WT/DS236/R
Page B-1
ANNEX B
Parties' Responses to Questions – Second Meeting of the Panel
Contents Page
Annex B-1 Responses of Canada to questions posed in the context of the
second substantive meeting of the PanelB-2
Annex B-2 Responses of the United States to questions posed in the context of
the second substantive meeting of the PanelB-11WT/DS236/R
Page B-2
ANNEX B-1
RESPONSES OF CANADA TO QUESTIONS POSED IN THE
CONTEXT OF THE SECOND SUBSTANTIVE
MEETING OF THE PANEL
(24 June 2002)
To Both Parties:
1. The evidence on the record related to softwood  log harvest going to sawmills for processing
into softwood lumber during the period of investig ation is found in the following exhibits: CDA-104
(British Columbia); CDA-105 and CDA-106 (Alb erta); CDA-107 and CDA-108 (Québec); and CDA-
109 (Ontario).  In addition, the percentage of Crown logs entering sawmills (as opposed to veneer
mills, pulpmills, etc.) was as follows for each of the provinces: B.C. – 61.6 per cent on the Coast and
83.8 per cent in the Interior; Alberta – 59 per cent; Québec – 80 per cent; Ontario – 57 per cent.  The
record evidence does not always respond directly to the Panel’s question.  For example, British
Columbia does not distinguish between logs from private lands and logs from Crown land entering
sawmills, but did provide information to Commerce on the total percentages of logs entering
sawmills.  In addition, Alberta’s figures are for all wood categories that could possibly have been
made into softwood lumber products as Alberta does not track whether the softwood entering
sawmills is used to make softwood lumber or other products such as pulp, chips, etc.
2. If by “tenure contract” the Panel means any form of tenure agreement including short-term
licenses and permits, the answer to the question is yes.  For trees to be cut on Crown land, a tenure
contract is always required.
3. Canada elaborates on the processing requirements in existence in Canada, and the reasons for
those requirements, in its response to Question 5, below.  This answer describes the different types of
tenure arrangements that exist in each province, the domestic processing requirements – if any – that
attach to each arrangement, and the evidence on the r ecord as to the percentage of total logs harvested
that were subject to such requirements.
British Columbia  - There are basically two types of tenures that have some form of processing
requirement: Tree Farm Licenses and Forest Licenses.  The vast majority of these types of tenures donot require the licensee to process harvested logs in a specific sawmill.  Rather, the standard
processing requirement requires only that the licensee process the timber harvested or an equivalent
volume in a processing mill of any kind (sawmill, pulpmill, etc.) owned by the licensee.  Harvesters
frequently sell logs they harvest to third parties, and purchase logs they need from third parties to
supplement their log supply for particular grades, species, etc.  Only 11.5 per cent of the total harvestis subject to an appurtenancy clause, under which logs harvested by the licensee must be processed in
a specific mill.   Evidence on the record at the time of the CVD PD also indicates that 34 per cent of
the total provincial Crown harvest (all tenure types) was harvested under tenures that were not subject
to processing or appurtenancy requirements.
In addition, while part 10 of the Forest Act  requires logs harvested from Crown land to be
used or manufactured in the province, unless exempted, the record evidence indicates that more thanWT/DS236/R
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97 per cent of all applications to export logs from Crown land during the period of investigation were
granted.
Alberta  - There are three main tenure types: Forest Management Agreements (FMAs), Timber
Quota Certificates and Commercial Timber Permits.  With few exceptions, FMA holders in Albertacan use all the wood they harvest or sell all or a portion of the wood to third parties.  Timber Quota
Certificates and Commercial Timber Permits have no processing requirements.  Harvesters in Alberta
are also free to export their logs after obtaining export permits from the Alberta and Federal
Governments.  All export permits applied for by Alberta harvesters during the period of investigation
were approved.
Ontario  - There are two main types of tenure: Sustainable Forest Licenses and Forest
Resource Licenses.  License holders are not required to own or operate milling faci lities.  They are,
however, required to indicate to the province that they have a market for the timber they intend to
harvest.  That market may be a facility in which they have an ownership interest or one in which they
have no interest.  In certain instances tenure holders and mills reach agreements that  provide the
opportunity for some forest resources to be committed to a specific facility or facilities.  Actual supplyof a facility pursuant to such an agreement is subject to the parties involved agreeing on the terms of
the transaction.  Approximately 30 per cent of Ontario’s Crown timber is acquired by sawmills
through arm’s-length transactions with third parties who have their own licenses.  While Ontario does
have a requirement that its Crown timber be processed in the province unless an exemption is granted
by the Minister, all permits to export logs from the province applied for were granted during theperiod of investigation.
Québec  - There are two types of tenure arrangements: Timber Supply and Forest Management
Agreements (TSFMAs) and Forest Management Contracts (FMCs).  The timber harvested under
TSFMAs (which represents 99.4 per cent of the softwood harvest in 2000-2001) must be processed inthe mill holding the TSFMA.  While Québec has a requirement that timber harvested be processed in
the province, TSFMA holders may apply for authorization to export logs harvested under their tenure
agreements rather than process them.  All such applications were granted.
4. Timber  refers to standing trees in the forest.  In their natural state, trees are not capable of
being traded because they are firmly rooted in the ground.
Logs  are produced when standing timber is harvested and prepared for transportation.
Lumber  is produced when logs are processed by sawmills.  Logs are, therefore input goods
into the production of lumber, which is the subject merchandise.
Sawlog  refers to widely different things in Canada and the United States.  Most Canadian
provinces do not use the term “sawlog” other than to generally refer to logs of any size that enter a
sawmill; therefore, in Canada the term refers to a particular use for logs.  In the United States,
however, “sawlog” refers to a grade  of logs, rather than their intended use.  There, “sawlogs” are
defined as logs exceeding a minimum size requirement, while smaller logs are classified as“pulpwood”.
“Pulpwood” prices are often less than half of  “sawlog” prices in many US jurisdictions.
Sawmills in the US can and do process both “sawlogs” and “pulpwood”.  In Canada, mills in several
provinces use a significant amount of logs that would be classified as “pulpwood” in theUnited States.  As well, in Canada, softwood stumpage charges are usually levied for the stand as a
whole, rather than separately for the different lo g grades that can be produced from the stand.  In
contrast, US stumpage prices are specified for different log grades. WT/DS236/R
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For the above reasons, which log classes are used in any calculation has an enormous impact
on the resulting pricing benchmarks.
One of the several ways in which Commerce biased its preliminary determination calculations
was by using United States price data that was explicitly based on “sawlog” and “pulpwood” grades,but then excluding all smaller “pulpwood” price data from its US calculations.  In short, Commerce
compared only the highest US prices to the stumpage charges it chose from Canada.
Stumpage  is the right to harvest timber , or standing trees.  It is a property interest in land.
This right is normally accorded in return for a seri es of obligations related to the management of the
resource, including management of the land and reforestation, and payment of a charge on the
exercise of that right.
Stumpage programme  or practice  refers to provincial forestry management policies under
which provinces enter into tenure agreements with or issue harvesting licenses to timber harvesters in
return for the assumption of obligations, including forestry management and payment of charges, by
the harvester.
Stumpage rate  refers to the charge imposed on the volume of harvest.
There is a distinction between a standing tree in the forest that cannot be traded, and a log that
results from the harvest of that tree.  For the purposes of the WTO Agreement, standing trees, whichcannot be traded, are not “goods”.  Also “timber” is simply not “goods” within the meaning of the
Black’s Law Dictionary definition, which is based on nearly two centuries of common law making a
distinction between interests in land and “goods”.
5. Canada adds the following to its discussion in answer to Question 3 above.
Domestic processing requirements are intended to ensure that tenure holders carry out their
short and long term obligations under tenure agreements consistently with sound forestry and
environmental objectives and that standing timber that is harvested is utilized fully and is not wasted.
Neither Alberta nor Ontario has appurtenancy requirements.  In Québec, under the main type
of tenure arrangement, agreement holders must process the timber they harvest in the facility thatholds the TSFMA.
Tenure holders are free to apply to export the logs that they harvest from Canada.  As noted
above, permits to export are issued routinely by the Federal government and provincial governments
in Alberta, Ontario and Québec for export from those provinces.  In British Columbia permits toexport are issued when various criteria are met.  97 per cent of all applications to export from the
province during the POI were approved.
6. Commerce used public lands as benchmarks fo r British Columbia (Washington), Alberta
(Montana) and Saskatchewan (Montana), that are subject to log export restrictions.  Exports ofsoftwood lumber from British Columbia, Alberta and Saskatchewan represented almost 61 per cent of
Canadian exports subject to countervailing duties.  The United States, therefore, used as benchmarks
for 61 per cent of Canadian exports subject to the determination, stumpage from US public lands that
have export restrictions.  This means that even if a Canadian could obtain the ability to harvest on
these lands, he or she could not export the logs to Canada.
7. Import data relating to the imports of logs from the United States into Canada, by province,
during the period of investigation was on the record at the time of the preliminary determination.  No
information on the re-export to the United States of lumber processed from those logs was asked for
by Commerce nor provided to it.  The import statistics consisted only of a basket category “wood inWT/DS236/R
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the rough” and so included imports of products other than rough logs such as poles, roughly squared
timber and house logs.  With the exception of imports of logs into Québec, the import of logs into
Canada represent less than 1 per cent of the total annual harvest.  With respect to log imports into
Québec, these imports, from Maine into southern Québec, are not large in volume and relate to
particular factors that are unique to this area.  Imports of logs by volume by province are as follows:British Columbia  - 593,760m
3; Alberta - 2,212m3; Ontario - 272,385m3; Québec - 2,910,929m3.
8. Tenure agreements in British Columbia, Alberta, Ontario and Québec contain maximum cut
limits.  Ontario and Québec have no minimum cut requirements.  Some of Alberta’s tenures contain
minimum cut requirements, but they are not enforced, as Alberta confirmed during the hearings
before the US International Trade Commission in the Lumber IV  injury proceeding.  The Annual
Allowable Cut (AAC) for each of these provinces and the volume of timber harvested for 1998, 1999
and 2000 was provided to Commerce and are set out in Exhibits CDA-125 (Alberta), CDA-126
(Ontario), CDA-127 (Québec) and CDA-128(British Columbia).
In British Columbia licensees under certain designated types of tenures are subject to
minimum cut requirements, which require the harvester to harvest plus or minus 50 per cent of theannual allowable cut for that licensee in any given year, and plus or minus 10 per cent over a five year
period.  Information on the record reveals that in years 1998, 1999, and 2000/2001, the total timber
harvest was less than the applicable total AAC allocation for those years.  The record does not contain
information on whether the 5-year limits were met or exceeded.  Thus, it is not possible to determine
from record evidence whether the cut requirements were satisfied.  The Forest Act  (Section 66)
provides the Minister with discretion not to enforce those cut requirements in particular cases if the
circumstances so warrant.
In B.C., the record evidence demonstrates that a significant portion of logs is purchased from
third parties.  Even if a tenure holder has an unused AAC, it will still supplement its input bypurchasing logs of specific species, grade, etc., from third parties that are not available from its Crown
holdings.
To Canada:
28. The main interest of tenure holders is the end product of the harvest.  From the perspective of
the tenure holder, however, the distinction between the right to harvest  and that end product has
significant legal and economic consequences .  A long-term tenure represents current and future
harvests, and also obligations.  A simple sale of stumpage as is done in the United States, however,
concerns a set harvest volume available today – only in this sense can it be argued that there is no real
distinction between the right to harvest and the end result of the harvest.  While the end result of each
activity is the production of logs, the nature of economic interests timber harvesters acquire whenentering into different types of arrangements is significantly different.
29. Whether stumpage is a price or tax was immaterial to the question at issue in British
Columbia  v. Canadian Forest Products .  Instead, this case only considered whether a statutory appeal
board had exceeded its jurisdiction.
Furthermore, other higher courts in Canada have described stumpage as a tax.  In Royal Bank
of Canada  v. The King , the Supreme Court of Canada referred to stumpage as “being by definition ‘a
tax charged for the privilege of cutting timber on Stat e lands’.”  Accordingly, to the extent that this
US argument is at all relevant, the precedent of this court is controlling.
In any event, Canada’s position in this respect is a matter of sound economics and WTO law.
Stumpage is the right to harvest timber.  This right is accorded by a province in exchange for
obligations assumed by the tenure holder, one of which is the payment of a stumpage fee or charge on
the timber cut and processed into logs.  The nature of the volumetric stumpage charge as part of aWT/DS236/R
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broader bundle of rights and obligations underscores the inappropriateness of the comparison made by
the United States of stumpage charges in Canada to lump-sum auction prices for short-term harvesting
rights on public lands in the US to determine and measure a benefit.
30. Canada initially used the term “arm’s-length” to make the point that Article 1 of the SCM
Agreement does not permit an investigating authority to presume that a purchaser of a good from an
allegedly subsidised entity is also subsidised.  There are two elements in a subsidy determination,
financial contribution by government that confers a benefit.
With respect to financial contribution, an alleged provision of goods by the government to a
seller may not be presumed  to be the provision of goods by the government to someone who
purchases from that seller at arm’s-length .  Thus, for the United States to demonstrate, under
Article 1, that a sawmill received “goods” from the government  when it entered into an arm’s-length
transaction with a timber harvester, it must establish “entrustment” or “direction” under
subparagraph (iv).
A similar analysis is applicable to the second element.  Where two unrelated parties acting in
their own self-interest enter into a transa ction, an investigating authority may not presume  that the
allegedly subsidised seller has passed on a benefit to the purchaser.  A “benefit” analysis looks at the
terms of a sale available to a recipient  and not those obtained in a previous transaction by the seller.
Parties at arm’s-length act in their own self-interest, and a seller will not “pass on” a benefit willingly.
An investigating authority must, accordingly, demonstrate  that an arm’s-length transaction is not at
“fair market value”, and may not presume that it is not.
(a) Canada has been consistent in defining what constitutes an “arms-length” transaction:
it is the sale between unrelated parties where each is acting in its own self interest.
An arm’s-length transaction forms the basis to determine fair market value.  Canadaagrees with Black’s definition of fair market value.  However, the US conclusion
from that definition that an arm’s length transaction is one where neither party is
under “any outside control or influence” from any person has no basis in anything
other than its own assertion, and should be rejected.  Contrary to what the US appears
to argue, fair market value is not a required element of an arm’s-length transaction.
Where timber harvesters and sawmills are at arm’s-length, an investigating authority
must demonstrate government entrustment or direction in the sense ofsubparagraph (iv) and may not presume that a subsidised seller in an arm’s-length
transaction passes on the benefit to the purchaser.
(b) A government-directed sale may or may not constitute a subsidy depending on the
terms of the sale agreed by the parties .  Where the parties are at arm’s-length, even
where the goods are provided  under instruction from the government, it may not be
presumed that the goods are provided at less than the market rate .  There are two
elements in a subsidy determination and each must be demonstrated.
In the Lumber IV  investigation there was no allegation or demonstration of a financial
contribution within Article 1.1(a)(1)(iv).  Commerce conducted no analysis and simply presumed a
pass-through of alleged subsidies to timber harvesters to producers of softwood lumber despite the
fact that Canada raised “pass-through” as a significant issue in the investigation even before the
investigation was initiated.  Indeed, the questionnaire responses of the provinces provided data
demonstrating that a portion of logs entering sawmills were acquired in arm’s-length transactions withtimber harvesters.
(c) Canada’s statement in paragraph 49 of its responses to the Panel’s questions related to
the market prices  that are normally the product of an arm’s-length transaction rather
than to the hallmarks of an arm’s-length transaction per se .WT/DS236/R
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A transaction is considered to be at arm’s-length where neither party controls the other in
respect of its acceptance of the terms of the transaction.  In this respect, both parties must be “willing”
to enter into that transaction with the other.  In such a case, an investigating authority may not simply
presume  that because the seller was allegedly subsidised, then the buyer is also subsidised.  Indeed,
since each party is acting “in his or her own self interest” and seeking to maximize profits, any
presumption may only be that the transaction price is a market price.
31. To maximize efficiency, mills are designed to process a given species (or species group) and
timber of a given size.  Each mill owner, whether with or without tenure, will seek to ensure that the
log supply for each mill best meets its species and dimension requirements.  For example, an owner of
a cedar mill may not have sufficient supply of cedar and will seek to purchase cedar logs from othersources of log supply.  The same need to enter the log market occurs to ensure that the log dimension
requirements of mill owners are met.
In many cases the log sales by tenure holders are on a cash basis, but in other cases they entail
log trades or “swaps”.  That is, logs of a given species and/or size are traded to another mill in returnfor logs of a different species and/or size.  There is no legal requirement for tenure holders to trade or
“swap” logs.  Log purchases, sales and trades result from the profit maximizing behaviour of tenure
holders, and in any log transaction, both parties want to receive fair value.  Indeed, the practice of
partial cash settlements in log trades confirms the nature of the transaction: they would only occur if
the value of the logs being traded were not equal and the cash settlement was required to equalize thevalue.
32. Where a government has given a harvester no choice but to harvest standing timber and enter
into a contract with a sawmill to process the logs th at result from the harvest, this could constitute a
government-directed provision of goods.  The investigating authority would, of course, have to gatherand analyse facts regarding whether the situation described in the question existed, and whether the
other requirements of subparagraph (iv) were present.
There was no allegation in Lumber IV  of government-directed provision of goods, and
Commerce did not undertake any such analysis.  It simply asserted that provinces directly provide
goods to lumber producers under Article 1.1(a)(1)(iii) of the SCM Agreement.  This, the provinces do
not do.
33. With the exception of certain commitment letters in Ontario, tenured log harvesters in Canada
who do not own sawmills are not required to contract with sawmills in the province for processing of
the logs they harvest.
34. It is up to a WTO Member to structure its laws in such a way as to permit it to avail itself of
rights it might have under the WTO Agreement.  A WTO Member may not apply a measure in direct
contravention of its obligations to “preserve” the rights the Agreement affords.
With respect to critical circumstances, a WTO Member has the right  to impose definitive
duties retroactively, subject to the requirements of Article 20.6.  In the case of Members with
retrospective systems, they may keep liquidation open for a long enough period that would allow the
retroactive imposition of definitive duties following a critical circumstances determination or
otherwise provide themselves with the legal authority to impose definitive countervailing duties
retrospectively when the requirements of Article 20.6 have been met.
35. Yes.  Opening an investigation would have commercial consequences for traders.  However,
opening an investigation that alleges the existence of critical circumstances merely implies the
possibility of a retroactive imposition of duties in the future  once there have been positive
determinations both on the underlying action and with respect to critical circumstances.  SuspensionWT/DS236/R
Page B-8
of liquidation specifically targets the traded goods at issue and results in an immediate chilling effect
in the market.
36. Yes.  Canada is not pursuing its claims in respect of “specificity” in this dispute.  Canada has
decided instead to pursue this claim in its WTO challenge to the US final countervailing dutydetermination (WT/DS257).
37. Yes.  Canada is no longer pursuing its claims in respect of the “Maritimes” question in this
proceeding.
To the United States:
12. Article 19.3 does not contain any exceptions, and the United States has not, in any of its
submissions throughout this case, claimed the benefit of an exception to the obligation to grant
expedited reviews and to establish an individual countervailing duty rate for requesting exporters.
14. While the United States has stated that it has discretion under US law to grant expedited
reviews, it has not unequivocally stated, as Canada requested, that such “discretion” does not include
discretion to refuse  to grant an expedited review or to establish individual countervailing duty rates.
Accordingly, the findings requested by Canada are necessary to resolve the other questions that are at
the heart of the obligation in Article 19.3, and that remain in dispute.
16. Regarding the use of import log prices, neither the data nor the methodology necessary to
estimate “adequate remuneration” based on log import data exists.
Further, logs are not a homogeneous good.  The price of logs varies by species and quality.
Comparing import log prices to domestic log prices is confounded by a number of practical mattersincluding:
• The “wood in the rough” category in StatsCan’s import data (Tariff Item 44.03) is a catch-all
category that includes other, and frequently more valuable, products in addition to logs, and itis not possible to derive from the official customs data an import price for softwood logs only,
the necessary first step in developing a log import benchmark.
• Export (import) prices may not be representative of domestic prices because exports are often
higher in quality, and export price data are rarely collected with enough care to assure that
there are not important quality differences between them.
Estimating “adequate remuneration” for vast reaches of any Canadian province based on prices of
imported logs is an intractable problem.  For example, the cost of harvesting different species may be
different because of differences in the terrain on which those species are found or differences in thedistance to mill or market for different species, and species-specific prices must be used because the
species mix of imported and domestic logs may differ.  There is therefore no valid means to estimate
the harvesting and transportation costs that should be deducted from imported log prices as a measure
of stumpage charges, even (incorrectly) assuming that in this case the necessary information about log
imports were available by species, grade, and other relevant criteria.
17. For reasons that include the following, cross-border log price comparisons do not provide a
valid in-market price benchmark:
• Differences in economic conditions :  economic conditions such as wages, capital costs,
taxes, and various governmental regulatory policies differ between countries and as such
affect prices in each country.WT/DS236/R
Page B-9
• Trade distortions :  Commerce’s period of investigation coincided with the final year of the
Canada/United States Softwood Lumber Agreement (SLA).  The SLA restricted Canadian
exports of lumber to the US and, as such, caused Canadian domestic lumber prices to fall
relative to US lumber prices.  As prices are set at the margin and as the demand for logs is aderived demand, derived from the demand for lumber, any fall in Canadian lumber prices
relative to US lumber prices would cause Canadian log prices to fall relative to US log prices.
• Locational differences :  A log price is the price of the log delivered to a specific location,
typically a mill.  For US log prices that location is not within Canada.  At a minimumadjustments will be needed for both differences in log haul and lumber transportation costs.
In addition, comparison of prices in one regional market to prices in another regional market,
where the supply and demand conditions are different, would be invalid.  This applies for
comparisons made within US jurisdictions let alone across international borders.  This is
illustrated by the table at paragraph 75 of Canada’s responses to questions from the SecondSubstantive Meeting which reveals significant domestic Douglas fir log price variations
among sub regions in western Oregon and Washington during the year 2000.
• Timber differences :  Logs are not a homogenous product.  They differ in species and quality.
There are significant differences in timber species and quality ( i.e., diameter, length, taper,
ring-width, defects, etc.) between Canada and the United States.  Thus, any comparison of
aggregate average log prices would need to account for the differences in species mix and
quality which requires some standard set of lo g grading rules along with grade specific prices.
No such standard grading system exists in th e US, and the Canadian grading rules differ from
those in the US
• Differences in Measurements:   Log prices in the United States are measured in $/MBF
while Canadian stumpage charges are measured in $/m³.  The near impossibility of findingappropriate conversion factors for converting US stumpage prices measured by antiquated US
log scales to Canadian charges in cubic metres equally plagues comparisons of log prices.
18. The use of any benchmark that is not a benchmark in Canada (i.e. within the country of
provision in this case) is inconsistent with the SCM Agreement and Article 14(d) in particular.
21. The fundamental US position at issue in this case is that the word “in” in Article 14(d) can be
understood as meaning “out”.  The word “in” cannot be read as “out” and thus Article 14(d) cannot be
found to permit using cross-border benchmarks in determining the adequacy of remuneration, i.e. in
determining whether a benefit has been conferred.  It is this fundamental point that Canada requests
that the Panel confirm.
The “new” US position that “out” means “in” is also predicated on an erroneous reading of
Article 14(d) – that “availability” means the “availability of commercial prices”.  It is clear from the
separate inclusion of “price” and “availability” in the list of factors set out in Article 14(d) that it is a
“good” and not a “price” that has to be available in Canada.  Thus this US interpretation of
Article 14(d) must also fail.  Canada requests that the Panel confirm this.
The basic factual problems regarding Commerce’s determination that have been discussed
with the Panel  underline why these US appr oaches to the “appropriate methodology” under
Article 14(d) must fail and why Canada’s interpretation is correct.  Alberta, Ontario and Québec all
provided evidence on private sales of timber harvesting rights and Alberta and B.C. providedinformation on competitive tenures.  Québec also provided a comprehensive economic analysis
showing Québec’s private forest to be an open and competitive market free of government distortion.
Ontario provided Commerce with a study that conclu ded that the market for private timber in OntarioWT/DS236/R
Page B-10
was both competitive and efficient.  Further, these  provinces provided Commerce with evidence that
provincial stumpage systems earned substantial profits and are operated consistently with market
principles.   Finally, evidence was presented that there is no benefit to lumber producers when the
situation in Canada is compared with results that would be produced in a competitive market.
Commerce’s own regulations provide for analysing consistency with market principles as a
way to evaluate adequacy of remuneration.  “Consistency with market principles” is the benchmark
used by Commerce to determine adequacy of remuneration in cases where it has found that the
government played a dominant role in the market.  In a number of recent cases Commerce has
clarified that government prices are consistent with market principles when the government earns a
profit.
27. There were two measures  applied pursuant to two determinations :  the preliminary
countervailing duties determination, and the preliminary critical circumstances determination.  Absent
a “critical circumstances” determination, provisional measures would have applied only to entries
within the period in which provisional measures existed.  The CC PD purported to permit the
retroactive application of provisional measures to imports entered in the 90 days before the date of the
determination.  This is not permitted by Article 20.6 which allows only for the retroactive application
of definitive duties .
Even if the Panel agrees that there was only one measure, it was applied to entries over
approximately a seven-month period, i.e. four m onths under the CVD PD and 90 days under the CC
PD.  For this reason alone, that measure would be inconsistent with Article 17.4.WT/DS236/R
Page B-11
ANNEX B-2
RESPONSES OF THE UNITED STATES TO QUESTIONS POSED
IN THE CONTEXT OF THE SECOND SUBSTANTIVE
MEETING OF THE PANEL
(24 June 2002)
Questions to Both Parties
1. Q1:  The record at the time of the Preliminary Determination clearly demonstrates that the
vast majority of logs used to make softwood lumber in Canada during the period of investigation wereharvested from Crown lands.  British Columbia reported that exact figures regarding the volume of
softwood logs sent to sawmills were unavailable.  However, it stated that 89.5 per cent of the
softwood sawlog-grade logs that were harvested during the period of investigation were harvested
from Crown land.  Quebec reported that 84.7 per cent of the softwood logs that were harvested and
sent to sawmills during the period of investigation were harvested from Crown land.  Ontario reportedthat 93.2 per cent  of softwood logs that were harvested and sent to sawmills during the period of
investigation were harvested from Crown land.  Alberta reported that 98.5 per cent  of softwood logs
that were harvested and sent to sawmills during the period of investigation were harvested from
Crown land.  Saskatchewan reported that 88.5 per cent of softwood logs that were harvested and sent
to sawmills during the period of investigation we re harvested from Crown land.  Finally, Manitoba
reported that 546,667.52 cubic meters of softwood logs were harvested and sent to sawmills from
Crown land during the period of investigation.  Manitoba indicated that it did not have data regarding
the size of the harvest on private or federal land, but stated that Crown land accounted for 95 per cent
of the forested land in the province.  In calculating the amount of the subsidy benefit, the Commerce
Department only included those logs harvested from Crown land.
2. Q2:  The record evidence at the time of the Preliminary Determination unequivocally
demonstrates that the harvesting of Crown timber without a tenure contract or license is prohibited by
law in each of the Canadian provinces producing lumber subject to the investigation.  The British
Columbia Forest Act provides that rights to ha rvest Crown timber may only be granted in accordance
with the Forest Act and specifies the types of tenure contracts under which harvesting rights may be
granted.  The Quebec Forest Act forbids any person to “carry on a forest management activity”without a forest management permit, and defines these activities to include “timber felling and
harvesting.”  The Ontario Crown Forest Sustainability Act provides that no person may conduct any
forest operations except in accordance with a forest management plan approved by the Minister.  The
Alberta Forest Act provides that no person may cut “any forest growth on forest land” without the
permission of the Minister, and that the Minister may dispose of Crown timber only under one of the
three forms of tenure in Alberta.  The Saskatchewan Forest Resources Management Act provides that
no person may “harvest forest products except in accordance” with the Act and its regulations
governing licenses required to harvest or operate a wood processing facility.  Finally, the Manitoba
Forest Act states that timber cutting rights may only be granted under the authority of the Minister,
and that no person may cut or remove timber without a license.
3. Q3:  The record at the time of the Preliminary Determination demonstrated the following
with regard to processing requirements imposed on te nure holders in British Columbia: (1) by law, allWT/DS236/R
Page B-12
logs harvested from Crown land must be used in British Columbia or manufactured into lumber or
another approved wood product in British Columbia; (2) by law, four tenure types are limited to
licensees who own wood processing facilities.  More than 83 per cent of the British Columbia
softwood log harvest that was sent to sawmills was harvested under these four tenure types.  Eight per
cent of the Crown softwood timber harvest was provided to entities for which the evidence was notconclusive as to whether the tenure holders were required to own mills.  Only 9 per cent of the British
Columbia Crown softwood timber harvest was provided to licensees under tenures normally reserved
for entities not owning wood processing facilities ; and (3) the sample licenses provided by British
Columbia indicate that all timber harvested under the license, or an equivalent volume, must be
processed in the wood processing facility named in the license.
4. The record at the time of the Preliminary Determination demonstrated the following with
regard to Quebec: (1) the Quebec Forest Act states that “[a]ll timber harvested in the public domain,
whatever the nature or object of the management permit authorizing the harvesting, must be
completely processed in Quebec;” (2) the same Ac t limits eligibility for Timber Supply and Forest
Management Agreements (“TSFMAs”) to entities authorized to construct or operate wood processing
facilities, and timber harvested under TSFMAs accounts for 99 per cent of the Crown softwoodtimber harvest in Quebec; and (3) the sample TS FMA provided by Quebec states that the license
holder is granted authority to harvest “for the purpose of supplying its plant,” and that the tenure
holder is required to “[p]rocess all wood harvested under its forest management permit with a view to
using it at the plant identified in the preamble to this Agreement.”
5. The record at the time of the Preliminary Determination demonstrated the following with
regard to Ontario: (1) by law, all timber licenses are “subject to the condition that all trees harvested
shall be manufactured in Canada into lumber, pulp, or other products;” (2) Ontario’s questionnaire
response stated that “[g]enerally, in order to obtain any type of license, an applicant must either own a
forest resource processing facility or must have a market to supply wood to some type of forestresource processing facility;” and (3) Ontario’s questionnaire response stated that the typical license
“directs that the forest resources harvested pursuant to that license should be used to supply the forest
resource processing facility owned by the license holder identified in the license, as well as other mills
with commitments to receive wood from that license area.”  The Ministry of Natural Resources
requires tenure holders to sign agreements (i.e., wood supply agreements) with the mills to supply the
mills with timber.
6. The record at the time of the Preliminary Determination demonstrated the following with
regard to Alberta:  (1) by law, logs from public land may not be transported outside the province of
Alberta without the permission of the Minister; (2) the sample tenure contract provided by Alberta
requires the tenure holder to construct “a veneer plant within the vicinity of Rocky Mountain House,
Alberta” within two years, to upgrade the plant with in five years, to complete “the current expansion
to its sawmill/planer mill at Sundre, Alberta” within 18 months and to expend a specified, minimum
sum on the veneer mill construction and upgrade and on the sawmill expansion; and (3) while there
are no generally applicable legal requirements that tenure holders process the timber obtained under
the tenure in their own facilities, provisions in individual tenure contracts are designed to achieve that
objective.
7. The record at the time of the Preliminary Determination demonstrated that Saskatchewan
limits harvesting rights and the right to operate wood processing facilities to holders of approved
licenses for each, and Saskatchewan has entered into four forest management agreements with
entities, all of which own sawmills.  These four agreements account for 86 per cent of the Crownsoftwood sawlog harvest in Saskatchewan.  Furt hermore, 9 per cent of the Crown softwood sawlog
harvest was provided to other tenure holders who own sawmills.  Thus, as much as 95 per cent of
Saskatchewan Crown softwood sawtimber was provided to entities that also hold provincial licenses
to operate sawmills.  While by law the agreements must include a requirement to “utilize the licensed
volume or area,” Saskatchewan did not provide any sample agreements.WT/DS236/R
Page B-13
8. The record at the time of the Preliminary De termination demonstrated that in Manitoba the
Minister is authorized by law to grant Forest Management Licenses (“FMLs”) “[w]here the
investment in a wood-using industry established or to be established in Manitoba is sufficient to
require the security of a continuous timber supply.”  In fact, all FMLs own sawmills, and FMLsaccount for 49 per cent of the softwood logs harvested in Manitoba.  Furthermore, as much as an
additional 46 per cent of the harvest was provided under other tenures to entities that do, in fact, own
wood processing facilities.
9. Q4:  The New Shorter Oxford English Dictionary  defines “timber” as “[t]he wood of large
growing trees able to be used for structural purposes” and “the trees themselves.”  The United States
has used the term in both of these ways.  “Logs” are felled trees or sections of felled trees that mayhave been delimbed or debarked, but have not been further processed into another end product.
“Sawlogs ” are logs that are suitable for sawing into lumber or logs that in fact are sawn into lumber.
“Lumber” refers to sawn wood products (usually with at least two parallel sides) such as structural or
framing lumber, flooring, or siding.  The United States has used the term “softwood lumber” more
precisely to refer to any lumber product within the scope of the subject merchandise in thisinvestigation.  “Stumpage” can mean: (1) “standing timber”; (2) “the value of standing timber”; (3) “a
license to cut timber”; or (4) “the fee paid for the ri ght to cut timber.”  The United States has used this
term to refer to standing timber.  “Stumpage rates” refers specifically to the fee paid for timber.  The
United States has used this term to refer to the ra tes charged by the provincial governments for Crown
timber.  “Stumpage programmes” are the legal regimes through which the provinces provideprovincially owned timber.  “Stumpage practices” is not a term used by the United States.  As used by
Canada, the term appears to be synonymous with stumpage programmes.
10. Q5:  Ontario stated in its questionnaire response that “[g]enerally, in order to obtain any type
of license, an applicant must either own a forest resource processing facility or must have a market tosupply wood to some type of forest resource processing facility.”  Ontario also stated that the typical
license “directs that the forest resources harvested pursuant to that license should be used to supply
the forest resource processing facility owned by the license holder identified in the license, as well as
other mills with commitments to receive wood from that license area.”  In Ontario, in order to build a
wood processing facility such as a sawmill, a mill must identify available timber on Crown lands and
sign a wood supply commitment letter with the Mini stry of Natural Resources to receive the timber.
In turn, the Ministry requires tenure holders to sign  agreements with the mills to supply the mills with
timber.  Since all tenure holders appear to be required by their licenses to use the harvested timber
either in their own wood processing facility or in a defined wood processing facility within the license
area for which a pre-existing contract exists, the evidence indicates that any “third party” purchases of
logs are largely, if not entirely, mandated transfers of logs from tenure holders to the mills named in
their license.
11. Q6:  In the Preliminary Determination, benchmarks for three of the six provinces investigated
by the Commerce Department were based entirely on stumpage rates from public lands where export
restrictions apply.  The Commerce Department found that (1) stumpage rates from public lands were
based on open, competitive sales; (2) sales from public lands accurately reflected the market priceavailable to US and Canadian purchasers because they constituted a minority of sales in the
United States and were driven by the majority of sales in the United States, which consist of open,
competitive sales from private lands; and (3) the Department would continue to seek private sales data
as the investigation proceeded towards the final determination.
12. Q7:  There is no record evidence on the volume of log imports from the United States that are
processed in Canada and re-exported as lumber to the United States.  US government statistics,
however, demonstrate that US exports of softwood logs to Canada during 2000 totaled 2,476,000
cubic meters.  The US statistics by port of exit indicate that a large majority of those exports
(approximately 75 per cent) are from the Eastern United States.  Data from Quebec companies thatWT/DS236/R
Page B-14
requested exclusion indicate that most of those exports likely went to mills in Quebec.  With respect
to lumber exports, approximately 50 per cent of Canada’s lumber production is exported to the
United States.  No aspect of the Commerce Department’s analysis was dependent on the level of
Canadian imports of logs from the United States that was re-exported to the United States as lumber.
13. Q8:  British Columbia reported that the total Crown harvest in fiscal year 2000-01 was 94 per
cent of the annual allowable cut (“AAC ”).  By law, major licensees must ensure that between 50 per
cent and 150 per cent of their allocated cut is harvested in any given year, and that between 90 per
cent and 110 per cent of their allocated cut is harvested over a five-year period.  Quebec reported that
the total Crown harvest in fiscal year 2000-01 was 89.3 per cent of the AAC.  By law, the Minister
may reduce a tenure holder’s AAC after a five-year interval if the tenure holder has not made full use
of its prior allotment.  Ontario reported that the total Crown harvest was 79.2 per cent of the AAC.By law, the Minister may amend the license based upon the “business requirement” of the licensee.
The sample license provided by Ontario states that the amount of timber actually harvested shall be
considered a “business requirement” for purposes of that statutory provision and explicitly states that
the Minister may reduce a tenure holder’s AAC after a five-year interval if the tenure holder has not
made full use of its prior allotment.  Alberta repo rted that the total Crown harvest in calendar year
2000 was 104.5 per cent of the AAC.  According to Alberta, salvage operations following severe fires
in 1998 and 1999 account for the temporary authority to harvest more in each of the years from 1998
to 2000 than would normally be allowed.  By law, the Minister may suspend or cancel a timber
license or quota if the tenure holder harvests more or less timber than authorized during a five-year
period.  Saskatchewan reported that the total Crown harvest in fiscal year 2000-01 was 68.8 per centof the AAC.  Tenure holders are required by law to prepare plans describing the amount of timber to
be harvested and to follow those plans as a condition of remaining in compliance with their licenses.
Finally, Manitoba reported that the total Crown harvest in fiscal year 1999-2000 was 34.6 per cent of
the AAC.  The record evidence did not indicate what, if any, provincial cut requirements exist.
Questions to the United States
14. Q9:  The Commerce Department rejected the use of stumpage prices for timber on private
land in Canada because the evidence demonstrates that the provincial tenures drive the prices for
those private timber sales.  The impact of the provincial tenures on private prices was the only
government action considered in this analysis.
15. Q10(i):  The United States position is precisely as it was stated in the quoted US response,
i.e., “if the government made the financial contribution to an entity that does not produce the subject
merchandise, it would be necessary to analyze whether that financial contribution benefitted another
entity that does produce the subject merchandise.”
16. Q10(ii):   The ordinary meaning of an “arm’s-length” transaction is one in which the parties
are unrelated and neither party is under any outside control or influence, either from the party with
whom they are bargaining, or other parties.
17. Q10(iii):  In an aggregate case, if there is a financial contribution to an entity that does not
produce the subject merchandise, it would be necessary to analyze whether that financial contribution
benefitted another entity that does produce the subject merchandise.  Canada’s allegation of a
financial contribution to an entity that does not produce the subject merchandise is based on its
unsubstantiated assertion that there is a significant volume of Crown timber that the provincial
governments provide to independent loggers who then sell the timber at arm’s-length to lumber mills.
Canada’s assertion concerning independent loggers is not, however, supported by the record at the
time of the Preliminary Determination.  Moreover, Canada did not assert this claim until one day
before the Preliminary Determination.WT/DS236/R
Page B-15
18. Q10(iv):  The United States agrees that countervailing duties may not be imposed in excess of
the subsidy found to exist.  The Commerce Department calculated the benefit on an aggregate basis
and the record at the time of the Preliminary Determination did not indicate that any significant
amount of Crown timber was provided to independent entities that did not produce subject
merchandise.  Canada did not argue to the contrary until one day prior to the PreliminaryDetermination.  The Commerce Department did not, therefore, examine the issue of pass-through in
the Preliminary Determination.
19. Q11:  The US position is that, consistent with Article 19.3, “[a]ny exporter whose exports are
subject to a definitive countervailing duty but who was not actually investigated for reasons other than
a refusal to cooperate, shall be entitled to an expedited review in order that the investigating
authorities promptly establish an individual countervailing duty rate for that exporter.”  The provisionspeaks for itself.  The United States has established that Section 751 of the Tariff Act of 1930, as
amended, provides the United States with ample discretion to implement its obligations under
Article 19.3.  Moreover, even if  Canada’s characterization of the Article 19.3 obligations were correct,
Section 751 of the Act provides the United States with ample discretion to implement such
obligations.
20. Q12:  Article 19.3 speaks for itself.  In addition, it is uncontested that no expedited reviews
have been requested or refused in any prior case .  Moreover, Canada has acknowledged that the
Commerce Department has offered exporters an opportunity to request expedited reviews in this case;
none of those requests has been denied.  If a Member’s law provides discretion to authorities to act ina WTO-consistent manner, established WTO jurisprudence dictates that the law, as such, does not
breach the Member’s WTO obligations.  Refraining from further review in such cases avoids
unnecessary adjudication and respects the presumption that Members will implement their obligations
in good faith.  This is Canada’s third attempt to reverse that presumption in connection with the
lumber dispute.  US law, however, unquestionably pr ovides the United States with ample discretion to
implement its obligations under Article 19.3 of the SCM Agreement, even as those obligations are
characterized by Canada.  There is therefore no basis for Canada’s claim that US law is inconsistent
with the SCM Agreement, and the United States is en titled to the presumption that it will implement
its obligations in good faith.  In seeking to answer the question of whether the United States would
breach Article 19.3 if, at some point in the future, it were to exercise its discretion in a specified
manner, Canada is merely requesting an advisory opinion on a non-existent measure not before the
Panel.  The United States notes that this issue was central to the Section 129  panel report, which was
issued to the parties on June 12, 2002 but remains confidential.  The United States urges the Panel to
review the report when it becomes available.
21. Q13:  What the United States refers to as an “administrative review” is an annual assessment
proceeding.  Section 751(a) of the Act states that the Commerce Department shall, upon request,
conduct an annual administrative review to determine th e rate of duty to be assessed on entries during
the preceding year.  US law requires such proceedings, upon request, in all cases, including aggregate
cases.  Article 21.2 of the SCM Agreement does not address assessment proceedings.  It instead
requires reviews to determine “whether the continued imposition of the duty is necessary to offset
subsidization.”  The Commerce Department has the discretion to conduct reviews to determinewhether continued imposition of the duty is necessary to offset subsidization and, if not, to revoke the
countervailing duty order.  While those provisions of the statute and regulations are not before the
Panel, we note that they are applicable in all cases, including aggregate cases.  Moreover, even if
Canada were correct that Article 21.2 does require administrative reviews, Section 751(a) of the Act
gives the Commerce Department ample discretion to conduct such reviews.
22. Q14:  Canada’s request that the Panel make the “findings” listed in paragraph 95 of its second
submission amounts to no more than a request that the Panel issue an advisory opinion regarding
hypothetical future requests for expedited reviews.  The United States has demonstrated that the first
requested finding is wrong as a matter of fact and Canada has failed to establish this alleged finding inWT/DS236/R
Page B-16
this proceeding.  The second finding the United States has already addressed and shown that it does
have sufficient discretion under US law.  The last two requested “findings” are prospective in nature
and outside the terms of reference of this Panel.
23. Q15:  The Commerce Department has the discretion to conduct administrative reviews or
changed circumstances reviews on a company-specific basis and to establish duty rates on a
company-specific basis.  Any exploration of how the Commerce Department will exercise its
discretion in a hypothetical future administrative or changed circumstances review would improperly
go beyond the boundaries of the existing dispute.  The United States respectfully requests that the
Panel not address legal issues not implicated by measures in this dispute, and it again commends to
the Panel the approach taken in the forthcoming Section 129  panel report.
24. Q16:  The Commerce Department’s initial questionnaire asked each province to provide the
“average prices paid for US-origin softwood logs . . . by species . . . and quality.”  The provincial
governments, however, provide timber at the stump (i.e., standing trees), not “roadside” (i.e., as logs).
A stumpage price is analogous to an ex-factory pr ice.  The benchmark must, therefore, also be an
ex-factory (i.e., stumpage) price.  One could derive a stumpage price from import prices for logs, butit would be far more complex and, in all likelihood, less accurate, than using an actual stumpage price.
US timber is commercially available to Canadian lumber producers, and Canadian lumber producers
may, and do, purchase US timber at the stump as well as in the form of logs.  Furthermore, the
United States is the only country from which Canada purchases a significant amount of timber, either
standing timber or logs.
25. Q17:  Provincial timber is provided at the stump.  The most appropriate benchmark for
provincial stumpage prices, therefore, is a market stumpage price.  Log prices themselves could not be
compared to stumpage prices, but log prices could possibly be used to derive a stumpage price.  In
this case, that is not necessary, because actual stumpage prices commercially available to Canadianlumber producers are available.  The cost to the government of providing the timber is not an
appropriate measure of the adequacy of the remuneration.  WTO panels and the Appellate Body have
repeatedly and properly rejected a cost to government benchmark.  Canada also cited to three unique
cases in which, because there were no commercially available market benchmark prices, the
Commerce Department measured the adequacy of remuneration through an analysis of whether the
government prices were consistent with market principles.  Canada fails to note, however, that the
Commerce Department conducted such an analysis in those cases only because there were no market
benchmark prices available, from either domestic sources or commercially available imports.
26. Q18:  The United States erroneously included a reference to subparagraph “(d)” in the first
line of paragraph 15 of its second written submission.  The United States was pointing out that
Article 14 in its entirety (not Article 14(d) specifically) “does not purport to address everyconceivable scenario in which benefit must be determined.”  The guideline in Article 14(d) establishes
a criterion that any methodology for determining the adequacy of remuneration must meet.  Any
reasonable measure consistent with the stated guidelines is permissible.  The United States agrees that
the relevant “prevailing market conditions” are those in the country of provision, not some other
country.  Where the United States and Canada differ is over what type of evidence constitutesevidence of prevailing market conditions in the country of provision, which Article 14(d) does not
address.  In Canada’s view, evidence of prevailing market conditions in Canada consists solely of
transactions for domestic goods.  The United States disagrees.  “Prevailing market conditions” are the
commercial conditions under which goods are bought and sold in the country of provision.  A plain
reading of the text would indicate that “prevailing market conditions” include the existence of allsources for the good in question that are commercially available to purchasers in the country of
provision, including imports.  Since US stumpage is commercially available to lumber producers in
Canada, it constitutes part of the prevailing market conditions in Canada.WT/DS236/R
Page B-17
27. Q19:  The United States confirms the statement it made.  A market may be small but
nevertheless robust and driven by market forces.  Such a market would produce prices that could
serve as a benchmark for determining the adequacy of remuneration.  The issue is not the size of the
“market” per se , but rather what the “market conditions” encompass.  In particular, “market
conditions” encompass the total commercially available supply, including imports.  In the CommerceDepartment’s preliminary analysis, while the overall size of the market was not a consideration, the
relative size of the government-controlled segment of the market for Canadian stumpage relative to
the private segment of the market was a consideration.  The provincial governments control
approximately 90 per cent of the Canadian softwood timber supply.  The relative size of the
government’s segment of the market is particularly significant because provincial tenure holders
consistently harvest less than their AAC and, if necessary, a tenure holder may harvest in excess of its
AAC.  Canadian lumber producers, therefore, have little or no incentive to purchase private stumpage,unless the private seller is willing to meet, or better, the government’s administratively set stumpage
price.  Thus, the government’s overwhelmingly dominant share of the market for stumpage drives
private stumpage prices toward an equilibrium with  government prices.  This was confirmed by other
record evidence.
28. Q20:  There does not appear to be any record evidence to support Canada’s claim that swaps
must be equivalent in value as well as volume.  Tenure holders are generally not permitted to sell the
timber they harvest.  “Swaps” generally involve two mills that are required under their tenures to
process all the timber they harvest or an “equivalent quantity” in their mill.  Thus, the provincial laws
themselves place a premium on the quantity  exchanged, not the value.  The existence of the
“equivalent quantity” language in the provincial statutes is tacit recognition of the occasional need for
swaps to meet specific input requirements.  The primary factors in swaps are volume and the physical
characteristics of the logs, not value.  Moreover, swaps are between sawmills.  In an aggregate benefit
calculation, where both parties are producers of the subject merchandise, the value of the logs
swapped and the nature of the transaction are irrelevant because the benefit is calculated based on thetotal volume of Crown timber going into lumber production, allocated over all sales of softwood
lumber.
29. Q21:  Adequate remuneration must be determined in relation to prevailing market conditions
in the country of provision, consistent with Ar ticle 14(d).  No amount of evidence could overcome
this express requirement.  If the Panel is asking what amount of evidence is needed in order for an
investigating authority to reject prices for domestic ally produced goods in favor of prices available in
the domestic market for foreign-produced goods, it is the view of the United States that Article 14(d)
is not concerned with whether the benchmark is based on domestically produced goods versus
commercially available imported goods, but rather with whether the benchmark reflects the prevailing
market conditions facing the purchaser in the country of provision.  It is purely an evidentiary matter
whether domestically produced goods versus commercially available imported goods represent theappropriate benchmark.
30. There may be instances where a government has a monopoly on a particular good.  In this
instance, the logical alternative would be to test the government price against a commercially
available import price.  Even Canada concedes that import prices could be utilized in the case of agovernment monopoly.  Where a government does not maintain a monopoly, but exercises
overwhelming dominance in the market, the same cons iderations would apply.  Across all of Canada,
a single government supplier controls on average 90 per cent of the supply of timber.  The remaining
10 per cent of supply is provided by thousands of small, private landowners.  It is impossible to
conclude that the private landowners have any market power whatsoever.
31. A benchmark based on foreign-produced goods must be commercially available  to the
domestic purchasers in the country of provision.  Thus, it would be inappropriate to choose a world
market price from Latvia, Russia, Japan, Europe or Chile as a benchmark for stumpage in Canada.
Canadian lumber producers do not import timber from these countries, and only actual or potentialWT/DS236/R
Page B-18
import prices could conceivably satisfy the commercially available requirement.  The only country
that Canada does import timber from is the United St ates.  Proof of actual imports is the strongest
possible evidence that a price is commercially available to domestic purchasers in the country of
provision.
32. Finally, the benchmark for measuring adequate remuneration must itself be a  market price,
whether the benchmark stems from domestically prod uced goods or from commercially available
imported goods.  Thus, the Commerce Department did not seek to demonstrate that the US market
was “more competitive” than the Canadian market for stumpage.  Rather, the Commerce Department
found that the US stumpage market is open and competitive and the prices, therefore, are “market”
prices.
33. Q22:  Article 20.l establishes a general rule of prospective application for both provisional
measures and definitive duties, subject to the exceptions in Article 20.  Article 20.6 defines a set of
circumstances under which retroactive assessment is permitted.  The reference to exceptions in
Article 20.1, including the Article 20.6 exception, should, logically, be interpreted to include within
the exception the provisional measures essential to preserving the possibility of such a remedy wherethere is evidence that the requisite circumstances exist.  Nothing in Article 20.6 precludes such a
reading of Article 20.1.  The reference to “provisional measures” in Article 20.6 is used solely to fix a
point in time from which to calculate the 90-day retroactivity period and thereby define a universe of
entries that may be subject to retroactive assessment.  The fact that the date on which provisional
measures are applied is used to calculate the 90-day period does not preclude subjecting the universeof entries during that period to provisional measures.
34. Q23:  The timing provisions of Article 17 address the point in a proceeding at which
provisional measures can be imposed.  That point occurs after affirmative preliminary determinations
of subsidization and injury have been made, and no earlier than 60 days after initiation.  Article 20
addresses the universe of entities to which those measures may be applied.
35. Q24:  Provisional measures were imposed for 4 months, i.e., they were ordered on
17 August 2001 and terminated on 15 December 2001.
36. Q25:  The US International Trade Commission (“ITC”) does not conduct an analysis of
“injury which is difficult to repair” until it makes the final injury determination.  As the panelconcluded in Hot-Rolled Steel from Japan , conducting such an analysis at the preliminary stage would
be speculative.  In contrast, the existence of massive imports and a subsidy inconsistent with the
Agreement are comparatively straightforward analyses of facts.  The ITC’s preliminary injury
determination, together with the evidence concerning prohibited subsidies and massive imports,
constitutes sufficient evidence to take the limited step of imposing provisional measures retroactively,pending the outcome of the full investigation.
37. Q26:  Article 20.3 states that “[i]f the definitive countervailing duty is higher than the amount
guaranteed by the cash deposit or bond, the difference shall not be collected.”  If there is no cash
deposit or bond, the amount guaranteed is zero.  It follows that, absent provisional measures in theform of a deposit or bond for entries during the 90-day retroactivity period, no definitive duties may
be collected on those entries.  The conflict between Articles 20.3 and 20.6 does not exist if
Article 20.1 is interpreted to permit provisional measures where there is sufficient evidence that
critical circumstances exist.
38. Q27:  In the Preliminary Determination, the Commerce Department issued a single order
imposing provisional measures.  The universe of entries subject to that order included all entries made
or on after 90 days prior to the Preliminary Determination.  Moreover, under US law, entries during
the 90-day retroactivity period are subject to the provisional measures cap.  If the Panel should find
that there are two such periods, the rules governing provisional measures cannot apply to the 90-dayWT/DS236/R
Page B-19
retroactive assessment period.  If Article 20.6 only addresses assessment, not provisional measures,
then the 4-month limitation on provisional measures and the provisional measure cap do not apply to
such assessments.
Questions to Canada
39. Q36:  Canada has de facto  abandoned its specificity claim in this proceeding.  Any attempt by
Canada to pursue its specificity claim at this late stage would deny the United States its right to
defend its interest and the rights of third parties to be heard.
40. Q37:  If Canada is still pursuing this claim, it would not be appropriate at this late stage for
Canada to supplement its prior submissions with additional information or argument.  The US right todefend its interest would be severely prejudiced in such a case.
__________