WT/DS264/R 
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ANNEX B 
   
PARTIES' RESPONSES TO QUESTIONS  
FROM THE SECOND MEETING 
 
  
Contents Page 
Annex B-1 Responses of Canada to ques tions posed in the context of the 
second substantive meeting of the Panel B-2 
Annex B-2 Responses of the United States to questions posed in the context of 
the second substantive meeting of the Panel B-35 
 
 WT/DS264/R 
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ANNEX B-1 
 
 
RESPONSES OF CANADA TO  QUESTIONS POSED IN  
THE CONTEXT OF THE SE COND SUBSTANTIVE  
MEETING OF THE PANEL  
 
 
(26 August 2003) 
 
 
A. GENERAL QUESTIONS 
 
To Canada:  
 
 85. In response to Question 1 of the Panel,  Canada restated its claims. The Panel's 
understanding is that the claims contained in this restatement are the only claims that 
are before the Panel (Articles 5.2, 5.3, 5.8, 2.6, 2.4, 2.4.2, 2.2.1.1, 2.2.2, 2.2, 1, 9.3, and 18.1 of the AD Agreement as well as GATT 1994 Articles VI:1 and VI:2 – sequencing as 
per Canada’s response to Question 1 of the Pa nel).  Could Canada please confirm that 
the Panel’s understanding is correct?  
 
1. In addition to the provisions of the Anti-Dumping Agreement and GATT 1994 cited by the 
Panel in Question 85, Canada retains its claims base d on Article 5.1, Article 5.4 and Article 2.2.1, 
which were referred to in Canada’s written answer to Question 1 from the Panel . 
 
B. ARTICLE 5.2 
 
To Canada: 
 
 87. The Panel notes that Canada has made a number of allegations on shortcomings 
of the data in the application in Section II of its Second Oral Statement.  In Canada’s 
view, does the examination it claims should have been done by the DOC, require a pre-initiation investigation? 
 
2. Canada’s claims, as detailed in Section II of  Canada’s Second Oral Statement and Canada’s 
previous submissions, do not require that an investigating authority conduct a pre-initiation 
investigation.     3. Article 5.3 obligates an investigating authorit y to examine the accuracy and adequacy of the 
evidence provided in an application and to determin e whether there is suffici ent evidence to justify 
initiating an investigation.   
 4. Commerce did not properly examine the accura cy and adequacy of the information provided 
in the Application and did not properly determin e, based on the facts before it, that there was 
sufficient evidence to justify initia ting this investigation.  The Anti-Dumping Agreement requires an 
objective and unbiased examination and determinati on in accordance with Article 5.3 prior to 
initiation. 
 5. There is an additional obligation that arises prior to initiation in the circumstances of this 
investigation.  Article 5.2 instructs that the “application shall contain such information as is  WT/DS264/R 
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reasonably available to the applicant” on a number of  subjects.  The Application in this investigation 
was both insufficient to justify initiation and did not contain the minimum information that was 
reasonably available to the Applicant, on prices and the constructed value, including costs of 
production, of the softwood lumber products at issue.1   
 
6. There has been a dispute in this proceedi ng over whether the investigating authority must 
ensure that the application contains some, any, or all reasonably available information.  This issue is 
hypothetical.  In this case, there was material information readily available that the Applicant 
withheld and that Commerce, based on informati on in the Application, knew it withheld.   
 
7. The United States has admitted that the Appli cation contained informa tion indicating that the 
Applicant International Paper owned Weldwood, a major Canadi an producer and exporter of 
softwood lumber.2  Therefore, there was information in th e Application establishing that actual cost 
and price information from a major Canadian producer was available.3  Such cost and price 
information was not provided in the Application. 
 
8. An objective and unbiased investigating au thority, as a part of its examination and 
determination of the sufficiency of  the evidence in the Application in  this investigation, would have 
determined that the Applicant had not provided reas onably available information on prices and costs.  
As part of its examination prior to initiation of  the facts before it, Commerce was aware that the 
Application did not, in spite of the Applican t’s repeated statements to the contrary,4 contain such 
information as was reasonably available to the A pplicant on prices and costs.  The United States has 
admitted that Commerce did not discuss the “Weldw ood-IP relationship, because it was not relevant 
to either the industry support question or the suffi ciency of the evidence presented in the application 
as to prices and costs.”5  Therefore, any suggestion by the United States that some sort of elaborate 
pre-initiation investigation was required to satisfy Canada’s claim under Article 5.26 is not credible 
and is an attempt to distract from the facts befo re the Panel in this proceeding.  Based on the 
Application, Commerce knew that reasonably availa ble information had not been provided; it chose 
simply to ignore that fact.   
                                                     
 
1 See Article 5.2(iii) of the Anti-Dumping Agreement . 
2 US First Answers to Questions, at paras. 12-13; Petition, Exhibit I.B-7, Article from The Vancouver 
Sun, 23 March 2001 (Exhibit US-62).  See also Petition,  Vol. 1B, Exhibit 1B-9, Top Canadian Exporters of 
Softwood Lumber to the United States 2000 (Exhibit CDA-39). 
3 Further, the availability of Weldwood as a sour ce of data was made clear to Commerce five days 
before publication of the Notice of Initiation in this investigation.  See  Quebec Lumber Manufacturers 
Association Letter to DOC (25 April 2001) (Exhibit CDA- 50).  The Notice of Initiation was published in the 
Federal Register on 30 April 2001 ( Certain Softwood Lumber Products from Canada , 66 Fed. Reg. 21,328 
(Dep’t Commerce 30 April 20 01) (initiation) [hereinafter  “Initiation Notice”] (Exhibit CDA-9)).  Canada also 
notes that Weldwood provided data and information to Commerce in connection with this investigation on at 
least two occasions and asked to be a voluntary respondent in this investigation.  See  Letter from Hunton & 
Williams re Softwood Lumber from Canada with att ached Questionnaire Response of Weldwood of Canada 
Limited, 3 May 2001 (Exhibit CDA-138) and Cover Lette r for Weldwood Sections B, C and D Questionnaire 
Response from Hunton & Williams to DOC, 16 July 2001 (public version) (Exhibt CDA-49).  Commerce never considered the data or information.  See  Certain Softwood Lumber Products from Canada , 66 Fed. Reg. 56,062 
(Dep’t Commerce 6 November 2001) (prelim. anti-dumping determination) at 56,064 (Exhibit CDA-11). 
4 See, e.g., Certain Softwood Lumber Products from Canada , Petition for the Imposition of 
Antidumping Duties Pursuant to Section 731 of the Tariff Act of 1930, As Amended, Vol. I (2 April 2001) at 1 
[hereinafter the volumes of the Petition are refe rred to as “Petition”] (Exhibit CDA-36); Petition , Vol. III 
(2 April 2001) at p. III-1, III-13 to III-16 (Exhib it CDA-37); and Petitioners’ Amendment to Petitions for 
Imposition of Antidumping and Countervailing Duties on Certain Softwood Lumber Products from Canada 
(10 April 2001) at 2 (Exhibit CDA-40). 
5 US First Answers to Questions, at para. 12. 
6 Opening Statement of the United St ates at the Second Meeting of the Panel, 11 August 2003, at 
para. 17 [hereinafter “US Second Oral Statement”]. WT/DS264/R 
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9. In any event, Canada’s claims under Artic les 5.2 and 5.3 are separate.  Leaving aside 
Canada’s claim under Article 5.2, th e same question before the panel in Argentina – Poultry is before 
this Panel: could an objective and unbiased investig ating authority, looking at the facts before it, 
properly have determined that there was sufficien t evidence of dumping to justify initiating an anti-
dumping investigation?
7  Based on Canada’s submissions and the information before this Panel 
indicating, inter alia , that the Application did not allege dumping by any particular Canadian 
producer, the answer is no.  
C. ARTICLE 5.3 
 
To Canada:  
 
88. In paras. 34 to 43 of Canada’s reply to Question 8, Canada has made certain 
allegations regarding the information containe d in the application as submitted by the 
US domestic industry, and which formed the basi s for the initiation of the investigation.  
In its Second Oral Statement, Canada has also  alluded to some of these issues.  Could 
the US please comment in detail on these allegations? 
 
10. Based on Canada’s submissions and the info rmation before this Panel, the Panel must 
conclude that an objective and unbiased investigating authority, looking at the facts before it, could 
not have properly determined that there was su fficient evidence of dumping to initiate this 
investigation.  Therefore, the United States violated Article 5.3. 
 11. Canada reserves the right to respond to an y new evidence or information, should such 
evidence or information exist, that the United St ates may proffer in support of its assertion that 
Commerce had sufficient evidence before it to justify initiating this investigation.   
 
89. In its reply to Question 8, Canada submits that using the Applicants Random 
Lengths price data for Quebec, a comparison of all of the Quebec ex-factory price data 
for ESPF (2x4, Studs&Btr, KD, RL and 2x4-8', PET, KD) products sold in Quebec and 
in the US, shows that the US price was cons istently higher during the period and that 
there was therefore no price-to-price dumping  demonstrated by the evidence in the 
Application.  It further provides a calcul ation in footnote 32 to substantiate the 
allegation.  Could the US please comment on this allegation and on the calculations? 
 
12. Commerce properly rejected the home market price data as supplied in the Application for 
British Columbia.
8  The Quebec pricing data, as demonstrated in the footnote referenced in the 
Panel’s question, showed no dumping.9  Therefore, the Application contained no evidence of dumping 
on a price-to-price basis with respect to any company or even any region of Canada.   
 13. Canada reserves the right to respond to an y new evidence or information, should such 
evidence or information exist, that the United St ates may proffer in support of its assertion that 
Commerce had sufficient evidence before it to  justify initiating this investigation. 
 
                                                     
 
7 Argentina – Definitive Anti-Dumping Duties on Poultry from Brazil , Report of the Panel, 
WT/DS241/R, adopted 19 May 2003, at para. 7.60. 
8 Initiation Notice, 66 Fed. Reg. at 21,330 (Exh ibit CDA-9).  See also Canada’s Second Oral 
Statement, at para. 13; Canada’s Responses to Questions  to the Parties from the Panel in Connection with the 
First Substantive Meeting, 30 June 2003, at para. 33 [hereinafter “Canada’s First Responses to Questions ”]; and 
Canada’s Second Written Submission, at para. 49. 
9 Canada’s First Responses to Questions, at para. 33 and footnote 32.  WT/DS264/R 
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90. Please comment on Canada’s Second Oral Statement, para. 20 which states that: 
 
“[t]he United States, hiding behind the pretence of confidentiality, has not provided this Panel with any information that was before Commerce about the two US surrogate mills.  
These US mills were at the hear t of Commerce’s decision to 
initiate.  Canada has not seen, and the Panel still does not have before it, basic information in the hands of the United States, such as the names of the US mills and what Commerce knew 
about those mills.  The United St ates has responded to Canada’s 
claims with nothing but assertions.” 
 
14. Canada emphasizes four points regardin g the issues raised by this question.   
 15. First, the United States has no reasonable basis for refusing to provide whatever information it 
has as to the identity of the two US surrogate m ills used to model the co sts of Quebec producers and 
any information concerning what Commerce knew, if  anything, about the mills prior to initiation.  
There are mechanisms in this pr oceeding for keeping information c onfidential.  Trusting in those 
mechanisms, Canada has provided hi ghly confidential information to the Panel and the United States.  
There is no basis for the United States to claim that  any information about these mills is so sensitive 
that it cannot be shared with the Panel. 
 
16. Second, the two US surrogate mills used to model the costs of Quebec producers were critical 
to the decision to initiate.  All of the price co mparisons indicated that there was no dumping; the 
initiation was based solely on costs.
10  There were no usable home mark et prices, nor surrogate prices, 
from British Columbia, and therefore Commerce coul d not legally initiate the investigation on the 
basis of any information in the Application pertaining to British Columbia.11  With respect to Quebec, 
there was no cost evidence from any Quebec producer.12  Instead, the Applicant constructed a 
surrogate cost for Quebec mills using informati on from US mills regarding overhead, and labour, 
electricity and fuel usage factors.13  Therefore, the validity of the d ecision to initiate turns largely on 
whether an objective investigating authority, look ing at the facts before it, could properly have 
determined that the US surrogate mills were represen tative of Canadian mills, and that the costs of the 
US surrogate mills were reasonably allo cated to the products at issue.   
 17. Third, it is more than a theoretical po ssibility that the US surrogate mills are not 
representative and that using their overhead and “u sage factors” skewed the costs alleged in the 
Application.  There is a wide ra nge in performance of US mills in areas of the United States that 
                                                     
 
10 Ibid. 
11 Initiation Notice, 66 Fed. Reg. at 21,330 (Exh ibit CDA-9).  See also Canada’s Second Oral 
Statement, at para. 13; Canada’s First Responses to Questions, at para. 33; and Canada’s Second Written 
Submission, at para. 49. 
12 Petition, Exhibit VI.A, Petitioners’ Cost Methodol ogy (public version), at 1-2 (Exhibit CDA-134). 
13 See DOC AD Investigation Initiation Checklist: Cert ain Softwood Lumber Products from Canada, 
Inv. No. A-122-838, at 8 (Exhibit CDA-10); and Petition,  Exhibit VI.A, Petitioners’ Cost Methodology (public 
version), at 1-4 (Exhibit CDA-134).  See also Petition, Exhibit VI.C-1 (public version), (Exhibit CDA-135).  
Column “C” of each of the “Costs of  Manufacturing” calculations charts in  Exhibit CDA-135 in dicates that the 
“input units required per MBF of lumber” are taken from the two redacted “Certifications” from employees of two US mills that follow the calculations charts.  Th erefore, the “input units” or usage factors for the 
components of the cost model, including the “processing costs” component of the model, are derived from some 
undisclosed combination of the experience of the two US mills.  Neither of the “Certifications” provides cost information for the US mills for a full calendar year.  Cana da also notes that the United States has admitted that 
data from US mills were used to provide “production” or usage factors for the Applicant’s cost model.  See US 
Second Written Submission, at paras. 24-25. WT/DS264/R 
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border Quebec.  Some of those mills might be re presentative of mills in Quebec, but many others 
were inefficient mills with outdated equipment and substantial operational problems that would have 
driven up their cost of producing a thousand board feet of lumber.
14  Any constructed normal value 
based on such mills would be unduly high and would tend to show dumping where there was, in fact, 
no dumping.  Further, the use of such mills to mo del costs makes it more likely that legitimate home 
market sales would be improperly rejected as below cost ( i.e., not in the ordinary course of trade).   
 18. The Application itself lists several US mills in  Maine that curtailed operations or had layoffs 
during the relevant time period.  For example, Pl easant River Lumber Co. in Dover-Foxcroft, Maine; 
Moose River Lumber Co. in Jackman, Maine; Georgia Pacific in Woodland, Maine; and J.D. Irving in 
Ashland, Maine, all experienced curtailments and layoffs.
15  Because of the wide range in the 
performance of the US mills, it is important to kn ow the identity of the US surrogate mills and 
additionally, to know what Commerce knew, did not know and failed to ask about the US surrogate mills that formed the basis of its decision to initiate.    
19. Finally, there is no evidence on the record that Commerce knew much about the US surrogate 
mills.  For example, there are no annual reports or product lists in the public version of the 
Application.  Nor are there signifi cant areas redacted in the public version of the Application that 
might discuss the representative nature or the cost  allocations of these mills.  It appears that 
Commerce based its initiation on unsubstantiated asser tion by the Applicant.  The Application was 
deficient, and the investigating authority has tr ied from the beginning to avoid the consequences of 
the deficiency.   
 20. Canada reserves the right to respond to an y new evidence or information, should such 
evidence or information exist, that the United St ates may proffer in support of its assertion that 
Commerce had sufficient evidence before it to justify initiating this investigation.   
 
D. ARTICLE 2.6 
 
To the US:  
 
91. The Panel notes in para. 36 of the US Second Oral Statement that “Canada 
misunderstands the analysis that was actually applied”.  Could the US expand on what 
it perceives the misunderstanding of Canada is? 
 
21. As there is some discrepancy between what  the United States actually did, and what it now 
tells the Panel, Canada would like to summarize its  understanding of “the analysis that was actually 
applied”.   
 22. The United States told the Panel in its first written submission that it reviewed five factors, 
from Diversified Products , “[a]s part of  its analysis in determining whether ‘clear dividing lines’ 
exist within the product under consid eration identified within the petition.”
16  In paragraph 36 of its 
opening statement in the Second Panel Meeting,  however, the United States told the Panel, 
“Commerce’s assessment of whether there are ‘clear divi ding lines’ between products is part of  the 
                                                      
14 As Canada has stated in previous submissions, including Canada’s Second Oral Statement at 
paragraph 17, the Applicant noted that costs vary significantly among producers based on a number of factors 
including level of efficiency, type of equipment, physi cal location and wood fibre source material.  See Petition, 
Exhibit VI.A, Petitioners’ Cost Methodology ( public version), at 4-5 (Exhibit CDA-134). 
15 Petition, Vol. I (2 April 2001) at I-34 (Exhibit CDA-36); and Petition, Vol. IB, Exhibit 1B-33, Mill 
Closures – August 2000-March 2001 (Exhibit CDA-177). 
16 US First Written Submission, at para. 103 (emphasis added).  WT/DS264/R 
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Diversified Products  analysis, not subordinate to this analysis.”17  Canada submits that the United 
States has offered a distinction with a material difference.    23. The central question is whether the Diversified Products  criteria as applied by the 
United States satisfy the requirements of Ar ticle 2.6.  In the first formulation, Diversified Products is 
stated to be part of a “clear dividing lines” test .  In the second formulation, the relationship is 
reversed, and the examination of whether there are clear dividing lines is part of the Diversified 
Products  analysis. 
 24. Although the United States most recently has to ld the Panel that the “clear dividing lines” test 
was treated as part of Diversified Products , the test actually applied in the investigation was consistent 
with the first formulation:  the United States subordinated the Diversified Products criteria to a new 
and different test for “clear dividing lines”, which does not exist in Diversified Products . 
 25. The United States reported to the Panel that  its assessment referred to “whether ‘clear 
dividing lines’ exist within the product under consider ation”, but the obligation in Article 2.6 is to 
determine the like product.  The United States thus ad mits that, in looking for “clear dividing lines”, it 
was not determining whether like products were “ide ntical” to the product under consideration or, in 
the absence of identical, bearing “ch aracteristics closely resembling” the characteristics of the product 
under consideration.    
26. When the Department of Commerce enumerated the Diversified Products  criteria for bed 
frame components and finger-jointed flangestock, it ad mitted that it did not complete the test.  In each 
instance where the Department  of Commerce found bed frame components or finger-jointed 
flangestock to be unique, entirely unlike the produc t under consideration, it discarded the criterion 
from the analysis, preferring to conclude that th ere was no “clear dividing line” between the disputed 
product and the product under consideration becau se of some undefined category of “specialty 
lumber” that, without explanation, supposedly  subsumed both bed frame components and finger-
jointed flangestock.
18  Thus, Diversified Products  was subsumed by a test for “clear dividing lines”. 
 27. The comparisons of Western Red Cedar a nd Eastern White Pine to the product under 
consideration suffered a similar fate.  Unique ch aracteristics were discarded, as with bed frame 
components and finger-jointed flangestock, but charact eristics that were different were judged not to 
be “so different” as to warrant the finding of a “clear dividing line”.  An isolated physical 
characteristic of an appearance grad e species, such as Eastern White Cedar, was found to be similar to 
a physical characteristic of Western Red Cedar, for example, thus placing the two species on a “continuum” not separated by a clear dividing line.
19   
 
28. The allegedly similar species did not have  to be adjacent to one another on Commerce’s 
continuum.  They merely had to have a characteristic that could “link” them.  The greater the scope of 
the investigation, the more characteristics were av ailable to select, creating greater assurance that any 
distinct like product would have some characteristics also found on the so-called continuum.  In such 
a case, there could never be a “clear dividing line”.   
 
29. At no point in its analysis did Commerce a ttempt to determine whether a product at issue 
actually possessed characteristics closely resembling those of the product under consideration, as 
required by Article 2.6.  Hence, Canada understands that the US stat ement offered to the Panel in the 
                                                      
17 US Second Oral Statement, at para. 36 (emphasis in original). 
18 DOC Issues and Decision Memorandum for the Antidumping Duty Investigation of Certain 
Softwood Lumber Products from Canada  (21 March 2002), Comment 52, at 163-164 (bed frame stock/square-
end bed frame components); and at 165-166 (flangestock) [hereinafter “IDM”] (Exhibit CDA-2). 
19 Ibid., at 152-153 (Western Red Cedar) and at 159-160 (Eastern White Pine). WT/DS264/R 
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first written submission is an accurate description of  the methodology applied, and that the most 
recent description is not.    
E. PHYSICAL CHARACTERISTICS 
 
To Canada:  
92. Could Canada explain why in the case of softwood lumber products cost 
accounting records of companies do not show differences in variable costs according to 
different dimensions? 
 
30. Softwood lumber producers, whether in Cana da or the United States, do not measure cost 
differences among the various lumber grades and dime nsions that are produced in the sawmill, per 
common unit of measure.  The US implication that producers’ books and records identified variable 
costs for every attribute except dimension is factua lly incorrect and misleading.  In the normal course 
of business, softwood lumber producers calculate an  average cost of production, per thousand board 
feet of lumber, by process for all production from ha rvest through planing.  They do not attempt to 
assign different costs to different grades of lumber, or to different dimensions of lumber, but instead track a single, average cost for all joint products jointly produced.  31. Canadian and US producers record an averag e cost per thousand board feet because of the 
nature of lumber production, which accountants refe r to as a joint production process.  In a joint 
process, products with different characteristics are not produced sequentially, as is typical for most 
products from steel pipe to semiconductors, but si multaneously.  In the case of lumber, logs are 
processed simultaneously into green lumber of diffe rent sizes and grades.  While the producers can 
influence the characteristics of the lumber produced, the principal determinates are the characteristics 
of the log processed, which, among others, include  the quality of the fibre, the length and the 
diameter.  Other examples of joint products incl ude all beef products and all pork products.  Producers 
can track the costs of raising a group of hogs or cattle, as well as the costs of processing the animals 
into different cuts of beef or pork, but one cannot track the unit cost of an individual cut of meat from an individual animal, just as one cannot track the co sts of an individual “cut” of lumber from an 
individual log.  
 
32. In a joint production process, because it is not  possible to measure the unit cost of production 
using typical cost accounting techniques develope d for sequential production, producers have two 
alternatives.  The producers can measure the cost on  the basis of a simple physical measure such as 
average cost by weight or volume (in this case, unit cost per thousand board feet); or the producers 
can assign cost on the basis of the relative value of  the goods produced.  The latter, value-allocated 
cost, has the advantage of assigning costs based on the revenue generating po tential of the various 
products produced, thereby assuring that aberrantly la rge losses or gains are not recorded at the time 
of sale.  On the other hand, value-allocated cost is  more burdensome and costly to administer.  Since 
in the lumber industry value-allo cated costs are impossible to measure on an ongoing basis (in terms 
of measuring the operating results of the company), producers have adopted the first alternative, an 
average cost per thousand board feet.  Rather, they assess profitability based on the portfolio of 
lumber products they produce; that is, lumber producers look to whether the revenue from all the 
different sizes and grades of products they produce jo intly is sufficient to cover the costs of producing 
those products.   
33. In its Final Determination, Commerce recognized  that the use of a si ngle average cost in a 
dumping analysis for a range of joint products wi th a range of values would distort the margin 
calculation.  Thus, Commerce adopted a hybrid method that allocated fibre costs (that is, the costs of 
obtaining timber, harvesting and tr ansporting logs) and sawmill costs by value by grade, but used  WT/DS264/R 
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average costs for thickness, width, and length.20  That is, while different grades of lumber were 
allocated different joint costs, based on the relativ e values of the grades, different dimensions of 
lumber within a particular grade were allocated th e same “average” joint cost.  It was only for this 
reason that Commerce created variable cost differences by allocation among products by grade, but 
not dimension.   
 
34. In any event, whether or not a difference in  the variable costs of production for lumber 
products of different dimensions can be directly ascertained, the obligation pursuant to Article 2.4 
remains the same.  Nothing in Article 2.4 relieves an investigating authority from its “due allowance” 
obligation in cases in which it deci des not to calculate a variable cost difference between products 
with differences in physical characteristi cs that affect price comparability.   
 35. It is important to note that, in raising the question of variable costs, the United States has 
attempted to confuse this issue.  The issue before  the Panel is simple:  whether Article 2.4, which 
requires an allowance for physical characteristic s which affect price comparability, obligates the 
United States to make an adjustment for dime nsion in the face of unrebutted evidence before 
Commerce that dimension affects price.  As Ca nada has noted, the Applicant and the respondent 
companies agreed that dimension affects price comparability.  Commerce itself concluded in the 
Preliminary Determination
21 that dimension had an effect on price comparability.  Commerce also 
concluded that dimension affects price by using thickness, width and length as product characteristics 
critical to establish when an identi cal product was matched.  The United States is trying to change the 
focus to convince the Panel to address the question of how the allocation would be calculated, rather 
than whether an allocation is required.   
93. Please show whether and where on th e record the respondents demonstrated 
that dimension had an effect on price comparability.  Please also explain at what stage of 
the investigation these were demonstrated. 
 
36. There are two distinct factual issues regarding the impact of dimension on price that the United States is seeking to confound.  The first is the general issue of whether dimension has an effect 
on price comparability.  The second issue is the more specific:  what differenc es were shown to exist 
by the pricing data collected for the actual pairs of non-identical products compared by Commerce? 
 
37. The first issue is the one most relevant to the Panel’s question, and, as explained below, the 
only one Canadian respondents had an opportunity to address.  Evidence relevant to this issue 
includes (1) statements by US and Canadian producer s that they differentiate and price their products 
based on differences in dimension;  (2) industry pr icing publications, such as Random Lengths, that 
report product pricing data differen tiated by dimension; (3) findings by other US government agencies 
knowledgeable about the industry that dimension a ffects product pricing, and (4) examples from the 
pricing data collected by Commerce that different di mension products sell for different prices.  Such 
evidence was presented by Canadian respondents th roughout the proceeding before Commerce, as 
Canada has detailed in response to Questions 22 and 25.  All of the citations to the record before 
Commerce were provided in Cana da’s response to Question 22. 
 
38. In addition, a 11 May 2001 letter from counsel  for Tembec, consistent with the citations 
provided in response to Question 22, is attached as an exhibit.
22  As Canada noted, there was 
agreement among all interested parties that dimension affected price comparabi lity.  The evidence that 
                                                      
20 Ibid., Comment 4, at 19-25 (Exhibit CDA-2). 
21 Certain Softwood Lumber Products from Canada , 66 Fed. Reg. 56,062 (Dep’t Commerce 
6 November 2001) (prelim. antidumping determination) (Exhibit CDA-11). 
22 Tembec Response to the 3 May 2001 Submission of the Coalition for Fair Lumber Imports 
Executive Committee concerning Respondent Selection, Product Matching Criteria, and Simplification Issues 
(11 May 2001) (Contains Business Confidential Information) (Exhibit CDA-178). WT/DS264/R 
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dimension affected price comparability was the sa me as the evidence that grade affected price 
comparability.  Canada also noted that there is no evidence in the record to the effect that dimension 
does not affect price comparability.  No party, including the Applicant, argued, much less provided 
evidence, that producers and buyers do not consider dimension in setting prices, or that dimension did 
not have to be considered in deciding what prices to compare.  Nor does the record contain any other 
alternative explanation or evidence of why pri ce differences exist among products of different 
dimensions (all other characteristics being equal).  39. Second, Canadian respondents never had th e opportunity to provide the product-specific 
pricing analyses the United States contends is missing.  Where normal value and export price of 
products of identical dimension were compared , there was of course no dimensional “difmer” 
requirement.  This fact had the effect of greatly  reducing the number of “difmers” that Commerce had 
to calculate.  Only non-identical comparisons re quired a “difmer”.  And only Commerce could know, 
prior to the Final Determination, which non-identic al comparisons would be made and thus, which 
products would require a “difmer” calculation.  That is, respondents had no opportunity to provide 
analyses to Commerce with respect to the non-identical  comparisons used or any allowances that were 
required to account for physical differences in the products actually compared that affected price 
comparability, since Commerce never disclosed to the respondents the non-identical product 
comparisons it would use or the methodology it would use to select those comparisons.  As Canada has noted, Commerce, in its Prelim inary Determination, did not make any non-identical comparisons, 
and thus did not develop any model matching met hodology that respondents could analyze.  Rather, 
Commerce developed a model matching methodology a nd utilized non-identical comparisons only in 
its Final Determination.  This methodology, an d the resulting non-identical product comparisons, 
were disclosed to respondents only after the conc lusion of the proceeding.  Thus, respondents could 
never have provided the product-specific pricing analys is the United States contends is missing.  Only 
Commerce could have performed such an analys is, because only Commerce knew the identical (no 
“difmer” required) and non-identical (dimension “dif mer” required) product co mparisons to be used 
in the Final Determination.  This analysis, if one ev er was performed, is also missing from the record.   
 
To the US: 
 
95. Could the United States explain in detail how the issue of dimension was 
addressed in the lead-up to the Preliminar y Determination and from the Preliminary 
Determination to the Final Determination,  including after the DOC found that there 
were no differences in variable costs?  Was DOC’s statement in the Preliminary Determination that dimension has an effect  on price comparability made before DOC 
knew that there was no difference in variable costs?  Indicate what made DOC change 
its position with respect to the effect of dimension on price comparability between the 
Preliminary Determination and the Final Determination. 
 
40. The United States has focussed its response to Canada’s Article  2.4 claim on the fact that 
Commerce did not have information on variable co st differences among different sizes of lumber 
products.  In so doing, the United States attempted to distract the Panel from two critical facts.   
 
41. First, as discussed above, the fact that there were no variable cost di fferences among different 
sizes of lumber was simply a necessary consequence of Commerce’s decision not to take dimension into account in allocating costs based on value.   
42. Second, and more fundamentally, as noted a bove, the Article 2.4 obligation to give due 
allowance is not contingent on the existence of diffe rences in variable cost of production.  As long as 
dimension affects price comparability – an issue th at was not in dispute until this proceeding – due 
allowance must be made for dimensional differences  when prices of different dimension products are 
compared.  The obligation to make such an adjustment is separate from the issue of how the 
allowance is calculated.  Variable cost differences are one way of calculating the allowance, but there  WT/DS264/R 
 Page B-11 
 
 
are other ways to do so.  For example, when diffe rences in variable costs are not available, US law 
provides for calculating the required due allowa nce by using differences in market value.23  None of 
the US arguments on the lack of variable cost diffe rences is relevant to th e issue before the Panel 
concerning the obligations imposed by Article 2.4, and none of the arguments contradicts 
Commerce’s earlier finding that dimension affects price.   
 
96. At what stage were the respondents informed of DOC’s finding that differences 
in dimension do not affect price comparab ility?  What opportunities were provided to 
respondents to comment on that finding? 
 43. The Canadian respondents were not informed of Commerce’s decision not to make allowance 
for differences in dimension until Commerce’s Fina l Determination, after which comments cannot be 
filed.  Moreover, as the Panel has noted in the preceding question, Commerce found in its Preliminary 
Determination that dimension affected price comp arability and reiterated that finding in its Final 
Determination.
24  Thus, there was no need for respondents to  provide pricing or other analyses on this 
issue following the Preliminary Determination, during the normal briefing period, since Commerce 
and the Applicant had agreed with respondents’ position on this issue.   
 99. With respect to the consistency in pr ice patterns, the Panel has the following 
questions: 
 
 (a) Could DOC explain in detail the methodology it used to carry out its consistency 
test? Illustrate your explanation with an example from the test that was carried out in this case, including any sampling, selection of dates, etc.  Did the US consider using other methodologies?  
 
 (b) Could the US explain in detail how the results of its test were evaluated?  Please 
explain the evaluation leading up to that conclusion. 
 
44. Canada notes that Commerce performed no “cons istency” test on the record, and there is no 
information on the record concerning what methodology would have been used for such a test.  To the extent that the United States provid es such an analysis now, after the fact, Canada requests that it be 
provided with a copy of the computer programme used  to generate that analysis and an opportunity to 
comment.  Canada also suggests that the Panel eval uate whether the analysis the United States offers 
is comprehensive or selective (the Panel has info rmation on the number of non-identical comparisons 
used for each respondent) and when the analysis was prepared.  
45. Canada further notes that a “consistency” of the relationship among prices for products of 
particular dimensions is not relevant to the ques tion of whether dimension affects price comparability.  
Even assuming that, for selective product pairs, the differe nce in price fluctuates, the very fact that the 
prices are different to begin with, establishes that dimension affects price comparability.  Fluctuations 
in relative prices are no different th an fluctuations in absolute pri ces – neither precludes price-to-price 
comparisons or adjustments.   
 
46. The United States makes much of the fact th at for some undisclosed, selected product pairs, 
for undisclosed respondents, it observed that some times one product price was higher and sometimes 
the other product price was higher.  If it were established, for a specific non-identical product comparison used for a specific respondent, that th e relative price difference fluctuated above and 
below zero such that on average it was zero, then  the appropriate adjustment for that specific 
comparison would be zero, as the average difference in  value of the products compared was zero.  But 
this result would be by far the exception rather th an the rule, and could not relieve Commerce from its 
                                                     
 
23 See 19 C.F.R. 351.411(b) (Exhibit CDA-179). 
24 See IDM, Comment 7, at 42-46 (Exhibit CDA-2). WT/DS264/R 
Page B-12  
 
obligation to make an adjustment for non-identi cal product comparisons where differences in the 
home market prices of those products were not on average zero.   
To both parties: 
 
103. Could the parties confirm whether th e percentages mentioned in para. 40 and 
footnote 33 of the US reply to Question 25 of the Panel relate to differences in dimension only? 
 
47. Canada confirms its understanding that the US analysis relates to differences in dimension 
only. 
 
F. ZEROING 
 
To Canada:  
 
104. According to Canada, would zeroing be permissible if the transaction-to-
transaction methodology of Article 2.4.2 is used to calculate the margin of dumping?  If not, what is the legal basis for its position? 
 
48. The term “zeroing” has of course only been u sed in the context of a particular application 
(through “models”) of the first method described in Article 2.4.2, i.e., the comparison of a weighted 
average normal value with a weighted average of prices of all comparable export transactions.  
Regardless, there is no basis in Article 2.4.2’s dir ections with respect to the transaction-to-transaction 
methodology to overcome the clear mandate that Articl e 2.4.2 provides with respect to the average-to-
average methodology.  Article 2.4.2 does not speak in terms of a particular stage of a methodology, it 
speaks in general terms only.  Thus, whatever direc tions are given in Article 2.4.2 apply generally, to 
every stage of a methodology if it requires more th an one stage to be accomplished.  Any ambiguity 
arising in Article 2.4.2 as to the second methodol ogy must be interpreted in the context of 
Article 2.4’s mandate that a “fair comparison sha ll be made between the e xport price and the normal 
value”.    
49. As discussed below in response to Questi on 108, a comparison that involves zeroing cannot 
be “fair” because it unjustifiably gives less weight to some transactions than to others in the 
calculation of an overall dumping margin.  Were the United States correct, the transaction-to-transaction language in Article 2.4.2 would mean an  investigating authority, when calculating an 
overall dumping margin, could ignore relevant trans actions simply because they were not dumped.  
Such a results-orientated approach cannot comport with the text of Article 2.4, nor with the obligation 
under Article 2.1 to calculate a dumping margin for the product under investigation (rather than for 
any portion thereof).  Thus, even with the tran saction-by-transaction methodology all export price 
transactions must be included in the calculation; the dumping margin still must be calculated based on 
an average of all transactions included, and ther e is no basis for excluding or altering the values of 
transactions where the price comparisons revealed no dumping. 
 
50. Ultimately, each method stands on its own.  Even if it were the case that the second methodology in Article 2.4.2 lacked disciplines on its application, that would not justify reading out or ignoring the disciplines applied to the first methodolog y.  It is agreed by both Parties to the current 
proceedings that Canada’s claim concerns the a pplication by the United States of the first method 
described in Article 2.4.2 (weighted average to weighted  average).  It is in the context of the particular 
application by the United States of the first method  described in Article 2.4.2 that Canada’s claim 
with respect to “zeroing” has arisen.  What is permitted or not permitted pursuant to the second 
method described in Article 2.4.2 is not at issue here.   WT/DS264/R 
 Page B-13 
 
 
105. Please comment on paras. 53, 54 and 62 of the US Second Oral Statement. 
 
51. The US argument as advanced in paragraphs 53-54 is based on a false premise:  that Canada 
claims that the meaning of “all” and “comparable” change between the first and final stages of the 
first methodology.  The paragraphs  of Canada’s submission which the United States contests are not 
intended to provide a definition of the terms “all”  and “comparable” in any way other than their 
ordinary meaning.  Rather, the paragraphs describe how those terms must be applied by an 
investigating authority in each of the two stag es of a comparison such as that performed by 
Commerce in this case.  The fact that the standard in Article 2.4.2, prescribed by the words “all” and 
“comparable”, applies in the case of both simple and complex transactions does not mean that the 
meaning of either “all” or “comparable” changes.  To the contrary, the ordinary meaning of these 
words is retained, and only their application chang es.  Canada’s submission demonstrates that both 
“all” and “comparable” can and must be applied during both stages of the comparison, in keeping 
with their ordinary meaning, and have operational significance at both stages.  
52. More generally, the US attack on EC – Bed Linen  is ill-founded as it attacks the Appellate 
Body for failure to discuss the requirements of Article 2.4.2 as they apply to each stage of a 
methodology.  The stage or stages in a methodology are simply way points en route  to calculating a 
proper margin of dumping.  The disciplines imposed  by Article 2.4.2 with respect to the first 
methodology ensure a certain result at the final stag e, based on the rule that must be employed in 
using that methodology, i.e., to use all comparable export transactions.  There was no need for the 
Appellate Body to proceed stage by stage for each me thodology in Article 2.4.2.  It is worth noting, 
however, that the panel decision in EC – Bed Linen  does discuss the stages of the first methodology, 
and reaches the same conclusion as the Appellate Body.  53. Claims made by the United States in paragr aph 62 of its opening statement are addressed in 
Canada’s response to Question 108, below.   
 
106. Please comment on para. 56 of the US Second Oral Statement that: 
 
“[u]nder Canada’s argument, the first basis for establishing dumping margins — the weighted-average-to-weighted-average 
basis — would apply to both stages of the calculation.  However, 
the other two bases for establishing dumping margins plainly apply only to the first stage.  T hus, Canada’s theory leads to an 
interpretation of Article 2.4.2 in which the scope of the obligation differs depending on the basis for establishing dumping margins.  
Yet, the provision itself does not support such differential 
interpretation.” 
54. The US statement assumes what must be prove n:  that Article 2.4.2 concerns only the first 
stage of a comparison, and not all stages, even t hough the language of Article 2.4.2 is general and not 
limited.  The United States seeks to portray it as peculiar that the first methodology should have 
application in both stages of a comparison using th e first methodology, but that is only because it has 
posited that the rules apply only at the first stage.  As noted above, Article 2.4.2 applies generally.  
The differences among the methodologies are differences in detail, not differences in generality of 
application.  The fact that one methodology lacks the specific disciplines of another does not negate 
the existence of those disci plines in the latter.   
 
55. The US interpretation of Article 2.4.2 would s uggest that Article 2.4.2 does not apply at all in 
a case in which there is only a single stage involved in computation of the dumping margin.  Not only would such a reading not comport with the text, it would presume that no discipline is imposed upon investigating authorities in respect of single-stage cal culations.  This is simply not credible, given the 
clear obligations imposed in both Articles 2.4 and 2.4.2. WT/DS264/R 
Page B-14  
 
 56. Canada’s interpretation leaves WTO Member s free to apply the first method (weighted 
average to weighted average) in one stage or multip le stages.  In the case of a two-stage process, the 
wording of Article 2.4.2 has as a consequence that  zeroing is not permitted.  Contrary to what the 
United States has argued, this is not a situation in which Canada argues that treaty terms take on a 
different meaning at different stages of the calcula tion of the dumping margin.  Rather, the Panel is 
dealing with a general description of one methodology that is provided for in Article 2.4.2 to establish 
the margin of dumping and the question of what th e legal consequences are of that legal provision 
when a WTO Member decides to apply that met hodology through two stages (separate models and 
subsequent aggregation).  The Appella te Body has already pronounced, in EC – Bed Linen , that in 
such a two-stage process, a WTO Member is not pe rmitted to apply zeroing.  Canada urges the Panel 
to follow the Appellate Body's interpretation.  
107. Please comment on the US statement that the AD Agreement  does not recognise a 
concept of “negative” dumping.  
 
57. Canada would agree that the Anti-Dumping Agreement  does not refer  to “negative” margins 
of dumping.  However, the US claim that this fact permits Commerce to ignore certain transactions when aggregating intermediate comparisons into  the overall margin is founded on a fundamentally 
flawed premise:  that the Anti-Dumping Agreement  recognizes “margins of dumping” at all at the first 
stage of a dumping calculation.  A “determination of dumping” under Ar ticle 2 is made for a product, 
not for a particular model.  This is clear from the terms of Article 2.1, which states that the 
comparison governed by Article 2 establishes whether “a product  is to be considered as being 
dumped”.
25  Nowhere does the Anti-Dumping Agreement  recognize the concept of intermediate stage 
margins of dumping.  Nor does it permit the artific ial generation of a dumping margin by denying the 
existence of sales at prices above normal value.   Both the panel and the Appellate Body in EC – Bed 
Linen  found that the term “negative” in respect of ma rgins of dumping served simply to illustrate the 
very obligation that the United States attempts to circumvent.  
108. Given that Canada bears the burden of proof of presenting a prima facie case of 
violation: 
 
 (a) Could Canada indicate why it co nsiders the results of a dumping margin 
calculation that includes zeroing to be unfair? 
 
58. A dumping margin calculation that includes zeroing cannot be considered to produce a “fair 
comparison” within the meaning of Article 2.4 becau se it unjustifiably operates to give greater weight 
to transactions included in intermed iate models for which export price is less than normal value, than 
to those for which export price is greater than normal value.  The ordinary meaning of “fair” is “just, 
unbiased, equitable, impartial; legitimate, in accordance with the rules or standards”. 
26  A comparison 
conducted on the basis of zeroing results in unequal treatment of those transactions for which export 
price is deemed to exceed normal value at the inte rmediate stage.  Zeroing gives these transactions 
less weight in the calculation of the overall dumping margin, and thus results in a comparison that is 
biased in favor of those transactions for which export price is less than normal value.  It thus does not 
produce the “equitable, impartial, unbiased” comparis on mandated by Article 2.4.  Also, when certain 
export transactions are disregarded, the figure a rrived at is no longer a “weighted average”. 
 
 (b) Could Canada elaborate on the legal basis for its claim that “zeroing” violates 
the obligation under Article 2.4 to carry out a “fair comparison”, other than the 
mere reference to the obiter dictum of the AB in its EC - Bed Linen report?   
                                                      
25 Emphasis added. 
26 New Shorter Oxford English Dictionary , 3rd Ed. (Oxford:  Clarendon Press, 1993), at 907 (Exhibit 
CDA-180).  WT/DS264/R 
 Page B-15 
 
 
What is the benchmark against which Canada  tests whether a comparison is fair 
or unfair? 
 
59. The legal basis for Canada’s claim that zeroing violates Article 2.4, and the benchmark 
against which the conduct of the investigating author ity must be judged, is the ordinary meaning of 
the terms of Article 2.4, as described above.  A “fair comparison” requires equitable, unbiased 
treatment of all transactions being compared.  Zeroing does not produce a fair comparison because it 
arbitrarily eliminates certain transactions from the calculation, resulting in a margin that does not 
equally reflect all transactions.  The US reading of  Article 2.4 in paragraph 62 of its Second Oral 
Statement as simply setting forth the factors requi ring adjustments to ensure price comparability 
would render inutile the term “fair comparison.”  Give n that Article 2.4 itself deals with subjects other 
than price adjustments – such as which sales should be compared and at what level of trade – the US 
reading of this provision is overly narrow on its face.    60. Article 2.4 sets forth several discrete obligati ons with respect to comparisons of export price 
and normal value: (1) that it be “fair” (in keeping with the ordinary meaning of that term); (2) that it 
be made at the same level of trade and in respect of sales made at as nearly as possible the same time; and (3) that due allowance be made for differenc es which affect price comparability.  The “fair 
comparison” requirement stands alone, and is not de pendent on other statements in that provision.  
Moreover, the “fair comparison” requirement is dir ectly incorporated into Article 2.4.2 by express 
reference in Article 2.4.2’s introductory clause, wh ich states that the provision is “subject to the 
provisions governing fair co mparison in paragraph 4”.
27 
 61. The fair comparison of Article 2.4 is conducte d so as to account for all appropriate factors and 
thereby reflect accurately the relationship between prices and variables that affect prices.  The measure by which authorities gauge dumping is the price differential between export price and normal 
value.  That differential can be calculated in various  ways under Article 2.4.2, but the sole objective of 
the calculation is to establish whether or not dumping has occurred.  Anything that would exaggerate or distort that differential, thereby affecting the fi nal determination by an investigating authority of 
whether or not dumping exists, would by definition be unfair.  
G. ABITIBI 
 
To Canada:  
 
110. Based on information on record, how do es Abitibi allocate financial expenses to 
various products in its normal cost acco unting? Was this methodology “historically 
utilized”? 
 
62. Under generally accepted accounting prin ciples (GAAP) in both Canada and the 
United States, for financial and t hus cost accounting purposes, financial expenses are regarded to be 
“period” expenses and not “product” expenses.  A pe riod expense is one that must be reported in full 
as belonging to the reporting period at issue, for example,  the fiscal year in the current context.  Thus, 
for financial and cost accounting purposes, Abitibi do es not allocate financial expenses to its products 
on its books and records, and is not permitted to do so.   
 63. Financial expenses are simply reported as an independent line item on the income statement, 
below operating results.  Even though GAAP does not  permit financial expenses to be allocated to 
                                                     
 
27 Indeed, this is in contrast to the provisi on at issue in the recent panel decision in United States – 
Sunset Review of Anti-Dumping Duties on Corrosion-Resistant Carbon Steel Flat Products from Japan , where 
the panel found that the absence of an express reference to 2.4 in Article 11.3 precluded a claim of violation of 
the “fair comparison” requirement in the application of Article 11.3.  (WT /DS244/R, 14 August 2003 (not yet 
adopted), at para. 7.166.) WT/DS264/R 
Page B-16  
 
specific products sold or produced during a period,  Commerce does so in computing its costs of 
production.   64. The rules for financial accounting are driven by  the goal of portraying accurately the financial 
position of the company.  Because financial expenses  such as interest expenses are recurring and not 
dependent upon what is produced or sold in a period,  financial accounting rules generally require that 
they be treated as an expense in the period as incurre d, in effect matched to the revenues of the same 
period for purposes of determining the company’s profitability.   
 65. Significantly, financial accounting does not perm it financial expenses to be reported as a cost 
of sales, because financial accounting recognizes that fi nancial expenses bear no direct relationship to 
cost of sales.   
111. In para. 71 of its Second Oral Statem ent, Canada alleges that DOC “allocated 
twice the interest expense actually incurr ed by relying on an unreasonable and 
unsupportable methodology”.  Could Canada please elaborate? 
 
66. Canada’s statement was based on the differe nce for Abitibi between the amount of interest 
expense allocated to lumber employing Abitibi’ s total asset-based methodology and the amount 
allocated to lumber by Commerce employing its cost-of-goods-sold (COGS) methodology.  Exhibit CDA-91 compares Commerce’s calculation to  Abitibi’s calculation for interest expense. 
 
67. Under Commerce’s methodology, 13.6% of Ab itibi’s total financial expenses were allocated 
to lumber compared to the 7.6% that woul d be allocated under the asset-based allocation 
methodology.  This means that almost twice the e xpense was attributed to lumber by Commerce than 
actually incurred, as demonstrated in Abitibi’s calculation based on the financial requirements of its 
different product lines.
28   
 
112. In paras. 76-79 of its Second Oral Statement, Canada makes a number of 
allegations in support of its statement in para. 75 that DOC’s “methodology is unreasonable because it considers the first on ly in part and does not consider the second 
at all.”  Please explain in detail why Cana da would regard the asset-based methodology 
as being the only methodology that should be applied. 
 
68. At paragraph 75 of Canada’s Second Oral Statement, Canada notes that the COGS allocation 
methodology only considers “the amount of money need ed to produce and sell a product” in part and 
does not consider “the amount of time for which that money is needed” at all.  Therefore, it could not 
accurately or adequately capture the amount of Abi tibi’s total financial expenses associated with the 
production and sale of softwood lumber as opposed to Abitibi’s other products. 
 69. As financial and cost acc ounting do not address how financial expense should be allocated to 
products, it is useful to return to basic principles to understand what financia l expenses relate to.  For 
example, suppose a person wanted to start a comp any to produce lumber and newsprint.  Investors 
provide some capital, and the remaining money needed  for this company is borrowed.  Capital outlays 
would come first.  For lumber, the company would need to buy land, construct a sawmill, and install 
all the necessary equipment and infrastructure.  Fo r newsprint, the company would need to buy land, 
construct a paper mill, and install all the necessary equipment.  The funds needed for each of the two 
distinct product lines are directly proportional to the relative assets employed for each distinct 
business segment.  Because money is fungible, the debt is  not regarded to be tied to particular assets, 
but instead is regarded as relating to all assets equally.  The financial expenses resulting from that 
debt thus are directly proportionate to asset values , not depreciation expenses, and not cost of sales.  
                                                     
 
28 See Canada’s Second Written Su bmission, at paras. 195-196.  WT/DS264/R 
 Page B-17 
 
 
Therefore, only the asset-based methodology reflects the financial expenses “associated with” or 
“pertaining to” each product line.  70. Next, operations begin.  Raw materials for production are purchased, workers are hired, and 
energy and other expenses are incurred, as products are produced and sold.  But the amount of funds 
required for such ongoing operations are not proportionate to the total current expenses for any given 
period of time. As lumber and newsprint are sold, customers pay for it.  Thus, the funds needed for 
each of the two product lines depend on the expenses “ outstanding” at any given point in time.  As 
illustrated and explained in the flowchart provided in response to Question 115 below, these amounts 
consist of the actual expenses incurred for the raw ma terial inventory that must be maintained, the 
actual expenses incurred for the work-in-process and fi nished good inventory that must be maintained 
to fill orders, and the value of the accounts receiva bles outstanding for sales of each product.  These 
asset values alone reflect the cash needed to operate the two product lines on an ongoing basis.  
Again, the amount of money needed to establish a nd operate the two business se gments – and thus the 
financing expenses incurred – is pr oportionate to asset values.  In no way are financing expenses 
incurred in proportion to cost of sales.  Again, only the asset-based methodology reflects the financial 
expenses “associated with” or “p ertaining to” each product line. 
 71. Canada’s argument here is based on how co mpanies actually utilize money.  The US’ COGS 
methodology is not based on financial or cost acc ounting, and is not based on how companies utilize 
money.  Indeed, the United States has not articulated any principled basis at all for allocating interest 
expenses in proportion to cost of goods sold. 
 72. In short, in light of Abitibi’s factual circ umstances – the fact that it produces multiple, varied 
product lines, which lines have dramatically different  asset requirements, and that its total asset needs 
far outstrip its annual cost of sales – the asset-based methodology is the only methodology that 
reasonably reflects how Abitibi actually utilizes its capital and money.  Only the asset methodology 
fully considers:   
 •  the complete range of activities for which companies expend funds,  
 
 •  the amount of funds required for such activities, and  
 
 •  the amount of time such funds are required.   
 73. Because the amount of a company’s interest expense is a function of all three of these 
elements, any methodology that fails to consider  all such elements may not, depending on the 
particular circumstances, properly reflect the amount of interest expense “associated with” or 
“pertaining to” the production and sale of subject  merchandise as required by Articles 2.2.1.1 and 
2.2.2. of the Anti-Dumping Agreement.  
 74. In light of the factual evidence submitted by  Abitibi to Commerce, the Panel is not presented 
with a choice between two “reasonable” allocation methodologies.
29  The COGS methodology, as 
applied to Abitibi, was unreasonable because it failed to meet the requirements of Articles 2.2.1.1 and 
2.2.2, in multiple, independent respects that Canada has discussed in its prior submissions.30  W e  
highlight two examples here.   
                                                     
 
29 Canada’s First Written Submission, at paras. 191-196; Canada’s First Responses to Questions, 
Annex 1, Abitibi Response; Canada’s Second  Written Submission, at paras. 193-198. 
30 Canada’s First Written Submission, at paras. 190-1 99; Canada’s First Oral Statement, at paras. 80-
85; Canada’s Second Written Submission, at paras. 200-208; Canada’s First Responses to Questions, at 
paras. 130-138; Canada’s Second Oral Statement, at paras. 74-78. WT/DS264/R 
Page B-18  
 
75. First, the plain language of both Articles 2. 2.1.1 and 2.2.2 requires use of an allocation 
methodology that considers expen ses associated not only with the production  but also with the sale of 
the product under investigation.  Commerce’s COGS methodology, however, considers only 
production expenses (and even then, only current expenses without regard to the value of assets 
required for such production).  Yet, because Ab itibi is not paid immediately upon making a sale, 
Abitibi necessarily finances sales  to its customers by the extension of credit until the customer pays.    
 76. The record evidence showed th at this was an important consideration in regard to Abitibi’s 
financing needs.  Abitibi demonstrat ed to Commerce that it offered far more generous credit terms to 
its newsprint, pulp and paper customers than to its lumber customers, and that its lumber customers 
paid much more quickly.
31  The shorter time period for payment meant lumber sales generated less 
financing needs.  Commerce’s COGS methodology u tterly ignores the different financing expenses 
associated with the  sale  of lumber as opposed to pulp, paper, and newsprint, in violation of the plain 
language of Articles 2.2.1.1 and 2.2.2.  The asset-based methodol ogy, on the other hand, fully 
captures the different financial expenses associated with the  sale of different products, because the 
value of accounts receivable for different products re flects differences in credit provided for different 
products, and accounts receivable are an asset incl uded in the asset-based allocation.  Commerce’s 
methodology ignores the financing costs of accounts receivable entirely.  77. Second, and relatedly, is the distortion refere nced in the question itself.  The United States 
conceded in its First Written Submission that fina ncial expense related both to cash outlays needed to 
acquire assets and to cash outlays needed to fund  current expenses.  But COGS only considers the 
latter – and considers even that incorrectly, as it si mply totals the expenses without examining the 
actual amounts required to support such recurring expe nses that are outstanding only until payment is 
received for the merchandise sold.  Abitibi’s evidence showed that in its case, the first use – assets – 
was far more significant than the second – current e xpenses – and, more importantly, that the relative 
asset needs of its different product lines differed drama tically.  Therefore, assets could not simply be 
ignored.
 32 
 78. During the period of investigation that Co mmerce examined, Abitibi had $11 billion in assets 
but only $4 billion in COGS.  Yet, after acknowle dging that Commerce had to consider both assets 
and current expenses, the United States is le ft to defend Commerce’s COGS methodology which 
                                                     
 
31 See Canada’s First Written Submission, at para. 195; Canada’s First Responses to Questions, 
Annex 1, Abitibi Response; Canada’s Second Written Submission, at paras. 205-206; Abitibi’s 23 July 2001, 
Section D Response, at D-45 (Exhibit CDA-83 - Contains Business Confidential Information). 
32 In Final Determination of Sales at Less than  Fair Value: Dynamic Random Access Memory 
Semiconductors of one Megabit and Above from the Republic of Korea,  Commerce’s provides reasons for 
applying, in that case, an interest allocation in proportion to the fixed a sset requirements of different product 
lines.  These reasons are equally applicable here: 
 The Department generally accepts interest  expense allocated by the cost of sales 
because that methodology often approximates the interest expens e related to the production of 
the investigated merchandise.  However, the Department has used other allocation 
methodologies when the facts of particular cases have required a change.  After reviewing the 
facts in this case, we have found that for Samsung and Hyundai, a larger proportion of total fixed assets are related to the semiconductor line of business than to other lines of business.  
While the Department acknowledges that not all assets are financed through borrowings, it 
also recognizes that funds obtained from debt  and equity are fungible and that the method 
used to finance the purchase of an asset is not relevant to the appropriate allocation basis.  For 
these companies, because of this disproportional amount of fixed assets related to 
semiconductors, allocation of interest expense based on cost of sales would not appropriately 
recognize the expense related to the capital investment necessary for semiconductors 
compared to the other lines of business.  Thus , the Department reallocated interest expense on 
the basis of proportional fixed assets to account for these facts.  
58 Fed. Reg. 15,467 (Dep’t of Commerce 23 March 1993), at 15,471-15,472 
[hereinafter DRAMS from Korea]  (Exhibit CDA-145).   WT/DS264/R 
 Page B-19 
 
 
considers only the less significant current expen ses and ignores the more significant $11 billion in 
assets.  Absent some explanation of why it was necessary or appropriate to ignore $11 billion in 
assets, it cannot be reasonable both to acknowledge th at assets are financed and then ignore asset 
values in allocating financial expenses.   
79. Moreover, the US argument that deprecia tion expense accounts for the differences in 
financing requirements generated by the different asset needs of different products, is completely 
incorrect.  As Canada has demonstrated, when Abitibi purchases an asset it must pay for and finance 
the full value of that asset, not just its depreciation expense.
33  This means that by valuing financing 
requirements at the amount of a products’ depreci ation expense, the COGS methodology fails to 
consider the full amount that a company must finance to acquire an asset.  Indeed, the distribution of 
Abitibi’s depreciation expenses, by pr oduct line, is not even proporti onate to the distribution of its 
asset values, by product line.34  In no way can depreciation expenses serve even as a surrogate for 
asset values.  To the US:  
114. Please comment on Canada’s Second Oral Statement, para. 72 which states that: 
 
“Commerce: asserted in the Final Determination that it used 
COGS, not because it was the proper methodology for Abitibi’s 
facts, but because it was Comm erce’s “established practice” and 
was “consistent and predictable”.” 
80. Canada notes that the Fina l Determination contains no refe rence to any of the factual 
evidence submitted by Abitibi concerning the proper  allocation of financial expenses, and that 
Commerce made no factual findings at all based on such evidence.
35 
 
To both parties:  
 
115. The Panel understands Canada to ar gue in para. 80 of its Second Oral 
Statement that an asset-based methodology can capture the flow elements through inventory.  Please comment. 
 
81. The Panel is correct in its understanding.  82. Throughout this proceeding, the United States ha s presented the Panel with a false argument:  
that assets are but one type of “activity” or “inv estment,” and that Abitibi’s asset-based methodology 
is flawed because it is a “limited basis,” that fails  to consider other, unidentified investments or 
activities and thus does not reflect Abitibi’s “overall borrowing needs.”
36  On the other hand, the 
United States has characterized Commerce’s COGS methodology as “covering a wide range of 
costs,”37 implying that it somehow is a broader basi s than assets thereby justifying the COGS 
methodology.    
                                                     
 
33 Canada’s First Responses to Questions, at para s. 130-138, Annex 1 - Abitibi Response; Canada’s 
Second Written Submission, at paras. 201-206. 
34 See Canada’s Second Written Submission, at para. 195 (table showing lumber business segment 
required 7.6 per cent of Abitibi’s total, company-wide as sets but accounted for 10.6 per cent of company-wide 
depreciation expenses). 
35 IDM, Comment 15 (Exhibit CDA-2). 
36 See US Second Oral Statement, at para. 67; US Second Written Submission, at para. 74; US First 
Responses to Questions, at para. 61.  
37 US Second Written Submission, at para. 74. WT/DS264/R 
Page B-20  
 
83. Exhibit CDA-176 and paragraph 80 of Cana da’ Second Oral Statement demonstrate the 
falsity of that argument by showing (1) that “assets” is  not simply one activity or type of investment, 
but rather comprehensively reflects all activities a nd expenditures in which a company engages, and 
(2) as an illustration, that every single type of expense included in COGS also is included in the asset-
based methodology .  Thus, applying the United States’ own suggestion that limited allocation bases 
for financial expenses should be rejected in fa vour of broadly based allocations, the COGS 
methodology fails.  84. Exhibit CDA-181 explains further how every single item of expense in COGS is captured 
using an asset-based allocation.
38  This is a flowchart showing how all current production expenses 
flow through and thus are captured in asset values, at the same value as th ey are in COGS, for the 
precise amount of time in which the expense is outstanding and thus is financed, i.e., before the 
lumber, newsprint, pulp, or paper that is sold is paid for by the customer.  The flowchart uses lumber 
production as an illustration; similar charts could be  created for Abitibi’s other products showing their 
raw material inputs and production processes also flowing into asset values. 
 
85. At the bottom of the chart, are listed a ll ongoing production expenses that are included in 
COGS and thus in Commerce’s COGS allocation.  The flowchart reflects the accrual accounting for 
lumber production and sale.  
 •  The first step in the production process is the acquisition of raw materials – in the 
case of lumber, logs.  As Abitibi harvests or purchases logs, and transports them to its 
sawmill, all of the actual expenses incurred – including labour, stumpage, fuel, and 
depreciation on logging equipment – are cu mulated and booked to an asset account 
for raw materials/log inventory.  They ar e NOT treated as an expense when incurred; 
as explained below, an expense is rec ognized only after the logs are used in 
production and the final product has been sold.   As long as the logs remain in 
inventory, their cost remains in the value of raw materials/logs inventory.  
 
 •  As logs are brought into the sawmill for manufacturing into lumber, the costs for 
those logs are subtracted from the raw materials inventory asset account, and other expenses are incurred for all the processing operations necessary to manufacture 
finished lumber.  All of these additional expenses – for labour, plant and machinery 
depreciation, energy, overhead, etc. – are cumulated, added to the log costs, and booked to another asset account – finished goo ds inventory/lumber.  Again, none of 
these costs are treated as an expense at the ti me they are actually incurred.  Again, all 
of the actual costs remain in the valu e of finished goods inventory.   
 
 •  When the lumber is sold, all of its costs of production, which have been held in the 
finished goods/lumber asset account, are tr ansferred in Abitibi’s records from that 
asset account to cost of goods sold, and recogni zed as an expense at that time.  It is 
only at this time that all of these costs – which required cash at the time they were 
generated – are treated as an expense.  The sales price of the lumber is recognized as 
revenue at the same time, and the differen ce between the sales value and the cost of 
goods sold is the operating profit. 
 
 •  Importantly, the amount of the expens e booked to cost of goods sold is exactly the 
same  as the cost captured in finished goods inventory.  That is, the COGS method and 
the asset-based method are using the same ongoing production costs. 
 
                                                      
38 Flowchart Showing How All Expenses Flowing to COGS Also Flow to Assets at Equal Value, 
(Exhibit CDA-181).  WT/DS264/R 
 Page B-21 
 
 
 •  Also at the time of sale, the sale price of the lumber  is booked to another asset 
account, the purchasing customer’s accounts receivable for lumber.  When Abitibi 
receives payment from the customer, the accounts receivable asset account is reduced by the amount of the payment, and the cash  account is increased by the amount that 
Abitibi has received.   
 
86. Thus, every single expense considered by Co mmerce in its COGS methodology is considered, 
at the same value, in the asset-based methodology.   
 87. In addition, the asset-based methodology – which the United States argues is less 
comprehensive than the COGS methodology – considers additional assets that Commerce’s 
methodology considers either fractionally or not at al l.  These are all the asset  categories identified in 
the top row of the flowchart.  The flowchart thus demonstrates that the asset methodology, and not the 
COGS methodology, is comprehensive, and that  the COGS methodology unjustifiably fails to 
consider entire categories of cash expenditures to which financial expenses need to be allocated.  
These are identified not only on the flowchart but also in Exhibit CDA-176. 
 88. Finally, as the above explanation makes clear, the US argument that COGS reflects all of the 
ongoing production expenses incurred during the year, simply is not true.  COGS does not reflect the current expenses, or even expenses for products prod uced in the period.  COGS instead reflects only 
the production expenses for products  sold in the period.  This creates yet another distortion, since 
Commerce’s cost of production calculation is for products produced during the period. 
 
116. Please indicate the advantages/disadvantages in this context, of the two 
approaches (COGS; asset-based) fo r allocating interest expenses. 
 89. The fact that Commerce did not even purport to answer this question in its Final 
Determination establishes Canada’s claim that Comm erce failed to consider all available evidence on 
the proper allocation of Abitibi’s interest expense, c ontrary to Article 2.2.1.1.  Canada submits that 
Commerce could not have “consider[ed] all availa ble evidence on the proper allocation of costs” 
without assessing the advantages and disadvantag es of the COGS and asset-based allocation 
methodologies in light of that evidence.  Ind eed, Commerce in its Final Determination nowhere 
identified any specific disadvantages of the asset-based methodology.
39  The only “advantage” it 
identified for the COGS methodology was that it was “consistent and predictable.”   90. The starting point for answering this question mu st be to define a refe rence standard, or the 
objective of the interest expense allocati on.  An allocation methodology cannot possess 
advantages/disadvantages, or be considered  to be “reasonable”, in the abstract. 
 91. Canada has suggested several such reference standards.  It has contended that a financial 
expense allocation methodology can be reasonable onl y if it achieves the objectives of Articles 2.2.1.1 
and 2.2.2; that is, that it results in an allocation of  interest expense to lumber that reasonably reflects 
the financial expenses with the production and sale of lumber.  Relatedly, Canada has suggested as a 
reference whether or not the allocation methodolog y reflects the basis on which the expense to be 
allocated is incurred.  For financial expenses, that  basis would include consideration of (1) the full 
amount of the expenditure regarded as having been fi nanced, and (2) the period of time for which it 
must be financed.    
92. Tellingly, the United States, in contrast, o ffers the Panel no coherent reference standard, 
contending in its Second Written Submission on ly that Commerce’s COGS methodology is 
reasonable because it “allocated interest costs across a wide range of costs.”
40  There is no explanation 
                                                      
39 IDM, Comment 15 (Exhibit CDA-2). 
40 US Second Written Submission, at para. 74. WT/DS264/R 
Page B-22  
 
as to why that should be the standard, nor is there even an argument that the COGS methodology uses 
the widest range of costs possible.  93. In light of the reference standards suggest ed above, Canada offers the following list of 
advantages and disadvantages based on its earlier submissions: 
 
 
 ADVANTAGES DISADVANTAGES 
ASSET-
BASED 1. comprehensively considers all categories of 
company-wide expenditures, including all expenses 
included in COGS, and numerous expenditures not 
included in COGS   
2. considers financial expenses associated both 
with the production  and sale of the product under 
consideration 
 
3. fully values all assets  
4. considers time period for which expenditure is 
outstanding, consistent with how financing expenses are incurred 
 
5. consistent with basis on which financial expenses are incurred  
 
6. broadest allocation basis possible 
 
7. accurately reflects the relative borrowing needs for different product lines, and thus results in an 
allocation to lumber of the financial expenses 
associated with and pertaining to the production and sale of lumber  1. can be used only for 
companies such as Abitibi that 
segregate assets by business line  
COGS 1. very simple to apply, and can be applied in 
every case because all financial statements state cost of 
good sold      1. considers current production 
expenses only 
 2. fails to consider financial 
expenses associates with the sale of 
the product under consideration   
3. ignores entirely, for no 
stated reason, non-depreciable assets, like accounts receivable, land, 
investments in other companies, and, 
also with no stated justification, considers depreciable assets 
fractionally, at their depreciation 
expense rather than the full value that 
must be financed 
 4. fails to take into account the 
time period for which the expenditure 
is outstanding, and thus overstates financing requirements of current 
production expenses for products sold 
and paid for  
  WT/DS264/R 
 Page B-23 
 
 
 ADVANTAGES DISADVANTAGES 
5. results in a cost mismatch, in 
that an allocation based on products sold during the period is applied to 
the costs of products produced  during 
the period   
6. bears no rational 
relationship to the basis on which financial expenses are incurred, and 
thus cannot determine the financial 
expenses associated with the production and sale of the product 
under consideration 
 
 
94. Canada also wishes to address two supposed disadvantages to the asset-based approach that 
have been suggested during the course of this pro ceeding, neither of which are correct.  First, the 
United States has suggested that the asset-based methodology is inappropriate because it looks at 
values at one time only.  This is an ex post facto  argument not suggested by Commerce anywhere in 
its Final Determination.  Indeed, if Commerce had act ually raised this issue during the investigation, 
Abitibi could have provided quarterly or monthly data from which Commerce could have computed 
average asset values for the period of investigation.41  
 95. More importantly, the proportion of Abitibi’ s company-wide total assets devoted to Abitibi’s 
different product lines does not change significantly ov er time.  This can be confirmed with reference 
to data on the record before Commerce.  For exam ple, as we have noted, Abitibi’s audited financial 
statement for 2000 evidences that  Abitibi’s lumber production and sales utilized 7.6 per cent of 
company-wide total assets.
42  Abitibi also submitted to Commerce it s financial statement for the First 
Quarter of 2001, which shows that lumber production and sales accounted for 7.4 per cent of company-wide total assets as of 30 April 2001 – the close of Commerce’s period of investigation.
43  
Thus, the US argument regarding “snapshots” is faulty.44  Whether annual financial statements are 
used, or quarterly statements from the entire peri od of review are averaged, the results are not 
materially different – and are far from the 13.6 per cent COGS-based share of financial expense 
allocated by Commerce.45   
                                                      
41 If Abitibi had done so itself, then the United States no doubt would now be arguing against such an 
approach (incorrectly, in Canada’s  view) because Abitibi’s published quart erly financial statements, and its 
internal financial statements, are unaudited. 
42 Abitibi Section A Questionnaire Response (22 June 2001), at 252 (Exhibit CDA-82).  See also 
Canada’s Second Written Submission, at para. 195.  
43 Abitibi’s First Quarter Report, 2001, at 7, submitted to Commerce as Abitibi Section A 
Questionnaire Response (22 June 2001), Annex 12, at 302 (Exhibit CDA-182).   
44 US First Written Submission, at footnotes 220 and 223. 
45 Moreover, Abitibi’s suggested approach was consiste nt with the approach Commerce itself has used 
previously.  In DRAMS from Korea  – the one case in which Commerce used  an asset allocation methodology for 
financial expenses – Commerce calculated the percentage of assets devoted to the subject merchandise by 
averaging asset distributions measured on two days.  Commerce looked to the company’s audited financial 
statement alone and averaged the asset distribution on the close of that fiscal year and the close of the prior 
fiscal year.  DRAMS from Korea  (Exhibit CDA-145).  Abitibi could not reasonably average its 
31 December 2000 and 31 December 1999 data as th e United States had suggested in its First Written 
Submission at footnote 223, however, because the 1999 data bore no relationship to the company that existed during the 1 April 2000 to 31 March 2001 period of investigation.  In April 2000, Abitibi acquired a larger 
company, Donohue Inc., thereby almost tripling its a ssets.  Commerce included both Abitibi and Donohue costs 
for the entire period of investigation, and therefore 1999  data were unrepresentative of the merged company for WT/DS264/R 
Page B-24  
 
 96. Second, during the Second Substantive Mee ting, the Chairman queried whether the asset-
based methodology might be flawed because an asset  could be fully depreciated yet still be incurring 
a financing expense.  As an initial matter, Canada not es that this is not an issue that distinguishes the 
two allocation approaches.  Under either methodology,  no financial expense would be allocated to the 
business line utilizing that asset because the asset had no value (asset-based approach) and, because it 
had been fully depreciated, it would have no de preciation expense (COGS approach).  More 
importantly, however, the scenario posed rests upon a faulty premise.  Both Canada and the United States agree that money and debt are fungibl e.  As a consequence, both Parties agree that 
financial expenses should not be tied directly to specific assets or activities, but instead must be 
allocated to the company’s assets and activities as a whole.  Moreover, nothing in Abitibi’s financial 
statements or elsewhere on the record indicates th at any of its debt is tied to specific assets. 
 97. In sum, although COGS may in some situati ons be acceptable, an asset-based allocation was 
the only reasonable methodology a pplicable in Abitibi’s circumstances.  Abitibi’s different product 
lines had significantly different asset requirement s, significantly different accounts receivable 
turnover, and therefore significantly different financing requirements.  In these circumstances, the COGS-methodology did not result in an allocation of financial expenses that reasonably reflected the 
cost of production and sale of softwood lumber.   
H. TEMBEC (G&A) 
 
To Canada: 
 
117. Based on information on record, how di d Tembec allocate G&A expenses to the 
Forest Products Group? Was this methodology  “historically utilized”?  Please point to 
relevant documents submitted to the Panel or provide them. 
 
98. Except for the cost category “administration fee – Head Office,” all expenses falling within 
each of the cost categories comprising the Forest Products Group general a nd administrative expense 
(G&A) amount were, in fact, incurred at the divisional level.
46  For example, there is a human 
resources department within the Group whose salaries relate solely to the Forest Products Group and 
comprise a part of the G&A for the Group.   
 99. The cost category “administra tion fee – Head Office” represents the Forest Products Group’s 
share of head office G&A, wh ich in Tembec’s normal books and records is allocated among its 
business segments according to the sales revenues of each business segment.  This cost category 
represents a relatively small proportion of the tota l G&A of the Forest Products Group.  Thus, G&A 
expenses are recorded for the Forest Products  Group as part of Tembec’s normal accounting 
procedures and there was no need to “allocate G& A expenses to the Forest Products Group” for 
purposes of the anti-dumping investigation.   100. The methodology Tembec used to report its G&A expenses for the Forest Products Group is 
the methodology that it uses in its normal books an d records consistent with the accounting practice 
that Tembec has followed for many years.  The acco unting policies used in the business units are the 
same as those described in the su mmary of significant accounting policies for the entire company in 
Tembec’s Annual Reports.
47  Tembec’s Annual Report from 1994 describes the same accounting 
                                                                                                                                                                     
which Commerce was computing costs of production.   See Abitibi Section A Questionnaire Response 
(22 June 2001), at 252 (Exhibit CDA-82). 
46 The following cost categories comprise the submitted G&A costs: [[  
                          ]].  Tembec’s S ection D Questionnaire Response (23 July 2001), at D-28-29 (Exhibit 
CDA-183 – Contains Business Confidential Information). 
47 Tembec Section A Questionnaire Response (22 June 2001), Exhibit A-15, at 44 (Exhibit CDA-94).    WT/DS264/R 
 Page B-25 
 
 
methodology for business segments as the one described in Tembec’s Annual Report from 2000.48  
Tembec has followed this same approach for more than ten years.  Through the years, Tembec’s 
internal accounting methodology has been consiste nt and reliable in calculating G&A expenses 
specific for each of its five business units.  
101. Tembec provided detailed information to Co mmerce on the makeup of its Forest Products 
Group G&A in its first questionnaire response.
49  The financial statements of the Forest Products 
Group did contain complete G&A information, whic h Tembec provided to Commerce, including its 
fully allocated share of the h ead office G&A.  Commerce officials, during verification, traced 
Tembec’s G&A calculation to Tembec’s Annual Report for 2000 as well as Tembec’s detailed 
statement of costs through the company’s consolidation software ( i.e., Hyperion).50  
 
118. Please comment on para. 70 of the US Second Oral Statement: 
 
“unlike audited financial statements, internal, division-specific 
records are not intended as objective measures of a company’s 
performance.  Instead, the function of division-specific records is to “enable financial statement users to see the business through 
the eyes of the management.”” 
102. It is not obvious what distinction the United States is attempting to make in the above-quoted 
paragraph.  Canada assumes the distinction is between audited accounting records and separate non-
audited reports that management frequently creat es for managerial as opposed to financial accounting 
purposes.    103. This distinction is not relevant to the G&A i ssue currently before the Panel.  The statements 
from which Tembec derived its Fo rest Products Group G&A data are not managerial reports.  They 
are part of Tembec’s financial a ccounting records.  As noted on pa ge 44 of Tembec’s Annual Report, 
the same accounting policies were used in prepari ng the Forest Products Group’s statements as were 
used in preparing the consolidated company-wide financial statements.
51  The Forest Products 
Group’s accounting records tie directly into the cons olidated company-wide financial statements and 
were reviewed by Tembec’s auditors as part of th e audit of the consolidated financial statements.52  
As such they are an objective measure of  the Forest Products Group’s performance. 
 
104. Commerce has relied upon these data in ev ery other calculation methodology and Commerce 
officials personally verified their accuracy at Tembec.  There is nothing in Article 2.2.1.1 or 2.2.2 that 
expresses a requirement or preference for audited records or consolidated statements.  Further, 
nowhere in the Final Determination does Commerce state that its decision to reject the Forest 
Products Group data was based on the fact that the segmented statements were not audited or that 
                                                      
48 Tembec Inc. 1994 Annual Report, at 20-22 and 38-39 (Exhibit CDA-184); Tembec Section A 
Questionnaire Response (22 June 2001), Exhibit A-15, at 44 - 45 (Exhibit CDA-94). 
49 Tembec’s Section D Questionnaire Response (23 July 2001), at D-28-29 (Exhibit CDA-183 – 
Contains Business Confidential Information). 
50 Tembec Cost Verification Exhibit 10 (Exhibit CDA-96) contains a consolidation worksheet from 
Hyperion which shows the aggregation of each of the function groups in addition to the aggregation of 
individual entities within the Forest Products Group.  See DOC Verification Report on the Cost of Production 
and Constructed Value Data Submitted by Tembec Inc. (29 January 2002) at 8 (Contains Business Confidential Information) (Exhibit CDA-112).  Tembec Cost Verification Exhibit 20 (Exhibit CDA-95) details the 
calculation of Tembec’s G&A.  The Commerce verifiers made handwritten notes on the exhibit stating the 
values used to derive the G&A expense ratio were trace d to Tembec’s FY 2000 Annu al Report as well as the 
Hyperion Consolidated software.    
51 Tembec Section A Questionnaire Response (22 June 2001), Exhibit A-15, at 44 (Exhibit CDA-94). 
52 Tembec Section A Questionnaire Response (22 June 2001), Exhibit A-15, at 29 (Exhibit CDA-173). WT/DS264/R 
Page B-26  
 
segmented statements are, supposedly, only fo r managerial purposes.  The attempt by the 
United States to do so now is simply an ex post facto rationalization.    
 
To both parties:  
 
121. Was the “internal accounting methodology” referred to in Comment 33, p. 105, of the Memorandum of 21 March 2002 an allocation methodology “historically utilized by the exporter”?  Please refer to the record. 
 
105. What Commerce referred to as Tembec’s “internal accounting methodology” is the 
accounting methodology that Tembec has used histori cally.  Tembec has calcul ated its G&A expenses 
consistent with that methodology for at least the past  10 years.  Canada refers the Panel to Canada’s 
answer to Question 117 for a more detailed descri ption of Tembec’s historical utilization of its 
accounting methodology.  I. WEYERHAEUSER 
 
To Canada: 
 
122. On page 51 of the year 2000 annual report of Weyerhaeuser Company, it is 
stated under the heading “Contingencies” that “[t]he company is a party to legal 
proceedings and environmental matters genera lly incidental to its business. (…) (See 
Note 14 of Notes to Financial Statements)”.  On page 53 of that document, note 14 appears immediately after the words “Charg es for settlement of hardboard siding 
claims”. On page 74 of the same document, the title reads “Note 14. Legal proceedings, commitments and contingencies”.  A statement to the same effect as that contained on 
the above-cited page 51 appears on page 74 of Weyerhaeuser’s annual report.  Bearing 
this in mind, does not note 14 – and the comments contained therein – refer to all
 legal 
proceedings in which Weyerhaeuser Compan y was involved during year 2000? Does the 
amount of USD130 million reported on page 53, after the words “Charges for settlement 
of hardboard siding claims”, include the charge for settlement of hardboard siding 
claims only? Or, does it also include char ges for legal proceedings, commitments and 
contingencies detailed in note 14? 
 
106. As the Panel has noted, Note 14 on page 74 of  Weyerhaeuser’s financial statement refers to 
all legal proceedings in which Weyerh aeuser Company was involved during 2000.53  In discussing the 
hardboard siding expense, the Note  states specifically that the hardboard siding expense amounted to 
an $82 million after-tax charge.  As stated on page  51 of Weyerhaeuser’s financial statement, the $82 
million after-tax charge is equivale nt to a $130 million pre-tax charge.54  The $130 million figure 
traces directly to page 53 of Weyerhaeuser’s cons olidated statement of earnings, which includes a 
$130 million charge related solely to the estimated co st of the hardboard siding settlement and related 
costs;55 the $130 million figure does not include charges for any other legal proceedings, 
commitments or contingencies. 
 
107. The relationship between the $130 million charge and the hardboard siding settlement 
expense is unambiguous.  Commerce never expresse d any doubt that the $130 million charge related 
to the hardboard siding charge alone.   
                                                      
53 Weyerhaeuser Section A Questionnaire Response (25 June 2002), Exhibit A-15 (Audited Financials), 
at 74 (Exhibit CDA-101). 
54 Weyerhaeuser Section A Questionnaire Response (25 June 2002), Exhibit A-15 (Audited Financials), 
at 51 (Exhibit CDA-166). 
55 Weyerhaeuser Section A Questionnaire Response (25 June 2002), Exhibit A-15 (Audited Financials), 
at 53 (Exhibit CDA-101).  WT/DS264/R 
 Page B-27 
 
 
 108. The United States in its Second Oral Statem ent expressly stated that Commerce, as a matter 
of practice, does not allocate any parent company G& A to a subsidiary where the parent performs no 
functions on behalf of the subsidiary.
56  In other words, the allocation of parent G&A to the subsidiary 
is not automatic, but rather depends on the extent to  which the G&A relates to activities of the parent 
performed on behalf of the subsidiary.  Ind eed, Commerce at Comment 48(a) of its Issues and 
Decisions Memorandum – in respect of certain Weye rhaeuser US G&A expenses related to real estate 
– stated that it was proper to allocate only those headquarters G&A incurred on behalf of its subsidiaries.
57   
 
109. The hardboard siding expense was not a ge neral expense for Weyerhaeuser Canada and was 
not an expense incurred by Weyerhaeuser US on beha lf of Weyerhaeuser Canada.  The expense does 
not even relate to softwood lumber.  Yet despite this Commerce included the hardboard expense as a 
cost attributable to softwood lumber production.  Commerce’s inclusion of a charge related to 
hardboard siding – a non-like product that was outsi de the scope of its investigation – in its G&A 
expense calculation clearly violated Articles 2.2.1.1 and 2.2.2 of the Anti-Dumping Agreement . 
 
J. TEMBEC (BY-PRODUCT REVENUE) 
 
To the US: 
 
129. Canada draws an analogy between the pr esent case and the finding in para. 148 
of the AB in US - Hot-Rolled Steel  that “discretion must be exercised in an even-handed   
way that is fair to all parties affected by an anti-dumping investigation.”  Please 
comment. 
 110. In United States – Hot Rolled Steel , the Appellate Body considered Commerce’s test for 
reviewing affiliated transactions for purposes of calculating Normal Value.
58  It concluded that the 
discretion afforded to investigating authorities must be exercised in an even-handed manner.  It found 
that Commerce’s test was not even-handed because it “operated systematically to raise normal value, 
through the automatic exclusion of marginally low- priced sales, coupled with the automatic inclusion 
of all high-priced sales”.59   
 
111. Commerce applied a nearly identical test, but in reverse, to assess whether to use Tembec’s 
internal transfer prices. 60  This test also suffers from the same lack of even-handedness.  In relation to 
West Fraser, Commerce rejected affiliated transacti ons as preferential after concluding that these 
transactions were slightly above the unaffiliated benchmark.  In contrast, Commerce found that 
Tembec’s internal transfer prices were non-preferen tial even though they were significantly below the 
unaffiliated benchmark.  This in consistent approach was not even-handed and served only to 
prejudice these exporters by raising their dumping margins.    
130. Please comment on para. 107 of Canada’s Second Oral Statement. 
 112. Canada would like to comment briefly on paragraph 107 and Exhibit CDA-175.  Canada 
reviewed a considerable amount of accounting literatu re, none of which supporte d the distinction that 
the United States attempts to draw between internal  transfers and affiliated transfers for by-product 
                                                     
 
56 US Second Oral Statement, at para. 73. 
57 IDM, Comment 48(a), at 133 (Exhibit CDA-2). 
58 United States – Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan , Report 
of the Appellate Body, WT/DS184/AB/R, adopted 24 July 2001 [hereinafter US – Hot Rolled Steel ]. 
59 Ibid, at paras. 148 and 155. 
60 Ibid, at paras. 154-158. WT/DS264/R 
Page B-28  
 
revenue offsets.
61  Canada provided Exhibit CDA-175 as an example of the accounting literature 
discussing the proper treatment of this type of revenue offset within a corporation .  The exhibit draws 
no distinction between internal transfers and affiliated transfers.       113. In the Second Substantive Meeting, the Unite d States attempted to assert that this exhibit 
supported its position that there is a cost of production  for a by-product.  It referred to the use of the 
word “cost” in the exhibit in support of its positio n.  A careful review of the exhibit, however, 
demonstrates that it undermines, rath er than supports the US position. 
 114. This text discusses the miscellaneous income a pproach and the net realizable value method 
for accounting for the value of waste, scrap and by-products.  The first method is only appropriate as 
an accounting “short-cut” when the value of the by -products or scrap is uncertain or very small.
62     
 115. The second method was selected by Commerce in  the underlying investigation.  In this 
method, the net realizable value  of the by-product (wood chips) is offset against the cost of 
production of the major product (softwood lumber).  The net realizable value method is used to 
measure the value of: (1) by-products; and (2) waste or scrap that is processed subsequently into a 
saleable product.    116. The net realizable value method values by-produ cts at their “selling price” or market value.  
After the “split off” from the major product some fo rms of waste may be further processed into by-
products.  In this situation, the net realizable value method values the by-product produced from the 
waste at market value less the cost of any furt her processing that was required after the “split off” 
from the major product.
63  Applied to the present situation, wood chips are by-products that do not 
require further processing to become a saleable product.   Accordingly, wood chips must be valued at 
market value.     
 
117. Canada reserves its right to comment on any explanation the United States provides concerning its internal transfer methodology.   
K. WEST FRASER 
 
To Canada:  
 
131. Based on information on the record at  the time of the investigation, please 
provide the total volume (in ODTs) of wood  chips sold by West Fraser in British 
Columbia.  Please provide separately for the same market, the volume (in ODTs) of 
wood chips sold to affiliated and unaffiliated parties. 
 
118. The total quantity of wood chips sold by West  Fraser in British Columbia during the period of 
investigation amounted to [[                 ]].
64  Of this total quantity, [[            ]] (which accounted for 
99.7 per cent of West Fraser’s total wood chip  sales) were sold in affiliated transactions.65  In contrast, 
only [[            ]] were sold in unaffiliate d transactions (an amount that a large pulp mill would 
consume in less than one day).66  As outlined in Canada’s prev ious submissions, these unaffiliated 
                                                      
61 The US methodology would even distinguish between internal transfers and transfers between a 
parent corporation and a wholly owned subsidiary. 
62 W.J. Morse and H.P. Roth, Cost Accounting: Processing, Evaluating, and Using Cost Data , 3rd ed. 
(Reading, Mass.: Addison-Wesley, 1986), at 158 (Exhibit CDA-175). 
63 Ibid. (Example 5-7). 
64 West Fraser Cost Verification Exhibit C5, WF-Cost-007503, Appendix D-2 Revised, “Residual Chip 
Sales” (Exhibit CDA-106). 
65 Ibid. 
66 Ibid.  WT/DS264/R 
 Page B-29 
 
 
transactions only amounted to less than 0.3 per cent of record evidence concerning B.C. market prices 
during the period of investigation.  
132. Canada has stated in the Second Substa ntive Meeting that prices concerning the 
long-term contract of the McBride mill fluctuate.  Could you please confirm that? 
 
119. As a threshold matter, Canada would like to  observe that the record evidence is limited 
concerning the exact details of the McBride wood chip contract.  Commerce’s Cost Verification 
Report shows that West Fraser officials discussed the wood chip issue with Commerce’s verification 
team and made those officials aware that a long-te rm contract (entered into before West Fraser 
purchased the mill) obligated McBride to sell wood ch ips at a lower contracted price when market 
prices began to increase in May 2000.
67 
 120. In the interest of responding to the Panel’s qu estion, however, Canada can confirm that prices 
under the long-term contract of th e McBride mill did in fact fluctu ate.  The McBride contract set 
prices at the beginning of each calendar quarter base d on market conditions in the previous quarter.  
As wood chip prices had already been set for th e second quarter of 2000, McBride was unable to 
increase its prices when the market valu e of wood chips increased in May 2000
68, as reflected in 
Commerce’s cost verification report.  It is impor tant to note that all wood chip sales from McBride 
during the period of investigation occurred in the first two months ( i.e., April and May 2000). 
 L. SLOCAN 
 
To Canada:  
 
134. Based on information on record, where  in Slocan’s books is the revenue 
generated by, and cost associated with, the sa le of a futures contract accounted for?  
Please explain it in detail. 
 
121. As explained in Canada’s response to the fi rst questions, Slocan treated liquidated hedging 
contracts as US lumber sales and listed the Chi cago Mercantile Exchange (CME) as the customer.
69  
In Commerce’s sales verification report the verifi ers misstate that these futures revenues were 
recorded as a form of investment profit.70  Afterwards, Slocan clarified its treatment of futures 
revenues explaining that:  
The Sales Verification Report is somewhat unclear in its statement on page 8 that Slocan records the profits or losses reali zed from futures contracts as investment 
income.  In all cases, including where no physical delivery is made, Slocan records 
the profits or losses as a credit or debit to  lumber sales revenue.  These profits or 
                                                     
 
67 DOC Verification Report on the Cost of Production and Constructed Value Data Submitted by West 
Fraser Mills Ltd. (4 February 2002) at 23 (Contains  Business Confidential Information) (Exhibit CDA-110). 
68 See 2000 Chip Prices for Purchases by Quesnel River Pulp (Contains Business Confidential 
Information) (Exhibit CDA-174).  This exhibit reflects th e increase in wood chip pr ices in April and May of 
2000. 
69 Canada’s First Responses to Questions, Question 79, at para. 198. 
70 DOC Memorandum on Verification of the Sales Response of Slocan Forest Products Ltd 
(28 January 2002), at 8 [hereinafter “Slocan Sales Verification Memorandum”] (Exhibit CDA-117).  The 
verifiers may have been attempting to reconcile Slocan ’s records with Commerce’s Preliminary Determination 
Analysis Memorandum, which had concluded that Sloc an’s futures activities were a form of investment 
revenue.  See DOC Analysis Memorandum for Slocan Fore st Products Ltd. for the Preliminary Determination in 
LTFV Investigation on Certain Softwood Lumber Produc ts from Canada (30 October 2001), at 7 (Exhibit CDA-
116). WT/DS264/R 
Page B-30  
 
losses are not recorded in an investment a ccount in Slocan’s books and financial 
statements .
71 
122. Slocan treated futures revenues as an integral portion of lumber selling activities.  As 
Commerce concluded in the Final Determination “Slo can’s lumber futures hedging activity is related 
to its core business of selling lumber”.72 
 
135. Did Slocan  argue and demonstrate in the context of the investigation  that, 
because of its engagement in futures trading activities, price comparability was affected?  If so, please provide relevant document/s substantiating it. 
 123. Slocan argued and demonstrated that its futu res activities affected price comparability in the 
underlying investigation.  In its questionnaire res ponse Slocan requested an ad justment for its futures 
revenues, which by definition meant that Slocan was taking the position that price comparability was 
affected by its futures hedging activities.
73  Slocan also undertook to explain the significance of its 
futures hedging activities to both Commerce’s sales veri fication and cost verification teams.  It is for 
this reason that these activities are described in bot h reports, and why both reports contain materials 
explaining the purpose and significance of hedging,  as well as detailed data concerning Slocan’s 
actual futures activities.74  Slocan also argued that futures hedging affects price comparability in its 
Case Brief:  
Slocan relies on futures sales as part of its sales profile to hedge against price 
movements .  Slocan locks in a certain portion of its sales at a guaranteed price 
through futures contracts with the Chicago Mercantile Exchange (CME), and Slocan 
thereby forgoes possible increased  profits in order protect ( i.e., hedge) against 
possible future price declines . … While futures contracts can be used for speculation, 
Slocan uses the CME for exactly the opposite reason, as price protection to reduce its 
risk by locking in a certain portion of its sales.
75 
124. This hedging occurred, of course, only with r espect to the US market, price protection being 
unavailable in the Canadian market.    125. Slocan also provided the following evidence to  demonstrate the effect of futures hedging: 
 
 •  Evidence concerning the existence and amount of the futures revenues;76 
                                                      
71 Slocan Case Brief (12 February 2002), at 70 footnote 24 (Contains Business Confidential 
Information) (Exhibit CDA-156) (emphasis added). 
72 IDM, Comment 21, at 94 (Exhibit CDA-2). 
73 Slocan Section C Questionnaire Response (23 July 2001), at C-35 - C-36 (Exhibit US-71). 
Commerce questionnaires require that respondents report adjustments that should be made.  Commerce chose, 
however, not to make this adjustment, despite evidence that Slocan placed on the record concerning its futures 
trading activities, and Commerce’s conclusion that these reve nues constitute an offset to indirect selling expense 
under US law. 
74 Slocan Sales Verification Memorandum, at 7-8 (E xhibit CDA-117); and DOC Verification Report on 
the Cost of Production and Constructed Value Data Submitted by Slocan Forest Products Ltd. 
(1 February 2002), at 26 [hereina fter “Slocan Cost Verification Repo rt”] and Slocan Sales Verification 
Exhibit 21 (Exhibit CDA-118 and 119).  Sales Verification Exhibit 21 provides a explanation of the purpose and 
effect of lumber futures contract.  It also contained much of the standard documentation for lumber futures 
activities. 
75 Slocan Case Brief (12 February 2002), at 67-68 (Exhibit CDA-156) (emphasis added). 
76 Slocan Section C Questionnaire Response (23 July  2001), at C-35 - C-36 (Exhibit US-71).  This 
futures revenue was reported in a US sales database fi eld labelled DIRSELU2.  Commerce also verified that 
Slocan had accurately reported this data.  See Slocan Co st Verification Report, at 26 (Exhibit CDA-118).  There 
was never any dispute concerning the existence or amount of the futures revenues.     WT/DS264/R 
 Page B-31 
 
 
 
 •  Evidence that these futures revenues only relate to the US market;77 
 
 •  Slocan’s treatment of futures revenue in  its books and records as lumber sales 
revenue;78 
 
 •  An explanation of the purpose and effect of futures hedging contracts for lumber 
prepared by the CME;79 
 
 •  Slocan’s hedge approval for the CME (demons trating that Slocan was a hedger rather 
than a speculator);80 
 
 •  Slocan’s standard futures hedging contract;81 and 
 
 •  Slocan’s hedging account designa tion agreement with its broker.82 
 
126. Most tellingly, as the United States conceded  in the Second Substantive Meeting, Commerce 
has concluded that these futures revenues constitute an offset to indirect selling expenses.  This 
concession is itself an admission that Commerce in fact concluded that Slocan had demonstrated an 
effect on price comparability.   Consequently, Commerce was required to make an adjustment of some 
kind to ensure a fair comparison.   
 
127. The United States repeatedly refers to irreleva nt aspects of its own domestic law to argue that 
Commerce was not required to provide an adjustment.  In effect, the United States claims that Slocan 
was required to “guess” the right type of US domestic law adjustment, before Commerce would 
provide this adjustment.  This is not, however, a pr erequisite to a proper ad justment for a difference 
affecting price comparability under Article 2.4 of the Anti-Dumping Agreement .    
 128. In United States – Hot Rolled Steel , the Appellate Body found that Article 2.4 requires that 
appropriate “allowances” must be made to ensure a “fair comparison”.
83  The Appellate Body also 
explained that “under Article 2.4, the obliga tion to ensure a ‘fair comparison' lies on the investigating 
authorities , and not the exporters.”84  As the panel in Egypt – Steel Rebar concluded, this type of 
explicit obligation must be “performed by the inv estigating authority on its own initiative, and exactly 
as specified in the Anti-Dumping  Agreement ”.85  Finally, Article 2.4 also places the obligation on the 
investigating authority to “indicate to the parties in  question what information is necessary to ensure a 
fair comparison” if the requisite information has not been provided.  At no point in time did Commerce request additional eviden ce from Slocan to demonstrate an effect on price comparability. 
                                                     
 
77 Ibid.  The database field DIRSEL2 was only found in the database relating to US sales.  There is no 
futures market that is comparable to the CME in Canada.  
78 Slocan Case Brief (12 February 2002), at 70 fn 24 (Exhibit CDA-156).  Also see  US First Written 
Submission, at para. 246; US First Answers to Questions, at fn 77 and para. 138; and IDM, Comment 21, at 94 
(Exhibit CDA-2). 
79 Chicago Mercantile Exchange, “An Introductory Hedge Guide - Random Lengths” (Chicago:  
Chicago Mercantile Exchange, 2000), Slocan Sales Ve rification Exhibit 21, at VE02362 - VE02380 (Exhibit 
CDA-119). 
80 Chicago Mercantile Exchange, “Year 2001 Hedge Approval” (29 December 2000), ibid., at VE 
02428 – VE02429. 
81 Merchants Trading Company, “Customer In formation Sheet – Customer Agreement”, ibid., at 
VE0281 – VE02382. 
82 Merchants Trading Company, “Hedging Account Designation”, ibid., at VE 02386. 
83 US – Hot Rolled Steel , at para. 176. 
84 Ibid., at para. 178 (emphasis in original). 
85 Egypt – Definitive Anti-Dumping Measures on Steel Rebar from Turkey , Report of the Panel, 
WT/DS211/R, adopted 1 October 2002, at para. 7.2. WT/DS264/R 
Page B-32  
 
 129. As outlined above, Commerce has determined th at these futures revenues were an offset to 
“indirect selling expenses” that affect price comparability.  As there was an effect on price comparability, Article 2.4 required Commerce to provide an adjustment of some kind .  Further, 
Commerce was required to provide this adjustment ev en if it determined that “direct selling expenses” 
were not the proper form of adjustment under US do mestic law.  Commerce was not free, however, to 
ignore the effect on price comparability altogether , and to make no adjustment whatsoever.   
 130. Finally, the United States attempts to argue  that “direct selling expenses …[are] a type of 
adjustment for differences in conditions and terms of sale.”
86  Although “direct selling expenses” 
might often constitute “conditions and terms of sale” these expenses will sometimes more properly 
relate to other listed differences in Article 2.4.  A simple example is illustrativ e.   In the underlying 
investigation, Softwood Lumber Agreement (SLA ) taxes were deducted as “direct selling expenses”.87  
Article 2.4 requires that due allowance is made for di fferences relating to “taxa tion”.  As an export tax 
these SLA tax revenues more properly relate to “taxa tion” rather than “conditions and terms of sale”.  
Moreover, Commerce’s treatment of these revenues c onfirms that the SLA taxes are a difference in 
“taxation”.   Commerce deducted SLA taxes as “d irect selling expenses” from all sales, including 
sales for which there were no SLA taxes applied .  As a result, these SLA taxes could not constitute a 
“condition or a term of sale” in any ordinary understanding of this term.88  In a similar manner, “direct 
selling expenses” that do not constitute “conditions a nd terms of sale” might also fall under the ambit 
of “other” differences affecting price comparability.    
 
131. Which particular adjustment should have been  made under US domestic law is a matter that 
this Panel need not decide, and it is not a matter th at Canada has asked this Panel to decide.  What is a 
matter for this Panel to decide is whether Commerce was free to make no “due allowance” 
whatsoever for a difference that, the United Stat es now acknowledges, affected price comparability. 
 
136. Please comment on para. 138 of the US reply to Question 83 of the Panel: 
 
“as noted in paragraph 246 of th e US First Written Submission, 
it would have been inappropriate for Commerce to disregard Slocan’s own treatment of the profits as linked, albeit indirectly, 
to lumber sales and instead treat them as offsets to cost of 
production.” 
132. Although Slocan’s treatment of futures revenues in its records is persuasive as to the proper 
treatment of these revenues, it is not conclusive.    
133. Commerce’s reliance on these records was not c onsistent.  As outlined above, Slocan treated 
liquidated hedging contracts in its records as a form of  lumber sales revenue.  If Slocan’s records were 
determinative of the treatment for futures reve nues then Commerce should have provided a “direct 
selling expense” adjustment.  Instead, Commerce ig nored these records and refused a “direct selling 
                                                     
 
86 US First Answers to Questions, Question 83, at para. 145.   
87 SLA taxes were an export tax collected by the Canadian government on lumber exports in excess of 
predetermined quota limits.  
88 “[T]he phrase ‘conditions and terms of sale’ refers to the bundle of rights and obligations created by 
the sales agreement , and ‘differences in conditions and terms of sa le’ refers to differences in that bundle of 
contractual rights and obligations.” (emphasis added)  United States – Anti-Dumping Measures on Stainless 
Steel Plate from Korea , Report of the Panel, WT/DS179/R, adopted 1 February 2001, at para. 6.75.  In this 
proceeding, the United States took the position that “conditions and terms of sale” has a much broader significance.  If that was the US position under its dom estic law during the investigation, then the futures 
revenue should have been considered a condition and term of sale and the revenue treated as a “direct selling 
expense.”   WT/DS264/R 
 Page B-33 
 
 
expense” adjustment.89  It then used the same records to support its determination that futures 
revenues were not a form of investment income.90  This selective reliance on Slocan’s records is 
neither even-handed nor objective.  
To both parties: 
 
 140. Please provide in diagram format the company structure of Weyerhaeuser 
International Inc., showing the relationship between Weyerhaeuser Canada, Weyerhaeuser US and Weyerhaeuser Internatio nal Inc.  In addition, could Canada 
provide the structure of the financial records of the different entities, that is, at which 
level are they audited/consolidated. 
 
Corporate Structure 
 
134. The respondent in the softwood lumber investigation was Weyerhaeuser Company, a US 
company based in Washington State.
91  Weyerhaeuser Company owns [[       ]] of Weyerhaeuser 
International Inc., which is also a US company.  We yerhaeuser International Inc. owns [[      ]] of 
Weyerhaeuser Canada Limited, which produced and exported the Canadian softwood lumber that was 
subject to the investigation.92  The remaining [[       ]] of Weyerhaeuser Canada Limited is owned by 
Weyerhaeuser Holdings Limited, a British Columbia (Canad a) company that is [[         ]] owned by 
Weyerhaeuser International Inc.  This relations hip is depicted in the attached Exhibits. 
 
135. Attached as Exhibit CDA-189 is a set of four di agrams of Weyerhaeuser's corporate structure.  
The first three documents are linked.    
• The first page includes all of Weyerhaeuser Company’s US organization.  Weyerhaeuser 
International Inc. is listed on this page.   
 
• The second page is a breakdown of Weyerhaeuser In ternational.  Weyerhaeuser Canada is on 
this page, as is a breakdown of Weyerhaeuser Canada.   
 
• The third page is simply an enlarged version of the Weyerhaeuser Canada Limited section of 
the chart shown on page 2.   
 
• The fourth page is a simplified version of the overall corporate structure involving these 
companies. 
 
Financial Records 
 
136. Weyerhaeuser Company, the overall US parent  company, prepared consolidated financial 
statements.  Since Weyerhaeuser Company is bot h an operating unit (managing the company’s US 
operations) and corporate headquarters for the comp any’s global operations, operating expenses and 
corporate expenses appear on Weyerhaeuser Company’s financial statements.  Commerce’s task 
                                                     
 
89 IDM, Comment 21, at 94 (Exhibit CDA-2). 
90 US First Written Submission, at 246; US First Answers to Questions, at fn 77 and para. 138; and 
IDM, Comment 21, at 94 (Exhibit CDA-2).  The IDM states that “While we agree that  Slocan’s lumber futures 
hedging activity is related to its core business of selling lumber as opposed to speculative investment activity, it 
is for this very reason that we disagree that the futu res contracts are related to Slocan’s financing activity.” 
91 This company was referred to as Weyerhaeuser US for the purposes of the submissions filed in this 
dispute.   
92 Weyerhaeuser Canada Limited was referred to as Weyerhaeuser Canada for the purposes of the 
submissions filed in this dispute. WT/DS264/R 
Page B-34  
 
during the investigation was to isolate those cor porate expenses that were attributable to the 
production and sale of softwood lumber by Weyerhaeu ser Canada Limited, its Canadian business.   
 137. Weyerhaeuser International did not prep are consolidated financial statements. 
 
138. Weyerhaeuser Canada Limited prepared fina ncial statements for its own operations, in 
accordance with US Generally A ccepted Accounting Principles, that Commerce relied on during the 
investigation.
93  All G&A expenses associated with the pr oduction and sale of Canadian softwood 
lumber appeared on Weyerhaeuser Ca nada’s financial statements.  The hardboard siding expense did 
not appear on Weyerhaeuser Canada’s  financial statement because it wa s an expense related solely to 
Weyerhaeuser Company’s US operations. 
 139. Commerce committed an error when it attrib uted the hardboard siding expense to the 
production and sale of softwood lumber because the hardboard siding expense related to 
Weyerhaeuser Company’s US operations; it was not a Company-wide headquarter expense incurred 
on behalf of Weyerhaeuser Company’s global business.   
 140. Attached as Exhibit CDA-190 is a na rrative portion from Weyerhaeuser’s Section A 
Response to Commerce
94, discussing the financial statements produced by Weyerhaeuser Company. 
  
 
                                                     
 
93 Weyerhaeuser Section A Questionnaire Response (22 June 2001) at A-52 (Contains Business 
Confidential Information on page A-52)  (Exhibit CDA-190). 
94 Ibid., at A-52 – A-54.  WT/DS264/R 
 Page B-35 
 
 
 
ANNEX B-2 
 
 
RESPONSES OF THE UNITED STATES TO QUESTIONS 
POSED IN THE CONTEX T OF THE SECOND  
SUBSTANTIVE MEETING OF THE PANEL 
 
(26 August 2003) 
 
 
1. The following responses of the United States answer the 13 August 2003 questions to the 
United States and to both parties.  In several inst ances, the United States has also addressed questions 
posed by the Panel to Canada. 
 
A. G ENERAL QUESTIONS   
 To the US: 
 
86. The Panel refers to paras. 2 and 3 of the US Second Oral Statement. The Panel 
requests the US to note all the "misstatemen ts" that it has identified in Canada's 
submissions,  in addition to those mentione d in the Second Oral Statement.  Further, in 
its replies to the questions posed by the Pa nel, Canada's Second Written Submission and 
Second Oral Statement, Canada made deta iled factual presentations relevant to its 
claims.  The US is requested to identify and substantiate all factual aspects with which it 
disagrees with Canada. 
 
2. In response, the United States refers the pa nel to the chart at the Attachment hereto. 
 
3. The United States has diligently reviewed each  of Canada’s submissi ons and statements to 
respond to the Panel’s question.  In that process, the United States identified numerous misstatements 
and factual aspects of Canada’s argument with whic h it disagrees.  Each of these is catalogued in the 
Attachment.  However, the absence of a particular  statement by Canada from the Attachment should 
not be construed as a concession or as agreement wi th the substance of that statement.    
 
4. Canada's statements that the United States w ould describe as “misstatements” or with which 
the United States disagrees are too numerous to be  comprehensively catalogued.  For example, 
inasmuch as the United States disagrees with Canada ’s interpretations of AD Agreement articles, the 
United States would describe Canada’s statements co ncerning those articles as “misstatements.”  The 
United States has addressed those arguments in its  prior submissions and statements and does not 
separately identify them in the Attachment. 
 
B. ARTICLE 5.2: 
 To Canada: 
 
87. The Panel notes that Canada has made a number of allegations on shortcomings of the data in the application in Section II of its Second Oral Statement.  In Canada's 
view, does the examination it claims should  have been done by the DOC, require a 
pre-initiation investigation? 
 WT/DS264/R 
Page B-36  
 
5. The United States has argued that Canada’s in terpretation of Article 5.2 effectively would 
require an investigating authority to undertake a pre-initiation inquiry.  Under Canada’s theory, an 
authority would have to satisfy it self that an application contained all information reasonably 
available to the petitioner on the subjects specified in  Article 5.2.  Put another way, the authority 
would have to determine what information was r easonably available to the petitioner (potentially, a 
very broad universe of information) and whether an y of that information had been excluded from the 
application.  The only way to make such a determin ation would be to conduct an investigation.  The 
United States has observed, in general, the impractica lity of requiring such an investigation, as well as 
the absence of any such requi rement in the AD Agreement.
1  The United States would only add that, 
under Canada’s theory, this requi rement would not be limited to information on dumping.  It 
presumably would extend to each of the other categori es of information specified in Article 5.2.  This 
would include, for example, information on impa ct of the imports on the domestic industry.  A 
petitioner’s information on that particular issue is likely  to be very expansive.  It is inconceivable and 
illogical that Article 5.2 would require a petitioner to provide all information reasonably available to 
it on that topic. 
 
C. ARTICLE 5.3:  To Canada:  
88. In paras. 34 to 43 of Canada's reply  to Question 8, Canada has made certain 
allegations regarding the information containe d in the application as submitted by the 
US domestic industry, and which formed the basi s for the initiation of the investigation.  
In its Second Oral Statement, Canada has also  alluded to some of these issues.  Could 
the US please comment in detail on these allegations? 
 6. Canada’s 30 June 2003 , response to Question 8 included cl aims regarding the alleged failure 
of the application “to have costs of significant or representative producers” (paras. 34-35); “to provide costs for a period of time sufficient to objectivel y assess the reasonableness of the data submitted” 
(para. 36), and to include “evidence of the method used to calculate manufacturing costs for the SPF 
species” and evidence of “how company costs were a llocated to the specific 2. 4 kiln-dried dimension 
or stud lumber” (paras. 37-38).  The same response also included claims related to the alleged failure 
of the application to “contain adequate informa tion regarding freight costs” (paras. 39-43).     
 7. The United States addressed each of these issues in its 9 July 2003, Second Written 
Submission, at paras. 23-32, and refers to tho se detailed answers and the supporting evidence cited 
therein.  Because Canada’s response to Question 8 contained numerous factual misstatements, the 
United States also refers to the US response to Question 86, set forth as an Attachment to this 
submission.  In brief, the United States addressed th e cost and price issues that Canada raised as 
follows.  8. In response to Canada’s claims regarding costs from significant or representative producers: 
 
• The vast majority of the “costs” used in the application were derived from sources Canada has 
not challenged (including a significant amount  of cost data from Canadian government 
sources).  The data from US mills were used pr imarily to identify production factors, rather 
than costs.2  
 
• To the extent that Canada is criticizing the s ources as a basis for identifying production factor 
data, the United States explained that what Ca nada referred to as “the Canadian producers 
                                                      
1  US First Written Submission, paras. 70-76; US Opening Statement at First Panel Meeting, para. 22; 
US Second Written Submission, paras. 10-13; US Opening Statement at Second Panel Meeting, paras. 11-21. 
2 See US Second Written Submission, para. 24.  WT/DS264/R 
 Page B-37 
 
 
being modelled” included the entire Canadian so ftwood lumber industry (not merely the very 
largest producers that were subsequently select ed as respondents).  The lumber industry is 
disaggregated and diverse, and the mills w hose production factors were included in the 
application were among those listed in a US Depa rtment of Agriculture publication focusing 
on “large, permanent operations that make up the bulk of the industry.33  
 
9. In response to Canada’s claims regarding cost s for a period of time sufficient to objectively 
assess the reasonableness of the data submitted:  
• As reflected in the exhibits it references, Ca nada’s argument regarding what it broadly terms 
“cost” data applies, in fact, only to the US mill data on factor usage.  Furthermore, taken as a 
whole, these data, when combined, not only  cover the full calendar year 2000 on a 
country-wide basis, but also include data on bo th the British Columbia and Quebec markets.  
The confidential affidavits, furthermore, explai n why data for particular months are provided 
for particular mills, including when particul ar mills close their financial statements.
4  
 
10. In response to Canada’s claims regarding a lack of explanation of how manufacturing costs 
were calculated and allocated:  
• The United States has pointed out that the application followed the normal industry practice 
(as reflected in industry patterns of data collec tion and cost breakouts) of allocating costs, for 
the most part, on a per-MBF, species-specific b asis.  The United States also explained that 
when a broader species average was used ( i.e., for stumpage costs in Quebec), this actually 
favoured respondents by resulting in lower costs, and, thus, lower margins.
5  Although the 
cost allocation methodology used in the appli cation may not have been as refined as that 
developed in the course of the investigati on, it permitted Commerce to reasonably ascertain 
product costs for purposes of initiation.  This can be seen from the fact that the evidence of 
below-cost sales was corroborated both by th e press articles in the application and by the 
extensive below-cost sales found in the inves tigation using the respondents’ own cost data 
and more detailed cost allocation methodologies.  
 11. In response to Canada’s alle gations regarding freight data: 
 
• The United States clarified that, as Quebec producers ship lumber both by truck and by rail, it 
was appropriate to use a truck shipment rate  from a producer that shipped by truck.  
Commerce also properly relied upon a rail freight rate for “softwood lumber” without seeking out data on the comparative weight of different pine species, especially in view of the fact that the quotation at issue was for transfer over a c onsiderably shorter distance than the delivery 
distance associated with the export sales for which an estimated freight expense was being 
calculated.  In other words, the quotation likely had the effect of understating the actual cost 
of transporting lumber for the transactions at  issue.  Finally, the United States clearly 
demonstrated from the record that its calculations did not, as Canada claimed, include the cost of freight from the Maritime Provinces in its average cost for freight from Quebec.
6 
 
12. In its oral statement at the second substan tive meeting, Canada addressed almost none of 
these points or the evidence relied upon by the United States.7  
                                                      
3 See id., para. 25. 
4 See id., para. 26. 
5 See id. , paras. 27-28. 
6 See id. , paras. 29-32. 
7 In its discussion of these issues in Canada’s Seco nd Oral Statement, the only explicit reference to the 
US Second Written Submission argues that the US never made a “finding” that the allocation by MBF and 
species was consistent with “normal industry practice.”  He re, also, Canada offers no evidence to contradict this WT/DS264/R 
Page B-38  
 
 
89. In its reply to Question 8, Canada submits that using the Applicant’s Random 
Lengths price data for Quebec, a comparison of all of the Quebec ex-factory price data 
for ESPF (2x4, Studs&Btr, KD, RL and 2x4-8', PET, KD) products sold in Quebec and 
in the US, shows that the US price was cons istently higher during the period and that 
there was therefore no price-to-price dumping  demonstrated by the evidence in the 
Application.  It further provides a calcul ation in footnote 32 to substantiate the 
allegation.  Could the US please comment on this allegation and on the calculations? 
 
13. Both the allegation and the calculation are irrelevant to the question of whether Commerce 
properly initiated and continued th e investigation, because neither the application nor Commerce’s 
decision to initiate was based on price-to-price du mping.  As Commerce explained in its initiation 
checklist, “Because the Canadian pri ces, when compared to the COP, were demonstrated to be below 
the COP, petitioners have based their margin calcu lations on the comparison of {export price} to 
{constructed value}."
8  This comparison of export prices to constructed value demonstrated that 
softwood lumber was sold at prices below the cost of production, i.e., dumped.   
 
 90. Please comment on Canada's Second Oral  Statement, para. 20 which states that: 
 
"[t]he United States, hiding behind the pretence of confidentiality, has not provided this Panel with any information 
that was before Commerce about the two US surrogate mills.  
These US mills were at the hear t of Commerce’s decision to 
initiate.  Canada has not seen, and the Panel still does not have before it, basic information in the hands of the United States, such as the names of the US mills and what Commerce knew 
about those mills.  The United St ates has responded to Canada’s 
claims with nothing but assertions." 
14. As a preliminary matter, the United States fi nds it hypocritical for Canada to be accusing the 
United States of “hiding behind the pretence of  confidentiality.”  Cana da understands well the 
sensitivity of business confidential information and the importance of safeguarding it adequately and 
not disclosing it without the consent of the submitter.
9  It comes as a surprise, therefore, that Canada 
would dismiss as “hiding behind the pretence of c onfidentiality,” Commerce’s legitimate protection of 
the confidentiality of certain information as required by US statutory law.  15. In any event, Canada ignores both the arguments and the supporting record evidence cited by the United States in its Second Written Submission at  paragraph 25 and the footnotes thereto, which 
demonstrate that the mills in question were within  the range of the mills which “make up the bulk of 
the [US and Canadian softwood lumber] industry."
10 
 
                                                                                                                                                                     
practice (which is clearly reflected, for exam ple, in the pricing patterns found in the Random Lengths  materials 
in the application).  See Canada Second Oral Statement, paras. 16-20. 
8 See Checklist (Exhibit CDA-10) at 7; see also Initiation Notice (Exhibit CDA-9), at 66 Fed. Reg. 
21330 (margin was based on a comparison of export price to constructed value). 
9 See  Contribution of Canada to the Improvement of the WTO Dispute Settlement Understanding, 
TN/DS/W/41 at p. 2 (24 Jan. 2003). 
10 US Second Written Submission, para. 25, note 38.  WT/DS264/R 
 Page B-39 
 
 
D. ARTICLE 2.6: 
 
To the US: 
 
 91. The Panel notes in para. 36 of the US Second Oral Statement that "Canada 
misunderstands the analysis that was actually applied."  Could the US expand on what it perceives the misunderstanding of Canada is? 
 
16. The most important point rela ted to Canada’s claim under Articl e 2.6 is that this provision 
contains no obligation concerning an investiga ting authority ’s definition of the product under 
consideration.
11  In various submissions and statements in this dispute, the United States has 
endeavoured to explain Commerce’s administra tive practice in defining the product under 
consideration.  It has done so not to defend Co mmerce’s practice in light of Article 2.6 – which 
contains no obligation on this issue – but instead to  demonstrate that Canada’s argument fails even on 
its own terms.   
 
17. The misunderstanding referred to in the US Second Oral Statement is Canada’s 
characterization of the analysis applied in the lumber investigation as different from Commerce ’s 
Diversified Products  analysis.  Canada has focused on two sentences taken out of context and 
leveraged these sentences into an assertion that there are two distinct, alternative tests that Commerce 
may apply in identifying the scope of the product u nder consideration.  The first such test, Canada 
asserts, is the familiar Diversified Products  analysis, with which Canada has no complaint.  The 
second test, according to Canada, is a “no clear di viding line”/”continuum” test.  Canada alleges that 
in the lumber investigation, Commerce a pplied the latter test in lieu of the Diversified Products  test.  
 
18. Canada’s contention that there are two altern ative tests and that Commerce applied something 
other than its familiar Diversified Products  analysis in this case is incorrect.  Simply put, Commerce 
applied its Diversified Products  analysis.  In applying that analysis, a question that Commerce 
considered was whether there were clear dividing lines that distinguished some elements of the 
putative “product under consideration” from other elements.  Canada incorrectly suggests that 
Commerce thereby “subordinated” the Diversified Products  analysis to a “no clear dividing line” 
analysis.12  In fact, it did nothing of the sort. 
 19. Similarly, Canada improperly asserts that  a passing observation by Commerce about the 
diversity of softwood lumber products must mean that Commerce abandoned the  Diversified 
Products  analysis in this investigation.
13  Yet, in context, it is clear that, notwithstanding this “general 
observation,” Commerce did apply its Diversified Products  analysis.14  It did so for each softwood 
lumber product alleged to be outside the scope of a properly defined product under consideration ( i.e., 
Western red cedar, Eastern white pine, softwood lumber boards used as bed frame components, and 
softwood lumber boards used as finger-jointed flangestock).15 
 
                                                      
11 See US First Written Submission, paras. 85-99; US  Opening Statement at First Panel Meeting, 
paras. 24-28; US Second Written Submission, paras. 33-41. 
12 Canada Second Written Submission, paras. 70, 87. 
13 Id., paras. 71, 87. 
14 Final Determination , Comment 52, at 154 (Exhibit CDA-2). 
15 See , e.g., application of Diversified Products analysis to Western red cedar ( Scope Memorandum , at 
24-28 (Exhibit CDA-12); Final Determination , Comment 52A (Exhibit CDA-2); application of Diversified 
Products analysis to Eastern white pine ( Scope Memorandum , at 29-31 (Exhibit CDA-12); Final Determination , 
Comment 52C (Exhibit CD A-2); application of Diversified Products analysis to bed-frame components ( Scope 
Memorandum , at 32 (Exhibit CDA-12); Final Determination , Comment 52E (Exhibit CDA-2); application of 
Diversified Products analysis to finger-jointed flangestock ( Scope Memorandum , at 31-32 (Exhibit CDA-12); 
Final Determination , Comment 52F (Exhibit CDA-2); WT/DS264/R 
Page B-40  
 
20. Canada’s erroneous contention that in th is investigation Comme rce abandoned its usual 
practice and applied an unfamiliar analysis appears to be an attempt to compensate for Canada’s 
inability to identify an applicable obligation under Artic le 2.6.  As Article 2.6 is silent on the question 
of how an investigating authority identifies the pr oduct under consideration, Canada has resorted to 
the suggestion that, whether or not there is an  express obligation in this area, Commerce acted 
unreasonably by deviating from its normal practice.  However, the isolated statements on which 
Canada relies do not support that contention.  In identifying the product under consideration in this 
investigation, Commerce applied its normal Diversified Products analysis. 
 
E. PHYSICAL CHARACTERISTICS: 
 
To the US:   94. We refer to the following statement in para. 50 of the US Second Oral 
Statement: 
 
"for all physical characteristics, except dimension, Commerce had cost data to connect the physi cal differences to the impact on 
price, pursuant to its normal methodology." 
 Could the US confirm that it normally ba ses adjustments on differences in variable costs 
and that in this instance DOC could dete rmine adjustments on such a basis for all 
differences except for dimension? 
 
21. The United States confirms that Commerce nor mally bases a price adjustment for differences 
in physical characteristics in the product under c onsideration on reported differences in the variable 
cost of manufacturing.  This can be seen in Commerce’s questionnaire, relevant portions of which 
were provided in Exhibit US-36, requesting this  information from respondents and explaining the 
basis for the adjustment in the qu estionnaire’s glossary of terms (also provided in Exhibit US-36).  
The questionnaire’s glossary refers respondents to  Commerce’s regulations regarding this specific 
price adjustment (Exhibit US-44).  Commerce also  has a decade-old policy bulletin explaining the 
basis for the adjustment, available on its website at < http://ia.ita.doc.gov/policy/>,
 and provided in 
Exhibit US-77.   
 
22. With respect to the eleven physical char acteristics distinguished for purposes of the model 
match methodology, Commerce never compared di fferent softwood lumber product categories, 
species or grade groups.16  Thus, there were never any comparisons for which a price adjustment 
would be warranted with respect to these three physical characteristics.  The respondents reported 
variable cost of manufacturing data for moisture content, surface finish, end trim and further 
processing in their questionnaire responses, and Commerce was able to determine adjustments 
pursuant to its normal methodology for these four characteristics.17   In Commerce’s Preliminary 
Determination , Commerce relied on the respondents’ norma l books and records, which reported no 
difference in variable cost between products of  differing grades and dimension.  Therefore, 
Commerce was not able to make an adjustment for grade and dimension pursuant to its normal 
methodology.18 
 
23. In response to specific comments on the Preliminary Determination  from the Canadian 
respondents (addressed in more detail below), Commerc e further evaluated price and cost data with 
                                                      
16  See US First Written Submission, paras. 124-125. 
17 Id., para. 126; Dept. of Commerce, Notice of Preliminary Determination of Sales at Less Than Fair 
Value and Postponement of Final Determination: Certain Softwood Lumber Products From Canada, 66 Fed. 
Reg. 56062, 56066 (6 Nov. 2001) (“ Preliminary Determination ”) (Exhibit CDA-11). 
18 Preliminary Determination , 66 Fed. Reg. at 56066 (Exhibit CDA-11).  WT/DS264/R 
 Page B-41 
 
 
respect to grade and dimension and determined to allocate certain costs of manufacturing to grade, but not to dimension, using value-based data.
19  Consequently, for the Final Determination  , Commerce 
calculated grade-specific variable costs, maki ng a cost-based price adjustment possible when 
comparing products of different grade.  Ther efore, dimension remained the only physical 
characteristic for which an adjustment coul d not be made pursuant to Commerce’s normal 
methodology.20 
 
 95. Could the US explain in detail how th e issue of dimension was addressed in the 
lead-up to the Preliminary Determination a nd from the Preliminary Determination to 
the Final Determination, including after the DOC found that there were no differences 
in variable costs?  Was DOC's statement in the Preliminary Determination that 
dimension has an effect on price compar ability made before DOC knew that there was 
no difference in variable costs?  Indicate what made DOC change its position with 
respect to the effect of dimension on pr ice comparability between the Preliminary 
Determination and the Final Determination. 
 
24. Commerce did not state that “ dimension  has an effect on price comparability” in its 
Preliminary Determination .  The Panel’s misapprehension pr esumably derives from Canada’s 
distortion of a statement in Commerce’s Preliminary Determination  concerning “several” physical 
characteristics “which affect price.”  Canada  quoted that statement out of context.  
 
25. As indicated in the United States’ First Wr itten Submission, paras. 124-125, and in response 
to Question 95, above, the dimensional characteris tics of width, thickness and length comprised three 
of eleven physical characteristics that Commer ce accepted for purposes of distinguishing between 
models of softwood lumber in this investigati on.  Commerce’s questionnair e identified the specific 
product characteristics that Commerce determined, ba sed on the interested pa rties’ comments, should 
be distinguished in its model ma tch methodology. (Grade was later separated into grade and grade 
group.)   26. As indicated above, the respondents’ questionna ire responses reported the same variable cost 
of manufacturing for all dimensions.  However, Commerce, did not match nonidentical dimensions 
(or grades) in the Preliminary Determination .  This was consistent with its practice in many 
agricultural cases, where Commerce did not match acro ss certain characteristics if there were no cost 
differences associated with differe nces in physical characteristics.
21   This obviated any need for the 
requested price adjustment.  Commerce’s explanati on concerning its preliminary treatment of the 
physical characteristics, particularly dimension and grade, is set forth below.  Although Commerce 
acknowledges an impact of physical differences on pr ice, it does so in the context of distinguishing 
the complex and diverse factors determining price in  this case versus another much simpler case, in 
which Commerce determined that a value-based pric e adjustment for a single physical difference was 
warranted:  
[F]or this preliminary determination, we ha ve concluded that it is not appropriate to 
match products that do not have the follo wing identical physical characteristics: 
grade, thickness, width and length.  These are significant physical characteristics that cannot be accounted for by means of a cost-based differe nce-in-merchandise 
adjustment.  The respondents in this investig ation have reported that their methods of 
tracking costs and the nature of producing lumber do not allow them to distinguish 
costs by grade or size.  Specifically, the respondents have reported that they cannot 
report costs that distinguish between factors other than moisture, surface finish, end 
                                                     
 
19 Final Determination,  Comment 4 (Exhibit CDA-2). 
20 Id., Comment 8 (Exhibit CDA-2). 
21 Preliminary Determination , 66 Fed. Reg. at 56066 (Exhibit CDA-11) (discussing cases involving 
tomatoes and salmon, respectively). WT/DS264/R 
Page B-42  
 
trim and further manufacturing.  Our analysis confirms that most lumber produced within a given species has the same production cost. 
The respondents have cited to UHFC Company v. United States, 916 F.2d 689 (Fed. 
Cir. 1990), where the Court of Appeals fo r the Federal Circuit (CAFC), in that 
specific case, instructed the Department  on remand to match across different 
strengths/grades, despite the fact that differe nces in costs could not be calculated.  In 
that case, the product involved was animal glue, where different strength/grades were produced at the same time, using the same production process.  The respondents claim that in accordance with the Court’s d ecision in that case, “the Department must 
calculate a value-based difference-in-mer chandise in this case in those instances 
where similar products are compared and ther e is no variable cost data available to 
permit the calculation of a cost-based di fmer.”  Among the suggested bases for a 
value-based difmer adjustment were data  published in Random Lengths, respondents’ 
own reported sales data covering the PO I, or historical pricing data. 
We disagree that the UHFC decision requires the calculation of a value-based difmer 
adjustment in this case.  First, this investigation is distinguishable from the 
circumstances in the UHFC case, where there was only a single difference, i.e. glue 
strength, between the products .  In the instant investigation, there are several 
significant differences in physical characteristics which affect price.  As a result, 
we have determined th at we have no comparable basis on which to adjust for physical 
differences between similar products based upon market value, as has been suggested 
by the respondents.  By Abitibi’s own admission, Random Lengths data are not 
comprehensive enough to identify all of the differences among the entire range of 
products.
22 
27. As is clear from the above discussion, Commerce did not make any determination with 
respect to the impact, if any, that dimension alone had on price, nor did it focus on measuring  any 
appropriate adjustment.  Commerce then noted that its decision to match similar products only where 
it was able to calculate a cost-based  price adjustment, and to limit its matches for grade and dimension 
to identical comparisons, was consistent with agricultural cases.23  (Moreover, as is apparent from the 
full discussion of the issue in the Preliminary Determination , Commerce did consider making an 
adjustment pursuant to its normal methodology and did consider the arguments raised by the parties as to other means.) 
 
28. The Canadian respondent companies, in response to Commerce’s Preliminary Determination , 
requested that Commerce allocate certa in costs, using value data, to grade and dimension, so that a 
cost-based adjustment for differences in dimension and grade could be made.  Alternatively, they 
requested, once again, that Commerce grant a value- based adjustment for differences in dimension 
(and grade), rather than limit its comparisons  to identical dimension and grade products.
24  Indeed, 
two of the six respondent companies indicated  that the result Comme rce reached in the Final 
Determination  (what they termed a “zero” adjustment) would be an acceptable result.25 
 
29. The Canadian respondent companies requested  that Commerce reevaluate its decision to 
match only identical dimensions and grades based on the available data on the record.  Commerce 
examined the data in the questionnaire responses to determine whether or not it would be appropriate 
                                                      
22 Preliminary Determination , 66 Fed. Reg. at 56066 (Exhibit CDA-11) (emphasis added). 
23 Id., (discussing cases involving tomatoes and salmon, respectively). 
24  See, e.g. , Case Brief of Abitibi, 12 Feb. 2002, 26-29 (Exhibit CDA-142, pp. 93-96); Case Brief of 
West Fraser, 12 Feb. 2002, 17-19 (Exhibit CDA-142, pp. 140-142). 
25 See, e.g. , Case Brief of Slocan, 12 Feb. 2002, 24-32 (Exhibit US-74); Case Brief of West Fraser, 
12 Feb. 2002, 26-29 (Exhibit US-75).  WT/DS264/R 
 Page B-43 
 
 
to allocate certain costs to grade and dimension using value data.  As Commerce explained in its Final 
Determination , based on the fact that grade is a quality  inherent in the wood, Commerce determined 
that certain costs could be allocated to grade using value data.26  Unlike grade, Commerce specifically 
concluded that the facts did not warrant allocating costs to dimension27, a conclusion that Canada has 
not challenged as inconsistent with the AD Agreement.  
 
30. Using the respondents’ home market sales data, which was also used to evaluate whether or 
not it was appropriate to allocate costs to dimens ion based on value data, Commerce then examined 
(a) whether or not it should compare similar dimensi ons (rather than just identical dimensions) and (b) 
whether or not, if it compared similar dimensions, it should make a price adjustment for differences in 
the nonidentical dimensions compared.  As indicated  above, this analysis was conducted at the behest 
of the Canadian respondents in light of the results of Commerce’s Preliminary Determination .  
Commerce concluded, based on its examination of th e data on the record, that it should not be limited 
to only identical dimensional matches, but that a price adjustment for nonidentical comparisons was 
not warranted.28  For a more detailed explanation of Co mmerce’s methodology, please see response to 
Question 99 below. 
 
 96. At what stage were the respondents informed of DOC's finding that differences 
in dimension do not affect price comparab ility?  What opportunities were provided to 
respondents to comment on that finding? 
 
31. As indicated above, Commerce found no cost differences attributable to dimensional 
differences and no basis for making price-based adju stments for different dimensions.  Given these 
preliminary findings, it was clear that if Commerce matched different dimensions, as requested by the 
respondents, the obvious questions were: would an adju stment be warranted and, if so, what should it 
be?  Consequently, it was in the Final Determination  that Commerce concluded, and the respondents 
were thereby informed, that differences in prices we re not attributable to differences in dimension and 
that a price adjustment for differences in the dimens ions of the products compared was not warranted.  
Although this was Commerce’s final conclusion, the parties were given ample opportunity to 
comment on the issue of price adjustments generally  throughout the proceeding, as indicated already 
in Commerce’s Preliminary Determination . 
 
32. In its explanation in the Final Determination , Commerce responded to the specific requests 
and comments of both the Canadian and dom estic interested parties on this issue.29  The respondents’ 
requests in their case briefs that Commerce match similar dimensions, and grant either a cost- or 
value-based price adjustment, required Commerce to evaluate the pricing data on the record both for 
purposes of Commerce’s cost methodology and for pur poses of a price adjustment.  Clearly, it would 
have been impossible for Commerce to consider the respondents’ suggestions without carefully 
reviewing the effect of dimension on price, as a ny calculation of a value-based cost or price-based 
adjustment for dimension would have been necess arily dependent on the relative prices between 
dimensions.  33. It would be a misreading of the AD Agreement to find that at every decision point in an 
investigation, an investigating authority must  announce each intermediate decision and provide 
further opportunity for comment.  Under such an interpretation, investigating authorities would be 
effectively prevented from completing investigations within any realistic time period and manageable 
comment schedule.  This interpretation would place a significant obstacle in the way of the rule that 
investigations be concluded within one year and in no case more than 18 months.
30 
                                                      
26 Final Determination , Comment 4 (Exhibit CDA-2). 
27 Id., Comment 4, note 60 (Exhibit CDA-2). 
28 Id., Comments 7 and 8, respectively  (Exhibit CDA-2). 
29 Id., Comment 8 (Exhibit CDA-2). 
30 AD Agreement, art. 5.10. WT/DS264/R 
Page B-44  
 
 
 97. Please comment on Canada's response to Question 22, with reference to the 
respondents’ demonstrating a need for a price adjustment: 
 
"at the beginning, of the period, in April 2000, Abitibi’s average net price for No. 2 grade 2x4x8 was around [[         ]] whereas the 
No. 2 2x6x16 price was [[        ]].  The comparable figures for 
economy grade were [[       ]] for th e smaller size and [[        ]] for 
the larger." 
34. The above example does not demonstrate a ne ed for a price adjust ment.  This specific 
example, provided to Commerce in Abitibi’s case brie f during the investigation, is flawed because it 
relies on average prices for only one month.  The example says very little about the effect of different 
dimensions on prices, as it only represents a limited amount of price data (average prices in a single 
month) and it is not clear what other factors might account for the price differences.  Anecdotal price differences such as these may be part of a discernible pattern indicating price differences attributable to dimensional differences, or they may merely refl ect coincidental pricing differences unrelated to 
differences in dimensions. 
 
35. Attached to this submission, at Exhibit US-81, is a chart plotting the actual net sales prices of Abitibi’s 2x4x8 No. 2 grade and economy grad e softwood lumber and 2x6x16 No. 2 grade and 
economy grade softwood lumber over the course of th e period of investigation.  These are the same 
products as in the example from Abitibi’s case brief.   
36. What the exhibit strikingly demonstrates is that a price adjustment for dimension is not 
warranted, because no pattern of consistent price di fferences based on dimension is discernible.  The 
prices, within each grade, for the two different di mensions converge, diverge and overlap during the 
period of investigation.  In stark contrast, pric es of the No. 2 grade a nd the economy grade remain 
consistently distinct.  This example of the dis tinction between the relative behaviour of grade and 
dimension supports Commerce’s differing treatment of grade and dimension (using value data to 
allocate certain costs to grade) in the cost methodology for the Final Determination . 
 
 98. The Panel notes the following stat ement contained in Canada's response to 
Question 22: 
 
"Tembec suggested several alternative data sets and 
methodologies for computing such an adjustment (DIFMER)." 
 
 Was the proposed methodology evaluated?  What was the result of this evaluation?  
Please indicate where such a resu lt can be found on the record. 
 37. The quoted sentence is another example of Cana da’s mischaracterization of the record.  In 
fact, Tembec’s “suggestions” amounted to no more than brief requests to use pricing data on the 
record, requests that had already been ma de to and rejected by Commerce in the Preliminary 
Determination  .  The full quote from Tembec’s case brief reads as follows: 
 
The record is sufficient to calculate a valu e-based Difmer.  The Department could use 
the relative values of the respective CONNUMs as reported in the respondents sales 
databases, the Publicly Available Pub lished Information from sources such as 
Random Lengths, or historical value data as submitted by several respondents.  Were  WT/DS264/R 
 Page B-45 
 
 
the Department to think that other data were required, the De partment should have 
requested such data.31 
38. Commerce addressed these suggestions in the Final Determination.32  With respect to the use 
of the respondents’ own sales pricing data as a basis for calculating a price adjustment, Commerce again noted the large number of sales made outside the ordinary course of trade, as it had in the 
Preliminary Determination : To use respondents’ prices “would adjust normal values back to prices 
already determined to be outside the ordinary course of trade, the whole reason why we would be disregarding such prices and comparing to a similar product."
33  With respect to the use of Random 
Lengths  data, Commerce reiterated that the data were not complete.34  I n  t h e  Preliminary 
Determination , Commerce stated its reservations concerning the use of historical price data, 
indicating that it had no basis on which to determine whether or not those sales had been made in the 
ordinary course of trade.35  Commerce concluded that a price adjustment was not warranted based on 
its evaluation of all the data on the record.36 
 
 99. With respect to the consistency in pr ice patterns, the Panel has the following 
questions: 
 
 (a) Could DOC explain in detail the methodology it used to carry out its consistency 
test? Illustrate your explanation with an example from the test that was carried out in this case, including any sampling, selection of dates, etc.  Did the US consider using other methodologies?  
 
39. In deciding how to address dimensional diffe rences in this case, Commerce had four options:  
(1) calculate a value-based cost across dimension,  which would allow the calculation of a cost-based 
price adjustment for dimensional differences pursuant to Commerce’s normal methodology;  (2) 
calculate a value (price)-based ad justment for dimensional differences; (3) calculate no price 
adjustment; or (4) continue to use the same methodology as in the Preliminary Determination , and not 
match products across dimension. 
 
40. In order to consider the first three opti ons, all of which were suggested by various 
respondents, it was necessary to examine the relative prices of the various dimensions.  As indicated 
above, Commerce examined relative prices initially in the context of determining whether or not to 
calculate a value-based cost.  Because Commerce was deciding which cost methodology to use, 
Commerce examined all prices for selected dimensions  in its relative price test, even those which 
would eventually be found to be below cost.  Commerce concluded that the random nature of the 
movement in relative prices between the various dimensions precluded dimension-specific prices 
from providing a sound basis for a value-based cost allocation.
37 
 
41. Using the same relative price tests, Commerce next considered the issue of whether, if it 
compared products across dimension, it was more a ppropriate to calculate a price-based adjustment 
for differences in dimension, or to make the comparisons with no such adjustment.  Commerce 
examined random sales of commonly sold softw ood lumber products, comparing products with 
                                                      
31 12 Feb. 2002, Tembec Case Brief, 37-38 (Exhibit CDA-142, pp. 163-164).  The United States notes 
Tembec’s first sentence from the quote above: “The record is sufficient to calculate a value-based Difmer.”  
Apparently, Tembec and Canada now disagree, since Canada has attempted to submit a regression analysis of 
Tembec’s data (Exhibit CDA-77 and Exhibit CDA-129) for the first time in this dispute.  The United States 
continues to object to the submission of that data as a violation of Article 17.5(ii) of the AD Agreement. 
32 Final Determination , Comment 8 (Exhibit CDA-2). 
33 Id. 
34 Id. 
35 Preliminary Determination,  66 Fed. Reg. at 56066 (Exhibit CDA-11). 
36 Final Determination , Comment 8 (Exhibit CDA-2). 
37 See id., Comment 4, fn. 60.   WT/DS264/R 
Page B-46  
 
relatively small dimensional differences.  Co mmerce chose products w ith small dimensional 
differences, because its computer programme was designed to match US sales to the above-cost 
home-market sales with the smallest possible dimensional differences.  42. Examples of the tests Commerce carried out can be found in Exhibit US-76 (replacement), 
involving two West Fraser products, and in Exhi bits US-42 and US-43, involving two Slocan 
products.  Commerce compared the actual home market sales prices for each of the Canadian respondent companies, plotting sales over the entire period of investigation.  The sales included both 
above- and below-cost sales, as the poi nt of the tests was to determine whether a pattern of consistent 
price differences which could be linked to dimension existed.  
 
 (b) Could the US explain in detail how the results of its test were evaluated?  Please 
explain the evaluation leading up to that conclusion. 
 
43. As a result of the above analysis, it was a pparent that no reasonable adjustment could be 
measured or quantified.  The prices of the sample d products fluctuated relative to each other over the 
period of investigation, such that no adjustment could reliably account for the difference in price at 
any given time.  The sample comparis ons demonstrated that the price differences between the 
comparable products varied to a significant degree.  For example, the price differences between two 
products were both negative a nd positive in varying amounts over the course of the period of 
investigation.  The sample West Fraser comp arison provided in Exhibit US-76 (replacement) 
illustrates such fluctuations.  In looking at these  comparisons, Commerce found that not only would it 
be unable to quantify any price adjustment, but that given the relative fluctuations, an adjustment was 
not warranted.  For example, if the price differe nces between two products were negative at some 
points during the period and positive at others, there was no meaningful way to determine whether an 
adjustment between those two products should be positive or negative, and therefore, there was no 
rational basis to conclude that an adjustment wa s appropriate.  Ultimately Commerce concluded, after 
looking at all of the sample comparisons and seeing the degree of relative price fluctuations between 
the products most likely to be compared, that pric e differences could not be attributed solely to 
differences in dimension, particularly where those differences were minor.  44. Had respondents had other means to demons trate a more consistent pattern of price 
differences, Commerce would have considered such  data.  The respondents had raised the issue 
themselves and had opportunities to present data in support of their claims.   
 100. The Panel notes that in Exhibit CDA-2, p. 51 it is stated that: 
 
"as we stated in the Preliminary Determination, we do not 
believe it would be appropriate to  use the respondents' prices as 
a basis for calculating a difmer adjustment where there were home market sales outside the ordinary course of trade during 
the POI for certain products involved here. To do so would adjust normal values back to prices already determined to be 
outside the ordinary course of trade, the whole reason why we 
would be disregarding such prices and comparing to a similar product." 
 In response to an oral question by the Panel on 11th August, the US indicated that all 
the price data – including those prices  which had previously found not to be 
cost-covering – were used for the consistency test.  How does this statement reconcile 
with the above-quoted excerpt from the IDM? 
 
45. The above quote refers specifically to the problem inherent in calculating a price-based 
adjustment in the face of a large number of sales ma de outside the ordinary course of trade.  Under the  WT/DS264/R 
 Page B-47 
 
 
limited-reporting criteria agreed to by all the parti es, each sale in the US database had an identical 
match in the home market database.  The only time,  therefore, that a US sale matched to a home 
market sale of a similar, rather  than identical product, was when 100 per cent of the sales of the 
identical product were determined to be outside th e ordinary course of trade.  Therefore, Commerce 
was concerned that including sales outside the ordinary course of trade in the calculation of a 
price-based adjustment would result in establishing no rmal values that reflected prices of sales outside 
the ordinary course of trade.    46. This observation did not, however, affect the relative price test that Commerce carried out.  
(See Response to Question 99 above.)  In looking  at the movement in relative prices between 
dimensions, Commerce concluded that “there appear s to be little, if any, difference in home market 
prices that is attributable to differences in dime nsions of the products compared, especially where 
those dimensional differences were minor."
38 
 
 101. Please comment on Canada's Second Oral  Statement, para. 56 which states that: 
 
“[t]he US International Trade Commission, in the injury inquiry, determined that “lumber prices generally differ substantially 
depending on grades and dimensions”.” 
 
47. The full statement of the US International Trade Commission (ITC)
39, in context, shows the 
ITC’s recognition of general conditions of competiti on in the market, with regard to variations in 
prices among types of softwood lumber.  The ITC di d not conduct any specific analysis with respect 
to the impact of dimension on price, nor did it  quantify such relationship.  The ITC’s statement 
appears to be an observation about the market a nd not a finding of fact fundamental to its own 
determination of whether the US indus try was materially injured or thr eatened with material injury by 
reason of dumped imports.  
 102. In paras. 58-60 of Canada's Second Oral Statement, Canada alleged that the 
average dumping margin for the non-identica l comparisons was 2 to 7 times higher than 
the average margins of dumping for iden tical comparisons as DOC made numerous 
comparisons of smaller, low-value lumber sold in the US to larger dimension, high-value 
lumber sold in Canada, without any adjustment for dimension.  Could the US comment on this allegation that this establishes a prima facie breach of the requirement of Article 2.4?   
 
48. Canada erroneously suggests that dimensional differences explain the differences in margins 
in the comparisons at issue.  Canada admits, howev er, that the non-identical comparisons with high 
margins included “numerous comparisons of smaller low-value lumber
."40  However, as is clear from 
Exhibit US-76 (replacement) (first four pages), ma ny of these low-value products sold in the 
United States could only generate high margins if th ey were sold for prices in the United States that 
were well below their cost of production.41  The lowest price for a product that Commerce could ever 
use in making a fair comparison is one that is at l east equal to the cost of production, since Commerce 
                                                      
38 Final Determination , Comment 8 (Exhibit CDA-2). 
39 The ITC observed, in considering conditions of  competition pertinent to the softwood lumber 
industry, that: “Softwood lumber prices generally differ substantially depending on grades and dimensions, and may differ by species and applications involved, with better grades and wider dimensions usually carrying 
higher prices than lower grades and narrower dimensions.”  US International Trade Commission, Pub. No. 
3426, Softwood Lumber from Canada , Inv. Nos. 701-TA-414 and 731-TA-928 (Preliminary) (May 2001) at 16 
(Exhibit CDA-31). 
40 Canada Second Oral Statement, para. 59. 
41 The United States notes that Canada is not challenging Commerce ’s cost methodology here. WT/DS264/R 
Page B-48  
 
discarded all below-cost sales prior to making price comparisons.  The comparison that Commerce actually made was to the most similar product whic h had any sales which passed the cost test.  As 
Exhibit US-76 shows, the prices of the most sim ilar products were often onl y marginally above the 
cost of production.  Therefore, it appears that th e low-value products which generated high margins 
were, in fact, the most dumped products.  It is for that reason, rather than the dimension of the 
compared product, that these low-value, low-priced US sales generated high margins. 
 49. In addition, Canada distorts  the effect of these sales on the final margin by emphasizing the 
number of comparisons, rather than the quantity of  lumber involved in the comparisons.  Taking 
quantity of lumber into account, even the fact that the products at issue were  heavily dumped (that is, 
that the margins on those particular sales were hi gh) still had a limited effect on the final margin. 
 50. Canada has not established a prima facie breach of Article 2.4 (paragraph 60 of its Second 
Oral Statement), simply by claiming that the margins of the nonidentical comparisons were 2 to 7 times higher than the margins of the identical comp arisons.  Canada’s argument rests principally on 
its claim that all parties acknowledged that dimensio n affects price.  However, the evidence from the 
record Canada has cited
42 did not prove that any amount of differences in prices were specifically 
attributable to differences in dimension.  Commerce found that relative prices of otherwise identical 
products of different dime nsions appeared to fluctuate randomly , making it impossible to attribute any 
differences in price to the dimension of lumber.  Therefore, because dimension was not demonstrated to affect price comparability, Commerce was not re quired to make any allowance for differences in 
dimension under Article 2.4. 
 
To both parties: 
  103. Could the parties confirm whether the percentages mentioned in para. 40 and 
footnote 33 of the US reply to Question 25 of the Panel relate to differences in dimension 
only? 
 
51. The percentages referred to in paragraph 40 and footnote 33 of the United States First 
Answers to the Panel’s questions relate to all differences in physical characteristics, not just 
dimension.  However, the United States not es that the majority of the “similar” ( i.e., non-identical) 
comparisons will include different dimensions as a result of the model match methodology.  
Therefore, the United States does not believe that similar matches as a percentage of total comparisons (either weighted by quantity or stated  as a raw number) would be significantly different 
if limited to dimension only.    F. ZEROING:  To the US:   109. Could the US explain how it normally calculates the dumping margin at the two 
stages and how it afterwards establishes the duty liability, and how this compares to the 
duties collected definitively. 
 
52. In an antidumping investigation, the United States normally calculates a company’s overall 
dumping margin using price-to-price comparisons  through the following two stage process. 
 
                                                     
 
42 See, e.g., Exhibit CDA-76; Canada’s First Responses To Panel Questions, para. 87; Exhibit 
CDA-142.  WT/DS264/R 
 Page B-49 
 
 
Stage 1   (a) Relevant physical and other ( e.g., level of trade) characteristics are identified for sales 
matching purposes. 
 
 (b) For each combination of relevant physi cal and other characteristics of products sold 
in the United States during the period of investigation, the identical or most 
comparable combination of physical and othe r characteristics of products sold in the 
home market is identified. 
 
 (c) Where the combination of characteristi cs is not identical between the two markets 
and the differences have been demonstrat ed to affect price comparability, price 
adjustments are made. 
  (d) For all sales of each combination of re levant physical and other characteristics of 
products sold in the United States during th e period of investigation, and for each 
most comparable combination of characteris tics of products sold in the home market, 
the weighted-average price per unit (incl uding any adjustments identified in (c) 
above) is calculated. 
  (e) For each set of comparable characteris tics, the weighted-average normal value per 
unit is compared to the weighted-average export price (or constructed export price) 
per unit.  When the weighted-average normal value exceeds the weighted-average 
export price, the difference is the per unit dumping margin for that comparison.  When the weighted-average normal va lue is equal to or less than the 
weighted-average export price, there is no dumping margin for that comparison. 
 
Stage 2   (f) Each per unit dumping margin found in step (e) is multiplied by the volume of the 
export transactions used in the comparison that resulted in that dumping margin. 
 
 (g) The results of step (f) are summed to create the numerator for the overall dumping 
margin calculation. 
  (h) The result of step (g) is divided by th e aggregate value of all export transactions 
utilized in step (e). 
 
53. The result of step (h) is the overall dumping margin for a given respondent.  This overall 
dumping margin is the provisional measures rate in  a preliminary determination and the cash deposit 
rate (estimated dumping duty) in a final determination. 
 54. In the absence of an administrative revi ew, the estimated dumping duty is definitively 
collected.  However, if a review is requested, Commerce performs a similar calculation to that 
identified above in order to calculate an appropria te assessment rate for the importer and a new cash 
deposit rate for the producer.  55. The differences between a review and an inves tigation are generally found in stage 1.  In a 
review, rather than compare period-wide we ighted averages, Commerce normally compares 
individual export transactions to a monthly weighted  average of the most comparable home market 
sale.  The results of these comparisons are combin ed in the same manner as described in the stage 2 
discussion above to establish a new cash deposit rate.  WT/DS264/R 
Page B-50  
 
56. A separate stage 2 calculation is performed to  establish importer-specific rates for purposes of 
assessing definitive duties.  For these purposes, th e results of the comparisons between export 
transactions and monthly weighted average nor mal values are segregated based on the importer 
involved in the export transaction.  The stage 2 cal culation is then performed on an importer-specific 
basis, using the importer’s entered value as the denominator. 
 
G. ABITIBI: 
 To the US:  
 113. Please comment on Exhibit CDA-176. 
 
57. Exhibit CDA-176 provides in chart form many of Canada’s unsubstantia ted claims related to 
Commerce’s COGS-based methodology for the allocati on of financial costs.  Specifically, Canada 
highlights different kinds of assets that it believe s are ignored through the COGS-based methodology.  
The vast majority of Abitibi’s assets are considered through th e COGS methodology.
43 
 58. The argument for which Canada relies on in Exhibit CDA-176 is based on at least two false 
premises.  The first false premise is that the cost s of producing goods are fully reflected in accounts 
receivable.  Financial costs relate to all the cost s a company incurs in relation to the production of 
goods.  As fully discussed in answer to question 1 15 below, Canada’s argument falsely presumes that 
the only COGS that should be considered in the a llocation of financial costs are those COGS captured 
in inventory.  However, there is no evidence that  Abitibi only incurs financial costs on inventory.  
Financial costs relate to all the costs a company incurs, including the costs incurred on producing sold 
goods as well as the costs incurred on producing goods in inventory.  Commerce’s COGS-based 
methodology considers both of these costs, while Canada’s methodology considers only the latter.  
Canada’s argument is also based on the false prem ise that Abitibi finances th e full value of its assets 
in each year of production.
44  This extraordinary claim is contrary to normal business practices and 
entirely unsubstantiated.  Depreciation expen ses included in the COGS-based methodology which 
represent the cost incurred in using an asset in a gi ven year are a reasonable, and, in fact, a more 
appropriate basis upon which to consider asset s in the allocation of financial costs. 
  114. Please comment on Canada's Second Oral  Statement, para. 72 which states that: 
 
“Commerce: asserted in the Final Determination that it used COGS, not because it was the proper methodology for Abitibi’s facts, but because it was Comm erce’s “established practice” and 
was “consistent and predictable”.” 
59. Canada’s statement misconstrues Commerce’s de termination.  In fact what Commerce stated 
was:   
“Finally, we disagree with Abitibi that the Department should depart from its 
established practice of calculating financia l expense ratios based on the financial 
expenses and cost of goods sold. . . (i.e. because of the fungibility of money).  
Because there is no bright-line definition in the Act of what a financial expense is or 
how the financial expense rate should be cal culated, the Department has developed a 
                                                     
 
43 At least C$8 billion dollars of Abitibi’s C$11 billion total assets were capital assets for which 
depreciation expenses were realized.  See Abitibi Consolidated Financial Statement, p. 35 (Exhibit CDA-82). 
44 See Canada’s Second Oral Statement, para. 77.  WT/DS264/R 
 Page B-51 
 
 
consistent and predictable practice fo r calculating and allocating financial 
expenses."45 
While predictability and consistenc y are important goals to which any investigating authority aspires, 
these were by no means the only bases for Commerc e’s determination.  Commerce considered 
Abitibi’s argument relating to an  asset-based allocation for fina ncial costs and rejected it.  
Specifically, after finding that Abitibi’s argumen t was improperly premised on the debt of the 
company relating to only non-lumber producing divisions Commerce stated:  
“[T]he Department’s method addresses Abitibi’s concern that those activities [ i.e., 
non-lumber production] are more capital in tensive.  Specifically, those activities 
would have a higher depreciation expense on their equipment and assets.  Thus, when 
the consolidated financial expense rate is applied to the cost of manufacturing lumber 
products, less interest will be applied because the total cost of manufacturing for lumber products includes a lower depreciation expense".
46 
Thus, rather than ignoring Abitibi’s arguments, Co mmerce expressly considered them and rejected 
them. 
 
To both parties: 
  115. The Panel understands Canada to ar gue in para. 80 of its Second Oral 
Statement that an asset-based methodology can capture the flow elements through 
inventory.  Please comment. 
 
60. Canada’s assertion in  paragraph 80 of its Second Oral Statement is simply wrong.  Abitibi’s 
suggested asset-based allocation methodology do es not “capture the flow elements through 
inventory.”  A company’s inventory balance repres ents the inventory on-hand at any given point in 
time (generally, at the end of the year).  The va lue of products that passed through the inventory 
account on the way to being sold during the year are not
 included in the ending inventory account – 
which necessarily means the inventory account does not  capture the flow elements.  That is, the 
inventory account does not capture the (usually much greater) value of products that have previously 
passed through inventory accounts during the year.  
61. Canada’s assertion also incorrectly assumes that only those costs incurred on products in 
inventory require financing, because sold products have produced reve nues that are in turn used to 
pay for the cost of producing those sold goods.
47  However, similar to pr oceeds from a loan, proceeds 
from sales are entirely fungible and may be used to  pay for any of the costs a company incurs ( e.g. the 
purchase of fixed assets).  Thus, financial costs relate  to all the costs a company incurs, including the 
costs incurred on producing sold goods as well as the costs incurred on goods in inventory.  
Commerce’s COGS-based methodology considers both  of these costs, while Canada’s methodology 
considers only the latter.  62. The balance sheet is not the correct place to look for cash flows.  The correct place is the cash 
flows statement from Abitbi’s financial statement.
48  This cash flow statement illustrates the numerous 
sources of cash, most significantly the net cash fro m operating activities, as well as the numerous uses 
of cash.  This cash flow statement fully supports  the concept of fungibility of money and that 
                                                      
45 Final Determination , Comment 15 (Exhibit CDA-2). 
46 Final Determination , Comment 15 (Exhibit CDA-2). 
47  See Second Written Submission of Canada, para. 205 (arguing that cost of producing goods need 
only be financed until payment is received). 
48 See Abitbi’s Financial Statement p. 34, “Consolidated Statement of Cash Flows” (Exhibit CDA-82). WT/DS264/R 
Page B-52  
 
financing costs cannot be traced to one particular activity of the company, such as the acquisition of 
assets.   
 116. Please indicate the advantages/disadvantages in this context, of the two 
approaches (COGS; asset-based) fo r allocating interest expenses. 
 63. Allocation of financial costs based on cost of goods sold results in a reasonable allocation of 
financial costs to softwood lumber, consistent with Article 2 of the AD Agreement.  COGS is a broad 
category that includes the costs associated with the production of goods in a given year, including 
assets through the inclusion of depreciation expenses.  Because COGS is specific to a given year, it is 
a reasonable basis upon which to allocate financial costs specific to the same  period.  Total asset 
values, on the other hand, relate to assets that exist over multiple years and are, thus, a less appropriate basis upon which to allocate current fina ncial costs.  In addition, an allocation of a 
financial costs based on asset-values falsely assumes th at financial costs are a function of the value of 
assets at a particular point in time.  There is no b asis for such an assumption that could grossly distort 
the allocation of financial expenses.  Finally, financ ial costs relate to all th e costs a company incurs, 
including the costs incurred on producing sold goods as well as the costs incurred on goods in 
inventory.  Commerce’s COGS-based methodology considers both of these costs, while Canada’s 
methodology considers only the latter.  64. For the reasons set forth here and in its pr ior submissions, the United States believes that the 
COGS methodology was the more reasonable of the tw o methods in this case.  However, the question 
before the Panel is not whether one methodology w as more reasonable than the other.  Under the 
Article 17.6 standard of review, the only questio n is whether Commerce properly established the facts 
and evaluated the facts in an objective and unbiased ma nner.  The United States has demonstrated that 
Commerce did so and, accordingly, its application of the COGS methodology conformed with the 
applicable WTO obligations. 
 
H. TEMBEC (G&A): 
 To the US:  
 119. In its reply to question 56, the US refers to the "reliability of cost data".  Based 
on the record, did DOC find in the context of the investigation that data submitted by 
Tembec for the Forest Products Group was not reliable? If so, please point to relevant 
documents submitted to the Panel – including cost verification reports – or provide them. 
 65. Commerce found that the use of Tembec’s inte rnal, division-specific books and records could 
have resulted in distortions.
49  Thus, reliability was a principal b asis for Commerce’s determination.  
Consistent with Article 2.2.1.1 of the AD Agreemen t, Commerce determined that cost data kept in 
accordance with GAAP were more reliable than cost  data not kept in accordance with GAAP.  No 
evidence was presented that Tembec’s divisiona l data were kept in accordance with GAAP.50  
Moreover, the United States has provided evidence that  Tembec’s divisional data were not required to 
be kept in accordance with GAAP nor were they required to be an objective measures of costs.51  
 
 120. Please comment on paras. 84-88 of Ca nada's Second Oral Statement, specially 
on the last sentence of para. 85. 
 
                                                      
49 Final Determination , Comment 33 (Exhibit CDA-2). 
50 See Tembec’s Annual Report, “Auditor’s Report,” p.  34 (Exhibit US-12) (stating that only the 
company-wide statements were audited). 
51 See Exhibit US-80, p. 2.  WT/DS264/R 
 Page B-53 
 
 
A.  No factual basis for assertion that Temb ec’s lumber producing division incurred less G&A: 
 
66. Canada has failed to provide  any reasonable factual basis for its assertion that Tembec’s 
lumber producing division incurred less G&A than its  non-lumber producing divisions.  For instance, 
in its Second Written Submission, Canada asserts that, “Tembec submitted documented evidence that 
its pulp and paper operations incurred signifi cantly higher G&A expenses than its lumber 
operations."52  However, Canada’s basis for this assertion makes no sense.  Canada’s claim rests only 
on the fact that its Forest Products Group requires a smaller amount of Tembec’s total assets while 
accounting for relatively more of Tembec’s total sales.53  There is no logical nexus between the 
productivity of assets and G&A.  Moreover, the fact th at Tembec internally assigned costs to various 
divisions in a certain manner for its own purposes do es not mean that such expenses were in fact 
incurred by those divisions in those amounts.  Therefore, there is no basis upon which to find that Tembec’s lumber producing division incurred le ss G&A than Tembec’s non-lumber producing 
divisions.  
B. Commerce rejected Tembec’s divisional data for multiple reasons : 
 67. Contrary to Canada’s assertion, Commerce did not reject Tembec’s data simply because Commerce’s standard practice was to rely on comp any-wide data for G&A calculations.  In fact, as 
discussed in response to Question 119, Commerce rej ected the data because they were less reliable 
and could have led to distortions.  Moreover, basi ng G&A on company-wide data is consistent with 
the definition of general costs ( i.e., cost that relate to a company as a whole) while basing G&A on 
divisional data is not.  
C.   Commerce used Tembec’s divisional data in  the dumping calculation for an extremely limited 
purpose: 
 68. Article 2 of the AD Agreement requires an inv estigating authority to consider only books and 
records kept in accordance with GAAP.  No evid ence was presented that Tembec’s divisional data 
were kept in accordance with GAAP.
54  Moreover, the United States has provided evidence that 
Tembec’s divisional data were not required to be kept in accordance with GAAP.55  Thus, Commerce 
was under no obligation to consider them.   
 
69. In fact, whenever possible Commerce relied on audited amounts for the dumping calculation.  
To the extent that Tembec’s divisional data were used for an extremely limited purpose ( i.e., 
establishing packaging costs to be removed from the G&A ratio), Commerce relied on this data 
because audited, GAAP consistent data were not available.   
 
D.   Specialized accounting standards are irrelevant to the Panel’s inquiry : 
 70. Canada argues that based on the Federa l Acquisition Regulation (“FAR”), Commerce’s 
determination that G&A relates to a company as a whole is unreasonable.
56  However, the FAR 
standards are specialized accounting rules that relate to government procurement and are not 
equivalent to generally accepted accounting principles.   Commerce’s determination that general costs 
relate to a company as a whole is a reasonable inte rpretation of the term “general costs” found in 
                                                      
52 Canada Second Written Submission, para. 223. 
53 Id. 
54 See Tembec’s Annual Report, “Auditor’s Report,” p.  34 (Exhibit US-12) (stating that only the 
company-wide statements were audited). 
55  See Exhibit US-80, p. 2. 
56  See, e.g. Canada Second Oral Statement, para. 86. WT/DS264/R 
Page B-54  
 
Article 2 of the AD Agreement.
57  Moreover, as discussed above, Tembec has failed to provide any 
credible evidence that its lumber division incurred less G&A than its other divisions.58 
 
E.   Tembec’s divisional statements are not audite d and have not been shown to be in accordance 
with GAAP: 
 
71. Canada argues that the divisional data are audited and reliable.  However, the Auditor’s 
Statement clearly indicates that the portion of Temb ec’ s consolidated balance sheet that was audited 
does not include the divisional information.59  Moreover, the United States has shown that under 
Canadian accounting practices, divisional data are not meant to be an objective measure of costs.  Rather, they are meant to enable financial statem ent users to see the business through the eyes of the 
management.
60  Finally, the United States has shown that divisional data in Canada do not have to be 
kept in accordance with Canadian GAAP.61 
 
To both parties: 
 121. Was the "internal accounting methodology" referred to in Comment 33, p. 105, of the 
Memorandum of 21 March 2002 an allocation methodology "historically utilized by the 
exporter"?  Please refer to the record.  
72. Tembec presented no evidence of its historical allocation.  In any event, under Article 2.2.1.1 
an investigating authority is obligated to consider  historical allocations only when such historical 
allocations are shown to be in accordance with GA AP and to be not distortive.  No evidence was 
presented that Tembec’s divisional data were kept in accordance with GAAP.
62  M o r e o v e r ,  t h e  
United States has provided evidence that Tembec’s di visional data were not required to be kept in 
accordance with GAAP nor were they requir ed to be objective measure of costs.63  Thus, even 
assuming, arguendo , that Tembec has historically allocated  costs between divisions in the same 
manner, Commerce was under no obligation to cons ider Tembec’s division-specific G&A data.  
While historical use may indicate some consiste ncy of compilation or presentation of information 
over time, historical use alone cannot impart  reliability or consistency with GAAP. 
 
I. WEYERHAEUSER: 
 To the US: 
 
 123. It is stated in para. 84 of the US Second Written Submission that:  
"[g]eneral expenses are, by definition, expenses incurred for the benefit of a corporate group as a whole.  They are not specific to 
one or another product line.  A requirement that general expense 
be directly related to the good produced would make it impossible to allocate general expense within a company that 
produces many goods because a direct relationship would never 
                                                     
 
57  See US First Written Submission, para. 200; see also  Joel G. Siegel, Jae K. Shim, Dictionary of 
Accounting Terms  (Barrons Educational Services, Inc. 2 nd ed. 1995) (Exhibit US-47). 
58  See supra  answer to question 120(A). 
59 See Tembec’s Annual Report, “Auditor’s Report,” p.  34 (Exhibit US-12) (stating that only the 
company-wide statements were audited). 
60  See Exhibit US-80, p. 2. 
61  See id.  
62 See Tembec’s Annual Report, “Auditor’s Report,” p.  34 (Exhibit US-12) (stating that only the 
company-wide statements were audited). 
63  See Exhibit US-80, p. 2.  WT/DS264/R 
 Page B-55 
 
 
be identifiable.  This would render meaningless the requirement 
of Article 2.2 that “a reasonable amount for administrative, selling and general costs” be included in a company’s cost calculation." 
 In its practice, how does DOC treat G&A cost s which have been demonstrated to it not 
to "pertain[] to production and sales (…) of the like product" in accordance to the 
chapeau of Article 2.2.2?  Please provide a recent example of that practice. 
 
73. As an initial matter, the United States disag rees with the proposition that G&A costs may 
pertain more or less to a product.  G&A, by definition, relates to a company as whole.
64  In its Second 
Written Submission Canada agrees that G&A does not pertain to products.65   
 74. Commerce does have, however, a practice whereb y it excludes G&A that does not pertain to a 
company from that company’s G&A calculation.  More specifically and as discussed in the 
United States’ Second Oral Statement.
66  Commerce’s administrative practice is to include a portion 
of a parent company’s G&A costs in a producer’s G&A.67  However, if it is shown that the parent 
company does not perform any functions on behalf of  the subsidiary, Commerce considers that parent 
company’s G&A to not pertain to the subsidiary company and does not allocate any of the parent 
company’s G&A to the subsidiary.  An example of this practice is the Brass Sheet and Strip 
determination c ited by Canada.68  In fact, Canada has not challenged Commerce’ s practice and agrees 
that a portion of the parent company’s G&A, including G&A listed separately on the parent 
company’s financial statement, should be  included in Weyerhaeuser Canada’s G&A.69 
 
 124. It is stated on page 51 of the ye ar 2000 annual report of Weyerhaeuser Company 
(Exhibit CDA-166) that: 
 
"[t]his is a claims-based settlement, which means that the claims will be paid as submitted over a nine-year period with no 
maximum or minimum amount." 
 In determining the amount attributable to the period of investigation [POI], did DOC 
take into account that the claims would be  paid as submitted over a nine-year period 
with no maximum or minimum amount? Or , did DOC allocate the whole amount 
booked by the company to the POI?  Please explain. 
 
75. Consistent with Weyerhaeuser’s treatment of  the entire litigation cost as a period expense for 
fiscal year 2000 in its own books and records, Co mmerce included the entire litigation cost in its 
G&A ratio.  In other words, Weyerhaeuser recognized the entire litigation cost in the year in which it 
                                                     
 
64  See Joel G. Siegel, Jae K. Shim, Dictionary of Accounting Terms  (Barrons Educational Services, 
Inc. 2 nd ed. 1995) (Exhibit US-47). 
65  See Canada Second Written Submission, para. 166.  (“‘Administrative, selling and general costs’ . . 
are costs that are not directly attributable to the product under investigation or any particular product.”) 
66 United States Second Oral Statement, para. 73. 
67  See Final Determination of Sales at Less Than Fair Value; Certain Hot-Rolled Carbon Steel Flat 
Products from Thailand , 66 Fed. Reg. 49,622 and accompanying Issue and Decision Memorandum at Comment 
7 (28 Sept. 2001) (stating Commerce's practice is to "calculate G&A expenses based on the company-specific 
unconsolidated financial statements of the producing en tity ...we also include in the company's G&A an amount 
for administrative services performed on the company's behalf by it parent.") (Exhibit US-82). 
68  See Brass Sheet and Strip from Canada; Final Results of Antidumping Duty and Administrative 
Review , 61 Fed. Reg. 46618, 46619 (4 September 1996).  (Exhibit CDA-104.) 
69  See Canada Second Written Submission, para. 230, where Canada concedes that other separately 
listed items on the parent company’s financial statement constituted general costs and were properly included in 
Weyerhaeuser Canada’s G&A ratio.  See also United States Second Written Submission, para. 89 footnote 149. WT/DS264/R 
Page B-56  
 
was incurred ( i.e., the POI).  Weyerhaeuser never argued be fore Commerce that this litigation cost 
should be treated as anything other than a period cost.  ( E.g., Weyerhaeuser never argued that the 
settlement cost should be amortized over several year s.)  Instead, it argued only that the entire cost 
should be excluded from the allocation of  G&A to softwood lumber production.  
  125. Please comment on the following po rtion of para. 229 of Canada's Second 
Written Statement:  
 
"Commerce agreed that it was proper to exclude the expense from parent company G&A in its preliminary determination". 
76. Commerce permitted the exclusion of the settlement cost for the Preliminary Determination  
because it was only at verification that Commerce b ecame cognizant of the fact that Weyerhaeuser 
had excluded the settlement cost from the parent  company’s reported G&A.  In an antidumping 
investigation verification occurs after the pre liminary determination.  As discussed in the Final 
Determination , once Commerce considered the settlement cost it determined that the settlement cost 
was properly considered part of the parent compa ny’s G&A and allocated a portion of it to softwood 
lumber.
70 
 
 126. Please comment on the following port ion of para. 93 of Canada's Second Oral 
Statement:  
 
"the United States never responds in any of its submissions to the fact that Commerce's traditiona l practice has been to exclude 
unrelated parent company G&A, finding on numerous occasions 
that not all G&A is fungible."  
77. It is Commerce’s standard practice to exclude a parent company’s G&A if evidence is 
presented that the parent company did not perform  any functions on behalf of the subsidiary.
71 as was 
the case in the Brass Sheet and Strip determination cited by Canada.72  However, this case and 
Commerce’s practice when a parent company performs no functions on behalf of a subsidiary are 
irrelevant to Weyerhaeuser Canada’s G&A calcula tion, because it is uncontested that the parent 
company performed functions on behalf of Weyerh aeuser Canada.  In any event, Canada has not 
objected to the inclusion of a portion of the pa rent company’s G&A in Weyerhaeuser Canada’s 
G&A.73  Thus, Canada has not challenged the fungibilit y of the parent company’s G&A in relation to 
Weyerhaeuser Canada.  Instead Canada has challenge d only the inclusion of a portion of the litigation 
cost in Weyerhaeuser Canada’s G&A.   
 
 127. Please comment on the following extract of para. 90 of Canada's Second Oral 
Statement: 
 
"Cost Verification Exhibit 26 breaks down the elements of 
Weyerhaeuser US G&A expense, including a line item for Law of [[          ]].  This represented the company’s general legal 
                                                     
 
70  See Final Determination , Comment 48b (Exhibit CDA-2). 
71  See supra  answer to question 123. 
72 See Brass Sheet and Strip from Canada; Final Results of Antidumping Duty and Administrative 
Review , 61 Fed. Reg. 46618, 46619 (4 September 1996).  (Exhibit CDA-104); see also Canada Second Written 
Submission, para. 230, where Canada concedes that other separately listed items on the parent company’s 
financial statement constituted general costs are were properly included in Weyerhaeuser Canada’s G&A ratio; see also United States Second Written Submission, para. 89 footnote 149. 
73 See Canada’s Second Written Submission, para. 230 explaining which portion of the parent 
company’s G&A it did not object to  Commerce including in Weyerhae user Canada’s G&A calculation.  WT/DS264/R 
 Page B-57 
 
 
expenses.  The [[           ]] hardboard siding expense is not listed." 
[footnote excluded] 
78. The proper characterization of the hardboard siding litigation expense does not depend on the 
break-out of that expense by Weyerhaeuser US in its books and records.  What is relevant is the 
inherent nature of the expense.  A company usua lly breaks out particular costs because they are 
significant and require further explanation74, as was the case with the litigation cost on 
Weyerhaeuser’s consolidated financial statement.  Ho wever, if a cost item is general in nature, listing 
it separately from the generic G&A line item does not ch ange its general nature.  In point of fact, 
Weyerhaeuser listed another category of general cost s, “integration and closure costs,” separately on 
its financial statement.  Canada does not challe nge the inclusion of these “integration and closure 
costs” in the G&A ratio for Weyerhaeuser Canada.  Similarly, Commerce’s inclusion of a portion of 
the litigation costs in Weyerhaeuser  Canada’s G&A was reasonable. 
 
J.   TEMBEC (BY-PRODUCT REVENUE): 
 
To the US: 
  128. How was the arm's length test applied?   Canada states in para. 235 of its First 
Written Submission that: 
 
"[w]here the average price charged to affiliated purchasers was 
higher than the average price ch arged to unaffiliated purchasers, 
DOC concluded that a respondent had sold chips to its affiliated purchasers at inflated, non-market prices.  In these situations, DOC disregarded the revenues in a respondent’s books and records for its sales to affiliated purchasers and re-valued those 
sales based on the lower price that the respondent charged to 
unaffiliated purchasers."  
 Does Canada's assertion accura tely reflect DOC's practice as applied in the softwood 
lumber anti-dumping investigation?  In particular, did DOC disregard West Fraser's 
British Columbia revenues from sales to aff iliated parties on the ground that they were 
made at "inflated, non-market prices"?   Please explain. 
 79. This question appears under the heading “Tembec (By-Product Revenue).”  However, 
Commerce did not apply an arm’s length analysis w ith respect to Tembec’s by -product revenues.  As 
explained in the Final Determination , with respect to Tembec, the wood chip transactions were 
between divisions of the same legal entity.  Comme rce’s practice with respect to transactions within 
the same legal entity is to use the actual cost of the input.
75  By-products, by their nature, have no 
directly attributable costs.  Thus, Commerce fi rst looked to Tembec’s books and records, as required 
by the AD Agreement, to determine a reasonable va lue for wood chips.  Commerce then compared 
Tembec’s internal values with Temb ec’s market-based wood chip sales prices.  Just as internal costs 
are generally lower than market prices, in light of  the existence of profit, so, too, are by-product 
offsets to cost calculations gene rally lower than the market value for a by-product.  Commerce 
observed that Tembec’ s transfer prices between divisions were lower than its sales prices to 
unaffiliated parties.  It therefore determined that the use of the lower prices was a reasonable estimate 
of cost for the by-product.   
                                                     
 
74  See Susan Weiss Budak, Patrick R. Delaney, Barry J. Epstein, and Ralph Nach, Wiley GAAP 2002: 
Interpretation and Application of Generally Accepted Accounting Principles 2000, p. 76 (John Wiley & Sons 
2001).  (Exhibit US-83). 
75 Final Determination , Comment 11 at 60 (Exhibit CDA-2). WT/DS264/R 
Page B-58  
 
80.  It is important to note that, in the case of Tembec, Commerce examined unaffiliated market 
prices not for purposes of applying an arm’s length analysis but as a starting point in determining the cost of the wood chips.  Commerce’ s approach was consistent with the preference that Article 2.2.1.1 
of the AD Agreement expresses for reliance on a producer’s own books and records.   
 
81. With regard to West Fraser, Canada’s st atement in paragraph 235 of its First Written 
Submission accurately reflects Commerce’s general app lication of the arm’s length test.  However, it 
is important to note that Commerce does not apply this  test blindly, but will review the prices reported 
in the books and records of a respondent to determine if there are particular factors which justify the 
use of higher affiliated transaction values.  In th is case, Commerce disregarded West Fraser’s B.C. 
revenues from sales to affiliated parties where the average price charged to affiliated purchasers was 
higher than the average price at which wood chip s were sold to unaffiliated purchasers.  It is 
important to note that Commerce’s arm’s lengt h test – which Canada does not challenge per se
76 – is 
premised on the recognition that affiliated party transactions are inherently unreliable and are, 
therefore, subject to searching scrutiny.  In de termining whether transactions between affiliated 
parties occurred at arm’s length prices, Commerce determined that West Fraser’s affiliated sales 
prices were higher than its unaffiliated sales prices.77  Consistent with this finding, Commerce 
disregarded the affiliated prices and revalued West  Fraser’s chip sales based on the unaffiliated sales 
prices.  82. The AD Agreement expresses a preference for cal culating costs based on a party’s books and 
records, unless those data do not reasonably reflect  the costs associated with the production and sale 
of the product under consideration.  In applying its ar m’s length test to West Fraser’s affiliated chip 
sales, Commerce determined that those sales did not reasonably reflect the costs associated with the 
production and sale of the product under consideration.  Therefore, consistent with Article 2.2.1.1, 
Commerce revalued those chip sales based on unaffiliated sales prices.   
 
 129. Canada draws an analogy between the present case and the finding in para. 148 
of the AB in US - Hot-Rolled Steel that "di scretion must be exercised in an  even-handed 
way that is fair to all parties affected by  an anti-dumping investigation."  Please 
comment. 
 
83. Canada’s analogy to the Appellate Body’s finding in United States-Hot-Rolled Steel  is 
inapposite.  At issue in United States-Hot-Rolled Steel  was Commerce’s practice for excluding from 
its calculation of normal value affiliated party sales de termined to be outside the ordinary course of 
trade.  Under that practice, Commerce automatica lly excluded from the normal value calculation sales 
to affiliated parties at prices that are less than 99. 5 per cent of a weighted average of sale prices to 
unaffiliated parties.  Japan objected to that practi ce, in part because no similar, automatic exclusion 
applied to sales to affiliated parties at prices that  were greater than 100.5 per cent of a weighted 
average of sale prices to unaffiliated parties.  In other words, Japan objected to the lack of symmetry 
between the treatment of low-priced sales between affiliates and the treatment of high-priced sales 
between affiliates.  
84. In contrast, the wood chip offset issues in the present dispute do not raise a symmetry 
question.  The proposition that even-handedness requires similar situations to be treated similarly does 
not mean that Commerce’s method for evaluating wood chip sales to affiliated customers must be identical to its method for evaluating wood chip transfers between two divisions of the same 
company.  That is because sales to affiliates and transfers between divisions are not similar 
transactions.  They are fundamentally different types of transactions.  Even-handedness does not 
require that they be evaluated in an identical way. 
                                                     
 
76 See, e.g., Canada’s First Written Submission, para. 243. 
77 This analysis is reflected in DOC Memorandum on West Fraser’s Cost of Production and 
Constructed Value Calculation Adjustments for the Final Determination , at 2 and attach. 1 (Exhibit CDA-108).  WT/DS264/R 
 Page B-59 
 
 
 85. As the United States has explained in prior submissions, sales to affiliates are fundamentally 
different from transfers between divisions.  In the case of sales to affiliated companies, the question is 
whether those sales reflect a true market price, unaffected by the affiliation between the buyer and 
seller.  In the case of internal transfer prices be tween divisions, the question is whether the internal 
transfer price used by the company reasonably reflects the company’s cost of producing the 
by-product being used as an offset.  In the soft wood lumber investigation, Commerce did calculate 
wood chip offsets in “an even-handed way that is fair  to all parties affected.”  However, contrary to 
Canada’s suggestion, even-handedness did not require it to apply the same methodology to 
fundamentally different factual situations. 
 
86. It is also worth noting that, where an arm’ s length test was applied, as in the case of West 
Fraser, Canada has not challenged per se Commerce’s arm’s length test, only aspects of its application 
with respect to the wood chip by-p roduct issues.  In its First Written Submission, Canada stated that 
it: 
 
does not dispute that a determination of  non-arm’s length pricing could support a 
determination that books and records cont aining such prices might not reasonably 
reflect the costs associated with the production and sale of the product under consideration.  In such an instance, th e investigating authority might legitimately 
resort to alternative data and disregard the books and records.
78 
Indeed, Canada has not objected to the use of th e arm’s length test as it was applied by Commerce to 
other respondents.  Its objection with respect to West  Fraser is simply that “an unbiased and objective 
investigating authority could not have found that West Fraser’s recorded chip sales to affiliated 
purchasers were made at inflated, non-market prices."79  Commerce’s application of an arm’s length 
analysis in reviewing West Fraser’ s affiliated wood chip sales was  exercised in an even-handed way 
that was fair to the party affected.  
 
 130. Please comment on para. 107 of Canada’s Second Oral Statement. 
 
87. The accounting text that Canada cites for th e proposition that transactions between affiliated 
entities should be evaluated in the same manner as transactions between divisions of the same entity 
does not support its argument.  In fact, the text is s ilent on this issue.  Its silence does not amount to a 
recognition of a prohibition on different meth ods of evaluating sales to affiliates versus 
inter-divisional transfers.       88. Moreover, the accounting text cited by Cana da at para. 107 of its Second Oral Statement 
actually supports the US argument that the differe nce between inter-divisional transfer prices and 
sales prices to unaffiliated entities is a function of profit, or “gain.”  The text states that “[a]ny differences between actual selling prices and prices used  in by-product costing ar e treated as a gain or 
loss."
80  As the United States has explained, the AD Agreement requires that Commerce determine 
whether reported costs reasonably reflect costs of production.  Sales of merchandise in the market 
typically include not only actual costs of production, but an additional amount for profit.  Thus, while 
a company may assign a value to a by-product, it generally will sell that by-product for a higher 
amount to unaffiliated purchasers.  The accounting liter ature cited by Canada confirms the very idea 
that Canada has rejected: that a company may derive  a “gain” from the sale of a by-product in the 
marketplace, much the same way it would derive “p rofit” for the sale of fa ctors of production in the 
marketplace. 
                                                      
78 Canada First Written Submission, para. 243. 
79 Id. at para. 244. 
80 W.J. Morse and  H.P. Roth, Cost Accounting: Processing, Evaluating, and Using Cost Data , 3rd ed. 
(Reading, Mass.: Addison-Wesley, 1986), at 157-158.  (Exhibit CDA-175.) WT/DS264/R 
Page B-60  
 
 
K. WEST FRASER: 
 To the US:  
 133. With respect to West Fraser's McBride mill, the following statement is contained 
in p. 23 of DOC's verification report (Exhibit CDA-110): 
 
"[c]ompany officials explained that the McBride mill had a long-term contract in effect fo r chip sales when the mill was 
purchased and that all sales occurred during April and May 
2000.  They explained that the sales value of chips increased in May 2000 and that they were obligated to sell the chips at the lower contracted price." 
 Did DOC consider the above findings in the cont ext of the investigation?  If so, how.  
Please direct the Panel to the record.  The Pane l notes that in at least two instances DOC  
– that is, with respect to Canfor and Tembec – decided not to use certain price data for 
sales to unaffiliated parties.  How did those situations relating to Canfor and Tembec 
differ, if at all, from that of the McBride mill? 
 
89. Regarding whether Commerce considered the findings of its verification report, three points 
are worth noting: (1) West Fraser never argued th at its unaffiliated McBride mill sales were made 
under circumstances that caused them not to reasona bly reflect the market values for West Fraser’s 
chips, and in fact, Commerce found at verification th at the McBride mills sales reasonably reflected a 
market value for wood chips;
81  (2) even if West Fraser had made th is claim in the investigation, there 
is nothing about the nature of the long-term cont ract that would cause th e transactions to be 
“noncommercial,” given that long-term contracts are common commercial instruments;82 and (3) 
Commerce did not rely solely on the McBride mill sal es in its analysis; it also considered the Pacific 
Island Mill transactions, which we re market-based transactions.83 
 
90. The Panel refers to the treatment of sales to unaffiliated parties by Tembec and Canfor. With 
respect to Tembec, all related-party sales were  between divisions of the same legal entity.84  
Comparing Tembec's internal transfer prices for ch ips in British Columbia with Tembec's B.C. sales 
of chips to unaffiliated parties, Commerce determined  that the internal transfer prices were reasonable 
surrogates for wood chip costs.85  For Tembec's Quebec and Ontario internal chip sales, there was no 
usable market price data to evaluate whether in ternal transfer prices were preferential.  Thus, 
Commerce applied the company-specific fi nding for Tembec's B.C. chip sales, i.e., that the internal 
transfer prices for chips were not preferential, to the company's Quebec a nd Ontario chip sales and 
determined that Tembec's internal transfer prices for chips were not preferential and could be relied 
upon for the final determination.  In other words, th e results of the analysis on Tembec's B.C. chip 
sales were sufficiently reliable that they could be  applied to the company's chip sales in other 
provinces.  There was no claim that any contractua l arrangements influenced the price of Tembec’s 
                                                      
81 See US First Written Submission, para. 224, and record citations therein.  Notably, Canada stresses 
the importance of the alleged noncommercial nature of West Fraser’s McBride Mill contracts in front of the 
Panel, but during the investigation, West Fraser never even placed the contract on the record.  The 
commercial/noncommercial status of the contract was never called into question by West Fraser, so it was not 
an issue specifically addressed by Commerce. 
82 US Opening Statement at Second  Substantive Meeting, para. 79. 
83 See, e.g.,  West Fraser Cost Verification Exhibit C5, WF-Cost 007503 (Exhibit CDA-106); US First 
Written Submission, para. 219; US Answers to  Panel’s 19 June 2003 Questions, para. 71; 
84 See DOC Verification Report on the Cost of Production and Constructed Value Data Submitted by 
Tembec Inc. (29 January 2002) (Exhibit CDA-112 - Contains Business Confidential Information). 
85 Final Determination , Comment 11 at 61 (Exhibit CDA-2).  WT/DS264/R 
 Page B-61 
 
 
chip sales to either affiliated or unaffiliated parti es.  For these reasons, the facts regarding Tembec are 
different from those involving West Fraser.   91. With respect to Canfor, Commerce determin ed that its sales of wood chips from Alberta 
sawmills to unaffiliated purchasers were distorted due  to so-called "contractual arrangements" that did 
not reflect any market price during the relevant pe riod.  The exact nature of Canfor's “contractual 
arrangements” in Alberta is busin ess confidential information that cannot be disclosed in this 
proceeding, but it is a completely different factual situation from West Fraser's contract between the 
McBride mill and certain unaffiliated purchasers.
86  Thus, there was no reliable basis upon which to 
perform the arm's-length test for Canfor's chip sales in Alberta.  In British Columbia, Canfor's 
sawmills made no sales of chips to unaffiliated parties.87  With no unaffiliated chip sales in British 
Columbia, and no reliable results from Alberta that could be applied to British Columbia (different 
from Tembec's situation), Commerce was left with one option – comparing Canfor’s chip sales to affiliates in British Columbia with the weighted -average market price of other respondents’ 
unaffiliated chip sales in British Columbia.  The resu lt was that Canfor’s affiliated chip sales were 
found to be at arm's-length prices.  
 92. These wood chips sales situations of Tembec a nd Canfor were different from the situation of 
West Fraser.  First, West Fraser was the only one of these three respondents that had chip sales to both 
affiliated parties and unaffiliated par ties in all provinces in which it had chip sales.  Second, neither 
Canfor nor Tembec had contractual issues similar to West Fraser’s.  There were no contractual issues 
associated with Tembec ’s chip sales, and the cont ractual issues raised in connection with Canfor's 
chip sales were completely different factually from West Fraser’s issues.  Third, although Canada attempts to characterize West Fraser ’s unaffiliated B.C. chip sales as de minimis , those sales were 
actually sizable.
88  Accordingly, West Fraser was differently  situated than Canfor and Tembec.  In 
light of the differences, it was appropriate for Commerce to apply a different evaluation to West 
Fraser’s wood chip offset than it applied to Canfor or Tembec’s offset. 
 
L. SLOCAN: 
 To the US:   
 137. It is stated in para. 319 of Canada's Second Written Submission that: 
 
"Commerce did not include Slocan's futures trading profits anywhere in its preliminary determination." 
 With respect to the Final Determination, it  is stated in para. 327 of Canada's Second 
Written Submission that: 
 
"Commerce’s Final Determination left Slocan’s futures revenue unaccounted-for and excluded from the margin calculation." 
 Does the US agree with the above statements and other statements to that effect, 
contained in Canada's Second Written Submission?   
 93. While the quoted statements from paragr aphs 319 and 327 of Canada’s Second Written 
Submission are factually correct, they are incomplete and misleading.   
                                                     
 
86 See US First Written Submission, para. 255, note 268. 
87 Id. at 60. 
88 See US First Written Submission, para. 219. WT/DS264/R 
Page B-62  
 
94. Contrary to Canada’s sugges tion, throughout the course of the investigation, Commerce gave 
full and fair consideration to the adjustments that Slocan sought for its futures contract revenues.  
Moreover, contrary to Canada’s suggestion, there was no requirement that these amounts be included 
in the margin calculation absent a demonstration of effect on price comparability, as provided in 
Article 2.4 of the AD Agreement.   
 
95. As the panel in Egypt-Rebar  stated, the burden of substantiating a claim for an adjustment 
rests with the party seeking the adjustment  — here , Slocan — not with the investigating authority.
89  
The respondent has an affirmative obligation both  to assert and to justify the information and 
arguments required to prove its claims.  Not only is  this what Article 2.4 provides, it also makes 
sense, inasmuch as the relevant information will be  in the respondent’s hands.  The investigating 
authority has no duty to explore or grant adjust ments that have neither been requested nor 
demonstrated by the respondent.  96. Slocan sought two alternative adjustments for its  futures contract revenues.  First, it asked to 
have the revenues treated as an offset to direct selli ng expenses.  Alternatively, it asked to have them 
treated as an offset to financing expenses.  Slocan did not request nor did it demonstrate any further alternative basis for an adjustment.     97. Once Commerce evaluated and properly rejected  the two bases for adjustment that Slocan 
requested, Commerce had satisfied its obligation to consider an adjustment.  Any other conclusion 
suggests that respondent companies are free to make general claims of entitleme nt to adjustment with 
minimal explanation of the data and that it is the obligation of an investigating authority to find the 
appropriate basis for adjustment, even though th e explanation may be incomplete, unclear, or 
contradictory.  The AD Agreement does not require such an illogical result.  The only requirement 
under Article 2.4 is that due allowance be made, “i n each case on its merits,” where the difference is 
“demonstrated” to affect price comparability.
90 
 
 138. Please comment on the following statement contained in Exhibit CDA-123, 
page III.55: 
 
"[f]utures hedging contracts are not direct selling expenses/income, as they are not di rectly related to sales.  They 
are indirect selling expense/income, not a financing 
expense/income, and as such also are not proper as a set-off for 
interest expenses included in production costs." 
98. Exhibit CDA-123 is an excerpt from the Response Brief of the Investigating Authority to the 
NAFTA panel considering Commerce’ s lumber antidumping investigation.  The quoted statement was 
Commerce’s response to Slocan’s submission to the NAFTA Panel, in which Slocan stated for the 
first time that the futures profits might be an indirect selling expense/income.  Slocan had made a post 
hoc argument to which Commerce responded, as quoted  above.  Commerce’s statement correctly 
summarizes its post-proceeding understanding of how Slo can could have presented (but did not in fact 
present) its request for adjustment.  However, that  observation — made in litigation subsequent to the 
investigation — has no bearing on the question before this Panel.  The sole question before this Panel 
is whether Commerce’s rejection of Slocan’s two a lternative bases for its requested adjustment was 
based on a proper establishment of the facts and an unbiased and objective evaluation of those facts.  
The United States notes, moreover, that Slocan’s on ly submission during the investigation regarding 
                                                     
 
89 Egypt-Rebar , paras. 7.381, 7.387 (claim for adjustment for credit cost not properly raised at agency 
level). 
90 See US First Answers to Panel Questions, para 137.  WT/DS264/R 
 Page B-63 
 
 
any possible indirect selling expenses was, in f act, its unambiguous assertion in its 23 July 2001, 
Questionnaire Response that it had incurred no indirect selling expenses in the United States.91 
 
 139. Please comment on para. 192 of Canada's replies to Question 77 of the Panel: 
 
"[t]he prices that it offers on ot her sales are thus different than 
they would have been absent the safety net that hedging contracts provide, [sic] Thus, hedging activity, by definition, affects prices for all sales in the market, not only those made 
through the CME." 
99. Canada’s argument is post hoc rationalizations.  Slocan made no such argument during the 
investigation to support its requested adjustment.   100. As the United States stated in response to or al questions at the Second Panel Meeting, the 
total evidence on this issue consisted of two ge neral sentences in Slocan’s Section C Questionnaire 
Response, plus a brochure on hedging that was provi ded at verification.  This evidence failed to 
demonstrate an effect on price comparability necess ary to support an adjustment.  There is no per se  
rule — such as Canada advocates — that futures tradi ng by definition affects all sales in the market.   
 101. In its 23 July 2001 Questionnaire Response, Slocan unambiguously stated that the hedging profits should be treated as an offset to direct se lling expenses in the US market, as an adjustment for 
differences in the conditions and terms of sale.
92  It stated: 
 
Sometimes Slocan will sell its short positions and take the loss or profit between the sale and strike prices.  These expenses or revenues are linked to Slocan’s sales in the United States and so are being reported as direct selling expenses.
93   
Slocan failed to explain the link between these expe nses or revenues and any particular US sales of 
lumber.  It also said nothing about how its contracts might affect prices to US customers.  The facts 
failed to demonstrate that these profits should be consid ered an offset to direct selling expenses.  They 
were not directly related to particular softwood lumber sales.94 
 
102. Canada has engaged in a post hoc , theoretical exercise by now asserting: “Once Slocan 
demonstrated that it engaged in futures trading activity, which necessarily affects price comparability, 
Article 2.4 required Commerce to make an adjustment."95  This is a new assertion made by Canada, 
which has no basis in Article 2.4 or in the inves tigation record.  Slocan introduced no evidence to 
demonstrate — as Canada now claims — that “hed ging through futures trading activity affects all 
sales in a particular market."96 
 103. The record evidence submitted by Slocan  states that: “The purpose of hedging is to reduce the 
risk of holding lumber inventory ."
97  The Random Lengths  brochure on hedging (supplied by Slocan at 
verification) also states that when a company hedges, it can “ reduce the risk of holding or acquiring 
                                                      
91 Response of Slocan Forest Products Ltd To Sections B, C, & D of the Department of Commerce 
Antidumping Questionnaire, 23 July 2001, pages C35-37 (Exhibit US-71). 
92 Response of Slocan Forest Products Ltd To Sections B, C, & D of the Department of Commerce 
Antidumping Questionnaire, 23 July 2001, page C35-37 (Exhibit US-71).  In the same submission, Slocan 
unambiguously asserted that it did not incur indirect selling expenses. 
93 Id., p. C-35-36 (Exhibit US-71). 
94 See Slocan Cost Verification Report at 26 (Exhibit CDA-118); see also  Final Determination , 
Comment 21 (Exhibit CDA-2). 
95 Canada Second Written Submission, para. 336; see also   notes 356 and 363. 
96 Canada Second Written Submission, note 356. 
97 Sales Verification Report of 28 January 2002 , Exhibit 21 at VE 02361, Exhibit CDA-119. WT/DS264/R 
Page B-64  
 
inventory  through taking an equal a nd opposite position in the Random Length Lumber futures 
market."
98 
 
104. A demonstration that hedging is used to reduce the risk of holding inventory is not a 
demonstration of an effect on all prices in the ma rket.  Slocan’s evidence does not demonstrate the per 
se effect on price comparability asserted by Canada.  Nor does it demonstrate that Slocan’ s futures 
contracts (which did not result in delivery) affect ed any lumber prices included in our analysis.  
Contracts that resulted in actual delivery to Slocan’s  customers (in fact, the only sales for which prices 
were affected) were included as sales in the calcula tion of Slocan’s dumping margin.  But the profits 
earned on contracts that were sold and did not result in lumber delivery are not a proper basis for adjustments for terms and conditions of sale.  Acco rdingly, Commerce appropriately rejected Slocan’s 
requested adjustment. 
 
To both parties: 
  140. Please provide in diagram format the company structure of Weyerhaeuser 
International Inc., showing the relationship between Weyerhaeuser Canada, 
Weyerhaeuser US and Weyerhaeuser Internatio nal Inc.  In addition, could Canada 
provide the structure of the financial records of the different entities, that is, at which level are they audited/consolidated. 
 
105. In the Softwood Lumber  anti-dumping investigation, the Department of Commerce 
("Commerce") received information from Weyerhaeu ser Company, located in the United States, and 
its wholly-owned Canadian subsidiary, Weyerhaeuse r Company Ltd. (collectively, "Weyerhaeuser").  
The structure of these companies, in  diagram format, was submitted in the administrative record of the 
underlying investigation as part of Weyerhaeuser ’s response to the Department of Commerce’s 
Section A Questionnaire.  (Weyerhaeuser’s 22 J une 2001, Section A Questionnaire Response at A-7 
and Exhibits A-3 and A-5.)  Because these diagrams  have been designated as containing proprietary 
information by Weyerhaeuser, the Canadian respondent,  it is more appropriate for the Government of 
Canada to submit them in response to the Panel’s re quest.  Explanations of this structure were also 
provided in Weyerhaeuser’s 23 July 2001, Section D Response, at D-24-25, where it was noted that 
Weyerhaeuser Company prepares consolidated financia l statements in accordance with US GAAP and 
that Weyerhaeuser Company Ltd. prepares a set of financial statements for tax purposes.  
 
 
                                                     
 
98 Sales Verification Report of 28 January 2002, Exhibit 21, Random Lengths - An Introductory Hedge 
Guide, at VE 02364, Exhibit CDA- 119.