WORLD TRADE  
ORGANIZATION  WT/DS257/R 
29 August 2003 
 (03-4360) 
 Original:   English 
 
 
   
 
 
 
  
UNITED STATES – FINA L COUNTERVAILING DUTY 
DETERMINATION WITH RESPECT TO CERTAIN 
SOFTWOOD LUMBER FROM CANADA  
 
 
 
 
Report of the Panel 
 
 
 
  
 
The Report of the Panel on United States – Final Countervailing Duty Determination with Respect to 
Certain Softwood Lumber from Canada is being circul ated to all Members, pursuant to the DSU.  The 
report is being circulated as an unrestricted document from 29 August 2003 pursuant to the Procedures for the Circulation and Derestrictio n of WTO Documents (WT/L/160/Rev.1).  Members 
are reminded that in accor dance with the DSU only parties to the dispute may appeal a panel report.  
An appeal shall be limited to issues of law cove red in the Panel report and legal interpretations 
developed by the Panel.  There shall be no ex parte  communications with the Panel or Appellate Body 
concerning matters under consideratio n by the Panel or Appellate Body. 
 
 
 
 
 
 
 
Note by the Secretariat :  This Panel Report shall be adopted by the Dispute Settlement Body (DSB) within 
60 days after the date of its circulation unless a party to the dispute decides to appeal or the DSB decides by consensus not to adopt the report.  If the Panel Report is appealed to the Appellate Body, it shall not be 
considered for adoption by the DSB until after the completion of the appeal.  Information on the current status 
of the Panel Report is available from the WTO Secretariat. 
 WT/DS257/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 ...................................................................................................................2 
II. FACTUAL ASPECTS ............................................................................................................ ..2 
A. T HE USDOC  INVESTIGATION .....................................................................................................2 
B. RELATED WTO PROCEEDINGS ......................................................................................................2 
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS.........................3 
A. REQUEST OF CANADA ..................................................................................................................3 
B. REQUEST OF THE UNITED STATES ................................................................................................3 
IV. ARGUMENTS OF THE PARTIES ........................................................................................3 
A. FIRST WRITTEN SUBMISSION OF CANADA ....................................................................................3 
1. The US Imposed Countervailing Duties On Practices That Are Not 
Countervailable Subsidies................... .................. ...................... .............. ............................. ..3 
2. Canadian provincial stumpage programmes are not specific to certain 
enterprises.................................................................................................................... ............11 
3. USDOC’s Calculation Methodology Impermissibly Inflates the Rate of the 
Alleged Subsidy and the Countervailing Duty ..................... .................. ................ ..............13 
4. Conduct of the Investigation .......... ...................... ...................... ............... ........................... ..13 
5. Initiation of the Lumber IV Investigation .............................................................................14 
6. Administrative Reviews...................................................................................................... ....15 
B. FIRST WRITTEN SUBMISSION OF THE UNITED STATES ................................................................15 
1. Introduction................................................................................................................ .............15 
2. Standard Of Review.......................................................................................................... ......15 
3. Argument.................................................................................................................... .............15 
(a) Canada Bears the Burden of Proving Its Claim .......... ..............................................................15 
(b) The Final Countervailing Duty Determination Is Consistent with the SCM ............................16 
(c) The Conduct of This Invest igation Was Consistent with th e Obligations of Article 12 
of the SCM..................................................................................................................... ...........22 
(d) The United States Initiated the Softwo od Lumber Investigation Based on Adequate 
Domestic Industry Support Consistent with the Requirements of Article 11.4 of the 
SCM............................................................................................................................ ..............22 
4. Conclusion .................................................................................................................. .............23 
C. FIRST ORAL STATEMENT OF CANADA ........................................................................................23 
1. Financial Contribution ...................................................................................................... .....23 
2. Benefit ..................................................................................................................... .................24 WT/DS257/R 
Page ii  
 
3. Pass-through................................................................................................................ ............26 
4. Specificity................................................................................................................. ................26 
5. Calculations ................................................................................................................ .............27 
6. Conduct of the Investigation .......... ...................... ...................... ............... ........................... ..27 
7. Initiation .................................................................................................................. ................27 
8. Administrative Reviews...................................................................................................... ....27 
D. 
FIRST ORAL STATEMENT OF THE UNITED STATES ......................................................................28 
1. Opening Statement of the United States of America at the First Meeting of the 
Panel.......................................................................................................................... ...............28 
(a) Financial Contribution ..................................................................................................... .........28 
(b) Benefit.................................................................................................................... ...................28 
(c) Calculation Issues ......................................................................................................... ............30 
(d) Specificity ................................................................................................................ .................30 
2. Closing Statement of the United States of America at the First Meeting of the 
Panel.......................................................................................................................... ...............30 
(a) Financial Contribution ..................................................................................................... .........30 
(b) Benefit.................................................................................................................... ...................31 
(c) Market Distortion.......................................................................................................... ............31 
(d) Calculation Issues ......................................................................................................... ............31 
(e) Administrative Reviews..................................................................................................... .......31 
(f) Conclusion ................................................................................................................. ...............32 
E. SECOND WRITTEN SUBMISSION OF CANADA ..............................................................................32 
1. Financial Contribution ...................................................................................................... .....32 
2. Benefit ..................................................................................................................... .................33 
3. Pass-Through ................................................................................................................ ..........37 
4. Specificity................................................................................................................. ................37 
5. Other Claims ................................................................................................................ ...........40 
(a) Calculations ............................................................................................................... ...............40 
(b) Conduct of the Investigation............................................................................................... ......41 
F. SECOND WRITTEN SUBMISSION OF THE UNITED STATES ...........................................................42 
G. SECOND ORAL STATEMENT OF CANADA ....................................................................................50 
1. Financial Contribution ...................................................................................................... .....50 
2. Benefit ..................................................................................................................... .................51 
3. Pass-through................................................................................................................ ............53 
4. Specificity................................................................................................................. ................53 
5. Calculations ................................................................................................................ .............54 
6. Conduct of the Investigation .......... ...................... ...................... ............... ........................... ..54 WT/DS257/R  
Page iii  
 
 
H. SECOND ORAL STATEMENT OF THE UNITED STATES ..................................................................55 
V. ARGUMENTS OF THE THIRD PARTIES ........................................................................59 
A. THIRD PARTY WRITTEN SUBMISSION  OF THE EUROPEAN COMMUNITIES ...................................59 
1. Claims Relating to the Existence of a Subsidy within the meaning of Article 1 of 
the SCM Agreement .............................................................................................................. .59 
(a) Financial contribution ..................................................................................................... ..........59 
(b) Benefit.................................................................................................................... ...................60 
(c) Failure to Examine and Determine the Exis tence of a Benefit to all Producers of the 
Subject Product (“Pass Through”) ............................................................................................62 
2. Conclusion .................................................................................................................. .............62 
B. THIRD PARTY ORAL STATEMENT OF THE EUROPEAN COMMUNITIES .........................................63 
1. Financial contribution ...................................................................................................... ......63 
2. Benefit ..................................................................................................................... .................63 
3. Specificity................................................................................................................. ................63 
4. Violation of Article  12.3 and 12.8 ......................................................................................... 64 
(a) Violation of Article 12.3 of the SCM Agreement.....................................................................65 
(b) Violation of Article 12.8 of the SCM Agreement.....................................................................65 
C. THIRD PARTY ORAL STATEMENT OF INDIA ................................................................................66 
D. THIRD PARTY WRITTEN SUBMISSION OF JAPAN .........................................................................67 
1. Introduction................................................................................................................ .............67 
2. Legal Arguments............................................................................................................. ........67 
(a) Provision of “goods”....................................................................................................... ..........67 
(b) A Benefit Conferred........................................................................................................ ..........68 
(c) A Pass-through of an Alleged Subsidy .....................................................................................69  
VI. INTERIM REVIEW............................................................................................................. ..69 
VII. FINDINGS.................................................................................................................. .............70 
A. C LAIM 1: INCONSISTENT FINDING OF THE EXISTENCE OF A FINANCIAL CONTRIBUTION ...........71 
1. Arguments of the parties .................................................................................................... ....71 
(a) Canada ..................................................................................................................... .................71 
(b) United States .............................................................................................................. ...............72 
2. Analysis.................................................................................................................... ................73 
(a) What do the stumpage programmes provide: the right  to harvest or standing timber  ? ...........75 
(b) Is standing timber a "good" in the sense of Article 1.1 (a) (1) (iii) SCM Agreement?.............77 
B. C LAIM 2: INCONSISTENT DETERMINATION OF BENEFIT UNDER ARTICLE 14 (D) SCM  
AGREEMENT ..............................................................................................................................7 9 
1. Arguments of the parties .................................................................................................... ....79 
(a) Canada ..................................................................................................................... .................79 WT/DS257/R 
Page iv  
 
(b) United States .............................................................................................................. ...............81 
2. Analysis.................................................................................................................... ................83 
C. C
LAIM 3:  USDOC IMPERMISSIBLY ASSUMED A PASS -THROUGH OF THE ALLEGED 
SUBSIDY ............................................................................................................................... .....91 
1. Arguments of the parties .................................................................................................... ....91 
(a) Canada ..................................................................................................................... .................91 
(b) United States .............................................................................................................. ...............93 
2. Analysis.................................................................................................................... ................94 
(a) Legal requirements concer ning pass-through analysis .............................................................95 
(b) Pass-through analysis in the present dispute.............................................................................97  
(c) Has Canada introduced a new claim, i.e., a violation of Article 1.1, which is outside 
the Panel's terms of reference?................................................................................................ ..99 
D. C LAIM 4: CANADIAN STUMPAGE PROGRAMMES ARE NOT SPECIFIC TO CERTAIN 
ENTERPRISES ...........................................................................................................................101 
1. Arguments of the parties .................................................................................................... ..101 
(a) Canada ..................................................................................................................... ...............101 
(b) United States .............................................................................................................. .............102 
2. Analysis.................................................................................................................... ..............103 
E. C LAIM 5: INCONSISTENT CALCULATION OF THE AMOUNT OF SUBSIDIZATION .......................108 
1. Claims and arguments of the parties ..................................................................................108 
(a) Alleged improper conversion from US to Cana dian log volume measurement system .........108 
(b) Alleged failure to account for the multiple  uses of softwood logs produced from 
Crown timber ................................................................................................................... .......109 
(c) Alleged understatement of the value of "final mill" sales.......................................................110 
2. Analysis.................................................................................................................... ..............111 
F. C LAIM 6: FAILURE TO CONDUCT THE INVESTIGATION IN ACCORDANCE WITH ARTICLE 
12 SCM  AGREEMENT ..............................................................................................................111 
1. Arguments of the parties .................................................................................................... ..111 
(a) Canada ..................................................................................................................... ...............111 
(b) United States .............................................................................................................. .............112 
2. Analysis.................................................................................................................... ..............113 
G. CLAIM 7: INCONSISTENT INITIATION OF THE INVESTIGATION .................................................113 
1. Arguments of the parties .................................................................................................... ..113 
(a) Canada ..................................................................................................................... ...............113 
(b) United States .............................................................................................................. .............114 
2. Analysis.................................................................................................................... ..............114 
VIII. CONCLUSIONS AND RECOMMENDATIONS..............................................................114 
 WT/DS257/R  
Page v  
 
 
ANNEX A 
 
 
PARTIES' RESPONSES TO QUESTIONS 
FROM THE FIRST MEETING 
 
 
Contents Page 
Annex A-1 Canada Response to Questions from the Panel at First Meeting A-2 
Annex A-2 United States Response to Qu estions from the Panel at the First  
  Meeting A-35 
 
  
ANNEX B 
 
PARTIES' RESPONSES TO QUESTIONS 
FROM THE SECOND MEETING 
 
 
Contents Page 
Annex B-1 Canada Response to Questio ns from the Panel at the Second 
 Meeting B-2 
Annex B-2 United States Response to Qu estions from the Panel at the Second 
 Meeting B-16 
 
 
 
ANNEX C 
 
THIRD PARTY RESPONSES TO 
QUESTIONS FROM THE PANEL 
 
 
Contents Page 
Annex C European Communities Response to Questions from the Panel at 
 the Third Party Session C-2 
 
 
 
ANNEX D 
 
REQUEST FOR THE ESTABLISHMENT  
OF A PANEL 
 
 
Contents Page 
Annex D Request for the Establishment of a Panel – Document WT/DS257/3 D-2 
 WT/DS257/R 
Page vi  
 
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 
Brazil – Aircraft  
(Article 21.5 – Canada II )  Panel Report, Brazil – Export Financing Programme for Aircraft – Second 
Recourse by Canada to Article 21.5 of the DSU , WT/DS46/RW/2, adopted 
23 August 2001 
Canada – Aircraft  Appellate Body Report, Canada – Measures Affecting the Export of Civilian 
Aircraft , WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, 1377 
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 
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 and Pipe Fittings Panel Report, European Communities – Anti-Dumping Duties on Malleable Cast 
Iron Tube or Pipe Fittings from Brazil , WT/DS219/R, 7 March 2003 [appealed]  
Egypt – Steel Rebar  Panel Report, Egypt – Definitive Anti-Dumping Measures on Steel Rebar from 
Turkey , WT/DS211/R, adopted 1 October 2002 
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 
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  
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 
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 – Canadian Pork Panel Report, United States – Countervailing Duties on Fresh, Chilled and Frozen 
Pork from Canada , adopted 11 July 1991, BISD 38S/30. 
US – Countervailing Measures 
on Certain EC Products Panel Report, United States – Countervailing Measures Concerning Certain 
Products from the European Communities, WT/DS212/R, adopted 8 January 2003, 
as modified by the Appellate Body Report, WT/DS212/AB/R 
US – Export Restraints  Panel Report, United States – Measures Treating Exports Restraints as Subsidies , 
WT/DS194/R and Corr.2, adopted 23 August 2001 
US – Hot-Rolled Steel  Appellate Body Report, United States – Anti-Dumping Measures on Certain Hot-
Rolled Steel Products from Japan , WT/DS184/AB/R, adopted 23 August 2001 WT/DS257/R  
Page vii  
 
 
Short Title Full Case Title and Citation 
US – Lamb  Appellate Body Report, United States – Safeguard Measures on Imports of Fresh, 
Chilled or Frozen Lamb Meat from New Zealand and Australia , WT/DS177/AB/R, 
WT/DS178/AB/R, adopted 16 May 2001 
US – Lead and Bismuth II  Appellate Body Report, United States – Imposition of Countervailing Duties on 
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the United Kingdom , WT/DS138/AB/R, adopted 7 June 2000, DSR 2000:V, 2601 
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 III  Panel Report, United States – Preliminary Determinations with Respect to Certain 
Softwood Lumber from Canada , WT/DS236/R, adopted 1 November 2002 
 
 WT/DS257/R 
Page 1 
 
 
I. INTRODUCTION 
A. COMPLAINT OF CANADA  
1.1 On 3 May 2002, Canada requested consultations with the United States pursuant to Article 4 
of the Dispute Settlement Understanding ("the DS U"), Article XXII of the General Agreement on 
Tariffs and Trade 1994 ("GATT 1994"), and Article 30 of the Agreement on Subsidies and 
Countervailing Measures ("the SCM Agreement"), concerning the final affirmative countervailing 
duty determination by the US Department of Co mmerce ("USDOC") (File No.  C-122839) issued on 
25 March 2002, with respect to ce rtain softwood lumber from Canada.1 
1.2 On 18 June 2002, Canada and the United States ("the US") held the requested consultations, 
but failed to reach a mutually satisfactory resolution of the matter. 
1.3 On 18 July 2002, Canada requested the establishment of a panel to examine the matter.2  
Canada subsequently withdrew that request, and on 19 August 2002 made a new request for 
establishment of a panel to examine the matter.3 
B. ESTABLISHMENT AND COMPOSITION OF THE PANEL  
1.4 At its meeting of 1 October 2002, the DSB establ ished a panel in accordance with Article 6 of 
the DSU and pursuant to the request made  by Canada in document WT/DS257/3.4 
1.5 At that meeting, the parties to the dispute also  agreed that the Panel should have standard 
terms of reference.  The terms of reference are, therefore, the following: 
"To examine, in the light of the relevant provisions of the covered agreements cited 
by Canada in document WT/DS257/3, the matter 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 4 November 2002, Canada requested the Di rector-General to determine the composition 
of the Panel, pursuant to paragraph 7 of Article 8 of the DSU.  This paragraph provides: 
"If there is no agreement on the panelists  within 20 days after the date of the 
establishment of a Panel, at the request of either party, the Director-General, in consultation with the Chairman of the DSB and the Chairman of the relevant Council or Committee, shall determ ine the composition of the panel by appointing the 
panelists whom the Director-General considers most appropriate in accordance with any relevant special or additional rules or  procedures of the covered agreement or 
covered agreements which are at issue in the dispute, after consulting with the parties 
to the dispute.  The Chairman of the DSB shall inform the Members of the 
composition of the panel thus formed no later than 10 days after the date the 
Chairman receives such a request". 
                                                     
 
1 WT/DS257/1. 
2 WT/DS/257/2. 
3 WT/DS/257/3. 
4 WT/DS/257/4. WT/DS257/R 
Page 2  
 
1.7 On 8 November 2002, the Director-General accordingly composed the Panel as follows: 
Chairman: Mr.  Elbio O. Rosselli 
 Members: Mr.  Wieslaw Karsz 
   Mr.  Remo Moretta 
 
1.8 The European Communities, India and Japan reserved their third-party rights.   
C. 
PANEL PROCEEDINGS  
1.9 The Panel met with the parties on 11-12 Febr uary 2003 and 25 March 2003. The Panel met 
with third parties on 12 February 2003.   
II. FACTUAL ASPECTS 
A. THE USDOC  INVESTIGATION  
2.1 This dispute concerns the final counterva iling duty determination made by USDOC on 
21 March 2002 in respect of certain softwood lumb er imports from Canada, classified under headings 
4407.1000, 4409.1010, 4409.1090, and 4409.1020.   
2.2 The investigation was initiated by USDOC on 30 April 2001, pursuant to an application filed 
with USDOC on 2 April 2001 (amended 20 April 2001 to add certain applicants).  The applicants were the Coalition for Fair Lumber Imports Executive Committee; the United Brotherhood of 
Carpenters and Joiners; the Paper, Allied-Industrial, Chemical and Energy Workers International 
Union; Moose River Lumber Co., Inc.; Shearer Lumber Products; Shuqualak Lumber Co.; and 
Tolleson Lumber Co., Inc. 
2.3 On 17 August 2001, USDOC published in the Federal Register a notice of preliminary 
affirmative countervailing duty determination, preliminary affirmative critical circumstances 
determination, and alignment of final countervailing duty determination with final antidumping duty 
determination.  Provisional meas ures were imposed on the basis of a preliminary subsidy rate of 
19.31 per cent.   
2.4 On 2 April 2002, USDOC published in the Fede ral Register a notice of final affirmative 
countervailing duty determination.  Definitive measures were imposed on the basis of a final subsidy 
rate of 19.34 per cent, with 19.25 per cent being the amount attributable to stumpage programmes.  
On 22 May 2002, USDOC published in the Federal Register a notice of amended final affirmative 
countervailing determination and notice of counte rvailing duty order, which decreased the final 
subsidy rate to 18.79 per cent as a result of corr ections for ministerial errors.  Of this amount, 
18.70 per cent was attributable to stumpage programmes. 
B. 
RELATED WTO PROCEEDINGS  
2.5 At its meeting of 5 December 2001, the DSB es tablished a panel, pursuant to a request by 
Canada, in respect of USDOC's prelim inary determinations in the investig ation at issue in this dispute.  
On 27 September 2002, that panel's report, United States – Preliminary Determinations with Respect 
to Certain Softwood Lumber from Canada (WT/DS236/R), was circulated to all WTO Members.5   
                                                      
5 Panel Report, US – Softwood Lumber III . WT/DS257/R 
Page 3 
 
 
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS  
A. REQUEST OF CANADA  
3.1 Canada requests the Panel to: 
• find that the initiation of USDOC's investigation and the definitive countervailing duties imposed 
as a result violate Articles 10, 11.4, and 32.1 of SCM Agreement;  
 
• find that USDOC's  investigation and the Final Determination, and the definitive countervailing 
duties imposed as a result violate Articles 1.2, 10, 12.1, 12.3, 12.8, 14, 14(d), 19.1, 19.4 and 32.1 
of SCM Agreement and Article  VI:3 of GATT 1994; and 
 
• recommend that the US bring its measures into  conformity with its WTO obligations, including 
by revoking the countervailing duty order, ceasing to impose countervailing duties and refunding 
the countervailing duties imposed as a result of the Lumber IV investigation and the Final 
Determination. 
 
B. REQUEST OF THE UNITED STATES  
3.2 The United States requests that the Panel reject Canada's claims in their entirety. 
 
IV. ARGUMENTS OF THE PARTIES 
4.1 The arguments of the parties are set out in thei r written and oral submissi ons to the Panel, and 
in their answers to questions.  The parties' arguments as pres ented in their submissions are 
summarized in this section.  The parties' written answers to questions  are set out in full as Annexes to 
this report.  ( See, List of Annexes, page v). 
A. FIRST WRITTEN SUBMISSION OF CANADA  
4.2 The following summarizes Canada's arguments in its first written submission. 
4.3 At issue in this dispute are countervailing du ties on certain softwood lumber products from 
Canada imposed on 21 March 2002, by USDOC pursuant to a final affirmative countervailing duty 
determination   
1. The US Imposed Countervailing Duties On  Practices That Are Not Countervailable 
Subsidies 
4.4 Article 1.1 sets out the exclusive definition fo r what constitutes a subsidy for the purposes of 
the SCM Agreement.  A subsidy has two discrete elem ents: (i) a financial contribution that (ii) confers 
a benefit.  The US has not es tablished the existence of a subsidy for the following reasons. 
4.5 USDOC erred in determining that provincial  stumpage programmes “provide goods”.  
The US has imposed countervailing duties on practices that do not constitute a “financial 
contribution” within the meaning of  Article 1.1(a)(1)(iii).  In Canada , natural resources are, for the 
most part, the property of provincial governments.  Many of these resources have traditionally been 
managed through the transfer of real property interests and exploitation rights.  Forests are one among 
many of these resources; harvesting trees is but one  aspect of the overall management of forestry 
resources.  At issue in this dispute is the legal ch aracterization of these forestry resources management 
systems. WT/DS257/R 
Page 4  
 
4.6 Forestry management regimes in Canada reflect three critical considerations: (1) the land is 
publicly owned; (2) forestry resources such as air,  water, wildlife, plants, trees and parkland may be 
put to a variety of uses; and (3) forestry resources must be carefully managed in the best interests of 
the public.  Forestry resources are managed through a system of interlocking rights and obligations 
between the Crown and timber harvesters.  This system of resource management is based most 
frequently on tenure and licensing agreements.  Th e details of such tenure and licensing agreements 
vary, but they are all similar in that they are a complex bundle of rights and obligations, containing at 
a minimum: the right to harvest standing ti mber on Crown land or “stumpage”; service and 
maintenance obligations ( e.g., road-building, protection against fire, disease, and insects); 
implementation of forestry management and c onservation measures, including silviculture; and 
payment of a volumetric “stumpage charge” that is  levied upon the exercise of the harvesting right. 
4.7 Stumpage takes two different forms in Canada: a re al property right (generally referred to as a 
profit à prendre ) or a licence to harvest standing timber.  A profit à prendre  is a form of real property 
right that conveys a non-possessory interest in the land to the recipient.  A licence is a revocable right 
to do something on, or to the detriment of, the land  of another that would otherwise not be permitted – 
in this case, the right to harvest standing timber.   
4.8 A “financial contribution” exists where “a gove rnment provides goods or services other than 
general infrastructure”.  Interpre ted in accordance with the principles of treaty interpretation in 
customary international law, “goods” refers to trad able items that are capa ble of bearing a tariff 
heading. 
4.9 The ordinary meaning of “goods” is “tangibl e or movable personal property other than 
money; [especially] articles of trade or items of  merchandise ‹goods and services›”.  The term 
“goods” excludes resources such as intangible property, i.e., property rights, and real property.  A 
profit à prendre , for example,  is a real property right.  The panel in US – Softwood Lumber III  agreed 
that the ordinary meaning of “goods” is “tangible or movable personal property, other than money.”  
Despite this, the panel adopted an  interpretation of “goods” that was broader than the ordinary 
meaning of the term.  Article 1.1(a)(1) (financial  contribution) is drafted in precise terms.  
Article 1.1 (a)(1)(iii) does not refer to provision of “economic resources” or “p roperty”, but rather to 
“goods or services”.  As well, “goods or services” are not examples or species belonging to a bigger 
genus “economic resources”.  Real property and ot her resources or instruments of value do not fall 
under subparagraph (iii) unless they fit within the terms, “goods” or “services other than general 
infrastructure”. 
4.10 Article 3.1 provides relevant context.  It defines “prohibited” subsidies as “subsidies within 
the meaning of Article 1”.  Article 3.1(b) includes the phrase “subsidies contingent … upon the use of 
domestic over imported goods ” (emphasis added) in defining a particular prohibited subsidy.  The use 
of the adjective “imported” to modify “goods” im plies that the “goods” so modified may only be 
items that are capable of being “imported” – that is , traded across international borders or tradable 
items with an actual or potential customs classification.  The proper conclusion is that the meaning of “goods” in both provisions is identical: tradable items with an actual or potential customs 
classification.  Further, Parts III and V of the SCM Agreement refer to “products” or “imports”.  
Given that Article 1.2 ties Article 1.1 to Parts III and V, the “products” or “imports” referred to in 
these Parts may not be interpreted to be different fro m the “goods” referred to in Articles 1 or 3 of the 
SCM Agreement.   
4.11
 The WTO Agreement also provides instructive context.  Countervailing measures are 
provided for in Article VI of GATT 1994, as an exception to Article II.  Therefore, the coverage of 
Part V of the SCM Agreement which imposes disc iplines on countervailing duties and that of 
Article II of GATT 1994 must be the same.  The SC M Agreement is one of th e agreements set out in 
Annex 1A to the WTO Agreement.  Annex 1A sets out “multilateral agreements on trade in goods”.  More important, the interpretative note to that Annex provides a rule of conflict between GATT 1994 WT/DS257/R 
Page 5 
 
 
and the covered agreements.  A rule  of conflict suggests a possibility of conflict and implies that the 
subjects or scope of coverage of the agreements are the same.  Thus coverage of GATT 1994 and the 
agreements on trade in goods, including the SCM Ag reement, must have the same scope.  The panel 
in US – Softwood Lumber III used only one contextual element to support its view that “goods” has an 
“unqualified meaning”.  The panel believed that the only exception in Article 1.1(a)(1)(iii) is general 
infrastructure and this reinforced its view “concerning the unqualified meaning of the term goods.”  
The panel rejected the contextual guidance offered by the use of “goods” and “products” in the SCM 
Agreement and the WTO Agreements as a whole. 
4.12 The term “goods” in Article 1.1(a)(1)(iii) is equi valent to “products”, and these terms are used 
throughout GATT 1994, the SCM Agreement and the other covered agreements to mean items on 
which tariff concessions may be given under Article  II of GATT 1994.  This is confirmed by the 
object and purpose of the SCM Agreement.  The cla ss of activity defined in Article 1.1(a)(1)(iii) to 
constitute a financial contribution within Article 1.1( a)(1) is discrete and carefully delineated.  This 
demonstrates that the scope of Article 1.1(a)(1)(iii) is limited; the object of this provision is not to 
capture all potential in-kind transfers of economic resources that a government may provide.  Furthermore, Article 1.1 provides a definition of a subsidy for the purposes of the SCM Agreement, 
and Article 1.1(a)(1) provides that a “financial contribution” is a constituent element of a subsidy.  
Subparagraphs (i) to (iv) of Article 1.1(a)(1) set out  categories of activity that constitute a financial 
contribution for the purposes of the subsidy definition.   Subparagraphs (i) to (iv) are carefully crafted 
and use precise terminology.  If the object and purpose  of Article 1.1(a)(1) were to bring all transfers 
of economic resources within the ambit of “financial  contribution”, there would have been no need to 
delineate specific categories of activity.   
4.13 USDOC erroneously found that Canadian st umpage programmes c onstituted a financial 
contribution.  Specifically, USDOC held that pr ovincial tenure systems provide lumber producers 
with standing timber and that standing timber is a “good”.  According to USDOC even a license or 
right to harvest timber would constitute the provision of a good, because “goods” encompasses “all a person’s legal rights of whatever description.” 
4.14 First, stumpage programmes involve the granting of rights to harvest standing timber pursuant 
to tenure and license agreements.  “Goods” refers to tradable items with an ac tual or potential customs 
classification.  Rights to harvest, the only thing provided by governments through stumpage 
programmes, are not “goods”.  Even assuming th at stumpage programmes provide standing timber, 
stumpage programmes do not involve a financial contribution.  Standing timber – i.e., trees firmly 
rooted in the ground – is not a “good” within the meaning of Article 1.1(a)(1)(iii).   Properly understood, a profit à prendre  and a license to harvest standing timber are economic resources that are 
not “goods” within the meaning of Article 1.  “Stumpage” – the right to exploit an in situ  natural 
resource – is akin to the right to extract oil from pu blic lands, quotas to harvest fish, or the right to 
exploit inland water and water curr ents.  Second, standing timber is  not a “good” within the meaning 
of Article 1.1(a)(1)(iii).  Standing timber is an in situ natural resource that is  not capable of being 
traded across borders. 
4.15 The term “goods” in Article 1.1(a)(1)(iii) cannot be interpreted to include rights such as 
“stumpage”, profits à prendre , and timber harvesting licenses.  USDOC erred in determining that 
provincial governments provide goods to lumber pr oducers and erred specifically in finding that 
standing timber is a “good”.  As stumpage does not involve a “financial contribution” USDOC’s subsidy determination and the imposition of counterv ailing duties violates Articles 10, 19.1, 19.4 and 
32.1 of the SCM Agreement and Article VI:3 of GATT 1994. 
4.16 USDOC’s Use of “Cross-Border” Benchmarks to Determine and Measure a “Benefit” 
Violates the SCM Agreement.  Having concluded that the provinces provided goods, USDOC 
determined that this alleged financial contribution conferred a benefit by using selected short-term 
auction prices for the right to cut standing timber on specific tracts of public lands in the US or, in the WT/DS257/R 
Page 6  
 
case of Québec, private timber sales in Maine, as benchmarks for comparison to Canadian provincial 
stumpage charges.  Articles 1.1(b) and 14(d) of th e SCM Agreement require the US to use in-country 
benchmarks to determine the existence and measurement of any alleged benefit.  The Agreement does 
not permit the investigating authority to use cross- border (out-of-country) benchmarks, nor to reject 
benchmarks from within the country under investigation.   
4.17 In the Preliminary Determination ("PD"), US DOC purported to establish that Canadian 
stumpage programmes conferred a benefit by comparing: (1) stumpage charges related to  the exercise 
of the right to harvest; with (2) alleged prices for sh ort term rights to cut standing timber on selected 
US public lands and private timber sales in Ma ine.  USDOC did not modify this cross-border 
methodology in any material respect for purposes of the Final Determination ("FD").  In the FD, 
USDOC determined that Article 14(d) does not re strict the market benchmark to the country of 
export, but was intended to require that adequacy of  remuneration be determined with reference to 
“comparable” market-based transactions. 
4.18 USDOC sought to avoid the plain meaning of the Article 14(d) by focusing on the phrase “in 
relation to”.  It concluded that “in relation to” me ans “taking account of”.  USDOC also referred to 
the purported context provided by the illustrative list of conditions of purchase or sale set out in Article 14(d).  After concluding that cross-border benchmarks were acceptable for determining 
“benefit”, USDOC then rejected evidence of in-country benchmarks and asserted that US stumpage 
was a “reasonable benchmark”.  USDOC argued, err oneously: (1)  Private prices in Canada are not 
market-based and cannot be used as benchmarks because a government-dominated market will distort 
the market;  (2) US stumpage is an acceptable benchmark because it is commercially reasonable for Canadian producers to bid on US stumpage (that is, a natural resour ce not located within the political 
boundaries of Canada), and producers located within Canada “have access to US prices of stumpage”; 
and (3) US stumpage prices are world market prices that are available to Canadian producers.  
USDOC determined that the US benchmark prices were higher than the charges levied by Canadian 
provinces and concluded, as it had done in the PD , that Canadian stumpage charges conferred a 
benefit.   
4.19 Article 1.1 of the SCM Agreement provides that  a subsidy exists where there is a financial 
contribution by a government and “a benefit is th ereby conferred”.  The Appellate Body considered 
the meaning of “benefit” in Artic le 1 of the SCM Agreement in Canada – Aircraft and found that a 
benefit under Article 1.1(b) suggests some form of  comparison.  The Appellate Body indicated that 
there could be no “benefit” unless  this comparison demonstrated that  the recipient was made “better 
off” than it would have been absent that cont ribution.  Article 14(d) sets out guidelines for 
determining whether a benefit exists and how the amount of the benefit should be measured in cases 
involving the provision of goods.  The text of Article 14(d) is unambiguous:  “In the country of provision or purchase” means “in the country of provision or purchase.”  Nothing in the context, 
object and purpose or the negotiating history of Article  14 permits reading “in” as anything other than 
“in”.   
4.20 The recent panel report in US – Softwood Lumber III , confirms this interpretation.  In that 
case, the panel found that the adequacy of remuneration in Article 14(d) must be determined in 
relation to prevailing market conditions  for the good or service in question in the country of provision 
or purchase .  According to the panel, this means that Artic le 14(d) requires that the prevailing market 
conditions to be used as a benchmark are those “in the country of provision” of the goods.  The panel concluded that no other meaning could be ascribed to the reference to market conditions “in the country of provision”.  Therefore, the only benchmarks that may be used in a provision of goods 
context are those determined on the basis of prevailing market conditions in the country of provision.  
USDOC sought to avoid the plain meaning of “prevailing market conditions … in the country of 
provision” by interpreting the phr ase “in relation to” to mean “tak ing account of”.  However, the 
panel in US – Softwood Lumber III
  disagreed with this interpretation.  It found the phrase means “on 
the basis of” or “in comparison with”.  USDOC’s in terpretation effectively read out of the text of WT/DS257/R 
Page 7 
 
 
Article 14(d) the clear and explicit reference to “in the country of provision”, and turned the 
mandatory “shall” in Article 14(d) into the discre tionary “may”.  Finally, any determination under 
Article 14(d) must consider the ordinary meaning of  “adequate remuneration”.  The ordinary meaning 
of “adequate” is sufficient or satisfactory, not “maximum”. 
4.21 USDOC rejected evidence concerning in-Canada benchmarks for the alleged good, based on: 
(1) its unfounded assumption that it could legally reject in-country benchmarks; and (2) the 
unsupported factual conclusion that there are no usable market determined prices because prices were 
suppressed as a result of government involvement.  USDOC also sought to avoid the prohibition in 
Article 14(d) against using out-of-country benchmarks by arguing that US stumpage prices are world 
market prices for stumpage available in Canada, and are therefore part of in-country prevailing market conditions.  This conclusion is without foundation for three reasons.   
4.22 First, USDOC asserted that US stumpage was purportedly available  in Canada.  Although a 
small quantity of logs harvested from some US comparison areas is expor ted to some Canadian 
provinces this, does not mean that the right to harvest US timber is somehow imported into Canada.  
USDOC consistently blurs the distinction between st anding timber and logs.  The record makes clear, 
however, that what is provided is either timber harves ting rights or “standing timber”.  Neither may be 
“imported” into Canada and neither is “available” in Canada.  In fact, logs harvested from standing 
timber in the US comparison areas for over half of  the exports subject to countervailing duties cannot 
be exported to Canada.  Second, USDOC conceded that no world market price for stumpage existed 
when it found that there was not a single US price for stumpage or even a single price within 
individual US states.  Third, prices outside the country of provision do not become acceptable because such prices are available in another country with allegedly “comparable market conditions.”  Even if 
market conditions in the US were “comparable”, USDOC must base its determination on prevailing 
market conditions “in” the country.       
4.23 The panel in US – Softwood Lumber III
  concluded that although “conditions of purchase or 
sale” and “availability” were listed as  market conditions in Article 14(d) this did not mean that US 
stumpage was available to Canadian producers.  It found that the fact that a good may also be bought on a market outside the country of provision, did not imply that the prices for that good in the other 
country become part of the market conditions “in the country of provision”.  The panel further noted 
that acceptance of the US argument would mean that the phrase “prevailing market conditions in the 
country of provision” refers to world market conditio ns.  As the text of Article 14(d) did not support 
this conclusion it could not be correct.  Instead the panel indicated that “availability” was an aspect of 
the market conditions existing in the country of provision.  Finally, the panel noted that the US interpretation would effectively r ead out of the SCM Agreement the explicit reference to the country 
of provision, thereby violating the principle of effectiveness. 
4.24 The US recourse to the same cross-border met hodology in the FD consists again of simply 
substituting “prevailing market conditions” in the US for “prevailing market conditions” in Canada.  
This is the only way the US was able to determine the existence of a “benefit” and construct a subsidy 
rate of nearly 20 per cent. 
4.25 A treaty interpreter must ensure that its interpre tation of a treaty provision does not give rise 
to absurd or unreasonable results.  An interpreta tion of Article 14(d) that would permit the use of 
cross-border comparisons would give rise to such unreasonable results for several reasons. 
4.26 International borders affect market conditions and, in particular, prices; these effects are 
substantial and notoriously difficult to quantify.  Political boundaries drive differences in government 
regulatory regimes, tax regimes, investment regi mes, currency, banking and financial systems, 
business practices, and business climate.  Govern ment policies and other factors in different 
jurisdictions affect economic conditions, including wa ge rates, taxes, capital costs, labour costs and 
exchange rates.   WT/DS257/R 
Page 8  
 
4.27 Cross-border comparisons also do not reflect the effect of differences in the natural resource 
endowments between two countries.  Prices of goods and services will ge nerally differ between 
countries for reasons relating to comparative advantage.  In US – Softwood Lumber III
  the panel found 
that USDOC’s methodology for determining a benefit would lead to an  automatic determination of 
subsidization in a resource-rich exporting country,  even where the perceived price difference simply 
reflected the exporting country’s comparative advantage. 
4.28 A wide variety of other factors also affect fo restry resources in different countries.  These 
factors include differences in: timber characteris tics and operating conditions such as the type, mix, 
quality and location of forest resources as well as costs of harvesting and transporting timber; 
measurement systems; and the rights and obligations associated with tenures such as the duration of harvesting rights and obligations associated with silviculture, road building and forest management 
responsibilities.   
4.29 USDOC itself confirmed that cross-border comparisons are illogical in its own previous 
determinations in Lumber I , II and III.  In each of these prior lumber cases, USDOC rejected the use 
of such comparisons on the basis that they simply could not be done.  In particular, in Lumber I  
USDOC found that cross-border comparisons were “arbitrary and capricious” and that no unified 
North American market for stumpage existed.  In  this proceeding USDOC dismissed these decisions 
by claiming that they were made “in the context of a different legal framework.”  The change in law is 
irrelevant, however.  All of the f acts that led USDOC to reject the use of cross-border comparisons in 
the past still exist today.   
4.30 In the FD, USDOC concluded there were no usable benchmarks in Canada that would allow 
USDOC to analyze whether Canadian stumpage programmes provided a benefit to the softwood 
lumber producers.  This conclusion is contradict ed by the record, which provided several in-country 
benchmarks as well as economic analysis of the adequacy of remuneration charged by provincial 
governments.  This information included private timber sales, cost-revenue comparisons, an economic 
analysis of provincial stumpage charges, competitiv e auction prices, and private sector assessments of 
timber value. 
4.31 Private Timber Sales
 - Canada provided substantial inform ation regarding in-country sales of 
private stumpage, including private stumpage prices  in Québec.  In Québec, private forest lands 
account for 17 per cent of the total softwood sa wmill supply.   Private stumpage transactions in 
Québec are the basis for that province’s parity appr oach, which Québec uses to determine the market 
value of standing timber on public land.  The evidence before USDOC included three years of annual 
private stumpage surveys and the original survey results reporting private forest stumpage 
transactions in Québec.  In response to questions from USDOC about the private forest in Québec, 
comprehensive economic data and analyses were submitted showing that private forest stumpage 
transactions in Québec occur in a large, open market  consisting of hundreds of well-informed buyers 
and sellers, including competing private timber sources outside Québec. 
4.32 Similarly, the information for Ontario demonstrated that the volume of private sales was 
significant, representing 7 per cent of total softwo od stumpage sales.  Canada submitted an expert 
study by Resource Information Systems Inc.  (RISI) that provided a detailed assessment of the private 
market in Ontario.  The RISI Study found that  the private market in Ontario was competitive, 
efficient, and independent from the market for Crown timber.  Another study of the private market in Ontario, prepared by Charles River Associates Inc., evaluated the market conditions for private timber 
sales, concluded that the prices for private timber were established by the “m arginal” price for timber, 
and calculated the average price for priv ate timber purchased by sawmills.   
4.33 Competitive Auctions
 - The record also included information on competitive sales of 
stumpage by provincial governments, including information from B.C. on the volume and value of WT/DS257/R 
Page 9 
 
 
competitive sales of stumpage through the Small Business Forest Enterprise Programme, which are 
made through competitive auction to the highest bidder.   
4.34 Private Sector Assessments of Timber Value  - Canada also provided information regarding 
the market values for standing timber based on an amalgam of public bid and private sale values.  
These market values are known as “timber damage assessments” (TDAs).   Three industry sectors in 
Alberta, the oil and gas sector, the mining sector  and the forest sector, jointly developed the TDA 
methodology.  After a series of negotiations, all parties agreed on a TDA methodology to provide a 
fair and balanced estimate of the market value of Alberta’s standing timber.  The TDA data represent 
the full value of the resource, both because they co me from this arm’s-length process and because the 
prices used to develop TDA are from market transactions between unrelated buyers and sellers where each participant is free to deci de not to buy or sell.    
4.35 Evidence Demonstrating Consistency With Market Principles
 - Canada submitted information 
demonstrating that provincial stumpage systems coll ected more than adequate  remuneration and were 
consistent with market principles.  This information established that substantial profits were earned 
from the provision of timber harvesting rights.  Evidence demonstrated, for example, that B.C.  received adequate remuneration because it produced a re turn of 75 per cent of expenditures on its 
timber harvesting system.  Consistent with mark et principles, this enormous profit on timber 
harvesting operations demonstrated that harvesters cannot be said to be receiving stumpage for “less 
than adequate remuneration”.   The other major producing provinces also showed substantial profits 
on their stumpage programmes – 35 per cent for Ontario, 67 per cent for Québec, and 25 per cent for 
Alberta. 
4.36 Cost-revenue comparisons provided USDOC with  in-country information to evaluate the 
adequacy of remuneration collected for rights to  harvest Crown timber.  As USDOC's existing 
practice and regulations confirm, th is information is relevant to USDOC’s adequacy of remuneration 
determinations.  This analysis is consistent with th e requirement in Article 14(d) that the provision of 
a good be for “adequate,” not “maximum,” remuneration.   In addition, an analysis of the economics of 
B.C.’s stumpage system demonstrated that the provin ce’s stumpage system is administered consistent 
with market principles.  B.C.  stumpage charges ar e a volumetric levy imposed upon the exercise of 
previously conferred timber harvesting rights.  The economic analysis shows that a profit-maximizing 
forestland owner would not impose a volumetric charge upon the exercise of those rights.  Further, the 
tenure system imposes costs on tenure holders that they would not bear in a competitive market.  
Therefore, consistent with market principles, harveste rs again cannot be said to be receiving stumpage 
for “less than adequate remuneration”. 
4.37 In the FD USDOC rejected “transaction-based”  in-country Canadian benchmarks because of 
alleged “price suppression” allegedly resulting from government involvement  in the marketplace.  
There is no basis for the rejection of in-country benchmarks in the SCM Agreement.  Article 14(d) 
refers to “prevailing” market conditions.  In this context, the meaning of “prevailing” is “as they 
exist”.  Nothing in the context, object and purpose or negotiating history of the SCM Agreement suggests that the “market conditions” referred to are those of a perfectly competitive market.  In US – 
Softwood Lumber III
  the panel found that even if the alleged “price suppression” existed, this would 
not permit USDOC to reject in-country benchmarks.  The panel concluded that Article 14(d) SCM 
Agreement did not require that prevailing market cond itions be those of an “undistorted” market.  It 
also concluded that USDOC provided no acceptable ra tionale for rejecting Canadian stumpage prices.  
Even  assuming, arguendo , that Article 14(d) permitted the re jection of in-country benchmarks 
because of “price suppression”, USDOC’s evidence and analysis was clearly inadequate to establish 
that such distortion existed.   
4.38 For these reasons USDOC’s rejection of in-cou ntry Canadian benchmarks and reliance on 
“cross-border” US benchmarks is in consistent with Articles 1.1(b) an d 14(d) of the SCM Agreement.  
The US has therefore imposed countervailing duties in the absence of the required finding of WT/DS257/R 
Page 10  
 
“subsidy” in violation of Articles 10, 14, 14(d),  19.1, 19.4 and 32.1 of the SCM Agreement and 
Article VI:3 of GATT 1994.   
4.39 Evidence demonstrating no trade advantage
 - USDOC also had before it substantial evidence 
demonstrating that the provincial stumpage charge s imposed in Canada do not increase the production 
of logs or lumber or lower their prices, or increase  the quantity or lower the prices of lumber exports 
to the US, in comparison with th e outcome in a market in which government is not involved.  The 
SCM Agreement requires the investigating authorit y to consider the existence of a benefit and 
adequacy of remuneration in relati on to the “prevailing market cond itions” for the good in the country 
of provision.  The prevailing market for standing timber is a natural resource market, which is an 
economic rent market.  Rent markets have different characteristics than many other markets.  This must be taken into account in making any determination of whether provincial stumpage systems 
confer a benefit. 
4.40 Analyzing benefit in the particular market contex t under investigation is consistent with panel 
and Appellate Body interpretations  of Article 1.1(b) and the object and purpose of the Agreement, 
which is to discipline subsidies, as defined in the SCM Agreement, that distort trade.   All panel and 
Appellate Body decisions concerning Article 1.1( b) confirm that the word “benefit” implies a 
comparison that is market-based .  As the Appellate Body has stated, this permits identification of any 
“trade-distorting potential.”   The analysis of remuneration in relation to prevailing market conditions 
in this case should therefore include a review of whether provincial stumpa ge fees or charges are 
capable of causing trade distortion in downstream markets.  USDOC asserted that “the whole point” 
of the investigation was to “quantify and remedy” al leged distortion of the US market.  In reaching 
these determinations, USDOC by its own admission ignored the economic evidence offered by 
Canada.  Had USDOC analyzed, rather than assu med, the existence of trade distortion in the 
downstream markets for logs and lumber, it would have found that not only is there no benefit as 
measured by existing market comparators, but that  economic analysis shows that there is no trade-
distorting potential from provincial stumpage prog rammes, because positive stumpage charges neither 
increase production of logs and lumber nor lower th eir prices relative to a private competitive market. 
4.41 The FD impermissibly assumes a pass-t hrough of an alleged subsidy.  This case requires 
an analysis of whether and to what extent alleged upstream subsidies benefited downstream 
producers.  A significant portion of logs is sold by timber harvesters to unrelated lumber producers 
and other entities at arm’s length.  In addition, a grea t number of sales of logs  and lumber inputs occur 
at arm’s length between unrelated producers of subject merchandise. 
4.42 In the FD, USDOC concluded that no subsidy pass-through analysis of any kind was required 
because the alleged subsidy is a subsidy “to the produ ction of lumber rather than the production of 
timber or logs”.  With respect to producers of remanufactured lumber that do not hold provincial 
stumpage rights and that purchase lumber from stumpage holders at arm’s length, USDOC concluded 
that as the case was conducted on an aggregate basis, “a review is the appropriate avenue to determine if there are specific companies that do not receive countervailable benefits.” 
4.43 Under the SCM Agreement, a “direct subsidy” exists where government makes a financial 
contribution that confers a benefit to the recipient of that contribution.  Similarly, an “indirect 
subsidy” exists where a government “entrusts or directs” a private body to provide a financial 
contribution that confers a benefit to the recipient.  If the recipient of a subsidy enters into transactions with other entities, an investigating authority may not presume  that those other entities have benefited 
from the alleged subsidy.   An investigating author ity must always establish that both elements of the 
subsidy definition exist.  In US –  Lead and Bismuth II , the Appellate Body found that an authority 
must establish that a benefit has been conferred upon the recipient of the alleged subsidy, and may not 
irrebuttably presume  that the benefit has been passed through a subsequent transaction.  This analysis 
is even more apt in respect of original determinat ions where an investigating authority must establish WT/DS257/R 
Page 11 
 
 
each element of a subsidy.  In transactions that take place in the market and at arm’s-length, the 
applicable presumption is that fa ir market value has been paid. 
4.44 USDOC was required to find that the alleged subsidy to a harvester of timber was passed 
through to the downstream producer of su bject merchandise.  USDOC did not provide any analysis of 
either  requirement of Article 1 in respect of downst ream producers.  USDOC did not establish that 
any “financial contribution” by government had been made to lumber producers or remanufacturers in 
respect of the inputs they purchased at arm’s-le ngth.  USDOC also did not find that the alleged 
“benefit” was conferred to lumber producers or remanufacturers through downstream purchases. 
4.45 Moreover, there was substantial evidence demons trating arm's-length transactions between 
timber harvesters and lumber producers, and between lumber producer s and remanufacturers, 
including:  (1) In B.C.  approximately 24 per cent of the timber from Crown licenses was harvested by 
companies that did not own sawmills.  Similarly, in Ontario approximately 30 per cent of the 
softwood timber harvested from Crown lands was sold by tenure holders to third parties for 
processing; (2) At least 18 per cent of the volume of  logs harvested in B.C.  from Crown lands were 
purchased at arm’s length; and (3) Numerous comp any exclusions filings demonstrated that arm’s-
length purchases of logs and lumber were signif icant.  On this basis 230 companies applied for 
exclusion. 
4.46 In US – Softwood Lumber III  the US indicated that it knew that a portion of the logging 
companies did not own sawmills, and sell their logs in arm’s-length transactions.  The panel found 
that the US had conceded that pass-through analysis was required; it found that the US had violated its 
obligations under the SCM Agreement because USDOC had failed to consider evidence regarding 
arm’s-length transactions and because an authorit y may not assume that a subsidy provided to 
producers of the “upstream” input product automatica lly benefits unrelated producers of downstream 
products (especially where there is evidence of arm’ s-length transactions betw een these entities).  In 
the FD, USDOC ignored these facts and presumed that all producers of subject merchandise received 
countervailable subsidies in all cases.  USDOC had the data to calculate and correctly deduct from the 
numerator the alleged benefit incorr ectly attributed to arm’s-length log and lumber sales.  USDOC 
instead chose to presume the existence of a subsidy ar ising from such sales, an d as a result, overstated 
the amount of the alleged subsidy (and the subsidy rate).   
4.47 USDOC has therefore failed to establish the elem ents of a subsidy by failing to demonstrate a 
pass-through of financial contribution and benefit.  Accordingly, the US has violated Articles 10, 
19.1, 19.4 and 32.1 of the SCM Agreement and Article VI:3 of GATT 1994.   
2. Canadian provincial stumpage programmes are not specific to certain enterprises 
4.48 USDOC concluded that recipients under provin cial stumpage programmes are limited to a 
group of industries; it found that this factor alone established the programmes as specific in fact.   
USDOC’s finding was based on its de finition of the term “group of industries”, by which it meant 
those companies and individuals that use the programme. 
4.49 Under Article 2, a subsidy may be determined to  be specific to an enterprise, industry or 
group of enterprises or industries (certain enterprises)  either in law or in fact .  A subsidy is specific in 
law where a government expressly limits access to that programme to certain enterprises.  Where a 
subsidy is not specific in law, a Member may still determine that it is specific to certain enterprises 
based on evidence of the factors listed in Article 2. 1(c), subject to consideration of the diversification 
of economic activities in the jurisdiction and the length  of time the programme has been in operation.  
Where these factors do not indicate that a Member is  deliberately limiting access, the programme is 
not specific.  Article 2.4 requires that any specificity determina tion be “clearly es tablished” on the 
basis of “positive evidence”.  Th is exacting burden of proof requir es both reasoned analysis and 
“positive evidence” supporting the factual conclusi on.  An investigating authority must therefore WT/DS257/R 
Page 12  
 
correctly analyze and weigh all evidence of the factors set out in Article 2.1(c), as applied in a given 
case, in the light of the standard in Article 2.4. 
4.50 The term “certain enterprises” is a defined term for the purposes of Article 2: “an enterprise, 
industry, or group of enterprises or industries”.  At issue in this case is the meaning of the terms 
“industry” and in particular “group of… industries”.   The meaning of “industry” is “[a] particular 
form or branch of productive labour; a trade, a manufacture”.  In the context of the WTO Agreement 
and the SCM Agreement this requires an examinati on of product-based criteria.  Part V of the SCM 
Agreement provides that the term “domestic indust ry” “shall … be interpreted as referring to the 
domestic producers as a whole of the like products  or to those of them whose collective output of the 
products constitutes a major proportion of the tota l domestic production of those products …” 
[emphasis added].  The term “domestic industry” thus refers to the producers on the basis of 
“products”.  The logical inquiry to be undertaken by the investigating authority of an importing 
Member is therefore whether the parallel foreign in dustry is subsidized on a specific basis.  
Accordingly, an “industry” in the sense of Article 2 is properly interpreted to refer to enterprises 
engaged in the manufacture of similar products .  The nature of the output products is also an 
important link that holds “a group of enterprises or  industries” together; in the absence of a product-
based identification of industries, no “group of industries” may be found. 
4.51 USDOC explained that the label “limited group of wood products industries” identified “pulp 
and paper mills and the saw mills and remanufacturer s which are producing the subject merchandise”.  
In concluding that the alleged benefits of stumpage programmes are limited to those entities 
specifically authorized to cut timber on Cr own lands, USDOC’s determination amounts to the 
statement that “stumpage is specific to those usin g stumpage”, and assumes the ultimate conclusion 
under the “limited users” factor.  USDOC’s findi ng renders the specificity requirement redundant and 
inutile.  This is achieved also by USDOC’s use of the entire Canadian economy as a benchmark and 
finding that the majority of compan ies and industries in Canada do not receive benefits under these 
programmes.  As a result of its circular reasoning, USDOC failed in particular to accurately determine 
the actual users of stumpage programmes and failed to address the record evidence that established 
that many enterprises and industries use stumpage  programmes.  USDOC also failed to analyze the 
industries that use stumpage programmes, based on the types of enterprises, in order to determine 
whether they properly constitute a “group of industries”. 
4.52 Canada submitted significant evidence pertinent to the specificity issue, including voluminous 
questionnaire responses and expert studies on factual issues relevant to specificity.  These studies 
considered the number and types of industries using stumpage, the types of products produced by stumpage users, and the proportionate distribution of  the wood fibre harvested in Canada to various 
product categories.  These studies demonstrated that  there were 23 separate classes of industries, 
producing over 200 products, that used stumpage programmes.  They also showed that softwood 
lumber was not the dominant end use.  Many producers of subject merchandise also produce products not subject to the investigation, and other stumpage users include, inter alia , producers of pulp and 
paper products, hardwood products, shakes and shingles, kitchen cabinets, furniture, and sporting 
gear.  Moreover, by arguing that a subsidy programme that does not subsidize the “vast majority of 
companies and industries” is  “specific”, USDOC is  stating a negative rather than determining the 
required positive – that the government has deliberately limited access to the programme to certain 
industries. 
4.53 USDOC also failed to analyze whether stumpage programmes were specific in fact within the 
context of all four factors found in Article 2.1(c).  In an analysis under Article 2.1(c), evidence must 
be analyzed and factors must be weighed in the light  of differing explanations.  The US has, by its 
own admission, recognized that it is the inherent characteristics of the alleged good that limit the 
number of users of the programme, rather than any deliberate government favouritism.  In the light of 
the nature of the forestry resource in question, it is untenable to base a specificity finding on the 
“limited users” factor alone.  To hold otherwis e impermissibly merges the tests of Articles 1 WT/DS257/R 
Page 13 
 
 
(provision of a good) and 2 (government favouri tism), by rendering the specificity requirement 
superfluous where the provision of a natural resource has been found to be a subsidy under 
Article 1.1.   
4.54 The US specificity finding in the FD amounts to an irrebuttable presumption, based on the 
nature of the subject merchandise and the allege d “good” provided, that the alleged subsidy is 
specific.  A determination of de facto  specificity under Article 2.1(c) in this case would have required 
at a minimum  examination of the other listed factors.  Moreover, Article 2.1(c) mandates the 
consideration of economic diversification.  Eviden ce of economic diversification in the Canadian 
provinces, and in particular in B.C., greatly reduc es the weight to be given to the “limited users” 
factor in this case.  When account is taken of th e evidence of the diversity of provincial economies, 
the correct conclusion under the first factor is that, (1) stumpage programmes are not used only by 
two or three industries and, to the contrary, (2) stumpage programmes are widely available to more 
than a limited number of industries.  Even if this we re not the case, the lack of diversity of provincial 
economies and the inherent characteristics of stumpage would provide the reason.   
3. USDOC’s Calculation Methodology Impermissibly Inflates the Rate of the Alleged 
Subsidy and the Countervailing Duty 
4.55 The US imposed countervailing duties in excess of  the amount of the alleged subsidy to the 
subject merchandise.  First, USDOC inflated the alleged subsidy rate by adopting an outdated and 
factually unsupportable “national” factor for conv erting US log volume measurements into Canadian 
log measurements in order to determine comparis on prices for its illegal cross-border analysis.  
Second, USDOC calculated the total alleged benefit ba sed on all Crown logs entering sawmills, rather 
than basing the alleged benefit on the log volume (l ess than 40 per cent of the total) that becomes 
softwood lumber, and then allocated that alleged be nefit over the sales value of only certain products 
produced from the logs.  The effect, again, was to overstate the alleged subsidy.  Third, USDOC 
inflated the duty rate by understating the sales valu e of subject merchandise; it purported to calculate 
the subsidy rate on a “final mill” basis (including sa les of remanufacturers), but contrary to the record 
evidence, devised a final mill sales estimate that la rgely excluded such sales.  All of these actions 
inflated the amount of the alleged subsidy, thereby violating the SCM Agreement. 
4.56 Countervailing duties may not be imposed in  an amount that exceeds the subsidy.  
Article 19.4 of the SCM Agreem ent and Article VI:3 of GATT 1994 establish this fundamental 
discipline on countervailing duties.  A countervailing duty so imposed also violates Articles 10 and 
32.1, which provide that a countervailing duty may on ly be imposed in accordance with the provisions 
of the SCM Agreement and GATT 1994. 
4. Conduct of the Investigation 
4.57 In conducting the investigation, the US failed to provide the interested parties with critical 
information and evidence, failed to give notice of its use of information highly relevant to its 
determination, and failed to give interested pa rties an opportunity to present evidence, make 
presentations, and otherwise defend their interests.  In imposing countervailing duties pursuant to an 
investigation that did not conform with Articles 12.1, 12.3 and 12.8 of the SCM Agreement, the US 
violated Articles 10 and 32.1 of the SCM Agreement. 
4.58 As noted, in its illegal cross-bo rder comparisons, USDOC used prices for short-term cutting 
rights on US state lands as the benchmarks against which to compare Canadian provincial stumpage 
charges, making the choice of a particular comparator state central to the determination of an alleged 
provincial subsidy.  Yet in the cases of Albert a and Saskatchewan, USDOC switched the comparator 
state from Montana in the PD to Minnesota in th e FD, without any notice to interested parties or 
opportunity to provide evidence or argument c oncerning the inappropria teness of the Minnesota 
benchmark.  As the Guatemala – Cement II  panel reasoned, “[d]isclosur e of the ‘essential facts’ WT/DS257/R 
Page 14  
 
forming the basis of a preliminary determination is clearly inadequate in circumstances where the 
factual basis of the provisional measure is signif icantly different from the factual basis of the 
definitive measure.” 
4.59 Similarly, USDOC failed to give interested pa rties the opportunity to present full evidence 
and arguments concerning information that was highly relevant to the calculation of the US 
benchmark price applied to Québec.   Specifically, USDOC requested and obtained timely information 
from the Maine Forest Products Council (MFPC),  yet withheld it from the record until Quebec 
formally demanded its production.  USDOC then ch aracterized the MFPC information as “untimely”, 
yet subsequently accepted and relied upon two repo rts submitted by the petitioner to reject the MFPC 
information.  Interested parties were given no  opportunity to rebut the petitioner’s reports.   
5. Initiation of the Lumber IV Investigation 
4.60 USDOC initiated the Lumber IV investigation, based on a finding that 67 per cent of the US 
softwood lumber producing industry supported the petition.  Softwood lumber producers that brought 
or supported the petition are eligible to receive cash payments under the Dumping and Subsidy Offset 
Act of 2000  (Byrd Amendment ) for supporting the petition.  Counsel for the petitioner, the Coalition 
for Fair Lumber Imports Executive Committee, used the prospect of Byrd Amendment payments as 
inducement to garner support for the petition.  The investigation was therefore initiated on the basis of 
domestic producer support that was actively solicited by promise and prospect of a direct payment by 
the US government. 
4.61 Article 11.4 requires Members to conduct an “exam ination” of the degree of support for an 
application and to “determine”, on the basis of that examination, that the application has been made 
by or on behalf of the domestic industry.  The words “determine” and “examination” denote, singly 
and collectively, an active consideration, assessment or weighing of evidence that results in a 
conclusion.  This plain reading of the words is fu rther confirmed by the context.  In addition to 
“quantitative thresholds”, Article 11 also provides th at the original complaint of alleged injury to an 
industry must contain evidence that has to be substantiated.  The obligation under 11.4 is therefore not simply on the applicants to present evidence of domestic industry support, but also on the investigating authority to conduct an objective determination and examination of the level of that 
support.  The panel in US – Offset Act (Byrd Amendment)  described the object and purpose of 
Article 11.4 as requiring an authority to examine th e degree of support which exists for an application 
and to determine whether the applic ation was thus filed by or on be half of the domestic industry. 
4.62 If Article 11.4 is to have any meaning, the “examination” of the degree of support for the 
petition and determination that the petition was made by  or on behalf of the do mestic industry must be 
objective and impartial.  The counte rvailing duty order resulting from the Lumber IV investigation is 
subject to the Byrd Amendment .  As payments by the US under the Byrd Amendment  induce domestic 
producers to support such petitions, the US is precluded from making an objective and impartial 
examination and determination of the level of support among domes tic producers for such petitions.  
This is consistent with the finding of the panel in US – Offset Act (Byrd Amendment) .  That panel  
found that the low costs of supporting a petition coupled with the strong likelihood that all producers 
would feel obliged to keep open their eligibility for offset payments would mean that the vast majority 
of petitions would achieve the required level of support.  The panel concluded that by requiring 
support for the petition as a prerequisite for receiv ing offset payments, the CDSOA in effect mandates 
domestic producers to support the application a nd renders the threshold test of Article 11.4 
meaningless.  Since the initiation of 
Lumber IV  is inconsistent with Article 11.4, the US has, as a 
consequence, imposed countervailing measures in  violation of Articles 10 and 32.1 of the SCM 
Agreement. WT/DS257/R 
Page 15 
 
 
6. Administrative Reviews 
4.63 Canada raised certain questions concerning the operation of US law on administrative reviews 
in the course of consultations.  In particular, Canada asked whether individual producers and 
exporters may request and receive company-specific  administrative reviews under US law.  In its 
panel request, Canada claimed US law relating to administrative revi ews violated Articles 10, 19.3, 
19.4, 21.1, 21.2 and 32.1 of the Agreement and Arti cle VI:3 of GATT 1994.  Canada raised similar 
issues in the US – Softwood Lumber III  case.  In that proceeding, the US took issue with Canada’s 
characterization of its law and stated that it had the discretion to co nduct company-specific 
administrative reviews.  The panel in US – Softwood Lumber III  made findings in this regard 
substantially endorsing the US explanation of the source and extent of USDOC’s discretion.  The US confirmed these statements in the consultations held  for this case.  In the light of the foregoing 
statements and findings, it is Canada’s understanding  that the US possesses and will use discretion in 
the conduct of administrative reviews in a WTO-cons istent manner.  Canada reserves the right to 
advance additional arguments in respect of these claims, if its understanding of the US position is 
incorrect. 
B. 
FIRST WRITTEN SUBMISSION OF THE UNITED STATES  
4.64 The following summarizes the United States' ar guments in its first written submission.   
1. Introduction  
4.65 The recurring theme of Canada’s case is succ inctly presented in its assertion that no 
countervailing duties may be imposed on government programmes “that are adopted in the context of 
a Member’s broader economic and social policy fram ework, such as the sustainable exploitation of 
natural resources.”  Canada’s assertion rings hollow when compared to the obligations undertaken by 
Members in the SCM Agreement. 
4.66 Over 60 per cent of Canada’s subsidized lumber is exported to the US.  The countervailing 
duty provisions of the SCM are designed to ensure that, when Canada chooses to subsidize the 
production of lumber in the interest of social polic y, the US lumber industry is not required to pay the 
price.  The United States’ right to impose counte rvailing duties to offset the subsidy on billions of 
dollars of injurious imports of Canadian lumber is protected in the SCM and, therefore, should not be 
denied.   
2. Standard Of Review 
4.67 Article 11 of the DSU sets forth the standard of review that applies to this case.  Article 11 
requires a panel to make an objective assessment of the matter before it and determine whether the identified measure is consistent with the provisi ons of the WTO agreement upon which the claim is 
based.  In that regard, it is important to bear in mind that panels cannot add to or diminish the rights 
and obligations provided in the SCM or the GATT 1994.   It is also well settled that a panel must not 
conduct a de novo  review of the evidence nor substitute its judgment for that of the competent 
authority. 
3. Argument  
(a) Canada Bears the Burden of Proving Its Claim 
4.68 The complainant in a WTO dispute bears the burden of proof.  This means, as an initial 
matter, that Canada, as the complainant, bears th e burden of coming forward with evidence and 
argument that establish a prima facie  case of a violation.  It also means that, if the balance of evidence WT/DS257/R 
Page 16  
 
is inconclusive with respect to a particular claim, Ca nada must be held to have  failed to establish that 
claim. 
(b) The Final Countervailing Duty Determination Is Consistent with the SCM 
(i) USDOC Properly Determined That Provin cial Stumpage Programmes Constitute a 
“Financial Contribution" 
Timber Is a Good within Artic le 1.1(a)(1)(iii) of the SCM
 
4.69 Article 1.1(a)(1)(iii) states that  a financial contribution shall be deemed to exist where the 
government “provides goods or services other th an general infrastructure.”  The SCM does not 
specifically define the meaning of “provides” or “goods.”  The Panel therefore should look to the 
ordinary meaning of these terms.  The dictionary de finition that Canada itself cites explicitly defines 
the term “goods” as encompassing all “property or  possessions,” including “growing crops, and other 
identified things to be severed from real property.”  “Goods” is similarly defined under Canadian law.  
Through their tenure systems, the Canadian province s provide an “identified thing to be severed from 
real property,” i.e., timber.   
4.70 Canada makes the extraordinary contention that a good must be a tradeable product.  Canada 
bases this conclusion on logically flawed argument s, and ignores the basic principles of treaty 
interpretation reflected in Article 31 of the Vienna Convention on the Law of Treaties .  Canada asks 
the Panel to infer, from the use of the phrase “imported goods” in Article 3.1(b) of the SCM and the 
word “products” in Parts III and V of the SCM Agr eement, that “goods” can only mean traded goods 
that fall within the GATT 1994 Article II schedules.  The fact that “products” are goods and 
“imported goods” are goods does not, however, logically  give rise to the inference that nothing else 
can come within the meaning of “goods.” 
Provincial Tenures “Provide” Timber  
4.71 Canada argues that provincial governments are not providing timber to lumber producers, but 
rather are merely granting certain property rights in the timber:  the right of access to, or the right to 
harvest, the timber.  According to the New Shorter Oxford English Dictionary , however, “provides” 
means to “make available” in addition to “supply or furnish for use.”  Thus, even if provincial tenures 
are viewed as simply providing the right to access or harvest the timber rather than providing the timber itself, such a provision would still constitute the provision of a good within the meaning of 
Article 1.1(a)(1)(iii) of the SCM be cause the government is making the timber available to lumber 
producers. 
4.72 A review of the facts further demonstrates that Canada is attempting to elevate form over 
substance.  USDOC found, and the US – Softwood Lumber III
  panel agreed,6 that from the tenure 
holder’s point of view, there is no difference between the government granting a right to harvest 
timber and the government actually supplying the timber through the holder’s exercise of this right.  
In fact, the only way to provide standing timber (t he good in question) is by providing the right to 
harvest the timber.  It should be beyond dispute that when a government gives a company the right to 
take a good, whether it is the right to take widge ts from a government warehouse or timber from 
government land, the government is “providing” that good within the meaning of Article 1.1(a)(1)(iii) 
of the SCM Agreement.   
                                                      
6 See Panel Report, US – Softwood Lumber III , para. 7.17. WT/DS257/R 
Page 17 
 
 
(ii) The United States Properly Determined That Provincial Stumpage Programmes Provide a 
Benefit 
A Benefit Is Something More Favorable Than the Market Would Provide Absent the Financial 
Contribution  
4.73 The US, having properly determined that a fina ncial contribution was provided to Canadian 
softwood lumber producers, was required to dete rmine whether a benefit was “thereby conferred” 
within the meaning of Article 1.1(b) of the SCM Agreement.  The SCM Agreement does not define 
the term “benefit.”  The meaning of the term as used in Article 1.1(b) has, however, been explored by 
previous WTO panels and the Appellate Body, which have established that a benefit is something 
better than the market would otherwise provide, absent the financial contribution, and that “the 
‘market’ to which reference must be made is the commercial market, i.e., a market undistorted by 
government intervention.”7 
Comparing the Government’s Price for a Good to th e Fair Market Value of the Good in the Country 
of Provision Is Consistent with Article 14(d) of the SCM  
4.74 Article 14 of the SCM contains guidelines for calculating a subsidy benefit, providing that 
“the provision of goods or services .  .  .  by a government shall not be considered as conferring a 
benefit unless the provision is made for less than  adequate remuneration.”  “Adequate remuneration” 
is not defined in the text of the SCM Agreement.  In the context of Article 14(d), however, “adequate” 
remuneration must mean remuneration that is sufficient  to eliminate any benefit.  As discussed above, 
a benefit is something more favorable than would otherwise be available in the commercial market, 
i.e., fair market value.  Logically, therefore, “adequate” remuneration is fair market value.  
Article 14(d) therefore provides that  the benefit should be measured by comparing the government’s 
price for goods or services with the fair market value of the goods or services in the country of 
provision.   
4.75 The issue is what evidence may be used to establish that fair market value pursuant to the 
guidance in Article 14(d) of the SCM that adequate  remuneration must be measured “in relation to 
prevailing market conditions .  .  .  in the countr y of provision.”  Article 14(d) does not address the 
type of evidence to be used in evaluating the question of benefit.  Observed prices in Canada were 
either unavailable or unreliable indicators of fair  market value.  Thus, after a thorough analysis to 
ensure comparability, the US used market prices for timber from the northern US border states as the 
starting point for the calculation of fair market be nchmarks for each of the provinces, then analyzed 
the prevailing market conditions in Canada (e.g., ob ligations for road building, silviculture, and fire 
and disease protection) and adjusted the benchmark ca lculation accordingly to arri ve at the fair market 
value of timber in Canada .   
4.76 Canada itself acknowledged that price data from sources outside of the country of provision 
can be used as the basis for assessing fair market value in the country of provision.  The issue at the heart of Canada’s complaint is thus not whether Article 14(d) precludes the use of “out of country” 
prices (e.g., import prices) to assess fair market value in the country of provision.  Rather, the issues at 
the heart of Canada’s claim are questions of fact:  (1) did the US have a reasonable basis to reject 
private prices in Canada as a basis for assessing fair market value; and (2) could price data for 
comparable timber in the northern United States provide a reasonable factual basis for assessing the 
fair market value of timber in Canada.  As discus sed below, the answer to both inquiries is yes; 
therefore, Canada’s claim must fail. 
                                                     
 
7 Panel Report, Brazil – Aircraft (Article 21.5 – Canada II ), para. 5.29 (emphasis in original). WT/DS257/R 
Page 18  
 
Private Prices in Canada Did Not Provide a Re liable Basis to Determine Fair Market Value
 
4.77 As noted above, the Appellate Body and previous WTO panels have found that “the 
marketplace provides an appropriate basis for comparison”8 and that “the ‘market’ to which reference 
must be made is the commercial market, i.e., a market undistorted by government intervention.”9  
Prices suppressed by the government’s financial co ntribution do not represent a commercial market 
price against which a benefit can be measured because  they do not represent a “market undistorted by 
government intervention.” 
4.78 In the present case, the US sought evidence on non-government prices for Canadian timber.  
The record evidence demonstrates , however, that the limited non-government price data submitted by 
the Canadian parties was inadequate and that such pr ices were significantly affected by the financial 
contribution itself, i.e., the supply of provincial government timber.  These observed prices were 
therefore simply uninformative of adequate  remuneration, i.e., fair market value. 
Prices for Comparable Timber in Northern US States, Properly Adjusted, Provide a Reasonable Basis 
for Assessing the Fair Market Value of Timber in Canada  
4.79 As discussed above, there was no appropriate market price data from Canadian sources on 
which to base a fair market value assessment.  Ca nada’s claims notwithstanding, starting with prices 
for comparable timber of the same species immedi ately across the border and adjusting those prices, 
as appropriate, for provincial market conditions is a reasonable basis to assess the fair market value of 
timber in Canada.  An examination of the underlying facts and the assessment performed by the US in 
this case demonstrates this point. 
4.80 It is undisputed that the North American market  for lumber is highly integrated.  Canada, in 
fact, exports over 60 per cent of its softwood lumber to the US.  US and Canadian timber are therefore 
supplying the same North American demand for lu mber products.  Thus, because of the derived 
nature of timber prices, market prices for US timb er are a logical and reasonable starting point for an 
assessment of the fair market value of Canadian timbe r.  US timber is also commercially available to 
lumber producers in Canada.  Canada does not co ntest the fact that Canadian mills actually do 
purchase US timber – both on the stump and as logs – and consume it in their mills in Canada.   
4.81 To compensate for any differences in species mix, the US calculated species-specific fair 
market value benchmarks.  The US also used averages  – an average, species-specific fair market value 
benchmark for each province and an average administered price for each province –  to account for 
other differences that may affect the value of specific stands of timber.  The use of averages is an 
accepted and widespread aspect of Canadian stumpage  systems.  In addition, the US made appropriate 
adjustments to the US price data to arrive at an assessment of the fair market value of timber in 
Canada.  As evidenced in the Final Determination,10 the US conducted a thorough analysis of the 
conditions of sale in Canada and made necessary adjustments for obligations such as road building 
and silviculture that are conditions of sale in Ca nada.  The result was a reasonable assessment of the 
fair market value of timber in Canada that is entirely consistent with Article 14(d) of the SCM 
Agreement. 
                                                      
8 Appellate Body Report, Canada – Aircraft , para. 157. 
9 Panel Report, Brazil – Aircraft (Article 21.5 – Canada II ), para. 5.29 (emphasis in original). 
10 See Notice of Final Affirmative Countervailing Duty Determination and Final Negative Critical 
Circumstances Determination:  Certain Softwood Lumber Products From Canada, 67 Fed.  Reg.  15545 
(2 April 2002) (“Final Determination”) (US - 2). WT/DS257/R 
Page 19 
 
 
The SCM Does Not Define “Benefit” in Terms of Increased Output or Lower Prices for the Subject 
Merchandise and Does Not Create an Exception for Natural Resource Inputs  
4.82 Without any justification in the text of the WTO agreements, Canada asserts that the Panel 
should graft onto the SCM a special rule for financia l contributions that take the form of a government 
provision of a natural resource that is fixed in supply.  According to Canada, the conditions that 
prevail in such a market are such that no failure by  the government to collect adequate remuneration 
can result in increased output or have an adverse trad e impact.  Thus, Canada claims that “any benefit 
analysis should assess” the trade effects of the subsidy. 
4.83 This argument is completely without foundation in the SCM Agreement.  Article 14, which is 
titled “Calculation of the Amount of a Subsidy in Term s of the Benefit to the Recipient,” provides that 
the existence of a benefit to the recipient, not the existence of demonstrable trade effects, is 
determinative of whether a benefit exists for purposes  of Article 1.1.  Nothin g in Article 14 describes 
benefit in terms of the effect on the output of the recipient.  If the government makes a financial 
contribution, and the recipient obtains a benefit,  then the definition of a subsidy in the SCM 
Agreement is fulfilled.  What Canada asserts “shoul d” be added to this defi nition cannot supersede the 
actual text of the SCM Agreement. 
(iii) The United States Calculated the Subsidy Rate in a Manner Consistent with the SCM and 
GATT 1994 
4.84 In industries, such as softwood lumber, with an  extremely large number of producers, it is not 
feasible, in an investigation, to examine the subsidies received by each individual producer.  As 
reflected in Article 19.3 of the SCM Agreement, Members are accorded th e flexibility to conduct 
investigations other than on a company-specific basis.   In this case, rather than investigate specific 
producers, the US examined the government subsidy programmes at issue and, based on data supplied 
by the provincial and federal governments, calcul ated the aggregate amount of all subsidies to 
producers of the subject merchandise (the numerator).  The US then allocated the aggregate subsidies 
over all sales of merchandise that benefitte d from the subsidies (the denominator). 
4.85 This type of aggregate subsidy investigation is entirely consistent with the SCM Agreement, 
and Canada does not argue to the contrary.  Rather , Canada argues that the manner in which the US 
calculated the countervailing duty is inconsistent with Articles 19.1 and 19.4 of the SCM Agreement, 
and Article VI:3 of GATT 1994.  Ca nada has failed, however, to make a prima facie  case. 
4.86 Article 19.1 of the SCM require s a final determination of the amount of the subsidy and a 
final determination of injury as pre-conditions to th e imposition of a countervailing duty.  Article 19.1 
does not, however, establish any requirements concerni ng how a subsidy or injury is to be determined.  
Those obligations are found elsewhere in the SCM Agreement.   
4.87 Article 19.4 of the SCM establishes an upper limit on the amount of the countervailing duty 
that may be levied, i.e., the amount of the subsidy found to exist.  The issue addressed by Article 19.4 
expressly is the levying  of duties after  a subsidy has been “found to exist.”  The sole calculation 
requirement in Article 19.4 is a requ irement to calculate the subsidy on  a per-unit basis.  Article 19.4 
does not establish any other requirements concerning how the subsidy is to be calculated.11  Canada, 
in fact, concedes that its claim under Article 19.4  is dependent upon the existence of an inconsistency 
with some other provision of the SCM that imposes obligations with respect to the subsidy 
calculation.   
                                                      
11 Similarly, Article VI:3 of GATT 1994 establishes that the amount of the subsidy found is the upper 
limit on the amount of the countervailing duty that may be levied.  Article VI:3 of GATT 1994 does not address 
how the subsidy is to be calculated. WT/DS257/R 
Page 20  
 
4.88 Article 19.3 of the SCM establishes two obliga tions:  (1) when countervailing duties are 
“imposed,” they must be “levied” on a non-discriminatory basis; and (2) when an uninvestigated 
exporter is “subject to” countervailing duties, th e exporter is entitled to an expedited review to 
establish an individual countervailing duty rate.  Nothing in the text of Article 19.3 establishes any 
obligations concerning the methodology used to calc ulate the amount of the subsidy, either in the 
aggregate or with respect to a specific exporter. 
4.89 Thus, while other provisions of the SCM contain obligations regarding the calculation of the 
benefit, Canada has failed to identify any such ob ligations in Article 19 or GATT 1994 in support of 
its claims concerning the subsidy calculation.  It has, therefore, failed to establish a prima facie case 
of a violation. 
4.90 Furthermore, to the extent Canada’s claims re late to factual findings used to support the US 
methodology, the Panel may, of course, make an objective assessment of the facts.  The Panel is not, 
however, charged with conducting a de novo  review of the facts.  Rath er the Panel is to determine 
whether the US “evaluated all relevant factors , and .  .  .  provided a reasoned and adequate 
explanation  of how the facts support [its] determination.”
12  The US findings of facts in this case were 
well supported and well reasoned.   
(iv) Canadian Provincial Stumpage Subsidies Are Specific within the Meaning of the SCM 
4.91 Under the SCM Agreement, a subsidy “shall be deemed to exist” where “there is a financial 
contribution by a government or any public body within the territory of a Member” and a benefit is 
thereby conferred.  Pursuant to Article 1.2 of th e SCM Agreement, a programme that otherwise meets 
the definition of a subsidy shall be subject to count ervailing measures if it is “specific” within the 
meaning of Article 2 of the SC M Agreement.  Article 2.1 of the SCM Agreement provides three 
principles that must be applied to determine whether a subsidy is specific to “an enterprise or industry 
or group of enterprises or industries” — referred to collectively by the SCM Agreement as “certain 
enterprises” — within the jurisdic tion of the granting authority.   
4.92 First, a subsidy is specific as a matt er of law if the granting authority explicitly  limits access 
to a subsidy to certain enterprises.  Second, a subsidy is not specific as a matter of law where the 
granting authority establishes objective criteria or c onditions governing eligibility for, and the amount 
of, a subsidy, provided that eligibility is automatic and the criteria or conditions are strictly adhered 
to.  Third, even where the law under which the granti ng authority operates does not appear to create a 
de jure  specific subsidy under the first two steps of th e analysis, Article 2.1(c) of the SCM provides 
that other factors may be considered to determine if the subsidy is, in fact , specific.  Thus, 
Article 2.1(c) establishes that, even if a subsid y has the “appearance” of being widely available 
throughout an economy, it may nevertheless be specific if, as a matter of fact, the subsidy is used only 
or predominantly or disproportionately by a limited number of certain enterprises.   
4.93 The US acted consistently with its obligations under the SCM in finding that Canada’s 
provincial stumpage programmes are specific.  The subsidy at issue in this case is the provision of 
Crown timber to lumber manufacturers at below- market prices.  Thus, the proper inquiry under 
Article 2.1(c) of the SCM is whet her the actual recipients of Crown timber, whether considered on an 
enterprise, industry, or group basis, are limited. 
4.94 The record clearly demonstrates that provinci al stumpage subsidy programmes were used by 
a “limited number of certain enterprises” within th e meaning of Article 2.1(c).  The SCM does not 
define the term “limited number.”  As a factual matter, USDOC found that stumpage subsidy 
programmes were used by a single group of industries, comprised of pulp and paper mills, and the 
                                                      
12 Appellate Body Report, US – Lamb , para.103. WT/DS257/R 
Page 21 
 
 
saw mills and remanufacturers that produce the subject  merchandise.  Such a small number of users 
would count as “limited” by any reasonable definition. 
4.95 Canada does not deny that there are no recipients of timber outside of the lumber and pulp 
and paper industries.  Instead, it attempts to redefi ne the specificity test.  Canada would have this 
Panel ignore the plain language of the SCM Ag reement, and instead establish obligations and 
requirements that exist nowhere in the SCM Agreement.   First, Canada attempts to read an intent 
requirement into the SCM Agreement, notwithstandin g that nothing in the text requires any findings 
as to the granting authority’s intent to limit a subsidy.  To the contrary, the very purpose of 
Article 2.1(c) is to let the facts speak for themselves .  Article 2.1(c) refers simply to whether a limited 
number of enterprises use a subsidy, not why that is so.  Next, without any foundation in the SCM Agreement, Canada claims that subsidies are not sp ecific if they are “adopted in the context of a 
Member’s broader economic and social policy fram ework, such as the sust ainable exploitation of 
natural resources.”  A “policy” exception would, ho wever, obliterate the specificity requirement to the 
extent that all subsidies fall within some broader social or economic policy framework.  Finally, 
Canada seeks to create an excepti on to Article 2 that would explain away a finding of specificity 
where “the inherent characteristics  of the alleged good .  .  .  limit the number of users of the 
programme, rather than any deliberate govern ment favouritism.”  Ho wever, the “inherent 
characteristics” of the subsidized good are also not a factor under Article 2.1.  The fact that a 
subsidized input has economic utility for a limited number of potential recipients does not and cannot 
exempt it from the disciplines of the SCM Agreement.   
4.96 Canada also claims that the US undercounted th e number of industries that used stumpage 
subsidies because it used an  improper definition of the word “indust ry.”  Canada seek s to constrict the 
natural meaning of “industry” such that an indust ry would be identified not by the general class of 
products it produces, but by a particular product or na rrow set of products.  Canada further claims that 
a “group of industries” is similarly restricted to individual members that make similar products.  
There is absolutely no basis in the text, or logic, for Canada’s argument.  Canada’s reading contradicts 
the ordinary meaning of the word “group,” which in the context of Article 2.1 plainly and simply means “one or more” enterprises or industries; it doe s not require that all of its members be identical, 
or even similar, to be called a group.   
4.97 The Panel should likewise reject Canada’s argu ment that the term “domestic industry,” as 
defined in Article 16.1 of the SCM Agreement, fo rms the context for understanding what is meant by 
“industry” in Article 2.1.  Article 16.1 define s “domestic industry” within the context of the 
determination of the domestic “lik e product,” whereas spec ificity determinations under Article 2 are 
not limited to particular “like products.”  Th ere is no logical connection between defining the 
domestic industry that is injured by a specific imported product and determining whether a subsidy is limited to certain enterprises or industries.   
4.98 Finally, the US explicitly found that “the subsidies provided by the[] stumpage programmes 
are not ‘broadly available and widely used.’  The vast majority of companies and industries in Canada 
does not receive benefits under these programmes. ”
13  No matter how Canada attempts to subdivide or 
redefine the industries that received the subsidy, the simple fact remains that the Canadian economy 
as a whole and each of the provincial economies are large and diversified, and provincial stumpage 
programmes are used by a single group of forest pr oduct industries within those diverse economies.  
Canada’s claims with respect to the economic diversification provisions of Article 2.1(c) therefore 
should be rejected by the Panel. 
                                                      
13 Issues and Decision Memorandum:  Final Results of the Countervailing Duty Investigation of 
Certain Softwood Lumber Products from Canada, 52 (emphasis added) (21 March 2002) (CDA-1). WT/DS257/R 
Page 22  
 
(c) The Conduct of This Investigation Was Consistent  with the Obligations of Article 12 of the 
SCM 
4.99 The US conducted this investigation in full comp liance with the obligati ons in Article 12 of 
the SCM Agreement.  The US ensured that all par ties were given notice of the information it required 
for the investigation, had ample opportunity to submit relevant information, had access to all 
information submitted to the US during the course of  the investigation, and were informed of the 
essential facts under consideration.  The US thus  ensured that all interested parties had ample 
opportunity to defend their interests.  Neither of Ca nada’s two claims of error bears scrutiny under the 
facts of record. 
4.100  The US fully complied with Articles 12.1, 12.3 , and 12.8 of the SCM Agreement with regard 
to the selection of the benchmark for the stumpage programmes of Alberta and Saskatchewan.  
Consistent with Article 12.1, all interested parties were informed that the US required information on 
the US northern border states in order to choose appropriate benchmarks for the Canadian stumpage 
programmes.  Because all information submitted to the US was actually served on all of the interested 
parties participating in the inves tigation, the US procedures were consistent with Article 12.3.  
Because the  Preliminary Determination
14 announced that the United States was using US northern 
border states as the benchmarks for the Canadian stumpage programmes, set forth the criteria the US 
used in selecting the benchmarks, identified Minne sota as one alternative USDOC might use, and 
because all information submitted to the US regarding Minnesota was pr ovided to all of the interested 
parties, the US informed the in terested parties of the “essential facts under consideration” and 
therefore acted consistently with Article 12.8. 
4.101  The US conduct was also in full compliance with the SCM with regard to the Maine Forest 
Products Council (“MFPC”) letter.  The US provided copies of th e MFPC letter to all interested 
parties and afforded them the opportu nity to submit information “that clarifies, corrects or rebuts” the 
information contained in that letter.  By providing c opies of the letter to all of the interested parties, 
the US ensured that it met the requirements of Ar ticle 12.1.  Moreover, the opportunities to comment 
on and rebut the information more than met the requirements of Article 12.3.  Beyond the requirements of Article 12.8, the US specifically identified the information contained in the MFPC 
letter as “important to certa in issues in the proceeding, and relate[d] to an ongoing exchange of expert 
advice on a technical matter.”  The US, therefore, informed the interested parties that the information 
in the MFPC letter was part of th e “essential facts under consideration,” and specifically provided 
them with the opportunity to use this information in the presentation of their case, or to submit additional information to clarify, co rrect, or rebut this information.  Thus, the disclosure took place in 
sufficient time for parties to defend their interests. 
(d) The United States Initiated the Softwood Lumber  Investigation Based on  Adequate Domestic 
Industry Support Consistent with the Requirements of Article 11.4 of the SCM 
4.102  The softwood lumber petition co ntained uncontested evidence establishing that US softwood 
lumber producers representing 67 per cent of total US softwood lumber production supported the petition.  That level of industry support unquestiona bly satisfies the criteria in Article 11.4 of the 
SCM Agreement.  Canada doe s not contest this fact. 
4.103  Canada is not challenging the provisions of US law governing industry support, but rather the 
specific factual determination of industry support in this case.  Nevertheless, the sole argument 
presented by Canada is the unsubstantiated claim that the very existence of the Continued Dumping 
                                                     
 
14 Notice of Preliminary Affirmative Countervailing Duty Determinations, Preliminary Affirmative 
Critical Circumstances Determination, and Alignment of Final Countervailing Duty Determination with Final 
Antidumping Duty Determination:  Certain Softwood Lumber Products from Canada, 66 Fed. Reg. 43186 
(17 August 2001) (CDA-20) (“Preliminary Determination”). WT/DS257/R 
Page 23 
 
 
Subsidy Offset Act of 2002 induced support fo r the petition, thereby precluding an objective 
determination of industry support.    In effect, Canada would inject a requirement into the SCM 
Agreement that investigating authorities examine the motives of prospective petitioners.  In US – 
Offset Act (Byrd Amendment) , however, the Appellate Body unequi vocally rejected this argument.  
Canada’s claim is therefore without any support in the text of Article 11.4 or the facts of record. 
4. Conclusion  
4.104  Thus, the United States requests that the Panel reject Canada’s claims in their entirety. 
C. FIRST ORAL STATEMENT OF CANADA  
4.105  The following summarizes Canada's arguments in its first oral statement. 
1. Financial Contribution 
4.106  “Stumpage ” refers to the right of a harvester to enter into a forest owned by a province, select 
a tree and harvest it.  Provincial governments transfer stumpage to harvesters through tenure 
agreements or licences.  Timber  refers to the standing tree.  Ha rvesters cut down timber and process 
it into logs that are processed furt her to produce softwood lumber  and a wide variety of other 
products.  Lumber and certain products manufactu red from lumber are the subject merchandise.  
Lumber and logs, which are physic al, tradable items, are goods.  Standing trees and timber-harvesting 
rights are not tradable or physical items; they are not goods.  The fact that from each of these rights a 
good may be produced does not make the right a good in itself. 
4.107  In general, the provinces own forests and trees and enter into tenure or licence agreements to 
transfer to private persons the right to harvest trees.   In return for this right, these agreements require 
tree harvesters to undertake a broad range of fo rest management responsibilities and significant in-
kind costs, as well as the payment of stumpage fees upon harvest.   
4.108  At issue in this case, is the interpretatio n of the phrase “provision of goods” in 
Article 1.1(a)(1)(iii).  The plain meaning of the word  “goods” is movable, tangible personal property.  
In ordinary usage the term “goods” does not cover intangibles, such as intellectual property rights, or 
real property interests.  “Goods” does not include all property, or everything that has economic value 
or is an economic resource.   
4.109  This plain meaning of “goods” is further supported by the context  of this term.  Nothing in the 
WTO Agreement justifies interpreting “goods” to enco mpass everything of economic value.  Equally, 
nothing in the object and purpose  of the SCM Agreement requires this Panel to interpret the word 
“goods” as anything other than its ordinary meaning.  As the panel in United States – Export 
Restraints  noted, the SCM Agreement regulates certain  government actions, but not others.  The 
objective  of the SCM Agreement in general and Article 1 in particular, was not to govern all transfers 
of economic resources by a government. 
4.110  As a matter of law, “goods” are movable personal property; for the purposes of the WTO 
Agreement, they are tradable items that are capable of bearing a tariff classification.   
4.111  In the facts of this case, timber harvesting right s are intangible real pr operty interests.  As 
such, they do not fall under the “provision of goods” heading of Article 1.1(a)(1).  The only way to fit 
the rights in question, or indeed standing trees, into the term “goods” is to suggest that the term 
encompasses all a person’s legal rights of what ever description.  The WTO Agreement does not 
support this proposition.   WT/DS257/R 
Page 24  
 
4.112  A right to harvest standing timber cannot bear a tariff classification, as it cannot be traded 
across borders.  The transfer of stumpage rights does not constitute the provision of goods.   
2. Benefit 
4.113  In the CVD FD, USDOC compared provincial stumpage charges with stumpage prices on 
selected lands in its own territory.  USDOC found US prices to be higher and concluded that the 
stumpage charges conferred a benefit through this cross-border comparison.   
4.114  This approach to determining and measuring benefit violates the SCM Agreement.  The plain 
meaning Article 14(d) requires that benefit must be determined and measured on the basis of 
prevailing market conditions in the country of provision.  This is a legal  issue.  It is not a factual 
debate.   
4.115  Canada’s position is based on the ordinary mean ing of Article 14(d), which provides that: 
“[A]dequacy of remuneration shall  be determined in relation to  prevailing market conditions  for the 
good … in the country of provision… ”[emphasis added].  Nothing in the context, object and purpose 
or the negotiating history of Article 14 permits readin g “in” as anything other than “in”.  As the panel 
in US – Softwood Lumber III
  found:  “Article 14 (d) does not just refer to “market conditions” in 
general, but explicitly to those prevailing “in the country of provision” of the good.”  
4.116  Article 14(d) requires the use of “prevailing mark et conditions … in the country of provision” 
to determine adequacy of remuneration.  The ordina ry meaning of the term “prevailing” is “as they 
exist”.  This requirement cannot be avoided by in terpreting “in relation to” to mean “taking account 
of”.   
4.117  The SCM Agreement does not provide an authority  with the discretion to reject in-country 
benchmarks.  Instead, Article 14(d) requires the use of “prevailing market conditions … in the country 
of provision”.  Notwithstanding this requirement, USDOC rejected in-country benchmarks arguing 
that government involvement allegedly suppresses private market prices making them unusable.   
4.118  The US argues that (1) the information submitted was “limited” and that (2) the “observed 
prices were simply uninformative of adequate remuneration” because th ey were “significantly 
affected by the financial contribution itself.”  Both arguments are without merit. 
4.119  First, there is no question that USDOC had before it extensive evidence regarding the 
prevailing market conditions in Québec, Ontario, Al berta and BC.  This evidence was not “limited”.  
Canada also submitted information demonstrating th at stumpage systems are operated in a manner 
consistent with market principles.  This informa tion showed that all of the provinces were making 
substantial profits on the management of their forests.   
4.120  Second, the SCM Agreement does not permit disp ensing with prevailing market benchmarks 
because of “price suppression”.  This was confirmed by the panel US – Softwood Lumber III .  
Moreover, the US did no analysis to arrive at the conclusion that price suppression existed. 
4.121  The United States’ most recent attempt to justif y its cross-border comparisons consists of an 
entirely new argument that relies on word substituti ons, and on so called “logic” to replace the law.  
The argument  – that Article 14(d) requires is that the “fair market value” (“FMV”) of timber in Canada is the appropriate benchmark for measuring the benefit – is wholly new.  It is found nowhere 
in the Preliminary or Final Determinatio ns, US law or in the SCM Agreement. 
4.122  The argument is the latest in a series of chan ging positions that the US has taken over the 
course of this dispute.  In US – Softwood Lumber III, the US moved from arguing “in” means “out” to WT/DS257/R 
Page 25 
 
 
arguing “out” really means “in”.  In anther attempt to argue for the use of US prices as an appropriate 
benchmark the US again asserts that “out” really me ans “in” – but this time with several twists.   
4.123  The US begins by arguing that a benefit determin ation is a “but for” analysis that involves 
comparing the government’s price for a good with what the price for that good would have been 
absent the financial contribution.  In a provision  of goods context, however, the marketplace is the 
prevailing market as it exists.  The panel in US – Softwood Lumber III  confirmed this interpretation.   
4.124  Building on this erroneous understanding of “ben efit”, the US turns to Article 14(d) itself and 
argues that: “[A] benefit is something more favo rable than would otherwise be available in the 
commercial market, i.e., fair market value.  Logica lly, therefore, “adequate” remuneration is fair 
market value.”  It then argues that it had to look elsewhere for prices to calculate FMV benchmarks 
because prevailing market conditions in Canada are “unreliable indicators” of FMV.  In doing so it 
turns Article 14(d) into a provision that measur es adequacy of remuneration by comparing the 
government price to a constructed FMV, rather than to in-country prevailing market conditions.    
4.125  In a final effort to refashion the requirements  for a determination of “adequate remuneration”, 
the US asserts that FMV “must” be determined “in relation to” “conditions of sale”.  The replacement 
of “prevailing market conditions ” by “ conditions of sale”, is just  another attempt by the  US to again 
evade the plain meaning of “prevailing” which is “as they exist”.  The text of the agreement demands 
a determination that is grounded in existing Canadian  market factors, not an adjustment to US prices 
based on an erroneous interpretation  of “conditions of sale”.   
4.126  Interwoven through this is the now familiar argument that “in relation to” means “taking 
account of.”   Although the reasons for the US ar gument have changed, Canada’s response is the 
same.  The ordinary meaning of “in relation to” is “on the basis of”.  It is not “taking account of”.   
4.127  These word substitutions allow the US to interpret Article 14(d) as if it read:  The fair market 
value shall be determined using a benchmark derived from a market undistorted by government 
intervention, taking account of conditions of sale for the good … in the country of provision. 
4.128  According to the US, this metamorphosis is so compelling that there is “no dispute” about any 
of it.  Every step of this so-called “logic” is in dispute.  No amount of word substitution can change 
the fact that Article 14(d) requires a determinati on of adequacy of remuneration using in-country 
prevailing market conditions.    
4.129  USDOC also improperly rejected economic analysis  that demonstrates that stumpage charges 
provide no trade advantage to lumber producers or harvesters.  USDOC explained in its CVD FD that 
its task was to “quantify and remedy” distortion of the US market that was at “the heart of this 
inquiry”.  In response, Canada provided USDOC with detailed economic evidence that demonstrated that stumpage programmes do not cause trade distortion.   
4.130  USDOC then claimed that it could not examine this evidence because of its “complexity”.  
The US now contradicts its own inve stigating authority by claiming that the evidence is not relevant 
to a “benefit” determination and that Canada is attempting to “graft” a special rule onto the SCM 
Agreement.  Canada is doing no such thing.  Rath er, Canada provided evidence to USDOC regarding 
an issue that USDOC itself stated was central to this case.   
4.131  Any benefit determination relating to stumpage systems must take into account the fact that 
the market in this case is a rent market.  This ap proach is consistent with panel and Appellate Body 
interpretations of Article 1.1(b) and the object a nd purpose of the Agreement.  The Appellate Body 
has confirmed that the word “benef it” implies a comparison that is market-based  and stated that this 
allows for identification of  any “trade-distorting pote ntial.”  As such, the analysis of remuneration in WT/DS257/R 
Page 26  
 
relation to prevailing market conditions in this case should include consideration of whether stumpage 
charges are capable of causing trade distortion.   
3. Pass-through 
4.132  The US purports to have determined that provinces subsidize those who harvest standing 
timber .  The US has imposed countervailing duties on lumber .  Record evidence demonstrates, and 
the US does not contest, that there are lumber pr oducers who obtained log or lumber inputs from 
unrelated sources other than government.  The question before the Panel therefore is whether the US 
may legally presume, as it did , that such producers benefited from an alleged timber harvesting  
subsidy. 
4.133  Under Article 1, to establish that a person is “subsidized” an investigating authority must 
establish that the person received a financial contribution, and that this confers a benefit.  Where 
lumber producers do not harvest timber but obtain  inputs from upstream producers, any alleged 
subsidy is by definition indirect.  An indirect subs idy is established by demo nstrating the existence of 
both an indirect financial contribution under Article 1.1(a)(1)(iv), and a benefit under Article 1.1(b).  
The Appellate Body has confirmed that in a countervailing duty investigation, the existence of any subsidy may never be presumed.  The panel in the US – Softwood Lumber III
  case came to the same 
conclusion, finding that the obligation to establis h the existence of a subsidy is not excused by 
conducting an investigation on an aggregate basis.  Articles 10, 32.1, 19.1 and 19.4 of the SCM 
Agreement require the US to establish the existe nce of a subsidy before it imposes countervailing 
duties.   
4. Specificity 
4.134  In the CVD FD, USDOC found stumpage to be specific in fact by relying solely on an 
incorrect and perfunctory application of the “limited  users” factor under Article 2.1(c) of the SCM 
Agreement.  The phrase “is specific to” in Article 2 establishes a legal stan dard.  The standard is 
whether government is limiting access to a programme,  in law or in fact, to  certain enterprises.  
Analyzing whether a subsidy is specific in fact unde r Article 2 is not different from analyzing whether 
a subsidy is contingent on export performance in fact under Article 3.1(a).  A member may find 
specificity in fact only where the total configurati on of facts allows it to infer that government is 
deliberately limiting access to the programme.   
4.135  As a threshold issue, the US determination on th e “limited users” factor is wrong.  First, it 
assumes the conclusion.  The CVD FD asserts that  stumpage programmes “are limited to those 
companies and individuals specifically authoriz ed to cut timber on Crown lands.”  USDOC’s 
determination says nothing regarding the indust ries that actually use stumpage, and more 
fundamentally, whether their number was limited.   
4.136  Second, it fails to provide any legal analysis of the meaning of the terms “industry” or “group 
of industries”.  The record evidence demonstrates that the many industries in which these companies 
operate are not the only users of stumpage and that the actual users are not limited in number.  
Moreover, an industry must be identified for the purpo ses of specificity with reference to the products 
it produces.  The US argument amounts to an assertion that the term “industry” means whatever it 
needs to find a programme specific.   
4.137  Third, it compares the purportedly sole users of stumpage to the entire Canadian economy.  
Using the entire economy as a benchmark misinterpret s Article 2, as it ignores the fact that the 
universe of eligible users under Article 2.1(b) can be something less than “everyone”.  The benchmark 
is the universe of eligible users.   WT/DS257/R 
Page 27 
 
 
4.138  The determination is wrong on the facts be cause record evidence demonstrates that 
enterprises in more than 23 classes of industries manufacturing 201 distinct products use stumpage.  
Finally, even if the US had been correct in finding that stumpage was used by a limited number of 
industries, that finding by itself could not establish per se  that the programmes are specific in this 
case, as the US is required to provide legal and factual analysis on this point.  As Canada 
demonstrated in its First Written Submission, the US failed to address in the CVD FD that the 
purported finding of “limited users” is explained by the nature of the alleged “good” and the nature of 
the economic diversification of  provincial economies.   
5. Calculations 
4.139  Where the amount of a subsidy has been improperly calculated  and illegally inflated, a 
countervailing duty imposed in that amount vi olates Article 19.4 of the SCM Agreement and 
Article VI:3 of GATT 1994.  The US violat ed these obligations in three ways.   
4.140  First, the US nearly doubled the amount of  the alleged subsidy by using wrong conversion 
factors when comparing Canadian stumpage rates, cal culated in dollars per cubic metre, to US timber 
prices, determined in dollar s per thousand board feet. 
4.141  Second, the US inflated the amount of the su bsidy by considering the total volume of logs 
entering sawmill establishments as subsidized inputs into subject merchandise, even though not all of 
the output was subject merchandise.  The US s hould have determined based on evidence the amount 
of the subsidy attributable to the volume of the log that actually goes into the production of the subject 
merchandise.   
4.142  Third, the US inflated the per unit subsid y rate, and therefore the countervailing duties 
imposed by approximately US$120 million per year , by spreading the alle ged subsidy over an 
incorrectly determined low sales value.   
6. Conduct of the Investigation  
4.143   In the CVD PD, the US used data from Montana to establish a benchmark rate for Alberta 
and Saskatchewan.  These provinces objected to this choice, both on legal and factual grounds.  In the 
CVD FD, USDOC selected Minnesota as the benchmark state.  At no point were the affected 
provinces made aware of USDOC’s choice of Minnesota as the benchmark state.  As a consequence, the US violated Articles 12.1, 12.3 and 12.8. 
4.144  With respect to Québec, the investigation was inc onsistent with Article 12.3 in two respects.  
First, USDOC itself requested and received important information from the Maine Forest Products 
Council concerning its benchmark determination for Québec.  It sat on that information for two months.  This denied parties the opportunity to see relevant information.  Second, USDOC accepted 
and relied upon new factual information submitted by the petitioners criticizing the Council’s 
information.  Interested parties we re then denied the opportunity to prepare presentations on the basis 
of this relevant information.   
7. Initiation 
4.145  Canada does not consider it appropriate to pre ss its claim set out in paragraph 1 of its panel 
request.   
8. Administrative Reviews 
4.146  Canada has not abandoned the claim in paragr aph 3(b) of its panel request.  Canada 
understands that the US believes that it has the discretion to conduct company-specific administrative WT/DS257/R 
Page 28  
 
reviews in this case; that the US will use its discretion to conduct such reviews of requesting 
exporters; that rates obtained by individual export ers in expedited reviews will not be superseded by 
an aggregate rate in an administrative review.  Canada may advance additional arguments if its 
understanding of the US position is incorrect. 
D. 
FIRST ORAL STATEMENT OF THE UNITED STATES  
4.147  The following summarizes the United States' arguments in its first oral statement. 
1. Opening Statement of the United States of America at the First Meeting of the Panel 
(a) Financial Contribution 
4.148  The first legal issue in this dispute is whether Canadian provincial timber sales systems 
constitute the provision of a “good” within the meaning of Article 1.1(a)(1)(iii) of the SCM 
Agreement.  The text and context of Article 1.1( a)(1)(iii), and the object and purpose of the SCM 
Agreement, all lead inexorably to the conc lusion that standing timber is a “good.” 
4.149  Canada argues that “goods” is limited to items that are tradeable across borders and subject to 
tariff classification.  To the contrary, the ordinary  meaning of “goods” is broad, encompassing all 
property and possessions, including things to be se vered from the land, such as standing timber.  The 
sole exclusion in Article 1.1(a)(1)(iii) for “gener al infrastructure” underscores the intent that the 
provision sweep broadly.  “Infrastructure” is  not tradeable across borders.  Nevertheless, 
infrastructure that is not “general” must fall within Article 1.1(a) (1)(iii).  To conclude otherwise is to 
render the explicit exclusion for infrastructure that is “general” entirely meaningless.   
4.150  The uncontested facts leave no doubt that the provinces sell timber.  There is one reason and 
one reason only that companies enter into provincial timber contracts, which we generally refer to as 
“tenures.”  They do so to obtain the government-o wned timber for their mills .  Through tenures, the 
provinces are providing a good – timber – to lumber producers.  Accordingly, the provinces provide a 
financial contribution within the meaning of Ar ticle 1.1(a)(1)(iii) of the SCM Agreement.   
(b) Benefit 
4.151  We turn to the methodology used to determine whether and to what extent the provinces 
confer a benefit on lumber producers through the sale  of timber for less than adequate remuneration.  
This methodology poses two distinct issues.  First, there is a question of legal interpretation of 
“benefit” within the meaning of the SCM Agreement.  Second, there is the issue of the application of 
that legal concept to the particular  facts of this case.  It is imperative to examine the legal question 
before turning to the facts. 
4.152  A financial contribution confers a “benefit” if it “makes the recipi ent ‘better off’ than it would 
otherwise have been, absent that contribution.”15  In determining whether a benefit has been 
conferred, the “marketplace” is the appropriate basis for comparison, i.e., the issue is whether “the 
recipient has received a ‘financial contribution’ on te rms more favourable than those available to the 
recipient in the market.”16 
4.153  The guidelines in Article 14(d) of the SCM state that a benefit is conferred if the government 
provides the good for “less than adequate remuneration.”  Article 14(d) also states that the adequacy of remuneration shall be determined in relation to “prevailing market conditions” for the good in the 
country of provision.  The concept of a comparison  “market” therefore is ce ntral to the concept of 
                                                     
 
15 Appellate Body Report, Canada – Aircraft ,  para. 157 . 
16 Id. WT/DS257/R 
Page 29 
 
 
“benefit” generally, and to adequate remuneration specifically.  The Brazil–Aircraft  panel concluded 
that the concept of a comparison market necessarily means a “ commercial market, i.e., a market 
undistorted by government intervention.”17  The United States agrees. 
4.154  As the EC states in its third-party submissi on, “market” conditions exist where prices are 
“determined by independent operators following the principles of supply and demand.”  Thus, as the 
EC implicitly acknowledges, not all observed prices  are necessarily “market” prices.  We agree.  
“Market” prices are prices between independent buyers and sellers in a competitive market where 
prices are determined by the forces of supply and demand.  Such prices represent what is commonly 
referred to as “fair market value.”  It therefore follows logically that adeq uate remuneration is fair 
market value.  That is also how the term ade quate remuneration is defined in Canadian law. 
4.155  Article 14(d) sets forth the principle underlyi ng the adequate remuneration inquiry – it must 
be made “in relation to prevailing market conditions” in the country of provision.  However, 
Article 14(d) does not set out rules governing the specific types of data that may be used in 
conducting that analysis. 
4.156  Where reliable commercial market prices are av ailable in the country of provision, ignoring 
such prices would be inconsistent with Article 14(d).  Where, however, no such prices exist or are 
unreliable, an investigating authority may use prices  commercially available on world markets as the 
basis for an assessment of the adequacy of remunera tion, provided that those prices are informative as 
to the fair market value of the goods in the country of provision. 
4.157  There is no real dispute that there are circumstances under which an investigating authority 
may look to sources outside  the country of provision for data to assess the fair market value of goods 
in the country of provision.  The US – Softwood Lumber III  panel,18 Canada, the EC and Japan have all 
implicitly or explicitly acknowledged this.  The real issue in this dispute is what factual circumstances 
warrant the use of price data from sources outside the country of provision to determine the fair 
market value of goods in the country of provision.   
4.158  To determine the adequacy of remuneration in the underlying investigation, the United States 
calculated province-specific, species-specific market benchmark prices for stumpage.  The 
United States requested data on private market transactions for stumpage in each province for the 
purpose of calculating those market benchmark prices.  Three of the six provinces – Alberta, 
Manitoba and Saskatchewan – did not provide any data on private market prices for stumpage.  Thus, 
there should be no dispute that the United States acted consistently with Article 14(d) in using 
commercially available prices from sources outside Canada to determine the fair market value of 
timber in those provinces. 
4.159  British Columbia (“B.C.”) submitted a survey containing a few average prices.  The volume 
of the private timber on which those averages were  based, however, represented less than one-half of 
one per cent of the total timber harvested by the survey respondents.  Moreover, the survey did not contain the detail or underlying support that would be necessary to calculate market benchmark 
prices.  Ontario provided a limited survey and anal ysis of private stumpage sales in the province.  
Similarly, Quebec submitted an average price for pr ivate stumpage in the province, which was based 
on a survey.   
4.160  The United States determined that there were no commercial market conditions – that is, a 
market undistorted by the government’s financial contribution – in any of the provinces.  The 
evidence, including the governments’ dominant market  share, the lack of incentive for sawmills to 
pay more for private stumpage than they pay the government, and statements by provincial officials 
                                                     
 
17 Panel Report, Brazil – Aircraft (Article 21.5 – Canada II ), para. 5.29 (emphasis in original). 
18 See Panel Report, US – Softwood Lumber III , para. 7.48. WT/DS257/R 
Page 30  
 
and forestry economists concerning the impact of the government prices on the sale of private timber, 
is more than adequate to support that determinatio n.  Thus, although there is data on observed prices 
in certain provinces, the record demonstrates that those observed prices are not commercial market 
prices.  Therefore, the United States acted consistent ly with Article 14(d) in using data from sources 
outside of Canada as the starting point for determin ing the fair market value of timber in Canada.  
Moreover, numerous adjustments were made to reflect conditions of sale in Canada.   
(c) Calculation Issues 
4.161  Canada claims that the United States was required under Article 19 of the SCM and 
Article VI:3 of the GATT 1994 to  conduct an “upstream” subsidy analysis.  Canada makes this claim 
with respect to two distinct situations.   
4.162  With respect to remanufacturers:  The United States determined the total amount of the 
benefit, but did not determine what portion of th e benefit individual sawmills or remanufacturers 
received.  The United States allocated the total subs idy benefit over all sales of the products resulting 
from the lumber production process.  The total amount of the subsidy benefit does not change, 
however, regardless of how the bene fit is allocated.  Thus, allocating a portion of the benefit to 
remanufacturers cannot overstate the total subsidy be nefit.  Moreover, nothing in Article 19 precludes 
this method of calculation.  Article 19.3 specifically  contemplates that a producer’s exports may be 
subject to countervailing duties without knowing whet her or to what extent that particular producer 
received a benefit.  Article 19.3 simply obligates Members to provide expedited reviews for such 
exporters to calculate individual subsidy rates.   
4.163  With respect to the second “upstream” subsidy situation, i.e., the alleged independent loggers:  
This is the only situation that could have any impact on the calculation  – rather than the allocation – 
of the total amount of the benefit to producers of  the subject merchandise.  The record evidence 
indicates, however, that sales by independent loggers could only account for a very small portion of 
the volume of Crown timber entering sawmills.  In addition, the evidence suggests that all or most of 
the sales by independent loggers may not be at arm’ s-length.  Moreover, an upstream subsidy analysis 
requires company-specific data and analysis.  Canada ’s claim that the United States was required to 
conduct this type of company-specific analysis in the investigation is without foundation in Article 19 
of the SCM or Article VI:3 of GATT 1994.   
(d) Specificity 
4.164  Pursuant to Article 2.1(c) of the SCM Ag reement, a subsidy is specific when the users  of the 
subsidy are limited to certain enterprises or industries or to a limited group of enterprises or industries.  
The users of provincial stumpage are limited to ti mber processing facilities, which constitute a very 
limited group of industries.  In accordance with Ar ticle 2.1, therefore, the subsidy from provincial 
stumpage is specific.  Canada’s claims to the co ntrary are based on its own definition of specificity, 
not the definition in Article 2.1.  Article 2.1 does not require an investigation into the motives of 
Members that provide subsidies, does not require an analysis of the number of products made by the 
users of the subsidy, and does not require that a subsidy be limited to the producers of the subject 
merchandise, or that a “group of industr ies” must share common characteristics. 
2. Closing Statement of the United States of America at the First Meeting of the Panel 
(a) Financial Contribution 
4.165  Canada criticizes the United States’ reliance on the definition of “goods” in Black’s Law 
Dictionary , which cross-references the US Uniform Comm ercial Code (“UCC”).   Canada, however, 
relies on that same definition.  Nevertheless, Canada  states that the UCC provision cross-referenced in 
Black’s “expressly excludes” standing timber, “except in certain limited circumstances that do not WT/DS257/R 
Page 31 
 
 
apply here.”  The UCC is, of course, not controlling in this forum.  However,  the relevant provision 
reveals that sales of standing timber are expre ssly “included” – not “excluded” – from the term 
“goods” as used in the UCC.  We also refer the Panel to our first written submission, which quotes a 
similar definition of “goods” in the British Columbia Sale of Goods Act. 
(b) Benefit 
4.166  With respect to record evidence concerning private stumpage prices, Canada makes a number 
of statements at the first Panel meeting which we would like to comment on: 
4.167  Canada asserts that Timber Damage Assessments are based on private transactions 
representing approximately 6 per cent of Albert a’s timber harvest.  According to Alberta’s 
questionnaire response, however, only 1 per cent of the harvest in Alberta comes from private land. 
4.168  Canada states that B.C.  submitted evidence that demonstrates that B.C.  operates its 
stumpage system consistent with market principles.  That evidence merely established that B.C.  made 
a profit on its timber sales, which does not mean that it is receiving adequate remuneration.   
4.169  Regarding paragraph 58 of Canada’s oral statement, we have several comments: 
4.170  The Final Determination analyzes the reliability of  Canadian private timber prices in detail. 
4.171  The Economists, Inc. study that the United States relied on concludes that the “existence of an 
administered market that is willing to supply the preponderance of market demand at an artificially 
low price drives the price that can be attained in the non-administrative sector below the level that 
would obtain if the administered market were not subsidized.” 
4.172  The student thesis Canada refers to is actually a 1995 doctoral dissertation that analyzes data 
as recently as 1993. 
(c) Market Distortion 
4.173  Canada claims that the United States ignored Canada’s evidence “and simply assumed trade 
distortion.”  Rather, the United States  determined that US law does not require an analysis of whether 
a subsidy has market distorting effects.  Likewise, there is no obligation in the SCM to find the 
existence of trade distortion to impose countervailing duties.   
(d) Calculation Issues 
4.174  Canada implies that Article 19.4 effectivel y imposes obligations with respect to the 
calculation of the subsidy.  Canada, however, fails to cite to any language in Articles 10, 19.1, 19.4 or 
32.1 of the SCM or Article VI:3 of the GA TT 1994 establishing any such obligations. 
4.175  Canada asserts that “there is no single log conversion factor”, yet the Canadian Government 
itself publishes a single conversion factor.  And if  the United States had used Canada’s published 
conversion factor, the calculated subsidy rate would have been greater.   
(e) Administrative Reviews 
4.176  With respect to administrative reviews, Canada  improperly attempts to bring hypothetical 
future measures by the United States before this Panel.  As the US – Softwood Lumber III  panel stated, WT/DS257/R 
Page 32  
 
“the WTO dispute settlement system allows a Memb er to challenge a law as such or its actual 
application in a particular case, but not its possible future application.”
19 
(f) Conclusion 
4.177  Canada went to great lengths to criticize th e United States for interpreting the words in 
Article 14(d).  For example, Canada criticized  the United States for interpreting “adequate 
remuneration” to mean “fair market value” even though Canada’s own regulations define adequate 
remuneration as “fair market value.”  Having criticized  the United States for interpreting the language 
in Article 14(d), Canada then proceed ed to criticize the United States for failing  to interpret the 
specificity provisions in Article 2.1(c).  In both in stances, the United States interpreted the provisions 
in accordance with the ordinary meaning of their terms, in context, and applied the provisions 
accordingly. 
E. SECOND WRITTEN SUBMISSION OF CANADA  
4.178  The following summarizes Canada's arguments in its second written submission. 
1. Financial Contribution 
4.179  What is the scope of the word “goods” in Artic le 1.1(a)(1)(iii) of the SCM Agreement?  The 
word “goods” in Article 1, read in context and in the light of the object and purpose of the WTO Agreement, has the same meaning and scope as the word “goods” elsewhere in the WTO Agreement.  
And elsewhere in the WTO Agreement, the word “goods” has the same meaning and scope as the 
word “products” in Article II of GATT 1994.  Theref ore, interpreted in accordance with the principles 
of treaty interpretation, the word “goods” in Article  1.1(a)(1)(iii) refers to tradable items that are 
capable of bearing a tariff classification.   
4.180  May the transfer of tree harvesting rights by provinces properly be characterized as “provision 
of goods” by a government within the meaning of Article 1.1(a)(1)(iii) ?  Provinces enter into tenure 
agreements or grant licences to harvest timber.  Under these tenures or licences, the harvester has 
certain proprietary interests in st anding trees and must undertake a series of obligations, some of 
which are related to the land and others to the volu me of harvest.  Under these tenure agreements and 
licences, the trees to be harvested are not identified and many of the obligations must be performed 
regardless of any harvest.  This transfer of a ri ght to harvest standing trees does not amount to the 
provision of goods. 
4.181  After having argued that “goods” includes all propert y, the US now states that this case is not 
about “intellectual property” or other property ri ghts; that its earlier assertions about “goods” 
encompassing all property rights were arguments in the alternative.  Again misrepresenting the nature 
of the transactions at issue, it continues to argue th at  living trees with roots firmly in the ground are 
“goods” for the purposes of the SCM Agreement.   
4.182  In its closing arguments at the First Substan tive Meeting, the US suggested that sales of 
“standing timber” are included in the definition of goods in the UCC.  This definition is in turn 
reproduced, albeit imperfectly, in the Black’s Law Dic tionary as one definition for the term “goods”.  
The US has not credibly contested Canada’s Vienna Convention analysis of the word “goods”.  The only issue appears to be whether a particular defi nition of “goods”, found in the UCC, supports the 
US position.  It does not. 
                                                     
 
19 Panel Report , US – Softwood Lumber III , para. 7.157. WT/DS257/R 
Page 33 
 
 
4.183  The UCC definition of “goods” provides that, “‘Goods’ means all things, including specially 
manufactured goods, that are movable at the time of identification to a contract for sale and future 
goods.  …  The term does not include … general intangibles .”  [emphasis added] 
4.184  The UCC further provides that, “A contract for the sale apart from the land …[of] other things 
attached to realty and capable of severance without material harm … or  o f  t i m b e r  t o  b e  c u t  is a 
contract for the sale of goods … whether the subject matter is to be severed by the buyer or by the 
seller even though it forms part of the realty at  the time of contracting, and the parties can by 
identification effect a presen t sale before severance .” [emphasis added]   
4.185  First, this definition flatly contradicts the US assertion that “goods” somehow includes all 
property rights, including the right to harvest timber .  The basic definition is that of movable things; 
and the basic definition expressly ex cludes “general intangibles”.  Se cond, the reference to “timber to 
be cut” is not part of the ordinary meaning.  Rath er, it is a special provision covering certain “things” 
that are not ordinarily “movable” and that would not, absent the clarification, be covered by the 
ordinary meaning of the word “goods”.  Third, what is included in the UCC definition is not “standing 
timber”, but “timber to be cut”.  “Timber to be cut” refers to individual trees identified  to be cut in a 
sales contract, as indeed expressly set out in this de finition.  This is to be contrasted with standing 
trees that are subject to tenure agreements and licences.  Those trees may or may not be cut during the 
term of the tenure, but in any event are not specific ally identified to be cut; after all, they may not 
even have been planted.   
4.186  The inclusion of “timber to be cut” in the UCC definition of a “good” implies the exclusion of 
all other timber – that is, timber subject to te nures and licenses – from the scope of the UCC 
definition.  In US law, therefore, standing trees are not “goods”.  And because the definition of the 
word “goods” in the UCC does not cover “intangibl es”, in US law the right to harvest does not 
amount to “goods”.   
4.187  The US relies heavily on its incorrect asser tion that tenure agreements and licences are 
“timber sales contracts”.  The US supports this assertion by arguing that the tenure agreements and 
licences result in the timber harvesters owning felled timber and paying for that timber.  Canada has demonstrated that there is a distinction between te nure agreements and licen ces on the one hand, and 
“sales of goods contracts” on the other.   
4.188  Under the SCM Agreement, this distinction make s a crucial legal differ ence.  A timber sales 
contract concerns a contract that identifies
 individual standing trees to be cut and hauled away.  In 
contrast, a tenure or licence grants a right of harvest in an area of land in return for certain rights and 
obligations.  No trees are identified to be cut – and in fact, due to disease, fire and environmental 
reasons, it may well be  that no trees are  cut.  And yet, certain forest  maintenance and fire protection 
obligations continue to run for the length of the te nure or licence in the area covered by the tenure or 
licence.    
2. Benefit 
4.189  Canada demonstrated that USDOC’s rejection of  valid in-country benchmark evidence and its 
choice of cross-border benchmarks to determine adequacy of remuneration is inconsistent with 
Articles 1.1(b) and 14(d) of th e SCM Agreement.  Canada’s submissions are based on three 
complementary points:   
• first, Article 14(d) requires the use of benchmarks  that are based on prevailing market conditions 
in the country of provision;   
• second, substantial evidence of prevailing market conditions in Canada that could have been used 
as benchmarks to determine “adequacy of remuneration” was improperly rejected; and  
• third, the US has offered no valid defence of its actions.   WT/DS257/R 
Page 34  
 
 
4.190  Canada’s response to the United States’ most recent assertions follows the same structure. 
4.191  The US claims that this is a dispute over th e factual circumstances that warrant the use of 
price data from sources outside the country of provision.  It is not.  This is a legal dispute over 
whether the plain meaning of Article 14(d) requires that benefit be determined and measured on the 
basis of prevailing market conditions in the country of provision – in this case Canada. 
4.192  Article 14(d) provides that where a government has provided goods, a benefit is conferred if 
remuneration is not “adequate”.  It also provid es that, “[A]dequacy of remuneration shall be 
determined in relation to prevailing market conditions  for the good … in the country of provision ”.  
[emphasis added] 
4.193  First, the ordinary meaning of “in relation to” is “on the basis of” or “in comparison with”.  
This phrase prescribes a comparison to “prevailing market conditions”.   
4.194  Second, the ordinary meaning of the term “prevailing” is “as they exist”.  Accordingly, 
Article 14(d) requires a comparison to existing  market conditions.   
4.195  Third, “in the country of provision” means “in the country of provision.”  It cannot refer to 
“prevailing market conditions” in some other country.   
4.196  This interpretation is consistent with the Appe llate Body’s analysis of Article 1.1(b) in 
Canada – Aircraft .  There, the Appellate Body found that in determining whether the financial 
contribution conferred a benefit on the recipient, the “marketplace is the appropriate basis for 
comparison.” The Appellate Body also found that Arti cle 14 provides context for Article 1.1(b).  The 
marketplace, in a provision of goods context under Article 14(d), is the existing “market” in the 
country of provision. 
4.197  Further contextual evidence that Article 14(d ) does not permit cross-border comparisons is 
found in the Accession Protocol of China.  The Protocol provides for the application of the SCM 
Agreement generally, but in language clearly indicating exceptional  circumstances, it specifically 
permits the use of “methodologies for identifying and measuring the subsidy benefit which take into 
account the possibility that prevailing terms and conditions in China may not always be available as 
appropriate benchmarks.”  If Article 14(d) alread y permitted the consideration of conditions outside 
“the country of provision”, Members would not have considered it necessary to provide for this 
exceptional treatment.  This understanding is conf irmed by the USTR on its official website.   
4.198  In the CVD FD, USDOC concluded there were no usable benchmarks in Canada.  This 
conclusion is flatly contradicted by the record .  Canada provided extensive evidence to USDOC 
concerning prevailing market conditions in Canada.  More specifically, this evidence included private timber sales, cost-revenue comparisons, an econom ic analysis of provincial stumpage charges, and 
private sector assessments of timber value.  USDOC was obligated by Article 14(d) to use this 
evidence.   
4.199  The reasons given by USDOC for rejection of this evidence are baseless.  First, USDOC 
relied on the Preamble to its regulations to irrebut ably presume price suppression.  No analysis of 
actual price suppression was ever conducted.  S econd, the “economic” report which USDOC chose to 
use as support for its presumption of price suppress ion is purely theoretical and based on a flawed 
economic model.  It did not include consider ation of any actual transaction prices.   
4.200  Canada submitted economic studies during the cour se of the investigation that demonstrated 
that it is the nature of the competition in the market that determines whether the market produces WT/DS257/R 
Page 35 
 
 
market prices, not the size of the market.  If th e market has the indicia of a competitive market – 
which it does in this case – the size of the governme nt presence does not affect private prices.   
4.201  Finally, the US efforts to dismiss evidence pr ovided on in-country benchmarks as either not 
useable or not representative, are not credible.  This  evidence includes evidence that satisfies the third 
benchmark – consistency with market principles – in  the US regulations.  The US itself confirmed that 
it uses this benchmark where “no world market pric e for [the goods in question are] commercially 
available in the countries under investigation”.  Here , there is no “world market price” for stumpage 
and US stumpage is not available in Canada.  Accordingly, the evidence submitted by the Canadian 
provinces that demonstrated that their stumpage systems are operated in a manner consistent with 
market principles should have been considered by USDOC.   
4.202  The US claim that it made adjustments that t ook into account the prev ailing market conditions 
is not supported by the record.  USDOC has admitted in previous lumber investigations that it would 
be “arbitrary and capricious” to use cross-border comp arisons as it is not possible to identify a country 
or countries where some market conditions are the same as those in the country of provision and 
where all differences in market conditions can be identified and adjusted.  These differences include: differences in economic conditions such wages, capital costs, taxes and government regulatory 
policies,  comparative advantages in resources,  timber characteristics, operating conditions, 
measurement systems and tenure rights and obligations.   
4.203  Moreover, the US assertions respecting the adju stments that it did perform are incorrect.  For 
example, the US claims that it “averaged the [US] price data by species to match the species in the 
relevant province.”  For several pr ovinces there were little or no price data by species.  In almost all 
(ninety-nine per cent) of the US sales used by USDOC as a benchmark for the B.C.  coast, the 
purchaser bid a single lump-sum price for all timber of all species.  The result of the use of these 
benchmarks was to overstate the value in the US sales of the lower-value species common in BC and 
other provinces. 
4.204  In the case of Québec, adjustment categories considered by USDOC were not derived from an 
analysis of differences in market conditions between Québec’s public forest and Maine’s private forest, but from carefully surveyed cost differen ces between the public and private forests within 
Québec.  If USDOC had attempted to analyze and compare market conditions in Québec and Maine, it would have discovered that much of the data needed to make necessary adjustments were 
unavailable. 
4.205  In order to argue that it is “well established” th at the Article 1.1(b) test for benefit is a “but 
for” test,  the US focuses on the word “absent” in an excerpt from Canada - Aircraft .  In doing so, the 
US both misinterprets the Appellate Body’s statem ent and ignores the context of the sentence.   
4.206  If the balance of the paragraph is considered, it is clear that the Appellate Body was saying 
that a “benefit”, as used in Article 1.1(b), “i mplies some kind of comparison” and that the 
“marketplace” must be the basis for this comparison.  The Appellate Body has therefore, directed a 
comparison that is to be informed by what the r ecipient could have actually obtained in the market 
and not a comparison to some artificial  “undistorted” market, as the US asserts. 
4.207  The Appellate Body then notes that, “Article 14, which we have said is the relevant context in 
interpreting Article 1.1(b), supports our view th at the marketplace is an appropriate basis for 
comparison.”  As Article 14 provides relevant cont ext in interpreting Article 1.1(b), the “marketplace”  
that is to be used for comparison  purposes must be the markets referred to in Article 14.  In a 
situation involving the government provision  of goods, Article 14(d) refers to “ prevailing market 
conditions … in the country of provision”.  Accordingly, in this situation this refers to the in-country 
market as it exists. WT/DS257/R 
Page 36  
 
4.208  Even though the US now contends that it has never advocated a “hypothetical undistorted 
market”, its arguments indicate the contrary.  In the NAFTA proceeding, for example, it specifically 
describes adequate remuneration as, “the price that the purchaser would pay in an open and 
competitive market  but for the government’s financial contribution .” [emphasis added].   
4.209  Canada addressed what had been, to that point, the most recent attempt by the US to construct 
an argument that supported USDOC’s use of US prices as the appropriate benchmark.  Canada 
showed how the US was attempting, through an el aborate exercise in word substitution, to turn 
Article 14(d) into a provision that  measures adequacy of remuneration by comparing the government 
price to a constructed “fair market value”, rather than to prevailing ma rket conditions in the country of 
provision.    
4.210  The US has changed tack once again.  It now asserts that where no “commercial market 
prices” exist in the country of provision or where th ey are “unreliable”, an in vestigating authority may 
use, “prices commercially available on world markets as the basis for an assessment of the adequacy 
of remuneration provided that those prices are informative as to the fair market value of the goods in 
the country of provision”.  Accordingly, in the US view, the prices it uses “outside”  the country of 
provision “to assess the fair market value of goods in the country of provision” need only to be 
available on the “world market” (and not in the coun try of provision).  In support of this proposition, 
the US points to alleged acknowledgements by the US – Softwood  Lumber III
  panel, Canada, Japan 
and the EC.   
4.211  The US asserts that Canada ha s acknowledged that “the use of world market prices is 
appropriate in the case of a government monopoly for the good in question,” and describes the EC 
regulation as providing that the use of world market prices is appropriate when “market benchmark 
prices in the country of provision do not exist or are unreliable.”  It goes so far as to claim that the 
“US regulations which Canada has not challenged esta blish essentially the same rule as that found in 
the EC regulation.”   
4.212  None of these sources supports the US position.   First, the EC regulation refers to “world 
market” prices and “terms and conditions prevailing in the market of another country”, and the US 
regulations to “world market price[s]”,  that are available  to purchasers in the country of provision of 
the good.  The United States’ own re gulation makes clear that before a “world market price” is used it 
must be “reasonable to concl ude that such price would be available  to purchasers in the country in 
question.”  Similarly, the EC regulation states that “when appropriate, the terms and conditions 
prevailing in the market of another co untry or on the world market which are available  to the recipient 
shall be used.”  
4.213  Second, Canada has consistently taken the positio n that a price that is available to purchasers 
in the country of provision makes that price part of the prevailing market conditions in the country of 
provision.  This is why Canada stated in US – Softwood Lumber III  that in the context of a 
government monopoly over domestic production import  prices for the same good if available to 
purchasers in Canada, could be used as a benc hmark to measure adequacy of remuneration.   
4.214  Third, the US mischaracterizes what was said by the Panel in US – Softwood Lumber III .  In 
the paragraph cited by the US, the panel stated that “prices of imported  goods in th e market of 
provision can indeed form part of the prevailing mark et conditions in the sense of Article 14(d)”.  The 
Panel further stated that “the text of Article 14 (d) SCM Agreement … does not provide for … a world 
market test”.   
4.215  Central to all of these positions is that regardle ss of whether domestic prices in the country of 
provision, “world market prices”, import prices or  other indicia of prevailing market conditions are 
used as benchmarks, such prices or conditions must be  “available” in the countr y.  If this requirement WT/DS257/R 
Page 37 
 
 
is satisfied the benchmark will constitute part of the prevailing market conditions in the country of 
provision.   
4.216  That is not the case here.  US stumpage is not available in Canada.  The good that USDOC 
contended was available in Canada at a world market price is logs, a product that is produced from  
standing timber.  Canadian producers may purchase US timber “on the stump”, but only where the 
stumps are – in the US.   Stumpage is inherently local.  The US is therefore reduced to arguing that 
prices in another country, not available in the country of provision, may be used because they are 
commercially available on the world market.  This po sition is clearly inconsistent with the words of 
Article 14(d) and is not supporte d by Canada’s earlier statements , the findings of the Panel in US – 
Softwood Lumber III  r, or either of the EC or US regulations.   
4.217  In its Closing Statement, the US asserts that it “did not simply assume trade distortion.”  
Rather, it claims, it “determined that US law does not require an analysis of whether a subsidy has 
market distorting effects.”  At “the heart” of USDOC’s final determination, however, was a 
conclusion that these charges result in countervailable market distortion in the US lumber market.  
According to USDOC, “the whole point of this invest igation is to quantify and remedy the impact” of 
the Canadian “administered pricing” system on the US market, as its “mere existence” has “a resulting impact … on Canadian lumber production” th at “distort[s] the US market.”  It may not now 
contend that “the heart” of the case – its “whole po int” – was of no consequence to its determination. 
3. Pass-Through 
4.218  The pass-through issue in this case may be summarized as whether the US, in presuming 
rather than demonstrating the pass-through of the alleged stumpage subsidy to certain producers of 
subject lumber, has violated its obligations  under the SCM Agreement and GATT 1994.  The 
producers in question are those who buy log or lumber inputs at arm’s-length.  Canada has 
demonstrated in its submissions that a subsidy may never be presumed in a countervailing duty 
investigation.  The US argument to the contrary is that the SCM Agreement allows it to presume the 
pass-through of a subsidy in aggregate investigations , regardless of any evidence establishing arm’s-
length transactions.  However, ther e is no irrebuttable presumption in the SCM Agreement that allows 
a Member to disregard evidence establishing no subs idy.  Because the US ha s failed to conduct any 
pass-through analysis regarding independent harves ters, the volume of Crown timber harvested by 
these entities and the amount of subsidy derived fro m that volume, for example, must therefore be 
excluded from the total amount of the subsidy.  Further, no countervailing measure can lawfully be 
imposed on the products of lumber remanufacturers purchasing at arm’s length.   
4. Specificity 
4.219  Even if the US had correctly determined that provincial stumpage programmes were a 
subsidy, it failed in the CVD FD to correctly dete rmine that the programmes are “specific”.  The US 
finding under the “limited users” factor in Article 2. 1(c) is incorrect.  Even if there was a “limited 
number of users”, the US nevertheless failed to de termine that provincial stumpage programmes were 
“specific to certain enterprises” based on the total configuration of facts and evidence of the case. 
4.220  Stumpage programmes are not used by a “limited number” of certain enterprises under 
Article 2.1(c).  The record evidence in this case esta blishes that thousands of enterprises, in at least 23 
standard industry categories, used provinci al stumpage programmes during the period of 
investigation.  The survey submitted by the Canadian  parties showed that companies using provincial 
stumpage programmes during the period of inves tigation manufactured a minimum of 201 distinct 
products, many of which are not produced by US DOC’s purported group of  a “limited number of 
industries”.   WT/DS257/R 
Page 38  
 
4.221  The US failed to analyze the record evidence regarding which enterprises and industries 
actually used and allegedly benefited from stumpage programmes.  In the CVD FD, it simply asserted 
that “pulp and paper mills and the saw mills and remanufacturers which ar e producing the subject 
merchandise” were the sole users of stumpage pr ogrammes.  While the US argues that “no other 
industries” use or allegedly benefit from stumpage, it can point to no  evidence in support of its 
assertion.  Indeed, this finding is directly contradicted by the US acknowledgement of significant 
amounts of log harvesting done by enterprises other than the supposed “sole users” of stumpage.  The  
EC and Japan agree that the “limite d users” finding is flawed.   
4.222  Moreover, even if the US had properly identif ied the users of stumpage programmes, its 
impermissible use of the entire economy as a benc hmark would mean that virtually all programmes 
would be specific, since virtually no programme is  used by “everyone”.  In particular, every 
government programme involving the provision of a good would be specific.  Unlike money, goods 
are not fungible and have a limited base of users who will expend the effort to procure the good.  On 
the facts, therefore, the US determ ination is inconsistent with Article  2.1(c) and fails to satisfy the 
requirements of Article 2.4.   
4.223  The existence of an alleged limited number of users does not ipso facto  establish specificity in 
fact.  The factors in Article 2.1(c) simply indicate  that a subsidy may be specific despite being non-
specific in law.  A determination does not satisfy Article 2 unless it is clearly substantiated that the 
subsidy is in fact specific; this requires cogent reasoning and an assessment of all the evidence to 
translate a “limited users” finding into a determin ation that a government is restricting access to a 
subsidy in fact.  Provincial stumpage programmes are not specific.  The US failed to clearly substantiate its specificity determination, a nd has therefore violated its WTO obligations. 
4.224  To determine that a subsidy is “specific ” under Article 1.2 is to determine, under Article 2, 
that a government limits access to th e subsidy to certain enterprises over other eligible enterprises.  
The ordinary meaning of the term “is specific to” is that the subsidy is made available to certain 
enterprises but not available to others.  The speci ficity requirement is meant to capture instances 
where a government targets a subsidy to certain enterprises. 
4.225  This is confirmed by the structure of Article 2.1;  paragraph (c) must be read in the context of 
paragraphs (a) and (b).  Under Article 2.1(a), a subsidy is specific in law where a government 
explicitly  limits access to it.  Article 2.1(b) provides  an exception that where access is limited by 
objective and neutral eligibility requirements, the limitations do not establish the favouritism 
necessary to find specificity.  Under Article 2.1(c), a subsidy is specific in fact where, instead of 
limiting access to a subsidy in law, a governme nt does so through its implementation of the 
programme in fact.  The “appearance of non-specificity”, of which Article 2.1(c) speaks, is an 
appearance that government is not limiting access to a programme, when in fact it might be. 
4.226  According to the US, specificity  is deemed to exist where any one of the four factors in 
Article 2.1(c) is shown to exist without regard to why they might exist.  This interpretation 
impermissibly reduces indicative factors to irrebuttable presumptions.   
4.227  Article 2.1(c) provides that where there is an appearance of non-specif icity in law, “other 
factors may be considered” to determine whethe r the government is limiting access to certain 
enterprises in fact.  Unlike the US interpretation of paragraph (c), Canada’s in terpretation is based on 
the ordinary meaning of the word “specific”, read in the context of paragraphs (a) and (b) and the 
chapeau of Article 2.1.  For example, it would be  nonsensical under Article 2.1(c) to find that a 
subsidy is specific in fact solely on the basis of  “the manner in which discretion has been exercised 
by the granting authority in the decision to grant a subsidy”, without any consideration of whether that 
manner directs the subsidy to certain enterprises.  Likewise, the third factor is “the granting of 
disproportionately large amounts of subsidy to certai n enterprises” by a government.  Where there is 
no other explanation for the existence of such amounts, the inference under Article 2.1(c) is that the WT/DS257/R 
Page 39 
 
 
government is directing the subsidy to certain enterprises.  On a plain reading of the third and fourth 
factors, the analysis required under Article 2.1( c) goes to inferring government action in the 
application of the programme. 
4.228  The specificity requirement deals with government action, and thereby requires direct 
evidence establishing such action.  Where the government action limiting access to a programme is 
not explicit, evidence will necessar ily be circumstantial – allowing an investigating authority to infer 
the targeting of a subsidy to certain enterprise s based on the existence of the factors listed in 
Article 2.1(c).  However, to “clearly substantiate” a determinatio n under Article 2.4, an investigating 
authority must provide cogent analysis that esta blishes a high level of confidence.  As the EC 
correctly observes, the distinction between de jure  and de facto  determinations is one of evidence; 
Article 2.1(c) does not create a different test for sp ecificity.  In assessing the evidence pertaining to 
the factors, the many reasons why there might be “ limited users” or “predominant use”, for example, 
are highly relevant.  If these factors do not indi cate government targeting action, the subsidy is not 
specific in fact. 
4.229  The negotiating history surrounding Articles 1.2 and 2 of the SCM Agreement confirms 
Canada’s interpretation that speci ficity relates to a determination that government action restricts 
access to the alleged subsidy.  The specificity concept concerns government limitations on access, not 
simply patterns of “use” on the part of alleged reci pients – the latter being merely indicative of the 
former. 
4.230  The concept of “specificity” has been with the WTO and GATT for nearly two decades.  It 
was first considered by the Committee on Subsidies and Countervailing Measures ("SCM 
Committee") in 1985, when the SCM Group of Experts provided it with Draft Guidelines for the 
Application of the Concept of Specificity in the Calculation of the Amount of a Subsidy Other than an 
Export Subsidy  ("Draft Guidelines").  The Draft Guidelines  set out a series of rules based on what 
government did to restrict the availability of a pr ogramme.  Where access was restricted to certain 
enterprises based on non-neutral crite ria, the programme was considered de jure  specific.  On de facto  
specificity, the lone paragraph (f) addressed governme nt action affecting availability in terms of a “ de 
facto  deliberate[] granting [of] an advantage to certain industries.”  The draft language on de facto  
specificity evolved over the course of the Uruguay Round negotiations, but at all times remained 
concerned with the granting by government of selective access to a subsidy programme.   
4.231  The US failed to convince other members to ab andon the specificity requirement during the 
Uruguay Round.  Accordingly, US countervailing duty law, the US application of the requirement in 
the CVD FD, and the US specificity arguments before this Panel, all attempt to re-write Article 2 of 
the Agreement for a “next-best” result:  that a finding of “limited users” is dispositive of specificity.  
This interpretation of Article 2 is contrary to the or dinary meaning of the text of Article 2, read in 
context and in the light of the object and purpose of the Agreement and the negotiating record; it also 
renders the provision meaningless.  The US has failed in the CVD FD to address the other explanations for any alleged pattern in the “use” of  stumpage, and failed to explain why its incorrect 
finding of a “limited number of industries” means th at stumpage is specific in fact to certain 
enterprises. 
4.232  The US has also violated its obligations under the SCM Agreement because it failed to take 
into account, as explicitly required under Article 2.1(c), record evidence concerning the extent of diversification of provincial economies.  In British Columbia, for example, forestry-related activity is 
responsible for a substantial share of economic activity.  The value of forestry-related shipments 
totalled $C20.2 billion in 2000, acc ounting for more than half the valu e of all manufactured shipments 
in the province.  Forestry product sales were valued at $C15.6 billion in 1998 and $C16.8 billion in 
1997.  Indeed, since 1995, forestry product shipment s have represented approximately half the value 
of manufactured shipments in British Columbia.  The significant share of manufacturing shipments 
translates to a substantial contribution to provincial gross domestic product.  In 1999, the various WT/DS257/R 
Page 40  
 
forest products industries accounted directly for 24 per cent of the goods-producing industries’ 
provincial GDP, and 6 per cent of the total provincial GDP.  The Final Determination does not even 
address this significant factual information. 
5. Other Claims 
(a) Calculations  
4.233  The US did not correctly determine the amount of  the subsidy, did not correctly calculate the 
subsidy per unit rate, and therefore applied counte rvailing duties at a rate in excess of the alleged 
subsidization per unit of the “subsidized and exported product.”  By imposing these countervailing 
duties the US violated Article 19.4 of the SCM Agreement.  The errors of the US include: 
• use of a manifestly incorrect log scale conversion factor;  
• massive inflation of the subsidy amount used in the numerator in its subsidy per unit 
calculation; and  
• understatement of the denominator in the flawed calculation methodology it chose.   
 
4.234  In response to Canada’s claims, the US simply argues that, “[t]he sole calculation requirement 
in Article 19.4 is a requirement to calculate the subsidy on a per-unit basis; Article 19.4 does not 
establish any other requirements concerning how the s ubsidy is to be calculated.”  The US position is 
untenable. 
4.235  The US concedes that Article 19.4, “establishes an upper limit on the amount of the 
countervailing duty that may be levied” and that it requires calculation of the subsidy “on a per-unit 
basis.”  Thus, the US agrees with Canada that Ar ticle 19.4 establishes requirements in calculating a 
subsidy rate.  However, the US cl aims that it has no obligation to correctly  calculate that rate.  The 
US is therefore arguing th at a Member may impose co untervailing duties at any rate it wishes, as long 
as it is not in excess of a subsidy per unit rate, however arrived at .    
4.236  Article 19.4 is the sole provision establishing an  upper limit to the countervailing duty rate to 
be imposed.  Other provisions set out what constitute s a subsidy and what the total amount of that 
subsidy is; only Article 19.4 sets out any discipline on what the maximum countervailing duty  rate 
may be.  To give proper effect to Article 19.4, th at discipline must require a per unit subsidy rate 
correctly calculated, based on a subsidy amount correctly derived, as against a practice correctly 
determined to be a subsidy.   
4.237  The US alleges that the conversion factor men tioned in the Minnesota Public Stumpage Price 
Review and Price Index (“Price Repo rt”) “only applied to the data contained in Table 2”, while the 
US used only “sawtimber data in Table 1.”  But the statement on the cover of the Price Report says 
that,  “All reported volumes and values were converted to a sawlog and pulpwood basis for inclusion 
in Table 1.”   
4.238  Where “converted” data are based on a specific  conversion factor, to ignore the specified 
factor is to render the data hopelessly distorted and therefore useless.  In this case, as a result of the 
choice of conversion factor, subsidies were found where none existed; and, in any event, subsidies 
were found using an improper cross-border analys is.  The use of a single, and incorrect, conversion 
factor highly inflated the alleged subsidy per unit rate.   
4.239  A conversion factor was necessary in the first place because the US elected to compare tree 
volumes and values in certain US jurisdictions, to widely disparate trees across Canada.  The effective 
use of a single factor for most of these conversions created significant distortions in the assessment of 
whether any stumpage benefit even exists, as well as  in the subsequent subsidy calculations.  The US 
had a draft report prepared by an economist of the US Forest Service on the record that demonstrates WT/DS257/R 
Page 41 
 
 
the irrationality of its approach to conversion fact ors.  The report notes that “[t]o properly compare 
prices, conversion factors must be tailored to the measurement system used in order to adjust for any 
bias that may have developed.”  The bias referred to is the tendency for contemporary prices 
expressed in board feet to underestimate lumber yi eld and boost stumpage prices to a degree that 
cubic measurements do not.  In addition, the very publication that the US used to choose its 
conversion factors explicitly stated that smaller logs, like those in Canada, require use of much larger 
factors than the US used.    
4.240  The alleged subsidy at issue was the provision of “timber” at less than adequate remuneration.  
The allegedly subsidized merchandise subject to the countervailing duty was softwood lumber and 
certain products manufactured from that lumber.  The alleged subsidy per unit may not properly be 
calculated using more than the volume of wood actually used in the subject merchandise.  The portion 
of a log that becomes sawdust is not used in the pr oduction of lumber; equally, logs destined for the 
production of posts are manifestly not used in the production of softwood lumber.   
4.241  The alleged subsidy attributable to the subject merchandise was easy to trace and just as easy 
to calculate: out of the total volume of logs enteri ng sawmills, the portion used in the manufacture of 
lumber created the only possible “subsidy” to the production of lumber and lumber products.  Logs used in the production of posts or poles, and the portion of logs that ended up as chips, did not involve 
a subsidy attributable to softwood lumber. 
4.242  An accurate calculation of the subsidy per unit rate  of the exported product required that only 
the volume of logs used in the softwood lumber products be reflected in the numerator; the 
denominator would then be limited to the output lumber products from those logs.  Because 
Article 19.4 refers to the subsid y per unit rate of the allegedly “ subsidized and exported  product”, the 
proper starting point would have been for USDOC to have determined the correct amount of the 
subsidy attributable to the subject merchandise – softwood lumber products.   
4.243  USDOC claims that it corrected for its overbroad numerator by expanding the denominator to 
include the value of the non-lumber products whose volumes had dramatically increased the 
numerator.  USDOC failed to do this; however, even if  it had, this approach would not cure the bias or 
the subsidy inflation.  Non-lumber products account  for a significant volume of products produced 
from softwood logs entering sawmills.  Yet, typically , the value of non-lumber products such as chips 
or sawdust is low when shipped from the sawmill.  Further, chips and sawdust are input products to 
other more expensive products such as pulp and paper.  By including the volume of these non-lumber 
products while not accounting in the denominator fo r the full value of the products included in the 
numerator, the per unit subsidy calculation was significantly inflated.   
4.244  The United States, having adopted a methodology that grossly inflated the subsidy amount, 
then did not include the value of all the non-lumber products in its denominator.  It seriously 
understated the denominator because 1) it did not in clude softwood “residual” products produced in 
sawmills, and 2) it used a wholly in accurate and understated sales value for remanuf actured products.   
(b) Conduct of the Investigation 
4.245  With respect to its choice of Minnesota as be nchmark state for Saskatchewan and Alberta, the 
US claims that the responding parties should have had notice of the possibility of that choice.  For this 
reason, it argues, its failure to notify the responding parties of the change from Montana to Minnesota 
did not violate Article 12.8. 
4.246  Canada recalls footnote 225 of the First Written S ubmission of the US.  An oblique reference, 
in a countervailing duty petition , to the entirety of the US as a potential source of benchmark does not 
amount to the disclosure of the “essential fact” of Minnesota as a benchmark state by the US .  Canada 
notes the new US argument that only a few of the fifty states were reasonably to be considered as WT/DS257/R 
Page 42  
 
candidates for serving as benchmark.  In this resp ect, Canada recalls the findings of the US in the 
Preliminary Determination in this case, where USDOC stated,  “[I]nformation on the record indicates 
that stumpage in the United States along the border with Canada is comparable to Canadian stumpage 
….  we only compared stumpage prices in each Canadian province with stumpage prices in states 
bordering that province .”  [emphasis added] 
4.247  Canada also recalls the statement of the US to the panel in US – Softwood Lumber III, “Even 
within the United States, not all timber prices are appropriate.  … Commerce did not use prices from 
the large timber-growing areas in the southeast, or from any non-contiguous state , because as a matter 
of commercial reality, Canadian lu mber producers do not consider it commercially viable to transport 
logs over that long a distance.”  [emphasis added] 
4.248  The only notice given to the responding parties was that data from a state “bordering” the 
province in question would be used.  A state that is at least 700 km from the closer of the two 
provinces is not a “contiguous” state.  Minnesota is  not a state that borders either Saskatchewan or 
Alberta.  There was no notice of the choice of Mi nnesota as a benchmark state.  The US violated 
Article 12.8. 
F. 
SECOND WRITTEN SUBMISSION OF THE UNITED STATES  
4.249  The following summarizes the United States' arguments in its second written submission. 
4.250  The standard of review set forth in Article 11 of the DSU applies to disputes arising under the 
SCM Agreement.  Article 11 requires a panel to “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 the relevant covered agreements.”  In conduc ting this inquiry, the Panel may only address those 
provisions of the covered agreements that Canada cite d in relation to specific claims in its request for 
the formation of a panel.  With few citations to th e record, Canada recites a laundry list of facts and 
figures in support of its arguments, failing to note the substantial record evidence that contradicts its 
arguments.  Canada is asking the Panel to st ep into the shoes of USDOC and engage in a de novo  
review and evaluate the facts.  It is well-establishe d, however, that panels may not engage in such an 
exercise. 
4.251  The parties’ answers to the Pane l’s questions have confirmed that companies enter into tenure 
agreements with the provinces for the sole purpose of obtaining timber.  In return for fulfilling the 
tenure obligations and paying the stumpage fee, the tenure holder acquires ownership of the timber, 
not a “right” to harvest timber. 
4.252  The ordinary meaning of “goods” is broad and encompasses, at the very least, all tangible 
property, including “growing crops, and other identi fied things to be severed from real property.”  
Simply labeling standing timber a “natural resource ” does not remove it from the ordinary meaning of 
the term “goods.”  Canada has acknowledged that pr ovincial tenures identify specific, defined areas of 
forest from which the tenure holder may harvest trees.  The identified tr ees to be severed from 
provincial land fall squarely within the ordinary meaning of the term “goods.” 
4.253  Canada’s argument suggests that tenures are simply about forest management obligations 
that, almost incidentally, also confer an intangible “r ight” to harvest.  Canada’s analytical approach is 
based on the flawed premise that the existence of a financial contribution is a matter to be determined 
from the government’s perspective.  Howeve r, a financial contribution, as defined in 
Article 1.1(a)(1)(iii) of the SCM Agreement, exists  whenever the government provides a good.  As 
the US – Softwood Lumber III panel recognized, the existence of a subsidy is determined from the 
perspective of the benefit to the recipient, not th e perspective of the government.  Specifically, the US 
– Softwood Lumber III  panel found that in spite of the fact  that the provincial governments have 
certain policy objectives, “t he fact of the matter remains that from the harvesting company’s point of WT/DS257/R 
Page 43 
 
 
view, the only reason to enter into such tenure or li censing agreements is to cut trees for processing or 
sale.”  
4.254  As detailed in the United States’ response to th e Panel’s questions, the record demonstrates 
that tenure holders do not acquire a freely transferab le “right” to harvest.  All provinces prohibit the 
transfer of tenures without government approval.  Without any citation to record evidence, Canada 
asserts that the right to harvest is freely transferab le, without approval.  Ther e is an obvious conflict, 
however, between the record eviden ce and Canada’s suggestion that te nure holders may freely sell or 
subcontract the “right to harvest.”  Despite Canada’s efforts to sever the right to harvest from the sale 
of the trees, the facts demonstrate that tenure holders are buying trees.  In doing so, the provinces 
make a financial contribution within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement. 
4.255  As the United States pointed out in its first written submission, the Canada – Aircraft  panel 
stated that a benefit exists where “the financial contribution places the recipient in a more 
advantageous position than would have been the case but for the financial contribution .”  In 
reviewing that report, the Appellate Body affirmed that a benefit exists where “the ‘financial 
contribution’ makes the recipient ‘ better off’ than it would otherwise have been, absent that 
contribution .”  In determining the existence of a benefit,  therefore, the issue is the position of the 
recipient “but for” or “absent” the government’s financial contribution. 
4.256  Moreover, the Appellate Body has stated that the point of comparison is “the marketplace,” 
i.e., a benefit exists where the financial contributio n is received on terms more favorable than those 
available in the market.  Finally, as the United States has pointed out, following the reasoning of the 
Appellate Body in Canada – Aircraft , the Brazil – Aircraft  panel concluded that the concept of a 
comparison market necessarily means a “ commercial  market, i.e., a market undistorted by the 
government’s financial contribution.” 
4.257  Canada erroneously argues that the Brazil – Aircraft  report is inapposite because that panel 
was considering Article 14(b) of the SCM Agreement,  which establishes commercial lending rates as 
the benchmark for a government loan.  The panel found that the financial contribution at issue was in 
the form of a non-refundable payment, however, rather  than in the form of a loan.  Thus, as Canada 
argued in that case, the payments at issue were “e ssentially grants.”  In the passage cited by the 
United States, the Brazil – Aircraft  panel was not discussing Article 14 (b) of the SCM Agreement.  In 
fact, there is no reference at all to Article 14 of th e SCM Agreement in the panel’s report.  Rather, the 
panel was discussing the concept of benefit generally .  The panel’s reasoning, which follows logically 
from the findings of the Appellate Body, is compe lling.  Only by comparison to a market undistorted 
by the government’s financial contribution is it po ssible to determine whether the recipient is better 
off than it otherwise would have been absent the financ ial contribution.  That is true regardless of the 
form of the financial contribution. 
4.258  Article 14 does not redefine the concept of be nefit in Article 1.1(b), as interpreted by the 
Appellate Body and prior panels.  Article 14 merely provides guidelines that must be followed in establishing “methods” for applying that concept to particular types of financ ial contributions.  Each 
guideline in Article 14, including Article 14(d), must therefore be interpreted in a manner that is 
consistent with the interpretati on of the term “benefit” as used in Article 1.1(b) of the SCM 
Agreement. 
4.259
 When the government provides a good, Article 14(d)  states that a benefit is conferred if the 
government receives “less than adequate remuneration ” for that good.  Applying the reasoning of the 
Appellate Body, “less than adequate remuneration” must mean a price less than would otherwise be 
available in the marketplace absent the government ’s financial contribution.  The proper benchmark 
therefore is an independent market-driven price for th e good, i.e., fair market value – which is also the 
standard applied under Canadian law. WT/DS257/R 
Page 44  
 
4.260  Article 14(d) does not specify the type of evidence that must be used to establish the fair 
market value of goods in the country of provisio n.  Rather, Article 14(d ) establishes the general 
principle that adequate remuneration (fair market valu e) must be determined “in relation to prevailing 
market  conditions” in the country of provision.  There is no basis in the SCM Agreement to conclude 
that “benefit” means anything less when the government provides a good than when it makes any 
other type of financial contribution.  Thus, “mar ket” conditions must be interpreted in a manner 
consistent with the concept of benefit in Article  1.1(b) of the SCM Agreement.  Following the 
reasoning of the Appellate Body and the Brazil – Aircraft  panel, therefore, the point of comparison 
under Article 14(d) must be prevailing commercial market conditions, i.e., a market undistorted by the 
government’s financial contribution, in the country of provision.  It is the view of the United States that where such benchmark prices exist in the country of provision, they must be used.  However, where such benchmark prices do not exist in the country of provision or are unreliable, a Member 
may, consistent with Article 14(d), rely on data from  outside the country of prov ision to assess the fair 
market value of the goods in the country of provisio n.  This is the case with respect to Canadian 
timber. 
4.261  As the United States demonstrated in its respons e to the Panel’s questions, the actual data on 
private stumpage prices is virtually non-existent for four of the six provinces.  Canada does not 
dispute the fact that Manitoba and Saskatchewan di d not provide any data on private stumpage prices.  
With respect to Alberta, as the United States explained in response to the Panel’s questions, the record 
demonstrates that the Timber Damage Assessments  (“TDAs”) that Alberta provided are simply 
voluntary guidelines for settling disputes fo r damages.  Moreover, TDAs are based on log prices and 
do not differentiate between private and Crown logs.  With respect to B.C., Canada acknowledges that 
the evidence provided establishes th at the private market for stumpage in B.C.  is “limited” and that 
“nearly all private wood fibre sales are of logs rather than standing timber.”  The data on sales of 
standing timber accounted for only 0.1 per cent of the B.C.  harvest. 
4.262  Recognizing the lack of any private stumpage benchmark data for these four provinces 
(Alberta, B.C., Manitoba, and Saskatchewan), Cana da continues to argue, without any basis in the 
SCM Agreement, that evidence demonstrating that th e provinces made a profit on their timber sales 
suffices.  A benefit, however, is not determined ba sed on the cost to the government in making the 
financial contribution, e.g., whether the government incurred a loss.  The issue is whether there is a 
benefit to the recipient.   
4.263  With respect to Ontario and Quebec, as discussed in response to the Panel’s questions, some 
data on private stumpage prices exists.  However,  prices that are distorted by the government’s 
financial contribution do not reflect “market” conditi ons.  It is undisputed that Canadian timber sales 
are overwhelmingly dominated by the provincial governments.  The fact that the government is a price leader does not in and of itself establis h the absence of indepe ndent commercial market 
conditions.  As the Appellate Body has cautioned,  however, governments have the ability to obtain 
certain results from the market by shaping the circumstances and conditions in which the market operates.  The dominance of the government in the marketplace can, therefore, warrant further 
examination in determining the adequacy of remu neration for government-owned goods.  Ultimately, 
as noted by the European Communities, the issue must be determined on a case-by-case basis. 
4.264  The facts of this case demonstrate that th e provincial governments not only dominate the 
Canadian timber market, but also that the governments do not participate in the market as commercial actors.  Rather, the provincial governments administer the sale of the overwhelming majority of Canadian timber in a manner designed to further social policy goals.  The evidence further 
demonstrates that, as a result, the administration of  provincial timber sales systems distorts the small 
private timber market.   
4.265  All of the provinces generally restrict the sale  of Crown timber to purchasers that own a 
processing facility in the province.  These loca l processing requirements  artificially reduce the WT/DS257/R 
Page 45 
 
 
demand for Crown timber.  In addition, the vast ma jority of Crown timber is under some form of 
renewable (“evergreen”), long-term tenure.  These tenures are not freely transferable.  The existence 
of evergreen, non-transferrable tenure s creates significant barriers to entry into the timber market.  For 
example, Canada offers no support for its asser tion that a newcomer in Quebec could obtain a 
provincial tenure, even though 100 per cent of the Crown timber is currently under tenure or reserved 
and not subject to harvest.  Nor does Canada reconc ile this claim with its s ubsequent statement that 
the vast majority of mills in Quebec are “shut out of the public forest.”  Moreover, “transfers” of 
tenure are, in fact, normally cases in which the entit y that holds the tenure is acquired.  No new tenure 
is created in such cases. 
4.266  Other aspects of tenures artificially increase supply.  For example, B.C.  imposes minimum 
cut requirements and restricts mill closures, thus fo rcing tenure holders to harvest timber even in 
down markets and thereby artificia lly increasing the supply of Crow n timber.  Nevertheless, the 
record demonstrates that, during the period of investigation, tenure holders in all of the provinces 
except Alberta did not harvest their full AAC, thus demonstrating an ample supply of additional 
Crown timber available at administered prices. 
4.267  Central to each of the provincial systems is, of  course, administered rather than competitive 
pricing of that timber supply.  The evidence demonstrates that the price leaders, i.e., the provincial 
governments, do not price to the market.  Rather, they administer prices under systems designed to 
promote employment and keep mills op erating even in down markets.   
4.268  A study by Economists Inc.  (“EI Study”),  which the United States found compelling, 
addressed the impact of the administered provinc ial systems on the private market.  The EI Study 
applied generally accepted economic analysis to demonstrate that when a single supplier controls the 
overwhelming portion of market share, that supp lier will necessarily infl uence non-administered 
prices.  It found that “[t]he lower the market share of the firms in the non-administered sector relative 
to the administered sector, the less the ability of the non-administered sector to raise price above the 
administered (subsidized) level.”  The essence of this analysis is that private (non-administered) 
sellers cannot increase prices significantly above administered price levels of the competing supply because, if they did, demand would shift to the administered sector.  The study referred to record 
evidence establishing that provincial governments not only supply the vast majority of timber, but 
also are willing to provide yet more timber to the major licensees that comprise most of the demand.  
The study showed that if private landowners attempted to raise their prices significantly above 
government-set levels, the major licensees would rely  relatively more on administered timber sales 
and less on private or auctioned timber.  Therefor e, while local variations will exist, overall the 
government price effectively sets the average province-wide price as well. 
4.269  Canada criticizes this study and cites to ot her evidence it finds compelling.  The issue, 
however, is not which evidence Canada finds persuasive.  The issue is whether the record evidence 
supports the United States’ determination.  The EI Study and other record evidence, some of which is 
summarized in the United States’ first written submi ssion and oral statements at the first substantive 
meeting of the Panel, support that  determination.  There also is significant documentary evidence 
confirming this economic analysis and demonstrating that each provinces’ system of public timber 
sales distorted private timber prices.   
4.270  The evidence demonstrates that the provinci al governments shape the timber market to 
achieve public policy goals, and that the governme nt-controlled, public-policy driven sector of the 
timber market distorts the private timber market .  There was therefore ample support for the United 
States’ conclusion that there are no independent, market-driven timber prices available in Canada.  
The United States’ use of data from other sources to assess the fair market value of timber in Canada 
was therefore warranted and wa s consistent with Article 14(d) of the SCM Agreement. WT/DS257/R 
Page 46  
 
4.271  The evidence also supports the United States’ decision to use timber prices in the northern 
United States, properly adjusted to reflect conditions of sale in Cana da, as an alternative source for 
assessing the fair market value of timber in Canada .  The rationale for the United States’ choice of 
data for establishing market benchmarks is sound.  As the United States expl ained in its first written 
submission, the value of timber depends on the demand for the downstream products.  US and 
Canadian timber satisfies the same demand in th e integrated North American lumber market, and 
Canada has no comparative advantage in serving that  demand.  In addition, the record demonstrates 
that US timber is commercially available to lumber producers in Canada.  The US timber is also 
comparable to Canadian timber, and the United States established species-specific, province-specific 
benchmarks to conduct the comparison. 
4.272  In response to the Panel’s questions, Canada st ated that out-of-country benchmarks that are 
available to purchasers in the country of provi sion would be suitable benchmarks because they 
“would then form part of prevailing market conditions ‘in’ the country of provision.”  As discussed in 
the Final Determination, the evidence demonstrates th at US timber is, in fact, commercially available 
to lumber producers in Canada.  Further, Canada asserts that the United States could have used an 
alternate methodology, i.e., evaluation of the government’s prices based on evidence of the government’s costs and profitability.  The standard is not the cost to the government, but rather the 
benefit to the recipient.  We have demonstrated th at the use of prices for US timber in the northern 
United States, adjusted for differences in conditions of  sale in Canada, is consistent with Article 14(d) 
of the SCM Agreement. 
4.273  Canada cites to Articles 10, 19 .1, 19.4, and 32.1 of the SCM Agreement and Article VI:3 of 
GATT 1994 as the basis for its calculation-related claims.  As the United States previously indicated, 
Canada’s claims under Articles 10, 19.1, and 32.1 of the SCM Agreement are necessarily derivative 
claims that cannot succeed because Canada has failed to establish that the United States has breached 
its obligations under another provision of the SCM Agreement. 
4.274  Canada admits that neither Ar ticle 19.4 of the SCM Agreemen t nor Article VI:3 of GATT 
1994 contain any obligation regarding the metho dology a Member may use in calculating the ad 
valorem  subsidy rate.  None of the provisions of the SCM Agreement that Canada cited in support of 
its claim establish the calculation obligations Canada suggests the United States has violated.  Given 
that a panel’s terms of reference “establish the juri sdiction of the panel by defining the precise claims 
at issue in the dispute,” and that the identification of the specific provision of the covered agreements 
is a “minimum prerequisite” for stating the legal basi s of the claim, this Panel should reject Canada’s 
attempts to bootstrap claims that the ad valorem  rate calculation is inconsis tent with other provisions 
of the SCM Agreement. 
4.275  Article 19.4 of the SCM Agreement and Article  VI:3 of GATT 1994 merely provide that the 
countervailing duty rate imposed may not exceed the amount of the subs idy the investigating 
authority has found to exist.  Neith er provision contains particular calculation obligations of the sort 
Canada asserts have been violated.  Ca nada, therefore, has failed to present a prima facie  case on this 
issue. 
4.276  The United States’ calculation of the ad valorem  subsidy rate is consistent with the SCM 
Agreement and the evidence developed through the investigation.  The United States included in the 
numerator the volume of provincial softwood timber entering sawmills, multiplied by the benefit per cubic meter.  This method captured the total va lue of the subsidy provided to sawmills.  The 
United States then allocated that benefit over all sales of products that resulted from the lumber 
production process.  This methodology accounted fo r the fact that the production process yields other 
products as well as lumber. 
4.277  The United States conducted this investigati on on an aggregate basis, calculating the total 
benefit provided by each province, as discussed above.  Canada does not dispute the United States’ WT/DS257/R 
Page 47 
 
 
authority to conduct this aggregate analysis, but it continues to assert that the United States was 
obligated to conduct a pass-through analysis to establish the amount of any benefit received by certain 
producers of the subject merchandise, i.e., independent remanufacturers. 
4.278  In Canada’s first response to the Panel’s ques tions, it acknowledged that, “[w]here the timber 
harvester and the producer of subject merchandise are the same ‘recipient’ of the alleged subsidy, no 
pass-through analysis would be required.”  This fact pattern describes the vast majority of the 
producers of the subject merchandise and incl udes both sawmills and remanufacturers.  Thus, 
Canada’s statement acknowledges that the United St ates was not required to conduct a pass-through 
analysis for at least the vast majority of the lumber at issue. 
4.279  Canada also fails to address Article 19.3 of the SCM Agreement, which specifically allows 
Members to apply definitive countervailing duties to  exports of an uninvestigated exporter or 
producer as long as the exporter or producer may obtain an expedited review to establish its own rate. 
4.280  Additionally, Canada overreaches when it contends  that a “[s]ubsidy pass-through analysis is 
required in every instance where the subsidy found to  exist is allegedly bestowed on one person while 
the countervailing duty is imposed on the products of another.”  Canada’s attempt to read such an obligation into Article 19.4 of the SCM Agreement ha s no basis in the text.  If Canada were correct, 
every time a Member investigates one or more companies and applies their subsidy rate to 
uninvestigated exporters or producers – a co mmon practice – that Member violates the SCM 
Agreement.  Such practices do not, however, violate the SCM Agreement, as evidenced by the last 
sentence of Article 19.3  of the Agreement.   
4.281  Canada argues that the United States understa ted the denominator by failing to include the 
value of certain “residual products” in the denominator.  Canada failed to submit any evidence from 
which the United States could sepa rate the value of additional prod ucts resulting from the lumber 
production process from the broader residual product s category.  Accordingly, the United States did 
not include the residual products category in the denominator.  Canada also disputes the value used to 
represent remanufactured products that the United States selected and used in the denominator.  As noted above, the Panel should decline Canada’s request to engage in a de novo  review and re-weigh 
the evidence before the administering authority.   
4.282  In its questions to the parties, the Panel re quested Canada to address how the conversion 
factors that the United States used were based on  “manifestly incorrect data.”  Canada failed to 
provide the information the Panel requested.  Instead, Canada cited alternative sources of conversion 
factors.  The existence of alternative sources, however, does not mean that the United States’ selection 
was “manifestly incorrect.” 
4.283  Article 2.1(c) of the SCM Agreement contains  clear and objective criteria for determining 
when a subsidy is specific.  Where a subsidy progr amme is used by a limited number of “certain 
enterprises” – i.e., an enterprise, industry, or group of  enterprises or industries – it is specific in fact.  
Other than considering the extent of diversificati on of economic activities and the length of time the 
subsidy programme has been operating, Members are not obligated to conduct any further specificity 
analysis. 
4.284  The United States met its obligation to demonstr ate that provincial stumpage subsidies are 
specific and thus actionable under the SCM Agreement.  In the  Final Determination, the United States 
found that the users of stumpage were a “limited group of wood product industries” that included 
“pulp and paper mills and the saw mills and remanufacturers which are producing the subject 
merchandise.”  The industries comprising this lim ited group fall squarely within the ordinary meaning 
of the term “industry,” which identifies industries by general product, such as automobiles or textiles, 
or by the type of activity engaged in, such as mining or banking.  Thus, the provincial stumpage 
subsidies are specific under Article 2.1(c) of the SCM Agreement. WT/DS257/R 
Page 48  
 
4.285  Canada responds to this finding by attempti ng to rewrite the specificity test, seeking to 
redefine terms such as “industry” and “group,” and to  create exceptions that do not exist in Article 2.  
For example, Canada claims that the term “industr y” requires a “product-based identification of 
industries,” such that individual industries would be distinguished on the basis of a particular end 
product, or set of end products, that they make.  By contrast, both in its ordinary meaning, and within 
the context of Article 2 of the SCM Agreement, “indus try” is used broadly, referring to makers of a 
general class of products – such as “the steel industry” – regardless of the number or diversity of end 
products that the industry produces.   
4.286  Canada itself admits, in response to question 27  from the Panel, that a subsidy to a single 
large industry could  be found specific, even where its produc ers make a vast diversity of products, as 
in the steel, automobile, textile, and telecommuni cations industries.  This admission contradicts 
Canada’s argument that an “industry” must be de fined narrowly on the basis of a particular end 
product or set thereof.   
4.287  Canada likewise admits that a subsidy granted so lely to auto and textile producers could be 
specific under Article 2.1, notwithstanding the dissimila rity of their end products.  It nonetheless still 
insists that the two industries cannot form a single “group” of industries that is specific within the meaning of Article 2.1(c).  Instead, Canada mainta ins that “the industries producing ‘autos’ and the 
industries producing ‘textiles’” are actually “two groups of industries” that “appear to be a ‘limited 
number’ of certain enterprises,” and thus specific.  Notwithstanding Canada’s acceptance of diversity 
in the product mix of an “industry,” Canada finds such  dissimilarity incompatible with its view of the 
term “group,” which for Canada requires “similari ty and relatedness” of output products.  In its 
ordinary meaning, and in the context of Article 2 of the SCM Agreement, the definition of “group” is 
far more straightforward, meaning simply “more than  one” enterprise or industry, without regard to 
the “similarity or relatedness” of their end products. 
4.288  Canada continues to argue that each industry is defined by a narrow class of end products, 
claiming that the “immediate users of stumpage” in clude “at least 23 categories of industries, and the 
industries are as unrelated as lumber, agricultural chemicals, paper, and furniture.”  This argument is not only legally flawed, it rests on misleading evidence.  Canada’s key exhibit is a survey of forest 
product industries that lists 201 products made by tenure holders, categorized into 23 categories that 
Canada claims to be different industries.  In rea lity, Canada’s list of industr ies is little more than an 
exercise in hairsplitting – assigning multiple industries to a single sawmill based on its output.   
4.289  The fact remains that the vast majority of tenu res in Canada are entered into directly between 
the provincial governments and  “wood processing facilities,” and in  most instances only wood 
processing facilities – su ch as sawmills that produce lumber – are eligible to obtain a tenure contract.  
The record clearly demonstrates that provincial stumpage is used by an extremely limited group of 
industries in Canada.  Changing the definition of “industry” cannot change the objective facts. 
4.290  The Panel likewise should reject Canada’s attempt to create exceptions to the specificity test 
contained in Article 2.1(c) of the SCM Agreement.  Nothing in the text of Article 2 permits an actionable subsidy to escape the disciplines of the SCM Agreement based on the intent of the granting 
Member or the “inherent characteristics” of a good provided at below market rates.  Nor does 
Article 2 require the “limited number of certain enterp rises” to be established relative to the “eligible 
users,” as Canada claims.  Finally, the Panel should dismiss Canada’s contention that a finding on the “limited number” prong is not sufficient to support a determination of specificity under Article 2.1(c).  
Both the language and underlying logic of Article 2.1(c) make clear that it is unnecessary to make 
findings on all prongs of the test for a determination of  specificity in fact.  The provisions of the SCM 
Agreement are clear, and the United States has met those obligations.  Canada should not be permitted 
to rewrite the Agreement in a manner more to its liking. WT/DS257/R 
Page 49 
 
 
4.291  Canada claims that the United States’ final decision, in response to comments from Canadian 
parties, to use data from Minnesota as the basis for calculating the market benchmarks for Alberta and 
Saskatchewan was inconsistent with Articles 12.1 , 12.3, and 12.8 of the SCM Agreement.  The 
United States’ conduct of this investigation wa s entirely consistent with its obligations. 
4.292  Canada’s claim under Article 12.1 is premised on the assertion that parties were denied the 
right to present evidence because the use of altern ative states, such as Minnesota, had not been an 
issue in this investigation.  The use of northern US states generally, and the issue of the benchmark 
state to use for Alberta and Saskatchewan specifically, were very much at issue.  Moreover, all parties 
had ample opportunity to present information an d argument on this issue, as evidenced by 
Saskatchewan’s proposal that the United States use Alaska instead of Montana. 
4.293  Canada’s claim under Article 12.3 of the SCM Agreement is equally unfounded.  Canada has 
failed to cite to a single piece of record informa tion on market benchmarks to which the parties were 
denied access.   
4.294  Finally, Canada acknowledges that nothing in Article 12 suggests that an investigating 
authority must engage in endless cycles of notice and comment.  Nevertheless, Canada’s claim under 
Article 12.8 is based on the erroneous premise that Ar ticle 12.8 requires the investigating authority to 
provide an opportunity for notice and comment with respect to the final decision made on each issue 
before the determination becomes final.  Nothing in Article 12.8 imposes such a requirement.   
4.295  In the context of the SCM Agreement, the “essential” facts are those that are necessary to 
determine whether definitive measures are warranted.  A market benchmark is certainly essential to a 
determination of adequate remuneration, but all of the facts “under consideration” with respect to the 
calculation of the market benchmarks were made known to the parties.   Significantly, Article 12.8 of 
the SCM Agreement refers to the “essential facts under consideration .”  Thus, by its own terms, 
Article 12.8 is concerned with the ongoing investigative process during which the investigating 
authority is still “considering” the facts.  Article 12.8 , therefore, cannot be in terpreted to apply to the 
investigating authority’s final decision, at which point the issues have been decided and the facts are no longer “under consideration.” 
4.296  Article 12.8 does not impose any specific method  of informing the parties of the “essential 
facts under consideration.”  Rather, it specifies that the process used must inform parties “in sufficient 
time for the parties to defend their interests.”  The United States’ procedural rules are designed to 
guarantee a very open and transparen t process in order to accomplish th is goal, which was achieved in 
this case. 
4.297  The record establishes that the United States provided parties with ample opportunity to 
provide information and argument on whether the Maine stumpage price should include studwood and 
pulpwood.  Quebec submitted considerable information and argument on this very issue.  In the end, 
the United States agreed with Quebec and adjusted  the benchmark calculation accordingly.  Canada 
claims, however, that the United States withheld information from the parties and denied them the 
opportunity to prepare presentations on the basis of that information, in violation of Article 12.3 of the 
SCM Agreement.   The information allegedly with held is the December 20, 2001, letter from the 
Maine Forest Products Council (“MFPC”).  As disc ussed in response to the Panel’s questions, this 
information was provided to the parties in time for them to prepare presentations on the basis of that 
information.  Neither party was afforded an opportuni ty for sur-rebuttal and there is no obligation in 
Article 12 to provide such an opportunity. 
4.298  The thrust of Canada’s claim is a wholly unsu bstantiated allegation that the United States 
intentionally withheld the MFPC Letter.  The US re gulations for the filing of information require the 
parties submitting the information to ensure that the information is placed on the record and provided 
to all interested parties.  The MFPC Letter was not filed in accordance with those regulations.  WT/DS257/R 
Page 50  
 
Canada’s claim that the United States acted incons istently with Article 12 .3 of the SCM Agreement 
must therefore fail. 
4.299  For the reasons set forth above as well as in th e United States’ first written submission, oral 
statements at the first substantive meeting of the Pa nel, and first response to the Panel’s questions, the 
United States requests that the Panel reject Canada’s claims in their entirety. 
G. 
SECOND ORAL STATEMENT OF CANADA  
4.300  The following summarizes Canada's arguments in its second oral statement. 
1. Financial Contribution 
4.301  The ordinary meaning of “goods” is movable, tangible items.  Immovables – such as 
buildings, roads, mineral deposits and trees in the forest – are not goods.  Intangible rights, whether concerning intellectual property or real property, ar e not goods.  In the facts of this case, tenure 
agreements and licences convey a right to harvest trees in a defined area.  This is a right in respect of 
real property, and with that right come obligations that run regardless of any harvest; the right exists 
even in respect of trees that have not yet been planted.  This right is in respect of an immovable – a 
standing tree – that is not a good; and it is a right in respect of something that may not even exist at 
the time the right is conveyed.  It is an intangible and therefore not a good.   
4.302  The ordinary meaning of “goods” excludes intangibles.  An intangible right does not become 
a “good” just because it is a factor enabling the creation of a good.  An intangible right does not 
become a “good” just because the right holder’s ob jective is to produce a good.  Harvesting rights 
permit the holders to produce logs; however, rights ar e distinct from the trees to which they attach.  
Harvesting rights are also distinct from the good, the log, which is not produced until the harvester invests the effort and incurs the significant costs of harvesting and processing standing timber into 
logs.  The provision of rights is not the same thing as the provision of goods. 
4.303  The ordinary meaning of goods also excludes immovables subject only to limited exceptions.  
Among these exceptions are growing crops and “timber to be cut” that is identified in a sales contract.  
A timber sales contract covers specific trees ; it does not cover just any trees that are or may be found 
in an identified area.  Tenure agreements do not relate to identified trees, but as conceded by the US in 
its Second Written Submission, th ey relate to an identified area.  Non-identified trees, whether or not 
they are in an identified area, are “immovables” and because they do not fit within the exception, they 
are not goods.  The provision of immovables is not the same thing as the provision of goods.   
4.304  The definition of subsidy has two elements.  Financial contribution relates to what the 
government does, benefit to what the recipient re ceives.  Article 1.1(a)(1) does not require a 
determination as to what the recipient ends up with at the end of the day or why the recipient enters 
into a given relationship with a government; rath er, it requires a determination as to what the 
government provides.  The government, in this instance, does not provide “cut timber”.   
4.305  Harvesters subject to a tenure or  licence assume a variety of forest management obligations 
for the period of the tenure or licence over th e area covered by the tenure or licence.  These 
obligations run regardless of the harvest of any trees.  Tenures and licences do not involve the sale of anything – they involve the conferral of harvesting ri ghts.  The United States has admitted that tenures 
and licences involve identified areas.  They do not involve identified trees.  Standing trees under 
tenures and licences are not “goods” for the purposes of the SCM Agreement.   
4.306  A right to harvest standing timber is an intangible interest in respect of real property and is 
therefore not “goods”; standing trees with roots firm ly in the ground are immovables and therefore not 
“goods”.  Stumpage programmes do not provide goods and do not constitute a financial contribution.    WT/DS257/R 
Page 51 
 
 
2. Benefit 
4.307  Article 14(d) requires that the adequacy of remuneration be determined and measured on the 
basis of “ prevailing  market conditions … in the country of provision”.  Accordingly, benefit must be 
determined on the basis of existing market cond itions in Canada.  Article 14(d) does not permit 
benefit to be determined and measured using benchmar ks that are outside the country of provision.  It 
also does not permit an investigating authority to  measure adequacy of remuneration by comparing 
the government price to a hypothetical “fair market value”.   
4.308  This interpretation of Article 14(d) is consis tent with the Appellate Body’s analysis of 
Article 1.1(b) in Canada – Aircraft .  In that case, the Appellate Body directed a comparison that is to 
be informed by what the recipient can obtain in  the market.  The Article 1.1(b) “market” in a 
provision of goods context under Article 14(d) is th e actual “market” as it exists in the country of 
provision.   
4.309  The US reliance on an extract from the second implementation panel in Brazil – Aircraft  to 
argue that the comparison market must be a ma rket undistorted by the government’s financial 
contribution is misplaced.  First, Brazil – Aircraft  did concern the standard se t out in Article 14(b).  At 
issue in that case was whether the PROEX payments made by the Brazilian government to certain 
banks resulted in a benefit to purchasers of Brazilian  aircraft.  In order to determine this, the panel 
looked at the impact of the PROEX payments on the terms and conditions of the export credit 
financing  available to the purchasers of these aircraft.  Therefore, though unstated, this part of the 
decision did in fact turn on the standard set out in Article 14(b). 
4.310  Second, the reference to an undistorted market should be seen in its proper context – that is, 
against the background of the original case.   The panel determined in that case that the comparison 
must be to the market for commercial lending rates and not another government market.  The panel 
did not find that a commercial or private market rate or  price cannot be used as a benchmark if there is 
government involvement in the marketplace. 
4.311  The Appellate Body’s decision in US – Countervailing Measures on Certain EC Products 
also provides no support for the rejection by the US of the in-country evidence submitted by Canadian 
provinces.  First, the Appellate Body’s decision was made in a different context that did not consider 
the explicit language of Article 14(d).  Second, while that case involved consideration of the 
presumption at issue in arm’s-length sales by gove rnment, the plain language of Article 14(d) governs 
this case.  In the present case, the SCM Agreemen t’s plain language requires a benefit determination 
based on benchmarks that reflect the “prevailing ma rket conditions … in the country of provision”.  
This language establishes a clear rule, not a “p resumption” that might be rebutted in limited 
circumstances.   
4.312  The central issue before this Panel with resp ect to benefit is whether the SCM Agreement 
requires investigating authorities to use in-country ev idence to determine adequacy of remuneration.  
Canada’s purpose in presenting the in-country eviden ce on the record in this case is to demonstrate 
that (i) the record contained substantial evidence  of prevailing market conditions in Canada that 
should have been used to determine adequacy of remuneration, and (ii) even if arguendo  the US was 
permitted to reject this evidence, the reasons it of fers fail to stand up to any objective scrutiny.   
4.313  In its Second Written Submission, the US has ag ain conceded that data on private stumpage 
in both Québec and Ontario exist.  With respect to  the TDAs, this data was developed by opposing 
commercial interests in Alberta to establish the mark et value of healthy standing timber.  In addition, 
the four primary exporting provinces all provided evidence that showed that their stumpage 
programmes are administered consistent with mark et principles.  Similarly, BC provided economic 
evidence that reinforced this conclusion.  Finall y, the United States’ focus on alleged flaws in how WT/DS257/R 
Page 52  
 
public timber prices are set is misplaced as these are irrelevant to the benchmarks required under 
Article 14(d). 
4.314  The US rationalizes the rejection of in-co untry evidence by discussing certain forest 
management practices that allegedly demonstrate that the provinces distort private timber markets.  In 
particular, the United States makes selective reference to appurtenancy requirements, alleged 
restrictions on the transfer of tenures and annual al lowable cuts in specific provinces.  None of these 
practices were the subject of the investigation.  Further the Final Determination contains no analysis 
that demonstrates that the provinces’ management of their stumpage programmes distorted the 
market.  Rather, USDOC relied on the Preamble to  presume price suppression and supported this 
presumption with anecdotal evidence and a flawed economic analysis.  In any event, as the panel in US – Softwood Lumber III
  found, Article 14(d) does not allow an  investigating authority to decline to 
use in-country prices because they may be affected by the government’s financial contribution.   
4.315  Article 14(d) requires that adequacy of remu neration be determined using prevailing market 
conditions in the country of provision.  Market pric es available on the world market can become part 
of prevailing market conditions “in” the country of  provision where there are imports of the good into 
the country of provision.  If there are imports at a given price, then the price is no longer an out-of-country price, but rather is part of the prevailing  market conditions in the country of provision.   
4.316  The US prices used by USDOC as benchmarks  do not fall within this category.  USDOC 
found that the subsidized “good” was either standing timber or the right to harvest standing timber.  
US stumpage is not, and cannot, be made “available”  in Canada.  Standing trees growing in the US 
cannot be harvested in Canada, and the right to ha rvest these trees growing in the US cannot be 
exercised in Canada.  Logs are not timber-harvesting rights, nor are they standing timber.  Standing 
timber in the US  cannot be transported across the bord er, as it must be cut in the US. 
4.317  Also, contrary to the United States’ asser tion, USDOC did not comp are prevailing market 
conditions in Canada with those in the US.  USDOC ignored a host of differences in market 
conditions, and as for the adjustments it did make, fa iled to adequately take into account differences 
between individual provinces and US comparison areas.   
4.318  The US dismisses the provincial evidence de monstrating that stumpage programmes are 
operated in accordance with market principles as no t relevant to a benefit an alysis.  This is so, it 
argues, because the “standard is not the cost to gove rnment, but rather benefit to the recipient.”  The 
US thus dismisses the third benchmark under the regu lations it adopted to implement the results of the 
Uruguay Round.  There is no question that the United States believed, at the time of adoption, that this 
benchmark was consistent with the analysis contem plated by Article 14(d), and was not, as the US 
now argues, based on a “cost to government” standard. 
4.319  In using this benchmark over the last seven years and as recently as two weeks ago, USDOC 
has examined whether the government in question has covered its costs; whether it has earned a 
reasonable rate of return; and whether it applied mark et principles in setting its rates or prices.  In 
considering these factors, USDOC has described its analysis as examining “whether the government’s 
price was determined according to the same market factors that a private .  .  .  [party] would use .  .  .  
.  .”
20  USDOC’s current attempt to dismiss the third be nchmark as irrelevant is contradicted by its 
consistent application of this benchmark si nce the regulations were promulgated.   
4.320  USDOC also expressly refused to consider evid ence demonstrating that provincial stumpage 
systems cannot confer a trade advantage.  This economic evidence demonstrated that, for in situ  
natural resource markets, receipt of the input for a lower fee or charge does not affect the supply curve 
                                                      
20 Steel Wire Rod from Germany,  62 Fed.  Reg.  54,990, 54,994 (Dep’t Commerce 22 Oct. 1997) (final 
determination). WT/DS257/R 
Page 53 
 
 
for the exported product.  In this instance, USDOC assumed the existence of trade distortion rather 
than considering evidence that demonstrated that there was no effect on the marginal cost or supply.  
This evidence demonstrates that provincial stum page programmes neither in crease the production of 
logs and lumber, nor lower their prices re lative to a private competitive market.   
3. Pass-through 
4.321  The pass-through issue in this dispute is not simply about calculating the amount of the 
alleged stumpage subsidy; it is first about determining whether a subs idy exists.  This means making 
the required determinations of an indirect financia l contribution and of a benefit conferred thereby.  
The amount of a subsidy cannot be calculated, aggregated or allocated until a subsidy is first 
determined to exist.   
4.322  The United States does not contest that arm’s-le ngth transactions exist and that no subsidy has 
been determined to exist in those instances.  The United States impermissibly presumed subsidization 
in all cases other than alleged direct subsidization,  asserting incorrectly that all producers of subject 
lumber were “direct recipients” of Crown stumpage.  There is no exception in the SCM Agreement 
that allows a Member to presume subsidizatio n in a countervailing duty investigation.   
4.323  The United States has countervailed softwood lumber, not standing timber.  The subject 
lumber products are a few examples of the many downstream products produced in many distinct 
industries that receive the alleged subsidy directly.  If the subsidy to timber harvesters is presumed to 
have passed through to downstream producers of the subject lumber, then it must be presumed to have 
passed through to producers of all downstream products.  The ques tion then is how the stumpage 
subsidy could be limited to the mills upstream in the US specificity finding, when all products and 
industries downstream are presumed to have recei ved it.  US arguments on pass-through make US 
arguments on specificity impossible , and internally contradictory. 
4. Specificity 
4.324  There are two central errors in the US approach to specificity: first, it applied the wrong 
standard; and second, it incorrectly found that stumpage was used by a limited group of industries.   
4.325  First, sole reliance on the “limited users” factor, as interpreted and applied by the 
United States, renders the specificity requirement meaningless.  The factors set out in Article 2.1(c) do not, in and of themselves, estab lish specificity.  Nowhere in that pr ovision does it say, “a subsidy is 
de facto specific if one or more of the following factors exist”; nowhere does it say, “where the users 
of the subsidy are limited in number, no matter the reason, the subsidy shall be deemed to be 
specific”.  Article 2 requires not automaticity, but clear substantiation on the basis of positive 
evidence. 
4.326  Second, the words “industry” and “group of industries” require an objective analysis of the 
record evidence in terms of the products produced by the users of a programme.  In this case, an 
objective assessment of the products produced by the thousands of actual immediate users of 
stumpage identifies at least 23 standard categories of industries.  When the analysis is extended to 
include indirect users of stumpage, as the US has done in its impermissible pass-through presumption, 
many more and varied industries are added. 
4.327  The US interpretation reads the word “group” ou t of Article 2 altogether.  However, as the 
United States itself put it recently in US – Offset Act (Byrd Amendment) , the issue is “how small and 
homogenous  a group of beneficiaries must be in order to qualify as a ‘a group of enterprises or 
industries’”, not whether the subsidy is used by the entire economy, or simply by more than one enterprise or industry.  The products produced by  stumpage users are as numerous and diverse as 
those produced in the agricultural sector, which in the view of the United States is neither a “single WT/DS257/R 
Page 54  
 
large industry” nor even a group of industries.  Again, in US – Offset Act (Byrd Amendment) , the 
United States argued that groupings “such as ‘all ma nufacturing’ and ‘all agriculture,’ are too broad to 
qualify as a ‘group of enterprises or industries’ for sp ecificity purposes.”  Stumpage is used by many 
varied industries because it is a right of access to exploit a natural resource.  That natural resource is 
not altered in any way by governments.   
4.328  Moreover, the purpose of counterv ailing duties is to protect dome stic producers from injury 
caused by subsidized imports of like products.  Logica lly, therefore, the level of aggregation used to 
identify the user industries for specificity purposes (through the products they produce) should be 
commensurate with the level of aggregation used to  identify the allegedly injured domestic producers 
(through the products they produce).  To do otherwise impermissibly concentrates for specificity purposes an otherwise broad alleged subsidy a nd imputes it solely to producers of the subject 
merchandise – exactly what the United States did in the Final Determination. 
5. Calculations 
4.329  Canada’s Article 19.4 claims rest on two lega l foundations.  First, and as the US agrees, 
Article 19.4 requires that a countervailing duty rate must not exceed the subsidy per unit rate found in respect of exported and subsidized goods.  Second, the subsidy per unit rate must be calculated 
correctly, based on a correctly determined subsidy amount, and a correctly determined subsidy.  The 
United States disagrees.  It argues that Article 19.4 requires nothing more than a reconciliation of a 
subsidy per unit rate, however dete rmined, with the countervailing dut y rate actually imposed.  Such 
an outcome renders the obligation in Article 19.4 meaningless.   
4.330  The Panel must determine whether the United States has met its legal obligation, under 
Article 19.4, to limit the amount of the counterva iling duty rate to the correctly determined alleged 
subsidy per unit.  The United States has a legal ob ligation to ensure that any countervailing duty 
imposed does not go beyond the purposes of a countervailing duty – to offset injurious subsidization.  
It may not escape its obligations by characterizing ev ery issue as a matter that is within the unfettered 
discretion of investigating authorities. 
6. Conduct of the Investigation 
4.331  Canada’s claims concerning the conduct of the investigation at issue are independent from its 
claims regarding the illegality of the Final Determinat ion of subsidy.  In conducting this investigation, 
the United States violated its obligations under Ar ticle 12, and the countervailing duties imposed on 
the basis of this tainted investig ation therefore violate Articles 10 an d 32.1 of the SCM Agreement.   
4.332  First, USDOC determined that its benchmark states would border the relevant provinces.  The 
US appeared before the WTO and argued that its benchmarks were valid because they were “contiguous” to the relevant provinces.  The Unite d States switched the benchmark state to compare 
with Alberta and Saskatchewan from Montana – a contiguous state – to Minnesota – a non-contiguous 
state – without giving interested parties notice or any opportunity to comment on the specific choice 
of the benchmark.  The United States thus violated Articles 12.1, 12.3 and 12.8.   
4.333  Second, a senior USDOC official specifically requested information vital to USDOC’s use of 
Maine as a benchmark state for Québec.  The Maine Forest Products Council sent a letter in response.  
USDOC did not put the letter on the record for mo nths.  The petitioners then submitted new evidence 
– and the United States admits that new evidence was submitted – in response to USDOC’s request 
for comments on the letter.  USDOC refused to permit  interested parties to re spond to the petitioners’ 
new evidence despite the fact that USDOC relied on it in making its Final Determination.  The 
United States failed to provide a time ly opportunity to see relevant information; it failed to provide an 
opportunity for interested parties to prepare pr esentations on the basis of that relevant new 
information.  It thus violated Article 12.3. WT/DS257/R 
Page 55 
 
 
H. SECOND ORAL STATEMENT OF THE UNITED STATES  
4.334  The following summarizes the United States' arguments in its second oral statement. 
4.335  The record demonstrates that the provinces own timber and, through provincial tenures, 
provide timber to lumber producers.  There should therefore be no question that the provinces provide 
a financial contribution within the meaning of Ar ticle 1.1(a)(1)(iii) of the SCM Agreement.   
4.336  The ordinary meaning of “goods” includes standing timber.  Canada’s argument to the 
contrary is reduced to the assertion that tenures are not sales of “timber to be cut,” within the meaning 
of the US UCC, even though the sole reason for acqu iring a tenure is to harv est timber, and the tenure 
holder pays for and receives title to only the timber it cuts.  Moreover, the UCC provides that the sale 
of timber to be cut is always a contract for the sale of goods, regardless of whether the timber is 
“identified” at the time of the contract.  More to the point, however, the provinces “provide” a “good” 
within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement. 
4.337  Canada also suggests, without citation to record  evidence, that many tenures create freely 
transferable “rights to harvest.”  The record eviden ce establishes, however, th at the provinces retain 
control over tenures, which cannot be transferred without the provinces’ approval.  The 
subcontracting of harvesting operations is not the sale  or transfer of a “right to harvest.”  The tenure 
holder, not the subcontractor, remains at all times the province’s contracting party. 
4.338  It is the substance of what occurs in the prov incial tenure systems that is controlling, i.e., 
whether a provision of goods takes place.  As discussed in our previous submissions, the ordinary 
meaning of the terms “provides” and “goods or se rvices other than general infrastructure” sweeps 
broadly.  No matter how Canada characterizes provincial tenures, the fact remains that the provinces 
are providing timber to lumber producers.  A financial contribution therefore exists. 
4.339  The key legal issue in this dispute is whether Ar ticle 14(d) of the SCM precludes, in all cases, 
the use of data from sources outside the country under investigation to de termine the adequacy of 
remuneration.  As the Appellate Body has stated, th e issue is whether “the ‘financial contribution’ 
makes the recipient ‘better off’ than it would otherwise have been, absent that contribution .”21  I n  
other words, the Appellate Body recognized that  in order to determine whether a financial 
contribution confers a benefit, it is essential to comp are the position of the recipient with the financial 
contribution to what the position of the recipient would have been absent  the financial contribution.  
Moreover, the Appellate Body’s statement provides the context for the Appellate Body’s conclusion 
that the point of comparison is the “marketplace.”  Thus, as the Brazil – Aircraft  panel concluded, 
looking to the marketplace to determine whether the recipient is better off than it would otherwise 
have been absent the financial contribution necessar ily means looking to a marketplace undistorted by 
the government’s financial contribution.22  
4.340  It is the view of the United States, as well as the European Communitie s, that Article 14(d) 
does not prohibit Members from relying on data from sources outside the country of provision to 
determine the adequacy of remuneration if reliable,  market-driven pricing data does not exist in the 
country of provision.  We will not repeat the argum ents supporting that c onclusion, but will comment 
on Canada’s flawed three-pronged analysis of Article 14(d). 
4.341  First, Article 14(d) provides that the adequacy of remuneration must be determined “in 
relation to” prevailing market conditions in the co untry of provision.  Cana da, however, substitutes 
“in relation to” with “on the basis of” or “in compar ison with.”  The more reasonable interpretation is 
that the broader phrase “in relation to” was agreed  to by Members because Article 14 explicitly sets 
                                                      
21 Appellate Body Report, Canada – Aircraft , para. 157. 
22 Panel Report, Brazil – Aircraft (Article 21.5 – Canada II ), para. 5.29. WT/DS257/R 
Page 56  
 
out “guidelines,” i.e., general principles, not detailed  rules.  “In relation to” is sufficiently broad to 
allow for various means of performi ng a comparison that relates to market conditions in the country 
under investigation, rather than limiting Members to analyses “on the basis of,” or “in comparison 
with,” certain types of data.  Permitted methods can include analyses that rely on data from sources 
outside the country, if the data is probative of the fair market value for the good in the country of 
provision. 
4.342  Second, Canada ignores the word “market” in th e phrase “prevailing market conditions,” as if 
any conditions are “market” conditions.  The Pane l, however, must give meaning to the word 
“market.”  In that regard, the logic of the Brazil – Aircraft Panel Report is compelling.  In determining 
whether the government’s financial contribution confer s a benefit – i.e., whether the recipient is better 
off with the financial contribution than it would othe rwise have been absent th e financial contribution 
– the “market” conditions must be conditions that  are undistorted by the government’s financial 
contribution. 
4.343  Third, adequacy of remuneration must be de termined in relation to prevailing market 
conditions “in the country of provision.”  That begs the question, however, whether there are in fact “market” conditions for the good “in the country of provision” that provide probative evidence for 
determining adequacy of remuneration.  Where such evidence does not exist in the country of 
provision, as in this case, nothing in Article 14 (d) precludes a Member from  relying on market data 
from sources outside the country that is probative of fair market value in the country of provision.   
4.344   The importance of using market benchmarks, ev en if they are based on data from sources 
outside the country of provision, is underscored by Article 15(b) of the Protocol on the Accession of 
the People’s Republic of China
23, which is cited, but misinterpret ed, by Canada.  The United States 
negotiated Article 15(b) of the China Protocol be cause the United States, along with other Members, 
recognized that China was in transition from a state-controlled economy to a market economy.  
Although Article 14(d) of the SCM permits the use of market data outside China, it only applies in 
countervailing duty cases under Part V of the SCM Agreement.  Recognizing the importance of “market” benchmarks, the Members incorporated the la nguage that Canada references in Article 15(b) 
of the China Protocol to clarify that external benc hmark data can be used under Article 14(d) of the 
SCM Agreement, and also to ensure that such data ca n be used in proceedings under Parts II and III of 
the SCM Agreement. 
4.345  Other provisions in the China Protocol likewise repeat obligations already binding on WTO 
Members.  For example, the China Protocol provides that “China shall ensure that internal taxes and 
charges .  .  .  shall be in conformity with the GATT 1994.”
24  The inclusion of this provision does not 
mean that other Members need not ensure that their internal taxes conform to GATT 1994, yet this is 
effectively Canada’s argument. 
4.346  With respect to the facts of this case, the Unite d States has, in its prior submissions and oral 
presentations, demonstrated that four of the six provinces did not provide private prices for timber that could be used for market benchmark purposes.  Canada has failed to refute that fact.  Rather, it argues 
that evidence that the provinces earn a profit on timber sales is sufficient to es tablish that they do not 
provide a benefit, even though those profit calculations do not include any cost or value for the trees 
themselves.  More importantly, however, a sale for less than adequate remuneration – even a 
profitable one – confers a benefit. 
4.347  The record evidence also demonstrates that the overwhelming state control of timber sales in 
Canada distorts sales in the privat e sector.  Canada respon ds to this evidence by inviting the Panel to 
                                                     
 
23 See Accession of the People’s Republic of China:   Decision of 10 November 2001, WT/L/432, 
Article 15(b) (23 November 2001) (“China Protocol”) (CDA-139). 
24 China Protocol, Article 11(2) (US - 93). WT/DS257/R 
Page 57 
 
 
conduct de novo  review.  Canada argues, for example, that the United States “ignored” evidence of 
market conditions in Canada.  The record in this  case demonstrates that the United States in fact 
considered and weighed all of the evidence and was persuaded by economic analyses, which are cited 
to in the Final Determination, and other documentar y evidence that the state-controlled timber sales 
systems distorted the private market.   
4.348  Canada also now states that it has “consistently ta ken the position .  .  .  that a price that is 
available to purchasers in the country of provision makes that price part of the prevailing market 
conditions in the country of provision.”25  Given that US timber prices are available to purchasers in 
Canada, the United States’ benchmark calculation is consistent with the position Canada now 
endorses.  Canadian lumber producers can purchase US timber, cut it (or have it cut), and transport it 
to their mills in Canada.   
4.349  The United States has also established that the calculation of the market benchmarks included 
appropriate adjustments for condition s of sale in Canada.  Canada’s attempts to call those adjustments 
into question do not withstand scrutiny.   
4.350  Finally, Canada has not made a prima facie  case that the United States erred in failing to 
conduct a market distortion analysis.  Canada ha s failed to identify any obligation in the SCM to 
conduct such an analysis because no such obligation exists.  The United States ’ benefit calculation is 
consistent with Article 14.  Nothing further is required, and obligations that are not found in the 
Agreement may not be imposed on the United States. 
4.351  Under Article 2.1 of the SCM Agreement, a subs idy is specific if it is used by a limited 
number of industries or group of industries.  The unrefuted record facts demonstrate that provincial 
tenures are used by a very limited group of timber processing industries.  To  construct an argument 
that these provincial programmes are, nonetheless, not specific, Canada artificially inflates the very 
limited group of industries. 
4.352  Canada interprets the term “industry” so narrowly that almost every product becomes an 
industry unto itself.  Canada’s dissection of the timb er processing industries flies in the face of the 
ordinary meaning of “industry” as the term is us ed in Article 2.  Moreover, Canada’s position with 
respect to the timber processing industries is inco nsistent with its acknowledgement that a subsidy 
used by a single large industry, such as automob iles or textiles, may be specific notwithstanding the 
diverse range of products the industry produces. 
4.353  Canada also challenges the United States’ specifi city finding by inventing criteria that do not 
exist.  Nothing in Article 2.1(c) requires an invest igating authority to consider the government’s intent 
or the “nature” of the good when determining whethe r a subsidy is specific.  It is entirely permissible 
to find specificity based solely  on the limited number of users.   
4.354  Canada cites the negotiating history of the SC M in an effort to overcome the lack of any 
support in the text of Article 2.1(c) for its claim that Article 2.1(c) requires consideration of factors 
such as the “inherent characteristics” of the good and evidence of intentional targeting.  In fact, the 
negotiating history that Canada cites demonstr ates that such concepts ultimately were not adopted by 
the Members.  The Members abandoned language on in tent and “inherent characteristics” after the 
second Cartland draft, and su ch factors may not be read into the SCM Agreement. 
4.355  The only additional factors that a Member must take into account under Article 2.1(c) are the 
extent of diversification of economic activities with in the granting authority’s jurisdiction and the 
length of time the subsidy programme has been in operation.  No one argued that the number of 
subsidy recipients is limited because the programme had not been in operation long enough to be 
                                                      
25 Canada's Second Written Submission, para. 41. WT/DS257/R 
Page 58  
 
more widely distributed.  The issue of economic diversification was raised only by British Colombia 
(“B.C.”).  The evidence B.C.  submitted, however, de monstrated that the timber processing industries 
accounted for approximately 6 per cent of B.C.’s economy.  Thus, based on B.C.’s own data, 94 per 
cent of B.C.’s economy did not use the provincial tenure system.   
4.356  The United States’ views on Canada’s claims regarding the calculation of the ad valorem rate 
and the conduct of the investigation have been presen ted in our prior submissions and statements.  We 
would like to make only a few additional points in response to Canada’s second submission. 
4.357  First, Canada mischaracterizes the United States’ views on Article 19.4 of the SCM 
Agreement.  Article 19.4 provides that the counte rvailing duty rate must be calculated on a per-unit 
basis.  It also provides that the countervailing duty levied may not exceed the subsidy found to exist.  
That is the extent of the obligations in Article 19.4.  The United States’ argument that Canada has 
failed to identify any obligation in Article 19.4 to c onduct an upstream subsidy analysis or to allocate 
subsidies by volume rather than by value is a far cry from arguing that a Member may impose 
countervailing duties at any rate it wishes.  The fa ct remains, however, that Canada has failed to 
identify any obligation in Article 19.4 that supports its claim. 
4.358  Second, the United States calculated the ad valo rem duty rate by dividing the subsidy by the 
value of the output of the lumber production process.   Canada argues that the numerator in that ad 
valorem rate calculation was impermissibly inflated  by the inclusion of that portion of the Crown 
timber that ended up as products other than lumber .  Canada’s numerator argument is simply an 
argument that the United States was required to allocate the subsidy on the basis of volume rather than 
on the basis of value.  As discussed previously, Article 19.4 simply obligat es Members to calculate 
the countervailing duty rate on a per-unit basis.  Ther e is no requirement to allocate an input subsidy 
based on volume rather than value.   
4.359  Third, Canada continues to suggest that th e Minnesota Public Stumpage Price Report 
(“Minnesota Price Report”) specifies a conversion fa ctor of 6.25 for converting from thousand board 
feet to cubic meters.  It does not.  The Minnesota Price Report contains sawtimber prices reported in 
thousand board feet and pulpwood prices reported in cords.  The price report contains a factor that 
Minnesota uses to convert between cords and board feet.  The United States, however, only used the 
sawtimber prices, which are bid, sold, and reported in thousand board feet, and therefore needed to convert from board feet to cubic meters.  The Minnesota Price Report does not contain such a 
conversion factor.  We note, however, that the timber sales manual of the Minnesota Department of 
Natural Resources (“Minnesota Timber Sales Manua l”), which publishes the Minnesota Price Report, 
was on the record.  The Minnesota Timber Sales Ma nual provides a conversion factor of 3.48 cubic 
meters per thousand board feet.  Canada does not, however, advocate using that conversion factor.  
Rather, Canada derived its own c onversion factor from selected information in the Minnesota Price 
Report. 
4.360  There is no one conversion factor that is universally accepted.  The record evidence suggested 
a wide range of possible conversion factors, ranging from 3.48 to 8.51.  The United States considered 
all of that evidence and provided a reasoned explana tion for its decision to rely on the factors in the 
report by the International Trade Commission.  The choice of conversion factor is therefore entirely 
consistent with the SCM Agreement. 
4.361  Finally, Canada suggests that, even though the provinces knew the crite ria the United States 
was using to select the benchmark states and had all the data on the states under consideration, 
Alberta and Saskatchewan were not on notice of th e possibility that the United States could select a 
state more than 1,000 kilometres away.  That assertion is contradicted by the record of the 
investigation.  Alberta and Saskatchewan both argue d that the United States should not use Montana 
as a benchmark state because of differences in the species mix.  Saskatchewan also proposed using 
data from Alaska, which is more than 1,000 kilo metres from, and obviously not contiguous with, WT/DS257/R 
Page 59 
 
 
Saskatchewan.  Thus, it is evident that the provinces knew that factors such as climate, terrain, and 
species mix – not proximity – were the key considerations, and that a non-contiguous state might be 
selected for the benchmark.  The record of the i nvestigation therefore establishes that the provinces 
knew the essential facts under consideration. 
4.362  For the reasons discussed above and in our prior submissions and presentations to the Panel, 
the United States asks the Panel to dismiss Canada’s claims.  
V. ARGUMENTS OF THE THIRD PARTIES 
5.1 The arguments of the third parties, the European  Communities, India, and Japan, are set out in 
their written submissions and oral statements, and ar e summarized in this section.  Third parties' 
answers to questions are annexed in full to this report (see List of Annexes, page v). 
A. THIRD PARTY WRITTEN SUBMISSION  OF THE EUROPEAN COMMUNITIES  
1. Claims Relating to the Existence of a Subsidy within the meaning of Article 1 of the 
SCM Agreement  
(a) Financial contribution  
5.2 The European Communities agrees with the United States that the term “goods” includes any 
economically valuable right.  The ordinary meaning of the word “good” is commonly defined as, inter 
alia, “property or possessions; esp.  movable property, saleable commodities, merchandise, wares”26 
or “tangible or moveable personal property, other th an money; esp., articles of trade or items of 
merchandise”27.  Accordingly, the French text of the SCM Agreement  uses the term “biens”, which is 
defined, inter alia , as “domaine, possession, propriéte”.28  Finally, the Spanish version uses the word 
"bienes", which encompasses “inmobiliario" as well as "mobiliario.29  From the ordinary meaning of 
the word “goods” it follows, therefore, that this term not only applies to “movable” but also to 
“immovable” goods, including “land”.   
5.3 This understanding is further corroborated by th e immediate context in Ar ticle 1.1(a)(1)(iii) of 
the SCM Agreement , which refers to  
(…) goods or services other than general infrastructure  (…)” (emphasis added) 
5.4 According to this wording infrastructure such as  streets, railways or channels – which are all 
immovable objects – are to be considered as a “good”  to the extent that they are not “general”.  It 
follows a contrario  that any “individual” immovable object th at is provided by the government may 
also be covered by Article 1.1( a)(1)(iii) of the SCM Agreement .   
5.5 The European Communities notes that the Panel in US – Softwood Lumber III  confirmed that 
the phrase “goods or services other than general infrastructure”  
is intended to ensure that the term financ ial contribution is not interpreted to mean 
only a money-transferring action but enco mpasses as well an in-kind transfer of 
resources, with the exception of general infrastructure.30  
                                                      
26 The New Shorter Oxford English Dictionary, 1993, Vol.  I, p. 1116. 
27 Black’s Law Dictionary, 7th edition, 1999. 
28 Le nouveau Petit Robert, 1998, p. 219. 
29 Moliner, Diccionario de uso del Espanol, 1988, p. 374. 
30 Panel Report, US – Softwood Lumber III , para. 7.24. WT/DS257/R 
Page 60  
 
5.6 The European Communities considers that this clarifies that the term “goods and services” 
can also refer to immovable property or any other property right such as, e.g., intellectual property 
rights.  Such interpretation is also supported by the purpose of Article 1.1(a)(1) of the SCM 
Agreement which is intended to cover a wide variety of financial contributions made by governments, 
which “will also exist if the government does not co llect revenue which it is entitled to or when it 
gives something or does something for an enterprise or purchases something from an enterprise or a 
group of enterprises”.
31   
5.7 Indeed, subsidies may take the form of very complex bundles of rights combining, e.g., rights 
to a movable or immovable good (e.g., land) a service (scientific or technical research) or intellectual 
property (patents, copyrights).   Depending on the co mbination of different elements and the modes of 
supply, such transfers of economic resources, may involve the provision of “goods or services”, or the 
foregoing of “government revenue”.   If such comp lex economic transactions were not covered by the 
disciplines of the SCM Agreement, there woul d be considerable scope for circumvention. 
5.8 Regarding the specific question of whether stumpage  is covered by Article 1.1(a)(1)(iii) of the 
SCM Agreement, the EC does not consider it necess ary to comment separately on the different forms 
of stumpage rights ( profit à prendre , servitudes, timber harvesting lic enses, and similar rights), 
because they all involve economically valuable ha rvesting rights and USDOC explained in its final 
determination why such rights are goods or at least services within the meaning of 
Article 1.1(a)(1)(iii) of the SCM Agreement. 
5.9 In short, the European Communities agrees with the United States that the stumpage 
programmes are financial contributions within th e meaning of Article 1.1(a)(iii) of the SCM 
Agreement. 
(b) Benefit 
5.10 The key legal issue in this dispute is whether th e United States has violated Articles 1 and 14 
of the SCM Agreement  by applying a “cross-border” methodology to establish and measure a benefit.   
5.11 The European Communities considers that the determination of the correct market benchmark 
requires considerable care and would offer the following comments: 
5.12 First, contrary to what the United States argues, the text of Article 14(d) of the SCM 
Agreement does not refer to “ fair market value” or “ true market prices” that are “independent of the 
distortions caused by the government’s action”.32  Such analysis would contradict the explicit wording 
of Article 14(d) which requires the analysis of “ prevailing  market conditions in the country of 
provision” (emphasis added).   
5.13 The adjective “prevailing”, which means “as they exist”33 clarifies that the investigating 
authorities have to base their benefit determinatio ns on existing reference prices that the producer 
would have had to pay if it had to buy the goods (now provided by the government) from a different 
and independent seller in the country of provision, including imports.34   
5.14 Read contextually with the term “ market  conditions” in Article 14(d) of the SCM Agreement 
(and other paragraphs of Article 14) the treaty langua ge clarifies that only in situations where there 
are no market  conditions, i.e., prices determined by inde pendent operators following the principle of 
supply and demand, the in-country benchmark set out by Article 14(d), second sentence of the SCM 
                                                      
31 Panel Report, US – Softwood Lumber III , para. 7.24. 
32 United States First Written Submission, paras.  42 ff, 72 (emphasis added). 
33 Concise Oxford Dictionary, Ninth Edition, p. 1084. 
34 Panel Report, US – Softwood Lumber III , para. 7.52. WT/DS257/R 
Page 61 
 
 
Agreement does not apply.  Only in such rare s ituations, the adequacy of the remuneration may be 
determined following a reasonable method according to Article 14(d), first sentence of the SCM 
Agreement, including, where necessary, world market prices.   
5.15 Thus, as the Panel confirmed in US – Softwood  Lumber III,  Article 14(d) does not permit 
investigating authorities to dismiss actual in-country prices merely because they might be affected by 
the financial contribution.35   
5.16 Second, the European Communities does not consider the reference by the United States to 
recent amendments of its Regulation (EC) 2026/ 97 relevant for the resolution of this dispute.36    As 
noted by the United States, these amendments concer n a situation where “no such prevailing market 
terms and conditions” exist and where, consistent ly with Article 14(d) of the SCM Agreement, 
investigating authorities may, therefore,  apply an alternative benchmark.   
5.17 By contrast, under its methodology as applied in the final determination on softwood lumber, 
the United States continues to consider itself entitled to dismiss existing alterna tive reference prices in 
the country of provision and to use petitioner’s prices simply on the basis that in-country prices “were 
significantly affected by the financial contribution itself”37.   This is different from establishing that 
there are no market  conditions in the country of provision. 
5.18 Thus, the problem with the “cross-border” methodology attacked by Canada is not that it 
eventually allows consideration of world market prices, but under which conditions  recourse may be 
had to alternative benchmarks.   The Europe an Communities fully agrees with the panel US – 
Softwood Lumber III  where it dismisses the “hypothetical undistorted market” methodology as 
contradictory with the text of Article 14(d) of  the SCM Agreement.  However, the European 
Communities would respectfully ask this Panel to clarify that there is no absolute rule prohibiting 
recourse to world market prices to determine the ad equacy of the remuneration,  if it can be established 
in exceptional cases that there are no prevailing ma rket conditions within the meaning of Article 14(d) 
second sentence of the SCM Agreemen t, so that that rule cannot be applied in order to establish the 
existence of a benefit. 
5.19 Finally, as to the correct application of the abov e rules to the final determination in this case, 
the European Communities as a third party is obviously not in a position to comment on the 
availability of independent market-driven prices for non-governmental stumpage (be it from private 
Canadian land or imported).  However, the European Communities notes that USDOC itself 
acknowledged that private stumpage markets  have a share between 2-17 per cent in Canada.38  The 
sole rational for rejecting them in the final determin ation is the mere assertio n that such prices are 
driven by the stumpage prices on Crown land, i. e., the flawed “hypothetical undistorted market” 
methodology.   
5.20 The European Communities also notes that USDOC has recognised “extensive record 
evidence that Canadian lumber producers had actua l imports of US logs and purchased US stumpage 
during the POI”.39   This finding in itself contradicts US DOC rejection of a competitive timber/and or 
lumber market in Canada.40 
                                                      
35 Panel Report, US – Softwood Lumber III , paras.  7.50 and 7.52. 
36 United States First Written Submission, para. 55. 
37 United States First Written Submission, para. 65. 
38 Final Determination, p. 37 and 38. (CDA – 1). 
39 Final Determination, p. 40. (CDA – 1) 
40 Panel Report, US – Softwood Lumber III , para. 7.49, footnote 86. WT/DS257/R 
Page 62  
 
(c) Failure to Examine and Determine the Existence of a Benefit to all Producers of the Subject 
Product (“Pass Through”) 
5.21 The European Communities agrees with Cana da that the final countervailing duty 
determination is flawed because it assumes that the alleged financial contribution to timber harvesters 
through the stumpage rights conferred a benefit on the downstream producers of softwood lumber, 
although a significant portion of harvesting is done  by entities operating at arm’s-length from the 
lumber producers.   Instead of conducting a “pas s-through” analysis, USDOC applied an irrefutable 
presumption that the alleged benefit received by st umpage holders has passed through to all lumber 
producers harvesters.
41   
5.22 The United States does not contest that some producers of the subject merchandise operate at 
arm’s-length, but defends itself by arguing that the final CVD determination was made on an 
aggregate basis  under Article 19.1 and 19.3 of the SCM Agreement, thereby exempting the competent 
authority from making a “pass-through” analysis.42 
5.23 The European Communities considers that the panel in US – Softwood Lumber III  correctly 
found that neither Article 19 nor any other provisi on of the SCM Agreement authorises investigating 
authorities to depart from the requirement to correc tly establish the amount of subsidisation if they 
chose to conduct the investig ation on an aggregate basis.43  As already clarified by the Appellate Body 
in US – Lead and Bismuth II44, and confirmed by the panel in US – Softwood Lumber III , an authority 
may not assume that a subsidy provided to producer s of the “upstream” input product automatically 
benefits unrelated producers of downstream products, especially if there is evidence on the record of 
arm’s-length transactions between the two.45   Thus, USDOC was “required to examine whether, in 
certain transactions covered by th e investigation, some or all of the alleged benefit to the tenure 
holders from the stumpage programmes was passe d through to the producers of the subject 
merchandise exported to the US”.46   
5.24 The Panel also correctly clarified that conducting the investigation on an aggregate basis 
versus a company-by-company basis is “irrelevant” to this issue and cannot dispense USDOC from its obligation to carry out a pass-through analysis so as to correctly establish the amount of the subsidy benefiting the producers of the subject merchandise, (i.e.  the numerator).
47  
2. Conclusion 
5.25 In short, the European Communities considers that the final determination now before this 
Panel correctly established the existence of a financial contribution within the meaning of 
Article 1.1(a)((1)(iii) of the SCM Agreement  by interpreting the term “goods and services” so as to 
include any economically valuable right, in casu, the right to a good (whether that good is movable or 
immovable).   
5.26 However, the measure before the Panel is incons istent with Articles 1.1(b), 10 and 14 of the 
SCM Agreement because USDOC applied a flawed “hypothetical undistorted market” methodology 
to establish the alleged benefit and did not conduct a proper “pass-through” analysis to demonstrate 
that all producers of the subject merc handise received the alleged benefit. 
                                                      
41 Canada First Written Submission, paras.  128, 129 and 135. 
42 United States First Written Submission, paras.  102-106. 
43 Panel Report, US – Softwood Lumber III,  paras.  7.74 and 7.75. 
44 Appellate Body Report, US – Lead and Bismuth II , para. 68. 
45 Panel Report, US – Softwood Lumber III , para. 7.71. 
46 Panel Report, US – Softwood Lumber III , para. 7.69. 
47 Ibid., para. 7.77. WT/DS257/R 
Page 63 
 
 
B. THIRD PARTY ORAL STATEMENT OF THE EUROPEAN COMMUNITIES  
1. Financial contribution  
5.27 The European Communities has already explained why it considers that the United States 
correctly established that the granting of stumpa ge rights is a financial contribution within the 
meaning of Article 1.1(a)(1)(iii) of the SCM Ag reement, because that provision covers any 
economically valuable right.   
5.28 This is in line with the ruling by the panel in US – Lumber III  confirming that the phrase 
“goods or services other than general infrastructure”  
(…) encompasses as well an in-kind transfer of resources, with the exception of 
general infrastructure.48  
5.29 The European Communities would like to reiterate that the term “goods and services” can 
also refer to immovable property or any other property  right such as, e.g., intellectual property rights.  
Subsidies may take the form of very complex bundles of rights combining, e.g., rights to a movable or 
immovable good (e.g., land) a service (scientific or  technical research) or intellectual property 
(patents, copyrights).   Depending on the combination of different elements and the modes of supply, 
such transfers of economic resources, may involv e the provision of “goods or services”, or the 
foregoing of “government revenue”.   If such comp lex economic transactions were not covered by the 
disciplines of the SCM Agreement, there woul d be considerable scope for circumvention. 
2. Benefit 
5.30 The key legal issue in this dispute is whether th e United States has violated Articles 1 and 14 
of the SCM Agreement  by applying a “cross-border” methodology, i.e., US prices as benchmark for 
the determination of a benefit.49  
5.31 The European Communities agrees with Canada and the panel in US – Lumber III50  that the 
US determination of benefit violated Article 14(d ) of the SCM Agreement because the United States 
dismisses existing in-country prices merely because they might be affected by the financial 
contribution. However the European Communities is c oncerned that some of the findings of that panel 
might be misunderstood as an absolute rule prohibiti ng recourse to world market prices to determine 
the adequacy of the remuneration even if it can be established in exceptional cases that there are no 
prevailing market conditions within the meaning of Article 14(d) second sentence of the SCM 
Agreement. 
5.32 The problem with the “cross-border” methodol ogy attacked by Canada is not that it 
eventually allows consideration of world market prices, but under which conditions  recourse may be 
had to alternative benchmarks.   Ar ticle 14 (d), second sentence, does not apply, where there simply is 
no market.  In such rare situations which must be  properly established by the investigating authorities, 
the adequacy of the remuneration may be determ ined following a reasonable method according to 
Article 14(d), first sentence of the SCM Agreement, including, where necessary, world market prices.  
3. Specificity 
5.33 Canada also challenges the US finding that the stumpage programmes are de facto  limited to 
“pulp and paper mills and the same mills and remanufacturers which are producing the subject 
                                                      
48 Panel Report, US – Lumber III , para. 7.24. 
49 Final Determination, p. 40. 
50 Panel Report, US – Lumber III , paras. 7.50 - 7.52. WT/DS257/R 
Page 64  
 
merchandise” and therefore de facto  specific subsidies.
51   The European Communities considers that 
because this finding is based on the flawed determin ation of the beneficiaries of the alleged financial 
determination it cannot be upheld.  However, in case the Panel were to consider the issue of 
specificity, the European Communities wo uld like to note the following. 
5.34 In essence, Article 2.1 of the SCM Agreement re quires an investigating authority to determine 
that a subsidy is specific because its availability is either limited by law to certain enterprises 
(Article 2.1(a and b)), or the same limiting effe ct can be established on the basis of evidence 
concerning the use of the subsidy (Article 2.1(c )).  The European Communities notes that USDOC did 
not make a de jure  specificity determination although certain stumpage programmes were restricted to 
certain enterprises owning saw mills.52 
5.35 Canada challenges the USDOC determination b ecause it applies a general availability test, 
i.e., whether the use of the subsidy is limited to certain groups of industries as opposed to a subsidy 
that is “broadly available and widely used throughout an economy”.53    
5.36 The European Communities considers that the ordinary meaning of the terms “certain 
enterprises” in Article 2.1 of th e SCM Agreement read in light of their context and their object and 
purpose, in essence, requires a “general availability”  determination, that is a determination of whether 
a subsidy selectively benefits certain industrial sect ors or certain enterprises, or is rather a broad 
economic policy measure, such as the reduction of corporate taxes.   
5.37 The broad definition of “certain enterprises” in Article 2.1 of the SCM Agreement as “an 
enterprise or industry or group of enterprises or i ndustries” indicates that the specificity determination 
must not precisely identify separate industries and sub-industries as required for the injury 
determination under Article 16.   It is sufficient to show that the subsidy is made available or used only 
by a limited number of industries as opposed to  the overall economy.  The immediate context in 
Article 2.2 of the SCM Agreement confirms the “gen eral availability” test by clarifying that the 
“setting or change of generally app licable tax rates” shall not be deemed to be a specific subsidy.   
5.38 Canada also claims that consideration must be given to the fact that the limitation of users is 
due to the inherent characteristics of the good rather than any deliberate government favouritism.54  
5.39 The European Communities fails to see any basis in the SCM Agreement for Canada’s 
contention that Article 2.1 of the SCM Agreement ex cludes a specificity finding if the limitation of 
the use is due to the inherent characteristics of the good.   Such an interpretation would lead to 
circumvention of the subsidy disciplines.  Subsidy pr ogrammes could be tailored so as to benefit only 
certain industries that can use certain goods or servi ces.  Obviously stumpage rights are useless for the 
computer industry while the provision of research for computer chip materials would not be of interest 
for the softwood lumber producers. 
4. Violation of Article  12.3 and 12.8 
5.40 Turning now to the alleged violations of procedural due process rights, the European 
Communities would like to offer th e following comments on the legal interpretations of Articles 12.3 
and 12.8 of the SCM Agreement. 
                                                      
51 Final Determination, p. 52. (CDA – 1) 
52 United States First Written Submission, footnote 193. 
53 Canada First Written Submission, paras.  149, 152,  161.  Final Determination, p. 52. (CDA – 1) 
54 Canada First Written Submission, paras.  155, 156. WT/DS257/R 
Page 65 
 
 
(a) Violation of Article 12.3 of the SCM Agreement 
5.41 Canada claims that USDOC has not given time ly opportunity to the respondents to see a 
report on the quality categories for logs in Main e and to rebut counter-reports prepared by the 
petitioners.55    
5.42 The United States admits that only two months after it received the Maine report, that 
document was placed on the record and parties were  given 10 days to comment after the record had 
already been closed.56 In defence, the United States invokes th e practicability clause in Article 12.3 of 
the SCM Agreement arguing that “it was simply not practical” to give Quebec an earlier opportunity 
to see the report in time to be able to also rebut the petitioners’ counter reports.57  
5.43 The terms “whenever practicable” in Article 12.3 of the SCM Agreement do not address the 
question of “whether” the investigating authority must grant access to the file, but exclusively the 
question of “when” to do so.   
5.44 The term “timely” means “occurring, or made at an appropriate or suitable time; opportune; 
Occurring or appearing in good time, early”.58   A contextual reading clarifies that the time must be 
sufficient not only to see the information but also to  prepare presentations  on the basis of this 
information.  The plural “presentation s” supports that there must be possibility for at least one 
rebuttal.   
5.45 Article 12.8 makes clear that, although the inves tigating authority is not required to make the 
file permanently accessible to the public, and to ex change in an endless cycle of comments and sur-
rebuttals, it must grant access to the file as early as practicable, rather than, for example, once at the 
end of the investigation thereby excluding the possi bility of making at l east one counter-rebuttal. 
5.46 A Member claiming that timely access to the record and sufficient time to make presentations 
is not practicable faces a heavy burden.  The instances where a Member could refuse legitimately the 
possibility of timely access to the file would be “exceptional”.   The European Communities notes that 
the precise circumstances of the di sclosure of the Maine report ar e still being clarified between the 
parties and is therefore not in a position to co mment on whether there were such exceptional 
circumstances.  However, merely claiming non- practicability is certainly not sufficient. 
(b) Violation of Article 12.8 of the SCM Agreement  
5.47 The second procedural violation concerns the disc losure of essential facts.  Canada complains 
that USDOC switched from Montana stumpage pr ices, which it had used as benchmark for two 
Canadian provinces in the preliminary determinatio n to Minnesota prices on which it based its final 
determination.  Both parties agree that these stumpage prices are essential facts.59  However, the 
United States appears to argue that the respondents were aware of the essential facts through the preliminary determination and that because the respondents “prevailed on this points” causing 
USDOC to switch to Minnesota prices, they cannot “credibly claim surprise”
60  
5.48 Article 12.8 of the SCM Agreement imposes up on the investigating authorities a duty “to 
inform” the interested parties.  The ordinary meanin g of that term (“to give knowledge of something”, 
to tell”, to acquaint with”)61 demands a positive action from the in vestigating authorities.   The EC 
                                                      
55 Canada First Written Submission, para. 220. 
56 United States First Written Submission, paras. 175-176. 
57 United States First Written Submission, para. 180. 
58 The New Shorter Oxford Dictionary, p. 3314. 
59 United States First Written Submission, para. 165. 
60 United States First Written Submission, paras.  164 and 169. 
61 Webster’s New World Dictionary, Third College Edition. WT/DS257/R 
Page 66  
 
agrees with the United States
62, that Article 12.8 does not prescribe any particular method of 
disclosure.  Thus, for instance, the investigating authority may choose to make the disclosure in a 
written document sent to the parties (the usual prac tice in the EC) or in any other form.  However, 
Article 12.8 of the SCM Agreem ent, requires a certain result :  the interested parties must be informed 
of the facts “which form the basis for the decision whether to apply definitive measures”.  The Panel 
in Argentina –Ceramic Tiles , in interpreting the analogue provision in the Anti-Dumping Agreement  
clarified that the disclosure must contain 
the essential facts which, being under consideration, are anticipated 
by the authorities as being those which will form  the basis for the 
decision whether to apply definitive measures.  (emphasis added)63 
5.49 Indeed, the relative clause “which form  the basis for the decision whether to apply definitive 
measures” qualifying the phrase “essential facts under consideration” is of crucial importance for the 
correct interpretation of Article 12.8.  The use of the term “form” indicate s that the investigating 
authority is required to identify wh ich facts will be relied upon in th e final decision whether to impose 
measures. 
5.50 Disclosure of the “essential facts” forming the basis of a preliminary determination is clearly 
inadequate in circumstances where the factual ba sis of the provisional measure is significantly 
different from the factual basis of the definitive measure.  This was confirmed by the Panel ruling in 
Guatemala – Cement II clarifying that disclosure of the 
“essential facts” forming the basis of a preliminary determination is 
clearly inadequate in circumstances where the factual basis of the 
provisional measure is significantly di fferent from the factual basis of 
the definitive measure.64 
5.51 The European Communities considers that the United States cannot escape from its obligation 
by claiming that the switch between benchmarks is less significant than the switch between threat and 
actual injury in the Guatemala cement case.  Decisive is only that the facts are “essential” to the final 
determination and whether the respondents knew that the Minnesota stumpage prices would form the 
basis of the final determination.  That the facts relating to Minnesota were on the record does not 
change that appreciation.  The respondents could not know that they would be “essential” for the final 
determination, as they had advocat ed other alternative benchmarks. 
5.52 Finally, the United States cannot defend itself by invoking practicability concerns65.  While 
Article 12.3 contains a “whenever practicable” except ion, the obligation to disclose the essential facts 
under Article 12.8 is without qualification.   
C. THIRD PARTY ORAL STATEMENT OF INDIA  
5.53 This is one of half a dozen disputes raised  by Canada on the same merchandise/product, viz., 
softwood lumber.  As in other disputes, India has sy stemic interest in this dispute as well.  In an 
earlier dispute, US – Softwood Lumber III , India expressed concerns on application by the US of 
‘cross-border’ methodology to determine existence of benefit under Articles 1 and 14 of the SCM 
Agreement.  We have similar con cerns in this dispute as well. 
                                                      
62 United States First Written Submission, para. 162. 
63 Panel Report, Argentina - Ceramic Tiles , para. 6.125. 
64 Panel Report, Guatemala – Cement II , para. 8.228. 
65 United States First Written Submission, para. 169. WT/DS257/R 
Page 67 
 
 
5.54 More importantly, India has systemic concern about the Panel’s decision to accept amicus 
curiae briefs and consider their arguments to the extent that such arguments raised by the parties and 
third parties to the dispute.   
5.55 India considers that the WTO panels and the Appe llate Body do not have  a right to accept and 
consider any briefs or arguments submitted by anyone  other than the parties or third parties to the 
dispute.  WTO panels, however, under Article 13 of the DSU, could seek information or technical 
advice or opinion of any individual or body on certain aspects of the matter or factual issues 
concerning scientific or technical matter raised in a dispute.  We do  not consider that ‘arguments’ of 
uninvited bodies or individuals would fall into such category.   
5.56 India is aware of the Appellate Body’s view on amicus curiae briefs and the so-called “case 
law” developed by it.  India does not agree with the Appellate Body’s view that whatever is not 
prohibited by the DSU or other covered agreements is  permissible and, therefore, the Appellate Body 
and the panels have authority to accept amicus briefs.  There is no textual or other legal basis for such 
assertions.  Therefore, India requests the panel re frain from accepting or considering the unsolicited 
amicus curiae briefs submitted to it.   
D. THIRD PARTY WRITTEN SUBMISSION OF JAPAN  
1. Introduction 
5.57 The Government of Japan welcomes this opportun ity to present its view in this proceeding on 
United States - Final Countervailing Duty Determination with Respect to Certain Softwood 
Lumber from Canada.  This dispute concerns the countervailing duties imposed by the 
United States on certain Canadian softwood lumber products.  Japan decided to participate in the 
current proceedings as a third party in view of the systemic importance of the dispute.  The Canadian 
government has control in administration of wood  production in Canada through the stumpage 
programme of public-owned forest, which covers most  of forests in Canada, and Canada is the world 
largest wood exporting country, covering 20 per ce nt of world wood products exports.  Japan 
respectfully requests the Panel to pay due attention to the fact that Canadian government has a 
strong influence on wood products market and thus the result of this dispute will have 
significant implications.  Although Japan has no intention to argue on the assessment of underlying 
facts in the specific circumstances of this case, Japan would like to respectfully submit the following 
comments. 
2. Legal Arguments 
5.58 Japan considers that Canada must avoid trade distortion, when it tries to achieve sustainable 
management of its forestry resources through the stum page programme.  And Japan is of the view that 
the log price should be determined through the market mechanism in the trade between an 
independent tenure holder and an unrelated lumber  mill, in the same way as the lumber price is 
determined.  Having these in mind, Japan would like to submit the following points. 
(a) Provision of “goods” 
5.59 Canada argues that the stumpage programme is a system of interlocking rights and obligations 
between the Crown (provincial and federal governments) and harvesters66.  It also insists that the 
stumpage programme provides “rights” rather than “goods67.”  It is true that “rights” are not “tangible 
                                                      
66 Canada First Written Submission, para.25 
67 Canada First Written Submission, paras.21-58 WT/DS257/R 
Page 68  
 
or movable personal property other than money
68”, and cannot be categorized into tariff 
classification69, as Canada points out.    
5.60 However, the “right to harvest standing timber on Crown land70,” which is given in exchange 
for the “stumpage (price paid for harvesting),” is e quivalent to the property right of standing timber 
(except for land).  Furthermore, such “right” is exercised during a specific period, to produce logs 
which are “tangible or movable personal property other than money”.  Therefore, it could be 
understood that, in this case, “provision of goods” is equivalent to “provision of property rights.” 
5.61 In this respect, US – Softwood Lumber III  panel report acknowledges that “The word ‘goods’ 
in this context of ‘goods or services’ is intended to  ensure that the term financial contribution is not 
interpreted to mean only a money-transferring acti on, but encompasses as well an in-kind transfer of 
resources, with the exceptio n of general infrastructure71.”  In the context of Ar ticle 1.1 (a) (1) (iii) of 
the SCM Agreement, Japan considers that “goods or services” is a broad concept parallel to monetary 
transfer and, it is doubtful that the meaning of “g oods” should be limited as Canada suggests.  Since 
“goods” in Article 1.1 (a) (1) (iii) are provided by the government to domestic producers, Japan 
hesitates to interpret, as Canada do es, that “goods” must be “tradable item with an actual or potential 
tariff classification” in general.  Canada seems to base this claim on Article 3.1 (b).  However, the 
provision covers only export subsidy. 
(b) A Benefit Conferred 
(i) “Cross-Border” Benchmarks 
5.62 In order to determine if the stumpage programme could be understood as a “subsidy” as 
defined in the SCM Agreement, it is required to evaluate whether the programme constitutes a 
financial contribution by the Canadian government in  providing “goods” as referred to in Article 1.1 
of the SCM Agreement, and whether a benefit is  conferred by the stum page programme through 
proper method which complies with Article 14(d) of the SCM Agreement. 
5.63 Article 14(d) provides  that whether a benefit is conferred must be determined by comparing 
the price for the provision of goods or services and “adequate remuneration.”  It also provides  that the 
“adequate remuneration” shall be determined in re lation to prevailing market conditions for the good 
or service in question “in the country of provision” .  It is not disputed that USDOC used “Cross-
border analysis” and this seems in consistent  with this article si nce it compared the stumpage in 
Canada with the stumpage (or price for standing timber ) in the United States.  In this case, however, it 
is noted that there is difficulty in finding market conditions to be compared in Canada, since most of 
forests in Canada is managed by the stumpage prog ramme and private forest area is very limited, and 
even in the private forest area, as standing timbers are mostly harvested and produced into logs by 
owner companies, market of standing timbers rarely exists.   
(ii) Stumpage Level 
5.64 Even assuming that Cross-border comparison is pe rmitted to be used to determine whether the 
stumpage is less than adequate remuneration, such comparison should not be conducted by simply 
comparing “stumpage” prices in Canada and those in the United States.  It needs evaluation of 
various differences of their systems which affect their stumpage prices.  The difference of 
forest management systems between the United States and Canada may be one of such 
factors to be considered.  For example, if the Canadian government obligates harvesting 
                                                      
68 Canada First Written Submission, para.31 
69 Canada First Written Submission, para.33 
70 Canada First Written Submission, para.26 
71 WT/DS236/R, para.7.24 WT/DS257/R 
Page 69 
 
 
companies to share the substantial part of the burden for sustainable forest management and 
thus the stumpage paid by those companies is kept low, the cost for fulfilling the obligation 
should be added on the price of Canadian stumpage for fairness of comparison. 
(c) A Pass-through of an Alleged Subsidy 
5.65 Regarding wood and wood products market, there is standing timber market, log market, 
lumber market, and processed wood products market .  In each market, price is determined in 
accordance with the relationship between demand and s upply.  Therefore, in principle, product prices 
are determined in the market, inde pendently from production costs. 
5.66 Some Canadian softwood lumber is harvested and produced by lumber producers which hold 
stumpage rights.  In this case, lumber producers would be able to produce lumber with lower costs, 
taking advantage of the stumpage programme.  However, lumber producers in Canada do not 
necessarily ensure a ll log input supply from their own stumpage72.  As Canada points out, some 
lumber producers may purchase logs from unrelated log harvesters that do not own a mill.  In that 
case, even if the log harvesters produce logs at lower costs through the stumpage programme, the 
price would be determined in accordance with the relationship between demand and supply because the log sellers pursue the maximum profit.  Therefor e, it would be unreasonable to assume that logs 
with lower production costs are so ld with lower prices in the ar m’s-length transactions between 
timber harvesters and unrelated lumber producers
73, resulting in a pass-through of the alleged subsidy 
to lumber producers.  This would also apply to transactions of softwood lumber between lumber 
producers and final consumers.  Further, since a wide variety of products are produced from softwood 
logs74, the alleged subsidy would be passed through to  other producers of wood products including 
pulp and plywood, if the subsidy is passed through to lumber producers. 
5.67 The United States should fully investigate how much of the alleged subsidy is passed through 
to all producers of wood products in Canada a nd how much of it is passed through to softwood 
lumber producers in Canada thro ugh the stumpage programme, when imposing countervailing duty on 
Canadian softwood lumber. Japan expects that the Pa nel determines if the US final determination of 
countervailing duty is based upon sufficient analysis of a pass-through of an alleged subsidy, and how 
much of the alleged subsidy was passed through to lumber producers. 
VI. INTERIM REVIEW 
6.1 On 10 June 2003, the United States and Canada submitted a written request for review by the 
Panel of particular aspects of the interim report issued on 27 May 2003.  Canada commented on the 
United States' request for interim review on 17 June 2003.  The United States did not comment on 
Canada's request for interim review.  Neither party re quested an additional mee ting with the Panel.    
6.2 We have reviewed the comments presented by Canada and the United States and the reaction 
to the United States' comments by Canada and have finalized our report.  We note in this regard that, 
throughout the report, we have corrected typograph ical and other clerical errors, including those 
identified in the parties' interim review comments.  
6.3 Canada requested changes to the description of its argument concerning the definition of 
"goods" in the Uniform Commercial Code in footnote  80 of the interim repo rt.  In a similar vein, 
Canada requested changes to footno te 136 of the interim report to more accurately reflect Canada's 
argument concerning the use of pric es that do not form part of the prevailing market condition in the 
country of provision.  Finally, Canada further re quested changes to paragraph 7.108 of the interim 
                                                      
72 Canada  First Written Submission, paras. 140 and 141 
73 They are inputs to the production of softwood lumber, the subject merchandise. 
74 Canada First Written Submission, para.127 WT/DS257/R 
Page 70  
 
report to more accurately reflec t its argument concerning specificity.  We have amended these 
footnotes and this paragraph to reflect the comments made. 
6.4 The United States requested a change to the first sentence of paragraph 7.56 of the interim 
report concerning the United States' interpretatio n of Article 14 (d) SCM Agreement to more 
accurately reflect its position.  The United States al so requested a change to the first sentence of 
paragraph 7.132 summarizing the US argument concer ning the factor provided in the Minnesota Price 
Review for conversions between board feet and cords.   We have amended these paragraphs to reflect 
the comments made. 
6.5 Finally, the United States also took issue wi th the Panel's discussion in paragraphs 7.81 
through 7.99 of the interim report concerning the pass-through of the alleged subsidy.  The 
United States commented that the Panel's characteriza tion of the Canadian industry in paragraph 7.84 
of the interim report was partly inaccurate as it suggested that re-manufactured softwood lumber 
products were only produced by re-manufacturer s from lumber purchased from sawmills, although, 
the US noted, some such re-manufactured products also were produced by tenure holding Canadian 
sawmills.  The United States stated that it was con cerned that this alleged factual misunderstanding 
underlay the Panel's conclusion in paragraphs 7.97 an d 7.98 of the interim report that the total subsidy 
provided through the provincial timber programmes to Canadian softwood lumber mills cannot be 
allocated across all sales (domestic and export) of the output of those mills (both primary and 
remanufactured lumber), absent an upstream subsidy analysis of certain of those transactions.  In 
response to this US comment, Canada argued that  this perceived factual misunderstanding provided 
no basis for reconsideration of the Panel's anal ysis since the US concern did not go to the 
circumstances of the Panel's substantive analysis in the cited paragraphs.  Canada stated that while a 
few re-manufacturers have ac cess to Crown timber, the vast majority do not.   
6.6 We disagree with the US that our consideration of the pass-through analysis in respect of re-
manufactured products is based on any misunderstand ing of the factual situation, and note that the 
sentence commented on by the US is intended simply  to describe what is meant by the term "re-
manufactured products", and not, as the US suggests, to characterize the nature of the transactions for 
lumber inputs between sawmills and re-manufacturers.  Our analysis and conclusion in respect of the 
pass-through issue explicitly indicate that the quest ion is relevant only to those cases in which the 
recipient of any subsidy from stumpage sells inputs (logs or lumber) to unrelated downstream lumber 
producers producing the subject merchandise.  Contrary to the US comment, we did not suggest that 
no
 re-manufactured products were produced by tenure -holding sawmills.  Rather, our conclusion was 
that a pass-through analysis was required where that  was not the case (and both parties acknowledged 
that some re-manufactured products were produced by  re-manufacturers that did not hold tenure).  We 
therefore did not consider it necessary to amend this part of our report.  
VII. FINDINGS 
7.1 Canada challenges the United States Department of Commerce ("USDOC") final 
countervailing duty determination with respect to  certain softwood lumber from Canada ("USDOC 
Determination" or "Final Determination") of 21 Ma rch 2002.  Canada brings seven claims against the 
USDOC Determination.  The first three claims re late to the USDOC's finding that the Canadian 
stumpage programmes constitute financial contributi ons which confer a benefit on producers of the 
subject merchandise and are thus subsidies.  The fo urth claim concerns the USDOC's determination of 
specificity of the alleged subsidies.  The fifth claim concerns various specific aspects of the 
calculation of the subsidy rate.  The sixth claim is of a procedural nature and concerns the alleged 
failure by the USDOC to provide a timely opportuni ty to see all relevant information and to give 
adequate notice of the essential fact s of the investigation.  The seve nth and final claim relates to the 
alleged inconsistent initiation of th e investigation by the USDOC as a consequence of the application WT/DS257/R 
Page 71 
 
 
of the Continued Dumping and Subsidy Offset Act of  2000 (the "Byrd amendment").  We will address 
these claims in the order they have been presented to us by Canada.75 
A. CLAIM 1: INCONSISTENT FINDING OF THE EXISTENCE OF A FINANCIAL CONTRIBUTION  
1. Arguments of the parties 
(a) Canada 
7.2 Canada considers that the USDOC erred in determining that "stumpage" is a financial 
contribution in the form of the provision of a good by the government.76  According to Canada, 
stumpage is the conferral of the right to harvest  standing timber.  Canada submits that the conferral of 
this right to exploit an in situ  natural resource cannot be equated to the provision of a good or a 
service by the government and therefore does not co nstitute a financial contribution in the sense of 
Article 1.1 (a) (1) (iii) of the Agreement on Subsidies and Counte rvailing Measures (the "SCM 
Agreement").  Canada claims that the USDOC, by imposing definitive countervailing measures 
without properly determining the existence of a subs idy, acted inconsistently with Articles 10, 32.1, 
19.1, 19.4 SCM Agreement and Article VI:3 GATT 1994.   
7.3 Canada is of the view that stumpage is not a good because the ordinary meaning of the term 
"good", as reflected in Black's Law Dictionary, is "tangible or movable personal property, other than 
money".77 According to Canada, an intangible real property right such as stumpage is thus not a good.  
Canada submits that an intangible right does not become a good just because it is a factor enabling the 
creation of a good, nor because the right holder's objective is to produce a good.  Moreover, in 
Canada's view, the term "goods" in the context of  Article 1.1 (a) (1) (iii) SCM Agreement has the 
same meaning and scope as "goods" or "products" used elsewhere in the SCM Agreement and the 
WTO Agreement, in particular Article II of GATT 1994, i.e.  tradable items with an actual or 
potential customs classification.78 Canada submits that a right to exploit a resource cannot be traded 
across borders and cannot be assigned a tariff classification.79  
7.4 Canada further argues that, even assuming that USDOC was correct that the stumpage 
programmes provide standing timber  rather than the right to harvest such timber, the Canadian 
provincial stumpage programmes still do not involve a financial contribution.  Canada argues that the 
ordinary meaning of "goods" is movable , tangible items, and that immovables  such as trees in the 
                                                      
75 In addition to these seven claims, we note that Canada's request for establishment of a Panel also 
included  a claim relating to expedited and administrative reviews.  Canada did not advance any arguments in respect of this claim, and therefore we will not address this undeveloped claim. 
76 USDOC Final Determination, p. 29.  (CDA-1) 
77 Black’s Law Dictionary, 7th ed.  (St. Paul: West, 1999), p. 701. (CDA-16). 
78 Canada also points to Article 3.1 (b) of the SCM Agreement, which refers to the use of domestic 
over imported goods, as confirmation for its view that goods need to be capable of being imported and should 
therefore be tradeable.  Canada asserts that the term "goods" does not include intellectual property rights, or 
services, as is evidenced by the fact that the GATS and TRIPS Agreements are not part of Annex 1.  Canada is of the view that there is therefore nothing in the letter or the context of the WTO Agreement which justifies 
interpreting "goods" to encompass everything of economic value.  Canada First Oral Statement, paras.  23 – 24. 
79 Canada notes that the Panel in the US - Export Restraints case confirmed that the SCM Agreement 
"was drafted with the express purpose of ensuring that not every government intervention in the market would 
fall within the coverage of the Agreement" (Panel Report, US – Export Restraints , para 8.63).  According to 
Canada, the object and purpose of Article 1.1 (a)1(iii) SCM Agreement is not to capture all potential in-kind 
transfers of economic resources that a government may pr ovide.  The fact that the drafters used the term 
"provision of goods" rather than, "property rights" or "e conomic resources" confirms that the objective of the 
SCM Agreement was not to govern all transfers of economic resources.  Canada First Oral Statement, paras.  25 
- 26. WT/DS257/R 
Page 72  
 
forest are not "goods".
80 Therefore, according to Canada, standing timber – i.e.  trees firmly rooted in 
the ground - is not a "good" in the sense of Article  1.1 (a)  (1) (iii) SCM Agreement, as it is an in situ  
natural resource that is not capabl e of being traded across borders. 
7.5 Canada rejects the United States assertion that tenures and licences are merely contracts for 
the sale of goods because at the end of the day tenure and licence holders end up with a good (cut 
timber).  Canada considers that the definition of subsidy has two elements, financial contribution and 
benefit.  Financial contribution relates to what  the government does, benefit relates to what the 
recipient receives.  Article 1.1 (a) (1) (iii) SCM Agreement does not require the Panel to determine 
what the recipient ends up with at the end of the day or why the recipient enters into a given 
relationship with a government, but it requires a Pa nel to determine what the government provides.  
Moreover, the provision of stumpage rights cannot be equated to the sale of goods.  According to 
Canada, a timber sales contract identifies individual standing trees to be cut and the resulting felled 
timber to be hauled away.  In contrast, a tenure or lic ence grants a right of harvest in an area of land in 
return for certain obligations, but no trees are identified to be cut.81 Stumpage rights are conferred and  
obligations are assumed regardless of whether any tr ees are actually cut, and even though the trees 
that are cut may not even have been planted at the time the rights and obligations are assumed.  Tenures and licences, in Canada's view, do not invol ve identified trees, they involve identified areas.  
In sum, what the provinces provide is not simply trees in return for a fee, but harvesting rights in the 
context of tenures or licences that impose elaborat e and long-term obligations on timber harvesters.
82   
7.6 In sum, Canada submits that the transfer of the right to harvest standing trees through the 
Canadian provincial stumpage programmes does not amount to the provision of a good within the meaning of Article 1 SCM Agreement.  For these reasons, Canada claims that the USDOC 
determination of the existence of a subsidy in the form of the provision of a good through the 
Canadian provincial stumpage programmes is inco nsistent with the obligation to make a proper 
subsidy finding before imposing countervailing measures as set forth in Article 10, 19.1, 19.4 and 
32.1 SCM Agreement and Article VI:3 GATT 1994.   
(b) United States 
7.7 The United States submits that the USDOC determination that Canadian provincial stumpage 
programmes provide a financial contribution in the form of government provision of a good is consistent with Article 1.1 (a) (1) (iii) SCM Agreem ent.  The United States is of the view that the 
Canadian stumpage programmes provide standing  timber, and the stumpage programmes thus 
constitute the provision of a good in the sense of that Article.  According to the United States, the 
ordinary meaning of the term "goods", as reflected in Black's Law Dictionary for example, includes 
an "identified thing to be severed from real property"
83 which clearly covers standing timber.84 The 
                                                      
80 Canada refers to Black's Law Dictionary to argue that the ordinary meaning of "goods" is "tangible 
or movable personal property other than money".  Black’s Law Dictionary, 7th  ed.  (St. Paul: West 1999), 
p. 701. (CDA-16).  Canada argues that Black's Law Dictionary in fact reproduces, albeit imperfectly, the Uniform Commercial Code of the United States.  Canada asserts that the UCC definition of "goods" excludes 
"general intangibles", and that the basic UCC definition of "goods" refers to movable things. Canada notes that 
the UCC specifically addresses "timber to be cut" in a separate provision, and that this phrase is limited to individual trees identified to be cut in a sales contract. In Canada's view, all other timber, such as standing trees 
which may or may not be cut during the term of the tenure and which in any event are not specifically identified, 
is thus excluded from the UCC definition of "goods".  According to Canada, the UCC, if at all relevant, thus 
supports Canada's interpretation of the term "goods" in the SCM Agreement.  Canada Second Written 
Submission, paras.  11 – 12. 
81 Canada Second Written Submission, para. 15. 
82 Canada Second Oral Statement, paras.  15 –19.  Canada notes that a volumetric stumpage charge, 
also referred to as a stumpage fee,  is not money paid to obtain the right to harvest timber, it is rather a levy on 
the exercise of the existing right to harvest timber. 
83 Black’s Law Dictionary, 7th ed.  (St. Paul: West, 1999), p. 701-702. (CDA-16). WT/DS257/R 
Page 73 
 
 
United States asserts that the context in which the te rm "goods" is used in Article 1.1 (a) (1) (iii) SCM 
Agreement, i.e.  "goods or services other than gene ral infrastructure", confirms the broad meaning of 
the term.  The United States asserts that it is evident from Article 1.1 SCM Agreement that the 
Members recognized that governments have a wide variety of mechanisms at their disposal to confer 
an advantage on specific domestic enterprises and that they intended to bring those mechanisms 
within the disciplines of the SCM Agreement.  According to the United States, the fact that "products" 
are "goods" and that "imported goods" are necessarily also "goods", does not logically give rise to the 
inferences Canada is drawing that nothing else can come within the meaning of goods.  Thus, the 
United States submits that while the term "goods" in  Article 1.1 (a)(1) (iii) SCM Agreement certainly 
includes tradeable products, there is no basis to limit its meaning to such products when neither the text nor the context in which the term is  used suggests such a limitation.   
7.8 According to the United States, Canada is elevating form over substance when it argues that 
stumpage only confers the right to harvest timber.  In the view of the United States, there is no 
meaningful distinction between the government granting a right to harvest timber and the government 
actually supplying the timber through the holder’s exercise of that right.
85 The only way to provide 
standing timber (the good in question) is by providing the right to harvest the timber.  According to the United States, the clear purpose of the programme is  thus to provide timber to Canadian mills that 
make lumber or wood pulp.
86 The fact that tenure holders are required to fulfill certain forest 
management obligations as a condition of sale does  not convert these sales of timber into forest 
management contracts or into the sale of a "right" to harvest.87 The United States argues that all 
ownership rights in the forest remain vested in th e Canadian provinces, and that the tenure holder only 
acquires ownership of the trees it harvests and pays for.  The United States asserts that the record 
demonstrates that tenure holders do not acquire a freely transferable "right" to harvest, as all provinces 
prohibit the transfer of tenur es without government approval.88 In sum, the United States submits that, 
in spite of Canada's efforts to sever the right to harv est from the sale of the trees, the facts demonstrate 
that tenure holders are buying trees.  Tenure holders are not forest management companies, they are 
mills which need timber.  The provinces provide it and this, according to the United States, constitutes 
a financial contribution within the meaning of Article 1.1 (a) (1) (iii) SCM Agreement.   
2. Analysis 
7.9 Canada claims that the USDOC erred in finding that the provision of stumpage by Canadian 
provincial governments constitutes a financial contribu tion in the form of the provision of a good in 
the sense of Article 1.1 (a) (1) (iii) SCM Agreement.   According to Canada, the USDOC thus failed to 
properly determine the existence of a subsidy to th e producers of the subject merchandise as defined 
in Article 1 SCM Agreement, and the measures imposed on the basis of this flawed subsidy 
determination are therefore inconsistent with Articles 10, 32.1, 19.1, 19.4 SCM Agreement and 
Article VI:3 GATT 1994.   
7.10 Canada's claim thus concerns the definition of a subsidy in Article 1.1 SCM Agreement, and 
the existence of a financial contribution under Articl e 1.1 (a) (1) (iii) SCM Ag reement in particular.  
Our analysis of Canada's claim begins of course with the text of that Article.  Article 1.1 SCM 
Agreement provides that: 
                                                                                                                                                                     
84 The United States notes that the term "goods" is similarly defined in Canadian law, and refers in 
particular to the British Columbia Sale of Goods Act.  (US - 4). 
85 The United States notes that the Panel in the case US – Softwood Lumber III agreed with this 
analysis.  Panel Report, US – Softwood Lumber III , para. 7.17. 
86 In this respect, the United States notes that participation in the programme is restricted to Canadian 
mills or companies that have a contract with Canadian mills to process the harvested timber 
87 United States Second Written Submission, para. 17. 
88 United States Second Written Submission, para. 18.  United States Response to Questions from the 
Panel at the First Meeting (Annex A-2), para. 19. WT/DS257/R 
Page 74  
 
Article 1 
Definition of a Subsidy 
 
"1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if: 
 
(a)(1) there is a financial contribution by a government  or any public body within 
the territory of a Member (referred to in this Agreement as "government"), 
i.e.  where: 
 
(i) a government practice involves a direct transfer of funds (e.g.  grants, loans,  
and equity infusion), potential direct tr ansfers of funds or liabilities (e.g.  loan 
guarantees); 
 
(ii) government revenue that is otherwise due is foregone or not collected (e.g.  
fiscal incentives such as tax credits);   
 
(iii) a government provides goods or servic es other than general infrastructure, or 
purchases goods; 
 
(iv) a government makes payments to a funding mechanism, or entrusts or directs 
a private body to carry out one or more of the type of functions illustrated in 
(i) to (iii) above which would normally be vested in the government and the 
practice, in no real sense, differs from practices normally followed by 
governments; 
or 
 
(a)(2) there is any form of income or pr ice support in the sense of Article XVI of 
GATT 1994; 
 
and 
 
(b) a benefit is thereby conferred." 
  
7.11 In the Final Determination, the USDOC found that the Canadian provinces provide a good to  
Canadian producers of softwood lumber through the licence and tenure agreements concluded with 
companies that harvest standing timber.  Canada focuses on the terms of the tenure agreements which confer harvesting rights  to log producers.  According to Canada, such a right is not a "good", it 
certainly is not timber.  The United States is of the vi ew that this is form over substance: what Canada 
is really doing is providing cheap timber to the lu mber producers as it allows such producers access to 
cheap timber through agreements that provide harvesting rights. 
7.12 The Final Determination first discusses the meaning of the term "stumpage" and examines the 
ordinary meaning of the term "goods" to conclude that  "stumpage, i.e.  timber, is a 'good' within the 
meaning of section 771 (5 ) (B) (iii) of the Act".
89 The USDOC then rejects the argument that the 
provincial governments are not providing timber (a good) but are merely granting a right to harvest timber as it considers that the sole purpose of the tenure systems is to provide lumber producers with 
timber.
90 The USDOC concludes that the provision of stumpage by the provincial governments 
constitutes the provision of a good under Section 771 (5) (D) (iii) of the Act. 
                                                      
89 USDOC Final Determination, p. 29 (CDA-1). 
90 USDOC Final Determination, p. 29 - 30 (CDA-1). WT/DS257/R 
Page 75 
 
 
(a) What do the stumpage programmes provide: the right  to harvest or standing timber  ? 
7.13 Canada asserts that a tenure or licence carries current and future obligations such as forest 
management planning, fire protection, etc. which are independent of any harvest, and the right to 
harvest Crown timber is thus fundamentally differ ent from the simple ownership right in trees.  
Canada argues that a timber sales contract identif ies individual standing trees to be cut, while, in 
contrast, a tenure or licence grants a right of harvest in an area of land in return for certain rights and 
obligations, but that no specific trees are identifie d to be cut.  The tenure agreements may even 
concern trees which have yet to be planted. 
7.14 We asked Canada to explain what it considers to be the distinction between the provision of 
the right to harvest a tree and the right to own the harvested tree.  In response, Canada stated that 
"most forms of tenure confer a right to harvest standing timber that is in the nature of a proprietary 
interest ".91  We read Canada's acknowledge ment that the right to harvest timber is in the nature of a 
proprietary interest, to imply that the tenure holder which has the right to harvest the timber, in fact 
receives proprietary rights over the standing timber.  Canada further discussed, in response to our 
questions, how various types of tenures or licences operate and when ownership of the timber is transferred to the tenure holder.  In light of Cana da's answers, it appears that the United States is 
correct when it argues that "there is no record evidence of stumpage contracts under which the 
contracting party (tenure holder or licensee) does not have ownership rights to the harvested timber".
92 
7.15 We also asked Canada whether the contractual rights to harvest could be sold without the 
permission of the provincial governments.  Canada stat ed that the answer to this question varies from 
province to province, and it provided informati on concerning British Columbia, Alberta, Ontario and 
Quebec.93 On the basis of this information provided by Canada we conclude that, in fact, in each 
province such rights cannot be sold without government permission, and that various types of tenures 
or licences are not transferable at all.  We wish to emphasise that for purposes of Article 1.1 (a) (1) 
(iii) SCM Agreement, the exact legal nature of the stumpage contracts is not what is important.  
Rather, what is important for purposes of th e Agreement is whether, through the stumpage 
programmes, the Canadian provincial governments are "providing a good" to the timber harvesters.  We consider that, in essence, the stumpage programmes provide standing timber  to the harvesters.  
Canada acknowledges that the provinces own th e forests and the trees that grow in them.
94 The only 
way for harvesters to obtain the trees standing on government-owned Crown land for harvesting and 
processing is by concluding stumpage agreements (tenures or licences) with the governments 
concerning these trees.  The only way for the government to provide the standing timber that it owns to the harvesters and the mills fo r processing is by allowing the harvesters to come on the land and 
harvest the trees.  Such legal ri ghts and obligations are transferred through the stumpage agreements.  
It is thus through the stumpage agreements that the governments provide the standing timber to the 
harvesters.
95 The price to be paid for the timber, in add ition to the volumetric stumpage charge for the 
                                                      
91 Canada Response to Questions of the Panel at the First Meeting (Annex A-1), para. 8.  Also see for 
example Section 16 (2) of Alberta's Forests Act which provides in relevant part that "ownership of all Crown 
timber on land subject to a forest management agreement or forest management lease is, during the term of the 
agreement or lease, vested in the holder of the agreement or lease".  (CDA-115) 
92 United States Response to Questions of the Panel at the First Meeting (Annex A-2), para. 9. 
93 Canada Response to Questions of the Panel at the First Meeting (Annex A-1), paras.  17 – 23. 
94 Canada First Oral Statement, para. 13. 
95 We note that this was also the view held by the Panel in the US – Softwood Lumber III case: 
"7.18 In sum, and in the context of Article 1.1(a) (1)(iii) SCM Agreement, we are of the 
view that where a government allows the exercise of harvesting rights, it is providing standing 
timber to the harvesting companies.  From the perspective of the harvesting company the situation is clear: most forest land is Crown land, and if the company wants to cut the trees for 
processing or sale, it will need to enter into a stumpage contract with the provincial 
government, under which it will have to take on a number of obligations in addition to paying WT/DS257/R 
Page 76  
 
trees harvested, consists of various forest management obligations and other in-kind costs relating to 
road-building or silviculture for example.  In re turn, the tenure holders receive ownership rights over 
the trees during the period of the tenure.
96 In other words, with the stumpage agreements, ownership 
over the trees passes from the government to the tenure holders.  Standing timber has thus been 
provided to the tenure holders. 
7.16 This conclusion does not change whether one looks at it from the perspective of the recipient, 
the tenure holder, or from the perspective of the provider, the government.  As noted by the Panel in 
the US - Softwood Lumber III  case, from the perspective of the tenure holder, the only reason to enter 
into tenure agreements with the provincial governments is to obtain the timber.97 The minimum cut 
requirements for tenure holders under certain stumpage  programmes, the requirements to qualify as a 
tenure holder, such as the requirement to own a pr ocessing facility and other processing requirements, 
are just some examples that demonstrate that the pr ovision and processing of standing timber is what 
the stumpage programmes are all about.  This is no t to say that the governments may not at the same 
time be pursuing certain other social, economic or environmental policies by imposing certain forest 
management obligations as conditions of sale.  Howe ver, these conditions of sale or the costs that 
companies assume for obtaining the stumpage cannot alter the fundamental conclusion that the stumpage programmes provide standing timber, and not just a right to harvest such timber, to the 
tenure holders.  In return, the tenure holders acc ept to pay a volumetric stumpage fee for the trees 
actually harvested and assume certain management and other obligations in order to obtain such 
timber.   
7.17 In our view, the right to harvest standing timber is not severable from the right over the 
standing timber and providing the right to harvest timber is therefore no different from providing 
standing timber.  In this respect  we find illustrative the example given by the United States of 
someone who wants to buy the trees in his neighbour's backyard and the neighbour agrees that he can 
have the trees if he paints that person's house and pays him $100.  As the United States correctly 
points out, "inherent in the contract is the buyer’s right to cut down the trees and haul them away, if 
he fulfils the conditions of purchase,  i.e., paints the house and pays th e $100.  Nevertheless, this is a 
contract for the sale of goods – the standing trees in the neighbour's backyard – not the sale of the 
'right' to harvest the trees".
98  
7.18 We do not consider relevant the distinction that Canada makes between a contract which 
identifies individual trees to be cut, and an agre ement concerning harvesting rights over a certain area 
of forest land.  In our view, in both cases, trees are provided.  In any case, it appears to us that, although a tenure agreement may not provide for a pr ecise number of identified trees to be cut, the 
tenure holder knows all too well how many trees and which species of trees can be found on the area 
of land covered by his tenure.
99 In sum, we consider that in this context there is no meaningful 
                                                                                                                                                                     
a stumpage fee for the trees actually harvested.  We thus view the service and maintenance 
obligations, the obligations to undertake various forestry management, conservation and other 
measures, combined with the stumpage fees required by the stumpage agreements, as the price the tenure holder has to pay for obtaining and exercising its harvesting rights.  (footnotes 
omitted) 
Panel report, US - Softwood Lumber III, para. 7.18. 
96 This is evidenced for example in Alberta's Forests Act which provides that "ownership of all Crown 
timber on land subject to a forest management agreement or forest management lease is, during the term of the 
agreement or lease, vested in the holder of the agreement or lease".  (CDA – 115).  See Canada Response to Questions from the Panel at the First Meeting (Annex A-1), para. 11. 
97 Panel report, US – Softwood Lumber III , para. 7.16.  We note that Canada acknowledged before that 
Panel that the main interest of tenure holders is the end-product of the harvest.  Panel report, US – Softwood 
Lumber III , para. 7.16, fn.  46. 
98 United States Second Written Submission, para. 16 
99 In this regard, we note that there is a clear difference between tenure agreements concerning standing 
timber and the granting of extraction rights in the case of  minerals or oil, or fishing rights where the owner of WT/DS257/R 
Page 77 
 
 
distinction between the provision of a right to harvest timber and the provision of standing timber 
itself, and therefore find that the Canadian prov incial stumpage programmes provide standing timber 
to the tenure or licence holders. 
(b) Is standing timber a "good" in the sense of Article 1.1 (a) (1) (iii) SCM Agreement? 
7.19 In order to determine whether the USDOC co rrectly found that through these stumpage 
programmes Canadian provincial governments provide goods in the sense of Ar ticle 1.1 (a) (1) (iii) 
SCM Agreement, we  next consider whether standing timber is a "good" in the sense of Article 1.1 (a) 
(1) (iii) SCM Agreement.   
7.20 Canada argues that standing timber, i.e., trees rooted in the ground, are not "goods" within the 
meaning of Article 1.1 SCM Agreem ent.  In Canada's view trees do not fall within the ordinary 
meaning of the term "goods".  Moreover, Canada is of  the view that the term "goods" in the particular 
context of Article 1 SCM Agreement refers to tradea ble products with an actual  or potential tariff line 
and standing timber which cannot be traded across borders is therefore not a good in the sense of 
Article 1.1 (a) (1) (iii) SCM Agreement.   
7.21 According to the United States, standing timber is clearly included within the broad ordinary 
meaning of the term "goods".  In the view of the United States, the context in which the term is used 
in the WTO Agreement and the SCM Agreement in particular does not provide a basis to limit its 
application, for the purpose of Article 1.1 (a) (1) ( iii) SCM Agreement, to products for which there is 
an actual or potential tariff line.   
7.22 We recall that Article 3.2 DSU requires a panel to  interpret the Agreement in accordance with 
customary rules of interpretation of public international law, which, it is well-accepted, include in 
particular Articles 31 and 32 of the Vienna Conve ntion on the Law of Treaties.  Article 31 of the 
Vienna Convention on the Law of Treaties provides that  "a treaty shall be interpreted in good faith in 
accordance with the ordinary meaning to be given to  the terms of the treaty in their context and in 
light of its object and purpose".  We will thus examine the ordinary meaning of the word "goods" used 
in Article 1.1 (a) (1) (iii) SCM Agreement – in its co ntext and in light of the object and purpose of the 
Agreement.   
7.23 The New Shorter Oxford Dictionary defines "goods" as, inter alia , "saleable commodities, 
merchandise, wares".100 Black's Law Dictionary, to which both parties refer in search of the ordinary 
meaning of the term "goods", defines "goods" as follows: 
"1.  Tangible or movable personal property other than money; esp.  articles of trade or 
items of merchandise <goods and services>.  The sale of goods is governed by Article 2 of the UCC.  2.  Things that have value, whether tangible or not <the 
importance of social goods varies from society to society>. 
"'Goods' means all things, including specially manufactured goods that are 
movable at the time of identification to a contract for sale and future goods.  The term includes the unborn young of animals, growing crops, and other 
identified things to be severed from real property … .  The term does not 
include money in which the price is to be paid, the subject-matter of foreign exchange transactions, documents, letters of credit, letter-of-credit rights, 
                                                                                                                                                                     
the right is not at all certain what and how much of it he will find, and what he pays for is the right to explore a 
particular site and the chance of finding something.  In so noting, we do not mean to express a view as to what 
extent, if at all, this uncertainty would be relevant to a determination whether the granting of such extraction rights represented the provision of goods within the meaning of Article 1.1 (a) (1) (iii) SCM Agreement, an 
issue which is not before us. 
100 New Shorter Oxford Dictionary, edited by Lesley Brown, Clarendon Press Oxford, 1993, p.1116. WT/DS257/R 
Page 78  
 
instruments, investment property, accounts, chattel paper, deposit accounts, 
or general intangibles." UCC § 2 – 102 (a) (24). 
7.24 The ordinary meaning of the term "goods" as "tangible or movable personal property other 
than money" is thus very broad and includes standing timber, as trees are tangible objects which are capable of being owned.  This is further confirme d by the explanation in Black's Law Dictionary that 
a "good" includes "an identified thing to be severe d from real property".  Standing timber indeed 
seems to us to be an excellent example of an identified thing that can be severed from real property.  
We note that in its Sale of Goods Act, the Cana dian province of British Columbia, the prime exporter 
of softwood lumber to the United States, itself defines "goods" as including "growing crops, […], and 
things attached to or forming part of the land that  are agreed to be severed before sale or under the 
contract of sale".
101  In our view, this definition of a good  certainly includes standing timber.   
7.25 Article 31 Vienna Convention requires the interp reter to determine the ordinary meaning of 
the terms of the treaty in their context and in the light of its object and purpose .  The immediate 
context of the term "goods" in Article 1.1 (a) (1) (iii) SCM Agreement is "goods or services, other 
than general infrastructure".  We no te that the term "goods" in this context is not qualified in any way 
and its use in the combination "goods or services", in our view, confirms that the term is to be 
understood broadly.  We find further confirmation of th is broad meaning in the fact that the drafters of 
the Agreement considered it necessary to explicitly exclude "general infrastructure".  This implies that 
"goods or services" is sufficiently broad as to include "general infrastructure"; if not, there would have 
been no reason to explicitly exclude it.  At the same time, "general infrastructure" is the only "good or 
service" which is excluded from the broad scope of Article 1.1 (a) (1) (iii) SCM Agreement.  In our 
view, if the drafters had wanted to exclude othe r items such as natural resources or non-tradeable 
goods, they would have also explicitly excluded such "goods or services".   
7.26 Article 1.1 SCM Agreement defines a subsidy for the purposes of the SCM Agreement.  It 
provides that the first element of a subsidy is  a "financial contribution by the government". 
Subparagraphs (i) through (iv) explain that a financ ial contribution can exist in a wide variety of 
circumstances including of course the direct transfer of funds.102  A financial contribution will also 
exist if the government does not collect the reve nue to which it is entitled or when it does something 
for ("provides a service") or supplies something to ("provides a good") a recipient.  We are of the 
view that Article 1.1 (a) (1) (iii) SCM Agre ement, in its context, clarifies that a financial contribution 
also exists where, instead of a money-transferring action, goods or services are provided.  The context 
in which the term "goods" is used in Article 1.1 (a ) (1) (iii) SCM Agreement as well as the purpose of 
Article 1 SCM Agreement in our view confirm the broad and un qualified meaning of the term 
"goods".   
7.27 We consider Canada's interpretation, that the reference in Article 1.1 SCM Agreement to the 
provision of "goods" refers to tradeable products fo r which there is a tariff line, to be excessively 
narrow.  We understand Canada to argue that, since on several occasions in the SCM and other WTO 
Agreements the term "goods" is qualified as "imported"  or is understood to be tradable, and since for 
many goods there exists a tariff line, this necessar ily implies that all "goods" have to be capable of 
being imported, and must therefore be tradeable.    
7.28 We consider that the ordinary meaning of the te rm "goods", in its context and in light of the 
object and purpose of the Agreement, does not pl ace the limitations on the meaning of the term 
suggested by Canada ("tradeable products with a potent ial or actual tariff line").  In our view, that in 
many cases in the GATT and the WTO Agreements the general term "good" is used as an equivalent 
of the term "products", does not imply that this is necessarily always the case.  Precisely because of its 
broad ordinary meaning, the specific content of the term will be determined by the adjective 
                                                      
101 Sale of Goods Act (British Columbia), RSBC 1996, ch.  410, section 1.  (US –4) 
102 See also Panel Report, US – Lumber III, para. 7.24 WT/DS257/R 
Page 79 
 
 
accompanying the term as a sort of qualifier.  In the absence of any such limitations placed on the 
term, as in Article 1.1 (a) (1) (iii)  SCM Agreement, we consider that the term "goods" keeps its broad 
ordinary meaning.  All that the text of Article 1.1 (a) (1) (iii) SCM Agreement suggests is that the 
goods or services are capable of being provided by a government; it does not address whether they 
can be imported or traded.  The fact that the SCM Ag reement relates to subsidie s in the trade in goods 
context only, and does not cover services, does not mean that the "goods" provided by the government 
necessarily have to be goods that can be traded or that are covered by the GATT as products under 
Article II.  We note in this respect that Article 1.1 (a) (1) (iii) SCM Agreement also mentions the 
provision of services  by the government as constituting a fina ncial contribution while the disciplines 
of the SCM Agreement, as discussed, only apply to trade in goods .   
7.29 We agree with Canada that the definition of a subsidy in Article 1 SCM Agreement reflects 
the Members' agreement that only certain types of government action are subject to the SCM 
Agreement, and also that not all government actions that may affect the market come within the ambit 
of the SCM Agreement.103 When the government provides goods or services, however, such action is 
clearly covered by the SCM Agreement.  Standing timber, a physical and tangible object, is the log 
and lumber producers' prime input, and the action by the government to supply this input to the producers of logs and lumber, is the provision of a good and therefore covered by the SCM 
Agreement.
104   
7.30 In the absence of any textual basis for lim iting the broad ordinary meaning of the term 
"goods" in the context of Article 1.1 (a) (1) (iii) SCM Agreement, we find that the USDOC 
Determination that the Canadian provinces are prov iding a financial contribution in the form of the 
provision of a good by providing standing timber to the timber harvesters through the stumpage 
programmes is not inconsistent with Article 1.1 (a) (1) (iii) SCM Agreement.  We therefore reject all 
of Canada's claims of violation of the SCM Agreement and GATT 1994 in this respect.   
B. CLAIM 2: INCONSISTENT DETERMINATION OF BENEFIT UNDER ARTICLE 14 (D) SCM  
AGREEMENT  
1. Arguments of the parties 
(a) Canada 
7.31 Canada asserts that the USDOC found that Canadian provincial stumpage programmes 
conferred a benefit on Canadian stumpage holder s by comparing the "price" paid for provincial 
stumpage in Canada  with stumpage prices in the United States .  Canada argues that such a cross-
border analysis using transactions in a country other than the country of alleged provision of the good 
to determine the existence of a bene fit, and measure it, is inconsistent  with Article 1 and Article 14 (d) 
SCM Agreement.  In Canada's view, for the purpos es of Part V of the SCM Agreement, the proper 
benchmark in a provision of goods context is the home market price of a good, and not its price in 
some other market, nor some hypothetical construc t.  According to Canada , whether a "benefit" is 
conferred by the alleged provision of goods by the government through the stumpage programmes 
depends on whether the stumpage tenure or licence holders were better off than other purchasers who 
buy the same good from other sources in Canada, the country subj ect to the investigation.  
                                                      
103 Canada First Written Submission, para. 20.  See Panel report, US – Export Restraints , para. 8.63. 
104 We note that the Panel in the US – Softwood Lumber III case came to a similar conclusion: 
"7.29 […] Standing timber is the valuable input for logs which may be processed by 
sawmills into softwood lumber.  In light of our finding that there is no basis in the text of the 
SCM Agreement to limit the term "goods" to tradeable products with a potential or actual 
tariff line, we consider that standing timber, trees, are goods in the sense of Article 1.1(a)(1)(iii) SCM Agreement".  (footnotes omitted)  
Panel report, US – Softwood Lumber III , para. 7.29. 
 WT/DS257/R 
Page 80  
 
7.32 Canada considers that the USDOC rejected record evidence pertaining to benchmarks in 
Canada for the alleged good provided, based on an  unfounded assumption that it could legally reject 
in-country benchmarks and an unsupported factual conclusion that "there are no useable market-
determined prices between Canadian buyers and sellers"
105 because prices were allegedly suppressed 
as a result of government involvement.  In response to  the US argument that private stumpage prices 
in Canada were distorted by the alleged government  financial contribution and could therefore not be 
used as a benchmark, Canada submits that there is nothing in the text, context, or object and purpose 
of the Agreement that suggests that the market conditions referred to in Article 14 (d) SCM 
Agreement as the benchmark for measuring the adequacy of the remuneration received by the 
government for the good provided are those of a perfectly competitive market isolated from the effect of a financial contribution.  According to Canada , by replacing "adequate remuneration" with "fair 
market value", the United States turns Article 14 (d ) SCM Agreement into a provision that measures 
adequacy of remuneration by comparing the governme nt price to a constructed "fair market value" 
rather than to the prevailing market conditions in  the country of provision, contrary to the plain 
meaning of Article 14 (d) SCM Agreement.
106  
7.33 According to Canada, the record provided the USDOC with ample information regarding 
prevailing market conditions in Canada, such as private timber sales, cost-revenue comparisons, an 
economic analysis of provincial stumpage charge s, competitive auction pric es and private sector 
assessments of timber value.107 In sum, Canada submits, there was sufficient useable information on 
the record concerning private stumpage prices which could have been, and should have been, used by 
USDOC in calculating the alleged benefit.   
7.34 Canada rejects the United States argument that such Canadian price information could not be 
used because of alleged price suppression due to the Canadian government's involvement in the 
market.  According to Canada, there is nothing in the SCM Agreement or WTO jurisprudence that 
mentions "price suppression" as a reason for dispen sing with market benchmarks.  Moreover, Canada 
submits, the USDOC did no analysis whatsoever to arrive at the conclusion that price suppression 
existed because of government presence in the Ca nadian market, but simply assumed that government 
market share demonstr ated price suppression.108  
7.35 Canada considers flawed the US argument that stumpage prices in the United States form part 
of the prevailing market conditions in Canada becaus e US stumpage is available to Canadian loggers.  
According to Canada, stumpage prices in the United States  cannot be considered to constitute part of 
the prevailing market conditions for stumpage in Canada .  Canada is of the view that, even if in 
certain areas of the United States Canadian producer s can legally bid on certain cutting rights in the 
United States, harvest US timber and import US logs for milling, US standing timber – the alleged 
good provided, not logs produced from the standing timber - is still not available "in" Canada.  In addition, Canada argues, there are a number of factual difference s between the rights and obligations 
involved in acquiring harvesting rights in the United States and in Canada which invalidate the use of US stumpage prices as a benchmark and which demonstrate that cross-border comparisons make no 
                                                     
 
105 USDOC Final Determination, p. 36.  (CDA-1) 
106 Canada First Oral Statement, para. 68. 
107 The actual information provided is discussed in detail in Canada's First Written Submission, paras.  
94 – 110, and in Canada's First Oral Statement, paras.  50 - 54. 
108 Canada First Oral Statement, para. 58.  According to Canada, the USDOC simply relied on the 
Preamble to its Regulations to presume price suppression based on government involvement in the marketplace 
(USDOC Final Determination, p.47 (CDA-1)).  Canada argues that the economic report which the USDOC used 
as support for its presumption was purely theoretical and based on a flawed economic model, and most importantly, did not include consideration of any actual transaction prices.  The remaining mainly anecdotal  
"evidence" relied on by the USDOC did not include any analysis of actual sales transactions either.  Canada 
Second Written Submission, para. 26. WT/DS257/R 
Page 81 
 
 
economic or common sense.109 Canada asserts that the United States claim that it made adjustments to 
take into account these differences is not supported by the record.110  
7.36 Finally, Canada argues that studies on the record demonstrate, consistent with classical 
economic theory, that the market for stumpage is an "economic rent" market, in which, for an input 
that is fixed in supply, such as an in situ  natural resource like standing timber, the level of charges or 
fees for access to that resource will not lead to gr eater production of the output (logs or lumber), or 
lower prices for them than in a private competitive market.  According to Canada, the USDOC 
ignored this evidence that stumpage charges do not provide lumber producers with an advantage in 
trade.  In Canada's view, any determination of wh ether provincial stumpage systems confer a benefit 
must take into account the fact that the market at issue in this case is an  economic rent market, and 
any analysis of adequate remuneration in rela tion to prevailing market conditions should have 
included a review of whether provincial stumpage fees or charges are capable of causing trade 
distortion in downstream markets, which the USDOC failed to do. 
7.37 In sum, Canada argues that the USDOC De termination which found that the Canadian 
provincial stumpage programmes conferred a benefit was inconsiste nt with Articles 14 and 14 (d) 
SCM Agreement.  Canada submits that, since the United States failed to make a proper subsidy determination in accordan ce with the SCM Agreement, the co untervailing measures imposed on the 
basis of this flawed determination are inconsistent  with Articles 10, 19.1, 19.4, 32.1 SCM Agreement 
and Article VI:3 GATT 1994.   
(b) United States 
7.38 The United States argues that a benefit is something better than the market would otherwise 
provide, absent the financial contribution.  Accordin g to the United States, it is well established that a 
benefit from a governmental financ ial contribution is to be determined in comparison to the 
commercial market, and that the commercial market used for this comparison must, necessarily, be 
undistorted by the government’s intervention.
111 The United States considers that the appropriate 
benchmark for measuring benefit in this case would normally have been the fair  market value of 
timber in Canada.112 However, the United States asserts, th e record evidence demonstrated that the 
small non-government sector of the Canadian timber market was not a “commercial” market, i.e.  a 
market undistorted by the government intervention,  and Canadian private stumpage price information 
could thus not be used as the benchmark.  Theref ore, the USDOC used prices for comparable timber 
from alternate sources – the bordering regions of the northern United States – to determine the benefit 
                                                      
109 Canada asserts that a wide variety of complex factors affect stumpage rates, such as locational 
characteristics, timber characteristics, measurement systems, operating costs, differences in economic conditions 
and tenure holders’ rights and obligations.  In Canada’s view, the USDOC failed to make proper adjustments and ignored other obvious differences between the two markets.  Canada discusses the problems relating to the 
use of US benchmarks in this case at length in its first written submission, paras.  82 - 91.  Canada argues that 
this cross-border analysis is not consistent either with the USDOC's previous determination in the Lumber I – III  
cases, in which the USDOC explicitly recognized that cross-border comparisons are inherently "arbitrary and capricious" (CDA-26, Lumber I,  p. 24, 168). 
110 Canada argues that if the United states had attempted to analyze and compare market conditions in 
Quebec and Maine for its cross-border analysis, it would have discovered that much of the data needed to make the necessary adjustments were unavailable.  Canada Second Written Submission, para. 31. 
111 The United States refers to Appellate Body report, Canada – Aircraft, para. 157 and Panel report, 
Brazil – Aircraft (Article 21.5 – Canada II) , para. 5.29. 
112 According to the United States, "adequate remuneration" in the context of Article 14 (d) SCM 
Agreement must mean remuneration that is sufficient to eliminate any benefit.  Benefit is something more 
favourable than would otherwise be available in the commercial market, i.e.  fair market value.  Logically, 
therefore, "adequate" remuneration is fair market value.  United States First Written Submission, para. 42.  The 
United States asserts that the proper benchmark is thus an independent market-driven price for the good, which 
is also the standard applied under Canadian law.  United States Second Written Submission, para. 26.  See 
Canadian Special Import Measures regulations, C.R.C SOR/84-927.  (US –10). WT/DS257/R 
Page 82  
 
conferred by the provision of standing timber from Crown land adjusted to reflect market conditions 
in Canada, in accordance with Articles 1 and 14 (d) SCM Agreement.   
7.39 The United States asserts that Article 14 (d) SCM Agreement provides that the adequacy of 
the remuneration and the existence of a benefit must  be determined "in relation to" the prevailing 
market conditions (such as the conditions of sale, pri ce, etc.) in the country under investigation, i.e.  
"with reference to" or "taking account of" market conditions in the country of provision.  The 
United States considers that Article 14 (d) SCM Agre ement is silent on the data to be used to 
determine "adequate remuneration", and the choice of data is therefore up to the investigating 
authority.  According to the United States, Article 14 (d) SCM Agreement does not restrict that data to 
"in-country" sources.
113  Rather, what is important is that the method used must result in a fair market 
value assessment that relates to  conditions of sale (i.e.  prevailing market conditions) in the country of 
provision.  The United States argues that Members such as the European Communities114 also permit 
the use in certain circumstances of prices on the world market to assess adequate remuneration, and 
that Canada itself acknowledges that, in case of a government monopoly, prices of imports could be 
used.115  In addition, the United States submits, the object and purpose of the SCM Agreement, which 
is to provide a remedy to offset an artificial advantage provided by the government, requires an 
interpretation of Article 14 (d) SCM Agreement that  permits the use of external evidence of fair 
market value when it is shown, based on positive evid ence, that domestic prices are heavily distorted 
by the very financial contribution whose benefit is being measured. 
7.40 The United States asserts that the limite d non-government price data submitted by the 
Canadian parties in this case was inadequate116 and that such prices were significantly affected by the 
financial contribution itself, i.e.  the supply of provincial government timber.  A price artificially 
suppressed by the government's financial contribution is  not a "market" price, that is, a price between 
buyers and sellers responding to market forces of supply and demand.117 According to the 
United States, the record demonstrates that Canadi an government timber sales were dominant relative 
to private timber sales, ranging from 83 to 98 per cent of the total market, and that, given the circumstances, it would not have been reasonable to conclude that the small amount of private timber sales was unaffected by the dominant government-supplied timber.
118 The United States argues that 
studies by economists and other experts demonstrated  that private timber prices in Canada were 
depressed and distorted by the overwhelming volume of government-supplied timber in the 
provinces.119 The United States concludes that there di d not exist a reliable source of market-
                                                      
113 The United States notes that the Panel in the US - Softwood Lumber III  case acknowledged that 
import prices can be used to determine adequate remuneration.  Panel report, US – Softwood Lumber III , 
para. 7.48. 
114 European Communities Third Party Submission, para. 29.  Notification of laws and regulations 
under Article 32.6 of the Agreement, European Communities, G/SCM/N/1/EEC/2/Suppl.3 (18 November 2002).  (US – 15). 
115 The United States refers to answers provided by Canada to questions from the Panel in the US -  
Softwood Lumber III case.  (US – 17). 
116 The United States provides an overview of the information on non-government market prices 
submitted per province in its first written submission.  United States First Written  Submission, para. 66. 
117 United States First Oral Statement, para. 16. According to the United States, market prices are prices 
between independent buyers and sellers in a competitive market where prices are determined by the forces of supply and demand – not driven by the government's financial contribution.  United States First Oral Statement, 
para. 15. 
118 United States First Written Submission, paras.  69 – 70.  According to the United States, evidence 
demonstrates that the provincial governments administer prices under systems designed to promote employment 
and keep mills operating even in down markets, and are shaping the conditions under which the timber market 
in Canada operates, including artificially decreasing demand for and increasing the supply of Crown timber. 
119 These studies are referenced in the United States First Written Submission, footnotes 94 – 100.  In 
addition, the United States notes that the tenure holders’ needs can be met from their own provincial tenures and 
as a general rule, mills will thus not have to resort to the private market which suggests that private sellers must 
tailor their prices to the predominant government-administered price. WT/DS257/R 
Page 83 
 
 
determined prices in Canada which could have been used by the USDOC as a basis for the benefit 
determination.   
7.41 In the absence of a reliable source of market-determined fair market value prices in Canada, 
the USDOC used prices for comparable timber from  alternate sources – the bordering regions of the 
northern United States – which are commercially available to Canadian lumber producers, as the 
"starting-point" for its fair value assessment, and made adjustments to those US prices (e.g.  for the 
road-building, silviculture, and fire and diseas e protection obligations under Canadian stumpage 
contracts).120 According to the United States, the USDOC made such adjustments based upon the 
"prevailing market conditions" in Canada to ar rive at the fair market value of timber in Canada, in 
accordance with the text, context, object and purpose of Article 14 (d) SCM Agreement.  The 
United States submits that the use of United States source data for comparable timber of the same 
species immediately across the border, as a starting-point, and adjusted as appropriate for provincial 
market conditions was justified and formed a reasonable basis to assess the fair market value of 
timber in Canada.121  
7.42 Finally, the US submits that the SCM Agreement does not define benefit in terms of increased 
output or lower prices for the subject merchandise and does not create an exception for natural resource inputs as Canada is arguing on the basis of the economic rent theory.  Rather, the "benefit" 
referred to in Article 1.1( b) SCM is a benefit to its recipient , and this benefit, whether it is cash or 
natural resource inputs, is in no way dependent upon the downstream effects of the subsidy.  The 
United States argues that Canada failed to identify any obligation in the SCM Agreement to conduct a 
market distortion analysis as part of the benefit determination, and asserts that no such obligation exists.   
2. Analysis 
7.43 Canada's claim concerns the benchmark used by the USDOC for determining "benefit".  
According to Canada, the USDOC used stumpage prices in the United States  as a benchmark for 
determining benefit to Canadian  lumber producers, instead of non-government prices in Canada .  
Canada argues that as a matter of principle such a cross-border price analysis is not permitted under 
Article 14 (d) SCM Agreement, which requires that the prevailing market conditions in the country of 
provision, i.e.  in Canada, be used as the benchmark for determining the adequacy of the remuneration received by the government for the good allegedly provided.  In sum, Canada submits that 
Article 14 (d) SCM Agreement does not allow an au thority to base its determination of benefit on 
market conditions or prices from outside the country under investigation, as the USDOC did. 
7.44 The United States asserts that in this case it was not possible to assess the adequacy of the 
remuneration on the basis of in-country prices.  According to the United States, the government 
completely dominates the stumpage market and there is evidence on the record of price suppression 
due to the government's involvement which makes it impossible to use the small amount of private 
stumpage prices as a basis for any comparison.  In sum, the United States argues that although in-country prices are normally the preferred benchmark for determining benefit, in this case private 
market prices in Canada are not reflective of the "fair market value" of timber in Canada, due to the 
near-total dominance of the government in the Canadian timber market.  According to the 
United States, it would be a completely circular reading of Article 14(d) SCM Agreement that the 
government-administered price for timber would need to be compared to the price charged by private 
                                                     
 
120 United States First Written Submission, para 82.  The United States notes in this respect that 
Canadian lumber producers can purchase US timber, cut it (or have it cut), and transport it to their mills in 
Canada, and that some Canadian mills have done so, in spite of the abundant supply of provincial timber available in Canada at below market prices.  United States Second Oral Statement, para. 19. 
121 The United States provides a brief rebuttal of Ca nada’s argument that there are too many practical 
differences in comparing Canadian and US timber prices in attachment 2 to its first written submission. WT/DS257/R 
Page 84  
 
timber sellers in Canada, as thes e latter have no choice but to align their prices to the administered 
prices set by the government.  Thus, in effect, a comparison of the government price with the private 
price would amount to a comparison of the government  price with itself.  Moreover, according to the 
United States, the USDOC used the US stumpage prices  as a "starting-point" and adjusted such prices, 
to reflect Canadian "prevailing market conditions", and it thus acted in a manner consistent with 
Article 14(d) SCM Agreement.  Finally, the United St ates argues that the provinces did not provide 
sufficient information on private stumpage sales in  order for those to be used as a benchmark for 
determining benefit.
122  
7.45 Article 1 of the SCM Agreement provides that a subsidy in the sense of the SCM Agreement 
exists when a financial contribution, like the provision of a good or a service by the government, confers a benefit .  Article 14 SCM Agreement, and Article  14 (d) SCM Agreement in particular, 
govern the benefit analysis an investigating authority is to perform in order to determine the existence 
and amount of a subsidy in cases, such as the one before us, where the financial contribution at issue 
consists of the provision of a good or service by the government.  In this respect, we recall that the 
USDOC found that the Canadian provincial stumpage  programmes provide a good, standing timber, 
to stumpage holders.  Article 14 (d ) SCM Agreement provides as follows: 
Article 14 
 
Calculation of the Amount of a Subsidy in Terms 
of the Benefit to the Recipient 
 
For the purpose of Part V, any method used by the investigating authority to calculate 
the benefit to the recipient conferred pursua nt to paragraph 1 of Article 1 shall be 
provided for in the national legislation or implementing regulations of the Member concerned and its application to each particular case shall be transparent and 
adequately explained.  Furthermore, any su ch method shall be consistent with the 
following guidelines: 
(a) government provision of equity capital shall not be considered as conferring a benefit, 
unless the investment decision can be regarded as inconsistent with the usual 
investment practice (including for the provision of risk capital) of private investors in 
the territory of that Member; 
 
(b) a loan by a government shall not be considered as conferring a benefit, unless there is 
a difference between the amount that the firm receiving the loan pays on the 
government loan and the amount the firm would pay on a comparable commercial 
loan which the firm could actually obtain on the market.  In this case the benefit shall 
be the difference between these two amounts; 
 
(c) a loan guarantee by a government shall not be considered as conferring a benefit, 
unless there is a difference between the amount that the firm receiving the guarantee 
pays on a loan guaranteed by the government  and the amount that the firm would pay 
on a comparable commercial loan absent the government guarantee.  In this case the 
benefit shall be the difference between these two amounts adjusted for any differences in fees; 
 
(d) the provision of goods or services or purchase of goods by a government shall not be 
considered as conferring a benefit unless th e provision is made for less than adequate 
                                                     
 
122 We wish to note in this respect that there does not appear to be any dispute between the parties that 
the provinces were aware of the fact that such information had been requested. WT/DS257/R 
Page 85 
 
 
remuneration, or the purchase is made for more than adequate remuneration.   The  
adequacy of remuneration shall be determ ined in relation to prevailing market 
conditions for the good or service in question in the country of provision or purchase 
(including price, quality, availability, marketability, transportation and other 
conditions of purchase or sale). 
 
7.46 Article 14 (d) SCM Agreement thus establishes that the provision of goods by a government 
shall not be considered as conferring a benef it unless the provision is made for less than adequate 
remuneration .  The adequacy of the remuneration charge d by the government shall be determined " in 
relation to the prevailing market conditions for the good or service in question in the country of provision or purchase".   
7.47 In accordance with the customary rules of inte rpretation of public in ternational law, our 
analysis of Article 14 (d) SCM Agreem ent begins with the specific word s of the provision, as the text 
is the most authentic expression of the intention of  the drafters of the Agreement.  We recall that 
Article 31 of the Vienna Convention on the Law of Tr eaties provides that "a treaty shall be interpreted 
in good faith in accordance with th e ordinary meaning to be given to the terms of the treaty in their 
context and in light of its object and purpose".  As the Appellate Body has stated on various 
occasions, a proper interpretation is first of all a te xtual interpretation, and the task of interpreting a 
treaty provision must begin with th e specific words of that provision.
123 
7.48 We note that the text of Article 14 (d) SC M Agreement provides that the standard for 
determining benefit is whether "adequate remune ration" has been received by the government 
providing the good.  The term "adequate" is defined as "sufficient, satisfactory" in the New Shorter 
Oxford Dictionary.124 It is clear that "adequacy" is a relative concept; what is "adequate" in one given 
set of circumstances is not "adequate" in another.  The set of circumstances to which the term relates 
in Article 14 (d) SCM Agreement are the prevailing market conditions in the country of provision.  In 
our view, the term "in relation to" - or " par rapport aux " in the French version of the text – in this 
context means "in comparison with"125 and Article 14 (d) SCM Agreement thus provides that the 
prevailing market conditions in the country of provision are the benchmark against which to judge the 
adequacy of the remuneration received by the government for the stumpage provided. 
7.49 The United States argues that the broad phrase "in relation to" allows for various means of 
performing a comparison that relates to market conditions in the country under investigation.  The 
United States is of the view that Article 14 (d ) SCM Agreement does not specify the methods for 
performing such an analysis or the types of data that  may be used, because it sets out "guidelines", i.e.  
general principles, not detailed rules.126 We do not consider that Article 14 (d) does not specify the 
data that may be used for determining adequate re muneration.  To the cont rary, Article 14 (d) SCM 
Agreement uses the term "shall" to indicate that ad equacy of remuneration must be determined in 
relation to, i.e.  compared  with, the prevailing market conditions in the country of provision, and the 
data to be used are those which reflect the prevailin g market conditions in the country of provision.  
The precise detailed method of calculation is not de termined, in that sense Article 14 (a) – (d) SCM 
Agreement are guidelines, but the framework within which this calculation is to be performed is 
clearly determined and limited in a mandatory mann er by the prevailing market conditions in the 
country of provision.   
                                                      
123 Appellate Body Report, Japan – Alcoholic Beverages II , page 18.  Also see, for example, Appellate 
Body Report, US – Offset Act (Byrd Amendment) , para. 281. 
124 New Shorter Oxford Dictionary, Edited by Lesley Brown, Clarendon Press – Oxford, ed.  1993, 
p. 26. 
125 Harrap's Shorter French – English Dictionary, Chambers Harrap Publishers Ltd 1996, p. 761.  The 
New Shorter Oxford Dictionary defines "in relation to" as  "as regards", New Shorter Oxford Dictionary, Edited 
by Lesley Brown, Clarendon Press – Oxford, ed. 1993, p. 2534. 
126 United States Response to Questions from the Panel at the Second Meeting (Annex B-2), para. 23. WT/DS257/R 
Page 86  
 
7.50 Article 14 (d) SCM Agreement refe rs the authority to the "prevailing" market conditions, i.e.  
the market conditions "as they exist" or "which are predominant"
127 in the country of provision.  
Therefore, according to Article 14 (d), the pr ice of the good provided, its quality, availability, 
marketability, transportation and other conditions  of purchase or sale which are used as the 
benchmark for determining the adequacy of the remune ration have to be such as are prevailing in the 
country of provision.  In sum, a plain reading of the text of Article 14 (d) leads us to the initial 
conclusion that the market which is to be used  as the benchmark for determining benefit to the 
recipient is the market of the country of provision, in this case Canada.128We note that the 
United States itself acknowledges that the adequacy of  remuneration must be de termined in relation to 
the prevailing market conditions "in the country of provision".129 According to the United States, that 
begs the question whether there are in fact "market" conditions for the good in the country of provision that provide probative evidence for de termining the adequacy of the remuneration.  
According to the United States, the Panel must give meaning to the word "market" and it asserts that 
the point of comparison under Article 14 (d) SCM Agreement must be prevailing commercial  market 
conditions, i.e.  a market undistorted by the government's financial contribution , in the country of 
provision.
130  The view of the United States thus appears to be that, when actual prices prevailing in 
the market are distorted by the government's financial contribution, and thus do not represent the "fair 
market value" of the goods in question, "prevailing  market conditions" may be established on a basis 
other than actual prices prevailing in the country of provision. 
7.51 As we have indicated above, our analysis has to  be based on the text of the Agreement, as a 
proper interpretation is first of a ll a textual interpretation.  The text of Article 14 (d) SCM Agreement 
does not qualify in any way the "market" conditions wh ich are to be used as the benchmark.  As such, 
the text does not explicitly refer to a "pure" market, to a market "undistorted by government 
intervention", or to a "fair market value".  Ra ther, Article 14 (d) SCM Agreement identifies the 
market conditions which shall be used to determin e adequacy of remuneration as those which are 
"prevailing" in respect of the price of the good, its  quality, availability, marketability, transportation, 
and other conditions of purchase or sale, in other words, the market conditions "as can be found".  
Such market conditions must be those found in the country of provision, in this case Canada.  Thus, 
the text of Article 14 (d) indicates that the anal ysis the authority is to perform is whether the 
government, when providing a good, is receiving a remuneration which is adequate, when compared 
to the price of the good in the market of that country, taking into account the quality of the good, its 
availability, marketability, transportation and other conditions of sale that apply in the country of provision.  We see nothing in the text of Article 14 (d) that would justify disregarding those prices on 
the grounds that they were "distorted" or did not re flect the "fair market value" of the goods provided. 
                                                     
 
127 New Shorter Oxford Dictionary, Edited by Lesley Brown, Clarendon Press – Oxford, ed. 1993, 
p. 2347. 
128 We consider it relevant to recall in this respect the context of Article 14 (d) SCM Agreement.  
Article 14 SCM Agreement provides specific rules for calculating benefit in four situations of a financial 
contribution provided by the government.  Articles 14 (b) and 14 (c) SCM Agreement concern the government's 
provision of a loan and a loan guarantee.  In both cases, the benchmark to be used for the calculation of benefit is the "comparable commercial loan" and the "comparable commercial loan absent the government guarantee".  
The market for obtaining this loan is not limited to the market of the country of the government providing the 
loan or the loan guarantee.  In the case of the government providing equity capital, the benchmark under Article 14 (a) SCM Agreement is the usual investment practice of private investors in the territory of that 
Member .  Contrary to the two cases identified above, Article 14 (a) SCM Agreement thus specifically ties the 
usual investment practices to the territory of the Member making the investment decision.  Similarly, under Article 14 (d) SCM Agreement, the Agreement explicitly and specifically limits the scope of the inquiry into the 
adequacy of the remuneration to the "prevailing market conditions in the country of provision".  In our view, if 
the drafters of the Agreement had wanted to allow consideration of conditions outside the market in question, 
they could have explicitly done so, as they did in the case of loans and loan guarantees.  They did not do so in the case of the government provision of a good. 
129 United States Second Oral Statement, para. 12. 
130 United States Second Written Submission, para. 27. United States Second Oral Statement, para. 11. WT/DS257/R 
Page 87 
 
 
7.52 The United States finds support for its argument that the "prevailing market conditions in the 
country of provision" have to be those of a commercial  market undistorted by the government's 
financial contribution  in the report of the Appellate Body on Canada – Aircraft  and in the report of 
the Panel in the case Brazil – Aircraft .  According to the United States, only by comparison to a 
market undistorted by the government's financial contribution is it possible to determine the trade 
distorting potential of the subsidy by assessing wh ether the recipient is better off than it would 
otherwise have been absent the financial contribution.131  
7.53 We recall that the Appellate Body in the Canada – Aircraft  case clarified what it considers to 
be the analysis that is to take place in order to  determine whether the financial contribution conferred 
a benefit to the recipient: 
"157. We also believe that the word "ben efit", as used in Ar ticle 1.1(b), implies 
some kind of comparison.  This must be so, for there can be no "benefit" to the 
recipient unless the "financial contribution" makes the recipient "better off" than it 
would otherwise have been, absent that contribution.  In our view, the marketplace 
provides an appropriate basis for comparison  in determining whether a "benefit" has 
been "conferred", because the trade-distorting potential of a "financial contribution" can be identified by determining whether the recipient has received a "financial 
contribution" on terms more favourable than those available to the recipient in the 
market." 
132  
7.54 We agree with the general principle expressed by the Appellate Body that a benefit analysis is 
to be conducted against the background of the marketplace in order to determine whether the recipient 
was better off than it would have been absent the financial contribution.  We note, however, that the 
language quoted above formed part of the Appellate Body's general discussion about "benefit" under 
Article 1.1 (b) SCM Agreement.  The Appellate Body was not addressing the particular wording of 
the text of Article 14 (d) SCM Agreement.  Nor wa s the Appellate Body in that case addressing the 
issue before us in this dispute.  To the contrary, the Appellate Body's statement in Canada – Aircraft  
was made in the context of an argument by Canada  that the Panel had erred in considering that the 
notion of "cost to government" was not relevant to  the interpretation and application of the term 
"benefit".  The Appellate Body decided that it was the marketplace, and not the cost to government, 
that was the appropriate basis for comparison; the question whether the term "market" means a market 
undistorted by the government's financial contribution was simply not before it, and there is no 
indication that the Appellate Body had any intention of addressing it.  Thus, we do not consider that this statement of the Appellate Body, which related to the interpretation of a different article of the 
SCM Agreement and was made in the context of a very  different issue than the one before us in this 
dispute, sheds much light on the issue before us here.   
7.55 It is certainly correct that the Panel in the Brazil – Aircraft case stated that the "market"  
referred to "must necessarily be a 'commercial' market, i.e.  a market undistorted by government 
intervention".
133 However, that Panel also was addressing a very different question from the one 
before us here.  The Panel rejected a particular argument by Brazil by clarifying that the "market" to 
which reference was made should not include other governments' export credit practices, but only 
those of non-government entities, as it could well be  that other governments were also granting export 
credits at a subsidized rate.134  In other words, the thrust of the Panel's statement was that it would not 
                                                      
131 The United States asserts that "Applying the reasoning of the Appellate Body, 'less than adequate 
remuneration' must mean a price less than would otherwise be available in the marketplace absent the 
government's financial contribution".  United States Second Written Submission, para. 26. 
132 Appellate Body report, Canada – Aircraft,  para. 157. 
133 Panel Report, Brazil – Aircraft (Article 21.5 – Canada II) , para. 5.29. 
134 In particular, Brazil had argued that in order to establish whether the export credits granted by the 
government conferred a benefit compared to rates available in the marketplace, one should not distinguish WT/DS257/R 
Page 88  
 
be appropriate to determine whether a particular  financial contribution conferred a benefit by 
comparing the terms of that financial contributi on with those of other government financial 
contributions.  This is an eminently sensible prop osition with which we cannot but agree.  However, 
neither party in this case has suggested that th e "prevailing market conditions" referred to in 
Article 14 (d) include other government financial cont ributions, and we thus fail to see how the ruling 
of the Panel in that case is releva nt to the issue before us here.   
7.56 The United States suggests that Canada's reading of Article 14 (d) SCM Agreement would 
lead to an absurd result, as it would preclude in a ll cases the use of data from outside the country of 
provision, even when no market conditions exist in the country of provision, thereby making it 
impossible to ever establish the existence of subsid ization in case the government is the only player 
on the market. 
7.57 We do not consider that our reading which is based on the text of the Agreement would lead 
to this absurd result.  We do not exclude the possibilit y that it will in certain situations not be possible 
to use in-country prices.  Certainly, in our view, in  a situation where, for example, the government is 
the only supplier of the good in the country, or wher e the government administratively controls all of 
the prices for the good in the country, there would be no price other than the price charged by the 
government and thus no basis for the comparison foreseen in Article 14(d) SCM Agreement.
135 The 
only remaining possibility would appear to be the cons truction of some sort of a proxy for, or estimate 
of, the market price for the good in that country.136 We emphasise that it has not been argued however 
that there are no private buyers and sellers of stumpage in Canada.  In other words, it has not been 
argued that there is no private market  for stumpage in Canada.137 Neither has it been argued that the 
Canadian provincial governments administratively set the price for private stumpage.  As the 
United States clearly stated, in-country prices were rejected because they were significantly affected 
by the financial contribution, and because the USDOC considered that the observed non-government 
prices were for that reason simply uninformative of adequate remuneration.138  We therefore consider 
that the situation confronted by the USDOC was not one where there were no market prices.    
7.58 We also recognize the more subtle problem of economic logic identified by the United States.  
The United States argues that the problem of reading the text of Article 14 (d) SCM Agreement to 
require that, as soon as there is a market, no ma tter how small or affected by the government 
intervention in the market, such market prices ar e to be used in determin ing the adequacy of the 
remuneration, is that it could lead to a circular comparison of a government price with, in effect, 
                                                                                                                                                                     
between commercial and non-commercial benchmarks in determining what interest rates prevailed in the 
"marketplace".  Canada on the other hand had argued that reference should be made in this context to purely commercial transactions – i.e., transactions not benefiting from official support – and Canada thus defined the 
"marketplace" to mean the purely commercial marketplace.  The Panel rejected Brazil's argument and clarified 
that the "market" to which reference was made should not include other governments' export credit practices, 
but only those of non-government entitities, as it could well be that other governments were also granting export credits at a subsidized rate. 
135 This of course also assumes no or negligible imports of the good in question. 
136 We note that Canada itself agrees that in the context of a government monopoly over domestic 
production, import prices for the same good, which may or may not be "world market prices", if available to 
purchasers in the country of provision, could be used as a benchmark to measure adequacy of remuneration.  
Canada Second Written Submission, para. 41. The European Communities in its Third Party Submission clarifies that it considers that it should be possible to use world market prices "if it can be established in 
exceptional cases that there are no prevailing market conditions within the meaning of Article 14 (d) second 
sentence of the SCM Agreement, so that that rule cannot be applied in order to establish the existence of a 
benefit".  European Communities Third Party Submission, para. 31. 
137 Indeed, as we will discuss later, the USDOC's Final Determination notes that private market sales of 
stumpage account for between 1 and 17 per cent of total stumpage sold in each province. 
138 United States First Written Submission, para. 65. WT/DS257/R 
Page 89 
 
 
itself.139We acknowledge that the concern raised by th e United States may be a legitimate one in 
certain cases.  In the situation addressed by Article 14 (d) SCM Ag reement, the government fulfils a 
role normally also played by private market players: it provides goods or services.  In these situations, 
the government is acting on the market and, by so doing, may influence the private market.  Whether 
and to what extent such government action influen ces the private market will of course depend upon 
the particular circumstances, but there could be cases  in which that influence is substantial or even 
determinative of conditions in the private market.  In  such cases, a comparison of the conditions of the 
government financial contribution with the conditions prevailing in the private market would not fully 
capture the extent of the distortion arising from the government financial contribution, a result that in 
our view would not necessarily be the most sensible one from the perspective of economic logic .   
7.59 That said, we do not believe that it would be  appropriate for this Panel to substitute its 
economic judgement for that of the drafters.  The Appellate Body has repeatedly emphasized, and we 
cannot but agree, that under Article 31 of th e Vienna Convention on the Law of Treaties the 
interpretation of a treaty must be based on the text , as a proper interpretation is first of all a textual 
interpretation.140 For all the reasons set forth above, we do  not consider that Article 14 (d) can, 
consistent with customary rules of interpretation of public international law, be understood in the 
manner urged by the United States.  We consider that our task is to interpret the applicable  provisions 
as they exist and apply the text of the Agreement to  the facts before us, not to rule on the economic 
logic of the text as it stands.   
7.60 In sum, our conclusion on the basis of the text  of Article 14 (d) SCM Agreement is that as 
long as there are prices determined by independent  operators following the principle of supply and 
demand, even if supply or demand are affected by the government's presence in the market, there is a 
"market" in the sense of Article 14(d) SCM Agreement.141 The problem raised by the United States of 
comparing in certain situations the government price with a market price significantly affected by the 
government's price, is in our view inherent in the te xt of Article 14 (d) SCM Agreement.  We consider 
that, if the Members feel the rules as laid down  in the WTO Agreements do not address certain 
situations in what they consider to be a satisfa ctory manner, they should raise this issue during 
negotiations.  Our task consists of interpreting the Agreement to explain what it means, not what in 
our view it should mean, nor are we allowed to read  words in to the text of the Agreement which are 
not there, even if we were to consider that the text  inadequately addresses certa in specific situations.   
7.61 Applying our analysis to the facts of this case, we examined whether the USDOC had before 
it information concerning the prev ailing market conditions in Canada and whether it relied on such 
                                                      
139 The United States argues that if the role of the government as the owner of an unlimited supply of 
the good is so predominant that the private sellers have no choice but to align their prices with those of the government, then the conclusion should be that the government has effectively set the price for the good 
throughout the market.  In order to avoid this problem, the United States suggests that the word "market" in 
Article 14(d) SCM Agreement should be read at least to reflect a "bona fide, functioning" market.  The 
United States argues that some sort of a proxy to estimate market conditions should be used where no "real" market conditions are directly observable. 
140 Appellate Body Report, Japan – Alcoholic Beverages II , pages 12 and 18.  Appellate Body Report, 
EC – Hormones , para. 181; Appellate Body Report, India – Patents (US) , para 45; Appellate Body Report, US – 
Shrimp , para. 114; Appellate Body Report, India – Quantitative Restrictions , para. 94.  Appellate Body Report, 
US – Offset Act (Byrd Amendment) , para. 281. 
141 We note that the Panel in the US -  Softwood Lumber III case came to a similar conclusion: 
"7.53 We wish to note that even if in certain exceptional circumstances it may prove 
difficult in practice to apply Article 14 (d) SCM Agreement, that would not justify reading 
words into the text of the Agreement that are not there or ignoring the plain meaning of the 
text.  In our view, the text of Article 14 SCM Agreement leaves no choice to the investigating authority but to use as a benchmark the market, for the good (or service) in question,  as it 
exists  in the country of provision."  
Panel Report, US – Softwood Lumber III,  para. 7.53. WT/DS257/R 
Page 90  
 
information.  We consider that the USDOC summariz ed the situation with regard to the existence of 
the private market in Canada as follows:  
"During the POI, total softwood harvested from Crown lands accounted for between 
approximately 83 and 99 per cent of all softwood timber harvested in each of the 
Provinces.  Specifically, the Provincial, federal and private share of softwood timber 
harvests, by Province are: 
British Columbia – 90 per cent Provincial, less  than 1 per cent federal, and almost 10 
per cent private; 
Quebec – 83 per cent Provincial, and 17 per cent private; 
Ontario – 92 per cent Provincial and 7 per cent private; 
Alberta – 98 per cent Provincial, 1 per cent federal, and 1 per cent private; Manitoba – 94 per cent Provincial, 1 pe r cent federal and 5 per cent private;  
Saskatchewan – 90 per cent Provincial, 1 pe r cent federal and 9 per cent private."
142   
7.62 The USDOC Determination further provides that "Alberta, Ontario and Quebec have 
provided private stumpage prices for their respective Provinces.  Br itish Columbia provided stumpage 
prices set by government auction".143   
7.63 As a factual matter, we therefore find that the USDOC acknowledged the existence of a 
private market for stumpage in Canada.  It is cl ear therefore that we are not confronted with a 
situation where there are no market conditions in the country of provision which, for practical reasons 
would require the use of a proxy of some sort.  Moreover, the USDOC Determination shows that the 
USDOC had before it private stumpage prices for four  of the most important provinces.  Our analysis 
is based upon the USDOC's establishment of the facts of record, as we are not to perform a de novo  
review.  In spite of the many arguments made before  us concerning the in-country price data, or the 
absence thereof, we find that there is no basis in the USDOC Determination for us to assume that the 
reason why such private price information was rejected and US stumpage prices were used instead 
was a lack of information concerning private stumpage prices.  On the basis of the record, we find that  
the USDOC decided not to rely on the Canadian priv ate stumpage prices, because it considered that "a 
valid benchmark must be independent of the govern ment price being tested; otherwise the benchmark 
may reflect the very market distortion the comparison is intended to detect".144 Based on this view, the 
USDOC reached the conclusion that "there are no useable market determined prices between 
Canadian buyers and sellers".145 The USDOC decided to rely on stum page prices in the United States 
instead.   
7.64 In light of the fact that the USDOC acknowledged the existence of a private stumpage market 
in Canada, we find that the resort to US prices as the benchmark for the determination of benefit on 
grounds that private prices in Canada were di storted is inconsistent with Article 14 (d) SCM 
                                                      
142 USDOC Final Determination, p. 37 – 38.  (CDA – 1) 
143 USDOC Final Determination, p. 36.  (CDA – 1) 
144 USDOC Final Determination, p. 37.  (CDA – 1).  The USDOC further explains that in its view "The 
preamble to section 351.511 of the Regulations provides that, where a government has a dominant position in a 
market, the Department will avoid the use of private prices in determining the adequacy of remuneration.  
Where the market for a particular good is so dominated by the presence of the government, the remaining private prices in the country in question cannot be considered to be independent of the government price".  
USDOC Final Determination, p. 58.  (CDA – 1) 
145 USDOC Final Determination, p. 36.  (CDA – 1) WT/DS257/R 
Page 91 
 
 
Agreement.  As a consequence, we need not ad dress the issue whether the USDOC had sufficient 
evidence of price suppression or conducted a proper analysis of the alleged distortive effect of the 
dominant government presence in the market.  No r need we address whether the proxy used by the 
United States for the prevailing market conditions in Canada was appropriate, i.e. whether the 
USDOC made proper adjustments to the US stumpage prices to reflect market conditions in Canada.  
Neither do we consider it relevant to rule on the argument made by Canada that any benefit analysis 
should include a determination of the potential trade advantage for the recipient of the subsidy. 
7.65 For the reasons set forth above, we uphold Canada's claim that the USDOC failed to 
determine benefit in a manner consistent with Articles 14 and 14 (d) SCM Agreement and we 
therefore find that the USDOC's imposition of countervailing measures was inconsistent with the United States' obligations under Articles 14 and 14 (d) SCM Agreement as well as Articles 10 and 
32.1 of the SCM Agreement as these countervailing measures were imposed on the basis of an 
inconsistent determination of the existence and amount of a subsidy.
146 In light of our finding, we do 
not consider it necessary to address Canada's additional claims  regarding the consistency of the 
USDOC's actions with Articles 19.1 and 19.4 SCM Agreement and Article VI:3 of GATT 1994. 
C. CLAIM 3:  USDOC IMPERMISSIBLY ASSUMED A PASS -THROUGH OF THE ALLEGED SUBSIDY  
7.66 Canada's pass-through cl aim is based on the arguendo assumption that stumpage provides 
subsidies, i.e., that stumpage constitutes a financia l contribution in the form of provision of a good, 
and that that financial contribution confers a benefit.  That is, Canada's claim is that even if stumpage 
does provide subsidies, the USDOC erred in not conducting a pass-through analysis in determining 
subsidization of softwood lumber in the case of certain upstream transactions for inputs.  
Notwithstanding our finding that the US failed to determine benefit in a manner consistent with 
Article 14 SCM Agreement, we address this claim adopting the same arguendo  assumption for 
purposes of our analysis.   
7.67 We note that the US seems to raise a jurisdictional challenge to Canada's citation of 
Article 1.1 SCM Agreement in connection with this claim.  We address this jurisdictional issue in 
section VII.C.2(c), infra.   
1. Arguments of the parties 
(a) Canada 
7.68 Canada claims that by not investigating whether alleged subsidy benefits from stumpage 
programmes were passed through in arms'-length  transactions between timber harvesters and 
unrelated sawmills, and between sawmills and unr elated re-manufacturers, the United States 
countervailed subsidies the existence and amount of  which it presumed instea d of determined.  In 
particular, Canada takes issue with the conclusi ons in the USDOC's final determination that, in 
respect of sawmills that purchase lo gs at arms'-length, no subsidy pass-through analysis was required 
because the alleged subsidy is a subsidy "to the production of lumber, not the production of timber or 
logs"147, and in respect of re-manufacturers that purchase lumber from stumpage holders at arms'-
                                                      
146 Article 10 SCM Agreement provides that "Members shall take all necessary steps to ensure that the 
imposition of a countervailing duty on any product of the territory of any Member imported into the territory of another Member is in accordance with the provisions of Article VI of GATT 1994 and the terms of this 
Agreement.  Countervailing duties may only be imposed pursuant to investigations initiated and conducted in 
accordance with the provisions of this Agreement and the Agreement on Agriculture".   
Article 32.1 SCM Agreement states that "no specific action against a subsidy of another Member can 
be taken except in accordance with the provisions of GATT 1994, as interpreted by this Agreement".   
 
147 Canada First Written Submission, para. 130, citing USDOC Final Determination (CDA-1) p. 18. WT/DS257/R 
Page 92  
 
length, that as the case was conducted on an aggregate basis, "a review is the appropriate avenue to 
determine if there are specific companies th at do not receive countervailable benefits"
148.   
7.69 According to Canada, the Appellate Body has confirmed, in US – Lead and Bismuth II ,  that 
in a countervailing duty investigation, the ex istence of a subsidy may never be presumed.149  
Furthermore, Canada notes, the Panel in US – Softwood Lumber III  found in favour of Canada and 
against the US in respect of the pass-through issue in the preliminary countervailing duty 
investigation on softwood lumber.150   
7.70 Canada further argues that where lumber producers do not harvest timber but obtain inputs 
from upstream producers, any alleged subsidy by definition must be indirect, and that indirect 
subsidization is established by demonstrating the ex istence of both an indirect financial contribution, 
through entrustment or direction under Article 1.1( a)(1)(iv), and a benefit under Article 1.1(b).  
According to Canada, USDOC made no finding in resp ect of financial contribution by government to 
lumber producers or re-manufacturers in respect of  inputs purchased at arms'-length, nor did USDOC 
find that the alleged benefit wa s conferred to lumber producers or re-manufacturers through 
downstream purchases.  Thus, Canada claims, the fa ilure by the USDOC to es tablish the existence of 
a subsidy in respect of arms'-length transactions for lumber inputs violated the SCM Agreement.151 
7.71 Canada argues that there was substantial record evidence demonstrating arms'-length 
transactions between timber harvesters and lumber  producers, and between lumber producers and re-
manufacturers:  British Columbia, where approximate ly 24 per cent of the timber from Crown 
licenses was harvested by companies that did not own sawmills; Ontario, where some 30 per cent of 
the softwood timber harvested from Crown lands wa s sold by tenure holders to third parties for 
processing; British Columbia, where at least 18 per cent of the volume of logs harvested from Crown 
lands were purchased at arms'-length; and the fact  that many companies applied for exclusion from 
the countervailing duty order on the grounds of havi ng received no subsidies due to sourcing their log 
and lumber inputs at arms'-length.152 
7.72 Canada argues that under SCM Articles 10, 19.1, 19.4, and 32.1, and GATT 1994 Article VI, 
a countervailing duty may be imposed only where it has been demonstrated that the producer of the 
subject merchandise has benefited from a "subsidy" as defined in SCM Article 1.1.  Canada argues 
that the US presumed rather than demonstrated the existence of a subsidy where arms'-length transactions separated the recipients of the allege d financial contribution and the producers of the 
subject merchandise, that the US thereby acted inco nsistently with Article 1.1, and thus violated:  
(1) Article 10 by failing to impose  countervailing duties in accordance  with the provisions of the SCM 
Agreement; (2) Article 19.1 by imposing countervailing duties in the absence of a final determination 
of the existence and amount of a subsidy; (3) Artic le 19.4 by levying countervailing duties in excess 
of the amount of the subsidy found to exist; (4) Article 32.1 by taking action against a subsidy not in 
accordance with the provisions of GATT 1994, as interpreted by the SCM Agreement; and 
(5) Article VI:3 of the GATT 1994 by imposing duties in the absence of an indirect subsidy finding.
153   
7.73 Canada, responding to the US argument, conc ludes on this point that the fact that the 
investigation was conducted on an aggregate basi s did not excuse the USDOC for its failure to 
correctly establish the existence and amount of  the alleged subsidy to producers of subject 
merchandise.  Canada argues that, contrary to the US 's characterization, the issue of pass-through is 
not simply about calculating the amount of the alleged stumpage subsidy, but rather, about whether a 
                                                      
148 Canada First Written Submission, para. 131, quoting USDOC Final Determination (CDA-1) p. 19. 
149 Canada First Written Submission, para. 134 et seq . 
150 Canada First Written Submission , para. 139. 
151 Canada First Written Submission , para. 132 et seq . 
152 Canada First Written Submission , para. 140. 
153 Canada Response to Questions from the Panel at the First Meeting (Annex A-1), paras.  113-114. WT/DS257/R 
Page 93 
 
 
subsidy exists.  For Canada, the amount of a subs idy cannot be calculated, aggregated or allocated 
until a subsidy is first determined to exist.154   
(b) United States  
7.74 The United States characterizes this claim by Canada as an issue of calculation of the rate of 
subsidization (and hence the amount of countervaili ng duty), rather an issue concerning the existence 
of the subsidy.  According to the US, the USDOC correctly established the overall amount of subsidy 
under the provincial stumpage programmes, as the pe r unit subsidy times the total quantity of Crown 
logs entering sawmills, on a province-by-province basis.  Then, the US argues, because the USDOC 
performed its investigation on an aggregate basis, no pass-through analysis was necessary or required.  
Rather, the USDOC simply spread the total subsidy amount that it had calculated over the value of 
sales of the products produced from the "lumber produ ction process".  The US argues that requiring a 
pass-through analysis would effectively amount to requiring a company-specific analysis, which even 
Canada does not argue is required by the Agreement.  In this context, the US further argues that the 
implication of Canada's argument in respect of pass-through would mean that a Member would 
violate the SCM Agreement every time it imposed a countervailing duty on an uninvestigated exporter or producer, although the last sentence of Article 19.3 makes clear that this does not constitute a violation.
155   
7.75 The United States argues that there are two basic situations in which Canada argues that a 
pass-through analysis is required.  First is the case of a timber harvester that does not own a sawmill 
and sells logs to sawmills at arms'-length.  Second is the case of re-manufacturers that purchase 
lumber from sawmills for use in their re-manufacturing operations. 
7.76 In respect of the first situation, the United Stat es considers that the existence of arms'-length 
log sales by harvesters who are not lumber producers might reduce the amount of subsidy from 
stumpage programmes that benefits the softwood lu mber products produced from those logs, but that 
as a factual matter, the record demonstrates that the "vast majority" of Crown timber entering 
sawmills (i.e., the basis for the subsidy calculatio n) is obtained from the sawmills’ own tenures.  
According to the US, any portion of that timber th at was purchased from independent harvesters could 
only constitute a "comparatively small portion of the total"156, and the many restrictions imposed on 
tenure holders, including requirements to process ti mber locally, "suggests that all or most of the sales 
by independent loggers may not be at arms'-length".157  The US further argues that subsidies to 
independent companies can only be addressed through an examination of individual producers of the 
subject merchandise because of the necessity to examine the specific relationships and transactions 
that may be at issue, and that such a company-spec ific analysis is not required by the Agreement, nor 
does Canada make such a claim.158   
7.77 Concerning the second situation, the United St ates provides a numerical example to explain 
why, in its view, no pass-through analysis is necessary in respect of sales of lumber to re-
manufacturers.159  According to the US, in an aggregate case, such a pass-through analysis is not 
required because the total subsidy amount from the sawmills' stumpage inputs is known, and can be 
used in its entirety as the appropriate numerator in  the subsidization calculation.  This numerator is 
then spread equally over a sales denominator consis ting of the total amount of sales of the subject 
product produced by both first mills and re-manufac turers.  Changing the denominator does not affect 
the total subsidy amount, but rather, only the rate of subsidization.   
                                                      
154 Canada Second Oral Statement, para. 56. 
155 United States Second Written Submission, para. 57 et seq. 
156 United States First Written Submission, para. 113. 
157 United States First Oral Statement, para., 36. 
158 United States First Written Submission, para. 113. 
159 United States Response to Questions from the Panel at the First Meeting (Annex A-2), paras.  23-27. WT/DS257/R 
Page 94  
 
7.78 As for Canada's legal argument, the US argues th at Canada has raised in its arguments before 
the Panel certain new provisions, in particular Ar ticle 1.1 SCM Agreement, which were not referred 
to in the Request for Establishment of a Panel in connection with this claim.  The US also argues that 
the other provisions cited by Canada either do not contain the obligations asserted by Canada, or are 
completely dependent on such provisions.
160  
7.79 Concerning the various provisions of Article 19 SCM Agreement, the United States argues, 
first, that Article 19.1 SCM Agreement requires a final determination of th e amount of the subsidy 
and a final determination of injury as pre-conditi ons to the imposition of a countervailing duty, but 
does not establish any requirements as to how a subsid y or injury are to be determined.  Rather, these 
requirements are found elsewhere in the SCM Agreem ent.  As for Article 19.4 SCM Agreement, the 
US argues that the role of this provision is to establish an upper limit to the amount of the 
countervailing duty that may be levied, i.e., the amoun t of subsidy found to exis t.  The issue addressed 
by Article 19.4 SCM Agreement is expressly the levying of duties after a subsidy has been "found to 
exist", according to the US.  Furthermore, the so le calculation requirement in Article 19.4 is to 
calculate the subsidy on a per unit basis, and the US states that Canada concedes that its claim under 
Article 19.4 SCM Agreement is dependent upon the existence of an inconsistency with some other 
provision of the SCM Agreement that imposes obliga tions with respect to the subsidy calculation.  
Concerning Article 19.3 SCM Agreement (no violatio n of which is claimed by Canada), the US 
argues that this provision allows Members to conduct investigations other than on a company-specific 
basis, in that it foresees the possibility to levy countervailing duties on producers not individually 
investigated.  Concerning the obligations in Article 19.3, the US argues that these are: (1) that when 
imposing countervailing measures, a Member must do so on a non-discriminatory basis; and (2) that when an uninvestigated exporter is subject to c ountervailing duties, it is entitled to an expedited 
review to establish an individual countervailing duty rate.  As for Article VI:3 of GATT 1994, the US 
argues that it contains no obligation regarding the me thodology that a Member may use in calculating 
the ad valorem  subsidy rate.
161 
7.80 Turning to the other provisions cited by Canada  in connection with the pass-through claim – 
Articles 10 and 32.1 SCM Agreement – the US argues that these are necessarily derivative of other 
claims, which Canada has failed to establish.162  Thus, the US argues, Canada has not made a prima 
facie  case of violation in respect of the pass-through claim. 
2. Analysis 
7.81 The basic question presented by this claim is  whether USDOC was obligated to conduct a 
pass-through analysis in respect of the input transactions between timber harvesters (both those that 
produce lumber and those that do  not) and unrelated sawmills, a nd between sawmills and unrelated 
re-manufacturers, and if so, whethe r this obligation can be found in any of the provisions cited in 
Canada's claim.163  For Canada, failure to conduct such an analysis means that USDOC did not 
establish the existence of a subsidy in those cases.  For the US, the provisions cited by Canada do not 
contain a requirement to conduct a pass-through anal ysis.  On the substance, the US argues that the 
issue is one of calculation of the rate of subsidization, which the US maintains it has done correctly by 
specifying the total amount of subsidy to softwood lumber from the stumpage programmes, and then 
allocating that total over all rele vant softwood lumber sales.  Thus for the US, conduct of the 
investigation on this aggregate basis obviates the need to perform a pass-through analysis. 
                                                      
160 United States Second Written Submission, paras.  54-55 and footnote 96. 
161 United States First Written Submission, paras.  90-114. 
162 United States Response to Questions from the Panel at the First Meeting (Annex A-2), para. 31. 
163 We note that this claim only concerns such al leged arms'-length transactions between unrelated 
entities, as Canada has acknowledged that "[w]here the timber harvester and the producer of subject 
merchandise are the same 'recipient' of the alleged subsidy, no pass-through analysis would be required".  
Canada Response to Questions from the Panel at the First Meeting (Annex A-1), para. 110. WT/DS257/R 
Page 95 
 
 
(a) Legal requirements concerning pass-through analysis 
7.82 We thus must consider whether, under the provisions cited by Canada, the USDOC was 
required to conduct an analysis of the extent to which any (alleged) subsidy benefits from stumpage 
were passed through by timber harvesters when they  sold logs to unrelated lumber producers or when 
they sold lumber to re-manufacturers.  Here, it se ems that the issue of "existence" of a subsidy and 
calculation of the rate of subsidiz ation on lumber in practice are somewhat conflated in the case 
before us.  In particular, we note that Canada do es not challenge the USDOC's aggregate approach to 
determining subsidization, namely determining a total amount of subsidy provided through the 
stumpage programmes and then a llocating that total subsidy amount over sales of the relevant 
products.164  Thus, as a practical matter, given the methodology used by USDOC in the investigation, 
the question as posed by Canada of the "existence" of subsidization in the transactions at issue would 
manifest itself in the calculation of the aggregate rate  of subsidization.  In particular, if any subsidy 
amounts were improperly imputed to the subject me rchandise, due to the absence of a pass-through 
analysis in respect of the transactions at issue, th is would manifest itself as an overstatement of the 
aggregate rate of subsidization, as no company-specific rates would have been calculated.  We note that the panel in US – Softwood Lumber III   addressed this same issue.
165   
7.83 We now turn to an examination of the provisions  cited by Canada in its pass-through claim, 
starting with Article 10 SCM Agreement and Article VI:3 of GATT 1994.   
7.84 In considering Canada's pass-through claim in detail, we recall that countervailing measures 
are applied to imports of certain products (the su bject merchandise), which in the countervailing duty 
investigation in dispute before us comprises softwood lumber products produced by sawmills from 
logs, and re-manufactured softwood lumber products produced by re-manufacturers from lumber 
obtained from sawmills.  That is, countervailing duties are not levied on companies  that have received 
subsidies, but rather ar e additional duties levied  on imports of certain products  in respect of the 
manufacture, production or export of which subsidization has been found ("subsidized imports" as 
referred to in the SCM Agreement)166.    
7.85 With this as background, we understand Canada's claim, in essence, to be that where upstream 
transactions between unrelated entities exist for inpu ts, any subsidies to the producers of those inputs 
cannot be assumed also to be subsidies to the downs tream product under investig ation.  We note that 
Article 1.1, which contains the definition of a subsidy, and which Canada identifies as the underlying 
substantive basis of its claim, uses relatively abstract language as to what a subsidy is, but does not 
itself make the link between the existence of  a subsidy as such and the subsidization of a particular 
product .167  Indeed, while Article 1.1's reference to "b enefit" certainly implies the existence of a 
recipient, Article 1.1 makes no reference to the natu re of the recipient or its link to any particular 
                                                      
164 Canada does challenge the product scope of the sales denominator used by the USDOC, however.  
See, section VII.E.1(b), infra.  
165 That panel noted that the US seemed to approach the issue of pass-through of benefits as if it could 
be resolved solely by correctly identifying the total value of relevant sales of the subject merchandise (softwood 
lumber) to use as the denominator of the subsidization calculation, so long as all of the entities whose sales were 
included in the denominator were producers of softwood lumber.  The panel disagreed, finding that the issue of pass-through of benefits has to do in the first instance with correctly establishing the amount of the subsidy that 
benefits the producers of the subject merchandise, i.e., the numerator.  The panel went on to say that where a 
producer of softwood lumber does not itself harvest lo gs, but instead buys logs or lumber from unrelated 
suppliers, any alleged subsidy from the stumpage programmes that may have benefited the producer of the 
upstream logs or lumber could only be included in the total subsidy amount to the extent that it has been 
established as a factual matter that the purchaser has received some or all of the benefit. 
166 As, for example, in Article 19.1 SCM Agreement, among many other references. 
167 In the sense of "subsidy bestowed … upon the production, manufacture or export of any 
merchandise" as per footnote 36 to Article 10 SCM Agreement, and Article VI:3 of GATT 1994.  See also 
Article 19.4 SCM ("subsidized and exported product"). WT/DS257/R 
Page 96  
 
product.  For us, the core of the pass-through issue is the notion of subsidization of a product, i.e., in 
respect of its manufacture, production, or export.  Where the subsidies at issue are received by 
someone other than the producer of the investigat ed product, the question arises whether there is 
subsidization in respect of that product.  The questi on before us in this claim, therefore, is whether 
any of the provisions cited by Canada require an  investigating authority to make a determination 
linking subsidies (in the sense of Article 1.1) with a product subject to a CVD investigation.   
7.86 Turning first to Article 10 SCM Agreement, Cana da's argument is that in failing to establish 
the existence  of a subsidy in the sense of Article 1.1 in respect of the upstream transactions at issue, 
the US failed to impose countervailing duties in accordance with the provisions of the SCM 
Agreement, a violation of Article 10 SCM Agreem ent, as that provision contains the general 
requirement to respect the provisions of Article  VI of GATT 1994 and the SCM Agreement in 
applying countervailing measures.  Canada further argues that by not establishing the existence of a 
subsidy, the US also violated Article VI:3 of GA TT 1994 by imposing duties in the absence of an 
indirect subsidy finding.   
7.87 Article 10 SCM Agreement reads as follows:   
Article 10 
 
Application of Article VI of GATT 1994  [footnote omitted] 
 
"Members shall take all necessary step s to ensure that the imposition of a 
countervailing duty
36 on any product of the territory of any Member imported into the 
territory of another Member is in accordance with the provisions of Article VI of 
GATT 1994 and the terms of this Agreement.  Countervailing duties may only be 
imposed pursuant to investig ations initiated [footnote omitted]  and conducted in 
accordance with the provisions of this Ag reement and the Agreement on Agriculture. 
36 The term "countervailing duty" shall be understood to mean a special duty levied for 
the purpose of offsetting any subsidy bestowed directly or indirectly upon the manufacture, 
production or export of any merchandise, as provided for in paragraph 3 of Article VI of 
GATT 1994. " 
7.88 The first sentence of Article 10 makes explicit that, as Canada argues, imposition of a 
countervailing duty must be in accordance with Arti cle VI of GATT and with the SCM Agreement.  
On its own, however, this does not shed much lig ht on the question before us in this claim, i.e., 
whether a pass-through analysis is required to establish subsidization of the subject product where 
there are upstream transactions between unrelated pa rties.  By contrast, we find footnote 36 to 
Article 10 to be illuminating.  This footnote defi nes what a countervailing duty is, and in so doing 
makes explicit the link between a “subsidy” to a recipient in the sense of Article 1.1 and the 
manufacture, production or export of a product  that is the subject of a CVD investigation and 
ultimately a countervailing duty.  In particular , we note in this regard the phrase “any subsidy 
bestowed  directly or indirectly upon  the manufacture, production or export of any merchandise , as 
provided for in paragraph 3 of Article VI of GATT 1994”.   
7.89 Article VI:3 of GATT 19 94 reads as follows:   
“No countervailing duty shall be levied on any product of the territory of any 
contracting party imported into the territor y of another contracting party in excess of 
an amount equal to the estimated bounty or subsidy determined to have been granted, 
directly or indirectly, on the manufacture, pr oduction or export of such product in the 
country of origin or exportation, including any special subsidy to the transportation of a particular product.  The term “counterva iling duty” shall be understood to mean a WT/DS257/R 
Page 97 
 
 
special duty levied for the purpose of offsetting any bounty or subsidy bestowed, 
directly, or indirectly, upon the manufacture, production or export of any 
merchandise.”   
7.90 Thus, the definition of a countervailing duty  that appears in the second sentence of 
Article VI:3 of GATT 1994 mirrors the definition in  footnote 36 to Article 10 SCM Agreement, by 
referring to “any bounty or subsidy bestowed, directly, or indirectly, upon  the manufacture, 
production or export of any merchandise ”.  In other words, both of these provisions make explicit that 
there must be direct or indirect168 subsidization in relation to the manufacture, production or export of 
a product  for a "countervailing duty" in the sense of the Agreement and GATT Article VI to be 
imposed on that product.   
7.91 The heart of the pass-through issue is whether, where a subsidy is received by someone other 
than the producer or exporter of the product under i nvestigation, the subsidy nevertheless can be said 
to have conferred benefits in respec t of that product.  If it is not de monstrated that there has been such 
a pass-through of subsidies from the subsidy recipient to the producer or exporter of the product, then 
it cannot be said that subsidization in respect of that  product, in the sense of Article 10, footnote 36, 
and Article VI:3 of GATT 1994, has been found.  Thus, we find that a pass-through analysis is required by these provisions, both of which were cited in Canada’s pass-through claim, where there 
are such upstream transactions.  Given this conclusion, the US argument that none of the provisions 
cited by Canada requires a pa ss-through analysis fails.   
7.92 Our analysis is consistent with the findings of the 1990 GATT Panel on US – Canadian Pork .  
In that dispute, Canada claimed that the USDOC's  failure to conduct a pass-through analysis to 
determine the extent to which subsidies on live swine benefited production and exportation of pork 
products violated Article VI:3 of GATT 1947.
169 That panel found, as we do, that investigating 
authorities had the affirmative obligation to make a determination  of subsidization in respect of  a 
product , and could not simply assume such subsidiz ation where the subsidies were bestowed in 
respect of a product (the input product) that was different from the product subject to countervailing 
duty, and where the input producers were unrelated to the producers of that subject merchandise.   
(b) Pass-through analysis in the present dispute 
7.93 We recall that in the present dispute, the US has not contended that it did conduct a pass-
through analysis in respect of any of the upstream tr ansactions at issue.  Thus, the factual question of 
whether a pass-through analysis was conducted is not in dispute before us.  Rather, the US argues that 
no such analysis was necessary given the particular circumstances of, and methodology used in, 
USDOC’s softwood lumber inves tigation.  We next consider  these arguments by the US. 
(i) Sales of logs by tenured timber harvesters to unrelated lumber producers 
7.94 In respect of the first type of arms’-length tran saction at issue before us, i.e., log sales to 
lumber producers by timber harvesters that do not produce lumber, the US acknowledges that any 
such sales could overstate the aggregate amount of subsidization of softwood lumber, but argues that 
in fact such sales accounted for only a “comparatively  small” portion of the total, that they "may not 
be" at arms'-length, that in any event the US has no obligation to examine individual transactions in an 
aggregate case, and finally, that legally the provisi ons cited by Canada are inapposite.  According to 
                                                      
168 We note that Canada makes specific arguments as to what constitutes an “indirect” subsidy, and 
equates a pass-through analysis to an indirect subsidy analysis.  We do not consider it necessary for the 
resolution of this claim to try to define or analyze the co ncepts of direct versus indirect subsidization.  Rather, 
we consider Canada's Article 10 SCM and Article VI:3 of GATT claim to be about subsidization in respect of the manufacture, production or export of the product at issue, which these provisions make clear can be either 
direct or indirect. 
169 We note that the wording of Article VI:3 of GATT 1994 is identical to its analog in GATT 1947. WT/DS257/R 
Page 98  
 
the US, the record evidence on these points is that the vast majority of Crown timber enters harvesters' 
own sawmills, and that the tenures are more than su fficient to meet the tenure holders' needs, that 
there were few if any such sales, and that in the investigation, Canada never attempted to submit 
information pertaining to such sales.   
7.95 The US does not cite to any specific quantitative  information from the record that establishes 
the volume of the possible arms'-length log sales at  issue, nor does it argue that the USDOC made 
efforts to collect such information.  The US inst ead seems to suggest that the burden was on Canada 
to present such evidence.  We disagree.  Th e obligation under Article 10 SCM Agreement and 
Article VI:3 of GATT 1994 to con duct a pass-through analysis in respect of production of softwood 
lumber from Crown logs purchased from unrelated harvesters falls on the US as the Member taking 
countervailing action.  The US did not do so, and points to no factual basis in the record for its 
conclusion that such an analysis was not necessary.  We thus find that in respect of the upstream log 
sales at issue, the US acted inconsistently with Article 10 SCM and Article VI:3 of GATT 1994.   
(ii) Sales of logs or lumber by tenured harvester-sawmills to sawmills or re-manufacturers - 
Conduct of the investigation on an aggregate basis 
7.96 We similarly disagree with the US reasoning in respect of the second category of transactions 
at issue, i.e., where logs  are sold by a tenure-holding harveste r-sawmill to another unrelated sawmill, 
or where lumber is sold by a tenure-holding  harvester-sawmill to an unrelated lumber re-
manufacturer.  In its aggregate investigation, the USDOC deemed that a pass-through analysis in 
these types of transactions was not necessary because both the sellers and the purchasers of the inputs 
were themselves producers of softwood lumber, the subject merchandise.  That is, according to the 
US reasoning, the issue of pass-through, which is about the subsidy amount numerator in a 
subsidization calculation, does not arise in an aggregate investigation where all of the producers 
selling the upstream inputs also ar e producers of subject merchandis e, as any subsidy amounts from 
the stumpage programmes, if not passed through to the downstream log or lumber purchasers (who 
are lumber producers), will remain with the upstream  log or lumber sellers (who likewise are lumber 
producers), thus benefitting their own production of softwood lumber, rather than that of their 
customers.   
7.97 We are not convinced by this argument, however, which unjustifiably assumes in both 
situations that 100 per cent of any subsidy received by the tenure-holding harvester/sawmill is 
attributable to the softwood lumber products subject to investigation, when in fact the 
harvester/sawmill may produce and sell other products as  well.  Where logs rather than lumber are 
sold by a harvester/sawmill, then some portion of  any subsidy that it receives under a stumpage 
programme is attributable to its production of logs (i .e., not all of the subsidy can be attributed to the 
other lumber products that it produces).  If the subs idies attributable to the production of logs are not 
passed through to the lumber producer that purchases them, then those subsidies should not be 
included in the numerator of the subsidization calculation for lumber , as they can be said to have 
benefited production of the logs, but not production of the lumber produced from the logs by their 
purchaser.  The same holds true where lumber is  sold by a harvester/sawmill to a re-manufacturer 
whose products are exported to the US:  some portion of any subsidy from stumpage is attributable to 
the harvester/sawmill’s production of  the lumber for re-manufacturing and some is attributable to the 
other products (including lumber) that the harv ester/sawmill produces.  Here, if the subsidies 
attributable to the lumber for re-manufacturing are not passed through to the re-manufacturer that 
purchases it, then those subsidies should not be included in the numerator of the subsidization 
equation, as in this situation it is the re-manufactured product, not the upstream lumber product, that is 
the subject merchandise under investigation.  Thus, where the recipient of a stumpage subsidy sells 
inputs (logs or lumber) to unrelated downstream lu mber producers producing subject merchandise, a 
pass-through analysis is the only way to determine whether the subsidies on the production of the 
inputs also are subsidies on the products produced from  those inputs.  Only if so can any subsidy WT/DS257/R 
Page 99 
 
 
amounts attributable to the production of those inputs be included in the numerator of the 
subsidization calculation for the subject lumber products. 
7.98 Thus, contrary to the US argument, the question of pass-through has to do with correctly 
identifying the subsidy amount attributable to  the subject merchandise entering the US (the 
numerator).  The fact that the US conducted the lumber investigation on an aggregate basis does not 
prevent and cannot cure the overall numerator (the aggregate subsidy amount from the stumpage 
programmes) from being overstated where upstream transactions for inputs between unrelated entities 
are present and subsidies have not been passed thr ough.  Moreover, the fact that the Agreement may, 
as a general matter, permit the conduct of countervail investigations on an aggregate basis cannot 
absolve the US from its legal obligation to conduct a pass-through analysis in a particular investigation to establish the subsidization in resp ect of the manufacture, prod uction or export of the 
product being imported into the United States, where that product is produced from logs or lumber 
purchased from tenure holders by unrelated lumber  producers.  Furthermore, we are not convinced 
that the need to conduct a pass-through analysis fo r these transactions would necessarily or inevitably 
convert every aggregate case into a company-specific case.
170  Even if, in a particular case, it was not 
possible to conduct a pass-through analysis except by conducting the investigation on a company-specific basis,  the basic requirement to determin e subsidization in respect of the subject product 
where, in a particular investigation, upstream transa ctions between unrelated entities are present, must 
prevail.  Finally, the fact that the USDOC is now conducting reviews of uninvestigated companies in 
response to individual requests fails adequately to address the problem, as it is post hoc , while the 
obligation to determine subsidization in respect of the product is a precondition  for being allowed to 
apply a countervailing measure.  Nor does the US ar gue that individual reviews in this case are being 
conducted for all producers potentiall y affected by the pass-through issue, meaning that the reviews 
by definition will not be able fully to ad dress this problem, even after the fact. 
(iii) Conclusion 
7.99 We therefore conclude that, for the reasons set forth above, the USDOC's failure  to conduct a 
pass-through analysis in respect of logs sold by tenure-holding timber harvesters (whether or not also lumber producers) to unrelated sawmills producing su bject softwood lumber; and in respect of lumber 
sold by tenure-holding harvester/sawmills to unrela ted lumber re-manufacturers  was inconsistent with 
Article 10 and thus Article 32.1 SCM Agreement, and with Article VI:3 of GATT 1994.  In light of 
our finding, we do not find it necessary to address Canada's pass-through claims pursuant to Articles 
19.1 and 19.4 SCM Agreement.  That is, havi ng determined that the USDOC subsidization 
determination is inconsistent with the cited Article s, including because of the failure to conduct a 
pass-through analysis, and exercising the discretion implicit in the principle of judicial economy, we 
do not deem it necessary to examine whether the failu re to conduct a pass-through analysis gave rise 
to further substantive inconsistencies wi th Articles 19.1 and 19.4 SCM Agreement. 
(c) Has Canada introduced a new claim, i.e., a violation of Article 1.1, which is outside the 
Panel's terms of reference? 
7.100  We recall that in respect of its pass-through claim,  Canada refers to a number of provisions of 
the SCM Agreement and one provision of the GATT 1994, all of which, according to Canada, require 
a pass-through analysis where the recipient of the alleged subsidy is not a producer of the subject 
merchandise, specifically, where th e producer of the subject mercha ndise obtains its inputs at arms'-
length from a recipient of the alleged subsidy.  For Canada, the central issue is the existence of a 
subsidy in the sense of Article 1.1 SCM Agreemen t:  Canada alleges that USDOC assumed rather 
                                                     
 
170 For example, inquiry into possible relationships between the entities concerned, and the use of 
sampling or other statistical techniques in respect of the relevant transactions at issue, might offer possible 
approaches to be explored. WT/DS257/R 
Page 100  
 
than established the existence of a subsidy in resp ect of the arms-length transactions at issue, in 
violation of the cited provisions.   
7.101  Canada's first reference to Article 1.1 SCM Ag reement in the context of the pass-through 
issue appears in response to a question that we posed at our first substantive m eeting with the parties.  
We asked Canada to summarize its legal argumentatio n in respect of each of the provisions that it 
cited in its request for establishment of a panel in  respect of its pass-through claim, i.e., Articles 10, 
19.1, 19.4 and 32.1 SCM Agreement, and Article VI:3  of GATT 1994.  In response, Canada states, 
inter alia , that under these provisions, a countervailing duty may be imposed only where the 
investigating authority demonstrates that the producer of subject merchandise has received a 
"subsidy" in the sense of Article 1.1 SCM Agreement.  Canada further states that where, in its view, 
the US presumed rather than demonstrated the existe nce of a subsidy, it "acted inconsistently with" 
Article 1.1 SCM, and "therefore violated" the cited provisions.
171   
7.102  The US counters, inter alia , by arguing that Canada is raising a claim outside the Panel's 
terms of reference by citing Article 1.1 SCM Ag reement.  The US argues that, by referring to 
Article 1.1 SCM Agreement in its answer to the Pane l, Canada "seems to accept" that its claims under 
the above-cited provisions depend on a finding that the "calculation of the ad valorem  subsidy rate" is 
inconsistent with Article 1.1 SCM Agreement.  Th e US argues that while the US's actions were 
wholly consistent with that provision, the Panel ne ed not reach this issue as this provision was not 
cited in the Request for Establishment in connection with the pass-through issue.  In particular, the US 
argues that if a claim of a violation of one provis ion depends on a finding of violation of another 
provision, which latter was not cite d by the complaining party in its request for establishment of a 
panel, the panel has no jurisdicti on to resolve that claim.   
7.103  We note here that Canada does not argue that it did cite Article 1.1 SCM in its Request for 
Establishment of the Panel in resp ect of the pass-through claim, so there is no disagreement between 
the parties on this point.  Thus, if Canada's referen ce to this provision in its explanation of its pass-
through claim does constitute a new "claim" of a "violation", as the US argues, then such a claim would clearly seem to be outside our terms of reference.  The question before us therefore is whether this reference is or is not a new "claim". 
7.104  The chapeau of Article 1.1 SCM Agreement explic itly states that the concept and definition of 
what constitutes a "subsidy", as set forth in that Article, applies to the entire Agreement.
172  Thus, it is 
clear that this most basic definition of the Agreement informs every other reference to "subsidy" in the 
Agreement.  We understand from its response to our question that Canada is claiming that the US has 
violated the provisions it cites in its pass-through claim (Articles 10, 19.1, 19.4 and 32.1 SCM 
Agreement, and Article VI:3 of GA TT 1994) by virtue of USDOC's failure to establish the existence 
of the subsidies or subsidization to which those pr ovisions refer, which refe rences by definition can 
only be to "subsidies" or "subsidization" in the sense of Article 1.1.  For example, we understand 
Canada to argue that Article 19.1 requires, inter alia , a determination of the existence of a subsidy, 
which by definition must be a subsid y in the sense of Article 1.1.   
7.105  We thus do not consider that Canada's referenc e to Article 1.1 in its response to our question 
constitutes a new "claim" of a "violation" of Artic le 1.1.  Rather, we understand Canada, by this 
reference, to have clarified its view  that all references to "subsidy" or  "subsidization" in the provisions 
that it cites must be understood in the same sense as in Article 1.1, and in particular, that the cited provisions, by referring to "subsidies" or "subsidization", require the "existence" of a subsidy in the 
sense of Article 1.1 before a countervailing duty can be applied.   
                                                     
 
171 Canada Response to Questions from the Panel at the First Meeting (Annex A-1), paras.  113-114. 
172 "1.1  For purposes of this Agreement , a subsidy shall be deemed to exist if:….." (emphasis added). WT/DS257/R 
Page 101 
 
 
D. CLAIM 4: CANADIAN STUMPAGE PROGRAMMES ARE NOT SPECIFIC TO CERTAIN ENTERPRISES  
1. Arguments of the parties 
(a) Canada 
7.106  Canada submits that, even if the USDOC had correctly determined that provincial stumpage 
programmes were a subsidy, it failed in the Fina l Determination to correctly determine that the 
programmes are specific  subsidies within the meaning of Artic le 2 SCM Agreement.  Canada asserts 
that the USDOC found that the provincial stumpage programmes are specific in fact because they 
were used by only a limited number of certain enterprises.  Canada argues that, even if the 
programmes were used by a limited number of users, this does not suffice for a finding of specificity.  
According to Canada, under Article 2 SCM Agreemen t, a Member may find that the alleged subsidy 
is specific in fact only where the total configur ation of facts and evidence relating to these factors 
points to a deliberate  limiting of access to a certain limited number of enterprises or industries 
engaged in the manufacture of similar products .173  
7.107  First, Canada asserts that provincial stumpage programmes are not used by a limited number 
of certain industries .  Canada submits that the USDOC failed to accurately determine the actual users 
of the stumpage programmes and failed to addres s the record evidence that established that many 
enterprises and industries use stumpage programmes.174 According to Canada, while some producers 
of the subject merchandise may use stumpage programmes, they are not the only users, and neither 
can the producers of the subject merchandise be c onsidered as a single industry, as many producers 
produce multiple products, many of which are not subject to the investigation.  Canada asserts that the 
USDOC Determination failed to address what the term s "industry" or "group of industries" mean.  
The USDOC applied a circular reasoning and simp ly grouped the users of the programme as one 
industry for the simple reason that they all use the programme.  Canada asserts that an industry cannot 
be identified for purposes of spec ificity without reference to the end-products produced.  Canada 
argues that the USDOC's circular reasoning effectively writes the specificity requirement out of the 
SCM Agreement, as all programmes are by definiti on used only by the users of the programme.   
7.108  Second, Canada considers that, even if the programmes were used by a limited number of 
enterprises, this limited use is easily explaine d by the nature of forestry resources and the 
diversification of provincial economies.  According to Canada, the inherent characteristics of the  
good provided limit the number of users of the programme, not any deliberate government 
favouritism, as is required under Article 2 SCM Agreement.  Moreover, in Canada’s view, a 
determination of de facto  specificity under Article 2.1 (c) SCM Agreement in this case would have 
required at a minimum an examination of all four factors listed in that provision as well as the 
consideration of the extent of diversifica tion of the economic activities in Canada.175  Canada submits 
that where these factors do not indicate that a Me mber is deliberately limiting access to a programme 
                                                      
173 Canada draws a parallel with de facto  contingency on export performance under Article 3.1 SCM 
Agreement to argue that a Member may find de facto  specificity only where the total configuration of facts 
allows it to infer that the government is deliberately limiting access to the programme.  Canada refers to 
Appellate Body report, Canada - Aircraft , para. 167. 
174 According to Canada, studies on the record demonstrated that at least 23 separate and varied classes 
of industries, producing over 200 widely diverse goods, use stumpage programmes, and that softwood lumber 
production was not the dominant end use of the wood fibre harvested from Canadian forests. 
175 Canada argues that the USDOC for example failed to take into consideration that in British 
Columbia forestry-related activities are responsible for a substantial share of economic activity, in spite of the 
explicit obligation under Article 2.1 (c) SCM Agreement to take into account the economic diversification of 
provincial economies. WT/DS257/R 
Page 102  
 
(that is, if the factors may be explained by other circumstances) then the programme is not specific.
176  
In light of the nature of the forestry resource in que stion, Canada considers that it is untenable to base 
a specificity finding on the "limited-users" factor alone, as use of natural resources will always be 
limited in fact to those enterprises and industries  that are capable of extracting the resource and 
processing it into a good.  In sum, Canada considers that the legal standard established by Article 2 
SCM Agreement is whether a government is limiting access to a programme, in law or in fact, to 
certain enterprises over other eligible  enterprises.  Canada is therefore of the view that the USDOC 
has rendered the specificity test and the limited-us ers factor redundant by using the entire Canadian 
economy as a benchmark and finding that the vast majority of companies and industries in Canada do 
not receive benefits under these programmes.177  
7.109  Canada therefore submits that the USDOC determ ination of specificity of the alleged subsidy 
programmes is inconsistent with Article 2.1 (c) SCM Agreement and, since under Article 1.2 SCM 
Agreement the United States may impose countervailing duties only against subsidies found to be 
specific, the countervailing duties at issue thus violate Article 1.2, 10, 19.1, 19.4, and 32.1 SCM 
Agreement.   
(b) United States 
7.110  The United States considers that the USDOC's conclusion that the provincial stumpage 
programmes are specific in fact is consistent  with Article 2.1 (c) SCM Agreement as these 
programmes are used by a limited group of industries consisting of the lumber and pulp and paper 
industries, while the vast majority of companies within Canada do not receive stumpage.178 The 
United States asserts that there is no basis in the text of Article 2 SCM Agreement for Canada's 
arguments that a product based industry analysis should have been performed and that the USDOC 
was required to determine that it was the government 's intention to limit the users of the programme 
to certain eligible enterprises only. 
7.111  According to the United States, the USDOC's definition of a group of industries is based on 
the common practice of referring to industries by  the general type of products they produce.  The 
United States argues that the plain language of Article 2 SCM Agreement ("specific to certain 
enterprises ") indicates that the specificity test is concerned not with products , but with enterprises  
and industries .  According to the United States, the USDOC found that the stumpage programmes 
were used by a limited number of wood product industries consisting of the lumber and pulp and 
paper industry, which constitutes a limited group of industries.  The United States submits that 
Canada's argument that the USDOC undercounted the number of industries that used stumpage 
subsidies because it used an improper definition of the word "industry" should thus be rejected.   
7.112  The United States further considers that the text  of Article 2 SCM Agr eement does not require 
the authority to make any findings as to the granting authority's intent to limit a subsidy to certain 
eligible producers only, as Canada is suggesting, sin ce the very purpose of Article 2.1 (c) is to let the 
facts speak for themselves.  In the United States view, the fact that, due to its "inherent characteristics", a subsidized input has economic u tility for a limited number of potential recipients 
                                                     
 
176 Canada argues that the negotiating history surrounding Article 1.2 and 2 SCM Agreement confirms 
its interpretation that specificity relates to a determination that government action deliberately restricts access to 
the alleged subsidy.  Canada Second Written Submission, para. 60. 
177 In Canada's view, using the entire economy of a Member as a benchmark misinterprets Article 2, 
since it ignores the fact that the universe of eligible users under Article 2.1 (b) SCM Agreement can be 
something less than "everyone" and still this subsidy would not be specific.  The relevant benchmark must be 
the universe of eligible  users, since Article 2.1 (b) contemplates a finding on non-specificity where a programme 
is limited pursuant to neutral and objective criteria. 
178 USDOC Determination, p. 51 – 52.  (CDA-1). The USDOC found that the stumpage programmes 
were used by a single limited group of wood product industries, comprised of pulp and paper mills, and the 
sawmills and remanufacturers that produce the subject merchandise. WT/DS257/R 
Page 103 
 
 
does not exempt the provision of this input from th e subsidy disciplines of the SCM Agreement, nor 
does it mean that a further analysis is required to  see whether actual use of that input is in fact 
restricted to some subset of the potential or eligible users. 
7.113  The United States does not consider that all four factors mentioned in Article 2.1 (c) SCM 
Agreement need to be examined for a finding of de facto  specificity.  It suffic es that the subsidy is 
used by a limited number of users for it to be considered specific under article 2.1 (c) SCM 
Agreement.  The United States acknowledges that Article 2.1 (c) SCM Agreement provides that an 
investigating authority must take into account th e extent of diversification of economic activities 
within the jurisdiction of the granting authority.  According to the United States, this is so because a 
subsidy may be widely distributed within the economy, and yet appear specific, simply due to the limitations of the domestic economy where the subsidy was granted.  The United States submits that 
the Canadian provinces are far from being un-diversified economies, and that the USDOC recognized 
this aspect of the specificity test in its finding th at the majority of companies in Canada do not receive 
benefits under these programmes.   
2. Analysis 
7.114  Article 1.2 SCM Agreement provides that a subsidy is only countervailable if "such a subsidy 
is specific in accordance with the provisions of Article 2".  Article 2 provides as follows: 
Article 2 
Specificity  
2.1 In order to determine whether a subsidy, as defined in paragraph 1 of 
Article 1, is specific to an enterprise or industry or group of enterprises or industries 
(referred to in this Agreement as "certain enterprises") within the jurisdiction of the 
granting authority, the following principles shall apply: 
(a) Where the granting authority, or the legislation pursuant to which the 
granting authority operates, explicitly li mits access to a subsidy to certain 
enterprises, such subs idy shall be specific. 
(b) Where the granting authority, or the legislation pursuant to which the 
granting authority operates, establishes objective criteria or conditions2 
governing the eligibility for, and the amount of, a subsidy, specificity shall 
not exist, provided that the eligibility is automatic and that such criteria and 
conditions are strictly adhered to.  The criteria or conditions must be clearly 
spelled out in law, regulation, or other official document, so as to be capable 
of verification.  
(c) If, notwithstanding any appearance  of non-specificity resulting from the 
application of the principles laid down in subparagraphs (a) and (b), there are reasons to believe that the subsidy may in fact be specific, other factors may be considered.  Such factors are:  use of a subsidy programme by a limited number of certain enterprises, predominant use by certain enterprises, the granting of disproportionately large amounts of subsidy to certain enterprises, and the manner in  which discretion has been exercised 
by the granting authority in the decision to grant a subsidy.
3 In applying this  
subparagraph, account shall be taken of the extent of diversification of 
economic activities within the jurisdictio n of the granting authority, as well WT/DS257/R 
Page 104  
 
as of the length of time during which the subsidy programme has been in 
operation. 
2.2 A subsidy which is limited to certain enterprises located within a designated 
geographical region within the jurisdiction of the granting authority shall be specific.  
It is understood that the setting or change  of generally applicable tax rates by all 
levels of government entitled to do so shall not be deemed to be a specific subsidy for 
the purposes of this Agreement.   
2.3 Any subsidy falling under the provisions  of Article 3 shall be deemed to be 
specific. 
2.4 Any determination of specificity under the provisions of this Article shall be 
clearly substantiated on the basis of positive evidence. 
  
2 Objective criteria or conditions, as used herein, mean criteria or conditions which are 
neutral, which do not favour certain enterprises over others, and which are economic in nature 
and horizontal in application, such as number of employees or size of enterprise. 
3 In this regard, in particular, information on the frequency with which applications for a 
subsidy are refused or approved and the reasons for such decisions shall  be considered.  
7.115  In essence, we understand Canada to argue that for a subsidy to be specific under 
Article 2.1 (c ) SCM Agreement, the granting authority must have deliberately limited  access to the 
subsidy to a group of enterprises producing similar products .  In particular, Canada argues that a 
subsidy which consists of the provision of a good wh ich can only be used as an input by a particular 
industry should not be considered to be specific unless the granting authority has deliberately limited 
its use to a certain subgroup of enterprises in that  industry.  Under the facts of this case, Canada 
moreover argues that the USDOC finding that ther e were only a limited number of users of the 
stumpage programmes was flawed.  In addition, Canada considers that the USDOC should have 
analysed the end-products of the industries it alle ged were the users of the programme in order to 
determine whether they constituted a group of industries producing similar products.    
7.116  We first address Canada's argument that a su bsidy is specific only when the authority 
deliberately limits access of this subsidy to certai n enterprises within the group of enterprises eligible 
or naturally apt to use the subsidy.  In our view, Article 2 SCM Agreement is concerned with the distortion that is created by a subsidy which eith er in law or in fact is not broadly available.
179 While 
deliberate action by a government to restrict access to a subsidy that is in principle broadly available, 
through the use of discretion, could well be the basis for a finding of de facto  specificity, we see no 
basis in the text of Article 2, and 2.1 (c) SCM Agr eement in particular, for Canada's argument that if 
the inherent characteristics of the good provided limit the possible use of the subsidy to a certain 
industry, the subsidy will not be specific unless access to this subsidy is limited to a sub-set of this 
industry, i.e.  to certain enterprises within the potential users of the subsidy engaged in the 
manufacture of similar products.  Article 2 spea ks of the use by a limited number of certain 
                                                      
179 We note that the availability of a subsidy which is limited by the inherent characteristics of the good 
cannot be considered to have been limited by "objective" criteria in the sense of footnote 2 to Article 2.1 (b) SCM Agreement, i.e.  "criteria or conditions which are neutral, which do not favour certain enterprises over 
others, and which are economic in nature and horizontal in application, such as number of employees or size of 
enterprise". WT/DS257/R 
Page 105 
 
 
enterprises or the predominant use by certain enterprises, not of the use by a limited number of certain 
eligible  enterprises.  In the case of a good  that is provided by the government -  and not just money, 
which is fungible – and that has utility only for certain enterprises (because of its inherent 
characteristics), it is all the more likely that a s ubsidy conferred via the provision of that good is 
specifically provided to certain enterprises only.  We  do not consider that this would imply that any 
provision of a good in the form of a natural resource automatically would be specific, precisely 
because in some cases, the goods provided (such as for example oil, gas, water, etc.) may be used by 
an indefinite number of industries.  This is not the situation before us.  As Canada acknowledges, the 
inherent characteristics of the good provided, st anding timber, limit its possible use to "certain 
enterprises" only.   
7.117  We now turn to Canada's argument that the USDOC failed to properly determine that the 
stumpage programmes were used by only a limited number of industries.  On the basis of the facts of 
this case, Canada argues that specificity should have  been analyzed based on the end-products sold by 
the industry or industries using the programme.  Canada argues that more than 200 separate products 
are manufactured by companies holding harvesting rights, together forming about 23 separate industries.
180 This, according to Canada, is hardly a "limited number of industries".   
7.118  We note that the USDOC determined that  
"Benefits under these Provincial stumpage [programmes] are limited to those 
companies and individuals specifically author ized to cut timber on Crown lands.  
These companies are pulp and paper mills and the saw mills and remanufacturers 
which are producing the subject merchandis e.  This limited group of wood product 
industries is specific under section 771 (5A)(D)(iii)(I) of the Act" "181  
7.119  We recall that a subsidy is specific under Articl e 2 SCM Agreement, if it is specific to an 
enterprise or industry or group of enterprises or industries (referred to in the SCM Agreement as 
"certain enterprises").  The SCM Agreement does not  define an "industry" nor does it provide for any 
other rules concerning which enterprises could be considered to form an industry for the purposes of Article 2 SCM Agreement or whether a group of indust ries have to produce certain similar products in 
order to be considered a "group". 
7.120  The New Shorter Oxford Dictionary defines an industry as "a particular form or branch of 
productive labour; a trade, a manufacture".
182 Both parties seem to agree that the common practice is 
to refer to industries by the type of products they produce.183 It seems therefore that the term 
"industry" in Article 2 SCM Agreement is not used to refer to enterprises producing specific goods or 
end-products.  Indeed, even Canada agrees that a single industry may make a broad range of end 
products and still remain a "i ndustry" within the meaning of Article 2 SCM Agreement.184 We note in 
                                                      
180 Exhibit CDA-73 provides an overview of these 23 allegedly separate industries and the 201 
products.  produced by these industries.  We note that Canada considers as separate industries such industries as the "wooden kitchen cabinet and bathroom vanity industry" and the "wooden door and window industry" to 
mention just two. 
181 USDOC Determination, p. 52.  (CDA-1). Accordin g to the USDOC, "whether we classify the users 
of the stumpage programs as sawmills and pulp mills, th e primary timber processing group, the wood products 
industry, the forest products  industries, the wood fibre user industry, the "industries" suggested by respondents, 
or any combination thereof, the subsidies provided by these stumpage programs are not "broadly available and 
widely used".  The vast majority of companies and industries in Canada does not receive benefits under these 
programs." USDOC Determination, p. 52.  (CDA-1). 
182 CDA-66, p. 1356.  We note that this is a definition relied on by both parties. 
183 See United States First Written Submission, para. 150; Canada Response to Questions from the First 
Meeting (Annex A-1), para. 153. 
184 Canada Response to Questions from the First Meeting (Annex A–1),  para. 149.  By contrast, we 
find that the fact the domestic industry is defined in Article 16 SCM Agreement by reference to a particular WT/DS257/R 
Page 106  
 
this respect that Canada considers that "it may be completely appropriate to find that producers of a 
wide variety of steel products (or automobile products or textile products, etc) are a group of "steel 
industries" ( or "automobile industries", "textile in dustries", etc.) because of the similarity and the 
relatedness of their output products".
185 Canada also does not dispute that a subsidy limited to a single 
large industry (such as "steel", "autos", "textiles" , "telecommunications", or the like) could be found 
specific, even though the producers make a diversity of products.186  
7.121  The USDOC Determination considered that only a group of wood product industries, 
consisting of the pulp and paper mills and the sa wmills and re-manufacturers which are producing the 
subject merchandise used the stumpage programmes.  It does not seem that USDOC simply labelled 
an aggregation of producers as a group of industries  merely because they use a particular programme.  
In our view, the opposite was the case.  As Canada  recognized, the stumpage programme can clearly 
only benefit certain enterprises in the wood product industries which can harvest and / or process the 
good provided, standing timber.  In sum, the te xt of Article 2 SCM Agreement does not require a 
detailed analysis of the end-products produced by  the enterprises involved, nor does Article 2.1 (c) 
SCM Agreement provide that only a limited number of products  should benefit from the subsidy.  In 
our view, it was reasonable of the USDOC to reach the conclusion that the use of the alleged subsidy was limited to an industry or a group of industries.   We consider that the "wood products industries" 
constitutes at most only a limited group of industries - the pulp industry, the paper industry, the 
lumber industry and the lumber remanufacturing industry - under any definition of the term 
"limited".
187  We do not consider determinative in this respect the fact that these industries may be 
producing many different end-products.  As we discus sed above, specificity under Article 2 SCM is to 
be determined at the enterprise or in dustry level, not at the product level.188      
7.122  Canada argues that there were other users of the programmes than the ones identified by the 
USDOC.  We understand Canada to be arguing that not only "the pulp and paper mills and the saw 
mills and remanufacturers which are producing the subject merchandise" are using the stumpage 
programmes, but also the pulp and paper mills and the sawmills and remanufacturers which are not 
producing the subject merchandise.  In our view, a ll these producers can reasonably be found to form 
part of the same industries, which produce both the subject merchandise and other merchandise.  It is 
evident that in order to countervail a specific subs idy it is necessary that the subsidy benefits the 
producers of the subject merchandise, but that does not mean that the subsidies should be specific to 
these producers only, nor is it required under Article 2 SCM Agreement that the subsidy be 
specifically targeted at subsidizing only the subject merchandise of producers who produce both subject merchandise and non-subject merchandise.   
                                                                                                                                                                    
 
"like product" does not provide useful context for the interpretation of the term "industry" in general in light of 
the different and specific purpose of this definition of domestic industry in the SCM Agreement.  We note again 
that there is no definition of the term "industry" in general in the SCM Agreement. 
185 Canada Response to Questions from the First Meeting (Annex A-1),  para. 150. 
186 Canada Response to Questions from the First Meeting (Annex A-1),  para. 149. 
187 The New Shorter Oxford Dictionary defines "limited" as "confined within definite limits; restricted 
in scope, extent, amount, etc.; (of an amount) small".  New Shorter Oxford Dictionary, Edited by Lesley Brown, 
Clarendon Press Oxford, 1993 ed., p. 1592. 
188 We consider therefore not determinative either the fact that a distinction may be made on the basis 
of the specific products produced into 23 industries, as Canada is suggesting.  Irrespective of the question 
whether 23 industries could  still be considered to be a limited number in absolute or relative terms, we are of the view that for the purposes of Article 2 SCM Agreement, it was entirely legitimate of the USDOC to group 
such alleged separate industries as the "wooden kitchen cabinet and bathroom vanity industry" and the "wooden 
door and window industry" together with other similar industries into a group of wood products industries.  In a 
similar vein, it appears to us that, whether a "group" is required to produce similar products or not in order to be considered a "group" under Article 2 SCM Agreement, an issue which we need not and do not decide, the 
industries producing wood products are, in our view, obviously producing sufficiently similar products to be 
considered as a "group" of industries for the purposes of Article 2 SCM Agreement. WT/DS257/R 
Page 107 
 
 
7.123  Canada also argues that an authority is requi red to examine all four factors mentioned in 
Article 2.1 (c) SCM  Agreement in order to determine de facto  specificity.  We note in this respect 
that Article 2.1 (c) SCM Agreement provides that if there are reasons to believe that the subsidy may 
in fact be specific, other factors may be considered.  The use of the verb "may" rather than "shall", in 
our view, indicates that if there are reasons to belie ve that the subsidy may in fact be specific, an 
authority may want to look at any of the four factors or  indicators of specificity.  We note the 
difference in language between Article 2.1 (c) SC M Agreement and, for example, Article 15.4 SCM 
Agreement concerning injury which provides that "the  examination of the impact of the subsidized 
imports on the domestic industry shall include  an evaluation of all relevant economic factors and 
indices having a bearing on the state of the industry including  …", and then lists the factors which 
have to be included in the evaluation.  Article 15.4 SCM Agreement is almost identical in language to Article 3.4 Anti-Dumping Agreement, which it is well established, contains an obligation on the part 
of the investigating authority to at a minimum examine and evaluate all factors listed in the 
provision.
189  In our view, if the drafters had wanted to  impose a formalistic requirement to examine 
and evaluate all four factors men tioned in Article 2.1 (c) SCM Agre ement in all cases, they would 
have equally explicitly provided so as they have done elsewhere in the SCM Agreement.190 They did 
not do so.  We conclude therefore that there wa s no obligation on the USDOC to examine whether 
disproportionately large amounts of the subsidy were granted to certain enterprises or the manner in 
which discretion has been exercised by the granting authority in the decision to grant a subsidy, the 
two factors mentioned in Article 2.1 (c) SCM Agreement which the USDOC did not explicitly 
examine. 
7.124  We finally note that Article 2.1 (c) SCM Ag reement provides that "[I]n applying this 
subparagraph, account shall be taken of  the extent of diversification of economic activities within the 
jurisdiction of the granting authority, as well as of the length of time during which the subsidy 
programme has been in operation".  While it is cl ear that the USDOC did not explicitly and as such 
address the extent of economic diversification in its  Final Determination, we consider that in noting 
that "the vast majority of companies and industries in Canada does not receive benefits under these 
programmes"191, the USDOC showed that it had taken account of  the extent of economic 
diversification in Canada and its provinces, i.e.  the publicly know n fact that the Canadian economy 
and the Canadian provincial economies in part icular are diversified economies.  Although we 
understand the wood product industry to be an important industry for Canada, it is clear that the 
Canadian economy is more than just wood products alone.  In light of the fact that, in our view, all that is required under the last sentence of Article 2.1 (c) SCM Agreement is that "account be taken of 
" the extent of economic diversification, we find that USDOC Determination complied with this 
obligation. 
7.125  We find therefore that the USDOC determination that the stumpage programmes which are 
used only by a limited group of wood product industries  are in fact specific, is not inconsistent with 
Article 2.1 (c ) SCM Agreement and reject all of Canada's claims in this respect.   
                                                     
 
189 Appellate Body report, Thailand – H-Beams , para. 128.  Panel report, EC – Tube and Pipe Fittings , 
para. 7.304.  Panel Report, Egypt –  Steel Rebar , para. 7.36.  Panel Report, EC – Bed Linen , para. 6.159; Panel 
Report, Mexico – Corn Syrup , para. 7.128. 
190 We note that it appears that on the basis of the facts before the USDOC, it was reasonable to 
conclude that certain of these factors, such as the granting of disproportionately large amounts of the subsidy to certain enterprises or the manner in which discretion has been exercised by the granting authority in the decision 
to grant a subsidy, were not relevant in this situation, and thus did not have to be examined. 
191 USDOC Final Determination, p. 52. (CDA-1). WT/DS257/R 
Page 108  
 
E. C
LAIM 5: INCONSISTENT CALCULATION OF THE AMOUNT OF SUBSIDIZATION  
1. Claims and arguments of the parties  
(a) Alleged improper conversion from US to Canadian log volume measurement system  
(i) Canada 
7.126  Canada claims that the USDOC inflated the subsidy amount (the numerator of the 
subsidization rate equation), and hence the rate of  subsidization and the coun tervailing duties applied, 
by impermissibly using a "manifestly incorrect" conversion factor to compare US stumpage rates that 
it used as benchmarks with the Canadian Provincial stumpage rates.  In particular, Canada claims that 
by using an inaccurate factor to convert the US lo g measurements to cubic meters, the amount of the 
alleged subsidy on lumber was inflated.  As a result, Canada alleges, the countervailing duties 
imposed are in excess of any alleged subsidy on softwood lumber, in violation of Article 19.4 SCM Agreement and Article VI:3 of GATT 1994.  Canada also alleges violations of Articles 10 and 32.1 
SCM Agreement, on the basis of the alleged violat ions of Articles 19.4 SCM Agreement and VI:3 of 
GATT 1994.
192 
7.127  Stumpage volumes and prices in the United States are recorded in thousand board feet, while 
those in Canada are recorded in cubic meters.  Because the United States used US stumpage prices as 
the benchmark against which to compare Canadian stumpage rates in order to determine the existence 
and amount of the alleged subsidies, the USDOC needed to apply a conversion factor to restate the 
US prices in cubic meters.   
7.128  According to Canada, the USDOC erred by appl ying a single national average conversion 
factor to all provinces.193  Canada argues that because log scales vary widely, depending on the 
diameter, taper, and length of the logs in question,  no one average conversion factor can be applied.  
According to Canada, moreover, the conversion factor used by the USDOC is outdated, does not 
reflect the current harvest in any of  the jurisdictions, or does not account for differences in scaling or 
utilization practices, and is not empirically verifiable.   
7.129  In response to a question from the Panel concerning the basis for Canada's assertion that the 
data used by the USDOC were "manifestly incorr ect", Canada submits a document of record, the 
"Minnesota Public Stumpage and Price Review ", which Canada argues uses a much higher 
conversion rate than that used by USDOC in conver ting prices per thousand board feet to prices per 
wood volume.194  According to Canada, the USDOC used the prices in the Minnesota Review but 
ignored its conversion factor, using instead the one that  Canada believes to be "manifestly incorrect".   
(ii) United States 
7.130  The United States argues in the first place that the cited provisions do not contain substantive 
obligations in respect of subsidy calculations.  Further,  and in more specific resp onse to this claim, the 
US argues that the question raised is purely one of  fact, and that the USDOC considered the record 
evidence in respect of conversion factors in selecting the ones used in its investigation, and provided a 
reasoned explanation for this selection in its Fi nal Determination.  For the US, this fulfilled its 
obligations under the Agreement.195  In this connection, the United States recalls, citing the Appellate 
                                                      
192 Canada First Written Submission, paras.  183 et seq . 
193 Canada acknowledges that the USDOC also used a second factor from Western Washington to 
convert stumpage rates for the coastal British Columbia calculation. 
194 Canada Response to Questions from the Panel at the First Substantive Meeting (Annex A-1), paras.  
131-132. 
195 United States First Written Submission, paras.  117 et seq . WT/DS257/R 
Page 109 
 
 
Body in the US – Lamb  dispute196, the standard of review under Article 11 of the DSU that in the US 
view, panels should apply in consid ering issues of fact in countervailing duty disputes.  This standard 
of review is that panels should limit their consider ation, in respect of questions of fact, to whether 
competent authorities have considered all of the re levant factors, and have provided a reasoned and 
adequate explanation of how the facts support their determination.  In other words, panels should not 
conduct de novo  examinations of the facts.   
7.131  The United States describes the record evidence that was before the USDOC in respect of 
conversion factors.  In particular , the parties submitted a range of pr oposed factors, from 3.48 to 8.51 
cubic meters per thousand board feet, which had been  developed specifically for the purpose of the 
investigation.  According to the US, the USDOC decided, in view of the conflicting suggestions received from parties, to rely exclusively on publishe d information prepared in the ordinary course of 
business by public agencies, as this would be the surest way to avoid using a biased conversion factor.  
There were two such sources in the record, and the US argues that USDOC found the older one to be 
more reliable, because it contained a detailed expl anation of how the numbers in it were derived, 
whereas the newer one contained no such explanation.  According to the US, the USDOC thus weighed the evidence and made a well-reasoned choice, which it fully explained in the Final Determination, and whether the Pane l or Canada would have reached a different conclusion based on 
the same evidence is irrelevant.
197   
7.132  In specific response to Canada's arguments concerning the Minnesota Review, the US argues 
that the conversion factors referred to by Canada were only necessary to convert the price data in 
Table 1 of the Review, which are presented in dollars per thousand board feet, to those shown in 
Table 2, which are presented in dollars per cord (a measure of wood volume, not directly convertible 
to cubic meters).198  The US argues that Canada failed to establish that the conversion factors used by 
the USDOC were flawed, and states that the existence of alternative sources does not mean that the 
USDOC's selection was manifestly incorrect.  The US argues that were the Panel to reach such a 
conclusion, this would amount to an impermissible de novo  review.199 
(b) Alleged failure to account for the multiple uses of softwood logs produced from Crown 
timber 
(i) Canada 
7.133  This claim of Canada pertains primarily to the alleged overstatement of the numerator 
(subsidy amount) of the subsidization rate calculat ion.  Canada claims that by failing to limit the 
numerator amount only to the amount of the alleged su bsidy that could be said to have benefited logs 
used to produce softwood lumber, the USDOC ov erstated the numerator and thus the rate of 
subsidization.  Canada notes that the standing timber , the alleged financial contribution in this case, is 
provided to producers of multiple downstream products, only one of which is the subject 
merchandise.  According to Canada, the USDOC calculated the benefit amount at the point at which 
logs were sawn into lumber, when it had not yet apportioned the volume of logs between the subject 
and non-subject merchandise produced therefrom, and th en allocated that (total benefit) amount over 
the sales value of softwood lumber.  Canada argues that this impermissibly inflated the subsidization 
rate, and thus the countervailing dut y rate, because it treated alleged subsidies in respect of inputs 
used to produce poles, posts, ties and a variety of other non-subject products as subsidies to the 
subject merchandise.   
                                                      
196 Appellate Body Report, US – Lamb , para. 103. 
197 United States First Written Submission, para. 124. 
198 United States Response to Questions from the Panel at the First Meeting (Annex A-2), paras.  39-40. 
199 United States Second Written Submission, paras.  66-67. WT/DS257/R 
Page 110  
 
7.134  In other words, Canada asserts, the USDOC pu t in the numerator the alleged subsidy to the 
whole log, then attributed that entire subsidy to on ly some of the products produced from that log, 
thereby mismatching the numerator and the denominator in such a way as to artificially inflate the rate 
of subsidization.  For Canada, this alleged overstatement violated Articles 10, 19.4, and 32.1 SCM 
Agreement, and Article VI:3 of GATT 1994.  Ca nada clarified in its arguments that it sees 
Article 19.4 SCM Agreement as the provision cont aining the substantive obligations in respect of 
calculation of the rate subsidization.
200  
(ii) United States 
7.135  The United States argues again that, in the first place, and contrary to what Canada implies, 
Article 19.4 SCM Agreement does not contain any obligation to use a specific methodology to 
calculate the "subsidy found to exist".  In additio n, according to the US, the methodology proposed by 
Canada would in fact understate  the amount of the subsidy, especially when combined with Canada's 
proposed methodology for the deno minator.  The US argues that when a sawmill receives a certain 
amount of subsidy by paying too low a price for the timber that it uses as its input, that subsidy 
benefits all of the products produced by that  sawmill from the timber, not just the subject 
merchandise.  Therefore, the US argues, the US DOC took the total subsidy amount received by 
sawmills through the allegedly subsidized timber and allocated it to all products (subject and non-
subject) resulting from the processing of the timber .  Thus, according to th e US, the numerator and 
denominator are calculated on the same basis.  The US asserts that Canada's claim amounts to an 
argument that the US was required to allocate subsidies on a volume rather than value basis.  As such 
an obligation cannot be found in any of the provisions cited by Canada, the US argues, Canada has failed to make its prima facie  case of a violation in respect of how the USDOC calculated the 
numerator.
201   
(c) Alleged understatement of the value of "final mill" sales 
(i) Canada 
7.136  Canada claims that the denominator used by the USDOC as the value of sales of subject 
merchandise by "final mills" is understated, lead ing to an impermissible in flation of the rate of 
subsidization, once again violating Articles 10, 19.4 , 32.1 of the SCM Agreement and Article VI:3 of 
GATT 1994.  Canada notes that in all past US soft wood lumber cases, the USDOC calculated the rate 
of subsidization and assessed the countervailing duties , on a "first mill" rather than "final mill" basis. 
7.137  The United States imposed the countervailing duty  on the "final mill" value of the subject 
softwood lumber products, which includes the value of lumber shipped to end-users by "first mills" 
(i.e., those that process logs into lumber), plus the value added by lumber remanufacturers (those that 
purchase lumber products for further processing into other lumber products).  Canada's claim 
concerns the USDOC's calculation of the amount of  value added by the remanufacturers.  On this 
point, Canada argues that the USDOC based its estimate of this value added on outdated and 
incomplete statistics provided by Statistics Canada at the request of the USDOC (in "GOC 
Exhibit 36" from the CVD investigation), in spite of having in the record what Canada views as 
verified, complete and up-to-date information derive d by Canada from another source (a study by the 
Pacific Forestry Centre, or "PFC").  Canada asserts that the PFC information was the most accurate on 
the record concerning the factual point at issue, an d that by ignoring this information, and relying 
instead on the much less reliable data provided  by Statistics Canada, the US overstated the 
subsidization rate, in violatio n of the cited provisions.  202  
                                                      
200 Canada First Written Submission, paras.  189-194. 
201 United States First Written Submission, paras.  103-106. 
202 Canada First Written Submission, paras.  195-203. WT/DS257/R 
Page 111 
 
 
(ii) United States 
7.138  The United States argues that Canada is simp ly disagreeing with the USDOC's choice of 
which record data to rely on in estimating the valu e added by lumber remanufacturers.  In the view of 
the US, the USDOC properly and thoroughly considered all of the relevant record evidence, and made 
a reasonable choice as to which da ta to use, and then provided in  its Final Determination a reasoned 
explanation of that choice.   
7.139  Concerning the USDOC's assessment of the evidence that was before it, the US argues that, 
contrary to Canada's characterization, the USDOC at verification found various flaws and 
shortcomings in the PFC study, leading it to concl ude that the data in GOC Exhibit 36 were more 
accurate.  In particular, at verification, the US DOC learned that the PFC data included products 
outside the scope of the investigation, as well as a value for kiln-drying (a service, not a good).  By 
contrast, the derivation of the data in GOC Exhibit 36 was clear, according to the US, and the figures 
were able to be used to derive a ratio of rema nufactured shipments from i ndependent remanufacturers 
for the two provinces covered by GOC Exhibit 36, wh ich ratio was then applied to the total Canadian 
lumber shipment values to estimate the value of remanufactured products.203   
2. Analysis  
7.140  In the light of our findings pursuant to Articles 10, 14, 14(d) and 32.1 SCM Agreement and 
Article VI:3 of GATT 1994 in respect of the US DOC's subsidy determination, we do not find it 
necessary to address Canada's calculation-related cl aims described above.  That is, having determined 
that the USDOC determination in respect of subsidiz ation is inconsistent with the cited Articles, and 
exercising the discretion implicit in the principle of judicial economy, we do not deem it necessary to 
examine whether certain methodological issues gave rise to further inconsistencies in respect of that 
determination. 
F. CLAIM 6: FAILURE TO CONDUCT THE INVESTIGATION IN ACCORDANCE WITH ARTICLE 12 SCM  
AGREEMENT  
1. Arguments of the parties 
(a) Canada 
7.141  Canada argues that the USDOC imposed countervailing duties based on an investigation that 
violated Articles 12.1, 12.3 and 12.8 SCM Agreement.  In particular, Canada argues that the United 
states did not comply with its obligations under Article 12 SCM Agreement in regard to two aspects 
of the investigation concerning the change in the choice of benchmark state from the preliminary to 
the final determination and the use of informatio n based on a letter of the Maine Forest Products 
Council. 
7.142  First, Canada argues that the USDOC changed the US state used as the comparative basis for 
Alberta and Saskatchewan from the preliminary dete rmination to the final determination without any 
prior notice to the interested parties in  violation of Article 12.8 SCM Agreement.204 Canada argues 
that the choice of the state which is used for the comparison with the stumpage prices of certain Canadian provinces, is clearly an essential fact which will form the basis for the determination that 
should have been disclosed to the interested partie s in sufficient time for the parties to defend their 
interests and in any case before the final determin ation as required by Article 12.8 SCM Agreement.  
In addition, Canada argues, the interested parties we re not given an opportunity to present evidence or 
                                                     
 
203 United States First Written Submission, paras.  107-113. 
204 The benchmark state chosen at the time of the preliminary determination was Montana, while for 
the final determination, the benchmark state used was Minnesota. WT/DS257/R 
Page 112  
 
prepare presentations regarding the appropriateness of the choice of Minnesota as the new benchmark 
state, and the USDOC therefore acted in a manner  inconsistent with Articles 12.1 and 12.3 SCM 
Agreement. 
7.143  Second, Canada argues that the USDOC failed to  give interested parties the opportunity to 
present evidence and arguments concerning a letter from the Maine Forest Products Council (the 
"MFPC") that was relevant to the calculation of the US benchmark price applied to Quebec.
205  
Canada asserts that this letter was not put on the record until two months after it had been received by 
the USDOC, and only after Quebec had requested the inclusion in the record of this information.  
Canada submits that because of th e delay in putting the letter on the record, and the deadlines set by 
the USDOC for commenting on the MFPC informatio n, USDOC deprived the province of Quebec of 
any meaningful opportunity to rebut new factual in formation contained in tw o reports filed by the 
petitioners concerning this letter, in violation of Article 12.3 SCM Agreement.  Canada asserts that 
the petitioners' new information based on the MFPC letter was used by the USDOC, in spite of the 
fact that interested Canadian parties were denied  the opportunity to present comments on this new 
evidence.  Thus, Canada argues, the USDOC denied interested parties the timely opportunity to see 
the relevant information as required by Article 12.3 SCM Agreement and to prepare presentations on 
the basis of the relevant information.  Canada su bmits that the USDOC therefore failed to conduct the 
investigation in a manner consistent  with Article 12.3 SCM Agreement. 
(b) United States 
7.144  The United States submits that the investig ation was conducted in full compliance with 
Article 12 SCM Agreement as all parties were gi ven notice of the information required for the 
investigation, had ample opportunity to submit all re levant information, had access to all information 
submitted during the investigation and were informed of the essential facts under consideration.   
7.145  First, with regard to the change of benchmark state, the United States argues that the selection 
of the benchmark for the stumpage programmes of Alberta and Saskatchewan was consistent with the 
requirements of Article 12 SCM Agreement.  The Unite d States asserts that both Canadian provinces 
challenged the use of data from the US state of Montana as the basis for the benchmark calculation in the preliminary determination, and notes that the USDOC ultimately agreed with these provinces' 
arguments and rejected data from Montana, using data from Minnesota instead.
206 The United States 
is of the view that USDOC was not obliged under Article 12 SCM to provide notice of the new 
benchmark state chosen and to allow for parties to, once again, comment on the choice of the 
benchmark state.  According to the United States , nothing in Article 12 SCM Agreement imposes on 
the investigating authority an obligation to engage  in an endless cycle of notice and comment.  The 
United States considers that Article 12.3 SCM Agr eement explicitly recognizes that information be 
provided "whenever practicable" reflecting the time  constraints imposed on the completion of the 
investigation. 
7.146  According to the United States, the USDOC pr eliminary determination announced that the 
United States was using US northern border states as the benchmarks for the Canadian stumpage programmes and set forth the criteria used in se lecting such benchmarks .  The USDOC identified 
Minnesota as a possible alternative, and all of the information regarding Minnesota was provided to 
all of the interested parties.  For all these reasons, the United States submits that the interested parties 
                                                     
 
205 Canada notes that there can be little debate about the relevance of the information as the USDOC 
itself requested the information and characterized the information as "important to some of the central issues in 
the proceeding".  USDOC Final Determination, p. 61.   (CDA-1). Canada First Written Submission, para. 222. 
206 The United States argues that these provinces thus took advantage of the opportunity to use record 
information to argue that the forests of Montana were not sufficiently similar to compare to those of Alberta and 
Saskatchewan, and thus that neither government can no w claim surprise when the USDOC considered their 
arguments and agreed that Montana was not the appropriate benchmark. WT/DS257/R 
Page 113 
 
 
were informed of the "essential facts under cons ideration" in accordance  with Article 12.8 SCM 
Agreement.207  The United States argues that Canada is re ally challenging the change in the basis for 
the legal determination between the Preliminary and th e Final determination, and submits that there is 
no obligation under Article 12.8 SCM Agreement to in form interested parties of this change in the 
legal determination before the final determination. 
7.147  Second, concerning the MFPC letter, the United St ates submits that the interested parties had 
access to the information contained in the letter in su fficient time to use it in the preparation of their 
legal arguments and the USDOC thus acted in accordance with Article 12.3 SCM Agreement.208  The 
United States considers that intere sted parties were provided an opp ortunity to comment, and in the 
case of Quebec did comment, on information releva nt to the benchmark for Quebec submitted by the 
Maine Forest Products Council.  According to the United States there is no basis in the text of the 
SCM Agreement that interested parties should ha ve been given additional time to respond to 
information submitted by petitioners to re but the information in the MFPC letter209, and Article 12.3 
SCM Agreement does not require the United States to  engage in an endless cycle of allowing each 
interested party to reply to every submissi on made by every other interested party. 
2. Analysis 
7.148  In light of our findings on Articles 10, 14, 14 (d), and 32.1 SCM Agreement, as well as 
Article VI:3 of GATT 1994, we do not find it necessar y to address, in this context, Canada's claims 
under Article 12 SCM Agreement.  That is, having determined that the measure at issue is 
inconsistent with the cited Articles, and exercising th e discretion implicit in the principle of judicial 
economy, we do not deem it necessary to examin e whether the investigation which led to the 
inconsistent measure was consistent with the proce dural rules on evidence set forth in Article 12 SCM 
Agreement. 
G. CLAIM 7: INCONSISTENT INITIATION OF THE INVESTIGATION  
1. Arguments of the parties 
(a) Canada 
7.149  Canada argues that the USDOC failed to make an objective and impartial examination and 
determination of the level of support among dome stic producers for the petition as required by 
Article 11.4 SCM Agreement since support of the do mestic producers was actively canvassed with the 
promise, and the prospect of payments under the United States Continued Dumping and Subsidy 
Offset Act of 2000 (the " Byrd amendment ").210  According to Canada, for the obligation in 
Article 11.4 SCM Agreement to have any meaning,  a Member's determination that the petition was 
made "by or on behalf of" the dome stic industry must be objective and impartial, which it cannot be 
                                                      
207 The US argues that the Panel in Argentina – Ceramic Tiles  also found that "the requirement to 
inform all interested parties of the essential facts under consideration may be complied with in a number of 
ways" and that this obligation could be met "through the inclusion in the record of documents – such as 
verification reports, a preliminary determination or correspondence exchanged between the investigating authorities and the individual exporters – which actually disclose to the interested parties the essential facts …" 
Panel report, Argentina – Ceramic Tiles , para. 6.125. 
208 The United States explains that the reason why the MFPC letter was not put on the record earlier 
was simply because it was not filed in accordance with the USDOC Regulations. 
209 The United States asserts that the letter from petitioners of 4 March, attaching the report by the 
James W. Sewall company did not contain any new factual information which respondents should have been 
given an opportunity to comment on. 
210 Canada explains that under the "Continued Dumping and Subsidy Offset Act of  2000" the 
United States distributes the duties collected to domestic producers that bring or support countervailing duty 
petitions. WT/DS257/R 
Page 114  
 
where a Member induces the subjects of the examination, through payment of cash rewards or the 
imposition of penalties to act in one way or another, as is the case with the Byrd amendment .  Canada 
argues that a Member's authorities may not simply rely on quantitative criteria for the establishment 
of the level of domestic support, as was confirmed by the Panel in the US – Offset Act (Byrd 
Amendment)  case.  Canada submits that the investigation was initiated on the basis of domestic 
producer support that was actively solicited by the promise and prospect of a direct payment by the 
United States and as a result the USDOC initiate d the investigation and imposed definitive 
countervailing duties in violation of Ar ticles 10, 11.4 and 32.1 SCM Agreement. 
(b) United States 
7.150  The United States argues that the softwood lumber petition contained uncontested evidence 
establishing that US softwood lumber producers repr esenting 67 per cent of total US softwood lumber 
production supported the petition and that the USDOC thus initiate d the investigation based on 
adequate domestic industry support consistent with the requirement of Article 11.4 SCM Agreement.  
The United States asserts that Canada is injec ting a requirement into the SCM Agreement that 
investigating authorities examine the motives of pr ospective petitioners.  The United States points out 
that a recent Appellate Body report in the US – Offset Act (Byrd Amendment)  case rejected that 
argument and overturned the Panel's ruling on which Canada is relying by concluding that 
Article 11.4 requires "no more than a formal examin ation of whether a sufficient number of domestic 
producers have expressed support for an application".
211  As the determination of industry support is 
an issue of quantity and not of quality, and since even  Canada agrees that 67 per cent of the industry 
supported the petition, the United States submits th at the investigation was initiated in accordance 
with Articles 10, 11.4 and 32.1 SCM Agreement. 
2. Analysis 
7.151   In light of Canada's statement at the first s ubstantive meeting of the Panel with the parties 
that it does not consider it appropriate to press its claims as set out in paragraph 1 of its request for the 
establishment of a panel, we will refrain from ad dressing this claim and from making any ruling on 
this claim.212 
VIII.  CONCLUSIONS AND RECOMMENDATIONS 
8.1 In light of our findings above, we conclude: 
(a) that the USDOC's determination that provision of stumpage constituted a financial 
contribution in the form of the provision of a good or service was not inconsistent 
with Article 1.1 (a) (1) (iii) SC M Agreement, and we therefore reject  Canada's claim 
that the United States' imposition of co untervailing duties on the basis of that 
determination was inconsistent with Articles 10, 19.1, 19.4 and 32.1 SCM 
Agreement, and Article VI:3 of GATT 1994; 
(b) that the USDOC's determination of the existence and amount of benefit to the 
producers of the subject merchandise was inconsistent with Articles 14 and 14(d) 
SCM Agreement, and we therefore uphold  Canada's claim that the United States' 
imposition of countervailing duties on the basis of that determination was inconsistent 
with Articles 14, 14(d), 10 and 32.1 SCM Ag reement; having reached this conclusion 
we apply judicial economy and therefore do not rule on Canada's allegations under 
this claim that the United States acted in a manner inconsistent with Articles 19.1 and 
19.4 SCM Agreement and Article VI:3 of GATT 1994.   
                                                      
211 Appellate Body report, US – Offset Act (Byrd Amendment) , para. 286. 
212 Canada First Oral Statement, para. 154. WT/DS257/R 
Page 115 
 
 
(c) that the USDOC's failure to conduct a pass-t hrough analysis in respect of upstream 
transactions for log and lumber inputs be tween unrelated entities was inconsistent 
with Article 10 SCM Agreement and Article  VI:3 of GATT 1994, and we therefore 
uphold  Canada's claim that the United States' imposition of countervailing duties in 
respect of such transactions was incons istent with Articles 10 and 32.1 SCM 
Agreement and Article VI:3 of GATT 1994; having reached this conclusion, we 
apply judicial economy and do not rule on Canada's allegations under this claim that 
the United States imposed countervailing duties in a manner inconsistent with 
Articles 19.1 and 19.4 SCM Agreement; and 
(d) that the USDOC's determination that the provincial stumpage programmes are 
specific was not inconsistent with Art.  2.1(c) SCM Agreement, and we therefore 
reject  Canada's claim that the United Stat es' imposition of countervailing duties on 
the basis of that determination was inconsistent with Articles 1.2, 2.1, 2.4, 10, 19.1, 
19.4 and 32.1 SCM Agreement;  
8.2 Having reached the conclusions set forth above that the USDOC Final Countervailing Duty 
Determination is inconsistent with Articles 10, 14, 14(d) and 32.1 SCM Agreement, and Article VI:3 
of GATT 1994, we apply judicial economy and do not rule on: 
(a) Canada's claims under Article 19.4 SCM Agreement and Article VI:3 of GATT 1994 
concerning the methodologies used to  calculate the subsidy rate; and  
(b) Canada's claims of violation of the procedural  rules of evidence set forth in Article 12 
SCM Agreement. 
8.3 In the light of Canada's statement at the first substantive meeting of the Panel with the parties 
that it does not consider it appropriate to press its claims under Articles 10, 11.4 and 32.1 SCM Agreement concerning the initiation of the investig ation, we refrain from addressing and making a 
ruling on this claim. 
8.4 Under Article 3.8 of the DSU, in cases where th ere 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 inconsistently with the provisions of the SCM Agreement and of GATT 1994, 
it has nullified or impaired benefits accruing to Ca nada under that Agreement.  We recommend that 
the Dispute Settlement Body request the United States  to bring its measure into conformity with its 
obligations under the SCM Agreement and GATT 1994. 
 
__________