process resulted in multiple values,  one for each product type.  In some instances this comparison 
showed that the weighted average export price for a specific product type was less that the weighted 
average normal value, while in other instances, th e comparison showed that the weighted average 
export price was greater than the weighted average normal value.  These values were then aggregated 
to produce one single value, the margin of du mping for the product under investigation for each 
investigated exporter.  In the aggregation process, a value of "zero" was attributed to those product 
comparisons where the weighted average export pric e was greater than the weighted average normal 
value.  DOC then aggregated the positive values from the individual product type comparisons, that 
is, those instances where the we ighted average export price was lower than the weighted normal 
value, and divided the result by the total value of e xports, to arrive at a weighted average margin of 
dumping.   
7.186  For ease of reference of the reader, but without gi ving any legal status to the concept, we will 
follow the approach of the parties by referring to t hose instances where the export price is greater than 
the normal value, as "negative dumping margins" or "negative dumping".341  We will refer to the 
process of attributing a "zero" value to the indivi dual product type comparisons where the weighted 
average export price is greater than the weighted average normal value for th e same product type as 
"zeroing". 
(b) Arguments of the Parties/Third Parties 
7.187  Canada asserts that the methodology used by the United States in the underlying 
investigation did not fully take into account "all co mparable export transactions", in violation of the 
requirements of Article 2.4.2 of the AD Agreement.   Canada notes that the practice of "zeroing", 
followed by DOC in this case, is identical  to that used by the EC, which in EC – Bed Linen was found 
to be inconsistent with that Artic le.  In addition, Canada claims that the methodology applied by DOC 
did not produce a fair comparison as required by Article 2.4 because it did not in fact average all values.
 
7.188  Although Canada agrees with the United States that Article 2.4.2 does not preclude an 
intermediate stage of comparing export prices w ith normal values on a product type basis before 
aggregating these values to determine an overall margin of dumping , Canada  is of the view that 
Article 2.4.2 establishes a single standard for th e calculation of a margin of dumping which is 
applicable to all stages of the calculation, whether inte rmediate or final.  Canada therefore asserts that 
Article 2.4.2 requires that all export transactions have  to be taken fully into consideration throughout 
the process of calculating the overall margin of  dumping and not only in the first stage. 
                                                                                                                                                                     
Canada has not invoked in its Panel Request an Article 6.1 violation with respect to DOC's 
determination at issue and consequently a claim based thereon is clearly outside the Panel's terms of reference.  Hence, we refrain from ruling on whether the United Stat es has acted inconsistently with Article 6.1 or any 
other provision in Article 6 of the AD Agreement . 
341 We note that there might be differences on how this methodology is applied by different 
investigating authorities.  However, when we refer to th e term "zeroing", we refer to the methodology as applied 
by the DOC in the underlying anti-dumping investigation as described by DOC in Exhibit CDA-2, IDM, pp. 65-
66.    WT/DS264/R 
 Page 119 
 
 
7.189  The United States replies that Articles 2.4 and 2.4.2 do not address the manner in which 
particular model-specific or level-of-trade-specifi c dumping margins are to be combined to determine 
an overall dumping margin.  The United States asserts that, by arguing that the phrase "all comparable 
export transactions" refers to "[a]ll sales of goods falling within the scope of an investigation," 
Canada deprives the term "comparabl e" in Article 2.4.2 of any meaning, instead making it equivalent 
to the term "all", which immediately precedes it.  In the view of the United States, the comparison 
obligations contained in Article 2.4.2 are "[s]ubject  to the provisions governing fair comparison in 
paragraph 4".  Thus, Article 2.4, which provides explicit context for the methods for establishing the 
existence of dumping under Article 2.4.2, means that, under the instruction in Article 2.4.2 to compare 
"a weighted average normal value with a weighted  average of prices of all comparable export 
transactions," not all export transactions will be eq ually comparable with all transactions used for 
normal value purposes.  Consequently, once the comparison has been identified pursuant to 
Article 2.4, it would be improper to compare a we ighted average normal value with respect to one 
model or level of trade to a weighted average of prices for a different model or level of trade.  According to the United States, Canada's prescrip tion for combining particular dumping margins for 
purposes of developing a single, overall dumping margin  would require precisely that, contrary to the 
requirements of Articles 2.4.2 and 2.4. 
7.190  The United States further argues that the use of pl ural term "margins" in Article 2.4.2 operates 
to limit the scope of that provision to intermedia te stage calculations only, which confirms its 
interpretation of Article 2.4.2.  The United States  also argues that the purpose of an anti-dumping 
investigation is to determine whether or not dumping exists, and that the AD Agreement does 
therefore not require that "positive" margins of dump ing be offset by "negative" margins of dumping. 
7.191  In the view of Canada , the term "margins" refers to  the overall dumping margin for a 
product, as there is no language in Article 2.4.2 th at suggests that the overall dumping margin would 
not be among the "margins" referred to in Article 2.4. 2.  Canada also finds support for its position in 
the function of Article 2.  Thus, reading Article 2. 4.2 in conjunction with Article 2.1, Canada states 
the "margins of price difference" calculated in  the first stage are of secondary importance to 
Article 2.4.2, as the sole concern of that provi sion is to set rules governing how investigating 
authorities are to determine margins of dumping.  Ca nada asserts that the US reading of Article 2.4.2 
would lead to the absurd result that an investig ating authority could carefully consider positive and 
negative margins at the intermediate stage, a nd then discard all but the single highest positive 
dumping margin in establishing the overall margin for each exporter.  Canada also argues that zeroing 
is by definition inconsistent with the calculation of a "true "weighted average"".
342 
7.192  In the view of the United States , Articles 2.4.2 and 2.4 do not mandate any particular method 
for combining model-specific, level-of-trade-sp ecific individual dumping margins to establish a 
single, overall margin.  According to the United States, this is corroborated by the negotiating history of the AD Agreement .  In the view of the United States, that negotiating history demonstrates that the 
question whether to address zeroing was presented to  the negotiators, and that the draft text, as 
compared to the AD Agreement 's predecessor, the GATT Anti-Dumping Code , was not modified to 
prohibit this methodology.  Further, the negotiatin g history demonstrates that insertion of the word 
"comparable" into Article 2.4.2 was intended precisely to ensure that the term "all" not be interpreted 
to imply that an average export price is to be est ablished on the basis of sales both within and outside 
of the category of comparison. 
7.193  Canada  asserts that the negotiating history does not support the US view.  In the first place, 
contrary to the US assertion, Canada contends that participants in the negotiations did not view the 
term "all" as a mere "drafting e rror" and understood the text to prohibit zeroing.  With respect to the 
US interpretation of the purpose of the inclusion of  the term "comparable", Canada states that the US 
assertion that its concerns with regard to zeroi ng were satisfied by the addition of the term 
                                                     
 
342 Canada response to question 28 of the Panel, para. 102. WT/DS264/R 
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"comparable" offers no indication of how the rest of the participants in the negotiations viewed the 
addition of this term.  Canada also disagrees with th e US view that its interpretation of Article 2.4.2 
deprives the term "comparable" of any meaning.  Canada agrees that "Article 2.4.2 applies to 
intermediate stage comparisons".  For such comp arisons, "comparable" ensures that model-specific 
comparisons only include transactions meeting the requirements of "price comparability" contained in 
Article 2.4, while "[a]ll" ensures that all tr ansactions meeting those requirements are utilized. 
7.194  Referring to the Appellate Body report  in EC – Bed Linen , Japan asserts that the US practice 
is inconsistent with Article 2.4, read in conjunction with Article 2.1, of the AD Agreement.  
7.195  The EC asserts that the US methodology for determining the numerator for the purposes of 
the weighted average margin calculation in no way differs from the EC "zeroing" methodology, 
already found to be incompatible with Articles 2.4 an d 2.4.2.  The EC requests the Panel to reject the 
arguments put forward by the United States concerning the compatibility of that methodology with the AD Agreement . 
(c) Evaluation by the Panel 
7.196  The issue before the Panel is whether the me thodology used by DOC in the underlying anti-
dumping investigation whereby it attributed a valu e of zero to those instances where the weighted 
average export price was greater than the weight ed average normal value when aggregating the 
different values determined for the different produc t types to compute the overall margin of dumping, 
is consistent with the obligations imposed by Artic le 2.4.2 and the "fair comparison" requirement in 
Article 2.4 of the AD Agreement .
343,344    
7.197  Article 2.4.2 of the AD Agreement provides in relevant part as follows: 
"[s]ubject to the provisions governing fair comparison in [Article 2.4], the existence 
of margins of dumping during the investig ation phase shall normally be established 
on the basis of a comparison of a weighted average normal value with a weighted average of prices of all comparable export transactions or by a comparison of normal value and export prices on a transaction-to-transaction basis.  A normal value 
established on a weighted average basis may be compared to prices of individual 
export transactions if the authorities find a pattern of export prices which differ  significantly among different purchasers, regions or time periods, and if an explanation is provided as to why such differences cannot be taken into account 
                                                     
 
 343 We note that, in the IDM, DOC justified its use of the methodology at issue by referring to 
Sections 771(35)(A) and 771(35)(B) of the US Tariff Act as follows:  
 
"[t]hese sections, taken together, direct [DOC] to aggregate all individual dumping margins, 
each of which is determined by the amount by  which normal value exceeds export price or 
constructed export price, and to divide this amount by the value of all sales.  The directive to determine the "aggregate dumping margins" in  section 771(35)(B) makes clear that the 
singular "dumping margin" in section 771(35)(A) applies on a comparison-specific level, and 
does not apply on an aggregate basis". (Exhibit CDA-2, IDM, Comment 12, p. 66)  
 
We do not understand Canada to challenge the abov e-referred sections of the US statute but DOC's 
application of zeroing when determining the overall margin of dumping for the Canadian exporters involved in 
the softwood lumber investigation.  For this reason, we  do not examine the consistency of Sections 771(35)(A) 
and 771(35)(B) with relevant provisions of the AD Agreement . 
344 We do not understand Canada to dispute that DOC was entitled to make adjustments within each 
product type to ensure an "apples-to-apples" comparison within that product type, calculate a weighted average 
normal value and a weighted average export pr ice for each product type, and compare the two.  WT/DS264/R 
 Page 121 
 
 
appropriately by the use of a weight ed average-to-weighted average or 
transaction-to-transaction comparison."  
7.198  Article 2.4 provides in relevant part that: 
"[a] fair comparison shall be made between  the export price and the normal value.  
This comparison shall be made at the same level of trade, normally at the ex-factory 
level, and in respect of sales made at as nearly as possible the same time.  Due 
allowance shall be made in each case, on its merits, for differences which affect price 
comparability, including differences in conditi ons and terms of sale, taxation, levels 
of trade, quantities, physical characteristi cs, and any other differences which are also 
demonstrated to affect price comparability."   
7.199  Article 2.4 of the AD Agreement  provides that a fair comparison shall be made between 
export price and normal value, and sets out specific parameters for how such comparisons are to be 
made.  The two sub-paragraphs of Article 2.4 deal with specific aspects of the comparison of normal value and export price.  Article 2.4.1 – which is no t at issue in this disput e – provides rules for the 
conversion of currencies, when such conversion is necessary for the purposes of a comparison under 
Article 2.4.  Article 2.4.2 establishes that, subject to the requirement of a fair comparison, dumping 
margins should normally be established on the basis of a comparison between a weighted average export price to a weighted average normal value,  or on the basis of a transaction-to-transaction 
comparison.  A comparison between a weighted  average normal value to individual export 
transactions is allowed only in limited circumstances. 
7.200  The issue before us is whether zeroing is a llowed when an investigating authority is 
calculating an overall margin of dumping under the first – weighted average-to-weighted average – 
methodology set forth in Article 2.4.2.  We note that, in practice, the issue of zeroing arises in the context of the weighted average-to-weighted av erage methodology only where the investigating 
authority engages in so-called "m ultiple averaging", that is, where it sub-divides the product under 
investigation into groups and performs a weighted  average-to-weighted average comparison for each 
group.  Specifically, the issue of zeroing arises in the context of aggregating the results of these 
multiple comparisons into an overall margin for each exporter/producer for the product under 
investigation.  Where only a single weighted averag e-to-weighted average comparison is performed, it 
seems to us that the issue of zeroing per se  could not arise (although there might still be issues about 
the manner in which the averaging was performed). 
7.201  In this case, DOC engaged in multiple aver aging on the basis of differing physical 
characteristics of the product under investigati on.  As mentioned in paragraph 7.159, supra , DOC 
identified eleven physical characteristics and, with  some exceptions, performed weighted average-to-
weighted average comparisons only on the basis of transactions involving merchandise which shared these physical characteristics (this could be characte rized as multiple averaging based on product type 
or model).  Although multiple averaging based on di fferent types or models may be particularly 
common, multiple averaging may also be used in other contexts.  For example, an investigating 
authority might perform multiple averaging in respect of sales made at different levels of trade (e.g., 
retail versus wholesale) or on the basis of sub-periods of the period of investigation
345 (the latter may 
arise in cases where hyper-inflationary economies ar e involved).  Thus, an investigating authority 
might well resort to multiple averaging to ensure  comparability even in a case of absolute product 
homogeneity, i.e., where all of the product under inves tigation is identical and is being compared to 
transactions involving identical goods in the market of the exporting country.  
7.202  There is no dispute between the parties as to the appropriateness or consistency with the AD 
Agreement  of this multiple averaging approach to calculating dumping margins per se .  To the 
                                                      
345 Panel Report, US – Stainless Steel , paras. 6.105-6.136. WT/DS264/R 
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contrary, Canada acknowledges that multiple averaging is permissible.
346  However, in light of the 
fact that multiple averaging is a prerequisite for the issue of zeroing to arise in the context of applying 
the weighted average-to-weighted average methodolog y, and taking into account the arguments of the 
parties and the reasoning developed by the Appellate Body in EC – Bed Linen347, we consider that we 
must examine the issue of multiple averaging if we are to arrive at reasoned conclusions regarding the 
question of zeroing in the context of a weight ed average-to-weighted average comparison 
methodology. 
7.203  We begin our analysis with Article 2.4.2, wh ich provides that the existence of margins of 
dumping shall normally be establis hed "on the basis of a comparis on of a weighted average normal 
value with a weighted average of all comparable  export transactions". (emphasis added)  The word 
"comparable", in its ordinary meaning, indicates that a weighted average normal value is not to be 
compared to a weighted average export price that includes non-compar able export transactions, but only 
to comparable export transactions.  Further, we are required as treaty in terpreters to assume that when 
the drafters included language in the treaty, that they intended that language to have some meaning.348  If 
the drafters had intended to require that the existence of a dumping margin for a product always be 
calculated by comparing a single weighted average normal value and a single weighted average of prices 
of all export transactions, we do not believe that they would have included th e word "comparable" in 
Article 2.4.2, as that word would serve no purpose in the text.  The fact that the word "comparable" was 
added to the text of Article 2.4.2 towards the end of  the negotiating process, confirms our view that it 
was included for a purpose and should not si mply be disregarded as surplus verbiage.349 
7.204  We are as treaty interpreters of  course required to give meaning to all the terms of a treaty, and 
we must therefore arrive at an interpretation of Arti cle 2.4.2 that gives meaning both to the words "all" 
and "comparable".  In our view, however, there is no ne ed to choose between the two terms.  Rather, the 
phrase "all comparable export transactions" would in  its ordinary meaning appear to signify that 
Members may only compare those export transactions which are comparable, but that it must compare all such transactions.  Thus, the term "all" plays an important role in the provision by ensuring that 
Members do not exclude relevant transactions from their comparisons.   
7.205  We note that a number of panels have expressed the view that multiple averaging is permitted 
by Article 2.4.2.  The issue h as been considered by both the US – Stainless Steel  and Argentina – 
Ceramic Tiles  panels.  Both panels concluded that multip le averaging was permitted by Article 2.4.2 
in appropriate circumstances.
350     
                                                      
346 Canada response to question 30 of the Panel, pa ra. 106 and Canada second written submission, para. 
143. 
347 Appellate Body Report, EC – Bed Linen,  paras. 46-66.  
348 See, e.g., Appellate Body Report, US – Gasoline,  p. 23 where it is stated that: 
 
"... [o]ne of the corollaries of the 'general prin ciple of interpretation' in the Vienna Convention 
is that interpretation must give meaning and effect to all the terms of the treaty".      
 
349 The insertion of the word "comparable" into Article 2.4.2 represented the only modification to the 
draft text of the Article between the date of the Draft Fi nal Act and the text as adopted at the conclusion of the 
Uruguay Round, reflecting the current Article 2.4.2. ( See Draft Final Act Embodying the Results of the Uruguay 
Round of Multilateral Trade Negotiations, MTN.TNC/W/FA, 20 December 1991)  We agree with the panel in 
US – Stainless Steel that this suggests that its inclusion was not merely incidental but reflected careful 
consideration by the draf ters. (Panel Report, US – Stainless Steel,  para. 6.111, note 114) 
 350 Panel Report, US – Stainless Steel , para. 6.111, where it is stated that:  
 
"[t]he inclusion of the word "comparable" is in our view highly significant, as in its ordinary 
meaning it indicates that a weight ed average normal value is not to be compared to a weighted 
average export price that incl udes non-comparable export transactions.  It flows from this  WT/DS264/R 
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7.206  We do not consider that, by definition, "all types or models falling within the scope of a 'like' 
product must necessarily be comparable"351, nor more generally that all export transactions of the 
product under investigation will necessarily be compar able to the home market sales against which a 
comparison is to be made.  Leaving aside the issue of  the meaning of likeness, the fact that Article 2.4 
explicitly provides for due allowan ces to be made for differences that affect price comparability 
means to us that, in the absence of such adjustments, certain transactions may not be comparable.  In 
other words, the very reason due allowance may be necessary is precisely because the transactions 
might not otherwise be comparable.  This lack of comparability could be due to differences in 
physical characteristics – a basis for allowance that  is specifically identified in Article 2.4 – but 
Article 2.4 tells us that non-compa rability could also arise from differ ences in conditions and terms of 
sale, levels of trade, quantities and other unspecified differences.352  Thus, we do not believe that the 
significance of the reference to "comparable" expor t prices can simply be discounted on the grounds 
that the products/transactions must "necessarily be comparable".353 
7.207  Of course, one way to ensure comparability is to make due allowance for certain differences, 
but given the inclusion of the term "comparable" in Article 2.4.2 we are not convinced that this 
method, however important, is the exclusive means allowed by the AD Agreement  to ensure 
comparability.  Nor, from a practical perspective, do we believe that such an approach would be 
desirable.  In theory, of course, any difference between products/transactions can be accounted for by 
adjustments.  In many cases, however, it may be di fficult to determine whether a difference affects 
price comparability such that an adjustment is required, much le ss to establish the amount of the 
adjustment that would be appropriate.  While some  differences, such as differences in taxation, may 
be easy to quantify and adjust for, adjustments for differences in physical characteristics may be 
complex and highly uncertain, depending upon the numbe r and extent of the differences in physical 
characteristics, and the extent to which those reflect  differences in costs of production.  The issue of 
whether or not DOC should have made due allo wance for differences in dimension, addressed 
elsewhere in this Report, is a demonstration of  how complex adjustment questions may be.  The 
quantification of other types of ad justments, such as for differences in  level of trade, may be even 
more problematic.  It is therefore not surprising that many investigating authorities – and respondent 
exporters – prefer to limit to the extent possible the need for such adjustments by performing their 
comparisons on the basis of groups of transactio ns sharing common characteristics.  Thus, we 
consider that the use of multiple averaging is co nsistent with the overall objective of Article 2.4, 
which is to ensure a fair comparison when comparing export price to normal value. 
7.208  We find further support for our view from the fa ct that Article 2.4.2 allows dumping margins 
to be calculated on the basis either of weighted -average-to-weighted-average or transaction-to-
transaction comparisons.  When an investiga ting authority uses a transaction-to-transaction 
methodology, it is in a position to select the most similar products/transactions possible for 
                                                                                                                                                                     
conclusion that a Member is not required to co mpare a single weighted average normal value 
to a single weighted average ex port price in cases where certain  export transactions are not 
comparable to transactions that represent th e basis for the calculation of the normal value". 
(footnote omitted) 
 
See also Panel Report, Argentina – Ceramic Tiles,  para. 6.99, where it is stated that: 
 
"[w]e consider that the use of types or models is  a valid method of ensuring a fair comparison 
between normal value and export price under Article 2.4". 
 
351 Appellate Body Report, EC – Bed Linen , para. 58. 
352 We are also of the view that the authorization in Article 6.10 of the AD Agreement to use certain 
sampling techniques where "the number of (...) types of products" is too large, confirms our interpretation that there may be differences in physical characteristics be tween products being compared, and should dispel those 
doubts entirely.     
353 Appellate Body Report, EC – Bed Linen,  para. 58. WT/DS264/R 
Page 124  
 
comparison, and may therefore be able to minimize the extent of the adjustments that need to be 
made.  We consider it unlikely that the drafters w ould have agreed to allow comparisons only at the 
most aggregated level (a single weighted-average -to-weighted-average comparison) or the most 
disaggregated level (transaction-to-transaction) while disallowing the intermediate approach of 
multiple averaging.  Rather, it seems more likely to us  that the intention of the drafters in specifying 
that Members shall normally be restricted to a we ighted-average-to-weighted -average or transaction-
to-transaction approach was to make clear that a weighted-average-to-transaction approach – a 
methodology that was widely used before the current AD Agreement  came into effect – was only 
permitted in the limited circumstances specified in the second sen tence of Article 2.4.2.                  
7.209  We are, of course, aware that Article 2.4.2 pr ovides for the establishment of the existence of 
margins of dumping on the basis of a comparison of a  weighted-average-normal-value with a 
weighted average of prices of all comparable e xport transactions, i.e., that the reference to "a" 
comparison is in the singular rather than in the plural.  We note however that the second methodology (transaction-to-transaction) also refers to " a comparison of normal value to export prices on a 
transaction by transaction basis", yet the subsequent  reference to export prices makes clear that in 
such a methodology investigating authorities are not  restricted to establishing dumping margins by 
comparing one single normal value transaction to a si ngle export price, but by definition will, in any 
case in which there is more than one transaction,  be performing multiple comparisons of individual 
transactions.  As for the reference to " a weighted average normal value", this use of the singular may 
be understood to mean that each group of "comparabl e" export transactions is to be compared to a 
single weighted-average-normal-value. 
7.210  Our analysis of multiple averaging does not rely  upon the reference in Article 2.4.2 to the 
establishment of "margins of dumping".  Although it c ould be argued that this phrase is in the plural 
precisely because multiple averaging produces a dumping margin for each category of 
product/transaction compared, it could just as well be th e case that it is in the plural because in many 
cases there will be multiple exporters or producers.   We consider however that, assuming that the 
reference to "margins of dumping" means the ma rgin of dumping for the product under investigation 
as a whole
354, our analysis above supports the conclusion that multiple averaging is nevertheless not 
prohibited by Article 2.4.2.  In particular, while it may well be that the reference to "margins of 
dumping" is a reference to the overall margin for th e exports of the product under investigation, this 
would mean simply that Article 2.4.2 provides gui dance with respect to the methodologies used for 
determining the existence of such margins.355  It would not, in our view, compel the conclusion that 
such overall margins could not be derived on the basis of multiple averaging.      
7.211  In light of our analysis above, we conclude, and ag ree with the parties to this dispute, that the 
use of multiple averaging is not prohibited by the AD Agreement . 
7.212  Having found that multiple averaging, per se , is not prohibited by the AD Agreement , we next 
consider whether the methodology applied by DOC  in this case when aggregating the values 
generated from multiple averaging, in which "neg ative dumping" was attributed a zero value, is 
inconsistent with Article 2.4.2. 
7.213  Bearing in mind our conclu sion in paragraph 7.211, supra , regarding multiple averaging, we 
will now consider the obligations of an investiga ting authority when calculating a weighted-average-
                                                      
354 As the Appellate Body concluded in para. 53 of its Report in EC – Bed Linen . 
355 We note further that Article 2.4.2 requires that the "existence of margins of dumping during the 
investigation phase shall normally be established on the basis of  a comparison of a weighted average normal 
value with a weighted average of prices  of all comparable export transactions . . . ". (emphasis added)  We note 
that the ordinary meaning of the word "basis" is "the underlying support for a process". ( The Concise Oxford 
Dictionary of Current English  (Clarendon Press, 1995), p. 113)  This suggests to us that, while the 
determination of the existence of margins of dumping must be based on weighted average-to-weighted average 
comparisons, Article 2.4.2 was not intended to spell out in detail all elements of that calculation.  WT/DS264/R 
 Page 125 
 
 
normal-value and a weighted-ave rage-export-price in accordance with Article 2.4.2 of the AD 
Agreement  when the product under investigation is di vided into sub-categories based on types or 
models, levels of trade or other differences.  The question of zeroing arises in the process of 
aggregating the weighted averages for the differe nt types or models, levels of trade or other 
differences, into a single, overall margin of dumping.   With regard to this process, parties express 
diverging views as to whether Article 2.4.2 applies to the determination and comparison of weighted 
average normal values and weighted average export pr ices only for each of the types or models (the 
so-called "first stage") – as the United States argues – or whether it also applies to the aggregation of 
the results for each of the comparisons made (the so-called "second-stage") – as Canada argues.356  
Thus, the United States asserts that the text "all co mparable export transactions" in Article 2.4.2 is – 
because of the insertion of the word "comparable"  – applicable only to the first stage of the 
calculation process.  The United States argues that Ar ticle 2.4.2 does not apply to the second stage in 
the calculation process; thereby not disallowing the u se of zeroing by an investigating authority.  
Canada does not dispute that there are two stag es, as asserted by the United States.  However, it 
disagrees with the US argument that Articl e 2.4.2 does not discipline the second stage. 
7.214  In our examination of this question, we keep  in mind the Appellate Body's findings with 
regard to the issue of whether Article 2.4.2 cont emplates whether the calculation of the margin of 
dumping, as envisaged in Article 2.4.2, can be divided into two distinct stages357, as well as the 
parties' submissions on this issue.  In our view, whether Article 2.4.2 contemplates one or two stages 
in the calculation of the overall margin of dumpi ng and whether the term "comparable" in "all 
comparable  export transactions" relates only to the first stage or to both – in case there were two 
stages – are related questions.  We note that the calculation of the margin of dumping is a process 
which starts with the determination of the normal va lue, and it continues with the establishment of the 
export price.  Both prices are subsequently adjusted  in order to ensure a "fair comparison", as required 
by Article 2.4.  Finally, these two values – normal value and export price – are compared, for the purpose of computing the overall margin of dumping.   Thus, in our view, a determination of the 
margin of dumping in an anti-dumping investigation could be sub-divided into a whole range of steps 
or stages, forming a coherent process.  At issue are the last two steps in this process of calculating the 
overall margin of dumping.  We do not consider th at the question before us is whether there are 
several steps or stages contemplated in Article 2.4. 2 and, if this is the case, whether the obligation 
imposed by Article 2.4.2 with respect to the calcu lation of the margin of dumping under the weighted-
average-to-weighted-average methodology applies to the first stage only because of the term 
"comparable" in "all comparable  export transactions".  Rather, we are of the view that the question 
before us is whether an investigating authority is  allowed to partially exclude from the aggregation 
process those results of comparing types or models  for which the weighted-average-normal-value was 
determined to be less than the weighted-avera ge-export-price in the aggregation process.    
7.215  It is clear that Article 2.4.2 requires that all comparable export transactions have to be taken 
into account when the weighted aver age normal value is compared to the weighted average of prices 
of all comparable export transactions.  We note th at this interpretation of the requirement of 
Article 2.4.2 is the same as that of the Appellate Body in EC – Bed Linen.
358   
7.216  Through the use of zeroing, it is clear to us that the entirety of the prices of some export 
transactions, i.e., those export transactions where th e weighted-average-export-price is greater than 
the weighted-average-normal-value, in the second stage of the process, are not taken into account.359  
                                                      
356 The two "stages" are described by the United States in its response to question 109 of the Panel, 
para. 52. 
357 Appellate Body Report, EC – Bed Linen , para. 53. 
358 Id., para. 55. 
359 The panel in EC – Bed Linen  explained how zeroing affects prices  of the export transactions to 
which is applied: 
 WT/DS264/R 
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Recalling our view that the calculation of the marg in of dumping is a continuous process, we fail to 
understand why the negotiators of the AD Agreement would have included an obligation in the 
provisions of the AD Agreement  (the term "all" in "all comparable export transactions"), if, in the very 
next step of the calculation process – through zeroing – investigating authorities were to be allowed to 
ignore this very same obligation (certain values whic h they were obligated to take into account in the 
first stage of the process).  In other words, we do no t interpret the requirement of Article 2.4.2 to bear 
only on the first stage of the process, but rather vi ew that obligation as applying to the process as a 
whole.  We are of the view that, if the drafters ha d intended that Article 2.4.2 applies only to the first 
stage of the process, they would have made this  clear.  The United States has not advanced any 
argument explaining why an interpretation that Article 2.4.2 is applicable to the pre-aggregation stage 
should be accepted by us, apart from the argument that the AD Agreement  does not contain any 
requirements as to the second stage of the process.  We find this argumentation of the United States 
not convincing. 
7.217  Considering the requirement of Article 2.4.2 th at the existence of margins of dumping has to 
be established for softwood lumber on the basis of  a comparison of the weighted-average-normal-
value with the weighted average of prices of a ll comparable export transactions, that is, for all 
transactions involving all types of the product under investigation, we are of the view that the 
United States did not take into account all compar able export transactions when DOC calculated the 
overall margin of dumping in the investigation at issue. 
7.218  The United States also argues that:  
"[t]hus, interpreting the language of the fi rst methodology [average-to-average] as 
requiring authorities to offset dumping margin s implies that the negotiators addressed 
the offset issue with respect to that me thodology, but not the other two [transaction-
to-transaction and average normal value-to-individual transaction export price], leaving the issue to the Members' discreti on when utilizing either of the other two 
methodologies.  Canada offers no interpretation of Article 2.4.2 that justifies such an 
anomalous result, nor does it offer any expl anation as to why the negotiators might 
have intended to create such an anomaly."
360 
7.219  We note that Canada has not raised any claim with regard to DOC's use of "the other two 
methodologies".  Thus, it is not within the Panel's terms of reference to rule on whether zeroing can, 
or cannot, be used when determining the overa ll margin of dumping under the other comparison 
                                                                                                                                                                     
"[b]y counting as zero the results  of comparisons showing a "neg ative" margin, the European 
Communities, in effect, changed the prices of the export transactions in those comparisons.  It is, in our view, impermissible to "zero" such "n egative" margins in esta blishing the existence 
of dumping for the product under investigation, since this has the effect of changing the 
results of an otherwise proper comparison.  This effect arises  because the zeroing  effectively 
counts the weighted average expor t price to be equal to the weighted average normal value for 
those models for which "negative" margins were found in the comparison, despite the fact that 
it was, in reality, higher than the weighted average normal value.  This is the equivalent of manipulating the individual export prices coun ted in calculating the weighted average, in 
order to arrive at a weighted average equal to th e weighted average normal value.  As a result, 
we consider that an overall dumping margin calculated on the basis of zeroing "negative" 
margins determined for some models is not based on comparisons which fully reflect all 
comparable export prices, and is therefore calcu lated inconsistently with the requirements of 
Article 2.4.2". (Panel Report, EC – Bed Linen , para. 6.115) 
 
 We agree with the above explana tion of how zeroing manipulates the outcome of what should be a 
determination of dumping which, up to the point of aggregation of the margins of dumping, is consistent with 
Articles 2.2, 2.2.1, 2.2.1.1, 2.2.2, 2.3, 2.4 and 2.4.1 of the AD Agreement .   
360 US first written submission, paras. 158-159.  WT/DS264/R 
 Page 127 
 
 
methodologies set forth in Article 2.4.2, i.e., tr ansaction-to-transaction and weighted average normal 
value-to-individual transaction export price.361  
7.220  Finally, the United States asserts that the negotiating history of the AD Agreement  confirms 
that the calculation of the margin of dumping using zer oing is consistent with Articles 2.4 and 2.4.2.  
Canada disagrees.   
7.221  We note that Article 32 of the Vienna Convention  provides that:  
"Supplementary means of interpretation  
 Recourse may be had to supplementary me ans of interpretation, including the 
preparatory work of the treaty and the circumstances of its conclusion, in order to 
confirm the meaning resulting from the application of article 31, or to determine the 
meaning when the interpretation according to article 31: 
(a) leaves the meaning ambiguous or obscure; or 
(b) leads to a result which is manifestly absurd or unreasonable."
 
7.222  We also note that the Appellate Body has consistently found that: 
"[a] treaty interpreter must begin with, a nd focus upon, the text of the particular 
provision to be interpreted.  It is in the wo rds constituting that provision, read in their 
context, that the object and purpose of the states parties to the treaty must first be 
sought.  Where the meaning imparted by the text  itself is equivocal or inconclusive, or 
where confirmation of the correctness of the r eading of the text itself is desired, light 
from the object and purpose of the treaty as a whole may usefully be sought."362  
7.223  As we consider that the meaning imparted by the text of Article 2.4.2 of the AD Agreement  
itself, is neither equivocal nor inconclusive as to wh ether zeroing is inconsistent with Article 2.4.2 of 
the AD Agreement , we do not deem it necessary in the case before us to have recourse to the 
negotiating history in order to confirm the correctness  of our reading of the text of that provision.  
                                                      
361 Although we are mindful that we are not calle d upon to decide whether zeroing is allowed or 
disallowed under the transaction-to-transaction and weighted-average-normal-value to individual export transaction methodologies, we are of the view that the use of zeroing when determining a margin of dumping 
based on the transaction-to-transaction methodology woul d not be in conformity with Article 2.4.2 of the AD 
Agreement .  As for the use of zeroing when determining a margin of dumping based on the third (weighted 
average-to-individual) methodology, we note that this methodology is exceptional in nature and can only be 
used in specific defined situations.  Without intending to express any view as to the permissibility of zeroing 
when this third methodology is used, we do not agree with the United States that it would be an "anomaly" if zeroing were prohibited in the case of average-to-ave rage comparisons but not in the exceptional case of 
weighted average-to-ind ividual comparisons. 
362 Appellate Body Report, US – Shrimp , para. 114.  See also Appellate Body Report, US – Carbon Steel , 
paras. 61-62, where it is stated that:  
 
"… we recall that Article 3.2 of the DSU recogn izes that interpretative issues arising in WTO 
dispute settlement are to be resolved through the application of customary rules of 
interpretation of public international law.  It is well settled in WTO case law that the principles codified in Articles 31 and 32 of the  Vienna Convention on the Law of Treaties   (the " Vienna 
Convention ") are such customary rules. 
 … the task of interpreting a treaty provision must begin with its specific terms ". (emphasis 
added) 
 WT/DS264/R 
Page 128  
 
7.224  We therefore find that the United States has violated Article 2.4.2 of the AD Agreement by 
not taking into account all comparable export transac tions when DOC calculated the overall margin of 
dumping as Article 2.4.2 requires that the existence of margins of dumping has to be established for 
softwood lumber on the basis of a comparison of the weighted-average-normal-value with the weighted average of prices of all comparable expor t transactions, that is, for all transactions involving 
all types of the product under investigation.  
7.225  Canada raises a separate claim of  violation of Article 2.4 of the AD Agreement .  In support of 
its claim, Canada argues that "[a] "fair comparison" requires equitable, unbiased treatment of all transactions being compared.  Zeroing does not produce a fair comparison because it arbitrarily eliminates certain transactions from the calculation, r esulting in a margin that does not equally reflect 
all transactions".
363  The United States disagrees.364 
7.226  Having found in paragraph 7.224, supra,  that the methodology applied by DOC when 
calculating the overall margin of dumping in the in vestigation on certain softwood lumber products 
from Canada is inconsistent with Article 2.4.2 of the AD Agreement,  we consider that it is neither 
appropriate, nor necessary for us to rule  on Canada's Article 2.4 claim. 
J. CLAIM 7: ARTICLES 2.2, 2.2.1,  2.2.1.1,  2.2.2  AND 2.4 – ALLOCATION OF FINANCIAL 
EXPENSES :  ABITIBI  
(a) Factual Background 
7.227  In its questionnaire, DOC requested Abitibi to  calculate financial expenses based on DOC's 
normal methodology.  In its response, Abitibi did not follow DOC's instructions and used a different 
methodology.  Abitibi argued that lumber production requires fewer assets, and thus less financing, 
than other products.365  Abitibi also asserted that the standa rd terms of sale for lumber require 
prompter payment than do the terms of sale for ne wsprint, paper and pulp products.  Thus, Abitibi 
contended that the assets and financing needs of lu mber were significantly less than those of pulp, 
value-added papers, and ne wsprint.  In order to compute the portion of the company's net interest 
expense related to lumber assets and operations, Abitibi first allocated net interest expense to the fixed 
assets of each of the company's divisions based on average assets balances fo r the year 2000.  Abitibi 
then divided the interest associated with its lumber  operations by the lumber division COGS for year 
2000.  Finally, Abitibi multiplied the resulting ratio by the total cost of manufacturing for each product reported in its cost of production database to derive the reported per-unit net interest expense. 
7.228  DOC rejected Abitibi's approach and, consiste nt with its "established practice", derived 
financial costs attributable to softwood lumb er production through a proportionate allocation among 
all goods, as explained in the following excerpt from the IDM:  
"[DOC] disagree[s] with Abitibi that [it] should depart from its established practice of 
calculating the financial expense ratio based  on the financial expenses and cost of 
goods sold from the parent company's audite d consolidated financial statements (i.e., 
based on the concept that money is fungible).  Because there is no bright-line 
definition in the Act of what a financial e xpense is or how the financial expense rate 
should be calculated, [DOC] has developed a consistent and predictable practice for 
calculating and allocating financial expenses.  This method is to calculate the rate as 
                                                     
 
363 Canada response to question 108 (b) of the Panel, paras. 59-61. 
364 US comments on Canada's responses to question 104 of the Panel, para. 7.  
365 Thus, in year 2000, lumber sales were CDN$63 8 million, requiring assets of CDN$859 million, 
meaning that each dollar of assets pr oduced CDN$0.74 in sales.  Newsprint, however, required assets of 
CDN$7,276 million to produce CDN$3,438 million in sales, or a ratio of 0.47.  Value-added paper and pulp 
required assets of CDN$3,120 million to produce sales of  CDN$1,601 million, for a ratio of 0.51. (Exhibit 
CDA-83, Abitibi's Questionnaire Response, p. D-45)  WT/DS264/R 
 Page 129 
 
 
the percentage of net interest expense over  cost of sales, based on the consolidated 
financial statements of the r espondent's parent company.  Further, the record of this 
investigation does not support the conclusion that [DOC]'s methodology distorts the allocation of Abitibi's financial expenses.  Setting aside Abitibi's assumptions that the 
debt of the company only relates to asset s belonging to the pulp and paper activities, 
[DOC]'s method addresses Abitibi's concern th at those activities are more capital 
intensive.  Specifically, those activities w ould have a higher depreciation expense on 
their equipment and assets.  Thus, when the consolidated financial expense rate is 
applied to the cost of manufacturing of lu mber products, less interest will be applied 
because the total cost of manufacturing for lumber products includes a lower 
depreciation expense.  In view of the above factors, [DOC has] used the verified cost 
of goods sold including depreciation submitte d as part of Abitibi's revised financial 
expense ratio calculation to allocate th e company's net financial expenses."
366 
(footnote omitted) 
7.229  Thus, DOC determined the amount for financ ial expense for softwood lumber as follows: 
First, DOC determined Abitibi's total financial co st.  Second, DOC took total financial cost and 
compared it, as a ratio, to Abitibi's total COGS.  Thir d, this ratio was applied to the total cost of 
manufacturing for the product under investigation (sof twood lumber) in order to calculate a financial 
expense specific to that product. 
(b) Arguments of the Parties/Third Parties 
7.230  Canada asserts that, in disregarding Abitibi's proposed methodology and calculating the 
financial expense ratio as it did, DOC failed to  "consider all available evidence on the proper 
allocation of costs", as required by Article 2.2.1.1 of the AD Agreement .  In addition, Canada asserts 
that, in light of the facts before DOC, th e methodology used by DOC over-allocated Abitibi's 
company-wide interest expense to softwood lumber  by attributing to softwood lumber interest 
expense that related to other products manufactured  by Abitibi, and thus failed to result in an 
allocation that "reasonably reflects the costs asso ciated with the production and sale of the product 
under consideration" for Abitibi in cont ravention of Article 2.2.1.1.  In  support of this claim, Canada 
identifies a number of problems with the methodology used by DOC.  First, it does not include the full value of long-term capital assets, nor does it include non-depreciable capital assets at all.  Second, unlike capital assets which need to be financed for the full year and longer, current production 
expenses do not need to be financed for the full one -year period that DOC considered.  According to 
Canada, they need to be financed until payment is received.  Finally, Canada argues that the 
methodology used by DOC resulted in an inflated inte rest expense that included  cost data on financial 
expense that did not "pertain to production and sales" of softwood lumber, as required by 
Article 2.2.2. 
7.231  The United States replies that the theory underlying the use of the methodology applied by 
DOC to determine the amount for financial expense is  that financial costs should be allocated based 
on the overall expenses incurred by a company to  produce products, because financial costs are 
directly related to a company's working capital requ irements.  In the view of the United States, the 
methodology used by DOC is reasonable, as required by  Article 2.2.  Specifically related to Canada's 
claim, the United States asserts that DOC consider ed Abitibi's arguments on the calculation of the 
amount for financial expense, but ultimately disag reed with them, and as explained in the IDM 
allocated Abitibi's financial cost based on its own methodology.  The United States notes that DOC 
found in the IDM that, because money is fungible,  a company can use proceeds for a variety of 
corporate purposes, and it is irrelevant which cash outlay came from a specific loan or sales transaction.  What is relevant is the company's overall need to borrow money to fund its overall 
production operations (i.e., equipment purchases as well as cost of production inputs).  Contrary to 
                                                     
 
366 Exhibit CDA-2, IDM, Comment 15, p. 77. WT/DS264/R 
Page 130  
 
Canada's arguments that DOC ignored the asset-l aden nature of Abitibi's non-lumber producing 
divisions, the United States asserts that DOC found in the IDM that DOC's methodology addresses 
Abitibi's concern that those activities are more ass et-intensive.  Specifically, those activities would 
have a higher depreciation expense on their equipm ent and assets.  Thus, when the consolidated 
financial expense rate is applied to the cost of manufacturing of lumber products, less interest will be 
applied because the total cost of manufacturing for lumber products includes a lower depreciation 
expense.  Thus, the United States argues that the methodology applied by DOC to allocate financial 
costs to Abitibi's softwood lumber production w as based on a proper establishment, and on an 
unbiased and objective evaluation, of the facts. 
7.232  Japan asserts that Article 2.2.1.1 imposes an oblig ation on an investigating authority to 
accept a respondent's accounting records for the production and sale of the product under 
consideration, including SG&A, unless that authority finds that those records do not "reasonably reflect" the costs.  In the view of Japan, a determin ation of an investigating authority to depart from 
the respondent's records must, therefore, be based on  its review of the accounting records of a specific 
respondent on a case-by-case basis.  Japan furthe r asserts that, an investigating authority must 
determine the amounts for SG&A costs based on al l evidence submitted by respondents, and on an 
unbiased and objective evaluation of the facts.  Japan  argues that, if DOC applied a pre-determined 
methodology to a particular respondent without revi ewing any evidence submitted by that respondent, 
such application would be inconsis tent with Article 2.2.1.1 of the AD Agreement  in conjunction with 
Article 17.6(i) thereof.   
(c) Evaluation by the Panel 
7.233  We note that in the Panel Request Canada claims violations of Articles 2 of the AD 
Agreement  and VI:1 of the GATT 1994 .
367  However, in its restatement of claims and in its 
submissions to the Panel, Canada only asserts violati ons of Articles 2.2, 2.2.1, 2.2.1.1, 2.2.2 and 2.4 
with respect to Abitibi's determination of the amounts for financial expense for softwood lumber.368  
Accordingly, we will limit our examination to those claims. 
7.234  Bearing this in mind, we note that DOC derive d the amounts for financial costs attributable to 
Abitibi's softwood lumber production through a propor tionate allocation among all goods produced by 
that company, based on COGS.369  Canada raises several claims in respect of these facts.  First , 
Canada asserts that, in selecting its alloca tion methodology for calculating the amounts for 
financial/interest costs, DOC failed to "consider all available evidence on the proper allocation of 
costs", as required by Article 2.2.1.1.  Second , Canada argues that, in determining the amounts for 
financial costs as it did, DOC over-allocated Abitibi's group-wide interest expense to Abitibi's cost of 
production and sale for softwood lumber by attrib uting to softwood lumber amounts for financial 
expense that related to Abitibi's other products, a nd thus failed to result in an allocation that 
"reasonably reflects the costs associated with the production and sale of the product under consideration" for Abitibi, as required by Article 2.2.1.1.  Third , the application of DOC's 
methodology resulted in an inflated amount for inter est costs because it included actual cost data on 
financial expense that did not "pertain to produc tion and sales" of softwood lumber, in breach of 
Article 2.2.2.  
7.235  Because Canada's first two claims relate to Article 2.2.1.1 of the AD Agreement , we first 
examine the nature of the obligations in that ar ticle.  Article 2.2.1.1 pr ovides in pertinent part: 
"costs shall normally be calculated on the basis of records kept by the exporter or 
producer under investigation, provided that  such records are in  accordance with the 
                                                     
 
367 WT/DS264/2, para. 3(c). 
368 Canada response to question 1 of the Panel, para. 1(vi). 
369 See paras. 7.227-7.229, supra .   WT/DS264/R 
 Page 131 
 
 
generally accepted accounting principles of the exporting country and reasonably 
reflect the costs associated with the production and sale of the product under consideration.  Authorities shall consider a ll available evidence on the proper allocation 
of costs, including that which is made av ailable by the exporter or producer in the 
course of the investigation provided that such  allocations have been historically utilized 
by the exporter or producer... " 
7.236  Article 2.2.1.1 contains a number of obligations relating to an investigating authority's cost 
calculations for the purpose of determining whether home market sales are in the ordinary course of 
trade and for calculating a constructed (normal) value.  First , it provides guidance regarding the 
preferred data source for performing such calculations .  Specifically, Article 2.2.1.1 requires that costs 
be calculated on the basis of records kept by the exporter or producer under investigation, provided 
that such records are in accord ance with the GAAP of the exporting country and reasonably reflect the 
costs associated with the productio n and sale of the product under consideration.  Where records are 
not kept in accordance with the GAAP of the exporti ng country or do not reas onably reflect the costs 
associated with the production and sale of the product under consideration, an investigating authority 
may calculate costs on another basis.
370  Second,  Article 2.2.1.1 requires th at investigating authorities 
consider all available evidence on the proper allo cation of costs including that which is made 
available by respondents in the context of an anti-dumping investigation, provided that  such 
allocations have been historically utilised by the exporter or producer.  Third , and not at issue here, 
Article 2.2.1.1 provides for the adjustment  of costs under certain circumstances. 
7.237  In our view, Article 2.2.1.1 imposes certain pos itive obligations on investigating authorities, 
including the obligation to calculate costs on the b asis of records kept by the exporter or producer 
under investigation and to consider all available evidence on the proper a llocation of costs.  Neither of 
these obligations is absolute, however, as in  both cases the obligati ons apply only if (" provided ") 
certain conditions are met.  The role of these conditions is therefore not to impose positive obligations 
on Members, but to set forth the circumstances under which certain positive obligations do or do not 
apply.  Thus, Article 2.2.1.1 does not in our view require that costs be calculated in accordance with 
GAAP nor that they reasonably reflect the costs a ssociated with the production and sale of the product 
under consideration.  Rather, it simply requires that costs be calculated on the basis of the exporter or 
producer's records, in so far as  those records are in accordance w ith GAAP and reasonably reflect the 
costs associated with the production and sale of  the product under consideration.  Similarly, 
Article 2.2.1.1 does not require that all allocations made by an investigating authority have been 
historically utilised by the exporter or producer; rath er it simply provides that investigating authorities 
must consider all available evidence on the proper a llocation of costs, including that made available 
by respondents, insofar as  such allocations have been historically utilised by the exporter or producer.  
Bearing this in mind, we shall examine Cana da's arguments relating to Article 2.2.1.1. 
7.238  We note that DOC stated in the IDM that it had developed "a consis tent and predictable 
practice for calculating and allocating financial expenses".371  We also note that, in the questionnaire, 
DOC directed Abitibi to calculate  the finance expense ratio on the basis of that methodology.372  
Canada asserts that DOC failed to make case-speci fic findings, applied gene ric reasoning in defence 
of its methodology and asserted that  its established practice would be followed because it is consistent 
and predictable.  In the view of Canada, this proves that DOC failed to "consider all available 
evidence on the proper allocation of costs", as required by Article 2.2.1.1.  After having carefully read 
the relevant portion of the IDM373, we are in no doubt that DOC made case-specific factual findings 
with respect to Abitibi's financial expense determin ation.  We do not consid er that using generic 
reasoning in support of a specific determination cons titutes, in and of itself, a reason which would 
                                                      
370 See, in this regard, paras. 169 and 170 of Canada second written submission.  
371 See para. 7.228, supra . 
372 We do not understand the United St ates to contest these facts.  
373 See para. 7.228, supra . WT/DS264/R 
Page 132  
 
justify a conclusion that the United States has failed to  comply with Article's 2.2.1.1 requirement that 
"[a]uthorities shall consider all available evidence on  the proper allocation of costs".  In our view, 
reasoning – whether generic or specific – is similarl y valid and both can be used in support of any 
given conclusion.  In the case before us, the IDM shows that not only generic but also specific 
reasoning was used by DOC in support of its c onclusion as to how financial expense should be 
allocated, as discussed in further detail below.  Canada's next argument concerns DOC's alleged 
assertion that "established practice would be followe d because it is consistent and predictable".
374  
DOC stated in the IDM that: "[b]ecause there is no br ight-line definition in the [Tariff] Act of what a 
financial expense is or how the financial expense rate should be calculated, [DOC] has developed a 
consistent and predictable practice for cal culating and allocating financial expenses".375  Having 
examined this statement in context, we consider th at what DOC stated in the IDM is that it disagreed 
with Abitibi that DOC should depart from its estab lished practice of calculating the amounts for 
financial costs based on the financial expense a nd COGS from the parent company's consolidated 
financial statements.  The statement contained in the IDM that DOC has developed "a consistent and 
predictable practice for calculating and allocating fina ncial expenses" does not prove in our view that 
DOC's "established practice would be followed in  Abitibi's case because it is consistent and 
predictable."  This brings us to the examination of Canada's assertion that DOC did not make case-
specific factual findings for Abitibi on this matter.   There are several references in the IDM that 
indicate to us that DOC considered at the time of  determination evidence and arguments put forth by 
Abitibi on the issue at stake.  First, DOC asserts th at the "record of this investigation does not support 
the conclusion that [DOC's] methodology distorts the allocation of Abitibi's financial expenses".  
Such a statement could not be made without DOC having examined the evidence and considered the 
arguments relevant to the issue at issue.  An ex amination of the ensuing discussion in the IDM shows 
that DOC considered the main argument that Abitibi  put forward in support of its proposed allocation 
methodology, i.e., that DOC should allocate fina ncial expense on the basis of an asset-based 
methodology.  Finally, Canada argues that DOC c ould not have complied with its obligations under 
Article 2.2.1.1 without assessing the advantages and disadvantages of the methodology used by DOC 
and asset-based allocation methodologies in light of  the evidence submitted by Abitibi.  In our 
discussion of Article 2.2.1.1 in paragraphs 7.236-7.237 supra ,  we have set out our understanding with 
respect to the obligations imposed by that provision.  In our view, Article 2.2.1.1, when stating that "[a]uthorities shall consider all available evidence on  the proper allocation of costs", does not require 
that investigating authorities compare various a llocation methodologies to assess their advantages and 
disadvantages but to "consider" all available evidence  on the proper allocation of costs.  We find that 
DOC met the requirement set forth in Article 2.2.1.1.   
7.239  For the foregoing reasons, we cannot agree w ith the arguments submitted by Canada and 
therefore we reject Canada's contention that th e United States failed to "consider all available 
evidence on the proper allocation of costs". 
7.240  The second issue before us is whether the United States is in breach of Article 2.2.1.1 by 
failing to make an allocation of financial expen se to softwood lumber which "reasonably reflects the 
costs associated with the production and sale of  the product under consideration".  Specifically, 
Canada argues that DOC over-allocated Abitibi's group- wide interest expense to Abitibi's cost of 
production and sale for softwood lumber by attrib uting to softwood lumber amounts for financial 
expense that related to Abitibi's other products.  The parties agree on that Article 2.2.1.1 does not 
impose on investigating authorities any particular methodology for the purpose of allocating costs.
376 
7.241  In examining this issue, we first recall our findi ngs with respect to the obligations imposed by 
Article 2.2.1.1 in paragraphs 7.236-7.237, supra , in particular our conclusion that we do not consider 
that Article 2.2.1.1 imposes positive obligations on investigating authorities other than those explicitly 
                                                      
374 Canada second written submission, para. 199. 
375 See para. 7.228, supra . 
376 Canada response to question 38 of the Panel, para. 117 and US first written submission, para. 182.  WT/DS264/R 
 Page 133 
 
 
provided therein.  Canada asserts before us that "a COGS allocation methodology for interest expense 
cannot meet the requirements of Article 2.2.1.1 b ecause it cannot establish interest expense for Abitibi 
that "reasonably reflects the costs associated with the production and sale of the product under consideration"."
377  In our view, Article 2.2.1.1 does not impo se the obligation that Canada seeks us to 
find.  The proviso of Article 2.2.1.1 requires, in our view, that costs must normally  be determined on 
the basis of the records kept by the producer or exporter under investigation provided that such 
records reasonably reflect the costs associated with the production and sale of the product under 
consideration.  Hence, even if Canada's contention that the methodology used by DOC in order to calculate the amounts for financial costs for Ab itibi over-allocated financial expense to softwood 
lumber were to be correct, we would be unable to  conclude, on that basis, that DOC's methodology 
cannot meet the requirements of Article 2.2.1.1.  Fo r the foregoing reasons, we must reject Canada's 
claim.  
7.242  Furthermore, even if Article 2.2.1.1 had contai ned such an obligation, we should still dismiss 
Canada's claim under Article 2.2.1.1.  This provision establishes that authorities must consider "all available evidence on the proper allocation of costs,  including that which is made available by the 
exporter or producer in the course of the investigation provided that such allocations have been 
historically utilized  by the exporter or producer".  (emphasis ad ded)  Canada has not argued that the 
allocation methodology proposed had been  "historically utilized" by Abitibi.
378  In addition, the 
methodology proposed by Abitibi had a number of shortcomings.379  During the course of the 
proceedings, it has become evident to us that  DOC's methodology could also be criticised.380  O n  
balance, however, it is evident to us that both methodologies have shortcomings and advantages and 
hence, it is up to the investigating authority, as a trier of facts, to decide which one of the possible 
methodologies would lead to the most accurate result.  This is a dete rmination that, we believe, a panel 
cannot overturn without involving a de novo review.  In any case, Canada bears the burden to prove that 
the methodology used by the United States had lead  to unreasonable results and that an unbiased and 
objective investigating authority could not have calcul ated the amounts for finance expense for softwood 
lumber for Abitibi on the basis of the methodology used  by DOC.  We are of the view that Canada has 
not met this burden.  Hence, even if Canada's argu ment had found support in the text of Article 2.2.1.1 – 
which as we found in paragraph 7.241, supra,  does not, we would have rejected it on this ground.  
7.243  Canada argues that the calculation of the amounts for financial expense was not based on 
"actual data pertaining to production and sales" of softwood lumber, as required by Article 2.2.2 of 
the AD Agreement .  Canada asserts that, based on evid ence from Abitibi's financial statement, 
Abitibi's lumber operations required 7.6 per cent of  the company's total assets;  hence, softwood 
lumber should have been allocated 7.6 per cent of the company's total financial expense.  However, 
Canada asserts that DOC allocated 13.6 per cent of  the total amount for financial expense to the 
product under consideration; thus ignoring the ev idence submitted by Abitibi that financial expense 
was incurred in relation to assets.  In so doing, Canada  asserts that DOC attributed to softwood lumber 
amounts for financial expense that did not "pertain " to the production and sale of softwood lumber, 
contrary to Article 2.2.2. 
7.244  The issue before us is therefore whether, in determining the amount for financial expense in 
the manner DOC did, DOC attributed to softwood lu mber interest costs beyond those "pertaining to" 
                                                      
377 Canada second written submission, para. 200. 
378 In fact, based on the information made available to us in the context of these proceedings, it would 
appear that this allocation methodology was develo ped by Abitibi for the purposes of the anti-dumping 
investigation at issue.  Thus, Canada acknowledges that "Canadian GAAP do not permit companies to report 
interest expenses incurred by business segment or product.  Instead, all financial expenses must be aggregated 
and reported separately as a distinct line item on the Income Statement". (Canada second written submission, 
para. 183) 
379 See e.g. US second oral (opening) statement, para. 68. 
380 See e.g. Canada response to question 116 of the Panel, paras. 89-97. WT/DS264/R 
Page 134  
 
softwood lumber.
381  We understand Canada's argument to r est on the fact that DOC determined the 
amounts for financial expense for softwood lumber based on an improper allocation methodology.  However, bearing in mind our conclusion in paragraph 7.241, supra , we consider that, based on the 
facts before DOC at the time of determination, an  unbiased and objective investigating authority could 
have computed the amount for financial expense to be attributed to softwood lumber on the basis of 
the methodology used by DOC for Abitibi.  Having reached this conclusion, and taking into account 
that Canada has not advanced any other argument in support of its claim under Article 2.2.2, we 
conclude that Canada has not established that th e United States acted inconsistently with that 
provision in determining the amount for financ ial expense for softwood lumber based on the 
methodology used by DOC.   
7.245  Finally, Canada claims violations of Articles 2.2, 2.2.1 and 2.4 of the AD Agreement .  With 
respect to Articles 2.2 and 2.2.1, Canada asserts th at an incorrect calculation of costs impacts the 
determination of which sales may be used in establis hing normal value contrary to Article 2.2.1, as 
well as the calculation of constructed (normal) value,  contrary to Article 2.2.  With respect to 
Article 2.4, Canada asserts that, where the calculatio n of costs results in an improper normal value, a 
fair comparison will not be possible in violation of Article 2.4.  Thus, we understand Canada's claims 
under Articles 2.2, 2.2.1 and 2.4 to rest upon a finding of violation of either Article 2.2.1.1 or 2.2.2 or of both.  Having concluded that, in determining the amounts for financial expense to be attributed to 
softwood lumber, the United States did not violate Articles 2.2.1.1 and 2.2.2, we find that Canada's dependent claims under Articles 2.2, 2.2.1 and 2.4 fail. 
K. C
LAIM 8: ARTICLES 2.2, 2.2.1,  2.2.1.1,  2.2.2  AND 2.4 – DETERMINATION OF GENERAL & 
ADMINISTRATIVE EXPENSES : TEMBEC  
(a) Factual Background  
7.246  Tembec divides its operations into five separat e divisions.  One of those divisions, the FPG, 
consists primarily of saw mill operations which produce inter alia  softwood lumber.  In its 
consolidated audited financial statement for the year 2000, as reflected in its Annual Report, Tembec 
reports an amount for SG&A costs for the compan y as a whole.  The Annual Report also contains 
certain segmented information for the five divisions, but does not break out G&A costs by division.  However, internal divisional financial statemen ts kept by Tembec report separate amounts for G&A 
expenses for each division, including those amounts for G&A costs that are charged directly by 
Tembec to each of its divisions, plus an allocat ed portion of the corporate-level G&A.  DOC's 
questionnaire requested that the exporter calculate the G&A ratio by dividing total company-wide 
G&A expenses by total company-wide COGS.
382  In addition to calculating the G&A ratio as 
requested by DOC,  Tembec calculated the G&A rati o by dividing the total amount of G&A expenses 
for the FPG – which included those amounts for G&A co sts directly charged to that division and an 
allocated portion of the corporate-level G&A expenses – by the total cost of sales (minus packing) for 
the FPG divisional data.383  That is, instead of calculating the G&A ratio on the basis of company-
wide data, Tembec did so on the basis of divisional data (FPG).  For the re asons set out in detail infra , 
DOC rejected Tembec's proposed G&A calculati on methodology and determined Tembec's G&A 
ratio using a factor derived from its co mpany-wide financial earnings statement: 
"[t]he statute at sections 773(b)(3)(B) and 773( e)(2)(A) directs [DOC] to calculate an 
amount for selling, general and admini strative expenses based on actual data 
pertaining to the production and sale of the merchandise under consideration.  The 
                                                      
381 It is not disputed by parties that the financial expense at issue is part of the SG&A costs referred to 
in Article 2.2.2.  
382 Canada first written submission, para. 209. 
383 Exhibit CDA-159, Tembec's Questionnaire Response, Section D, p. D-28.  See also Exhibit US-73, 
Tembec's Cost Verification Report, p. 26.   WT/DS264/R 
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antidumping law does not prescribe a specific method for calculating the G&A expense rate. When a statute is silent or  ambiguous, the determination of a reasonable 
and appropriate method is left to the di scretion of [DOC].  Because there is no 
definition in the Act of what a G&A expen se is or how the G&A expense rate should 
be calculated, [DOC] has developed a c onsistent and predictable practice for 
calculating and allocating G&A expenses.  Th is consistent and predictable method is 
to calculate the rate based on the company- wide G&A costs incurred by the producing 
company allocated over the producing company's company-wide cost of sales and not on a divisional or product-specific basis.  This practice is identified in [DOC]'s 
standard section D questionnaire, which inst ructs that the G&A expense rate should 
be calculated as the ratio of total company- wide G&A expenses divided by cost of 
goods sold.  See Section D Questionnaire, page D-14.  This approach is consistent 
with Canadian GAAP's treatment of such  period costs and recognizes the general 
nature of these expenses and the fact that they relate to the activities of the company 
as a whole rather than to a particular production process.   [DOC]'s methodology also 
avoids any distortions that may result if, for business reasons, greater amounts of 
company-wide general expenses are allocated disproportionally between divisions.  Therefore, we normally calculate the G&A expense rate based on the respondent's 
unconsolidated operations plus, if applicab le, a portion of G&A expenses incurred by 
affiliated companies on behalf of the respondent. 
Tembec deviated from [DOC]'s normal methodology and calculated its G&A 
expenses using an internal accounti ng methodology, under which the company 
charged some G&A expenses directly to each of its divisions.  However, Tembec divisions are not separate entities that require consolidation but merely separate business units that make up a single corporati on.  Thus, we agree with petitioners that 
we cannot consider the divisional P&L st atements as "unconsolidated financial 
statements".  For the final determination,  we have based Temb ec's G&A expense rate 
calculation on Tembec Inc's company-wide income statement."
384 (footnote omitted; 
emphasis added) 
(b) Arguments of the Parties/Third Parties 
7.247  Canada  asserts that the approach adopted by DOC  in order to determine the amounts for 
G&A costs for Tembec resulted in a distorted alloca tion of costs associated with the production of 
softwood lumber.  Canada asserts that, by re jecting the verified evidence from Tembec and 
calculating G&A expenses based on costs incurred on a company-wide basis, DOC allocated G&A 
expenses in a manner that did not reasonably reflect  the costs associated with the production and sale 
of softwood lumber, in violation of Article 2.2.1.1.   In this respect, Canada asserts that DOC did not 
engage in an unbiased and obj ective evaluation of the facts presented by Tembec in selecting the 
methodology for allocating G&A costs in violation of Article 2.2.1.1.  Canada further argues that, in 
adopting the above methodology, DOC acted inconsiste ntly with Article 2.2.2.  Referring to the 
Thailand – H-Beams Panel Report, Canada states that DOC's use of company-wide expenses resulted 
in the inclusion of amounts for G&A costs pertaining to the production of non-investigated products and accordingly, failed to result in total cost figures  that accurately represented the cost of producing 
softwood lumber.  Canada requests the Panel to reject  the US argument that Tembec's FPG data were 
not "audited" and not kept in accordance with Canadian GAAP as ex post rationalization.  In any case, 
Canada argues that the FPG divisional data were  audited and maintained in accordance with GAAP. 
7.248  The United States replies that DOC refused Tembec's proposed methodology on two 
grounds.  First, DOC determined that, because the division-specific amount at issue was un-audited, it 
was inherently less reliable than audited books and r ecords that had been certified to be consistent 
                                                     
 
384 Exhibit CDA-2, Comment 33, pp. 105-106. WT/DS264/R 
Page 136  
 
with Canadian GAAP.  According to the United St ates, there was greater certainty that audited 
GAAP-consistent books and records would "reasonably reflect the costs" of softwood lumber.  
Second, DOC determined that relying on division-speci fic costs was inconsistent with the very nature 
of G&A expenses, which are, by definition, compa ny-wide expenses.  The United States takes issue 
with Canada's statement that "[t]he G&A factor  derived from the FPG includes a properly allocated 
portion of corporate G&A…"
385  In the view of the United States,  implicit in this statement is an 
acknowledgement that the division-specific data, on th eir own, were an inaccurate basis for allocating 
G&A.  That number had to be supplemented by a portion of company-wide G&A to come up with a 
"derived" G&A amount for the FPG.  With respect to  the status of the FPG data, the United States 
asserts that Canada has been unable to provide evidence that Tembec's FPG divisional G&A records 
were kept in accordance with Canadian GAAP. 
7.249  Japan makes general comments on Canada's SG&A-re lated claims which are contained in 
paragraph 7.232, supra .   
(c) Evaluation by the Panel 
7.250  Tembec requested DOC to determine the am ounts for G&A costs based on its internal 
accounting methodology, under which the company charged some G&A expenses directly to each of 
its divisions.  In application of DOC's normal practi ce and DOC's treatment of all other respondents in 
the investigation,  DOC calculated the G&A expen se rate for softwood lumber by allocating Tembec's 
company-wide G&A costs over its production of all products based on company-wide COGS, and 
disregarded the FPG G&A figures on the basis of which Tembec had calculated the amounts for G&A costs for softwood lumber in its questionnaire res ponse.  In determining the amounts for G&A costs 
based on the company-wide rate, Canada asserts th at DOC overstated the costs of producing softwood 
lumber, resulting in a cost of production that did not  reasonably reflect costs associated with Tembec's 
production of softwood lumber, contrary to Article 2. 2.1.1,  and included costs that did not pertain to 
the production and sale of softwood lumber, contra ry to Article 2.2.2.  In adopting such a 
methodology, Canada asserts that DOC also violated Articles 2.2, 2.2.1 and 2.4 of the 
AD Agreement .
386  
7.251  Canada argues that the record demonstrated  that the FPG G&A data more accurately 
"pertained to" the production of softwood lumber.  By contrast, in the view of Canada Tembec's 
company-wide data could not be said to "pertain to" the production and sale of the like product in Canada because those figures repres ent the company's world-wide production of a broader range of 
products.  Canada asserts that DOC's method effectivel y required reliance on data that did not pertain 
to the production and sale of softwood lumber and di storted Tembec's margin of dumping in violation 
of Article 2.2.2.  In addition, Canada argues th at DOC's methodology resulted in the calculation of 
costs that were not "associated with" the actual cost to Tembec of producing and selling softwood 
lumber, contrary to Article 2.2.1.1.  The United St ates replies that DOC determined that relying on 
division-specific costs was inconsistent with th e very nature of G&A expenses, which are, by 
definition, company-wide expenses. 
7.252  We note that parties have differing views regardi ng the nature of the obligations contained in 
Articles 2.2.1.1 and 2.2.2, and, in particular, rega rding the manner in which an investigating authority 
is to derive the amounts for G&A costs for the pr oduct under investigation.  In essence,  Canada 
                                                     
 
385 Canada first written submission, para. 220. 
386 We note that, in the Panel Request, Canada claims violations of Articles 2 of the AD Agreement  and 
VI:1 of the GATT 1994 .  (WT/DS264/2, section 3(c))  In its restatem ent of claims, however, Canada only claims 
violations of Articles 2.2, 2.2.1 and 2.4 of the AD Agreement  – in addition to those under Articles 2.2.1.1 and 
2.2.2 – with respect to this specific claim. (Canada response to question 1 of the Panel, para. 1(vi))  For the 
foregoing reasons, we will refrain from addressing claims not contained in the restatement of claims and from 
ruling on those claims.   WT/DS264/R 
 Page 137 
 
 
contends that Articles 2.2.1.1 and 2.2.2 obliged  DOC to base its G&A calculations for softwood 
lumber on product-specific G&A costs, at least to th e extent possible, and that DOC was thus obliged 
to calculate the amounts for G&A costs for softw ood lumber on the G&A data for the narrower FPG 
division rather than on the G&A data for the company as a whole.  The United States on the other hand considers that G&A costs are by definition co mpany-wide, and that neither Article 2.2.1.1 nor 
2.2.2 requires an investigating aut hority to link particular G&A expen ses to particular products.  We 
note, however, the US argument that DOC's determ ination not to use the FPG divisional G&A data 
was justified under Article 2.2.1.1 because the FP G records did not reasonably reflect the (G&A) 
costs associated with the production and sal e of the product under consideration.   
7.253  Article 2.2.1.1 provides, in relevant part, as follows: 
"costs shall normally be calculated on the basis of records kept by the exporter or 
producer under investigation, provided that  such records are in  accordance with the 
generally accepted accounting principles of the exporting country and reasonably 
reflect the costs associated with the production and sale of the product under consideration.  Authorities shall consider a ll available evidence on the proper allocation 
of costs, including that which is made av ailable by the exporter or producer in the 
course of the investigation provided that such  allocations have been historically utilized 
by the exporter or producer... " 
7.254  In accordance with this provision, costs shall normally be calculated on the basis of records 
kept by the exporter or producer under investigation, provided that, inter alia , such records are in 
accordance with the GAAP of the exporting country.
387  Data which are not GA AP-compliant might be 
found not to be reliable and, hence, not be used as the basis for the cost calculation.   
7.255  We note that DOC calculated the amounts for G&A costs for Tembec dividing the company-
wide G&A by the total COGS, as explained in the IDM (see paragraph 7.246, supra ).  We do not 
understand Canada to argue that the use of this methodology is per se  inconsistent with 
Article 2.2.1.1.  In any case, we do not read in Artic le 2.2.1.1 a requirement that the determination of 
the amounts for G&A costs must be done in any particular manner or based on any particular 
methodology. 
7.256  Furthermore, we note that the respondent re quested DOC to determine the amount for G&A 
costs using an "internal accounting methodology", as stated in the IDM.388  The United States asserts 
that, because the division-specific amount at issue w as unaudited, it was inherently less reliable than 
audited books and records that had been certifie d to be in accordance with Canadian GAAP.  
According to the United States, there was greater certa inty that audited GAAP-consistent books and 
records would "reasonably reflect the costs".  Cana da notes that Tembec had argued in its Case Brief 
that the G&A based on data from the FPG was most accurate.  According to Canada, data from both 
the FPG division and the overall company, both fully audited and compiled according to GAAP, were on the record and verified by DOC officials.  In addition, Canada argues that the US assertion that 
Tembec's FPG divisional G&A data were not aud ited and not kept in accordance with Canadian 
GAAP constitutes post hoc rationalization.  Canada asserts that, in the context of the investigation, 
DOC considered the FPG data reliable for all cost s purposes, except for the calculation of the amounts 
for G&A costs.   
7.257  DOC justified its decision not to calculate Tembec's amount for G&A costs on the basis of the 
methodology proposed by the exporter on two bases.
389  First, DOC calculates the amount for G&A 
                                                      
387 See paras. 7.236-7.237, supra . 
388 See para. 7.246, supra.  
389 It is stated in relevant portion of the IDM ( see para. 7.246, supra ) that: 
 WT/DS264/R 
Page 138  
 
based on the respondent's unconsolidated operations plus, if applicable , a portion of G&A expenses 
incurred by affiliated companies on behalf of the respondent.  In the case of Tembec, DOC found that 
"Tembec['s] divisions are not separate entities that require consolidation but merely separate business units that make up a single corporation".  DOC's second justification is that using its methodology 
"avoids any distortions that may result if, for business reasons, greater amounts of company-wide 
general expenses are allocated disp roportionally betw een divisions". 
7.258  We are therefore faced with a situation where DOC, in the course of the investigation, had 
examined the methodology proposed by Tembec and,  on several grounds, DOC rejected it and used 
another methodology to determine the amounts fo r G&A costs for Tembec's softwood lumber 
operations.  DOC's arguments, as we understa nd them, revolve around the issue of the incompleteness  
of the amounts for G&A costs resulting from the a pplication of the methodology proposed by the 
exporter.  In other words, they reflect the inv estigating authority's concern that amounts for G&A 
costs calculated from G&A data for the FPG divi sion, including an allocated amount from the 
corporate G&A, might not include all the G&A costs associated with  the production and sale of the 
product under consideration.  Hence, the resulting amounts for G&A costs would not reflect all the 
G&A costs pertaining to the production and sale of  softwood lumber.  We can imagine situations 
where, for various reasons, a company might decide to  charge a certain G&A cost item to a particular 
division, even where other divisions might benef it from that particular item.  A good example to 
illustrate this, might be car park costs.  The car pa rk is used by divisions A and B.  The costs of the 
car park are recorded in the books of division A and do not form part of the corporate G&A costs. In 
the event of an anti-dumping investigation targeting a product manufactured by division B, an amount 
for G&A costs based on data on G&A costs from division B plus a duly apportioned part of the 
corporate G&A costs, in our view, would not incl ude all G&A costs associ ated with the production 
and sale of the product subject to investigation.  For the foregoing reasons, we do not consider that 
rejecting a methodology that would have the effect  of excluding certain G&A cost items from the 
calculation of the amounts for G&A costs for the pr oduct under investigation w ould not be consistent 
with Article 2.2.1.1 of the AD Agreement .  In our view, a determination as to whether such a rejection 
would be consistent or not with Article 2.2.1.1 can only be made after carefully considering the 
specific facts before an investigating authority.   
7.259  In the case before us, we recall that DOC found that "Tembec['s] divisions are not separate 
entities that require consolidation but merely se parate business units that make up a single 
corporation".
390  This finding has not been contested by Canada.  The question before us is to 
determine whether Tembec had demonstrated that the G&A data from the FPG division, including an 
allocated portion from G&A's corporat e expenses, was complete.  We have examined in particular 
Exhibits CDA-95, 96 and 149.  The "Revised Calc ulation of the G&A Ratio for the FPG Division", 
contained in Exhibit CDA-95 shows that G&A cost data  for that division was verified and that some 
                                                                                                                                                                     
"[DOC's] methodology (…) avoids any distortions that may result if, for business reasons, 
greater amounts of company-wide general expenses are allocated disproportionally between 
divisions. Therefore, we normally calculate th e G&A expense rate based on the respondent's 
unconsolidated operations plus, if applicable, a portion of G&A expenses incurred by 
affiliated companies on behalf of the respondent. 
Tembec deviated from [DOC]'s normal methodology and calculated its G&A expenses using 
an internal accounting methodology, under which the company charged some G&A expenses 
directly to each of its divisi ons.  However, Tembec divisions are not separate entities that 
require consolidation but merely separate business  units that make up a single corporation.  
Thus, we agree with petitioners that we cannot consider the divisional P&L statements as 
"unconsolidated financial statements".  For the final determination, we have based Tembec's 
G&A expense rate calculation on Tembec Inc's company-wide income statement". (footnote 
omitted)  
390 See para. 7.246, supra .  WT/DS264/R 
 Page 139 
 
 
items were traced to Tembec's year 2000 Annual Re port.  A verification sheet containing a breakdown 
of SG&A cost items for each of the five divi sions – including the FPG – is also included in 
Exhibit CDA-95.  While the total amounts for SG&A  costs for the FPG division contained in this 
verification sheet coincide with the total amounts for SG&A costs fo r the FPG division used in the 
"Revised Calculation of the G&A Ratio for the FPG Division", this does not sh ow that there were no 
G&A costs under any of the other four divisions that pertained to the production and sale of the product 
under investigation.  Canada has not pointed to any ev idence on the record to that  effect.  We therefore 
conclude that DOC was entitled to depart from Tembec 's FPG division-specific records and calculate the 
amounts for G&A costs based on Tembec' s audited company-wide G&A data.391,392 
7.260  We therefore find that an unbiased and objective investigating authority could have 
determined the amounts for G&A expenses for so ftwood lumber as DOC did and hence reject 
Canada's claim that the United States acted in violation Article 2.2.1.1.   
7.261  Canada claims that Tembec's company-wide G&A data, a portion of which was allocated to 
softwood lumber, could not "pertain to" the productio n and sale of the like product in Canada because 
those figures represent Tembec's worldwide production,  including products other than those subject to 
investigation and that the United States has therefore violated Article 2.2.2.  For this reason, Canada 
argues that DOC's methodology resulted in reliance on data which did not pertain to the production 
and sale of softwood lumber.  The United States rep lies that DOC determined that relying on division-
specific costs was inconsistent with the very natu re of G&A expenses, which are, by definition, 
company-wide expenses. 
7.262  Article 2.2.2 provides in relevant part: 
"[f]or the purpose of paragraph 2, the am ounts for administrative,  selling and general 
costs and for profits shall be based on actual data pertaining to pr oduction and sales in 
the ordinary course of trade of the like product by the exporter or producer under 
investigation". 
7.263  We consider that the text of the provision is  self-explanatory: investigating authorities are 
required to calculate the amounts for, inter alia , G&A costs based on actual data pertaining to 
production and sale in the ordinary course of trade of the like product.  Article 2.2.2 does not provide for any particular methodology in order to determine those amounts.
393  Canada focuses on the terms 
"pertain to" in that provision.  In our view, it is  important however to start our examination from the 
term "general and administrative costs".  We note that this provision does not define "general" and 
"administrative" costs nor does it state which cost items should be considered to be "general" or 
"administrative" costs.394  The term "general" is defined as " 1 b including or affecting all or nearly all 
parts or cases of things".395  Thus, "general costs" would be costs affecting all or nearly all products 
                                                      
391 The parties disagree as to whether or not the di visional statements – including that of the FPG – 
were audited.  While this might have been relevant, after a careful examination of Tembec's Annual Report 
contained in Exhibits CDA-94 and 148 and US-12 we cannot conclude that the divisional statements were 
audited.   
392 Canada argues that DOC considered the FPG data  reliable for all costs purposes, except for the 
purpose of calculating the amounts for G&A costs.  We do not consider that this argument would alter our 
conclusion, even if Canada's statement were to be correct .  The fact that DOC might have used cost data from 
the FPG division for purposes other than calculating the amounts for G&A costs does not constitute an 
acknowledgement on the part of DOC that the FPG division G&A records were complete.  We are of the view 
that, if they had been complete, Tembec would not have had to allocate a portion of  the corporate G&A to the 
FPG division in order to arrive at the amounts for G&A costs for softwood lumber.   
393 See in this regard Canada response to question 38 of the Panel, para. 117. 
394 As the parties' arguments revolve around the te rms "general" and "adminis trative" costs, we will 
focus our examination on those concepts and will not examine the term "selling" costs.   
395 The Concise Oxford Dictionary of Current English  (Clarendon Press, 1995), p. 564. WT/DS264/R 
Page 140  
 
manufactured by a company.  On the other hand, "administrative" is defined as "concerning or relating to the management of affairs".
396  "Administrative" costs are therefore costs concerning or 
relating to the management of the company's affairs.   Bearing this in mind, we consider that such 
costs can only have a bearing on all the products manufactured by a company, although in varying 
degrees.  Thus, by their nature , G&A costs are costs that will normally  affect all produc ts produced or 
sold by a company.  In this regard , Canada has stated before us that: 
""Administrative, selling and general costs"  (...) are costs that are not directly 
attributable to the product under investig ation or any particular product.  They 
• include such costs as management salaries and other corporate-level 
expenses that benefit all products that a company (or division within a 
company) may produce rather than specific products.   
• are usually listed on a company's consolidated financial statement, as a 
separate line item labelled G&A or SG&A.  They are recorded as an aggregate amount and are not attributed to specific products. 
• must be allocated to the product under investigation.  Where the 
company that produces the investigated product is the subsidiary of 
another company, an amount of the parent company's G&A that is attributable to the subsidiary's production of the investigated product 
will be allocated to it.  These are typically referred to as "headquarters" 
expenses and are costs that would be incurred by the subsidiary if the 
parent did not exist (i.e.,  accounting staff salaries, information 
technology expenses, etc.).  Only G&A costs that actually relate to the 
investigated product can be allocated to it.  An over-allocation of G&A expense that is incurred in relation to its other products results in an 
inflation of overall costs for the product at issue."
397 (emphasis added) 
7.264  Canada acknowledges that, inter alia , G&A costs "benefit all products that a company (or 
division within a company) may produce rather than specific products".  This confirms our 
interpretation about the terms "G&A costs".  In add ition, Canada asserts that they "are not directly 
attributable to the product under investigation or [to]  any particular product".  This is a reflection of 
the nature of those costs:  because  they are intended to affect a plurality of products, businesses, etc. 
within a company, it is normally not possible for a company to attribute these costs directly to any 
particular product.  It is clear that these are costs actually incurred by a compan y and, hence, that must 
be recovered by that company in order to make a pr ofit.  However, due to the very nature of these 
costs it is normally not possible to ascertain the preci se contribution by each product to these costs.  If 
a company were able to ascertain the precise cont ribution to these costs by a particular product, one 
would normally have expected the company to treat these costs as part of the cost of production of 
that product. 
7.265  We next examine the term "pertain to" within the meaning of the chapeau of Article 2.2.2.  
"Pertain" is defined as " 1 a relate or have reference to".398  In our view, a meaningful interpretation of 
the term "pertain[ing] to" must take into account  the nature of those costs because, as Canada 
acknowledges, they "are not directly attributable  to the product under investigation or [to] any 
particular product".  Thus, it would appear to us th at, unless a particular G&A cost can be tied to a 
particular product manufactured by a company, G&A costs – because normally they cannot be 
attributed to any particular product but are costs incurred by the company in the production and sale 
of goods – pertain or relate to all of those goods .  Canada's argument that G&A costs "benefit all 
products that a company (or division within a comp any) may produce rather than specific products" 
                                                      
396  Id., p. 18. 
397 Canada second written submission, para. 166. 
398 The Concise Oxford Dictionary of Current English  (Clarendon Press, 1995), p. 1021.  WT/DS264/R 
 Page 141 
 
 
supports our view.  If G&A costs benefit the production and sale of all goods that a company may produce, they must certainly relate or pertain to those goods, including in part to the product under investigation.   
7.266  The next issue we address is the attribution of G&A costs to discrete products produced or 
sold by a given company.  Article 2.2.2 of the AD Agreement  does not provide any guidance on this 
issue.  Different investigating au thorities use different allocation keys.  In the case before us, the 
United States used as an allocation key the followi ng: total company-wide G&A divided by the total 
company-wide COGS, thereby obtaining the G&A rati o for Tembec.  This was then multiplied by the 
cost of production for softwood lumber in order to obtain the amounts for G&A costs for softwood 
lumber.   As we do not understand Canada to have challenged the allocation methodology per se  used 
by the United States, but the use of company-wide  G&A data, we will refrain from ruling on whether 
that allocation methodology is c onsistent with Article 2.2.2.
399    
7.267  Canada claims that DOC cal culated an amount for G&A costs based on (company-wide) 
G&A data which, at least in part, did not pertain to  softwood lumber in violation of Article 2.2.2.  
Canada refers to the fact that the figures used  by DOC to calculate the G&A ratio "represent the 
worldwide production, 70 per cent of which is made up of paper, pulp and chemicals".400  Canada 
argues that DOC should have used instead the G&A ratio provided by Tembec.  However, we have 
found in paragraph 7.260, supra , that DOC was entitled not to use the data as proposed by Tembec 
because of concerns regarding its completeness.  Canada has not argued that there was any specific 
general or administrative cost item that – in its vi ew – did not "pertain to" softwood lumber.  Rather, 
Canada's contention is of a general nature:  company-wide figures "represent the worldwide 
production, 70 per cent of which is made up of pape r, pulp and chemicals".  As we have noted above 
and acknowledged by Canada, G&A costs – because of th eir nature – are in principle intended to have 
a bearing on all the products produced and sold by a specific company.  For this reason, we consider 
that, unless a producer/exporter can demonstrate that  the product under investigation did not benefit 
from a particular G&A cost item, an investigating authority is not precluded to attribute at least a 
portion of that cost to the product under investigati on.  The general assertions of the type made by 
Canada cannot, in our view, qualify as a demonstrat ion that the amounts for G&A costs as allocated 
by DOC did not relate to softwood lumber in any wa y.  We therefore find that the United States did 
not violate Article 2.2.2 by determining the G&A ratio – and the resulting amounts for G&A for 
softwood lumber – based on Tembec's company-wide G&A data.401  Canada's claim under 
Article 2.2.2 therefore fails. 
7.268  We next address Canada's claims under Articles 2.2, 2.2.1 and 2.4 of the AD Agreement .  
With respect to Articles 2.2 and 2.2.1, Canada as serts that an incorrect calculation of costs under 
Articles 2.2.1.1 and 2.2.2 impacts the determinati on of which sales may be used in establishing 
normal value contrary to Article 2.2.1, as well as the calculation of constructed (normal) value, 
contrary to Article 2.2.  Regarding Article 2. 4, Canada argues that any action taken by the 
investigating authority that is inconsistent with Artic les 2.2, 2.2.1, 2.2.1.1 and 2.2.2 would result in an 
"unfair comparison" between normal value and expor t price, in violation of Article 2.4 of the AD 
Agreement . 
                                                      
399 The methodology proposed by Tembec differs from the one used by DOC in that the numerator 
would include Tembec's FPG G&A data plus an allocated  portion of the "corporate headquarters" G&A data 
instead of the total company-wide data.  In turn, Tembec's denominator would have included the FPG's COGS 
rather than the total company-wide COGS. 
400 Canada second written submission, para. 221. 
401 We do not understand Canada to argue that the United States could not have complied with the 
requirement just discussed because  Tembec's company-wide figures re present the company's world-wide 
production, i.e., production and sales outside Canada.   WT/DS264/R 
Page 142  
 
7.269  We recall that, in paragraphs 7.260 and 7.267, supra,  we have concluded that Canada has not 
established that the United States has acted inconsis tently with Articles 2.2.1.1 and 2.2.2 of the 
AD Agreement .  Given that Canada's claims of violation of Articles 2.2, 2.2.1 and 2.4 are premised on 
violations of Articles 2.2.1.1 and 2.2.2, we c onclude that Canada has not established that the 
United States acted inconsistently with its oblig ations under Articles 2.2, 2.2.1 and 2.4 of the 
AD Agreement .
402     
L. CLAIM 9: ARTICLES 2.2, 2.2.1,  2.2.1.1,  2.2.2  AND 2.4 – DETERMINATION OF GENERAL & 
ADMINISTRATIVE EXPENSES : WEYERHAEUSER  
(a) Factual Background 
7.270  In its questionnaire response, Weyerhaeuser Canada , one of the Canadian producers subject to 
investigation, reported G&A costs incurred by We yerhaeuser Canada as well as G&A costs incurred 
by Weyerhaeuser Company (Weyerhaeuser Canada's parent company located in the United States), 
which, in its view, related to the production and sale of Canadian softwood lumber, the product under 
investigation.  Charges concerning the settlement of  legal claims relating to hardboard siding were not 
included in the G&A costs which Weyerhaeuser Co mpany reported in its questionnaire response.403  
These legal claims originated from sales of hard board siding in the US between 1981 and 1999.  
Following verification of the exporter's response, DOC suggested that the amount for settlement of 
those claims (US$130 million) might be more appr opriately included in Weyerhaeuser Company's 
G&A expenses, rather than in that co mpany's COGS as reflected in the IDM: 
"[s]ettlement claims are not a cost of goods sold, which is the base [DOC] typically 
uses to allocate G&A expenses.  Instead , these costs represent the settlement of 
claims against products sold in prior year s.  We note that these costs are included on 
the consolidated financial statements unde r the forest products group companies.  
While the costs relate to non-subject pr oduct, hardboard siding, [DOC] typically 
allocates business charges of this nature over all products because th ey do not relate 
to an production activity, but to the compan y as a whole.  We recognize that one time 
charges like this are ultimately a cost of doing business for the company.  Therefore, 
we have included them in the headquarter s G&A, but allocated them over all products 
in deriving the rate."404 
7.271  Thus, DOC concluded that the costs relating to  the settlement of legal claims on hardboard 
siding should be included in Weyerhaeuser Company's G&A, and allocated them over all products – including softwood lumber – in deriving the amounts for G&A costs for Weyerhaeuser Canada. 
(b) Arguments of the Parties/Third Parties 
7.272  Canada argues that DOC calculated an inflated  amount for the G&A costs included in 
Weyerhaeuser Canada's cost of producing softwood lu mber, contrary to Article 2.2.2, by including in 
its G&A calculation a US$130 million charge incurre d by Weyerhaeuser Company's for costs related 
exclusively to hardboard siding, a product Weye rhaeuser Company produced and sold in the 
United States.  In the view of Canada, that co st did not "pertain to" Weyerhaeuser Canada's 
production and sale of Canadian softwood lumber.  Ca nada claims that the finding of the panel in 
Egypt – Steel Rebar  that Articles 2.2.1.1 and 2.2.2 advocate a "relationship test" between costs and the 
production and sale of the like product at issue supports its argument.  In addition, Canada argues that 
                                                     
 
 402 Accordingly, we need not address the United States' argument, based upon the findings of the Egypt 
– Steel Rebar panel (para. 7.333), that Article 2.4 relates only to the comparison of export price and normal 
value, and does not regulate the establishment of the normal value as such. 
403 Canada first written submission, para. 226. 
 404 Exhibit CDA-2, IDM, Comment 48b, pp. 133-134.  WT/DS264/R 
 Page 143 
 
 
DOC improperly ignored Weyerhaeuser Company's books and records and established amounts for G&A costs for Weyerhaeuser Canada that did no t "reasonably reflect" its cost for producing and 
selling softwood lumber, contrary to Article 2.2.1.1.   In the view of Canada, Weyerhaeuser Company 
did not treat this settlement cost as a general expe nse on its records, nor di d it reasonably reflect the 
cost for producing or selling Canadian softwood lumber. 
7.273  The United States replies that DOC found that the cost s concerning the settlement of the 
hardboard siding claims were incurred years after the production of the hardboard siding at issue and 
were not part of the production process for that produ ct.  Therefore, those costs could not properly be 
considered a cost uniquely allocable to hardboard siding production, but that it was a cost  "of doing 
business" to the company as a whole.  In additi on, the United States contends that Weyerhaeuser 
Company treated those expenses as a general cost in  its audited financial statement.  The United 
States asserts that DOC explained that it "typically  allocates business charges of this nature over all 
products because they do not relate to [a] producti on activity, but to the company as a whole".  The 
United States asserts that DOC's decision on this i ssue is supported by Weyerhaeuser Company's own 
books and records, which include these litigation se ttlement costs as a general cost, as opposed to a 
COGS.  The United States argues that the inclus ion of litigation costs reported on a consolidated 
financial statement in G&A costs does not contradict the reasoning of Egypt – Steel Rebar . 
7.274  Japan submits general comments on Canada's SG&A -related claims which are contained in 
paragraph 7.232, s upra . 
(c) Evaluation by the Panel 
7.275  The first issue before us is whether DOC acted  inconsistently with Article 2.2.2 of the AD 
Agreement in attributing a portion of the charges for the settlement of hardboard siding claims to the 
G&A amount calculated for softwood lumb er, the product under consideration.
405  Canada raises a 
separate claim under Article 2.2.1.1 and consequential claims based on Articles 2.2, 2.2.1 and 2.4 of 
the AD Agreement .406  
7.276  We start our examination with Canada's Article 2.2.2 claim.  Canada asserts that the 
United States acted inconsistently with Article 2.2. 2 by including cost data that did not "pertain to" 
the production and sale of the product under investigation.  In support of  its claim, Canada asserts that 
the respondent argued before DOC that the hardboa rd siding cost was not general in nature and 
therefore not attributable to the company as a whole.  In addition, Canada asserts that the charge at 
issue was a cost that did not pertain to the prod uction and sale of softwood lumber in Canada for 
Weyerhaeuser Canada and therefore it should not ha ve been taken into account when determining the 
amounts for SG&A costs to be attributed to soft wood lumber's production and sale, i.e., the product 
under consideration.  The United States disagrees.   
                                                      
405 We do not understand Canada to dispute the consistency with the AD Agreement  of the 
methodology used by DOC in order to determine the amounts for G&A costs for Weyerhaeuser Canada.  Nor do 
we understand Canada to dispute the consistency of DOC's inclusion in the calculation of the amounts of G&A 
expenses for softwood lumber of certain G&A expenses not booked in Weyerhaeuser Canada's records, but in its parent company's (Weyerhaeuser Co mpany) records.  We note that, in fact, Weyerhaeuser Canada included 
these items itself in its response to the questionnaire as G&A expenses which, in part, pertained to the 
production and sale of the like product.  (Canada seco nd written submission, para. 230, first bullet point)  
Finally, we note Canada's assertion that it does not argue before us that the hardboard siding settlement expense 
should have been classified as a cost related to th e production of hardboard siding rather than as a G&A 
expense. (Canada second written submission, note 220)  
406 We note that, in the Panel Request, Canada claims violations of Articles 2 of the AD Agreement  and 
VI:1 of the GATT 1994 .  (WT/DS264/2, section 3(c))  In its restatem ent of claims, however, Canada only claims 
violations of the provisions cited in para. 7.275, supra , i.e., Articles 2.2, 2.2.1, 2.2.1.1, 2.2.2 and 2.4 of the AD 
Agreement . (Canada response to question 1 of the Panel, para. 1(vi))  For the foregoing reasons, we will refrain 
from addressing claims not contained in the restatement of cl aims and from ruling on those claims. WT/DS264/R 
Page 144  
 
7.277  Before considering the facts in the dispute before  us, we must examine the relevant provisions 
of the AD Agreement in order to determine what obligations are imposed on investigating authorities.  
In this regard, we note that Artic le 2.2 provides in relevant part: 
"[w]hen there are no sales of the like product in the ordinary course of trade in the 
domestic market of the exporting country or when, because of the particular market 
situation or the low volume of the sales in the domestic market of the exporting 
country, such sales do not permit a proper comparison , the margin of dumping shall 
be determined by comparison (...) with the cost of production in the country of origin 
plus a reasonable amount for administrative, selling and general costs and for 
profits ." (emphasis added, footnote omitted) 
7.278  We note that this general provision concerns th e establishment of an appropriate proxy for the 
price of the like product in the ordinary course of  trade in the domestic market of the exporting 
country when that price cannot be used.  Furthermore,  if an investigating authority resorts to the last 
methodology contained in Article 2.2 – the construction of normal value – a reasonable amount for 
SG&A costs must be used.   
7.279  The chapeau of Article 2.2.2 provides that: 
"[f]or the purpose of paragraph 2, the am ounts for administrative,  selling and general 
costs and for profits shall be based on actual data pertaining to pr oduction and sales in 
the ordinary course of trade of the like product by the exporter or producer under 
investigation." 
7.280  The text of the provision is self-explanatory: i nvestigating authorities are required to calculate 
the amounts for, inter alia , G&A costs based on actual data pert aining to production and sale in the 
ordinary course of trade of the like product.    We recall our views expressed in paragraphs 7.263-
7.265, supra , with respect to our interpretation of the term s "general" and "administrative" costs in the 
chapeau of Article 2.2.2, as well as on the nature of su ch costs.  In particular, we recall that such costs 
normally have a bearing on all the products manufactu red by a company, although in varying degrees.  
By their nature , G&A costs are costs that, in our view, will normally affect all products produced or 
sold by a company.  Canada's comments, cited in paragraph 7.263, supra , support our views.  Thus, 
Canada acknowledges that G&A costs "benefit all products that a company (or division within a 
company) may produce rather than specific products" and that they "are not directly attributable to the product under investigation or any particular product".
407  We also recall that Article 2.2.2 does not 
provide for any particular methodology in order to determine those amounts.408 
7.281  We further recall our finding that, unless a produ cer/exporter can demonstrate that the product 
under investigation did not benefit from a particular G&A cost item, an investigating authority is not 
precluded from attributing at least a portion of that cost to the product under investigation.409  Both in 
the underlying investigation before DOC and in the proceedings before us, it is being asserted that the 
charge at issue does not pertain to the productio n and sale of the product under investigation.  
Canada's arguments – and the underlying facts upon which those arguments are based – in this claim 
thus differ significantly from those in Tembec's  claim, where Canada put forward only general 
arguments in support of its assertion that the amounts for G&A costs calculated for softwood lumber could not be considered to be based on actual data "pertain[ing] to" the production and sale of 
softwood lumber.
410  
                                                      
407 Canada second written submission, para. 166. 
408 See in this regard Canada response to question 38 of the Panel, para. 117. 
409 See para. 7.267, supra . 
410 Ibid.  WT/DS264/R 
 Page 145 
 
 
7.282  Bearing in mind our understanding of this pr ovision, we must first examine Canada's 
arguments that the US$130 million charge could not be considered a "general" cost within the 
meaning of Article 2.2.2, and that the charge wa s not treated as a "general" cost on Weyerhaeuser 
Company's records.  The examination of each of thes e issues requires us to address the facts involved.  
We recall that our standard of review  is set out in Article 17.6 of the AD Agreement .  In the case 
before us, we must determine whether the inves tigating authority's evaluation of the facts was 
unbiased and objective.  
7.283  As stated in paragraph 7.276, supra , parties disagree on whether the cost at issue is a 
"general" cost within the meaning of Article 2.2.2.   The United States argues that the hardboard siding 
expense is a "general" cost because it does not relate  to the production and sale of hardboard siding.  
In addition, the United States defines "general" costs as ""all expenses incurred in connection with 
performing general and administrative activities.  Examples are executives' salaries and legal 
expenses "."411 (emphasis in original)  Canada contends th at the expense at issue was not part of the 
"legal expenses" of Weyerhaeuser Company, but an "unique charge".412  Canada further asserts that 
Weyerhaeuser Company's consolidated financia l statement provides separate line items for 
Weyerhaeuser Company's SG&A cost s and the settlement of legal claims relating to hardboard 
siding.413  
7.284  Article 2.2.2 does not define "general" costs nor does it state which cost items should be 
considered to be "general" costs.414  However, we recall that the term "general" is defined as " 1 b 
including or affecting all or nearly all parts or cases of things".415  Thus, "general" costs are costs 
affecting all or nearly all products manufactured by a company.  In our view, and based on this 
definition, it is difficult to determine whether the ch arge at issue is a "general" cost.  It could be 
argued that because the charge arises from the sale of hardboard siding, a product which was not 
subject to investigation, that charge could not possibly affect all products manufactured by Weyerhaeuser Company or its subsidiaries.  Howeve r, it could also be argued that because of the 
large amount of the charge, the impact that it mi ght have for instance on the brand name of the 
company as such, etc. such a charge might affect the lumber operations of the company or perhaps 
even the company as a whole.   
7.285  We do not believe that we are required to define  that term "general cost" for the purpose of 
resolving the dispute before us.  Article 2.2 re fers to three elements constituting a constructed 
(normal) value, namely cost of production; SG&A costs; and profits.  As stated in footnote 405, 
supra , we do not understand Canada to pursue in this dispute the exporter's argument that the expense 
at issue was a cost related to the production of hardboard siding.
416   Canada has not claimed that the 
charge at issue should be considered part of the expor ter's "profits", nor can we conclude that.  In our 
view, the expense at issue can therefore only be pa rt of the company's SG&A costs.  We therefore 
agree with DOC's treatment of the expense at issu e as part of Weyerhaeuser Company's G&A costs.  
In reaching this conclusion, we  have taken into account the following comment of Canada: 
"the [US$]130 million charge for the ha rdboard siding settlements does not reflect 
lawyer salaries, copying of briefs, travel to court, or other types of "legal" expenses that are often considered to be "general".  Weyerhaeuser itself [treated] the[] (..) legal 
                                                     
 
411 US first written submission, para. 209. 
412 Canada second written submission, para. 235. 
413 Canada second written submission, para. 238 et seq . 
414 We do not refer to "selling" and "administrativ e" costs because parties have focused on the term 
"general" costs only.   
415 The Concise Oxford Dictionary of Current English  (Clarendon Press, 1995), p. 564. 
416 Canada second written submission, para. 230, note 220. WT/DS264/R 
Page 146  
 
expenses [in question] as "general", and they were included in G&A both in the company's financial statement and for Commerce's G&A calculation."
417   
7.286  In addition, Canada refers to the uniqueness of this charge based on the fact that 
Weyerhaeuser Company's consolidated financia l statement provides separate line items for 
Weyerhaeuser Company's SG&A cost s and the settlement of legal claims relating to hardboard 
siding.418  In our view, the fact that the co st at issue is reported separately is per se  not a convincing 
argument.  There might be several reasons for re porting this cost separately, especially in the 
published financial statements of the company, for example, to increase the transparency regarding a 
specific non-recurring cost item of a significant amount for the benefit of third parties.  Of course, 
bundling a charge such as the one at issue with other G&A costs could give the misleading impression 
to any third party (e.g. investors) that G&A cost s have extraordinarily increased during the year under 
review.  The uniqueness of the charge at issue, i. e., the fact that it was specifically meant to fund 
future claims, in our view, does not determine whether this is a "general" cost or not.  Unique charges 
such as the set-up of a new line for the production of the product under consideration during the period of investigation are acknowledge d in Article 2.2.1.1 to be part of the cost of production of the 
product under consideration.  Similarly, extraordin ary items which cannot be considered part of the 
cost of production but of the SG&A costs of a comp any must be able to be taken into account in the 
calculation of the margin of dumping, provided that other requirements in the AD Agreement , in 
particular Article 2.2.2, are met.   
7.287  For the foregoing reasons, we are of the view  that an unbiased and objective investigating 
authority could have treated the cost item at issue as part of the "general" costs of the exporter under 
consideration.     
7.288  Canada's next argument is that the cost item at  issue did not relate to the production and sale 
of softwood lumber, i.e., to the product under c onsideration.  Canada is of the view that: 
"Article 2.2.2 requires that G&A be b ased on costs "pertaining to production and 
sales in the ordinary course of trade of the like product  by the exporter or producer 
under investigation " [emphasis added].  Expenses will "pertain" to the production and 
sale of a product where they "belong or be attached to, spec. (a) as a part, (b) as an appendage or accessory ..."  
As noted, in Egypt – Steel Rebar , the panel clearly stated this obligation as a 
relationship test: that a cost may be attributed to the production and sale of the like product only if the facts of the case point out that the cost was associated with the 
product under investigation."
419 (footnote omitted; emphasis in original) 
7.289  Applied to the specific facts of the case, Canada asserts that: 
"[the] facts (...) demonstrate that the expen se is associated with hardboard siding, not 
Canadian softwood lumber.  The hardboard  siding expense is a settlement fund 
concerning a product unrelated to the like product, produced in the United States by 
Weyerhaeuser US.  Accordingly, the hardboard siding expense did not "pertain to" 
the production and sale of softwood lumber as required by Article 2.2.2. 
                                                      
417 Canada second written submission, para. 235. 
418 See para. 7.283, supra.  
 419 Canada second written submission, paras. 244-245.  See also paras. 166 and 174 of Canada second 
written submission.   WT/DS264/R 
 Page 147 
 
 
.... there is no evidence on the record to demonstrate that the hardboard siding 
expense is even remotely related to th e production and sale of Canadian softwood 
lumber."420 
7.290  By contrast, the United States has consistently  argued that "[g]eneral expenses are, by 
definition, expenses incurred for the benefit of a corporate group as a whole and they are not specific 
to one or another product line.  A requirement that  general expense be directly related to the good 
produced would make it impossible to allocate gene ral expense within a company that produces many 
goods because a direct relationshi p would never be identifiable".421 
7.291  The question before us is to determine wh ether an unbiased and objective investigating 
authority could have concluded th at the hardboard siding charge pertained to the production and sale 
of softwood lumber.  We are of the view that, if it is determined that a given cost item relates to the 
production and sale of the product under consideration,  even if it relates only partly to the product 
under consideration, a portion of that cost could be attributed to the product under consideration.422   
7.292  We note that Canada has asserted before us th ere is no evidence on the record to demonstrate 
that the hardboard siding expense is even remote ly related to the production and sale of Canadian 
softwood lumber.  By contrast, the United States h as stated that DOC found that one-time charges like 
the one at issue are a cost of doing business for th e company.  The United States further argues that 
the link between the litigation cost at issue and produ ction of hardboard siding was attenuated because 
(1) the litigation was not part of the production proc ess of hardboard siding and (2) the expense was 
incurred anywhere from one year to as long as eighteen years after production and sale of the hardboard siding.
423 
7.293  Bearing in mind the facts before us, i.e., that the expense related to hardboard siding that was 
produced and sold between one and eighteen years befo re the period of investigation and that the legal 
settlement cost did not relate to the production pr ocess as such of hardboard siding, facts not being 
contested by Canada, we consider that an unbiased  and objective investigating authority could have 
refused to treat that charge as part of the cost of  production of hardboard siding.  Having reached that 
conclusion, and that this item was correctly character ized as a "general" expense, we consider that 
DOC was not unreasonable in concluding that the charge at issue was not a cost exclusively attributable to hardboard siding but also benef iting the production and sales  of all other products 
manufactured and sold by Weyerhaeuser Company.  We are therefore of the view that an unbiased 
and objective investigating authority could, in li ght of the facts before DOC at the time of 
determination, have determined th at a portion of the charge at issue pertained to the production and 
sale of the product under consideration.  For the fo regoing reasons, we reject Canada's claim that the 
United States acted inconsistently with Article 2.2.2 of the AD Agreement . 
7.294  We note the statement in Weyerhaeuser Compan y's year 2000 financial statement that the 
hardboard siding legal claim "is a claims-based settle ment, which means that the claims will be paid 
as submitted over a nine-year period with no minimum or maximum amount".
424  We further note that 
DOC took into account the entire amount of the charge, i.e., the US$130 million, in the calculation of 
                                                      
420 Canada second written submission, paras. 245 and 247. 
421 US second written submission, para. 84.  The United States has also acknowledged that it: 
 
"does not disagree with the general proposition that the words "associated with" and "pertaining to" suggest some relationship between G&A costs and costs of producing and 
selling the product under consideration". (US response to question 63 of the Panel, para. 121) 
 
422 See para. 7.281, supra . 
423 US response to question 62 of the Panel, para. 117. 
424 Exhibit CDA-166, Weyerhaeuser's Annual Report 2000, p. 51. WT/DS264/R 
Page 148  
 
the G&A ratio for the period under investigation.
425  It appears from the reco rd that the legal claims 
will be paid as submitted over a nine-year period.  It might therefore be questionable whether an 
unbiased and objective investigating authority could have  allocated the total amount of the claim, that 
is, US$130 million, to a one-year period, the period of  investigation, only, even when, as is the case 
here, Weyerhaeuser Company itself booked the entire litigation cost to one year only.  However, 
Canada has not argued before us on the consistency of this allocat ion methodology in the context of 
this claim.  We  therefore refrain fro m examining and ruling on this issue. 
7.295  Canada also claims that the United States vi olated Article 2.2.1.1 by improperly ignoring 
Weyerhaeuser's books and records and establishing G& A costs for Weyerhaeuser Canada that did not 
"reasonably reflect" its costs for producing and selling softwood lumber.  In support of its claim, 
Canada argues that Weyerhaeuser Company did not tr eat this settlement fund as a general cost on its 
records as it was a separate line item in its corporate financial st atement, nor should this expense be 
treated as a general legal cost.  Canada asserts th at Weyerhaeuser Company characterized its general 
legal expenses as G&A costs in its  financial statement.  Canada ar gues that the exporter recorded the 
hardboard siding expense as a separate line item – not  in G&A – and given its clear association with 
the production and sale of non-like product, should not have been included in the calculation of the 
amounts for G&A costs in this case.  By including a portion of the legal settlement charge at issue in Weyerhaeuser Canada's cost calculation, Canada as serts that DOC computed a cost that did not 
"reasonably reflect the costs associated with th e production and sale" of softwood lumber. 
7.296  In examining this claim, we recall that in our  view Article 2.2.1.1 imposes the obligation on 
the investigating authority to calculate costs based  on the records kept by the exporter provided that 
certain conditions set therein are met.
426  We recall that, in our view, an unbiased and objective 
investigating authority could have concluded, based on the data before DOC at the time of 
determination, that the cost at is sue was a "general" cost.  We furthe r found that such an investigating 
authority, bearing those facts in mind, could have concluded that the cost at issue was not linked to any particular product and, hence, an unbiased and objective investigating authority could have 
allocated a portion of the charge to softwood lumber, as DOC did.  Bearing this in mind, and that the 
amount of the charge was taken by DOC from the reco rds kept by the exporter – which is not disputed 
by Canada, we cannot agree with Canada in that  DOC improperly ignored Weyerhaeuser's books and 
records and established amounts for G&A costs for Weyerhaeuser Canada that did not "reasonably 
reflect" its costs for producing and selling softwood lumb er.  Hence, we must reject Canada's claims 
based on Article 2.2.1.1. 
7.297  Canada raises several consequential claims  under Articles 2.2, 2.2.1 and 2.4 of the 
AD Agreement .  Having rejected the claims on which th ey are dependent in paragraphs 7.293 and 
7.296, supra, we must also reject Canada's claims under Articles 2.2, 2.2.1 and 2.4. 
M. C
LAIM 10: ARTICLES 2.2, 2.2.1,  2.2.1.1  AND 2.4 – REASONABLE AMOUNTS FOR BY -PRODUCT 
REVENUES FROM THE SALE OF WOOD CHIPS :  TEMBEC AND WEST FRASER  
(a) Factual Background 
7.298  Wood chips are produced as a by-product in the process of producing softwood lumber.    
These wood chips are subsequently sold by the saw mills to pulp mills through different types of 
transactions.  In the calculation of the cost of production of softwood lumber, DOC took into account 
the income from sales of wood chip s as an offset to softwood lumber 's cost of production, i.e., it 
reduced the cost of producing softwood lumber.  This  claim concerns the determination of reasonable 
amounts from the sales of wood chips made by West Fraser and Tembec.   
                                                      
425 US response to question 124 of the Panel, para. 75. 
426 See paras. 7.236-7.237, supra .  WT/DS264/R 
 Page 149 
 
 
7.299  Tembec's sawmills sold wood chips to Temb ec's own pulp mills through interdivisional 
transactions, i.e., through sales within the same company.  In reporting its cost of producing softwood lumber, Tembec argued against the use of the internal transfer price for wood ch ips as an offset to the 
cost of producing softwood lumber because the internal  transfer price did not allegedly reflect market 
prices.  Tembec submitted information to DOC on ar m's length purchases of wood chips made by its 
pulp mills and arm's length sales by its Western sawmills.  West Fraser, on the other hand, sold most 
wood chips to affiliated parties in BC.  Only a negl igible volume was sold by two of its sawmills in 
BC (McBride and PIR) to unaffiliated parties.  W est Fraser submitted data for wood chip purchases 
made by one of its affiliated pulp mills in BC, QRP,  to show that prices paid by QRP for wood chips 
purchased from unaffiliated parties were in line with prices paid by QRP to West Fraser's sawmills.   
7.300  We note that DOC stated in the IDM that: 
"[w]e agree with the petitioners that, u nder section 773(f)(2) of the Act, [DOC] may 
disregard transactions between affiliated par ties if they do not fairly reflect the 
amount usually charged in the market under consideration.  When a respondent sells 
the same by-product to affiliated and unaff iliated parties at different prices, [DOC] 
considers the prices received from unaffiliate d parties by the respondent to be at 
arm's-length and to represent market prices. (…) 
Specific to Canfor, the verified informati on shows that the fair market value that 
Canfor's mills obtain for sales of wood chip s to unaffiliated purchasers is clearly 
distorted due to its contractual agreements.  Since Canfor did not have any sales of wood chips to unaffiliated parties in B.C., we  have compared Canfor's sales of wood 
chips to affiliated parties in B.C. to the weighted-average market price of the other 
respondents' wood chip sales in B.C. Based on this comparison we find that Canfor's sales of wood chips to affiliated parties in B.C. during the POI were made at arm's-
length prices and no adjustment is necessary for the final determination.  
With respect to West Fraser, for purposes of the final determination, we have 
compared West Fraser's sales of wood ch ips to affiliated and unaffiliated parties 
separately for Alberta and British Columbia.  Based on this comparison we find that West Fraser's sales of wood chips to affilia ted parties in Alberta during the POI were 
made at arm's-length prices.  We also find, however, that West Fraser's sales of wood chips to affiliated parties in British Columb ia during the POI were not made at arm's-
length prices.  Thus, for sales of wood chips in British Columbia, we used the average 
sales price for wood chips received from una ffiliated parties to value the sales to 
affiliated parties and adjusted West Fr aser's by-product offset for the final 
determination.  
(…) With respect to Tembec, the facts of this case differ slightly in that the wood chip 
transactions are between divisions of the same  legal entity.  Our practice with regards 
to transactions between divisions within the same legal entity is to use the actual cost 
of the input.  Due the fact that wood chips are a by-product of the production of softwood lumber, there is no separately iden tifiable cost associated with the wood 
chips that are transferred between Tembec divisions.  Therefore, we analyzed the 
wood chip sales transactions between Tembec 's sawmills and its internal divisions to 
evaluate whether the internally set transfer prices are reasonable.  
Based on the comparison of Tembec's B.C. saw mills' internally set transfer prices for 
wood chips to the B.C. sawmills' chip sales  to unaffiliated purchasers, we concluded 
that the internally set transfer prices are not preferential. Accordingly, we relied on WT/DS264/R 
Page 150  
 
the B.C. transfer prices for the final determ ination.  For Tembec's Quebec and Ontario 
wood chip sales we do not have usable market  price data for Tembec.  However, since 
we have determined that its B.C. mill s do not sell wood chips to other Tembec 
divisions at preferential prices, we deem it reasonable to conclude that their Ontario and Quebec saw mills did not receive preferential prices for its internally transferred 
wood chips.  Thus, we relied on their internal transfer prices for the final 
determination.  
(…) 
For West Fraser and Tembec we also disagree that the documentation presented at 
verification demonstrated that the prices it received from its affiliates for sales of 
wood chips reflected market prices.  While  we acknowledge that the documentation 
submitted at verification showed that certa in affiliated pulp mills selected by these 
respondents paid similar prices to their sawmills and to unaffiliated parties for 
purchases of wood chips, we note that the comparisons provided by each respondent were selectively provided by the compani es and not based on a sample chosen by 
[DOC].  These comparisons represented onl y a portion of the total wood chip 
purchases by both Tembec and West Fraser's pulp mills and there is no record evidence to determine what the results might be if all mills were included."
427 
(footnotes omitted) 
(b) Arguments of the Parties/Third Parties 
7.301  Canada asserts that, in failing to use reasonable amounts for by-product revenues from the 
sale of wood chips as offsets in calculating the cost  of production of softwood lumber for Tembec and 
West Fraser, the United States acted inconsistently with  Articles 2.1, 2.2, 2.2.1, 2.2.1.1 and 2.4 of the 
AD Agreement .  With respect to Tembec , Canada argues that Article 2.2.1.1 requires investigating 
authorities to disregard the exporter's records where th ey do not reasonably reflect the costs associated 
with the production and sale of the product under cons ideration.  Canada asserts that Article 2.2.1.1 
reflects the requirement that market price is the appropriate benchmark for valuing by-product 
revenue offsets, or the calculation of the cost of the main product will be either overstated or 
understated.  According to Canada, the internal Te mbec transfer prices as contained in its records and 
relied upon by DOC do not reasonably reflect the ma rket value of wood chip sales, because Tembec 
discounts internal wood chip sales below market values.  The records, therefore, do not reasonably reflect the costs associated with the production and sale of softwood lumber.  Accordingly, Canada 
argues that DOC was obligated to disregard such in ternal transfer prices and determine revenues from 
wood chip sales on the basis of representative market va lues.  In sum, Canada asserts that DOC's use 
of Tembec's internal transfer prices as an offset did not "reasonably reflect" the costs associated with 
the production and sale of softwood lumber and violated  Article 2.2.1.1.  In addition, DOC's use of 
Tembec's internal transfer prices in lieu of market  values, while disregarding West Fraser's affiliated 
sales prices, also violates DOC's obligation to exer cise discretion in an even-handed manner.  Finally, 
Canada asserts that by-products, by definition, ha ve neither profits nor costs.  Moreover, Canada 
points out that the argument of the United States th at "the difference between the [internal surrogate 
for cost and the external market price] is the equi valent of "profit" in the normal setting where costs 
and sales prices are known" is ex post rationalization, which the Panel must reject.   
7.302  As far as West Fraser
 is concerned, Canada puts forw ard four arguments against DOC's 
conclusion that West Fraser's affiliated party sales occurred at "non-arm's length" (i.e., at inflated) 
prices.  First , Canada argues that DOC's determination w as inconsistent with the evidence as a whole 
concerning market prices in BC.   In determining whether West Fraser's sales to affiliates were made at 
inflated prices, DOC used as its benchmark for market prices only West Fraser's BC wood chip sales 
                                                      
427 Exhibit CDA-2, IDM, Comment 11, pp. 59-62.  WT/DS264/R 
 Page 151 
 
 
to unaffiliated parties, and ignored the evidence of market prices charged by the other respondents for 
their sales to non-affiliates in BC.  Second , the benchmark used by DOC  for determining whether 
West Fraser's sales to affiliates were made at inflat ed prices was unreliable.  Canada asserts that DOC 
relied on West Fraser's tiny quantity of sales to una ffiliated parties as its benchmark for BC market 
prices.  In addition, Canada asserts that over half of  the very low volume of sales used by DOC for the 
benchmark were made early in the POI by West Fr aser's McBride mill, when chip prices were lowest 
and not reflective of BC prices during the entire POI.  Third , Canada claims that DOC applied 
different benchmarks for two respondents – Canfor a nd West Fraser – that were similarly situated.  
Finally , Canada contends that DOC disregarded the figures reported in West Fraser's records even 
though the verified data demonstrated that its high est priced sales to an affiliate – QRP – had been 
made at market prices.  Presented with the facts on the record, Canada claims that an unbiased and 
objective investigating authority would not have made the determination made by DOC, selectively 
disregarding West Fraser's recorded figures for sal es which were at market prices and arbitrarily 
employing different standards for different respondents. 
7.303  As a matter of introduction, the United States asserts that, in calculating respondents' cost of 
producing softwood lumber, DOC treated sales of wood chips as an offset, reducing a given 
respondent's total cost of production.  The United States asserts that DOC's calculation of the wood 
chip offset for West Fraser and Tembec was consistent  with Articles 2.2, 2.2.1, 2.2.1.1 and 2.4 of the 
AD Agreement .  Consistent with Article 2.2.1.1, the Unite d States contends that DOC determined that 
the transfer prices between Tembec 's BC sawmills to various Tembec-owned pulp mills reasonably 
reflected Tembec's actual costs asso ciated with wood chip producti on.  The United States asserts that 
there was no evidence in the record before DOC s upporting Canada's contentio n that Tembec's inter-
divisional wood chip sales were "set arbitrarily to provide an internal preference".  With respect to 
Canada's argument that DOC should have used th e weighted average sal es price received from 
Tembec's non-affiliates, the United States asser ts that that would have been proper under 
Article 2.2.1.1 only if Tembec's books and records di d not reasonably reflect the costs associated with 
wood chip production.  The United States disagrees with  Canada's argument that "Article 2.2.1.1 of 
the Anti-Dumping Agreement  reflects the requirement that market  price is the appropriate benchmark 
for valuing by-product revenue off sets".  In the view of the United States, Article 2.2.1.1 addresses 
the "costs associated with the production and sale"  of the product under consideration and does not 
address consideration of the "market value" of offset s to those costs.  The United States asserts that 
market value will include the cost of a good as we ll as other elements such as selling expenses and 
profit. 
7.304  In the case of West Fraser , the United States notes that Article 2.2.1.1 of the AD Agreement is 
silent as to how to assess affiliated party transactions  relating to costs.  The United States asserts that 
DOC considers whether transactions between affiliated parties occurred at arm's length prices.  This is 
what, according to the United States,  DOC did when determining the value to be attributed to West 
Fraser's BC sales of wood chips to its affiliated pa rties.  To the specific arguments advanced by 
Canada, the United States replies as follows.  With respect to Canada's first argument, the United 
States asserts that the eviden tiary preference expressed by Canada directly contravenes 
Article 2.2.1.1, which instructs investigating author ities to rely on an exporter's or producer's records 
where they are available.  To Canada's second ar gument, the United States replies that it was not 
raised by West Fraser in the context of the inves tigation before DOC.  The United States asserts that 
the facts before DOC did not show that the volum es sold by the two West Fraser-owned BC sawmills 
to unaffiliated parties were "too low".  In addition,  West Fraser made no argument that the long-term 
contract by which one of its mills made sales dur ing the investigation peri od did not represent valid 
market prices, nor did it make any argument about th e arm's length nature of the sales made from its 
PIR's sawmill.  Regarding Canada's argument on the different treatment granted to Canfor and West 
Fraser, the United States asserts that Canfor was not sim ilarly situated to West Fraser.  With respect to 
Canada's last argument, the United States asserts that DOC found that West Fraser submitted to DOC only selective examples of the secondary evidence on which Canada says DOC should have relied.  
The United States argues that West Fraser failed to place the entirety of its affiliated pulp mill WT/DS264/R 
Page 152  
 
purchases on the record.  Thus, even assuming that th is evidence might have been relevant and more 
probative than West Fraser's own data, the United States considers that that omission prevented DOC 
from assessing any sales other than the self-serving examples selectively chosen by West Fraser.  
Referring to the Egypt – Steel Rebar Panel Report, the United States argues that Article 2.4 is 
concerned exclusively with the comparison betwee n normal value and export price, not with the 
determination of normal value.  For the foregoing r easons, DOC's determination of an offset for West 
Fraser's wood chip sales was based on a proper est ablishment of the facts and an objective and 
unbiased evaluation of those facts.  Accordingly, it should be upheld under the standard of review in 
Article 17.6(i). 
7.305  Japan asserts that Article 2.2.1.1 of the AD Agreement  allows the authorities to deviate from 
a respondent's recorded cost of production if these records do not "reasonably reflect the costs 
associated with the production and sale of the produc t under consideration".  This discretion must be 
exercised in good faith based on a proper establishment of facts and on an unbiased and objective evaluation of those facts.  Referring to the Appellate Body Report in US – Hot-Rolled Steel
428, Japan 
asserts that, to be unbiased, objective and fair, the authorities must exercise their discretion in an 
even-handed manner without favouring the interests of any particular party.  Japan asserts that DOC's 
established practice, as applied in this investigation, is contrary to the even-handed rule.  Japan further 
argues that DOC's revaluation of by-product revenues is contrary to a good faith obligation derived 
from Articles 26 and 31 of the Vienna Convention and the Appellate Body Reports in US – Hot-
Rolled Steel  and US – Shrimp . 
(c) Evaluation by the Panel 
7.306  This claim relates to the valuation of by-pro duct revenues for Tembec and West Fraser, two 
of the Canadian respondents.  The sawing of l ogs into softwood lumber, i.e., the product under 
consideration, generates by-products such as saw dust, wood chips, etc.  Parties acknowledge that 
these products have commercial value and can be sold  to generate revenues.  For instance, wood chips 
are sold to pulp mills in order to produce paper.   It is undisputed that DOC took into account the 
revenue from by-products – including wood chips – in  calculating the cost of production for Tembec 
and West Fraser in this investigation.429  Specifically, DOC treated the revenues obtained from the 
sale of these by-products as income that was used  to offset the cost of production of softwood 
lumber.430  Thus, the only issue before us is the valuation of these by-product revenues, and 
specifically the revenues from wood chips.  This issue of valuation is significant to the calculation of 
the margin of dumping, as a higher valuation of wood chip revenue means a lower cost of production 
for softwood lumber, and a lower cost of produ ction generally will entail a lower margin of 
dumping.431   
                                                      
428 Appellate Body Report, US – Hot-Rolled Steel , paras. 148 and 193.  Japan also refers to the 
Appellate Body Report, EC – Bed Linen (Article 21.5 – India) , paras. 132-133. 
429 For the purpose of resolving this dispute, we are therefore not required to examine in – and decide 
on – which circumstances an investigating authority should offset the cost of production of the product under 
consideration with revenues from by-products generated in its process of production. 
430 That is, DOC reduced the exporters' cost of production of softwood lumber by the by-product 
revenue. 
431 This is true for several reasons.  First, a lower cost of production will likely mean more sales found 
to be in the ordinary course of trade.  A higher number of sales in the ordinary course of trade would normally 
result in a lower normal value, which would lower the amount of any margin of dumping.  Should an investigating authority construct (normal) value in acc ordance with Article 2.2, a lower cost of production 
would result in a lower constructed (normal) value, which would also lower the amount of any margin of 
dumping.  A higher valuation of wood chip revenue would therefore normally be in the interest of an exporter.  Conversely, a lower valuation of wood chip revenue would result in a higher cost of production, which would 
make a finding of sales outside the ordinary course of trade more likely.  The lower the number of sales in the 
ordinary course of trade, the higher the normal value should normally be, which would raise the amount of any  WT/DS264/R 
 Page 153 
 
 
7.307  The issue before this Panel is the extent to  which DOC was required to, or precluded from, 
deriving wood chip revenue from va luations in the records of the pr oducers in question.  In the case of 
West Fraser, DOC declined to value wood chip revenue  based on sales to affiliated parties, while, in 
the case of Tembec, DOC relied upon internal transf ers to value wood chip revenue.  Canada, in 
effect, argues that DOC should have done precisely the opposite.  With respect to West Fraser, 
Canada asserts that DOC was required by Article 2. 2.1 to use the values included in that company's 
records for sales of wood chips to affiliated parties in BC.  With respect to Tembec, by contrast, 
Canada argues that, because the va lues recorded in Tembec's books for internal transfers of wood 
chips were set below prevailing market prices, DOC was required by Article 2.2.1.1 to disregard those 
values, "since to use th[at] figure[] would result in  a calculation that does not reasonably reflect the 
true cost of producing an d selling softwood lumber".432  In Canada's view, DOC's actions were 
inconsistent with an unbiased and objective evaluation of the record evidence as  a whole and, as such, 
were inconsistent with the standards set out in Article 2.2.1.1 of the AD Agreement .   
7.308  At the outset, we note that, with respect to the claims that will be examined in 
paragraphs 7.314-7.348, infra , Canada claims in its Panel Request  violations of "Article 2 of the Anti-
Dumping Agreement , including Articles 2.2, 2.2.1, 2.2.1.1, 2.2.2 and paragraph 7 of Annex I, and 
Article VI:1 of the GATT 1994".433  In addition, Canada asserts that "[a] fair comparison was 
therefore not made by Commerce between the export price and the normal value and a distorted margin of dumping was calculated, thereby resulting in violations by the United States of Articles 2.4 
and 2.4.2 of the Anti-Dumping Agreement ".
434  With respect to Tembec and West Fraser's claims 
relating to the valuation of by-pr oduct revenues, we understa nd Canada to assert in its restatement of 
claims, however, that the United States allegedly vi olated Articles 2.2, 2.2.1, 2.2.1.1 and 2.4 only.435  
Bearing this in mind, in our exam ination in paragraphs 7.314-7.348, infra , we will refrain from 
addressing claims not contained in the restatement of claims and from ruling on those claims. 
7.309  We note that the main legal basis for Canada's cl aim is Article 2.2.1.1.  Before analysing the 
specific facts for each of the companies, we ha ve to set out our general understanding of the 
obligations imposed by Article 2.2.1.1 on investigati ng authorities with respect to the determination of 
costs, in general, and, in particular, concerning th e valuation of by-product revenues.  Article 2.2.1.1 
provides in relevant part that: 
"costs shall normally be calculated on the basis of records kept by the exporter or 
producer under investigation, provided that  such records are in  accordance with the 
generally accepted accounting principles of the exporting country and reasonably 
reflect the costs associated with the production and sale of the product under 
consideration." 
7.310  As noted in paragraphs 7.236-7.237, supra , Article 2.2.1.1 requires that costs be calculated on 
the basis of records kept by the exporter or producer  under investigation, provided that such records 
are in accordance with the GAAP of the exporting c ountry and reasonably reflect the costs associated 
with the production and sale of the product under c onsideration.  Where records are not kept in 
accordance with the GAAP of the exporting country or do not reasonably reflect the costs associated 
with the production and sale of the product under cons ideration, an investigating authority may depart 
from records kept by the exporter.  We recall that Article 2.2.1.1 does not in our view require that 
                                                                                                                                                                     
margin of dumping.  A higher cost of production would also lead to a higher constructed (normal) value, which 
would also raise the amount of any margin of dumping.  This would therefore not be in the interest of an 
exporter. 
432 Canada second written submission, para. 256. 
433 WT/DS264/2, para. 3(d). 
434 Ibid. 
435 Canada response to question 1 of the Panel, para. 1(vi).  In addition, we note that Canada has not 
advanced any arguments in support of other possible claims of violation other than those examined in this 
Section of the Report. WT/DS264/R 
Page 154  
 
costs be calculated in accordance with GAAP nor that  they reasonably reflect the costs associated 
with the production and sale of the product under consid eration.  It simply requires that costs be 
calculated on the basis of the exporter or producer's records, in so far as  those records are in 
accordance with GAAP and reasonably reflect the costs associated with the production and sale of the 
product under consideration.  Canada appears to have a similar understanding of the obligations under 
Article 2.2.1.1.
436   
7.311  We note furthermore that there is no reference in the text of that provision to the issue of by-
products, much less to the methodology that should be u sed in order to value them.  Both parties agree 
that Article 2.2.1.1 does not prescribe any particular methodology for calculating cost of production.437  
In particular, we note Canada's st atement that Article 2.2.1.1:  
"does not set out a specific test or methodology for determining whether transactions 
between affiliated parties can reasonably be  used in determining a respondent's costs 
for producing and selling the product under consideration. (…) Canada believes that 
transactions between affiliated parties ar e subject to the general requirements of 
Article 2.2.1.1 of the Anti-Dumping Agreement  and, as such, must be disregarded by 
an administering authority where a respondent 's records for those sales would lead to 
a calculation of costs that do not "reasonably reflect the costs associated with the production and sale of the product under consid eration".  Otherwise, such recorded 
data should be used in the dete rmination of costs of production."
438  
7.312  We agree with the parties.  We are of the view  that, if negotiators had intended to include in 
the AD Agreement an obligation for an investigating authority to select a particular methodology 
when determining a by-product revenue offset, su ch an obligation would be found in Article 2.439  
This does not mean that an inves tigating authority's decision on the va luation of by-product revenue is 
not subject to the disciplines of the AD Agreement .  We recall that Article 2.2.1.1 requires an 
investigating authority to calculate costs on the b asis of records kept by an exporter or producer 
provided that such records inter alia  reasonably reflect the costs associ ated with the production and sale 
of the product under consideration.  We fail to see how an unbiased and objectiv e investigating authority 
could find that records regarding by-product revenue reasonably reflect the co sts associated  with the 
production and sale of the product under consideratio n if those records do not reasonably reflect the 
extent to which the existence of the by-p roduct reduces the costs to the producer.    
                                                      
436 Canada acknowledges that Article 2.2.1.1 expresses   
 "a clear preference for the use of actual transacti on data from records kept by an exporter.  An 
investigating authority may only disregard such da ta where the transactio ns do not accord with 
GAAP and do not reasonably reflect costs asso ciated with the production and sale of the 
product at issue.  Canada believes that transac tions between affiliated parties are subject to the 
general requirements of Article 2.2.1.1 of the Anti-Dumping Agreement  and, as such, must be 
disregarded by an administering authority where a respondent's records for those sales would lead to a calculation of costs that do not "reasonably reflect the costs associated with the 
production and sale of the product under consideration".  Otherwise, such recorded data 
should be used in the determination of costs of production". (Canada response to question 39 of the Panel, para. 119) 
 
437 Canada response to question 38 of the Panel, para . 117; US response to question 41 of the Panel, 
para. 69. 
438 Canada response to question 39 of the Panel, pa ra. 119.  In a similar vein, in para. 107 of its 
response to question 44 of the Panel the United States ar gues that "Article 2.2.1.1 provides no specific guidance 
on the question of determining the reasonableness of the costs of by-products or by-product offsets". 
439 We note that the Appellate Body has repeatedly rejected arguments of parties adding to covered 
agreements obligations or conditions which, in the view of the Appellate Body, could not be found in the text of 
those agreements.  See, for instance, Appellate Body Reports, US – Hot-Rolled Steel  and EC – Tube or Pipe 
Fittings , paras. 166 and 77, respectively.  WT/DS264/R 
 Page 155 
 
 
7.313  Bearing the above general comments in mind,  we will examine separately the tests and 
conclusion of DOC with respect to West Fraser and Tembec. 
(i) Tembec 
7.314  DOC concluded that the values entered into Temb ec's records for internal transfers of wood 
chips were reasonable.  In so doing, DOC rejected Tembec's arguments that the values recorded in its 
books for internal transfers were well below market  prices, and that DOC should therefore value the 
internally transferred wood chips in accordance  with actual market prices from arm's length 
transactions entered into by Tembec with third par ties.  Canada asserts that, in valuing wood chip 
revenue on the basis of the values recorded in Te mbec's books, DOC contravened Article 2.2.1.1 by 
using records kept by the exporter which did not reasonably reflect the co sts associated with the 
production and sale of the product under consideration.   In addition, Canada argues that an incorrect 
calculation of costs impacts the determination of which sales are useable in establishing normal value contrary to Article 2.2.1, as well as the calculati on of constructed (normal) value, contrary to 
Article 2.2.  Finally, Canada argues that, where th e calculation of costs results in an improper normal 
value, a fair comparison will not be possible and Article 2.4 will also be violated.
440   
7.315  In examining the above issue, we first note that  parties have not argued that Tembec's records 
were not in compliance with Canadian GAAP.  Ra ther, the parties' arguments revolve around the 
words "reasonably reflect the cost s associated with the production and sale of the product under 
consideration".  The United States asserts that  DOC examined in the context of the underlying 
investigation the reasonableness of the valuation of the by-product revenue offset, as reported in 
Tembec's records.  DOC concluded that it was reasonable and rejected Tembec's assertion that by-
product revenues on Tembec's books did not reasonabl y reflect market prices for wood chips because 
they were internal transfer prices artificially set for accounting purposes.  Canada disagrees,  and 
argues that Article 2.2.1.1 mandates rejection of an  exporter's records where calculation of costs for 
the product under consideration woul d be overstated or understated if the investigating authority were 
to use those records as a basis for the purpose of determining the cost of production for the product 
under consideration.441  In the view of Canada, that would occur where the company's books do not 
reflect the market value of by-pro duct sales, as was the case for Tembec.  In sum, Canada considers 
that the use of Tembec's internal transfer pr ices in calculating cost of production violates 
Article 2.2.1.1.  
7.316  We note that Article 2.2.1.1 establishes that cost s shall normally be determined on the basis of 
the records kept by the exporter concerned, provide d that such records are in compliance with GAAP 
principles of the exporting country and reasonably re flect the costs associated with the production and 
sale of the product under consideration.  We have examined in detail the obligations contained in 
Article 2.2.1.1 in paragraphs 7.236-7.237, supra .  We therefore recall our interpretation of 
Article 2.2.1.1 that the role of the conditions set forth in the proviso of Article 2.2.1.1 is not to impose 
positive obligations on Members, but to set fo rth the circumstances under which certain positive 
obligations do or do not apply.  Recalling our inte rpretation referred to above, we therefore do not 
agree with Canada's claim that Article 2.2.1.1 "m andates rejection of an exporter's records where 
calculation of costs for the product under consider ation would be overstate d or understated if the 
investigating authority were to u se those records as a basis for the pur pose of determining the cost of 
production for the product under considerati on."  Canada's claim therefore fails. 
7.317  Even if it is assumed, arguendo , that Article 2.2.1.1 imposes on an investigating authority a 
positive obligation as Canada has argued above, rath er than a proviso, we could not agree with 
Canada that the facts before us support Canada 's claim, as our analysis below shows.  
                                                      
440 See para. 7.308, supra . 
441 Canada response to question 70 of the Panel, para. 178. WT/DS264/R 
Page 156  
 
7.318  We start our examination noting that Article 2.2.1.1 does not require that any particular 
methodology be used by an investigating authority to assess whether records "reasonably reflect the 
costs associated with the production and sale of the product under consideration".  We further note that 
DOC used the following test in order to determin e the reasonableness of Tembec's recorded valuation 
for internal transfers of wood chips:  
"[i]n determining a "reasonable" amount for valuing the by-product offset in 
interdivisional transactions, [DOC] uses the same methodology that it uses for 
valuing costs in interdivisional transactions.  As a standard corporate practice, 
interdivisional transfer values reflect ac tual costs of production (since the company 
does not need to include a profit in its price to itself).  With respect to by-products, 
absent any independent costs, [DOC] normally takes the internal value assigned by 
the company to a by-product as a surrogate for an appropriate value for the by-
product, and then tests that value for reasonableness … Because [DOC] normally 
values interdivisional transfers at actual cost, which is less than market value 
(because of the existence of profit in market  value), a value assigned to a by-product 
is also commonly less than market value. 
Canada argues that this makes no sense, b ecause if a by-product has no cost, then 
there can be no "profit".  However, even a by-product with no independent cost can be assigned a company's best assessment of a surrogate cost.  This is what Tembec did when it set its internal transfer price."
442 (emphasis in original) 
7.319  Canada's first argument concerns the fact th at the methodology used in the case of Tembec 
was different from that used in West Fraser's dete rmination.  Canada asserts that this methodology 
cannot be applied in an even-ha nded manner "as it would penalize co rporations that consume their 
own by-products rather than selling them to affiliated or unaffiliated purchasers".443   
7.320  It is undisputed that two different methodologies were used by DOC for the purpose of 
determining the reasonableness of the valuation of by-product (wood chip) revenues in West Fraser's 
records, on the one hand, and Tembec's records, on the other.  We note that West Fraser and Tembec 
were in different factual situations.  While Tembec was a single entity including, inter alia , sawmills 
and pulp mills, West Fraser was divided in legally separate companies.  For this reason, we do not 
consider that DOC discriminated against Tembec by treating it differently from West Fraser.  In addition, we note the assertion made by the United States that the methodology used in the case of 
Tembec is the same DOC uses for valuing costs in in terdivisional sales.  This has not been disputed 
by Canada.  Thus, DOC's treatment of Tembec is consistent  with its approach with respect to cost 
valuations when faced with interdivisional sales.  Th is being the case, we are unable to conclude that 
DOC acted in a biased, non-objective or non-even-h anded manner in applying a methodology to 
Tembec different from that used with respect to West Fraser.  
7.321  Canada argues that Article 2.2.1.1 requires that  a by-product offset must reasonably reflect 
the market value for the by-product at issue; otherwi se, the cost of production of the main product – in 
our case, softwood lumber – would be either overstated or understated.
444  The United States 
disagrees.445  We do not find any textual basis in Article  2.2.1.1 on which we could conclude – as 
                                                      
442 US response to question 42 of the Panel, paras. 97-98.  See also US response to question 129 of the 
Panel, para. 85. 
443 Canada second written submission, para. 312.  
444 Canada responses to questions 44 and 70 of the Panel, paras. 123 and 178, respectively.  See also 
Canada second written submission, para. 307. 
445 The United States asserts that: 
 
"Article 2.2.1.1 addresses the "c osts associated with the production and sale" of the product 
under consideration and does not address consideration of the "market value" of offsets to  WT/DS264/R 
 Page 157 
 
 
Canada argues – that, for the requirements of Article  2.2.1.1 to be met, it is necessary that the by-
product revenue offset reflect the market value of those by-products.446  Nor, has Canada pointed to 
any justification.447  For this reason, we do not consider  that DOC was precluded from using the 
actual cost of the input – as it appeared in Temb ec's records – as the benchmark for valuing the by-
product revenue offset in the case of Tembec.448  Nor, we consider that using the actual cost of the 
input in case of transactions between divisions of the same legal entity – where this is done in a 
consistent and non-discriminatory fash ion – is inconsistent with Artic le 2.2.1.1 or shows any bias or 
non-objectiveness on the part of an investigating authority.     
7.322  DOC outlined in the IDM the methodology used in order to examine whether the valuation 
recorded in Tembec's books was reasonable.449  In particular, we note that the methodology used in 
this case – the actual cost of the input – was the normal test that DOC applies with regard to 
transactions between divisions within the same legal entity.450  The United States explained in its 
submissions before us that it determined that th e value recorded in Temb ec's books for internal 
transfers of wood chips was reasonable once DOC had taken into account "the critical factor of the 
amount of profit. (...) In th[e] case [of Tembec], an  adjustment for profit led to the conclusion that 
prices for inter-divisional transfers [[***********]] from prices to non-affiliates.  In fact, once 
[DOC] took into account profit and the varying quality  and types of wood chips, it determined "no 
preferential prices" existed".451  In other words, after applying that test DOC concluded that the value 
recorded for the internal transfer s of wood chips was reasonable.  Canada asserts that this constitutes 
post hoc  rationalization that must be rejected.  In additi on, Canada contends that the reference to costs 
and profits in the case of by-products finds no suppor t in accounting.  First, we note that Canada has 
not raised any claim under Articles 6.9 or 12.2 of the AD Agreement .  Thus, we are precluded from 
examining the consistency of DOC's  determination in light of the obligations imposed under those 
provisions.  Furthermore, we note that the methodolog y used by DOC is outlined  in the IDM.  While 
we would have preferred that more  information had been disclosed in the IDM, we are of the view 
that the information contained therein is suffici ent for us to review the consistency of DOC's 
determination.  We note, in this regard, that DOC's pr actice is to use the "actual cost of the input".  As 
noted by the United States, the "actual cost of the input" will normally be lower than the market value 
– as in the case of Tembec.  Bearing this in mind, we fail to see how DOC could have determined that the valuation for internal transfers of wood chips recorded in Tembec's books was reasonable – as the 
IDM shows DOC determined in the context of th e investigation at issue – when compared to 
                                                                                                                                                                    
 
those costs.  "Market value" is different from "cost".  Commerce has used market value as a 
benchmark for determining the reasonableness of prices paid by a company to purchase a by-
product from an affiliated company.  It also has used market value as a benchmark for determining the reasonableness of values assigned to a by-product in interdivisional-
transactions.  However, this does not mean that a "reasonable amount" will equal  "market 
value".  Market value will include the cost of a good, but it will also include other elements, such as selling expenses and profit". (emphasis in original) (US second written submission, 
para. 92) 
 
446 Indeed, to accept Canada's argument that Article 2.2.1.1 requires an in vestigating authority to ensure 
that the by-product offset reasonably  reflects the market value "would require us to read into the text words 
which are simply not there.  Neither a panel nor the Ap pellate Body is allowed to do so". (Appellate Body 
Report, India – Quantitative Restrictions , para. 94) 
447 Although we asked Canada to explain its statement that Article 2.2.1.1 requires that market price is 
the appropriate benchmark for valuing by-product revenue offsets, it did not provide any convincing basis on 
which we could conclude that Article 2.2.1.1 contains such a requirement. (Canada response to question 70 of 
the Panel, para. 178) 
448 We recall that the United States normally values interdivisional transfers at actual cost, as stated in 
the IDM ( see para. 7.300, supra ).  
449 Exhibit CDA-2, IDM, Comment 11. 
450 Id., pp. 60-61. 
451 US first written submission, para. 243.  Confidentia l information contained in the bracketed section 
has been removed. WT/DS264/R 
Page 158  
 
Tembec's BC sawmills' wood chip  sales prices to unaffiliated purchasers, if DOC had not taken into 
account, at the time of determination, the amount for profit.   
7.323  Canada argues that by-products neither have costs nor do they yield profits.  We do not 
understand the United States to argue that by-products have costs.  Indeed, the IDM reads: "[d]ue to 
the fact that wood chips are a by-product of the production of softwood lumber , there is no separately 
identifiable costs associated with  the wood chips that are transferred between Tembec divisions.  
Therefore, we analysed the wood chips sales transa ctions between Tembec's sawmills and its internal 
divisions to evaluate whether the internally set transfer prices are reasonable".
452  While the IDM 
could have been more explicit on this  point, we are satisfied with the explanations of the United States 
that the internal transfer price was treated as a surrogate for cost.453  Canada may be correct in that for 
accounting purposes by-products do not have a cost.  However, we are of the view that when selling 
wood chips the producer must, at least, recover cer tain costs it may incur w ith respect to the by-
product.  This could include inter alia  storage and transport of the by-product at issue to the 
purchasers' premises.  Even though for accoun ting purposes this may not be "costs", strictu sensu , for 
the purposes of the cost determination in an an ti-dumping investigation we do not consider it 
unreasonable for an investigating authority to treat t hose items as costs.  In addition, DOC appears to 
have taken into account other factors (the varyin g quality and types of w ood chips) when assessing 
the reasonableness of the valuation of internal transf ers in Tembec's books.  With respect to the profit, 
we recall that the United States has asserted that inte rdivisional transfer values reflect actual costs of 
production, since a company does not need to include a profit in its price to itself.454  Canada has not 
disputed this.  As in the case of costs, we are not  convinced by Canada's arguments that by-products 
may not yield profits.  While for accounting purposes Ca nada may be correct in its statement, we do 
not consider that this would invalidate a determ ination that the difference between an amount booked 
in the exporter's records for in ternal transfers of by-products – the surrogate for costs – and the 
amount received for sales in the open market – i.e., to  unaffiliated parties – can be treated as profit in 
the context of an anti-dumping determination.  Article 2.2.1.1 would not seem to support Canada's 
position.   
7.324  For the foregoing reasons, we consider that an unbiased and objective investigating authority 
could have used the actual cost of the input as r ecorded in Tembec's books as a benchmark for valuing 
internal transfers of wood chips.  We further c onsider that an unbiased and objective investigating 
authority, based on the facts before DOC at the time of determination, could have determined that the 
valuation in Tembec's books for internal transfer s of wood chips was not unreasonable.  Hence, we 
reject Canada's claim that the United States act ed inconsistently with Article 2.2.1.1.  
7.325  Canada claims that an incorrect calculation of costs impacts the determination of which sales 
may be used in establishing normal value, contrary to Article 2.2.1, as well as the calculation of 
constructed (normal) value, contrary  to Article 2.2.  It further argues that the use of an amount for 
costs of production that does not reasonably reflect  costs for producing and selling the product under 
investigation results in an improper calculation of normal value which in turn results in an unfair 
comparison between that normal value and export price for purposes of Article 2.4.455   
7.326  We have, however, determ ined that Canada has not established that the United States acted 
inconsistently with Article 2.2.1.1.  Hence, we cannot agree with the premise on which Canada bases 
the alleged violations, i.e., that DOC calculated th e cost of production for Tembec incorrectly.  For the 
                                                      
452 Exhibit CDA-2, IDM, Comment 11, p. 61. 
453 US response to question 42 of the Panel, para. 98. 
454 See para. 7.316, supra .  
455 Canada response to question 51 of the Panel, paras. 144-145.  WT/DS264/R 
 Page 159 
 
 
foregoing reasons, we consider that Canada has not established that the United States acted 
inconsistently with its obligations unde r Articles 2.2, 2.2.1 and 2.4 of the AD Agreement .456 
(ii) West Fraser 
7.327  Unlike Tembec's case, DOC reject ed the valuation in West Fraser's books for sales of wood 
chips to affiliated parties (pulp mills) in BC.  DOC re-valued those sales transactions based on the 
price of wood chips in West Fraser's unaffiliated transactions.  In so doing, Canada asserts that DOC 
acted inconsistently with Article 2.2.1.1 of the AD Agreement .  As in the case of Tembec, Canada 
claims consequential violations of Articles 2.2, 2.2.1 and 2.4 of the AD Agreement .457   
7.328  The main issue is therefore whether, in re-v aluing West Fraser's revenue from sales of wood 
chips to affiliated parties instead of using the value recorded in West Fraser's books, DOC acted 
inconsistently with Article 2.2.1.1.458  In examining this issue, we recall that Article 2.2.1.1 
establishes that "costs shall normally be calculated on the basis of records kept by the exporter or 
producer under investigation" provided certain conditi ons are met.  In the case at issue, the United 
States explains that:  
"[i]n determining whether a company's r ecords reasonably reflect costs associated 
with production and sale of a product, [DOC ] considers whether transactions between 
affiliated parties occurred at arm's length prices.  It did that analysis [in the case of West Fraser] and concluded that affiliated sales did not occur at arm's length prices.  Accordingly, it relied on unaffiliated sales in valuing the West Fraser's wood chip offset."
459 (footnote omitted) 
7.329  We do not understand Canada to argue that the test applied by the United States is per se  
inconsistent with Article 2.2.1.1.460  For the purpose of resolving this dispute, we therefore assume 
that the AD Agreement did not  preclude DOC from carrying out an arm's length test in order to 
determine whether prices of wood chips charged to a ffiliated parties are reliable, and therefore can be 
used as an offset to the cost of production of the product under consideration.  We understand 
Canada's argument to be that, had DOC taken in to account information available on the record, it 
could not have disregarded the revenue for sales of wood chips to affiliated parties in BC appearing in 
West Fraser's books.  It is our task to exam ine whether, as claimed by Canada, based on the 
information on the record at the time of determ ination, an unbiased and objective investigating 
authority could not have determined that the valua tion of sales of wood chips to affiliated parties in 
BC contained in West Fraser's records was unreasonable. 
7.330  In the course of the investigation, West Fraser put forth two arguments in support of its 
contention that DOC should use the revenue booked by West Fraser from sales of wood chips to 
                                                      
 456 Accordingly, we need not address the United States' argument, based upon the findings of the Egypt 
– Steel Rebar panel (para. 7.333), that Article 2.4 relates only to the comparison of export price and normal 
value, and does not regulate the establishment of the normal value as such. 
457 See para. 7.314, supra .  
458 Canada response to question 1 of the Panel, para. 1(vi).   
459 US first written submission, para. 222. 
460 Canada asserts that it: 
 
"does not dispute that a determination of non-arm's length pricing could support a 
determination that books and records containing such prices might not reasonably reflect the 
costs associated with the production and sale of the product under consideration.  In such an instance, the investigating authority might legitimately resort to alternative data and disregard 
the books and records". (Canada first written submission, para. 243) 
 WT/DS264/R 
Page 160  
 
affiliated parties as an offset to so ftwood lumber's cost of production.
461  First , Canada asserts that, to 
show that its affiliated sales were made at market prices, West Fraser provided DOC with monthly data for the year 2000 for wood chip purchases made by one of its affiliated pulp mills, QRP.  In the 
view of Canada, these data showed that the prices QRP paid to West Fraser – for wood chip sales 
from "West Fraser Mills" in Quesnel, BC – were consis tent with the prices QRP paid to its principal  
unaffiliated chip supplier.  Canada asserts that DOC offi cials not only verified the above information 
but also requested – and verified – additional in formation regarding sales made to affiliated and 
unaffiliated purchasers by West Fraser's Blue Ridge (Alberta) and PIR (BC) sawmills.  Canada asserts 
that, in its Case Briefs, West Fraser argued that th e mill-specific information that had been verified, 
showed that West Fraser's wood chip sales to affiliate d parties had in fact been made at market prices.  
Second , Canada asserts that, immediately after DOC issued its Final Determination, West Fraser 
submitted a letter to DOC arguing that its use of West Fraser's " de minimis " volume of unaffiliated 
wood chip sales in BC as its exclusive benchm ark for BC market prices constituted ministerial 
error.
462   West Fraser argued that, because its unaffiliated party chip sales in BC were " de minimis ", 
DOC should have evaluated whether West Fraser's affiliated party sales were made at arm's length 
prices using the same method used for affiliated ch ip sales made by Canfor, which was similarly 
situated to West Fraser in that Canfor had no chip sales to unaffiliated purchasers in BC.463  W e s t  
Fraser requested DOC to compare the price of West  Fraser's wood chip sales to affiliated purchasers 
with the weighted average price of the other respondents' unaffiliated chip sales in BC.464   
7.331  We found the following statement in the IDM rele vant to our examination of Canada's first 
argument: 
"[f]or West Fraser and Tembec we also disagree that the documentation presented at 
verification demonstrated that the prices it received from its affiliates for sales of 
wood chips reflected market prices.  While we acknowledge that the documentation submitted at verification showed that certain affiliated pulp mills selected by these respondents paid similar prices to thei r sawmills and to unaffiliated parties for 
purchases of wood chips, we note that the comparisons provided by each respondent 
were selectively provided by the compani es and not based on a sample chosen by 
[DOC] .  These comparisons represented only a portion of the total wood chip 
purchases by both Tembec and West Fraser's  pulp mills and there is no record 
evidence to determine what the results might be if all mills were included."
465  
(emphasis added) 
7.332  We note that Canada has not contested DOC's st atements that West Fraser did not provide all 
the information on the sample chosen by DOC.466  Nor has Canada pointed to any justification of 
record for West Fraser's non-submission of the sample data requested by DOC.  We do not consider 
that it could be required from an unbiased and objec tive investigating authority to use the partial 
information submitted by West Fraser in order to carry out the arm's length test, especially where no 
explanation is provided as to why the in formation requested could not be submitted.467  Bearing all 
these facts in mind, we consider that Canada h as not established that the United States has acted 
                                                      
461 Canada response to question 37 of the Panel, Annex I, pp. A8-10. 
462 Exhibit CDA-161, Comments Regarding Ministerial Errors, pp. 4-6. 
463 Id., p. 6. 
464 Ibid. 
465 Exhibit CDA-2, IDM, Comment 11, pp. 61-62. 
466 Rather, Canada argues that, had DOC considered the information provided by the exporter 
inadequate, then DOC should have notified West Fraser  of this fact.  (Canada second written submission, 
para. 290) 
467 In so concluding, we have taken into account Canada's argument that West Fraser provided DOC 
with information by QRP to illustrate that, if West Fras er's highest priced sales to affiliated parties were not 
made at inflated prices, then its lower priced sales si milarly could not have been made at inflated prices.  
However, Canada has not pointed to any evidence on the record in support of its assertions.   WT/DS264/R 
 Page 161 
 
 
inconsistently with Article 2.2.1. 1 in not using the data provided by the exporter concerning QRP.  
For the foregoing reasons, we reject Canada's first argument.468  
7.333  In examining Canada's second argument, we note that, in its Comments Regarding Ministerial 
Errors, West Fraser requested DOC not to use the average prices of the McBride and PIR sawmills to 
unaffiliated parties in BC as a benchmark against which the average price of wood chips sales to 
affiliated parties would be compared.  Furthermore,  we note that the Final Determination and the IDM 
were issued before the submission of West Fraser's Co mments Regarding Ministerial Errors.469  
Bearing these facts in mind, we do not consider that it could be required from an unbiased and objective investigating authority to take into account West Fraser's comments.  The fact that, at that 
stage, DOC could still have made changes to the Final Determination – under the form of correction 
of ministerial errors
470 – does not alter our conclusion.  Article 5.10 of the AD Agreement imposes 
strict deadlines on investigating authorities for investig ations to be concluded.  In our view, the right 
of exporters to submit new data or arguments mu st therefore respect that fundamental principle 
enshrined in the AD Agreement .  Bearing in mind the timing of West Fraser's submission and the 
substantive nature of its comments, we consider th at DOC was not required to reopen its investigation 
to analyse the comments submitted by the exporter.  In  sum, we are of the view that Canada has not 
established that the United States acted inc onsistently with Article 2.2.1.1 of the AD Agreement in 
disregarding West Fraser's arguments contained in its Comments Regarding Ministerial Errors.471   
7.334  In reaching this conclusion, we have taken into  account Canada's comment that, in light of the 
methodology used by DOC at the preliminary stage for the purpose of valuing the by-product revenue offset, "there was no reason why West Fraser would have (or should have) argued that its sales to 
unaffiliated parties in British Columbia  were too small or unrepresen tative to constitute reliable 
evidence of market prices in British Columbia."
472 (emphasis in original)  
7.335  In this regard, it is stated in the IDM that: 
"West Fraser maintains that chip prices vary significantly by region and that any 
comparison in the aggregate is meaningless.  West Fraser contends that it explained at 
verification that chip prices vary signifi cantly between British Columbia and Alberta 
and that they therefore should not be compared directly."473 
7.336  In addition, it is stated in West Fraser's Cost Verification Report that: 
"[DOC] noted that the schedule for wood chips was divided between sales in Alberta 
and sales in British Columbia.  For sales in Alberta, the average affiliated per-unit sales value of CAN$ [****] compared to an average unaffiliated per-unit sales of 
CAN$  [****].  For the sales in British Colu mbia, the average affiliated per-unit sales 
                                                     
 
468 While issues relating to the rejection of data and use of facts available by an investigating authority 
might fall under the coverage of Article 6.8 and Annex II of the AD Agreement , Canada has not made any claim 
under that provision. 
469 The IDM and the Final Determination were published on 21 March 2002 (Exhibit CDA-2, IDM, 
cover page) and 2 April 2002 (Exhibit CDA-1, Final Determination), respectively.  West Fraser's Comments 
Regarding Ministerial Errors are contained in a letter addressed to DOC dated 9 April 2002 (Exhibit CDA-161, 
Comments Regarding Ministerial Errors).  
470 We note that the concept of "ministerial errors" is not contained in the AD Agreement .  Rather, it 
reflects a practice of the United States.  
471 We note that a recent panel expre ssed a similar view. (Panel Report, Argentina – Poultry, 
paras. 7.196-7.197) 
472 Canada second written submission, para. 276. 
473 Exhibit CDA-2, IDM, Comment 11, p. 57. WT/DS264/R 
Page 162  
 
value of CAN$ [****] compared to an av erage unaffiliated per-unit sales of CAN$  
[****]."
474 
7.337  The excerpt quoted from West Fraser's Cost Verification Report refers to a schedule 
contained in an exhibit collected at verificati on – several months before the IDM and the Final 
Determination were issued – and included in E xhibit CDA-106.  This exhibit reports separately inter 
alia the volume of wood chips sold by type of cust omer (affiliated and unaffiliated) made by each of 
West Fraser's sawmills in Canada.  Totals (incl uding volume and value) for sales to affiliated and 
unaffiliated parties are grouped by region, i.e., Alberta and BC.   
7.338  We consider that, when arguing during the veri fication that any comparison in the aggregate 
is meaningless and that BC and Alberta should not be  compared directly because wood chip prices 
vary significantly between those two regions, West  Fraser could have anticipated that, if DOC 
accepted its argument, it might have considered comp aring prices of wood chips sold by West Fraser's 
BC sawmills to affiliated parties in BC with prices of sales made by those sawmills to unaffiliated 
parties in that region.  Based on its own data, W est Fraser could already have seen during verification 
that the volume of wood chips sold to unaffiliated parties in BC during the POI was tiny (0.28 per 
cent of total wood chips sales in BC).  For the foregoi ng reasons, we reject Canada's argument that 
West Fraser did not make certain specific argume nts until a late stage in the investigation because 
there was no reason why West Fraser should have done so before.475 
7.339  Even if, arguendo , we were to consider West Fraser's  arguments, we would be unable to 
conclude that the United States acted inc onsistently with Article 2.2.1.1 of the AD Agreement .  First, 
Canada argues that the volume of wood chips sold by West Fraser to unaffiliated parties in BC was 
tiny.  The United States replies that, so long the wood chip transactions were commercial in nature, 
the actual volume of those transactions is irrelevant.   
7.340  In our view, the volume of wood chips sold does not  determine, in and of itself, whether those 
transactions constitute an appropria te benchmark against which the av erage price of wood chips sold 
to affiliated parties can be compared.  Canada a ppears to acknowledge this fact implicitly when it 
states that it did not make any arguments concerning West Fraser's sales from its PIR sawmill because 
sales of wood chips to unaffiliated parties made by PIR476 "were not made at inflated prices" and "did 
not distort DOC's analysis".477   
7.341  Canada argues that its McBride sawmill sold wood chips to unaffiliated parties early in the 
POI and pursuant to a long-term contract, and thus  did not reflect market prices for the POI as a 
whole.478  In support of its argument, Canada cites the following excerpt from West Fraser's Cost 
Verification Report: 
"[c]ompany officials explained that the McBride mill had a long-term contract in 
effect for chip sales when the mill was purchased and that all sales occurred during 
April and May 2000.  They explained that  the sales value of chips increased in 
May 2000 and that they were obligated to  sell the chips at the lower contracted 
price."479 
                                                      
474 Exhibit CDA-110, West Fraser's Cost Verification Report, p. 23.  Confidential information 
contained in the bracketed sections has been removed. 
475 In any case, we note that Canada has not raised in the Panel Request any claim under Article 6 of 
the AD Agreement .  
476 We recall that this is one of the two sawmills ow ned by West Fraser which had sales of wood chips 
to unaffiliated parties in BC during the POI. 
477 Canada second written submission, para. 281. 
478 Canada first written submission, para. 249. 
479 Exhibit CDA-110, West Fraser's Cost Verification Report, p. 23.   WT/DS264/R 
 Page 163 
 
 
7.342  The United States replies that West Fraser made  no argument that the long-term contract by 
the McBride mill did not represent valid market pric es, nor did it make any argument about the arm's 
length nature of the sales made from its other mill in BC (PIR). 
7.343  We recall that West Fraser sold wood chips to unaffiliated parties from two sawmills in BC, 
namely McBride and PIR.  We understand Canada  to argue that DOC should not have relied on 
McBride's sales of wood chips to unaffiliated par ties in its arm's length determination because:  
• McBride's sales to unaffiliated parties were ma de pursuant to a long-term contract that 
prevented raising wood chips prices to its (u naffiliated) customer when market prices for 
wood chips rose; and 
• McBride's sales to unaffiliated parties took place when chip prices were lowest and not 
reflective of BC prices during the entire POI.480   
7.344  With respect to the contract, Canada explained that prices under the long-term contract of the 
McBride mill were recalculated on a quarterly basis in  order to reflect developments in market prices 
for wood chips during the previous quarter.481  Bearing in mind that prices were periodically 
recalculated, we do not consider that the terms of the contract are per se  sufficient justification for a 
conclusion that prices of wood chips sold by McBr ide to unaffiliated parties were not reliable.  
Canada's second argument has to do with the timing of McBride's sales to unaffiliated prices.  Thus, 
Canada asserts that they took place at the beginning of the POI, when wood chips prices were at their 
lowest.  This has not been contested by the United Stat es.  We note that West Fraser's average price of 
wood chips to unaffiliated parties in BC was calcu lated based on sales of wood chips to unaffiliated 
parties made by the McBride and PIR sawmills.  Therefore, the average price of wood chips to 
unaffiliated parties included not only data of McBride but also of PIR.  Canada has argued and shown 
that all sales of wood chips to unaffiliated parties in BC made by McBride took place in the first two 
months of the POI, but has not directed us to  any information on the record on the timing and 
conditions of sale of PIR.    We are therefore unabl e to determine whether the average price calculated 
by DOC for sales of wood chips to unaffiliated parties was impacted at all by McBride's data to such 
an extent that an unbiased and objective investigatin g authority could not have averaged McBride and 
PIR's sales data, as DOC did.  Having reached this  conclusion, we reject Canada's argument. 
7.345  In addition, West Fraser argued during the i nvestigation that DOC should have evaluated 
whether West Fraser's affiliated party sales were made at arm's length prices using the same method used for affiliated chip sales made by Canfor.  Th is treatment was justified because, according to 
West Fraser, both companies were in similar situati ons. Canada therefore argues before us that DOC 
should not have applied different  benchmarks for West Fraser and Canfor.  The United States 
contends that Canfor was not similarly situated to  West Fraser.  The United States asserts that West 
Fraser had sales to unaffiliated parties in BC, while Canfor did not.  In addition, the United States 
argues that sales in BC made by West Fraser were of  its own product mix, and thus the best evidence 
of the value of an offset in West Fraser's pro cess.  By contrast, Canfor had no sales in BC, and 
therefore, the best evidence of the value of an offset for Canfor was other companies' arm's length 
sales in that market. 
7.346  We note that Canada has not disputed the fact that, while Canfor did not have any sales of 
wood chips to unaffiliated parties in BC during the PO I, West Fraser did.  In our view, the factual 
situations of Canfor and West Fraser are therefore si gnificantly different.  In Canfor's case, there were 
no sales of wood chips to unaffiliated parties in BC; he nce, the investigating authority was left with 
no choice but to use data other than that of the exporter itself in order to carry out the arm's length 
                                                     
 
480 Canada first written submission, para. 249. 
481 Canada asserted that "[t]he McBride contract se t prices at the beginning of each calendar quarter 
based on market conditions in the previous quarter". (C anada response to question 132 of the Panel, para. 120) WT/DS264/R 
Page 164  
 
test.  In West Fraser's case, there was data availa ble for the exporter concerned albeit corresponding to 
a small portion of West Fraser's total sales of wood chips in BC (0.28 per cent).  Canada has not established that the average price data corresponding to sales of wood chips to unaffiliated parties in 
BC was unreliable.  Hence, we do not consider that , based on the facts before us, it could be required 
from an unbiased and objective investigating authority to have treated Canfor and West Fraser in the 
same manner.  For this reason, we reject Canada's argument.   
7.347  For the foregoing reasons, we reject Canada's claim that, in re-valuing West Fraser's revenue 
from sales of wood chips to affiliated parties, instea d of using the value recorded in West Fraser's 
books, the United States has acted inconsistently with Article 2.2.1.1. 
7.348  With respect to Canada's claims regarding viol ations of Articles 2.2, 2.2.1 and 2.4 of the AD 
Agreement , we note that Canada advances arguments iden tical to those mentioned in paragraph 7.325, 
supra,  in support of those claims.  This being th e case and having found that Canada has not 
established that the United States acted inc onsistently with Article 2.2.1.1 of the AD Agreement  in re-
valuing West Fraser's prices of wood chips sold to a ffiliated parties in BC, we conclude that Canada 
has not established that the United States acted incons istently with Articles 2.2, 2.2.1 and 2.4 of the 
AD Agreement .  For this reason, we reject Canada's claims  of violation of Articles 2.2, 2.2.1 and 2.4. 
N. C
LAIM 11: ARTICLES 2.2, 2.2.1,  2.2.1.1,  2.2.2  AND 2.4 – DIFFERENCE IN PRICE 
COMPARABILITY ARISING FROM PROFITS ON FUTURES CONTRACTS :  SLOCAN  
(a) Factual Background 
7.349  Canada's claim concerns DOC's treatment of Slocan's profits and losses from lumber futures 
hedging contracts traded on the CME.  Slocan ente red into two types of lumber futures hedging 
contracts during the POI.  Under the first type of contract, Slocan actually delivered the lumber under 
the terms of the futures contract.  These transactions  were included in Slocan's reported sales and are 
not in dispute.  Other contracts were sold/traded  "before and instead of physical delivery".482  T h e  
revenues obtained through these operations were recorded in Slocan's books as lumber selling 
activity.  In response to DOC exporters' questionna ire, Slocan reported the net revenue earned on 
futures contracts as an offset to direct selling expe nses.  DOC rejected the claimed adjustment in its 
Preliminary Determination on the ground that that income was investment revenue, rather than a 
direct selling expense; hence, it should not be treat ed as a sales specific deduction/addition.  After 
DOC's Preliminary Determination, Slocan restated  its claim for an adjustment to direct selling 
expenses or, in the alternative, requested DOC to ac count for futures profits and losses as an offset to 
financial expenses.  In its Final Determinati on, DOC rejected Slocan's request as follows: 
"[a]ny sales of subject merchandise that occurred during the POI as a result of a 
futures contract have been included in Slo can's reported sales list.  However, we have 
not included in our analysis profits on the sale of a futures contracts that did not result in the shipment of subject merchandise.  Su ch profit is realized from Slocan's position 
on the CME and as a producer of softwood lumber, but not from its actual sale of 
subject merchandise.  
We also have not applied these profits as an offset to Slocan's direct selling expenses. 
Section 773(a)(6)(C)(iii) of the Act directs [DOC] to make circumstance of sales 
adjustments only for direct selling expenses and assumed expenses.  Section 351.410(c) defines dir ect selling expenses as "expenses . . . that result from 
and bear a direct relationship to the partic ular sale in question".  Accordingly, where 
no sale of subject merchandise occurred, there can be no circumstance of sale 
adjustment for direct selling expenses.  
                                                     
 
482 Canada second written submission, para. 315.  WT/DS264/R 
 Page 165 
 
 
Slocan suggests that as an alte rnative, [DOC] apply the profits  as an offset to Slocan's 
financial expenses.  In support of this argum ent, Slocan disputes [DOC]'s statement in 
its preliminary determination calculation memo that these profits are "investment revenues" by stating that Slocan is engaging in hedging rather then speculative activity, and that sales on the futures mark et are integral parts of the company's 
normal sales and distribution process.  While we agree that Slocan's lumber futures 
hedging activity is related to its core business of selling lumber as opposed to 
speculative investment activity, it is for th is very reason that we disagree that the 
futures contracts are related to Slocan's fina ncing activity.  As such, the futures profits 
should not be used to offset the company's interest expense".
483 
(b) Arguments of the Parties  
7.350  Canada asserts that DOC used two directly contradictory lines of reasoning to disregard the 
profits.  At the preliminary stage, Canada asserts that DOC had determined that revenue from trading 
softwood lumber futures contracts was investment revenue, and for that reason, rejected Slocan's 
claimed adjustment.  At the definitive stage, DOC refu sed to treat those profits as an offset to Slocan's 
financial expenses, by stating that they related to Slocan's core business of selling lumber rather than 
to any investment activity.  In the view of Canada , at a minimum, one of these determinations cannot 
stand and is, therefore, based on an evaluation of the facts which is neither unbiased nor objective.  
Bearing in mind DOC's finding that Slocan's lumber futures hedging activity is related to its core 
business of selling lumber as opposed to speculative investment activity, Canada argues that DOC 
should have granted Slocan an adjustment to direct  selling expenses.  Canada asserts that Article 2.4 
supports its claim.  Canada conte nds that Article 2.4 does not require any price adjustment to be 
directly related to a particular sales transaction.   Canada argues that Article 2.4 required the 
United States to make due allowance for all diffe rences that affected price comparability.  Canada 
contends that Slocan's futures trading activity was either a "condition" of US sales, an "other 
difference" affecting price comparability, or both.  Canada asserts that it was DOC's responsibility to 
decide how to classify Slocan's futures revenue and how to make "due allowance" for its effect on 
price comparability.  Should DOC have been of the vi ew that Slocan's request for such an adjustment 
was not founded, then Canada asserts that DOC could have made the adjustment by offsetting 
Slocan's financial expense by the income derived fr om futures contracts.  Canada asserts that DOC's 
failure to make the requested adjustment to selling expense was inconsistent with the US obligation to 
use a reasonable amount for SG&A costs under Article 2.2 of the AD Agreement .  Canada asserts that 
an objective and unbiased investigating authority ev aluating the evidence before DOC could not have 
reached the conclusion that no adjustment was required to offset Slocan's futures contract revenues.  
7.351  The United States replies that DOC found that Slocan's lumber hedging activity is linked to 
overall selling activities and reduction of Slocan's e xposure to price changes.  The United States 
asserts that hedging is only indirectly linked to selling activities, because there is no actual sale and 
delivery of lumber to a buyer.  Because the revenue  from trading softwood lumber futures contracts 
could not be directly related to sales of softw ood lumber, the United States asserts that DOC was 
justified in finding that Slocan's futures hedging cont racts are not direct selling expenses.  Bearing in 
mind that futures profits were recorded as lumber  sales revenues rather than  production expenses, the 
United States argues that DOC was justified in rejec ting Slocan's request for the futures profits to 
offset financial expenses. 
(c) Evaluation by the Panel 
7.352  Canada claims that, based on the facts before it,  DOC's refusal to grant Slocan an adjustment 
under Article 2.4 of the AD Agreement for the net revenue it earned through its trading of softwood 
lumber futures contracts on the CME , resulted in the United States being in violation of its obligations 
                                                      
483 Exhibit CDA-2, IDM, Comment 21, pp. 92-94. WT/DS264/R 
Page 166  
 
under Article 2.4 of the AD Agreement.   Canada claims that, if we concluded that the United States 
has not violated Article 2.4, we should find that DOC should have accounted for that revenue when 
determining the constructed (normal) value and that  the United States, by not doing so, has violated 
Articles 2.2, 2.2.1, 2.2.1.1 and 2.2.2.  From the re cord, it is clear to us that DOC did not dispute the 
existence of this revenue and that DOC accepted th at the revenue was earned from hedging activities, 
rather than from speculation in futures contracts.  The issue before us, is to determine whether DOC 
should have made an adjustment under Article 2.4 to take the ne t revenue from Slocan's futures 
contracts into account, and if we find in the nega tive, to determine whether the United Stated has 
acted inconsistently with Articles 2.2, 2.2.1, 2.2.1. 1 and 2.2.2 in not having taken that income into 
account in the dumping calculation.  We note that the revenue at issue was generated by the buying 
and selling of futures contracts that did not result in the shipment of subject merchandise.
484   
7.353  We understand Canada's first ar gument to be that DOC should have granted an adjustment 
under Article 2.4, either under the language "conditi ons and terms of sale" or "any other differences 
which are also demonstrated to af fect price comparability".  The United States asserts that it was not 
demonstrated that the differences at  issue affected price comparability.   In addition, the United States 
argues that the futures contracts at issue were not conditions and terms of sal e related to particular 
sales transactions of lumber. 
7.354  Article 2.4 provides, in relevant portion, as follows: 
"[a] fair comparison shall be made betwee n the export price and the normal value. (…) 
Due allowance shall be made in each case, on its merits, for differences which affect price comparability , including differences in conditions and terms of sale (…) and any 
other differences which are also demonstrated to affect price comparability." (emphasis 
added; footnote omitted) 
7.355  We recall our discussion of the obligations impo sed by this provision in paragraphs 7.165-
7.167, supra, and in particular, the Appellate Body statement in US – Hot-Rolled Steel  that:  
"Article 2.4 of the  Anti-Dumping Agreement   provides that, where there are 
"differences" between export price a nd normal value, which affect the 
"comparability" of these prices, "[d]ue allowance shall be made" for those differences".  The text of that provision gi ves certain examples of factors which may 
affect the comparability of prices:  "differences in conditions and terms of sale, taxation, levels of trade, quantities, physical characteristics, and any other 
differences".  However, Article 2.4 expressl y requires that "allowances" be made for 
"any other differences  which are also demonstrated to affect price comparability". 
(emphasis added)  There are, therefore, no differences "affect[ing] price comparability" which are precluded, as such, from being the object of an "allowance"".
485  (emphasis in original) 
7.356  An examination of a request for an Article 2.4 adjustment should therefore start with a 
determination of whether a difference between the export price and the nor mal value exists.  That is, a 
difference between the price at which the like produc t is sold in the domestic market of the exporting 
country and that at which the allegedly dumped prod uct is sold in the importing country.  Ultimately, 
this provision requires that differences exist between two markets.  If there is no difference affecting 
the products sold in the markets concerned, for in stance, where the packaging of the allegedly dumped 
product and that of the like product sold in the domes tic market of the exporting country is identical, 
in our view, an adjustment would not be required to be made by that provision. 
                                                      
484 Thus, our examination and conclusions below do not cover Slocan's sales on the CME that resulted 
in the shipment of subject merchandise. 
485 Appellate Body Report, US – Hot-Rolled Steel , para. 177.    WT/DS264/R 
 Page 167 
 
 
7.357  The identified differences concerning the products  sold in the two markets must affect the 
comparability of normal value and export price for the oblig ation to make due allowance to apply.  
Article 2.4 does not define what comparability  means, but includes a non-exhaustive list of factors 
which may affect price comparability.  Comparability is a term which, in our view, cannot be defined in the abstract.  Rather, an investigating authorit y must, based on the facts before it, on a case-by-case 
basis decide whether a certain factor is demonstrat ed to affect price comparability.  We can imagine 
of situations where although differences exist, they  do not affect price comparability.  For instance, 
this could occur where in the exporting country all car s sold are painted in red, while cars exported are 
all black.  The difference is obvious; in fact, it is one of those differences listed in Article 2.4 itself – a 
difference in physical characteristics.  However, there might be no variable cost difference among the 
two cars because the cost of the paint – whether re d or black – might be the same.  If instead of 
differences in cost, we were looking at market valu e differences, we might reach the same conclusion 
if, either the seller or the purchaser, would be willing to sell or purchase at the same price, regardless 
whether the car is red or black.
486 
7.358  It is also important to note that there are no differences "affect[ing] price comparability" 
which are precluded, as such, from being the object of an allowance .  In addition, we consider that the 
obligation on an investigating aut hority is to examine the merits of each claimed adjustment and to 
determine whether the difference affects price co mparability between the allegedly dumped product 
and the like product sold on the domestic market of the exporting country.487 
7.359  Recalling the standard of review which we are applying and the requirement that we are not 
to perform a de novo review, we will examine the submissions of  the parties to determine whether an 
unbiased and objective investigating authority could have concluded that, based on the facts before 
DOC at the time of determination, the granting of an Article 2.4 adjustment was required.  
7.360  The first issue that must be ex amined, is whether there were differences  affecting the normal 
value and the export price in the two markets comp ared, i.e., the United States and Canada.  It is 
undisputed that Slocan's hedging activities took place in the United States only, that is, on the CME.  
Neither party has argued that Slocan hedged so ftwood lumber futures contracts in Canada. 
7.361  We note that Canada asserts that:  
"[a]s Slocan demonstrated during the inv estigation, particularly in Verification 
Exhibit 21, hedging through futures trading activity affects all sales in a particular market.  Slocan Sales Verification Exhibit 21 Random Length--An Introductory 
Hedge Guide,  at VE2381 to VE2384 (Exhibit CDA-119).  Slocan has greater 
flexibility to respond to changes in pri ce trends because it knows in advance the 
minimum price that a certain percentage of its sales, will achieve.  This affects the other prices that Slocan is willing to offer and accept in that market.";
488  
and that: 
                                                      
486 In our view, whether a particular factor affect s price comparability might be considered from the 
point of view of the purchaser.  The question is whether a purchaser would be willing to make a price 
differentiation between two products.  For example, would a purchaser be prepared to pay more for a car painted 
black than for the very same car when painted red, a lthough the costs for both cars are identical?  In other 
words, if the behaviour of the purchaser would change, depending on the colour of the car, it could be 
considered that that difference in physical characteristics, that is, the difference in  colour, affects price 
comparability.   
487 In addition to these comments, we  recall that we have set out our understanding of Article 2.4 in 
paras. 7.165-7.167, supra .   
488 Canada second written submission, para. 336, note 356. WT/DS264/R 
Page 168  
 
"at verification [Slocan] demonstrated the effect on price comparability by proving that Slocan was a "hedger" in the lumber market and that the purpose and effect of 
hedging contracts is to affect prices in the ma rket by shielding against fluctuations in 
price.  Given the demonstrated purpose of hedging activity, [DOC]'s factual determination that "Slocan's lumber futur es hedging activity is related to its core 
business of selling lumber" was a determination that futures revenue affected 
prices."
489 (emphasis in original) 
7.362  Canada argues that Slocan demonstrated that its hedging activity in the United States affected 
price comparability.  In support of this contenti on, we understand Canada to assert that Slocan's 
hedging activity only occurs in th e United States and that the hedgi ng activity was a deliberate effort 
to affect the pricing of its products sold in the US market only.   
7.363  We note that the revenue at issue does not arise from particular sales transactions of softwood 
lumber as such, but rather that it is generated from th e sale of the contracts, to be executed at a future 
date, themselves.  This means that the very same contract can be so ld and bought, or even re-bought 
by the original seller, a number of times before it is  actually resulting in the physical delivery of the 
softwood lumber.  We also note that it is stated in the DOC Verification Report of Slocan that: 
"[e]very futures contract that Slocan en ters into carries an obligation to deliver 
'physicals' – actual lumber – unless the contract is offset.   
When a futures contract expires without  being offset, the Chicago Mercantile 
Exchange (CME) is the customer.  Slocan  ships the goods as directed by the CME. 
(...)  
Slocan engages in futures trading in order to hedge, not to speculate.  The purpose of 
hedging is to reduce the risk of holding lumber inventory."490 
7.364  Although the CME is located in the United Stat es, the sellers and buyers of the futures 
contracts can also be located in Canada itself, as is the case with Slocan. Furthermore, we also note 
that eventual delivery of the softwood lumber in te rms of the futures contracts can also take place in 
Canada.491  Although we are aware that the revenue at  issue has been generated through futures 
contracts which were offset and that no deliver y has taken place, the product which forms the object 
of the contract can find its way back to the Canadi an domestic market.  In light of the above, it seems 
to us that questions can be raised as to whether th e effect of Slocan's hedging activities can be isolated 
to the US market only, and that it therefore aff ects price comparability between the normal value and 
the export price.  In addition, we note that the "greater flexibility to respond to changes in price 
trends" referred to by Canada in its submissions before us cannot, in our view, be isolated to the 
market of the country in which hedging takes place, i.e., the United States.  Other than unsubstantiated 
assertions that "affects the other prices that Slocan is  willing to offer and accept in th[e US] market", 
Canada has not presented evidence showing that he dging activities only impacted the setting of prices 
at which softwood lumber products are sold in the United States.  In other words, Canada has not 
convinced us that the "price stability" effect implied in its submissions of the hedging activities did 
not play a role in the price setting of softwood lu mber products when sold in Canada or any other 
                                                      
489 Id., para. 342, note 363. 
490 Exhibit CDA-119 , Slocan's Cost Verification Report, p. VE02361. 
491 Id., p. VE02366, when it is stated that: 
 
"[i]f your firm should wish to take delivery and it is in the U.S. or Canada east of the western 
boundaries of North Dakota, South Dakota, Nebraska, Kansas, Texas and Oklahoma, and the western boundary of Manitoba, Canada, the freight is the lowest published freight rate for 73-
foot flatcars from Prince, British Columbia to your location." 
  WT/DS264/R 
 Page 169 
 
 
market where Slocan sells them.  We are therefore of the view that Canada has not established that 
there are "differences" between export price and nor mal value, which affect the "comparability" of 
these prices.    
7.365  For the foregoing reasons, we conclude that an  unbiased and objective investigating authority 
could have concluded that the adjustment requested  by Slocan under Article 2.4, whether under the 
"conditions and terms of sa le" or under the "any other differenc es" language, was not warranted and, 
hence, that such an investigating authority could have refused granti ng that adjustment.  We therefore 
reject Canada's claim that the United States act ed inconsistently with Article 2.4 of the AD 
Agreement . 
7.366  In the alternative, Canada argues that, in acco rdance with Article 2.2.1.1, DOC should have 
offset financial expense with the futures profits  in determining the cons tructed (normal) value.492  The 
United States disagrees.  In the view of the Unite d States, it would have been inappropriate for DOC 
to disregard the treatment of those profits in Slocan 's books and, instead, treat  them as offsets to cost 
of production. 
7.367  Article 2.2.1.1 reads as follows: 
"[f]or the purpose of paragraph 2, costs sh all normally be calcul ated on the basis of 
records kept by the exporter or producer under investigation, provided that such records 
are in accordance with the generally accepted accounting principles of the exporting country and reasonably reflect the costs asso ciated with the produc tion and sale of the 
product under consideration.  Authorities sha ll consider all available evidence on the 
proper allocation of costs,  including that wh ich is made availabl e by the exporter or 
producer in the course of the investigation provided that such allocations have been 
historically utilized by the exporter or producer , in particular in re lation to establishing 
appropriate amortization a nd depreciation periods and allowances for capital 
expenditures and other development costs.  Unless already reflected in the cost 
allocations under this sub-paragraph, costs shall be adjusted appropriately for those 
non-recurring items of cost which benefit future and/or current  production, or for 
circumstances in which costs during the period of investigation are affected by start-up 
operations." (footnote omitted) 
7.368  We recall our understanding of the obligations imposed under Article 2.2.1.1 in paragraphs 
7.236-7.237, supra .  We recall that Article 2.2.1.1 provides that costs must normally be calculated on 
the basis of records kept by the exporter, provided that such records are in accordance with the 
generally accepted accounting principles of the ex porting country and reasonably reflect the costs 
associated with the production and sale of the produ ct under consideration.  In addition, it establishes 
that investigating authorities must consider all av ailable evidence on the proper allocation of costs, 
including that which is made available by the exporte r or producer in the course of the investigation, 
provided certain conditions are met.  Canada asserts that, consistent with Ar ticle 2.2.1.1, DOC should 
have offset financial expense with the futures profit s in determining the constr ucted (normal) value.  
In light of our analysis of the obligations contai ned in Article 2.2.1.1, we do not consider that 
Canada's argument relate to any of the obligations  imposed in Article 2.2.1.1.  Having rejected the 
sole basis on which Canada supported its claim of an Article 2.2.1.1 violation, we must reject 
Canada's claim.
493 
                                                      
492 Canada response to question 1 of the Panel, para. 1(vi).   
493 In addition, we note that Slocan treated this income as "sales revenue" rather than as a COGS or a 
SG&A item.  For DOC to have treated it differently – either as a COGS or SG&A item – Slocan should have 
argued and shown in the context of the investigation that there were reasons for DOC to depart from "the 
records kept by the exporter", which we do not have any indication it did.  Failing to do so, the proviso of WT/DS264/R 
Page 170  
 
7.369  Canada argues that DOC's failure to grant an  adjustment was inconsistent with the US 
obligations under Articles 2.2, 2.2.1 and 2.2.2 of the AD Agreement .
494  With respect to its Article 2.2 
claim, Canada argues that that provision requires an investigating authority to use a reasonable 
amount for SG&A expenses.   
7.370  Article 2.2 reads as follows: 
"[w]hen there are no sales of the like product in the ordinary course of trade in the 
domestic market of the exporting country or when (…) such sales do not permit a 
proper comparison, the margin of dumping shall be determined by comparison with 
(…) the cost of production in the country of origin plus a reasonable amount for 
administrative, selling and general costs and for profits." (footnote omitted)  
7.371  In accordance with this provision,  the margin of dumping can in certain circumstances be 
determined by comparing the export price with the constructed (normal) valu e.  This constructed 
(normal) value is to include the cost of production in the country of origin, plus a reasonable amount 
for SG&A costs, and for profits.  While this provision requires that  the amount for SG&A costs to be 
included in the constructed (normal) value must be  reasonable, Canada has not  argued on which grounds 
we should find that the amounts for SG&A costs de termined by DOC were no t reasonable.  Canada 
merely claims that Article 2.2 ha s been violated by the United St ates, without providing a basis and 
arguments for its claim.  We recall th at, in our finding in paragraph 7.13, supra,  we stated that it is for 
Canada, which has challenged the cons istency of the US measure, to bear the burden of demonstrating 
that the measure is not consistent with – in  this particular case – Article 2.2 of the AD Agreement .  
Furthermore, we recall that the role of a panel is not to make the case for either party.  Canada has 
failed to present arguments in support of its cl aim that unreasonable amounts for SG&A costs were 
used by DOC in the case at issue when constructing (normal) value.  We therefore reject Canada's 
claim that the United States has acted inconsistently with Article 2.2.  
7.372  Canada has not advanced any argument in suppor t of DOC's alleged violation of Article 2.2.2 
of the AD Agreement .  We recall that the role of a panel is not to make the case for either party.  
Canada has failed to present arguments in support of its claim.  We therefore reject Canada's claim.495   
7.373  Finally, Canada raises a consequential claim unde r Article 2.2.1.  Canada asserts that an 
incorrect calculation of costs impacts the determ ination of which sales are useable in establishing 
normal value, contrary to Article 2.2.1.  This claim must be rejected because Canada has not 
established that DOC determined costs incorrectly ( see paragraph 7.368, supra ). 
                                                                                                                                                                     
Article 2.2.1.1 requires that "costs shall be determined on the basis of the records kept by the exporter", which 
we find DOC did.  Thus, DOC acted in line with the mandate set forth in Article 2.2.1.1. 
494 Canada response to question 1 of the Panel, para. 1(vi).  We note that, in the restatement of claims, 
Canada did not include Article 2.1 of the AD Agreement  as one of the provisions allegedly violated by the 
United States.  In view of this, we consider that the Ar ticle 2.1 claim is not before us and, hence, we will not 
examine it. 
495 In any case, we understand that Slocan had not treated in its records this income as a SG&A item 
but rather as a "sales revenue".  As discussed in paragraphs 7.236-7.237, supra , Article 2.2.1.1 expresses a 
preference for the costs to be determin ed on the basis of the records kept by the exporter.  In this instance, 
Canada is requesting us to find that DOC should have departed from the records kept by Slocan and treat the income at issue as part of the compan y's SG&A costs.  However, we recall that Slocan did no t treat the revenue 
at issue as a SG&A item but rather as a "sales revenue".  For us to conclude along the lines of Canada's request, 
we are of the view that Slocan shou ld have argued and demonstrated that  there were reasons, based on the 
proviso of Article 2.2.1.1, for DOC to depart from Slocan 's records, that is to treat  the income at issue as a 
SG&A item rather than as a "sales revenue".  Canada has not pointed to any evidence on record showing that 
Slocan did so in the context of the investigation.  WT/DS264/R 
 Page 171 
 
 
O. CLAIM REGARDING ARTICLE VI OF GATT  1994  AND ARTICLES 1, 9.3 AND 18.1  OF THE AD 
AGREEMENT  
(a) Arguments of the Parties 
7.374  Canada  argues that, by improperly initiating and continuing the investigation, failing to 
properly determine the "like product", failing to make  an adjustment for physical differences which 
affected price comparability, zeroing negative margins and improperly calculating each respondent's 
costs, the United States applied inflated margin s of dumping to Canadian softwood lumber products 
and applied a measure against dumping that was c ontrary to Articles 1, 9.3 and 18.1 of the 
AD Agreement  and Article VI of GATT 1994 . 
(b) Evaluation by the Panel 
7.375  Under this claim, we understand Canada to argue that, because the United States has acted 
inconsistently with certain provisions of the AD Agreement  by improperly initiating and continuing 
the investigation, failing to properly determine the "like product", failing to make an adjustment for 
physical differences which affected price comp arability, zeroing negative margins and improperly 
calculating each respondent's costs – which constitute  separate claims examined in Sections VII.D-
VII.N, supra  – the United States has also acted inconsiste ntly with Articles 1, 9.3 and 18.1 of the AD 
Agreement  and Article VI of GATT 1994 .496  This is therefore a consequential claim.497   
7.376  At the outset, we note that, in its Panel Request , a reference to Article 9.3 can only be found 
in section 3 thereof.  This section covers Canada's claims examined in Sections VII.H-VII.N of this 
Report only.  Bearing this in mind, and that there is  no general reference to a violation of Article 9.3 
elsewhere in the Panel Request, we are of the view that our examination and findings with regard to 
Article 9.3  must be restricted to the claims examined in  Sections VII.H-VII.N of this Report.    
7.377  Our decision on this claim of violation of various provisions of the AD Agreement  and of 
GATT 1994  will depend entirely on our findings with resp ect to the claims to which this claim is 
related.  We recall that in Sections VII.D-VII.N, supra , we have ruled that, in using "zeroing" in 
determining the existence of margins of dumping, the United States has acted inconsistently with 
Article 2.4.2 of the AD Agreement  and that we have dismissed th e remaining claims of Canada.  
Bearing in mind our conclusions with regard to the claims examined in those Sections and what is 
stated in paragraph 7.376, supra , we find that:  
• Canada's claim of violation of Articles 1 and 18.1 of the AD Agreement  and Article VI of 
GATT 1994  predicated on claims that we have rejected in Sections VII.D-VII.G fails; and that  
• Canada's claim of violation of Articles 1, 9.3 and 18.1 of the AD Agreement  and Article VI of 
GATT 1994  predicated on claims that we have rejected in Sections VII.H, VII.J-VII.N also 
fails.   
7.378  With respect to the claim regarding " zeroing" – examined in Section VII.I, supra , we recall 
that we have decided that the United States has not acted consistently with Article 2.4.2 of the AD 
Agreement .  It is therefore with respec t to this claim that we must determine whether – as Canada 
argues – the United States "applied a measure against dumping that was contrary to Articles 1, 9.3 and 
18.1 of the AD Agreement  and Article VI of GATT 1994 ".  We note that a panel "need only address 
                                                      
496 Canada response to question 1 of the Panel, para. 1 (vii). 
497 We understand that this is a consequential or de pendent claim based on the arguments that Canada 
has put forward in support of the alleged violations of Articles 1, 9.3 and 18.1 of the AD Agreement , and 
Article VI of GATT 1994.  (See para. 7.374, supra  and Canada response to question 1 of the Panel, para. 1(vii)) WT/DS264/R 
Page 172  
 
those claims which must be addressed in order to  resolve the matter in issue in the dispute".
498  In light 
of the dependent nature of Canada's clai m, we see no useful purpose to deciding it.499  In particular, 
deciding such dependent claim will provide no additional guidance as to the steps to be undertaken by 
the United States in order to implement our reco mmendation regarding the violation on which it is 
dependent.  In light of the foregoing, we consider it not necessary to examine Canada's claim under 
Articles 1, 9.3 and 18.1 of the AD Agreement , and Article VI of GATT 1994 . 
VIII.  CONCLUSIONS AND RECOMMENDATIONS 
A. CONCLUSIONS  
8.1 In light of our findings, supra , we conclude that in the investigation at issue: 
(a) the United States has acted inconsistently with: 
(i)  Article 2.4.2 of the AD Agreement in determining the existence of margins of 
dumping on the basis of a methodology incorporating the practice of "zeroing"; 
(b) the United States has not acted inconsistently with: 
(i)  Article 5.2 of the AD Agreement in determining that the application contained 
such information as is required by Article 5.2;  
(ii)  Article 5.3 of the AD Agreement by determining that there was sufficient 
evidence of dumping to justify the initiation of the investigation; 
(iii)  Article 5.8 of the AD Agreement by not rejecting the application prior to 
initiation of the investigation, or by not  terminating the investigation, due to 
the alleged insufficiency of  the evidence on dumping; 
(iv)  Article 2.6 of the AD Agreement by determining there to be only a single like 
product and product under consideration;  
(v)  Article 2.4 of the AD Agreement by not granting an adjustment for differences 
in physical characteristics (differences in dimensions), as requested by some 
respondents; 
(vi)  Articles 2.2, 2.2.1, 2.2.1.1, 2.2.2 and 2.4 of the AD Agreement in its calculation 
of the amounts for financial expense for softwood lumber in the case of Abitibi; 
(vii)  Articles 2.2, 2.2.1, 2.2.1.1, 2.2.2 and 2.4 of the AD Agreement in its calculation 
of the amounts for general and administra tive costs for softwood lumber in the 
case of Tembec; 
(viii)  Articles 2.2, 2.2.1, 2.2.1.1, 2.2.2 and 2.4 of the AD Agreement in its calculation 
of the amounts for general and administra tive costs for softwood lumber in the 
case of Weyerhaeuser; 
                                                     
 
498 Appellate Body Report, US – Wool Shirts and Blouses , p. 19. 
499 We note that a similar approach was followed by the panels in Argentina – Poultry,  paras. 7.369-
7.370; Guatemala – Cement II, para. 8.296; and US – DRAMS,  para. 6.92.  WT/DS264/R 
 Page 173 
 
 
(ix)  Articles 2.2, 2.2.1, 2.2.1.1 and 2.4 of the AD Agreement in its calculation of 
the amounts for by-product revenue from the sale of wood chips as offsets for Tembec and West Fraser;  
(x)  Article 2.4 of the AD Agreement by not granting Slocan an adjustment for the 
net revenue earned on its trading of softwood lumber futures contracts, or 
Articles 2.2, 2.2.1, 2.2.1.1, and 2.2.2 by not taking this net revenue into 
account when determining the c onstructed (normal) value; 
(xi)  Articles 1 and 18.1 of the AD Agreement , and Article VI of GATT 1994 with 
respect to Canada's claims referred to in paragraphs 8.1.(b)(i)- 8.1.(b)(iv), 
supra ; 
(xii) Articles 1, 9.3 and 18.1 of the AD Agreement , and Article VI of GATT 1994 
with respect to Canada's claims re ferred to in paragraphs 8.1.(b)(v)- 
8.1.(b)(x), supra.  
(c)  in light of the findings in Sections 8.1(a) and 8.1(b), supra , we apply judicial 
economy and do not rule on Canada's claims under: 
(i)  Article 2.4 of the AD Agreement  ("fair comparison") in respect of zeroing; 
and  
(ii)  Articles 1, 9.3 and 18.1 of the AD Agreement , and Article VI of GATT 1994 
with respect to the matter referred to in paragraph 8.1.(a)(i), supra . 
B. 
NULLIFICATION OR IMPAIRMENT  
8.2 Under Article 3.8 of the DSU , in cases where there is infringement of the obligations assumed 
under a covered agreement, the action is considered prima facie  to constitute a case of nullification or 
impairment of benefits under that agreement.  Ac cordingly, we conclude that to the extent the 
United States has acted inconsisten tly with the provisions of the AD Agreement , it has nullified or 
impaired benefits accruing to Ca nada under that Agreement.  
C. RECOMMENDATION  
8.3 In its Panel Request, Canada requested us to recommend the Dispute Settlement Body that 
"the United States revoke the anti-dumping order in respect of softwood lumber from Canada".500  In 
addition to the revocation of the measure at issue, in its first written submission Canada requested us 
to suggest that the United States could implement the Panel's recommendation by "return[ing] the cash deposits collected pursuant to an illegal i nvestigation and an illegal determination of 
dumping".
501   
8.4 In considering Canada's request, we first recall that Article 19.1 of the DSU provides in 
relevant part that: 
"[w]hen a Panel or the Appellate  Body concludes that a measure is inconsistent with a 
covered agreement, it shall recommend that the Member concerned bring the measure 
into conformity with that agreement.  In  addition to its recommendations, the panel or 
                                                      
500 WT/DS264/2.       
501 Canada first written submission, para. 550.  See also Canada second oral (opening) statement, para. 
112. WT/DS264/R 
Page 174  
 
Appellate Body may suggest ways in which the Member concerned could implement 
the recommendations ". (emphasis added; footnotes omitted) 
8.5 In light of the findings in paragraph 8.1, supra , we therefore recommend that the Dispute 
Settlement Body request the United States to bring its  measure into conformity with its obligations 
under the AD Agreement . 
8.6 By virtue of Article 19.1, panels have discre tion ("may") to suggest ways in which a Member 
could implement the relevant recommendation.  However, a panel is not required to make a 
suggestion should it not deem it appropriate to do so.  We do not consider it a ppropriate to make any 
recommendation to the Dispute Settlement Body in this regard.  
 IX. DISSENTING OPINION BY ONE MEMB ER OF THE PANEL REGARDING 
CANADA'S CLAIM ON ZEROING
  
9.1 Although I join my colleagues on this Panel with respect to the findings on all other claims 
before us, I must respectfully disagree with the find ings regarding zeroing (Claim 6).  In my view, 
Canada has not established that zeroing is incons istent either with the specific provisions of 
Article 2.4.2 or with the general "fair comparison"  requirement of Article 2.4.  At a minimum, I 
consider that the United States' interpretation of Articles 2.4.2 and 2.4 as not prohibiting zeroing is a permissible one. Accordingly, I would find that th e United States did not act inconsistently with 
Articles 2.4.2 and 2.4 by reason of the zeroing of negative margins in the investigation underlying this 
dispute. 
9.2 At the outset, I recall the standard of review  that governs the work of panels (and the 
Appellate Body) when examining claims that a Member has violated the AD Agreement .  
Article 17.6(ii) provides that, where a provision of the AD Agreement  admits of more than one 
permissible interpretation, a measure shall be found to  be in conformity with that provision if it rests 
upon one of those permissible interpretations.  Thus, our task is not to choose our preferred 
interpretation of Articles 2.4.2 and 2.4 of the AD Agreement , but to determine whether the 
interpretation advanced by the United States is perm issible, under the rules of treaty interpretation 
applicable in WTO dispute settlement.  Should we so find, then we must rule that the United States' 
actions in zeroing in this investigation are in conf ormity with Articles 2.4.2 and 2.4.  In my view, 
Article 17.6(ii) applies at every step of our anal ysis: if any essential step in our reasoning depends 
upon an interpretation which is only one of multiple permissible ones, then we cannot find that the 
United States has acted inconsistently with the AD Agreement . 
9.3 Although I disagree with my colleagues' findings on zeroing, I agree with their intermediate 
conclusion that multiple averaging is  permitted by Article 2.4.2 of the AD Agreement .  In my view, 
this is not a question of multiple permissible interpre tations, but rather of the correct interpretation of 
that provision.  My colleagues have fully expl ained the bases for their conclusions on multiple 
averaging, including the need to give meaning to  the word "comparable", particularly given its 
inclusion in the text at a late stage in the nego tiations; the appropriateness of reading the phrase "all 
comparable export transactions" as a whole in a ma nner which gives meaning to all elements; the 
relevance of the concept of "price comparability" in respect of Article 2.4 adjustments as context for 
understanding the term "comparable" in Article 2.4.2;  the obvious illogic of interpreting Article 2.4.2 
to require that comparisons be made either at th e most aggregated (average to average) or least 
aggregated (individual to individual) level, while prohibiting comparisons at intermediate levels of 
aggregation
502; and the consistency of multiple averaging with the overall objective of Article 2.4, 
                                                      
502 It is difficult to understand why an investigatin g authority would be required either to compare the 
entire product under investigation to the entire foreig n like product or individual export transactions to  WT/DS264/R 
 Page 175 
 
 
which is to ensure a fair comparison. I woul d only add that the use of the term "margin s of dumping", 
although not conclusive as to whether multiple averag ing is allowed, represents an additional element 
in the overall picture supporting the conclusion that mu ltiple averaging is permitted.             
9.4 While I see no need to repeat my colleagues' reasoning, I would like to emphasize the critical 
importance of multiple averaging in insuring a fair comparison.  There will be differences between  
home market and export transactions in virtually all anti-dumping investigations.  These differences 
may arise from, inter alia , physical differences, differences in level of trade, or date of sale.503  While 
these differences may in principle be taken into acc ount through adjustments, in many cases it simply 
will not be possible to identify and quantify their precise effects on price comparability.  Further, 
there are a variety of different ways to get at the issue of price comparability and the making of 
adjustments.  In the case of a wide variety of typ es or dates of sale, for example, even identifying 
which of the many groups should represent the sta ndard towards which adjustments should aim will 
be unclear.  Multiple averaging eliminates the need to consider such adjustments, thus reducing the 
influence of subjective judgment on outcomes.  In my view, therefore, multiple averaging not only is 
not prohibited by the AD Agreement , but it is generally the most appropriate, fairest, most precise, 
most predictable, and in many cases the only possible way to insure a fair comparison.504  We have to 
assume that the negotiators were aware of this as they negotiated the AD Agreement .       
9.5 The reader may ask why it is ne cessary in this Report to discuss the permissibility of multiple 
averaging.  After all, the parties agree that mu ltiple averaging is permissible under Article 2.4.2505, 
and the third parties have not contended otherwise.506  The reason the discussion is relevant here is 
that Canada relies upon the Appellate Body ruling on zeroing in EC – Bed Linen  in this dispute, and 
in my view that ruling is predicated, at least im plicitly, on the conclusion that multiple averaging is 
prohibited by Article 2.4.2.507  The Appellate Body's reasoning, which seems ultimately to be based 
on the view that by zeroing the EC calculated a wei ghted average that did not fully reflect the prices 
of some export transactions and thus fell afoul of the requirement to compare a weighted average normal value with a weighted average of all compar able export transactions, simply cannot be squared 
with a finding that multiple averaging is permitted.  Thus, if multiple averaging is permitted – and the 
parties, my colleagues and I all agree that it is – one cannot simply rely upon the Appellate Body 
Report in EC – Bed Linen  to conclude that zeroing is prohibited.   Rather, we must consider whether 
there is some alternative  basis to conclude that zeroing is prohibited by Article 2.4.2. 
                                                                                                                                                                    
 
individual home market transaction, while not being allowed to compare groups of export transactions to groups 
of comparable home market transactions.      
503 For purely practical reasons it can  be excluded that the need for multiple averaging in the case of 
multiple models or types can be eliminated by conductin g separate investigations for every model or type, since 
even a product under investigation which is defined in a seemingly narrow fashion, such as television sets or 
ball bearings of a specific dimension, may involve innumerable models or types.                
504 At the second meeting of the Panel with the partie s, we asked representatives of both parties how 
often they had come across a case where there was only one step to do, i.e. where there was only one model, one 
level of trade and one period.  The US  representative responded that he was unaware of any investigation that fit 
that description, while the Canadian representative stated that he had experienced "one or two" single-stage 
cases.     
505 Canada argued before the Panel that its interp retation of Article 2.4.2 "... does not prohibit the 
establishment of margins of dumping with respect to particular models of a product."  Canada response to 
question 31 from the Panel, para. 109.   
506 Japan noted that "[a] multiple comparison method provided in Article 2.4.2 may be used in the 
margin calculation process as a matter of administrative convenience to take  into account th e differences in 
physical characteristics among several models of a product."  (Japan's third party oral statement, para. 5.75, 
supra )       
507 Thus, the Appellate Body stated that "[a]ll types or models falling within the scope of a "like" 
product must necessarily be "comparable", and export transactions involving those types or models must 
therefore be considered "comparable ex port transactions" within the meaning of Article 2.4.2."  (Appellate Body 
Report, EC – Bed Linen , para. 58)       WT/DS264/R 
Page 176  
 
9.6 My colleagues have attempted to develop su ch an alternative to the reasoning found in EC – 
Bed Linen .  They have concluded that the obligation to include in the weighted average export price 
"all comparable export transactions" applies not only to the comparison stage but also to the 
aggregation of the results of multiple compar isons.  They consider that through zeroing the 
United States partially excluded from the aggregati on process the results of comparisons for types for 
which the weighted average normal value was less than the weighted average export price.  They 
conclude that the United States therefore violated  Article 2.4.2 by not taking into account all 
comparable export prices when calculating the over all margin of dumping.  I must respectfully 
disagree.     
9.7 It will be recalled that, when an investigating authority engages in multiple averaging, it first 
divides the subject merchandise (and the forei gn like product) into groups based upon common 
characteristics (which may relate to physical characteri stics, level of trade, date of sale, etc).  It  
calculates a weighted average normal value and e xport price for each group, and then compares the 
weighted averages in order to determine the extent of  the dumping, if any, for that group.  The result 
will be multiple margins of dumping (or amounts of dumping, if one prefers), one for each group.  In 
order to determine an overall margin for the produc t under investigation, however, it will be necessary 
in some way to aggregate the results from the co mparisons for each group.  An analogous process will 
be involved where an investigating authority perfo rms its calculations on a transaction-to-transaction 
basis.  In that case as well, the investigating auth ority will derive margins (or amounts) of dumping 
for a number of specific transactions, and will then have to aggregate those margins in order to 
determine an overall margin of dumping for the product.        
9.8 There is no doubt that, as the investigating authority in the case of multiple averaging is 
calculating weight-averaged normal values and export  prices for each group, it is required in the 
investigation phase to respect Article 2.4.2.  This includes the obligation under Article 2.4.2 to include 
in each of the average-to-average comparisons "all comparable export transactions".  In this case, 
however, there is no suggestion that DOC has failed to include any comparable export transactions in 
any of the average to average comparisons DOC made  in this case.  Nor is there any indication that 
DOC failed to fully take into account any export transaction in the conduct of each average to average 
comparison.  Based on the record before us, it must  be considered that each and every one of the 
export transactions considered by DOC was fully taken into account when performing the comparison 
between normal value and export price for a given type.  Rather, the claim of Canada, and the 
reasoning of my colleagues on this Panel, is base d upon the view that the United States breached the 
obligation to include "all comparable export tr ansactions" as a result of the manner in which the 
United States aggregated the results of its multiple comparisons.          
9.9 It seems to me that my colleagues are trying to  reconcile two mutually incompatible positions.  
They conclude that Article 2.4.2 does not require that the overall margin of dumping for a product be 
calculated on the basis of a single weighted averag e export price and single weighted average normal 
value.  At the same time, they seem to conclude th at the ultimate result of the aggregation of multiple 
average to average comparisons must be the sa me as if DOC had conducted a single average to 
average comparison, or in any event that once it has performed multiple averages DOC is required to 
average those averages, using negative dumping marg ins to offset positive margins.  In my view, 
these conclusions are unconvincing.  Article 2.4.2 a llows multiple averaging, and the obligations of 
Article 2.4.2 relate to each of the average to aver age comparisons performed.  This is all the guidance 
that can be determined from the text of Article 2.4.2.  I can see nothing in Article 2.4.2 that 
specifically dictates how those "intermediate" margins are to be aggregated in order to calculate an 
overall margin of dumping for the investigated product  for a given exporter, any more than I can see 
anything in Article 2.4.2 that prescribes how the r esults of transaction-by-transaction comparisons are 
aggregated.      
9.10   In this respect, it is noteworthy that the AD Agreement  is silent as to aggregation not only 
with respect to the first (average-to-average) comp arison methodology.  I note as a matter of relevant  WT/DS264/R 
 Page 177 
 
 
context that Article 2.4.2 is equally silent as to  how to aggregate the results of transaction-by-
transaction comparisons under the second methodology set  forth in that provision.  Article 2.4.2 
provides that the existence of margins of dumping may be established "by a comparison of normal value and export prices on a transaction by transaction basis".  Clearly, nothing in Article 2.4.2 gives 
specific guidance on how the results of individual tr ansaction comparisons are to be aggregated, and 
the textual basis relied on by my colleagues for prohibiting zeroing when aggregating the results of 
multiple average-to-average comparisons ("all co mparable export transactions") on its face does not 
apply to the transaction-by-transaction methodology.  It is therefore clear that Article 2.4.2 does not prohibit zeroing in the context of the transaction-by-transaction methodology.
508  It would be very odd 
indeed for the drafters to have prohibited zeroing wh en aggregating the results of multiple average to 
average comparisons, while allowing it to be used  when aggregating the results of comparisons 
performed on a transaction by transaction basis.509            
9.11 The use of multiple averaging must have been widely known to negotiators, as the practice 
was the norm under the Tokyo Round Anti-Dumping Code . The negotiators should also have been 
fully aware of the zeroing issue.510  They certainly should have realized that simply requiring average-
to-average or transaction-by-transac tion comparisons would not resolve the issue of aggregation in the 
subsequent stage.  But if the drafters did not intend to prohibit zeroing, then what is the purpose of Article 2.4.2?  In my view, Article 2.4.2 was intende d to address a related but distinct issue from that 
of zeroing, i.e., the question of average to individual comparisons.  Prior to the Uruguay Round, many investigating authorities compared individual export tr ansactions to an average normal value.  On its 
face, the purpose of Article 2.4.2 seems to be to re quire that, except in specified situations, there be 
symmetry in the comparisons made by investigating authorities, i.e., that Members either  compare on 
an average to average or a transaction to transaction basis.  Only where particular conditions are met 
may a Member perform a comparison of prices of individual export transactions to an average normal value.                 
9.12 I recall that, under Article 17.6(ii) of the AD Agreement , a panel may not find a measure to be 
inconsistent with a provision of the AD Agreement  if that measure is based on a permissible 
interpretation of that provision.  In this case, I cons ider that the US interpretation of Article 2.4.2 as 
not prohibiting zeroing is a permissi ble one. Thus, for the reasons set forth above, I would find that 
the application by DOC of "zeroing" in this case was not inconsistent with Article 2.4.2 of the 
AD Agreement . 
9.13 Some may be troubled by the prospect that no specific rules exist regarding the manner in 
which the results of multiple average to average (and transaction-by-transaction) comparisons may be 
aggregated.  The general provision of Article 2.4 is  however still available, as discussed infra.  In any 
event, the establishment of  an anti-dumping margin is a highly complex exercise.  Although Article 2 
of the current AD Agreement  is more detailed that its Tokyo Round predecessor, many aspects of 
margin calculation are not specifically addressed.  If Members consider that the issue of how to 
aggregate the results of multiple comparisons is a l acuna that needs to be filled, then they should 
negotiate such rules in the appropriate forum.  Di spute settlement involves the interpretation of rules 
                                                     
 
508 Nor, for the reasons set forth in paras. 9.14 to 9.24 infra , would zeroing be prohibited under a 
general "fair comparison" requirement under Article 2.4. 
509 My colleagues decline to address the issue of zeroing in the context of individual to individual 
transactions on the grounds that it is not within the Panel's terms of reference.  While it is certainly true that no 
such claim is before us, I believe that the language in Article 2.4.2 regarding transaction to transaction 
comparisons is highly relevant context for interpreting other parts of Article 2.4.2.  
510 In fact, the EC and Japan were involved in a high -profile dispute with respect to zeroing throughout 
the later stages of the anti-dumping negotiations, beginning with a request for consultations on 8 July 1991 and culminating in the circulation of a Panel Report in EC –Audio Cassettes . (Panel Report, EC – Anti-Dumping 
Duties on Audio Tapes in Cassettes Originating in Japan , 28 April 1995, ADP/136.) This Report was never 
adopted.    WT/DS264/R 
Page 178  
 
agreed by Members.  It cannot and must not be used as a substitute for rule-making through 
negotiation.            
9.14 Canada also claims that the United States has violated the "fair comparison" requirement of 
Article 2.4 of the AD Agreement  by the application of zeroing in this case, because zeroing 
unjustifiably operates to give greater weight to transactions included in the averaging process for 
which the export price is less than the normal value th an to those for which the export price is greater 
than the normal value.  Canada finds support for its  position in a statement by the Appellate Body in 
EC – Bed Linen .
511  Having found that zeroing was inconsiste nt with Article 2.4.2, my colleagues 
exercised judicial economy and declined to rule on this  claim.  In light of my view that Article 2.4.2 
does not prohibit zeroing, however, it is appropriate for me to proceed to a consideration of this 
alternative claim by Canada.         
9.15 I recall that Article 2.4 provides that "[a] fa ir comparison shall be made between the export 
price and the normal value."  There has not to date been any substantial analysis in WTO dispute settlement as to the precise legal role of this la nguage, including whether it establishes an independent 
legal obligation or rather serves only to inform interpretation of other operative provisions of 
Article 2.  Much less has there been any significant consideration of the manner in which it is to be 
interpreted and applied.
512  Nor did the parties provide significant argumentation on this issue.  That 
said, the first sentence of Article 2.4 appears to be drafted in a manner which implies that it is 
independently operati onal and legally binding513, and I will thus proceed on that assumption for the 
purposes of my consideration of this claim.  
9.16 In terms of approach, I believe that a clai m based on a highly general test such as "fair 
comparison" should be approached with caution by tr eaty interpreters.  The concept of fairness in the 
abstract is highly subjective, and a too-ready re liance on the "fair comparison" requirement could 
result in interpretations that were highly unpredictable.   Further, I am not inclined to accept that the 
drafters intended that the Members abdicate their responsibility to negotiate rules in this area and 
leave the rule-making function in the hands of th e dispute settlement system.  Taking this into 
account, I approach Article 2.4's "fair comparison" requi rement with two elements in mind.  First, any 
conception of "fairness" (and "unfairness") should be solidly rooted in the context provided by the 
AD Agreement  (and perhaps the WTO Agreement  more generally).  Second, given the subjectivity of 
the concept of fairness, the principles of Article 17.6(ii) of the AD Agreement  regarding permissible 
interpretations are particularly releva nt.                  
9.17 Canada has made only general statements re garding why the application of the zeroing 
methodology by DOC in this case failed to produce a "fair comparison".  In response to a question 
from the Panel on this issue, Canada responded that  a comparison conducted on the basis of zeroing 
cannot be considered to produce a "fair comparison"  within the meaning of Article 2.4, because it 
unjustifiably operates to give greater weight to transactions included in the averaging process for 
which the export price is less than the normal value, than to those for which the export price is greater 
than the normal value.514  In response to another question to Canada regarding the benchmark against 
                                                      
511 "We are also of the view that a comparison be tween export price and normal value that does not 
take fully into acco unt the prices of all comparable export transactions – such as the practice of "zeroing" in this 
dispute – is not a "fair comparison" between export price and normal value, as required by Article 2.4 and 
2.4.2." (Appellate Body Report, EC – Bed Linen , para.55) 
512 The Appellate Body has stated that "Article 2.4 sets forth a general obligation to make a "fair 
comparison" between export price and normal value.  This general obligation that, in our view, informs all of Article 2, but applies, in particular , to Article 2.4.2 which is specifically made 'subject to the provisions 
governing fair comparison in [Article 2.4]'."  (Appellate Body Report,  EC – Bed Linen , para.59) 
513 As compared with the drafting of its predecessor provision in the Tokyo Round AD Code , 
Article 2.6, which provided that ""[i]n order to affect a fa ir comparison . . .  the two prices shall be compared at 
the same level of trade . . . .". 
514 Canada response to question 108(a) of the Panel.  WT/DS264/R 
 Page 179 
 
 
which Canada would test whether a comparison is fair or unfair515, Canada responded in general terms 
and did not explain how it applied its "benchmark" to this case. 
9.18 In my view, Canada's explanation amounts to little more than an assertion that because 
zeroing (when combined with multiple averaging) may result in a margin of dumping which is higher 
than that which would have resulted from compar ing a single weighted average export price to a 
single weighted average normal value, it does not produce a fair comparison.  If Article 2.4.2 required 
that a margin of dumping be based on a single average to average comparison, then Canada's assertion that greater weight was given to some transactions th an to others might be correct (if superfluous).  It 
has however been established that multiple averaging is not prohibited by Article 2.4.2 (as of course 
neither is a transaction-by-transaction methodology).  I further note that Canada does not contend that 
DOC gave greater weight to certain export transacti ons than to others in its performance of each 
average-to-average comparison.  Nor did DOC fail to take into account any export transactions, as the 
overall amount of dumping found was divided over the full amount of all export transactions in order 
to calculate a margin of dumping.  Rather, Canada is simply arguing that it is unfair not to provide 
credit for negative dumping margins, apparently pu rely because this results in a higher dumping 
margin than would be the case if such credit were given. 
9.19 I note that the differing views of the parties rega rding interpretation of Article 2.4 appear to 
reflect an underlying difference regarding the con cept of "dumping".  One school of thought is that 
"dumping" relates to the average pricing behaviour of an exporter/producer over time. For those who 
hold this view, the fact that a particular export transaction is made at a price that is below the price of a comparable transaction in the home market of the exporting country (or is below cost) does not 
necessarily mean that dumping has occurred, if anothe r export transaction is made at a price which is 
higher than the home market price. They believe th at exporters should be given "credit" for selling 
above normal value, and consider zeroing to be illogi cal.  Others consider that any time a particular 
export transaction occurs at a price that is below the price of a comparable transaction in the home 
market of the exporting country (or is below cost),  dumping has occurred.  From this perspective, 
overall margins of dumping are calculated simply because it is impractical to calculate and impose 
anti-dumping duties with respect to each export tr ansaction, and the idea that such a transaction 
should not be viewed as dumped merely because another export transaction occurs at a higher price makes no sense. 
9.20 The difference between these two approaches ca n be understood on the basis of a simple 
example.  Assume there are two home market sales and two export sales of a product during the 
period of investigation.  Both home market sales are ma de at a price of 100.  One of the export sales is 
made at a price of 50, the other at a price of 150.  Under one school of thought, what is relevant is average pricing behaviour.  Since the average nor mal value and average export price are both 100, 
there is no dumping and no duties should be imposed.  Under the second school of thought, one of the 
two sales was at a dumped price while the other w as not.  Duties should therefore be collected on the 
dumped sale.  However, a dumping margin should be  calculated that would reflect that only some 
sales were dumped.  Using zeroing, the total amo unt of dumping (50) woul d be divided by total 
export sales (200), resulting in a 25 per cent margin .  Imposition of a 25 per cent  duty on the two 
export transactions would result in the collection of  duties in the amount of 50, the same amount of 
duties as would have been collected had dumping been determined and duties assessed for each 
transaction.
516                      
9.21 Arguments may be advanced for each of the c onceptual approaches identified above. For the 
"average pricing behaviour" advocates, it is simply not consistent with commercial reality to expect 
that exporters will be able to fine-tune their pr icing on a transaction by transaction basis to avoid 
                                                      
515 Question 108(b) by the Panel. 
516 See EC – Audio Cassettes  (unadopted) for an analysis of th e "fair comparison" requirement which 
reflects this analytical approach.  WT/DS264/R 
Page 180  
 
dumping.  Advocates of the alternative approach ar gue that the harm caused to domestic producers by 
a dumped transaction – e.g., the loss of a sale or sale at a lower price than would have otherwise occurred – is not undone simply because another export transaction is made at greater than normal value, nor is the damage caused by dumping of a particular type or model undone simply because 
another model is sold at greater than normal valu e.  Both approaches have strengths and weaknesses. 
9.22 My task is not of course to decide which conceptual approach I prefer, but to examine 
whether the AD Agreement  shows such a preference.  The Agreement does not contain any preamble 
or statement of object and purpose
517, and in my view there is no basis to conclude that the Agreement 
is premised on the "average pric ing behaviour" approach.  In fact, an early GATT Group of Experts 
Report on antidumping noted that "the ideal method . . . was to make a determination in respect of 
both dumping and material injury in respect of each single importation of the product concerned . . .", 
and this could be taken to suggest the contrary.518  The fact that the AD Agreement permits the use of 
variable duties as a basis for duty co llection is a further basis to conclude that, at a minimum, the 
AD Agreement is not premised exclusively on an "a verage pricing behaviour" approach.519,520  Thus, I 
fail to see how it may be concluded, based upon the AD Agreement  itself, that a calculation 
methodology that does not reflect the "average pric ing behaviour" approach is unfair in the sense of 
Article 2.4. 
9.23 I am aware that the Appellate Body in EC – Bed Linen  expressed the view that zeroing is 
inconsistent with the "fair comparison" requirement in  Article 2.4.  I note however that this statement 
is obiter dictum,  as Article 2.4 was not part of a claim befo re the Appellate Body.  More importantly, I 
note that the Appellate Body did not set out any of its reasoning underlying this statement.  I do not 
consider that I would be acting in a manner consis tent with my obligations  under Article 11 of the 
DSU to perform a "objective assessment of the matter" if  I were simply to find in favour of Canada on 
the basis of such an unsupported statement.  
                                                      
517 Article VI of GATT 1994  does however state that "dumping . . . is to be condemned if it causes or 
threatens material injury . . . ."  
518 Anti-Dumping and Countervailing Duties , Second Report of the Group of Experts adopted by the 
CONTRACTING PARTIES on 27 May 1960, BISD 9th Supp. p. 194.  It is clear that under the "ideal method" 
identified in the Report non-dumped transactions would neither be subject to anti-dumping duties nor used to 
offset dumped transactions.  In thei r Report, the Group of Experts however concluded that such a method was 
"clearly impracticable", in particular as regards injury, a nd for this reason a pre-selec tion system – i.e. a system 
where the margin of dumping for future imports is estab lished, at least provisionally, on the basis of a prior 
period – seemed to be the most satisfactory.  This "pre -selection" approach is the basis for virtually all anti-
dumping systems today.  The application of an ad valorem  duty for a product, calculated based on the 
transaction-by-transaction methodology comparison method in paragraph 2.4.2 combined with the aggregation 
of the results of the individual comparisons using zeroing , is mathematically equivalent and would result in the 
collection of anti-dumping duties on the product as a whole in the same amount as if the "ideal method" had 
been applied.  Zeroing when aggregating the results  of multiple comparisons under a multiple averaging 
approach would of course generally result in collection of a lower  amount of total duties than the "ideal 
method".                
519 Under a "variable duty" approach to duty coll ection, a Member that has established in an 
investigation that injurious dumping exists does not impose an ad valorem  or specific duty, but rather imposes 
duties on a transaction by transaction basis  where the export price is below the normal value determined during 
the investigation.  Under such a system, the fact that on e transaction occurs at a price in excess of normal value 
does not excuse the exporter from paying duties on another transaction that occurs at a price that is less than 
normal value.  This approach which is referred to in Article 9.4(ii) of the AD Agreement  as a "prospective 
normal value", has recently been found  to be consistent with the AD Agreement .  See Panel Report, Argentina – 
Poultry , paras. 7.345 – 7.367. 
520 It is also interesting to note that, when under Ar ticle 9.4 an investigating authority is called upon to 
determine a rate for un-investigated exporters, it is no t required to give credit for any "negative dumping" by 
investigated exporters.  Thus, the AD Agreement does not in this context even consider the possibility that 
negative margins should be taken into account when aggregating the results of dumping calculations for selected 
exporters or producers in order to establish a margin of dumping for un-investigated exporters or producers.            WT/DS264/R 
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9.24 For the foregoing reasons, and taking into  account the standard of review under 
Article 17.6(ii), I would conclude th at Canada has not established that the application of zeroing in the 
underlying investigation methodology was inconsis tent with the United States' obligation under 
Article 2.4 to conduct a "fair comparison." 
 
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