WORLD TRADE  
ORGANIZATION  WT/DS257/RW 
1 August 2005 
 (05-3264) 
 Original: English   
 
  
     
 
    
 
UNITED STATES – FINAL COUNTERVAILING DUTY 
DETERMINATION WITH RESPECT TO CERTAIN 
SOFTWOOD LUMBER FROM CANADA 
 
Recourse by Canada to Article 21.5  
(DS257) 
  
Report of the Panel 
 
 
 
 
 
 
    WT/DS257/RW 
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TABLE OF CONTENTS 
Page  
 
I. PROCEDURAL BACKGROUND ..........................................................................................1  
II. FACTUAL ASPECTS ..............................................................................................................2  
III. INTERIM REVIEW................................................................................................................. 3 
A. REQUEST BY CANADA FOR REVIEW OF PR ECISE ASPECTS OF THE PANEL REPORT .......................3  
1. Request of Canada .............................................................................................................. ......3  
2. Comments of the United States................................................................................................4  
B. REQUEST BY THE UNITED STATES FOR REVI EW OF PRECISE ASPECTS OF THE PANEL 
REPORT ............................................................................................................................... .........4  
1. Request of the United States ................................................................................................... .4 
2. Comments of Canada ............................................................................................................. ..5 
C. EVALUATION BY THE PANEL .......................................................................................................5  
1. Request of Canada .............................................................................................................. ......5  
2. Request of the United States ................................................................................................... .5 
IV. FINDINGS....................................................................................................................... ..........6  
A. US REQUEST FOR PRELIMINARY RULING .....................................................................................6  
1. Arguments of the parties....................................................................................................... ...6 
2. Arguments of the third parties ..............................................................................................11  
3. Evaluation by the Panel........................................................................................................ ..14 
B. SCOPE OF USDOC 'S PASS -THROUGH ANALYSIS ..........................................................................18  
1. Arm's length transactions ...................................................................................................... 19 
(a) Arguments of the parties....................................................................................................... ....19  
(b) Evaluation by the Panel ........................................................................................................ ....20  
(i) Scope of original panel findings compared  with scope of appeal and scope of 
Appellate Body rulings......................................................................................................... .....20  
(ii) Sales of logs by tenured timber harvesters that do not produce lumber to unrelated 
lumber pr oducers............................................................................................................... .......21  
(iii) Sales of logs by tenured harvester- sawmills to unrelated sawmills..........................................23  
2. Rejection of aggregate data.................................................................................................... 25 
(a) Arguments of the parties....................................................................................................... ....25  
(b) Evaluation by the Panel ........................................................................................................ ....26  
3. Sawmill-to-sawmill transactions............................................................................................27  
(a) Arguments of the parties....................................................................................................... ....27  
(b) Evaluation by the Panel ........................................................................................................ ....27  
(i) Section 129 Determination ...................................................................................................... .28 
(ii) First Assessm ent Review........................................................................................................ ...29 WT/DS257/RW                   
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C.
 THE BENCHMARKS USED IN THE USDOC 'S PASS -THROUGH ANALYSIS .......................................30  
1. Arguments of the parties....................................................................................................... .30 
2. Evaluation by the Panel........................................................................................................ ..30 
D. COUNTERVAILING DUTY AMOUNT ............................................................................................31  
1. Arguments of the parties....................................................................................................... .31 
2. Evaluation by the Panel........................................................................................................ ..31 
V. CONCLUSIONS AND RECOMMENDATIONS................................................................31  
  WT/DS257/RW 
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TABLE OF ANNEXES 
 
 
ANNEX A 
 
Submissions of Canada 
 
Contents Page 
Annex A-1 First Written Submission of Canada – 24 Febr uary 2005  A-2 
Annex A-2 Second Written Submission of Canada:  Response of Canada to the 
Request by the United States for Preliminary Rulings and Rebuttal Submission of Canada – 31 March 2005 A-33 
Annex A-3 Oral Statement of  Canada – 21 April 2005 A-47 
 
 
ANNEX B 
 
Submissions of the United States 
 
Contents Page 
Annex B-1 First Submission and Request for Preliminary Ruling of the 
 United States – 10 March 2005 B-2 
Annex B-2 Second Written Submission of the United States – 31 March 2005 B-9 
Annex B-3 Oral Statement of the United states – 21 April 2005 B-25 
 
 
ANNEX C 
 
Submissions of Third Parties 
 
Contents Page 
Annex C-1 Third Party Submission of China – 17 March 2005 C-2 
Annex C-2 Oral Statement of China – 21 April 2005 C-10 
Annex C-3 Third Party Submission of the European Communities – 
17 March 2005 C-13 
Annex C-4 Oral Statement by the European Communities – 21 April 2005 C-20 
 
 
ANNEX D 
 
Request for Establishment of a Panel 
 
Contents Page 
Annex D-1 Request for Establishment of a Panel D-2 
 
 
  
 WT/DS257/RW                   
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TABLE OF CASES CITED IN THIS REPORT 
 
Short Title Full Case Title and Citation of Case 
Australia – Automotive Leather II (Article 21.5 –US)
  Panel Report, Australia – Subsidies Provided to 
Producers and Exporters of Automotive Leather – 
Recourse to Article 21.5 of the DSU by the 
United States , WT/DS126/RW and Corr.1, adopted 
11 February 2000, DSR 2000:III, 1189 
Australia – Salmon  
(Article 21.5 – Canada)  Panel Report, Australia – Measures Affecting 
Importation of Salmon – Recou rse to Article 21.5 of the 
DSU by Canada , WT/DS18/RW, adopted 
20 March 2000, DSR 2000:IV, 2031 
Brazil – Aircraft  Appellate Body Report, Brazil – Export Financing 
Programme for Aircraft , WT/DS46/AB/R, adopted 
20 August 1999, DSR 1999:III, 1161 
Canada – Aircraft Panel Report, Canada – Measures Affecting the Export 
of Civilian Aircraft , WT/DS70/R, adopted 
20 August 1999, as upheld by the Appellate Body 
report, WT/DS70/AB/R, DSR 1999:IV, 1443  
Dominican Republic – Import and Sale of 
Cigarettes Appellate Body Report, Dominican Republic – 
Measures Affecting the Importation and Internal Sale 
of Cigarettes , WT/DS302/AB/R, 25 April 2005, 
adopted 19 May 2005. 
Dominican Republic – Import and Sale of Cigarettes Panel Report, Dominican Republic – Measures 
Affecting the Importation and Internal Sale of 
Cigarettes , WT/DS302/R, 26 November 2004, 
adopted 19 May 2005. 
EC – Bed Linen  
(Article 21.5 – India)  Appellate Body Report, European Communities – Anti-
Dumping Duties on Imports of Cotton-Type Bed Linen from India – Recourse to Article 21.5 of the DSU  by 
India , WT/DS141/AB/RW, adopted 24 April 2003 
 Panel Report, European Communities – Anti-Dumping 
Duties on Imports of Cotton- Type Bed Linen from India 
– Recourse to Article 21.5 of the DSU  by India , 
WT/DS141/RW, adopted 24 April 2003, as modified by the Appellate Body Report, WT/DS141/AB/RW 
US – Line Pipe Appellate Body Report, United States – Definitive 
Safeguard Measures on Impo rts of Circular Welded 
Carbon Quality Line Pipe from Korea , 
WT/DS202/AB/R, adopted 8 March 2002 
US – Shrimp  (Article 21.5 – Malaysia) Appellate Body Report, United States – Import 
Prohibition of Certain Shrimp and Shrimp Products – 
Recourse to Article 21.5 of the DSU by Malaysia , 
WT/DS58/AB/RW, adopted  21 November 2001, DSR 
2001:XIII, 6481 
US – Softwood Lumber III Panel Report, United States – Preliminary 
Determinations with Respect to Certain Softwood 
Lumber from Canada , WT/DS236/R, adopted 
1 November 2002  WT/DS257/RW 
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Short Title Full Case Title and Citation of Case 
US – Softwood Lumber IV Appellate Body Report, United States – Final 
Countervailing Duty Determ ination with Respect to 
Certain Softwood Lumber from Canada , 
WT/DS257/AB/R, adopted 17 February 2004  
Panel Report, United States – Final Countervailing 
Duty Determination with Respect to Certain Softwood 
Lumber from Canada , WT/DS257/R and Corr.1, 
adopted 17 February 2004, as modified by the Appellate Body Report, WT/DS257/AB/R 
 
  WT/DS257/RW 
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I. PROCEDURAL BACKGROUND 
1.1 On 17 February 2004, the Dispute Settleme nt Body ("DSB") adopted the recommendations 
and rulings in the reports of the orig inal panel and the Appellate Body in US – Softwood Lumber IV.  
1.2 In respect of pass-through, the original panel concluded that: 
"the USDOC's[1] failure to conduct a pass-through analysis in respect of upstream 
transactions for log and lumber inputs be tween unrelated entitie s was inconsistent 
with Article 10 SCM Agreement and Article VI:3 of GATT 1994."2 
1.3 More specifically, the original panel found that: 
"the USDOC's failure  to conduct a pass-throug h analysis in respect of logs sold by 
tenure-holding timber harvesters (whether or not also lumber producers) to unrelated 
sawmills producing subject softwood lumber; and in respect of lumber sold by 
tenure-holding harvester/sawmills to unr elated lumber re-manufacturers was 
inconsistent with Article 10 and thus Article 32.1 SCM Agreement, and with 
Article VI:3 of GATT 1994."3 
1.4 The original panel therefore upheld Canada's  claim that the United States' imposition of 
countervailing duties in respect of such transactions  was inconsistent with Articles 10 and 32.1 SCM 
Agreement and Article VI:3 of GATT 1994.4 
1.5 The United States appealed from the original pa nel's pass-through conclusion.  The Appellate 
Body stated that the United States "contend[ed] that the [original panel] erred in finding that a pass-
through analysis is required in respect of sales of logs from tenure-holding sawmills producing 
softwood lumber to unrelated sawmills, and for sales of lumber by tenure-holding sawmills to 
unrelated lumber remanufacturers."5  According to the Appellate Body, the United States "[did] not 
appeal the [original panel's] finding that, wher e a subsidy is received by an independent timber 
harvester[6], a pass-through analysis is required in respect  of sales to unrelated sawmills or unrelated 
remanufacturers".7 
1.6 In respect of pass-through, the Appellate Body st ated that it upheld the original panel's finding 
that: 
"USDOC's failure to conduct a pass-through anal ysis in respect of arm's length sales of logs  
by tenured harvesters/sawmills to unrelated sawmills is inconsistent with Articles 10  
and 32.1 of the  SCM Agreement  and Article VI:3 of the GATT 1994."8 
1.7 The Appellate Body stated that it reversed the original panel's finding that: 
                                                      
1 We shall continue the original panel's practice of referring to the US Department of Commerce as 
"USDOC". 
2 Panel Report, US – Softwood Lumber IV (hereinafter "Panel Report"), para. 8.1(c). 
3 Panel Report, para. 7.99. 
4 Panel Report, para. 8.1(c). 
5 Appellate Body Report, US – Softwood Lumber IV, (hereinafter "Appellate Body Report"), para. 16, 
emphasis in original. 
6 Before the Appellate Body, the United States used the term "independent harvester" in the same way 
as it had in the original dispute, namely, "'entities that do  not  produce [softwood lumber] product[s] under 
investigation'".  Appellate Body Report at para. 127.  In the Section 129 Determination, the USDOC used the 
term "independent harvester" to refer to "tenured independent harvesters/sawmills" (see note 52 infra ). 
7 Appellate Body Report, para. 16, footnote omitted. 
8 Appellate Body report, para. 167 (e), emphasis in original. WT/DS257/RW                   
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"USDOC's failure to conduct a pass-through analysis in respect of arm's length sales 
of  lumber by tenured harvesters/sawmills to  unrelated remanufacturers is 
inconsistent with Articles 10 and 32.1 of the  SCM Agreement  and Article VI:3 of the 
GATT 1994."
9 
1.8 At the DSB meeting of 17 December 2004, the United States informed the DSB that it had 
complied with the DSB's recommendations and rulings. 
1.9 On 30 December 2004, Canada requested the establishment of a panel pursuant to 
Article 21.5 of the Understanding on Rules and Procedures Go verning the Settlement of Disputes  
("DSU").10  At the same time, Canada also requested  authorization from the DSB to suspend the 
application to the United States of certain con cessions or other obligations, pursuant to DSU 
Article 22.2. 
1.10 At its meeting of 14 January 2005, the DSB d ecided, in accordance with DSU Article 21.5, to 
refer to the original panel the matter raised by Cana da in document WT/DS257/15.  At that meeting, it 
also was agreed that the Panel should have  standard terms of reference as follows: 
"To examine, in the light of the relevant provisions of the covered agreements cited 
by Canada in document WT/DS257/15, the ma tter referred to the DSB by Canada in 
that document, and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements".
11 
1.11 The Panel was composed as follows:  
Chairman: Mr Elbio O. Rosselli 
 Members: Ms Marta Calmon Lemme 
   Mr Remo Moretta 
 1.12 On 14 January 2005, the DSB also referred the matter of suspension of concessions to the 
Panel for arbitration pursuant to DSU Article 22.6.
12 
1.13 China and the European Commun ities reserved their rights to participate in the Panel 
proceedings as third parties. 
1.14 The Panel met with the parties and third parties on 21 April 2005. 
1.15 The Panel submitted its interim report to the pa rties on 20 May 2005.  The Panel submitted its 
final report to the parties on 3 June 2005. 
II. FACTUAL ASPECTS 
2.1 With a view to implementing the rulings and r ecommendations of the DSB in respect of this 
dispute, on 19 November 2004, the United States issu ed a draft determination pursuant to Section 129 
of the Uruguay Round Agreements Act .  The United States issued its final Section 129 Determination 
on 6 December 2004 (the "Section 129 Determination"). 
2.2 On 20 December 2004, the United States published the final results of the first assessment 
review of the countervailing duties on imports of  softwood lumber from Canada (the "First 
                                                      
9 Appellate Body Report, para. 167 (f), emphasis in original. 
10 WT/DS257/15. 
11 WT/DS257/19. 
12 WT/DS257/20.  WT/DS257/RW 
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Assessment Review").  Pursuant to the US retrospective system of duty assessment, the First Assessment Review provided for retrospective fina l assessment of the countervailing duties to be 
levied on import entries of softwood lumber from Canada between 22 May 20 02 and 31 March 2003.  
The First Assessment Review also determined the cash deposit rate to be levied on imports of softwood lumber from Canada as of 20 December 20 04.  The First Assessment Review was initiated 
in July 2003, pursuant to a request in May 20 03 from Canada and other interested parties. 
2.3 The arguments of the parties and third parties as  presented to the Panel are contained in their 
written and oral submissions, the texts of  which are appended to this report.   
III. INTERIM REVIEW 
3.1 The Panel issued its interim report to the parties on 20 May 2005.  On 24 May 2005, both 
parties submitted written requests to the Panel to review precise aspects of the interim report but 
neither party requested an interim review meeti ng.  On 26 May 2005, both parties commented in 
writing on the other party's requests for review of the interim report.  This section summarizes the 
parties' requests and comments, and contains the Panel's responses thereto, and forms part of the 
Panel's findings.  
A. 
REQUEST BY CANADA FOR REVIEW OF PR ECISE ASPECTS OF THE PANEL REPORT  
1. Request of Canada 
3.2 Canada asks the Panel to introduce changes into  paragraphs 4.71-4.73, 4.82, 4.83, 4.88, and 
4.89. 
3.3 Canada asks the Panel to make findings, in  paragraph 4.73, concerning the USDOC's 
exclusion of certain transaction-specific data on l og sales (submitted by Tembec (Manitoba)).  Canada 
notes that although the USDOC excluded these data fr om pass-through analysis for reasons other than 
not being at arm's length13, these reasons were "equally inconsistent" with the United States' 
obligations pursuant to the DSB's recommendations  and rulings.  Canada asserts that the parties 
would "benefit" from findings by the Panel on the Tembec (Manitoba) data.   
3.4 Canada also asks the Panel to expand the d escription of Canada's arguments in paragraph 
4.83, concerning the USDOC's treatment of aggregat e data submitted by Canadian respondents.  The 
suggested amendments would expand on the descripti on of Canada's arguments that the sample data 
submitted by Canadian respondents were representativ e, that it was impossible for respondents to 
provide the full data requested by the USDOC, or more  data than they did provide, and that USDOC 
was obliged to use the data provided by the res pondents as the basis of the pass-through analysis.   
3.5 Concerning paragraph 4.88, Canada takes issue wi th the Panel's statement that Canada "has 
not disputed that the USDOC needed" company-sp ecific and/or transaction-specific data for the 
purpose of determining affiliation of parties to th e log sales transactions, which according to Canada 
is inaccurate in the light of the totality of Canada 's arguments, as reflected in Canada's suggested 
redraft of paragraph 4.83.  Canada also asks the Panel to insert a statement that the USDOC accepted 
that aggregate data could, and did, control for affiliation.   
3.6 In paragraph 4.89, Canada asks the Panel to in sert a statement that "investigating authorities 
nevertheless have an obligation to perform analyses, on the basis of available data, in a manner that is 
consistent with the obligation under Article VI :3 of GATT 1994 and Articles 10 and 32.1 of the SCM 
                                                      
13 According to both parties, USDOC did not conduct a pass-through analysis in respect of these log 
sales because the sales were made after the end of the period of investigation.   WT/DS257/RW                   
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Agreement not to presume that the subsidy passed through to an unrelated purchaser of the input 
product". 
3.7 Canada states that the Panel finds in para graphs 4.71-4.73, and 4.82 that the USDOC was 
required to conduct a pass-through analysis irrespectiv e of any considerations as to whether or not 
sales were at "arm's length".  Canada requests that the Panel insert a statement in this context that 
"even if the U.S. arguments on 'arm's length' were accepted, the five 'factors' identified by USDOC in 
this case, including who pays the stumpage and th e presence of non-cash components to a transaction, 
do not transform an arm's-length transaction in to one that is not at arm's length".  
2. Comments of the United States 
3.8 The United States submits that the Panel should reject all of the amendments proposed by 
Canada.  Concerning paragraph 4.73, the United St ates argues that the issue concerning Tembec 
(Manitoba) raised by Canada in its request for interi m review is outside the Panel's terms of reference, 
as Canada's claim on pass-through was concerned w ith the appropriateness of USDOC's arm's length 
analysis.  The United States further argues that  in any case, as acknowledged by Canada, Tembec 
(Manitoba) submitted no data to the USDOC concerni ng log sales during the period of investigation. 
3.9 The United States objects to Canada's request to expand the description of Canada's 
arguments in paragraph 4.83, stating that the origin al summary is sufficient, and that if Canada's 
request were accepted, without an equivalent expans ion of the description of the US arguments, this 
would create an appearance of imbalance.  Furtherm ore, given that the submissions of the parties are 
appended to the report, the United States consider s a full recitation of detailed arguments unnecessary. 
3.10 Concerning paragraph 4.88, the United States disagrees as a factual matter that Canada 
disputed the USDOC's need fo r company-specific and/or tran saction-specific for purposes of 
determining affiliation.  The United States asserts th at Canada is confusing the question of whether 
the USDOC needed certain data with whether the USDOC should have accepted whatever data 
Canada offered.   
3.11 The United States also disagrees with Canada's  suggested amendment to paragraph 4.89, 
stating that the suggestion is inappropriate, and would directly contradict the Panel's immediately 
preceding statement that the Panel is reluctant to instruct investigating authorities concerning data 
issues in pass-through analysis.   
3.12 Finally, the United States takes issue with Cana da's suggested amendmen t to paragraphs 4.71-
4.73 and 4.82 to "clarify" certain points in respect of the USDOC's arm's length factors.  According to 
the United States, given that the Panel found that  the USDOC should have conducted a pass-through 
analysis regardless of the issue of arm's length, Ca nada's suggestion is irrele vant and would call on the 
Panel to make substantial new findings that would then need to be subjected to additional interim 
review.   
B. 
REQUEST BY THE UNITED STATES FOR REVIEW OF PRECISE ASPECTS OF THE PANEL REPORT  
1. Request of the United States 
3.13 The United States requests the Panel to make certain technical drafting corrections and 
clarifications to paragraphs 2.2, 4.20, 4.21, and 4.48, and to footnote 45 of the interim report (footnote 
47 of the final report).  The United States also reque sts substantive changes to paragraphs 4.38, 4.41, 
4.47, 4.48 and 4.49.   
3.14 First, the United States requests that in para graphs 4.38, 4.41 and 4.49, we change the 
references to "dispute settlement decisions" to "dispute settlement reports", to avoid potential  WT/DS257/RW 
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confusion with "decisions" that might be made, for example, pursuant to Article IX of the Marrakesh 
Agreement.    
3.15 Second, the United States asserts that at para graph 4.47, the Panel mi scharacterizes  the United 
States' argument concerning the EC – Bed Linen (Article 21.5)  dispute.  The United States indicates 
that its argument on that point is corr ectly summarized at paragraph 4.45.   
3.16 Third, the United States contends that paragraph 4. 48 is factually incorrect in stating that the 
Final Determination and the First Assessment Review involve "'pass-through of the subsidy benefit, in 
respect of the same import entries . . . . '" 
2. Comments of Canada  
3.17 Canada only comments on the last of the United States' comments, concerning the factual 
accuracy of the reference to "the same import entries"  in paragraph 4.48.  A ccording to Canada, this 
statement is factually accurate, and the issue is corr ectly described at paragraph 4.41, the accuracy of 
which the United States does not contest.   
C. EVALUATION BY THE PANEL  
1. Request of Canada 
3.18 Concerning Canada's request in respect of para graph 4.73, we have not made any findings in 
respect of the issue concerning Tembec (Manitoba)'s sales of logs.  We consider that this issue falls outside our terms of reference, as set by the re quest for establishment of the Panel, as it does not 
correspond to any of the legal claims set forth in th e first four "tirets" on page two of the request 
(WT/DS257/15). 
3.19 In response to Canada's request s concerning the summary of its arguments in paragraph 4.83, 
we have slightly modified the text of that paragraph, and have inserted footnote 65.   
3.20 Concerning paragraph 4.88, we do not consider that Canada has disputed the USDOC's need 
for company-specific and/or transaction-specific da ta to determine affiliation of parties to log 
transactions.  We have introduced footnote 66 to cl arify our understanding of the nature of, and the 
USDOC's use of, the aggregate data that the USDOC accepted for purposes of determining affiliation.   
3.21 We have not introduced in paragraph 4.89 th e statement requested by Canada, but have 
introduced a final sentence to that paragraph, as well as footnote 67, to clarify our view in respect of 
the issues raised by Canada's comment. 
3.22   We have not introduced in paragraphs 4.71-4.73 and 4.82 the statement requested by Canada 
concerning certain of the arm's length factors applied by the USDOC.  Such a statement would be inappropriate in view of our findings that p ass-through analysis should have been conducted in 
respect of log sales between unrelated parties, irre spective of any considerations as to whether or not 
such sales were "arm's length".   
2. Request of the United States 
3.23 We have accepted the United States' suggested changes to paragraphs 2.2, 4.20, 4.21, and 
4.48, and to footnote 45 of the interim report (footno te 47 of the final report).  We also have made 
other technical corrections to the report, as necessary.     
3.24 We have not accepted the United States' sugges tion in respect of paragraphs 4.38, 4.41 and 
4.49, because we believe that it is clear from the context that the word "decisions" refers to the WT/DS257/RW                   
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findings cited in that section of the report, and is not used in a generic sense that could potentially 
sweep in other kinds of actions.   
3.25 In the light of the US comments, we have ame nded paragraph 4.47 slightly, to refer to what 
we see as the implication of the US argument, rather  than to refer to the US argument as such.   
3.26 We have added footnote 44, to clarify to wh ich import entries the phrase in paragraph 4.48  
"the same import entries" refers.  Footnote 44 contai ns a cross-reference to paragraph 4.41, cited by 
Canada in its comments on the US sugg estion concerning this paragraph.   
IV. FINDINGS 
4.1 This case concerns Canada's claim that the US DOC failed to properly implement the rulings 
and recommendations of the DSB in respect of the US – Softwood Lumber IV  proceeding.  In 
particular, Canada claims that, in the Section 129 Determination and First Assessment Review, the 
USDOC continued to presume pass-through of subsid y benefit in respect of various categories of 
sales of logs to unrelated purchasers.  Before exam ining Canada's claims, we shall first rule on a 
preliminary ruling requested  by the United States. 
A. 
US REQUEST FOR PRELIMINARY RULING  
1. Arguments of the parties 
4.2 The United States requests a preliminary ruling th at the final results of the First Assessment 
Review of the countervailing duty order on softwo od lumber from Canada are not “measures taken to 
comply” with the recommendations and rulings of the DSB under Article 21.5 of the DSU.  According to the United States, these results fall outsi de the scope of Article 21. 5, and this Panel lacks 
jurisdiction to review them. 
4.3 The United States submits that the First Assess ment Review was a proceeding: separate from 
both the original countervailing duty investigatio n determination challenge d by Canada and the 
Section 129 Determination at issue here; initiated prior to the DSB’s adoption of recommendations 
and rulings in this dispute; that had nothing to do with complying with the recommendations and 
rulings of the DSB.  
4.4 The United States notes that the EC – Bed Linen (Article 21.5 – India)  panel granted the 
European Communities’ preliminary ruling request to exclude from consider ation certain antidumping 
duty measures taken by the European Communities that  were cited by India, but that the panel found 
were not “taken to comply.”  The United States asser ts that, in that dispute, in which the European 
Communities was found to have incorrectly calculate d anti-dumping duties in an investigation of bed 
linens from India, the European Communities volunta rily applied the revised calculation method to 
anti-dumping duties imposed on Pakistan and Egypt.  The United States asserts that, after concluding 
that no duties should be imposed on bed linen from t hose sources (as a result of the recalculation), the 
European Communities re-examined whether imports from India, considered alone, caused injury to 
the domestic industry.  According to the United States, the European Co mmunities concluded that 
they did, and therefore affirmed the imposition of anti-dumping duties on bed linen from India.  The 
United States asserts that India challenged this fi nding of injury and the resulting imposition of duties 
on bed linen from India as a WTO-inconsistent measure “taken to comply” under Article 21.5. 
4.5 The United States notes that the panel, in deciding not to review the latter measure, stated that  
"[T]he fact that the EC, subsequent to its re-examination of the dumping 
determinations with respect to imports from Egypt and Pakistan, and in the context of 
a review initiated on the request of Eurocoto n, carried out an analysis of whether  WT/DS257/RW 
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injury was caused by imports from India alone does not, ipso facto , establish that 
Regulation 696/2002 is a measure “taken to  comply”.  Rather the opposite would 
seem to be the case – that Regulation would seem to be an entirely new determination, reached as a result of events  subsequent to the EC having adopted a 
measure to comply with the DSB’s recommendation."
14    
 
4.6 The United States submits that the final resu lts of the First Assessment Review are not 
“measures taken to comply”.  The United States asser ts that, before the original panel, Canada 
challenged the USDOC’s Final  De termination in the countervailing duty investigation on softwood 
lumber from Canada.15  After the DSB adopted its recomme ndations and rulings, and within the 
agreed “reasonable period of time”, the United States  made the Section 129 Determination, in which it 
conducted a “pass through” analysis and recalculated the countervailing duty rate.16  The new reduced 
rate was applicable to entries of subject merchandise on or after 10 December 2004.  The United States submits that original investiga tions and assessment reviews are different processes 
which serve distinct purposes.  The purpose of an inv estigation is to determine the existence, degree, 
and effect of any alleged subsidy; the purpose of an assessment review is to determine the amount of 
duty to be assessed on previous imports of subject merchandise and the estimated countervailing duty 
rate to be applied to future imports.  The United States argues that the distinction between 
countervailing duty investigations  and assessment procedures is explicitly recognized in the 
Agreement on Subsidies and Countervailing Measures ("SCM Agreement").
17 
4.7 The United States submits that the First Assessment Review was not a measure taken to 
comply with the recommendations and rulings of the DSB.  Rather, it resulted from a separate 
affirmative request by Canada, among others, that USDOC review new sales and subsidies data for 
the purposes of assessing countervailing duties for impor ts during the review period and of setting a 
new estimated countervailing duty rate for subsequent imports. 
4.8 The United States also argues that the First As sessment Review was initiated on 1 July 2003, 
eight months  before the DSB's recommendations and rulings  in this dispute were adopted.  The 
United States asserts that the First Assessment Review , therefore, had nothing whatsoever to do with 
“implementing” the DSB's recommendations and rulin gs.  The United States submits that, for obvious 
temporal reasons, the results of this assessment revi ew – which was initiated before the DSB issued its 
recommendations and rulings – cannot be considered “measures taken to  comply”.  By contrast, the 
United States asserts that the USDOC initiated th e Section 129 proceeding for the specific purpose of 
addressing the DSB’s recommendations and rulings.  The United States further asserts that the 
agreement of the parties on the “reasonable peri od of time” to implemen t the recommendations and 
rulings in this dispute was negotiated in the light of, and specifically refers to, the US procedures for 
implementing WTO reports18 – that is, the Section 129 procedures. 
4.9 The United States submits that Article 21.5 proceed ings are by their nature more focused and 
limited than other panel proceedings under Article 6. 2 of the DSU.  The United States argues that it is 
beyond the scope of such a limited 90-day inquiry to  fully examine an entirely new set of assessment 
review results based on a wholly new administra tive record, consisting of new sales, new imports, 
potentially new respondents and potentially new subsidy programmes. 
4.10 Canada submits that the final results of the First Assessment Review rendered non-existent 
the pass-through analysis and adjustment under the Section 129 Determination, and that the final 
results of the First Assessment Review are therefore an integral part of the Panel’s determination “as 
                                                      
14 EC – Bed Linen (Article 21.5 – India) (Panel), para. 6.20. 
15 Panel Report, paras 2.1 - 2.4. 
16 Section 129 Determination.  Exhibit CDA-5. 
17 The US refers in this regard to SCM Agreement, fn. 52. 
18 WT/DS257/13. WT/DS257/RW                   
Page 8  
 
to the existence … of measures taken to comply” under Article  21.5 of the DSU.  Canada also argues 
that upholding the US preliminary objection woul d be contrary to the purpose of Article 21.5 
proceedings. 
4.11 Regarding the Section 129 Determination be ing rendered non-existent by the First 
Assessment Review, Canada argues that in Australia – Leather II (Article 21.5 - US) , the United 
States itself argued that measures that undo measures taken to comply appropriately fall within the 
scope of Article 21.5 of the DSU: 
Under Article 21.5, this pane l is to consider “the existence or consistency with a 
covered agreement of measures taken to  comply with the recommendations and 
rulings.”  Plainly, if this Panel can de termine the “existence” of measures taken to 
comply with the recommendations, it can c onsider whether the measures purportedly 
taken to comply were effectively rendered non-existent. 
4.12 Furthermore, Canada asserts that, in declin ing to include certain EC measures in its 
compliance review, the abovementioned EC – Bed Linen (Article 21.5 - India)  panel specifically 
noted that India “does not argue that the subseque nt two measures undo the compliance effectuated by 
the first measure.”
19 
4.13 Canada also submits that the final results of the First Assessment Review are properly before 
the Panel because they are inextricably linked to the recommendations and rulings of the DSB and to 
what the United States claims as being its “measures taken to comply”.  Canada asserts that the treatment by USDOC of the pass-through issue in the final results of its First Assessment Review is 
nearly identical to its treatment of pass-through in the Section 129 Determination.  Canada also notes 
that USDOC published preliminary results for the First Assessment Review containing a “pass-
through” section nearly four months after the DSB made its recommendations and rulings, and issued 
final results nearly ten months after those reco mmendations and rulings.  Canada asserts that the 
Section 129 Determination and the First Assessment Review are inextricably linked to the DSB 
recommendations because they both address the obliga tions of the United States to conduct pass-
through analyses with respect to independent ha rvester and sawmill-to-sawmill log transactions for 
the same exports for the same period of time. 
4.14 Regarding the US argument that assessment review s and original investigations are different 
proceedings, and that the review was initiated prior to the recommendations and rulings of the DSB, 
Canada submits that the United States ignores the fact that, under US law, the USDOC may 
implement the recommendations and rulings of the DSB concerning an original investigation through 
a subsequent administrative review.
20 
4.15 Canada asserts that Article 21.5 of the DSU requires a compliance panel to examine the 
substance of a Member’s measures notwithstanding any argument that the form of the measures could preclude compliance review.  Canada notes that in Australia – Automotive Leather II (Article 21.5 - 
                                                     
 
19 EC – Bed Linen (Article 21.5) , Panel Report, at  para. 6.21. Canada also refers to the Third Party 
Submission of the European Communities (Annex C-3), at para. 26, citing Dominican Republic – Import and 
Sale of Cigarettes , at paras. 7.11-7.21. 
20 Canada refers in this regard to the “Statement of Administrative Action” in Message from the 
President of the United States Transmitting the Uruguay Round Agreements, Texts of  Agreements Implementing 
Bill, Statement of Administrative Action and Required Supporting Statements , H.R. Doc. No. 103-316, vol. 1 at 
656 (Exhibit CDA-1), at 356-357. (“Furthermore, while subsection 129(b) [of the Uruguay Round Agreements 
Act] creates a mechanism for making ne w determinations in response to a WTO report, new determinations may 
not be necessary in all situations. In many instances, such as those in whic h a WTO report merely implicates the 
size of a dumping margin or countervailable subsidy rate (as opposed to whether a determination is affirmative 
or negative), it may be possible to implement the WTO report recommendations in a future administrative 
review under section 751 of the Tariff Act.”)  WT/DS257/RW 
 Page 9 
 
 
US), for example, the panel found that the subseque nt loan was within its jurisdiction to examine 
under Article 21.5 of the DSU because it was “inextri cably linked to the steps taken by Australia in 
response to the DSB’s ruling in this dispute,  in view of both its timing and its nature.”21  Canada also 
notes the finding of the panel in Australia – Salmon (Article 21.5 - Canada)  that: 
… an Article 21.5 panel cannot leave it to the full discretion of the implementing 
Member to decide whether or not a measure is one “taken to comply”.  If one were to 
allow that, an implementing Member could simply avoid any scrutiny of certain measures by a compliance panel, even where such measures would be so clearly 
connected to the panel and Appellate Body  reports concerned, both in time and in 
respect of the subject-matter, that any impartial observer would consider them to be 
measures “taken to comply” .
22  
4.16 Canada submits that the US reliance on EC – Bed Linen (Article 21.5 - India)  is misplaced, as 
the panel in that dispute found that the EC measures  in question were not “taken to comply” within 
the meaning of Article 21.5 of the DSU because th ey did not deal with the subject matter upon which 
the DSB had made recommendations and rulings.  Cana da submits that the panel expressly noted that 
“[t]he situation might be different had there been  a claim in the original dispute challenging the 
cumulative assessment of the effects of imports from India, Egypt, and Pakistan.”23 
4.17 Canada asserts that the US argument that an Article 21.5 panel does not have jurisdiction to 
evaluate USDOC's treatment of additional record  evidence concerning exports subject to a US 
definitive countervailing duty misses the point entirel y, as a panel’s assessment “as to the existence or 
consistency with a covered agreem ent of measures taken to comply” under Article 21.5 of the DSU 
necessarily involves an examination of new factual info rmation.  Canada notes in this regard that the 
Appellate Body stated in EC – Bed Linen (Article 21.5 - India)  that: 
[A]n Article 21.5 panel is not confined to  examining the “measures taken to comply” 
from the perspective of the claims, arguments, and factual circumstances relating to the measure that was the subject of the original  proceedings. Moreover, the relevant 
facts bearing upon the “measure taken to comply” may be different from the facts 
relevant to the measure at issue in the orig inal proceedings.  It is to be expected, 
therefore, that the claims, arguments, and factual circumstances relating to the “measure taken to comply” will not, necessarily , be the same as those relating to the 
measure in the original dispute. Indeed, a complainant in Article 21.5 proceedings may well raise new claims, arguments, and factual circumstances different from those 
raised in the original proceedings, becau se a “measure taken to comply” may be 
inconsistent  with WTO obligations in ways different from the original measure.
24 
4.18 Canada also submits that the US request for a preliminary ruling runs contrary to the very 
purpose of an Article 21.5 panel in its review of  the imposition of countervailing measures, since the 
US obligation to demonstrate whether, and to what  extent, alleged subsidies to log production pass 
through arm’s length log purchases before imposi ng duties on softwood lumber products would 
remain in dispute for each annual assessment revi ew under Article 21 of the SCM Agreement during 
the potential five-year life (or longer) of the US definitive countervailing measure.  Canada asserts 
that such a result would leave th e DSB in the absurd situation of  having made numerous identical 
                                                      
21 Panel Report, Australia – Automotive Leather II (Article 21.5 – US) , para. 6.5. 
22 Australia – Salmon (Article 21.5 - Canada) , at para. 7.10(22) [emphasis added]. Canada also refers 
to EC – Bed Linen (Article 21.5) , Panel Report, at para. 6.17. 
23 EC – Bed Linen (Article 21.5) , Panel Report, at para. 6.18, fn. 36. 
24 EC – Bed Linen (Article 21.5) , Appellate Body Report, at para. 79 [emphasis in original]. Canada 
also refers to the EC Third Party Submission (Exhibit C- 3), at para. 28, referring in addition to the Appellate 
Body’s report in US – Shrimp (Article 21.5 – Malaysia) , at para. 86. WT/DS257/RW                   
Page 10  
 
recommendations and rulings concerning a defin itive countervailing duty for which compliance may 
never be secured.  In this regard, Canada notes that the United States argued in Australia – Salmon 
(Article 21.5 - Canada)  that: 
[W]e also wish to express the agreement of the United States with the broad and 
inclusive approach the Panel has taken t hus far in defining the scope of this 
proceeding.  The Panel’s approach is the only one consistent with the purpose of the 
WTO dispute settlement system as reflected in Articles 3 and 21 of the Dispute Settlement Understanding:  the prompt settleme nt of disputes.  Disputes could not be 
settled “promptly” if a defending party were permitted to thwart a thorough review of 
its WTO compliance by staging the introduction of details of new measures over a 
period of time, and then arguing that they  must escape WTO scrutiny for a further 
period of time.
25 
4.19 The United States denies that the results of the First Assessment Review rendered the Section 
129 Determination non-existent.  The United States submits that the Section 129 Determination, in 
implementing the recommendations and rulings of th e DSB with respect to the final investigation 
determination, confirmed that the resulting impositio n of countervailing duties on May 22, 2002, was 
consistent with the SCM Agreement.  According to the United States, the very fact that Canada is, 
itself, challenging the Section 129 Determination shows that Canada believes that it is of ongoing 
effect and relevant to the issue of compliance. 
4.20 The United States asserts that the present case is  not a situation like that presented in 
Australia – Automotive Leather II (Article 21.5 - US) , in which a WTO-inconsis tent  subsidy was both 
withdrawn and “regranted” in another form on the sa me day, in “inextricably linked elements of a 
single transaction.”26  The United States asserts that first, in Australia – Leather II (Article 21.5 - US) , 
the United States was arguing that the panel should review whether a prohibited subsidy had actually 
been withdrawn, as specifically required by Article  4.7 of the SCM Agreement, when the repayment 
of a grant had been contingent on the simultaneous  grant of a loan on non-commercial terms.  The 
United States submits that, in contrast, this proceed ing involves the question of whether a measure has 
been brought into conformity with a WTO agreement. 
4.21 The United States submits that second, the Australia – Leather II (Article 21.5 - US) panel 
concluded that the subsid y had not been withdrawn at all, because the supposed repayment and the 
non-commercial loan were, in effect, a single transac tion in which the subsidy simply shifted form.  
The United States asserts that, in this dispute, th e Section 129 Determination and the First Assessment 
Review results are separate and independent actions.  The United States asserts that the Section 129 
Determination was made to bring the measure in di spute into conformity with the SCM Agreement as 
recommended by the DSB, whereas the First Asse ssment Review was conducted for a completely 
unrelated reason.  According to the United States, therefore, the First Assessment Review in no way 
affects that result of the Section 129 Determination. 
4.22 The United States also submits that the results of the First Assessment Review are not 
inextricably linked, either to the Section 129 Dete rmination, or to the recommendations and rulings of 
the DSB.  The United States notes Canada's reliance on Australia – Leather II (Article 21.5 - US) , and 
that panel's finding that the relevant subsid y had not been withdrawn, because the supposed 
repayment and the non-commercial loan were “inext ricably linked elements of a single transaction.”27  
The United States asserts that that situation is very  different from this one.  In particular, the United 
States notes that the Section 129 Determination and th e First Assessment Review results were not in 
                                                      
25 Australia – Salmon (Article 21.5 - Canada) , Third Participant Submission of the United States, 
9 December 1999, at para. 5. (Exhibit CDA-54) 
26 Panel Report, Australia Leather II (Article 21.5 - US) , para. 6.50. 
27 Australia –Leather II (Article 21.5 - US), para. 6.50.  WT/DS257/RW 
 Page 11 
 
 
any sense contingent on one another, nor were they  in any sense part of a single transaction.  The 
United States submits that the First Assessment Revi ew would have taken plac e regardless of whether 
there was a Section 129 proceeding under way, and,  indeed, regardless of whether there even was a 
WTO dispute. 
4.23 The United States notes that Canada also relies on Australia – Salmon (Article 21.5 - 
Canada) .  The United States asserts that the imposition of a ban by Tasmania, one of Australia's sub-
federal units, was obviously a response to the modifica tion of the ban.  The United States asserts that 
the Tasmanian ban did not arise from a proceeding init iated as a matter of domestic law requirements, 
irrespective of any WTO challenge, but was rather an ad hoc  action taken after the DSB had made 
recommendations and rulings against an Australian im port ban and after Australia had taken action to 
modify the ban.  By contrast, the United States asserts that the assessment review was initiated: 
 -  upon request of the parties (including Canada), eight months before the DSB’s 
recommendations and rulings were even adopted; 
-  pursuant to a US statutory provision that requires initiation upon request on a specific 
schedule and under specific deadlines; and  
-  for the purpose of assessing countervailing du ties on entries not previously examined 
– not for the purpose of implementing any recommendations or rulings.  
4.24 Regarding Canada's argument that the facts of EC – Bed Linen (Article 21.5 - India)  should be 
distinguished from the present case, the United States submits that the EC – Bed Linen (Article 21.5 - 
India)  dispute demonstrates that a new determination th at was made in a subsequent segment of an 
antidumping or countervailing duty proceeding – and not  made to implement recommendations and 
rulings of the DSB – falls outside th e jurisdiction of Article 21.5 panels. 
4.25 The United States further submits that properly applying DSU Article 21.5 does not “ignore 
the purpose of compliance proceedings”.  The Unite d States asserts that, contrary to Canada’s 
arguments, a review under Article 21.5 of the Section 129 Determination permits the prompt 
settlement of disputes:  Canada complained abou t an inconsistency in the final investigation 
determination, and this Panel w ill review whether that inconsistency has been corrected.  The 
United States argues that Canada appears to sugg est that the US system of retrospective duty 
assessments somehow compels the Panel, in the sp ecial case of the United States, to sweep the 
assessment review into this Article 21. 5 proceeding.28  The United States submits, however, that there 
is nothing in Article 21.5 or in the SCM Agreem ent that requires a different interpretation of 
“measures taken to comply” for those Members that employ a retrospective duty assessment system, 
rather than a prospective one.  
2. Arguments of the third parties 
4.26 The European Communities consid ers that the US view (if accepted) would turn the US 
system of countervailing duty assessment into a movi ng target that escapes the WTO disciplines.  The 
European Communities submits that the phrase “taken  to comply” cannot be read to limit the 21.5 
proceeding to those measures that were explicitly take n to replace the measure at issue in the original 
proceedings, but must be read together with its  immediate and broader context as well as the purpose 
of the DSU to reach a prompt solution of a disput e.  The European Communities asserts that because 
the phrase is preceded by the term “existenc e” and followed by the expression “with the 
recommendations and rulings of the DSB”, an Articl e 21.5 panel is tasked to assess whether or not 
there is a failure to comply and wh ether or not the original dispute has been resolved (as opposed to 
assessing the conformity of a particular measure with a particular provision of the Agreement 
                                                      
28 The United States refers in this regard to Cana da's Second Written Submission, para. 27 (Annex A-
2). WT/DS257/RW                   
Page 12  
 
Establishing the World Trade Organization  ("WTO Agreement"), as panels are required to do in 
initial proceedings). 
4.27 The European Communities submits that the broa der purpose of Article 21.5 of the DSU is to 
secure the solution of a dispute between two WTO Members relating to the measures brought before the original Panel.  The European Communities assert s that this was explicitly recognised by the panel 
in Australia – Salmon (Article 21.5 - Canada) , which even considered a measure taken during the 
Article 21.5 proceeding since "to do otherwise would, in our view, go against the principle of prompt 
settlement of disputes
 and could hamper implementation of  both DSB recommendations in the 
original dispute and our findings in this case."29   
4.28 The European Communities submits  that the US view is b ased on the assumption that the 
measures to be attacked in countervailing duty cases ar e the determinations made by the investigating 
authorities.  The European Communities asserts that  this is false, since Article 10 of the SCM 
Agreement clarifies that the measure of concern is  the “imposition of a countervailing duty”, defined 
as a “special duty levied” for the purpose of offse tting a subsidy.  The European Communities submits 
that it is the duty itself that interferes with trad e and is the measure of concern.  The European 
Communities asserts that the assessment review at ha nd in this case is a hybrid instrument.  It fixes 
the final duty rate for the assessment period with retr ospective effect, but is not a fully-fledged review 
of both the subsidy and injury within the meaning of Article 21 of the SCM Agreement.30 The 
European Communities notes that the assessment review  does not change the date of the expiry of the 
measure under Article 21.3.  The European Co mmunities does not accept the US argument that 
footnote 52 of the SCM Agreement recognises that th ese types of assessment re view are separate from 
the original determination (and / or a Section 129 determination).   The European Communities also 
notes that the United States has not disputed Cana da’s characterisation of the First Assessment 
Review as superseding both the original count ervailing duty determination and the Section 129 
Determination.  The European Communities asserts th at, at the date of the establishment of the Panel 
(14 January 2005), only the First Assessment Revi ew was effectively in place.  The European 
Communities submits that, according to WTO jurisp rudence, a measure that essentially replaces an 
earlier measure remains within the terms of reference of an original Panel.31  The European 
Communities submits that, a fortiori , an Article 21.5 Panel must be in a position to assess whether an 
annual administrative review determination that conf irms and supersedes the original determination 
relating to the same countervailing duty  constitutes a “continuing violation”. 
4.29 The European Communities also rejects the US argument that EC – Bed Linen (Article  21.5 - 
India)  stands for a general proposition that any review measure is outside the scope of a 21.5 
proceeding.  The European Communities asserts that  the review measures at issue in that case were 
entirely different in nature.  In particular, those measures were either specific reviews of antidumping duties imposed on exporters from other Members (Eg ypt and Pakistan) or entirely new determinations 
in a review based on results of an event subsequent to the European Communities having adopted the 
implementing measure in EC – Bed Linen (Article 21.5 - India) .  In other words, they were dismissed 
because they did not relate to the original dis pute between the European Communities and India. 
4.30 According to the European Co mmunities, accepting the US view that the First Assessment 
Review is not subject to a DSU 21.5 panel review would turn the US system of duty assessment into a moving target that escapes from countervailing duty di sciplines.  Each assessment review would have 
to be subject to a new panel request, and by the time the panel, Appellate Body and implementation 
procedure was completed, another assessment review would have overtaken the results of any Section 
                                                     
 
29 Panel Report, Australia – Salmon (Article 21.5 - Canada) , para. 7.21. 
30  Panel Report US – Softwood Lumber III, para 7.151. 
31 The European Communities refers to the Panel Report in Dominican Republic – Import and Sale of 
Cigarettes , paras. 7.11-7.21  WT/DS257/RW 
 Page 13 
 
 
129 determination.  A new panel w ould have to be started against this review, creating a “Groundhog 
Day” situation. 
4.31 China asserts that, on the one hand, the First Assessment Review was made in a totally 
separate investigation procedure and based on the import da ta that is irrelevant to that of the original 
investigation.  On the other hand, China asserts that  the two determinations at issue were made under 
the framework of the same set of proceedings wh ich effectively affects import of softwood lumber 
from Canada and the First Assessme nt Review supersedes the Section 129 Determination.  In China’s 
view, the first argument relates to the question of whether the First Assessment Review is a 
“measure[] taken to comply”, while the second argum ent concerns the matter whether the Section 129 
Determination is re ndered non-existent. 
4.32 Although China acknowledges that the First As sessment Review may not be properly 
categorized as a “measure[] taken to comply”, China argues that this consideration does not lead to a 
decisive answer to the question of whether this meas ure is properly before this panel.  China recalls 
that, on the basis of the plain language of Article  21.5, the purpose of the proceedings under this 
provision is to review and solve the dispute on “the existence  or consistency  with a covered agreement 
of measures taken to comply with the recommendations  and rulings” of the DSB.  China believes that 
“existence” and “consistency” are two distinct asp ects of the subject measure.  The latter involves 
review that is not only “limited to ‘the issue of  whether or not [a Member] has implemented the DSB 
recommendation’” 32, but also “in the light of any provision of any of the covered agreements.”33  On 
the other hand, the former relates to the status of  the revised new measure.  According to China, both 
aspects are equally important though the “existence” ma tter is crucial in solving the threshold issue in 
these proceedings. 
4.33 China asserts that the dispute of Australia – Automotive Leather II (Article 21.5 - US)  
demonstrates a similar fact pattern that should be re ferenced by this Panel.  China notes that, in that 
case, the Article 21.5 panel said: 
The 1999 loan is inextricably linked to the steps taken by Australia in 
response to the DSB's ruling in this dispute, in view of both its timing and its 
nature. In our view, the 1999 loan cannot be excluded from our consideration without severely limiting our ability to judge, on the basis of the United States' request, whether Australia  has taken measures to comply with 
the DSB's ruling. In the absence of any compelling reason to do so, we decline to conclude that a measure spec ifically identified in the request for 
establishment is not within our terms of reference. 
34 
 
4.34 In China’s view, in an Article 25.1 procedur e, if the complaining party submits that a 
“measure[] taken to comply” is invalidated by a subsequent measure, the compliance panel should at 
least assess this claim that relates to the “measure[]  taken to comply” on the basis of relevant facts – 
the subsequent measure.  China asserts that to ex clude the second measure would put the panel at the 
risk of failing to make a comprehensive and we ll-founded judgement on the existence of a measure 
taken to comply with DSB recommendations and ru lings.  China believes that, as a result of the 
countervailing duty assessment system adopted by the US, the results of an assessment review may, at 
least in form, replace the original final determination.   In particular, China notes that the results of the 
First Assessment Review were announced ten days af ter the Section 129 Determination took effect.  
Thus, the First Assessment Review established a ne w rate for cash deposit for the goods from Canada 
and replaced the rate in the Section 129 Determina tion.  According to Chin a, such changes in the 
applicable duty rate deserve further considera tion on whether the First Assessment Review, in 
                                                      
32 Canada - Aircraft (Article 21.5) , Appellate Body Report, para.40. 
33 Australia - Salmon (Article 21.5 - Canada) , para.7.10. 
34 Australia – Automotive Leather II (Article 21.5 - US) , para. 6.5.   WT/DS257/RW                   
Page 14  
 
substance, rendered the Section 129 Determination non-existent.  China therefore submits that the 
facts presented by Canada in these proceedings, at least, have demonstrated that there is likelihood 
that the First Assessment Review may nu llify the Section 129 Determination.   
4.35 In summary, China is of the opinion that, although the First Assessment Review may not be a 
measure taken to comply, it is closely linked to and may have an important effect on the existence of 
the purported measure taken to comply – the Secti on 129 Determination.  On such basis, China 
believes it is the mandate of this Panel to consider the First Assessment Review in these proceedings. 
3. Evaluation by the Panel 
4.36 The US request for a preliminary ruling concerns  the scope of Article 21.5 of the DSU, which 
provides in relevant part: 
Where there is disagreement as to the ex istence or consistency with a covered 
agreement of measures taken to comply with the recommendations and rulings such dispute shall be decided through recourse to these dispute settlement procedures, 
including wherever possible resort to the original panel. 
4.37 In particular, the US request requires us to determine whether or not the First Assessment 
Review, or at least the treatment of pass-through c ontained therein, constitut es a "measure[] taken to 
comply" with the rulings and recommendations of the DSB in respect of the Final Determination. 
4.38 In addressing this issue, we are guided by disp ute settlement decisions regarding the scope of 
DSU Article 21.5.  These decisions indicate that Article 21.5 proceedings are not restricted to measures formally, or explicitly, taken by Member s to implement DSB rulings and recommendations.  
In this regard , we note that the panel in Australia – Salmon II  (Article 21.5 – Canada) found that: 
an Article 21.5 panel cannot leave it to the full discretion of the implementing 
Member to decide whether or not a measure is one "taken to comply".  If one were to allow that, an implementing Member could simply avoid any scrutiny of certain measures by a compliance panel, even where such measures would be so clearly connected to the panel and Appellate Body  reports concerned, both in time and in 
respect of the subject-matter, that any impa rtial observer would c onsider them to be 
measures "taken to comply".
35 
4.39 That case concerned Australia's implemen tation of DSB rulings and recommendations 
regarding import restrictions on untreated fresh, chilled or frozen salmon from Canada.  Australia 
stated that it implemented the DSB's rulings a nd recommendations through a series of import risk 
analyses that entered into force on 19 July 1999 .  On 20 October 1999, during the course of the 
Article 21.5 proceedings concerning the measures adop ted by Australia in July 1999, the Government 
of Tasmania adopted measures restricting all im ports of salmonids.  The panel employed the 
following terms in finding that the October 1999 meas ure fell within the terms of its DSU Article 21.5 
review: 
"Without attempting to give a precise definition of "measures taken to comply" that 
should apply in all  cases, we are of the view that in the context of this dispute at least 
any quarantine measure introduced by Aust ralia subsequent to the adoption on 
6 November 1998 of DSB recommendations and rulings in the original dispute – and within a more or less limited period of time thereafter -- that applies to imports of fresh chilled or frozen salmon from Canada, is  a "measure taken to comply".  The 
Tasmanian ban, introduced on  20 October 1999, imposes an import prohibition on all 
                                                     
 
35 Australia – Salmon (Article 21.5 – Canada) , page 106.  WT/DS257/RW 
 Page 15 
 
 
imports of salmonids into part of Austra lia on quarantine grounds.  We thus find that 
it is a measure taken to comply in the sense of Article 21.5."36 
4.40 The scope of DSU Article 21.5 proceedings was also addressed by the panel in Australia – 
Leather II (Article 21.5 - US) .  That case concerned Australia's implementation of DSB's rulings and 
recommendations regarding the withdrawal of a prohi bited export subsidy.  In September 1999, the 
subsidy recipient repaid the prospective element of  the subsidy.  Simultaneously, the Government of 
Australia provided a loan to the original subsidy r ecipient.  In finding that both the repayment of the 
original subsidy, and the new loan, fell within th e scope of its DSU Article 21.5 review, the panel 
stated: 
The 1999 loan is inextricably linked to the steps taken by Australia in response to the 
DSB's ruling in this dispute, in view of bot h its timing and its nature.  In our view, the 
1999 loan cannot be excluded from our c onsideration without severely limiting our 
ability to judge, on the basis of the United States' request, whether Australia has taken measures to comply with the DSB's ruling.   In the absence of any compelling reason 
to do so, we decline to conclude that a me asure specifically identified in the request 
for establishment is not within our terms of reference.
37 
4.41 The parties agree that the Section 129 Determ ination falls within the scope of these DSU 
Article 21.5 proceedings.  In our view, and taking into account previous dispute settlement decisions 
regarding DSU Article 21.5, the USDOC's treatmen t of pass-through in the First Assessment Review 
is also covered by these proceedings, because it is cl early connected to the panel and Appellate Body 
reports concerning the Final Determination, and becau se it is inextricably linked to the treatment of 
pass-through in the Section 129 Determination.  In particular, we note that certain import entries 
subject to the prospective effect of the Final Determ ination are also subject to the retrospective effect 
of the First Assessment Review.  Thus, while the First Assessment Review resulted in an assessment 
rate for import entries during the period 22 May 2002 – 31 March 2003, those entries had initially 
been subject to the cash deposit rate de termined in the Final Determination.38  Furthermore, the 
prospective effect of the Section 129 Determination was superseded by the prospective effect of the 
First Assessment Review, in the sense that import en tries that would have been subject to the cash 
deposit rate fixed by the Section 129 Determination became subject to  the cash deposit rate fixed by 
the First Assessment Review, once the latter to ok effect.  Thus, even though the period of 
investigation of the Final Determination and Sec tion 129 Determination may differ from the period of 
review of the First Assessment Review, and even  though the latter was initiated before the DSB 
adopted any rulings or recommendations regarding this matter, there is in fact considerable overlap in 
the effect of these various measures.  Since the pass-through analysis in the First Assessment Review could, therefore, have an impact on, and possibl y undermine, any implementation of the DSB rulings 
and recommendations regarding pass-through by the S ection 129 Determination, we consider that the 
pass-through analysis in the First Assessment Review  should also fall within the scope of these DSU 
Article 21.5 proceedings.
39   
                                                      
36 Australia – Salmon (Article 21.5 – Canada) , page 106 (footnote deleted). 
37 Australia – Leather II (Article 21.5 - US) , para. 6.5. 
38 Import entries subject to the Section 129 Determina tion cash deposit would be assessed pursuant to a 
subsequent assessment review, if requested.  We do not attach importance to the fact  that import entries subject 
to the Section 129 Determination cash deposit were not formally subject to the First Assessment Review, since the Section 129 Determination amended and replaced the Fi nal Determination, such that there is no need to 
distinguish between the coverage of these two measures for present purposes. 
39 We do not here mean to imply that, on the basis of our interpretation and analysis of the scope of 
DSU Article 21.5, other elements of the First Assessment Review, dealing with issues unrelated to the scope of 
the DSB's adopted recommendations and rulings in the orig inal dispute between the par ties, could be treated as 
part of a "measure[] taken to comply" and thereby challenged through an Article 21.5 proceeding. WT/DS257/RW                   
Page 16  
 
4.42 The United States argues that the findings of the Australia – Leather II (Article 21.5 - US)  
panel should be distinguished, because the Section 129 Determination and First Assessment Review 
were not contingent on one another.  We acknow ledge that the First Assessment Review was not 
contingent on the Section 129 Determ ination, and note that the Firs t Assessment Review might very 
well have been initiated even if the Section 129 Determination had not been undertaken.  However, 
the degree of contingency between the relevant me asures was clearly not the sole, or determining 
factor, in the reasoning of the Australia – Leather II (Article 21.5 - US)  panel regarding the inclusion 
of the loan in the DSU Article 21.5 proceeding.
40  That panel was concerned more generally with the 
"timing and nature" of the subsequent loan.  As noted above, we consider that there is sufficient 
overlap in the timing, or temporal effect, and nature of the Final Determination, Section 129 
Determination and First Assessment Review for the la tter to fall within the scope of the present DSU 
Article 21.5 proceedings. 
4.43 The United States also argues that the findings of the panel in Australia – Salmon 
(Article 21.5 - Canada)  should be distinguished because that case concerned an ad hoc  action taken 
after the DSB adopted its rulings and recommenda tions, whereas the First Assessment Review was 
initiated pursuant to domestic law requirements, eight months before, and independent of any 
consideration of, the rulings and recommendations of the DSB in US – Softwood Lumber IV .  We 
note, however, that the Australia – Salmon (Article 21.5 - Canada)  panel made no reference to the ad 
hoc nature of the Tasmanian import ban in its findings.  Accordingly, since the ad hoc  nature of that 
import ban did not influence that panel's findings, this is no basis on which to distinguish those 
findings from the present case.  In an y event, we consider that the Australia – Salmon (Article 21.5 - 
Canada)  panel was concerned primarily with the timi ng and subject-matter of the Tasmanian import 
restriction, and its subsequent impact on th e July 1999 implementing measures adopted by the 
Government of Australia, just as we are concerned pr imarily with the potential impact of the results of 
the First Assessment Review on the Final Dete rmination and Section 129 Determination.   
4.44 The United States also argues that the First Assessment Review is a new determination, 
separate from the Final Determination and Secti on 129 Determination, and initiated prior to the 
DSB’s adoption of recommendations and rulings in this dispute.  The United States relies on the 
following findings of the panel in EC – Bed Linen (Article 21.5 - India) : 
[T]he fact that the EC, subsequent to its re-examination of the dumping 
determinations with respect to imports from Egypt and Pakistan, and in the context of 
a review initiated on the request of Eurocoto n, carried out an analysis of whether 
injury was caused by imports from India alone does not, ipso facto , establish that 
Regulation 696/2002 is a measure “taken to  comply”.  Rather the opposite would 
seem to be the case – that Regulation would seem to be an entirely new 
determination , reached as a result of events subsequent  to the EC having adopted a 
measure to comply with the DSB’s recommendation.41 
4.45 According to the United States, the EC – Bed Linen (Article 21.5 - India)  dispute 
demonstrates that a new determination that was ma de in a subsequent segment of an anti-dumping or 
                                                      
40 In its comments on Canada's reply to Question 21 from the Panel, the US asserts that "the fact that 
the grant repayment was conditioned on the provision of the new non-commercial loan was central to the panel's 
finding that the two actions were 'inextricably linked elem ents of a single transaction'".  We note that the US 
refers in this regard to para. 6.50 of the Australia – Leather II (Article 21.5 - US)  report, where the panel was 
addressing the substantive issue of whether or not Australia had withdrawn its prohibited subsidies.  
Contingency between the subsidy repayment and new loan was not mentioned explicitly by that panel at para. 6.5 of its report, where it was determining whether or not to include the new loan in the scope of its DSU 
Article 21.5 proceeding. 
41 EC – Bed Linen (Article 21.5) , para. 6.20 (bold emphasis added).  WT/DS257/RW 
 Page 17 
 
 
countervailing duty proceeding – a nd not made to implement reco mmendations and rulings of the 
DSB – falls outside the jurisdiction of DSU Article 21.5 panels.42 
4.46 In EC – Bed Linen (Article 21.5 - India) , the European Communities imposed anti-dumping 
duties on imports of bed linen from Egypt, India and Pakistan.  The European Communities made a 
cumulative injury assessment.  The European Communities was found to have incorrectly calculated 
anti-dumping duties on imports from India.  The European Communities amended its calculation in 
respect of such imports from India.  The parties agreed that the re-determination of dumping in 
respect of imports from India fell within the scope  of DSU Article 21.5.  The European Communities 
also applied the revised calculation method to  other anti-dumping duties imposed on imports from 
Egypt and Pakistan.  As a result, the European  Communities found that anti-dumping duties should 
not be imposed on such imports.  Consequently , the European Communities conducted a separate 
injury analysis in respect of imports from Indi a, to determine whether such imports alone caused 
injury to the domestic industry.  The European  Communities found that they did, and therefore 
affirmed the imposition of anti-dumping duties on imports  of bed linen from India.  India claimed that 
the determinations in respect of Egypt and Paki stan, and the finding of injury and the resulting 
imposition of anti-dumping duties on bed linen from I ndia, were measures "taken to comply" under 
DSU Article 21.5.  The above panel finding relied on by the United States concerns the Panel's 
exclusion of the India-specific injury determ ination from the scope of the DSU Article 21.5 
proceedings. 
4.47 While we acknowledge that the First Assessment Review is a new determination made in a 
subsequent segment of a countervailing duty proceeding, we disagree with what we see as the 
implication of the United States argument, i.e., that EC – Bed Linen (Article 21.5 – India)  stands for 
the principle that a measure taken in a subsequent  segment of a proceeding could never constitute a 
"measure[] taken to comply" in the meaning of DSU Ar ticle 21.5, if it is not explicitly so identified.  
Rather, we understand the panel in EC – Bed Linen (Article 21.5 – India)  to have ruled that, in the 
particular circumstances of that case, the measure taken in a subsequent segment of a proceeding did 
not constitute a "measure[] taken to comply".   In our view, the above finding of the EC – Bed Linen 
(Article 21.5)  panel can be distinguished from the present case, as the First A ssessment Review does 
not concern "events subsequent" to the Final De termination and Section 129 Determination.  The 
relevant measure in EC – Bed Linen (Article 21.5 - India)  concerned an injury determination initiated 
as a result of a re-determination of dumping in re spect of imports that were not covered by the 
relevant rulings and recommendations of the DSB.  Thus, not even the re-determination of dumping in 
respect of those imports was a "measure[] taken to  comply", let alone the new injury determination 
prompted by that re-determination of dumping.  By contrast, the First Assessment Review is far more 
closely connected to what the United States consider s is the "measure[] taken to comply", i.e., the 
Section 129 Determination.  In particular, the Firs t Assessment Review is concerned with the same 
                                                      
42 The US also argues that Article 21.5 proceedings are by their nature more focused and limited than 
other panel proceedings under Article 6. 2 of the DSU, and that it is beyond the scope of such a limited 90-day 
inquiry to fully examine an entirely new set of assessment review results based on a wholly new administrative 
record, consisting of new sales, new imports, potentially new respondents and potentially new subsidy 
programmes.  We note, however, that US law allows DSB rulings and recommendations to be implemented through administrative reviews in certain circumstances (see “Statement of Administrative Action” in Message 
from the President of the United States Transmitting the Uruguay Round Agreements, Texts of Agreements 
Implementing Bill, Statement of Administrati ve Action and Required Supporting Statements , H.R. Doc. No. 103-
316, vol. 1 at 656 (Exhibit CDA-1), at 356-357).  This undermines the US argument that assessment reviews 
should be excluded from the scope of DSU Article 21.5 pr oceedings.  Furthermore, we note that measures taken 
to comply with the rulings and recommendations of the DSB may be every bit as complex, if not more so, than 
the original measure in dispute.  DSU Article 21.5 does not provide for acceler ated procedures because 
implementation measures are necessarily simple, or straightfo rward.  It does so in order to ensure that justice is 
delivered swiftly.  In any event, we note that we are only  finding that part of the First Assessment Review (i.e., 
the pass-through analysis) is covered by these DSU Artic le 21.5 proceedings.  We are not finding that the 
entirety of the First Assessment Review is covered by these proceedings. WT/DS257/RW                   
Page 18  
 
substantive issue as the Section 129 Determinati on, i.e., pass-through.  In addition, the First 
Assessment Review applies to import entries that were initially subject to the cash deposit rate fixed 
by the measure subsequently replaced by the Sectio n 129 Determination.  Furthermore, the panel in 
EC – Bed Linen (Article 21.5 - India)  explicitly noted that India "[did] not argue that the subsequent 
two measures und[id] the compliance effectuated by the first measure".
43  We can only assume that 
the panel would have reached a different conclusion if India had argued that the subsequent measures 
undid the compliance effectuated by the first me asure, as Canada has done in the present case. 
4.48 We further note that in addressing the scope of the Article 21.5 proceedings in EC – Bed 
Linen (Article 21.5 - India) , the Appellate Body had regard to "the object and purpose of the DSU".  
In this regard, the Appellate Body noted that, by virtue of Article 3.3 of the DSU, "the prompt 
settlement of disputes" is "essential to the effectiv e functioning of the WTO".  Given the overlap in 
effect of the Final Determination, Section 129 De termination, and the First Assessment Review, we 
are very conscious that if we exclude the pass-th rough analysis in the First Assessment Review from 
these proceedings, Canada and the United States will s till dispute the same issue, i.e., pass-through of 
subsidy benefit, in respect of the same import entries44, as they did in the original proceedings 
concerning the Final Determination.  In our view, th is would be wholly inconsistent with the object 
and purpose of the DSU which, as noted above, is to ensure the prompt settlement of disputes. 
4.49 Before concluding, we note that Canada, Chin a and the European Communities have made a 
number of arguments that might suggest that DSU Article 21.5 should be interpreted broadly in the 
present case because of the peculiaritie s of the system of retrospective duty assessment applied by the 
United States.  We do not consid er it appropriate to base our findings on such arguments, because the 
interpretation and application of DSU Article 21.5 must accommodate both prospective and 
retrospective duty assessment systems.  As a con sequence,  we have considered carefully the 
operation of DSU Article 21.5 in the context of both prospective and retrospective duty assessment 
systems, in light of the abovementioned dispute settlement decisions. 
4.50 For the foregoing reasons, we reject the US re quest for a preliminary ruling that the First 
Assessment Review falls outside the scope of th ese DSU Article 21.5 proceedings, in so far as the 
pass-through analysis is concerned. 
B. SCOPE OF USDOC 'S PASS -THROUGH ANALYSIS  
4.51 Canada's main argument in this proceeding is  that USDOC, in implementing the rulings and 
recommendations of the DSB, continued to presume a pass-through of subsidy benefits, rather than 
conducting the required analysis.  Canada claims th at this resulted in the imposition of countervailing 
duties in a manner inconsistent with Articles 10 and 32.1 of the SCM Agreement, and Article VI:3 of 
the GATT 1994.  In particular, Canada argues th at USDOC completely excluded entire groups of 
transactions, on the basis that these were not arm's le ngth sales, and in addition erred by rejecting the 
aggregate data and information provided by Cana da in support of its pass-through claim, requiring 
instead company-specific data45, and also by applying "inappropriate"46 benchmark prices for those 
transactions that were individually examined for pass -through.  Canada also claims that, in the Section 
129 Determination and the First As sessment Review, the USDOC continued to presume pass-through 
                                                      
43 EC – Bed Linen (Article 21.5) , para. 6.21. 
44 We refer to those import entries for which the Final Determination set the cash deposit rate, and the 
First Assessment Review finalized the duty assessment.  See, para. 4.41, supra .   
45 We recall here that the United States objected (a t our substantive meeting with the parties) to 
Canada's assertion that the USDOC had "rejected" any data submitted by Canada in the Section 129 proceeding 
(Canada's first written submission, para. 32). In commenti ng on this argument, Canada clarified that it was not 
claiming that the United States had out right rejected the information in que stion, but instead that the USDOC 
had failed to analyse various record data when any of the five factors existed (Canada's reply to Question 27 
from the Panel). 
46 Canada's first written submission, page 22, heading 2 (Annex A – 1).  WT/DS257/RW 
 Page 19 
 
 
in respect of purchases of logs from sawmills by unrelated tenure-holding sawmills.  Furthermore, Canada claims that the USDOC presumed pass-t hrough in respect of all sawmill-to-sawmill 
transactions in the context of the First Assessment Re view.  Canada claims that, as a result of all the 
above, the United States impermissibly inflated the amount of countervailing duties levied on imports 
of softwood lumber from Canada.  We shall examine each of these claims in turn.
47 
1. Arm's length transactions 
(a) Arguments of the parties 
4.52 Canada asserts that pass-throug h should be investigated when ever there is a transaction 
between unrelated parties.  In both the Section 129 Determination and the Fi rst Assessment Review, 
however, USDOC only investigated pass-through in respect of a narrower category of transactions, 
namely those that were found by USDOC to be at arm's length.  Canada states that the USDOC found 
that transactions between unrelated parties were not at arm's length if any one of the following factors existed in the province:  (1) limitations on log sales in Crown tenure contracts; (2) wood supply 
commitment letters; (3) payment of the stumpage  fees by the downstream log purchaser; (4) log 
purchase agreements of a certain structure; or (5) fibre exchange agreements between tenured 
sawmills.    
4.53 Canada disputes the application of what Canada refers to as USDOC's "external factor" test.  
According to Canada, a transaction between unrelat ed parties is by definition an arm's length 
transaction.  Canada asserts that, because the ex ternal factors identified by the USDOC do not 
transform an arm’s length transaction into one that is  not at arm’s length, the existence of any such 
factors cannot excuse the United States from its obligation to conduct the required benefit pass-
through analysis.  According to Canada, none of the factors identified by USDOC alters the fact that 
sellers of logs attempt to obtain the best price available in transactions with unrelated purchasers. 
4.54 The United States asserts that the DSB's r ecommendations and rulings concerned only 
(1) arm's length sales (2) between unrelated parties.   According to the United States, both of these 
conditions must be fulfilled before a pass-through analysis becomes necessary.  In particular, the 
United States argues that sales between formally unrelated parties are not necessarily arm's length.  
The United States asserts that the DSB’s reco mmendations and rulings themselves recognize a 
distinction between arm’s length and affiliation, presenting arm’s length sales as a subset of sales 
between unrelated entities, since the DSB (by virtue of para. 167(e) of the Appellate Body's report) 
ruled that USDOC should have conducted “a pass-through  analysis in respect of arm’s length sales of 
logs . . . to unrelated sawmills.” (emphasis in orig inal)  The United States argues that whether the 
entities operate “at arm’s length” involves more than just a question of formal affiliation; it involves 
an analysis of whether one party effectively “cont rols” the other or whether the parties have roughly 
equal bargaining power.  The United States argues th at its five factor test addresses this issue of 
control, since many of the circumstances of sales of lumber in Canada are controlled by government 
mandates and other govern ment-imposed conditions. 
4.55 The United States asserts that USDOC identif ied two categories of  government-mandated 
restrictions whereby log sellers are not free to act in  their best interests to choose and negotiate among 
                                                     
 
47 Canada's request for establishment of a panel also  refers to a claim concer ning the USDOC "applying 
the results of the 'pass-through' analysis to a counter vailing duty cash deposit rate invalidated as a result of 
judicial review proceedings conducted  in accordance with US law, and fa iling to apply the results to a valid 
rate" (WT/DS257/15, page 2).  Although this claim was alluded to in the introduction to Canada's first written 
submission (para. 10) (see Annex A – 1), Canada did not revert to this claim in the substantive part of that 
submission.  Nor did Canada pursue this claim in its s ubsequent oral or written submissions to the Panel.  We 
therefore consider that Canada has effectively abandoned th is claim.  In any event, we  find that the very brief 
reference to this issue at para. 10 of Canada's first written submission is insufficient to establish a prima facie 
case in support of Canada's claim. WT/DS257/RW                   
Page 20  
 
potential buyers:  (1) limitations on log sales that ar e contained in Crown tenure contracts, such as 
appurtenancy and local processing requirements, and (2) wood supply agreements.  The United States 
asserts that USDOC also determined that many of the Canadian log sales could not be considered to 
be at arm’s length because the actual structure of  certain log purchase agreements empowered the 
purchasing sawmill to control many aspects of the tran saction.  Specifically, with respect to certain 
log purchase agreements, the sawmill actively manag es all aspects of harvest and delivery.  With 
respect to others, the sawmill finances or provides other goods or services as part of the transaction. 
4.56 The United States asserts that USDOC also cons idered that it was not required to conduct a 
pass-through analysis when two other factors were present: (i) payment of the stumpage fees by the 
downstream lumber producers and (ii) fibre exch ange agreements between  Crown tenure holders. 
Although the United States submits that these factors are "not exclusively arm's-length issues",
48 it is 
clear that the USDOC found that transactions we re not arm's length when these factors existed.49 
4.57 The United States argues that its approach to implementing the DSB's recommendations and 
rulings is based on the explicit language of  the Appellate Body's ruling.     
(b) Evaluation by the Panel  
4.58 The United States has emphasized before us thro ughout this Article 21.5 proceeding that it 
based its approach to pass-through, in the Section 129 Determination50, on the language of the 
Appellate Body's report, and specifically on the Appe llate Body's use of the phrase "arm's length" in 
its ruling.   We recall that the exact wording of the Appellate Body's ruling is:   
"the Appellate Body ... upholds  the Panel's finding ... that USDOC's failure to contact 
a pass-through analysis in respect of arm's length  sales of logs by tenured 
harvesters/sawmills to unrelated  sawmills is inconsistent..."51 
We further recall that our finding being upheld by th e Appellate Body makes no reference to the term 
"arm's length".    
(i) Scope of original panel findings compared with  scope of appeal and scope of Appellate Body 
rulings 
4.59 Before entering into the details of the Appellate  Body's ruling, and its potential implications 
for the parties, we first recall that in the orig inal dispute there were three broad categories of 
transactions in respect of which we found that th e United States' failure to conduct a pass-through 
analysis was inconsistent with various provisions of the covered Agreements.  Specifically, these 
categories were:  (1) sales of logs by tenured timber harvesters that do not produce lumber to 
unrelated lumber producers; (2) sales of logs by te nured harvester-sawmills to unrelated sawmills; and 
(3) sales of lumber by tenured harvester-sawmills to unrelated lumber re-manufacturers.  The United States did not appeal our finding in respect of  the first of these categories of transactions.  It 
did appeal our findings in respect of the second a nd third categories of transactions.  The Appellate 
Body, in turn, upheld our finding in respect of the second category, and reversed our finding in 
respect of the third category.   
                                                     
 
48 US second written submission, para. 23 (see Annex B – 2). 
49 See, for example, page 4 of Section 129 Determination (Exhibit CDA-5) ("where we determined that 
any of the sales reported by the Canadian parties were affected by one or several of the five factors listed above, 
we concluded that the transactions were not conducted at arm's length"). 
50 The US arguments in this pr oceeding did not cover USDOC's conduct of the Final Assessment 
Review.  We note, however, that the USDOC adopted the same approach to pass-through in the First 
Assessment Review as in the Section 129 Determination. 
51 Appellate Body Report, para. 167(e) (italic emphasis in original, bold emphasis supplied).  WT/DS257/RW 
 Page 21 
 
 
4.60 Given both the scope and the outcome of the US appeal, the DSB's recommendations and 
rulings which the United States was obliged to im plement in respect of the first category of 
transactions consist exclusively of our findings .  In respect of the second category, these 
recommendations and rulings consist of  our findings and the relevant findings of the Appellate Body.  
In respect of the third category, in view of the reversal on appeal of our findings, there were no DSB 
recommendations and rulings for the United States to  implement.  We take up the first and second 
categories separately.52 
(ii) Sales of logs by tenured timber harvesters that  do not produce lumber to unrelated lumber 
producers 
4.61 Canada objects to USDOC's application of the five  factors in all situations in order to identify 
for further pass-through analysis log sale transactio ns that were made at "arm's length".  Canada 
argues that, instead, a pass-through analysis is requ ired in respect of all log sales between unrelated 
entities.  The United States did not appeal our finding s in respect of sales of logs by tenured timber 
harvesters that do not produce lumber to unrelated  lumber producers.  Thus, as noted, our findings 
alone constitute the substance of th e DSB's recommendations and rulings in respect of this category of 
transactions.  We therefore start by recalling the details of our analysis and findings on the pass-
through issue in general, along with our sp ecific pass-through findings on this category of 
transactions.   
4.62 We recall that, as a general matter, the primary focus of our discussion and findings on pass-
through in our Panel Report centred  on affiliation.  Thus, we described the "basic question" presented 
by Canada's pass-through claim as  
"whether USDOC was obligated to conduct a pass-through analysis in respect of the 
input transactions between timber harvesters (both those that produce lumber and those that do not) and unrelated  sawmills, and between sawmills and unrelated re-
manufacturers ...".
53 
4.63 We then explained that we unde rstood Canada's claim to be 
"that where upstream transactions between unrelated  entities exist for inputs, any 
subsidies to the producers of those inputs ca nnot be assumed also to be subsidies to 
the downstream product under investigation."54 
4.64 We noted that 
"[w]here the subsidies at issue are received by someone other than  the producer of 
the investigated product, the question arises whether there is subsidization in respect 
of that product."55 
                                                      
52 We note that Canada's arguments concerning the USDOC pass-through analysis refer to transactions 
between "independent harvesters" and sawmills.  This co uld mean that Canada's claim is limited to the first 
category of transactions identified above.  However, since note 2 of the USDOC's Section 129 Determination 
provides that "[f]or purposes of this determina tion, the referenced log sales by tenured independent 
harvesters/sawmills will be referred to as sales by independent harvesters",  we understand Canada's claim 
concerning "independent harvester" transactions to include both of categories of transactions.  Furthermore, we 
understand that both categories of transactions were co vered by the Section 129 Determination, whereas only 
the first category of transaction was covered by the Fi rst Assessment Review.  If the USDOC were to have 
applied its five factor approach in respect of the second category of transactions in the First Assessment Review, 
our evaluation would have been the same as for the USDOC 's treatment of that categor y of transactions in the 
Section 129 Determination.  
53 Panel Report, para. 7.81 (emphasis supplied). 
54 Panel Report, para. 7.85 (emphasis supplied). WT/DS257/RW                   
Page 22  
 
4.65 We then stated that  
"[t]he heart of the pass-through issue is  whether, where a subsidy is received by 
someone other than  the producer or exporter of the product under investigation, the 
subsidy nevertheless can be said to have conferred benefits in respect of that 
product."
56 
4.66 Finally, we concluded, at para graph 7.99 of our report, that 
the USDOC's failure to conduct a pass-through analysis in respect of logs sold by 
tenure-holding timber harvesters (whether or not also lumber producers) to unrelated  
sawmills producing subject softwood lumber ... was inconsistent with Article 10 and 
thus Article 32.1 SCM Agreement, a nd with Article VI:3 of GATT 1994.57 
4.67 This conclusion was repeated in similar terms in the final section of the Panel Report, where 
we held that: 
"the USDOC's failure to conduct a pass-through analysis in respect of upstream 
transactions for log and lumber inputs between unrelated entities was inconsistent 
with Article 10 SCM Agreement and Article VI:3 of GATT 1994".58 
4.68 At most places in our analysis and conclusions, therefore, we did not use the term "arm's 
length" in discussing the pass-through issue, but in stead addressed the potential obligation to conduct 
a pass-through analysis as pertaining to transactions between unrelated  parties.   
4.69 We acknowledge, however, that we did make some  limited references to the term "arm's 
length" in our findings, although we did not define  that term.  Footnote 163 of our Panel Report, 
which was included in a sentence describing the "b asic question presented by [Canada's] claim" as 
concerning the need to conduct a pass-through analys is in respect of transactions between unrelated  
entities, states, in relevant part:  
"We note that this claim only concerns such alleged arms'-length  transactions 
between unrelated entities ..."59 
4.70 We also used the term "arm's length" at paragr aphs 7.94 and 7.95 of our report, in the context 
of the first category of transactions, namely log sal es to lumber producers by timber harvesters that do 
not produce lumber.  In particular, in paragraph 7.94 we identified such sales as the first type of "arms' length" transaction that we needed to a ddress.  We then summarized the US position as being 
that no pass-through analysis w as needed for such transactions because of their small volume and 
because they might not be at "arms' length".  This  latter was a reference back to the US argument, 
summarized at paragraph 7.76 of our report, that "the many restrictions imposed on tenure holders, 
including requirements to process timber locally, 'sugg ests that all or most of the sales by independent 
loggers may not be at arms'- length'".  We noted, at pa ragraph 7.95 of our report,  that the United States 
neither cited to any record evidence establishing "the volume of the possible arms'-length sales at 
issue", nor argued that USDOC had made efforts to co llect such information.  We went on to say that 
the United States had not conducted the required pass- through analysis for these transactions, and had 
"point[ed] to no factual basis in the record for its c onclusion that such an analysis was not necessary".   
                                                                                                                                                                    
 
55 Panel Report, para. 7.85 (emphasis supplied). 
56 Panel Report, para. 7.91 (emphasis supplied). 
57 Panel Report, para. 7.99 (emphasis supplied). 
58 Panel Report, para. 8.1(c) (emphasis supplied). 
59 Panel Report, note 163 (emphasis supplied).  WT/DS257/RW 
 Page 23 
 
 
4.71 As noted above, however, our overall conclusi on in respect of all categories of log sales 
(including by timber harvesters not owning sawmills to sawmills) was clear in stating that pass-through analysis was required where the parties to such transactions were unrelated
.  In short, based 
on the language of our conclusion and the underlying la nguage of our analysis, in the original dispute 
before us, our primary focus in respect of the p ass-through issue was in fact transactions between 
unrelated  parties.   
4.72 Indeed, in the present Article 21.5 proceeding, even the United States explicitly acknowledges 
that our findings were not  premised on or restricted by any concept of "arm's length" transactions.  In 
particular, in response to one of our questions, the United States notes that  
"as evident in paragraph 7.95, however, the original panel's findings did not depend 
upon whether or not the sales claimed by Canada were, in fact, arm's length sales."60   
4.73 We thus conclude that, in respect of log sal es by tenure-holding timber harvesters that do not 
own sawmills to unrelated sawmills, the USDOC's ex clusion from pass-through analysis of certain 
such sales on the grounds that they were not at "arm 's length" was inconsistent with the United States' 
obligations pursuant to the DSB' s recommendations and rulings.   
(iii) Sales of logs by tenured harvester- sawmills to unrelated sawmills 
4.74 We now turn to the second broad category of log sales at issue in this Article 21.5 proceeding, 
in respect of which the United States appealed our finding that a pass-through analysis was required.  
For this category – log sales by tenured harvester /sawmills to unrelated sawmills – the Appellate 
Body upheld our finding but in doing so introduced th e term "arm's length", which does not appear in 
our finding.  We recall that in the original disput e and before the Appellate Body, both parties used 
the term "arm's length" at various points in their arguments, apparently with  considerably different 
meanings.  They presented no arguments concerning th e issue of "arm's length" as such, however.  As 
noted above, in the Panel Report we  did make some limited referenc es to the term "arm's length", 
although not in the context of the second category of log sales, and we did not ascribe any particular definition to this term.  In addition, and most si gnificantly for this Article 21.5 proceeding, the term 
arm's length appears in numerous places in the A ppellate Body's analysis (although without being 
defined), especially in its ruling at paragraph 167( e) upholding our finding in respect of this category 
of log sales.   
4.75 We understand the United States to argue in  the present proceeding that it based its 
implementation of the DSB's recommendations a nd rulings on the explicit wording used by the 
Appellate Body, which according to the United Stat es upheld our finding to the extent of "arm's 
length" sales of logs by tenured harvester/sawmill s to unrelated sawmills.  In other words, the 
United States views the Appellate Body (and thus the DSB) as having modified, albeit implicitly, our 
conclusions concerning the pass-though issue in respect of  this category of log sales.  On this basis, a 
primary focus of the USDOC's analysis in the S ection 129 Determination in respect of log sales by 
tenured harvester/sawmills to unrelated sawmills was to identify which transactions in the universe of 
such sales were and were not at arm's length.  Fo r Canada, however, the term "arm's length" has to do 
exclusively with corporate affiliation – any transac tion between unaffiliated parties is, by definition, 
an arm's length transaction.  Thus, for Canada, th e Appellate Body used the term "arm's length" 
synonymously with "unrelated".
61  Canada argues that therefore, the USDOC, by not conducting a 
competitive benefit analysis in respect of the sales be tween unrelated parties that it found not to be at 
"arm's length", failed to comply with th e DSB's recommendations and rulings.   
                                                      
60 US Answers to Panel's questions, 29 April 2005 (Article 21.5 proceeding), at paragraph 9. 
61 See, for example, para. 10 of Comments of Canada on the Responses by the United States Following 
the Substantive Meeting of the Panel. WT/DS257/RW                   
Page 24  
 
4.76 We thus find ourselves confronted with significant ambiguity surrounding the issue of pass-
through in the DSB's recommendations and rulings in respect of log sales by tenured harvester/sawmills to unrelated sawmills, which ambigui ty seems to have arisen from the inclusion of 
the term "arm's length" in the conclusion set forth at para. 167( e) of the Appellate Body Report.
62  It is 
not clear to us why the Appellate Body chose to incl ude this term in its ruling.  This ambiguity is 
compounded by the fact that the participants in the appellate proceedings were each relying on 
separate meanings of that term.  In this regard , while we can understand that the United States sought 
to give meaning to the Appellate Body's use of th e term "arm's length", we disagree with the United 
States' reasoning.     
4.77 There are several important factors in respect of which we are in no doubt.  First, the scope of 
the DSB recommendations and rulings to be im plemented by the United States is not based 
exclusively on the adopted findings of the Appellate Body.  The findings of the original panel adopted 
by the DSB are also relevant in this regard. 
4.78 Second, as noted above and as ac knowledged by the United States, our overall conclusion in 
respect of all categories of log sales (whether or not  the tenured log seller owns a sawmill)  was clear 
in stating that pass-through analysis was require d where the parties to such transactions were 
unrelated. 
4.79 Third, the explicit language used by the Appella te Body at para. 167(e) of its report was to 
"uphold" our conclusion in respect of log sales by  tenured harvester/sawmills to unrelated sawmills, 
as set forth in the relevant part of the first sente nce of para. 7.99 of the Panel Report.  That is, 
para. 167(e) of the Appellate Body  Report contains no explicit modifi cation of the finding at para. 
7.99 of the Panel Report in respect of log sales by tenured harvester/sawmills to unrelated sawmills.   
4.80 Nor does the United States argue  that there is such an explicit  modification.  Rather, the 
United States' argument is that the Appellate Body, in introducing the word "arm's length" into its 
ruling, implicitly modified our conclusion.  In this context we recall that Article 17.13 of the DSU 
permits the Appellate Body to "uphold, modify or re verse" the findings of a panel.  We would expect, 
however, that any such action would be explicit.  In particular, if the Appellate Body intended to 
modify a finding that it was explicitly upholding,  such modification presumably likewise would be 
made explicitly.  Indeed, in other cases, the Appella te Body has been very explicit when modifying a 
panel's findings, identifying precisely which finding (or which part of a finding) was being modified.
63  In this case, however, the Appellate Body  Report contains no discussion of the meaning 
of the term "arm's length", nor any explanation of how it may have intended to distinguish that term 
from the word "unrelated".  We consider that  for an Article 21.5 panel to accept, in such 
circumstances, that the Appellate Body had implicitly modified the underlying panel findings could 
have serious systemic implications, since it could re sult in significant uncertainty regarding the import 
of Appellate Body reports, and the resultant DS B rulings and recommendations.  For these reasons, it 
would not be appropriate for us to proceed on the b asis that the Appellate Body may have intended to 
modify our findings in respect of sales by tenu red harvester/sawmills to unrelated sawmills but 
refrained from saying so explicitly. 
4.81 In any event, while acknowledging the existence of a certain ambiguity, on balance we are not 
persuaded that the Appellate Body's finding that a pass-through analysis was required in respect of 
                                                      
62 We recall here that the United States does not consider that our findings in the original dispute were 
conditioned on any concept of "arms' length".  See para. 4.72, supra . 
63 See, for example, para. 196(d) of the Appellate Body Report in Brazil –Aircraft.  See  also paras. 199 
and 263(f) of the Appellate Body Report in US – Line Pipe .  Although para. 168 of the Appellate Body Report 
refers to modification of the Panel Report, there is no indication precisely which part of the Panel Report is 
being modified.  In such circumstances, there is no reason to believe that the Appellate Body was referring to 
anything other than the modification resulting from the Appellate Body's explicit reversal of certain of the 
original panel's findings.  WT/DS257/RW 
 Page 25 
 
 
"arm's length sales of logs by tenured harvesters/sawmills to unrelated sawmills" is necessarily 
different from (in the sense that it would modify ) our finding that a pass-through analysis was 
required in respect of "logs sold by tenure-holding  timber harvesters (whether or not also lumber 
producers) to unrelated sawmills".  In particular, we note that the Appellate Body used a virtually 
identical formulation – also including a reference to  "arm's length sales" - at para. 123 of its Report.  
Footnote 147 to para. 123 confirms that, in para . 123, the Appellate Body was indeed referring to 
para. 7.99 of the Panel Report.  Since para. 123 of the Appellate Body report marks the beginning of 
the Appellate Body's introduction to the pass-through  issue, we do not understand the Appellate Body 
to be substantively modifying para. 7.99 of the Panel Report at that juncture.  Instead, it would seem much more reasonable to conclude that the Appe llate Body was merely paraphrasing the relevant 
finding set forth at para. 7.99 of the Panel Report.  Equally, we do not agree that a modification 
should necessarily be implied from the use of virtuall y identical language later in the Appellate Body 
Report.  Instead, one could again understand the Appellate Body to be merely paraphrasing the 
relevant finding of the original panel. 
4.82 In light of all of the foregoing considerations ,  and notwithstanding our  acknowledgement of a 
certain ambiguity in respect of the term "arm's length", we do not accept the US argument, based on 
para. 167(e) of the Appellate Body Report, that the rulings and recommendations of the DSB only 
required a pass-through analysis in respect of "arm 's length" log sales by tenured harvester/sawmills 
to unrelated sawmills.   Instead, given that the A ppellate Body upheld, without explicit modification, 
the relevant finding at para. 7.99 of the Panel Repor t, we consider that the United States was required 
to implement the recommendations and rulings of the DSB by conducting a pass-through analysis in 
respect of all log sales by tenured harvester/sawmills  to unrelated sawmills  -- covered by the finding 
at para. 7.99 of the Panel Report regarding sales of logs by "tenure-holding harvesters (whether or not 
also lumber producers) to unrelated sawmills pr oducing softwood lumber" -- irrespective of any 
considerations as to whether or not such sales were "arm's length". 
2. Rejection of aggregate data 
(a) Arguments of the parties 
4.83 Canada claims that in its Section 129 De termination, USDOC considered only company-
specific, transaction-by-transaction data for the pass-through analysis, disregarding all aggregate transaction and pricing data submitted as an alternative by the Canadian respondents
64,65.  Canada 
asserts that the specific data requested by USDOC was impossible to collect as it involved hundreds 
of thousands of transactions by thousands of co mpanies in Canada.  Canada claims that USDOC 
nevertheless refused to provide reasonable altern atives for data submission, even though its CVD 
investigation was undertaken on an aggregate basis.  Canada claims that the Panel already made it 
clear that company-specific data are not necessar ily required to conduct a pass-through analysis.  
Canada refers in this regard to para. 7.98 of the Panel Report, where the Panel stated that it was "not 
convinced that the need to conduct a pass-through an alysis for these transactions would necessarily or 
inevitably convert every aggregate case into a compan y-specific case."  Canada also refers to footnote 
170 of the Panel Report, where the Panel stated "[f] or example, inquiry into possible relationships 
between the entities concerned, and th e use of sampling or other statistical techniques in respect of the 
relevant transaction at issue, might offer possible approaches to be explored." 
                                                      
64 As noted above, however, Canada clarified in response to questioning by the Panel that it did not 
claim that USDOC outright rejected the data.  Rather, Canada challenged how the USDOC did and did not use 
them.  See para. 4.51 and footnote 45, supra . 
65 Concerning these alternative data, Canada asserts that in many instances, Canadian respondents 
provided data from a representative sample of Canadian companies.  According to Canada, the data provided 
were as much as were practicably av ailable, and could and should have been used by the USDOC to complete 
its pass-through analysis. WT/DS257/RW                   
Page 26  
 
4.84 The United States asserts that, to conduct its pass-through analysis, the USDOC first had to 
obtain data from Canada supporting Ca nada’s claim that a portion of the total volume of Crown logs 
processed into lumber – as reported by Canada – should be reduced to account for arm’s length log 
sales between unrelated parties in which no benef it passed through.  The United States submits that, 
because the USDOC had conducted the original inv estigation on an aggregate basis and not on a 
company-specific basis and had not previously  conducted such a pass-through analysis, the 
administrative record did not contain evidence supporting Canada’s claims. 
4.85 The United States asserts that the USDOC theref ore asked Canada, through questionnaires, to 
identify the volume of log sales subject to its p ass-through claims, and to provide specific information 
necessary to determine whether during the period of  investigation there were arm’s length sales of 
logs by independent harvesters to unrelated sawmills  and by tenured harvesters/sawmills to unrelated 
sawmills.  According to the United States, this w ould allow the USDOC to identify transactions that 
were eligible for the last phase of the analysis  (competitive benefit).  The requested information 
related to, inter alia , the relationship between the parties to the specific transactions (such as whether 
the parties were affiliated) and the ci rcumstances surrounding the subject sales. 
4.86 The United States further submits that the DSB's recommendations and rulings treated pass-
through as a company-specific issue.  In particular, the United States notes that the Appellate Body referred to the need to determine whet her a benefit conferred "on the input producer " passed through 
to the " producer of the processed product" (emphasis supplied). 
4.87 The United States rejects Canada's argument that the Panel already indicated that company-
specific data are not necessarily required to con duct pass-through analyses.  The United States argues 
that, in response to US arguments to the effect th at there is a mismatch between an investigation 
conducted on an aggregate basis and the company-sp ecific nature of the pass-through issue, the Panel 
simply found that pass-through can indeed be examin ed during an aggregate investigation.  According 
to the United States, the Panel did not suggest that  company-specific information should not be used 
to analyze whether there was a pass-through of subsidies. 
(b) Evaluation by the Panel 
4.88 First, we note the US argument that the USDOC needed company-specific and / or 
transaction-specific data in order to determine whet her or not the parties to the transactions were 
related.  Canada has not disputed that the USDO C needed such data for this purpose.  Since the 
question of affiliation is central to the threshold issue of whether or not a pass-through analysis is required, we see no reason why the USDOC should be prevented from collecting company-specific 
and /or  transaction-specific data for this purpose.
66   
4.89 Second, Canada has not argued that a company-sp ecific and/or transaction-specific analysis is 
inconsistent with any particular provision of the SCM Agreement.  In  the absence of specific 
provisions, we are reluctant to in struct investigating authorities what data they should collect, and 
how they should use those data, in the context of their pass-through analyses.  Nor do we consider that 
investigating authorities have an obligation simp ly to accept such alternative data as may be 
                                                      
66 We note that the USDOC did accept  some aggregate data for purpos es of determining affiliation in 
respect of parties to log transactions in certain provinces.  The Section 129 Draft Decision Memorandum (Exh. 
CDA-6 at pp. 9, 10, 13, 14)  indicates that the basis for doing so was certifications provided with the data to the 
effect that the individual companies included in the aggregate figures were unaffiliated.  Thus, our 
understanding is that it was these certifications , which necessarily conc erned only the specific  companies 
involved, that were accepted by the USDOC.  WT/DS257/RW 
 Page 27 
 
 
volunteered to them by respondents based on the respondents' assessment that the authorities' 
information requests are too burdensome.67 
4.90 Third, Canada has not established that a compan y-specific and/or transaction-specific analysis 
is precluded by the rulings and recommendations of the DSB.  Although we stated in our Panel Report 
that we were "not convinced that the need to conduct a pass-through analysis for these transactions 
would necessarily or inevitably convert every aggregate case into a company-specific case",68 we 
certainly did not state that the USDOC should be precluded from proceeding on a company-specific basis if it chose to do so.  
4.91 Finally, we recall that Canada has acknow ledged that it does not assert that the USDOC 
rejected outright all of the aggregate in formation submitted by Ca nadian respondents.
69 
4.92 For the above reasons, we reject Canada's cl aim that the USDOC improperly disregarded all 
aggregate transaction and pricing data submitted by the Canadian respondents. 
3. Sawmill-to-sawmill transactions 
(a) Arguments of the parties 
4.93 Canada claims that in the Section 129 Determ ination, the USDOC continued to presume pass-
through in respect of all log transactions between tenured sawmills.  Canada's  claim is based on its 
assertion that, in the Section 129 Determination, the USDOC did not investigate sales of logs between 
tenured sawmills.  Canada asserts that the origin al Panel and Appellate Bo dy findings provide no 
basis for refusing to conduct a pass-through anal ysis simply because the purchasing sawmill holds 
tenure. 
4.94 Canada also claims that in the First Ass essment Review, USDOC presumed pass-through in 
respect of all sawmill-to-sawmill tr ansactions since it failed to requ est information on any purchases 
of logs by sawmills from other sawmills.  
4.95 Regarding the USDOC's Section 129 Determination, the United States asserts that the scope 
of the Appellate Body's ruling was limited – by foot note 151 of the Appellate Body's report – to sales 
of logs to sawmills that "do[] not hold a stumpage c ontract", i.e., to sawmills that do not hold tenure.  
According to the United States, the Appellate Body th erefore only upheld the original panel's finding 
that the USDOC should have conducted a pass-through analysis with respect to transactions between 
tenured timber harvester/sawmill s and unrelated, non-tenure holding sawmills.  The United States 
submits that the USDOC properly implemented th e rulings and recommendations of the DSB by 
following the specific direction i ssued by the Appellate Body. 
4.96 The United States does not respond to Canada's cl aim concerning the scope of the information 
requested by USDOC in the First Assessment Review. 
(b) Evaluation by the Panel 
4.97 We shall first address Canada's claim regarding the scope of the information requested by the 
USDOC in its Section 129 Determination.  We sha ll then examine Canada's claim regarding the First 
Assessment Review. 
                                                      
67 In this regard, we consider that  the accuracy of certain aggregate da ta in respect of affiliation is not 
informative of whether the substance of  the aggregate data in terms of volum e and price is either representative 
or accurate.  These are entirely separate issues.   
68 Panel Report, para. 7.98. 
69 See footnote 45 supra . WT/DS257/RW                   
Page 28  
 
(i) Section 129 Determination 
4.98 As a preliminary matter, we note that Canada 's claim does not cover purchases of logs by 
sawmills from tenured timber harv esters that do not themselves pr oduce lumber.  Canada's claim 
concerning the scope of the USDOC's investigation is restricted to sawmill-to-sawmill transactions.
70   
4.99 On substance, we note that the United States' de fence to this claim is based on the definition 
of "sawmill" found at footnote 151 of the Appellate Bo dy Report.  That definition  explicitly restricts 
the term "sawmill" as used in the Appellate Body Report to "an enterprise that processes logs into 
softwood lumber and does not hold a stumpage contra ct".  Our Panel Report, however, does not adopt 
the same definition of "sawmill" as employed by th e Appellate Body.  Rather, our findings regarding 
inter-sawmill transactions concerned purchases by a ll sawmills, whether or not they hold a stumpage 
contract. 71  Furthermore, in the panel proceedings, neither party suggested that the definition of 
"sawmill" should be restricted in any way.   
4.100  Second, we recall that the Appellate Body did no t explicitly modify our finding at para. 7.99 
of the Panel Report concerning inte r-sawmill transactions.  Rather, our finding was explicitly upheld 
by the Appellate Body.  The United States submits that, because of the definition of "sawmill" set 
forth at footnote 151 of the Appellate Body Repor t, our finding regarding inter-sawmill transactions 
(as set forth at para. 7.99 of the Panel Report) was only upheld by the Appellate Body in so far as it 
concerned log purchases by sawmills that did not hol d a stumpage contract.  We disagree.   
4.101  The considerations that we highlight at para. 4.80, supra , in respect of the issue of implicit 
modification of a panel's findings are equally pertinent here, to the extent that the US argues that the 
Appellate Body made such an implicit modifica tion.  We do acknowledge the possibility that the 
Appellate Body's use of a different, narrower definiti on of "sawmill" in its report than we did in the 
Panel Report may have led to a certain ambiguity as to  the scope of the Appella te Body's, and thus the 
DSB's rulings, and it is not clear to us why the Ap pellate Body introduced this narrower definition.  
That said, however, the practical effect of the definition set forth at footnote 151 of the Appellate 
Body Report is that the Appellate Body's findings re garding inter-sawmill transactions were restricted 
to transactions involving purchases by sawmills that did not hold a stumpage contract.  In other 
words, the Appellate Body made no findings re garding our conclusion concerning inter-sawmill 
transactions involving purchases by sawmills that did hold a stumpage contract.  In the absence of any 
findings by the Appellate Body regarding this la tter category of transactions, our findings regarding 
such transactions stand, and form the sole basis for the DSB's recommendations and rulings in respect 
of these transactions. 
4.102  We note the US argument in this regard that in its notice of appeal, the United States 
challenged "the entirety of the findings of the or iginal panel that Commerce had to conduct a pass-
through analysis with respect to transac tions between producers of subject merchandise"72.  We 
understand the United States to argue that the scope  of its appeal therefore covered the Panel's 
findings regarding purchases by all sawmills, whether or  not they hold a stumpage contract, and that 
the Appellate Body's findings should therefore reflect  the scope of the US appeal.  This would mean 
that our conclusion regarding log purchases by saw mills that do hold a stumpage contract would 
somehow be subject to the findings  of the Appellate Body.  While we see merit in such an argument 
(in the sense that the scope of the Appellate Body's  findings should normally reflect the scope of the 
                                                      
70 Thus, at para. 55 of its first written submission (see Annex A – 1), Canada accuses the United States 
of ignoring the findings of the original panel and Appe llate body concerning "sawmill- to-sawmill transactions" .  
Canada does not complain, in the context of this claim, that the USDOC failed to investigate sales by tenured 
timber harvesters that do not produce lumber. 
71 In order to avoid any uncertainty, in these proceedings we continue to use the term "sawmill" to refer 
to an enterprise that processes logs into softwood lumber, whether or not it holds a stumpage contract. 
72 See US Response to Question 1 from the Panel.  WT/DS257/RW 
 Page 29 
 
 
appellant's appeal), we note that the Appellate Body 's "sawmill" definition would appear to apply to 
the entirety of the Appellate Body Report, includi ng the section entitled "Claims of Error by the 
United States – Appellant".  In that section, the Appellate Body states that the United States "contends that the Panel erred in finding that a pass-through analysis is required in respect of sales of logs from 
tenure-holding sawmills producing softwood lumber to unrelated sawmills ".
73  Furthermore, in 
describing the "Scope of the Issue Appealed", the Appellate Body states that "[t]his appeal thus 
concerns the situations where: (i) a tenured tim ber harvester owns a sawmill and processes some of 
the logs it harvests into softwood lumber, but at the same  time sells at arm's leng th some of the logs it 
harvests to unrelated sawmills  for processing into lumber ...".74  Notwithstanding the terms of the US 
Notice of Appeal, therefore, the issue addressed by the Appellate Body, and therefore the scope of the 
Appellate Body's findings, was explicitly restricted  (as a result of footnote 151 of the Appellate 
Body's Report) to inter-sawmill transactions involving log purchases by sawmills not holding a 
stumpage contract.  Inter-sawmill transactions  involving log purchases by sawmills holding a 
stumpage contract were therefore not covered by the Appellate Body's findings.75  Accordingly, our 
finding regarding such transactions could not have been reversed or otherwise modified by the 
Appellate Body. 
4.103  Since our finding at para. 7.99 of the Pane l Report regarding inter-sawmill transactions 
involving log purchase by sawmills holding a stumpage contract could not have been reversed or otherwise modified by the Appellate Body, that finding must be reflected in the scope of the rulings and recommendations of the DSB.  Thus, by failing in the Section 129 Determination to analyse pass-
through in respect of inter-sawmill transactions involving purchases by (unrelated) sawmills that hold 
a stumpage contract, the United States failed to pr operly implement the rulings and recommendations 
of the DSB regarding such transactions. 
(ii) First Assessment Review 
4.104  Canada submits that, in its administrative re view, the USDOC failed to request information 
on any sawmill-to-sawmill transactions.  Canada asser ts that, in its only request for information on 
arm’s length log transactions, the USDOC restricted its request in  its initial questionnaire to the 
volume and value of Crown logs sold by independent  harvesters (i.e., “by any person or company that 
did not own or operate a sawmill” or “by non-mi ll-owning tenure holders”) to softwood lumber 
producers.  Canada refers in this  regard to the questionnaires sent by the USDOC to various Canadian 
provinces (Exhibit CDA-9), and the USDOC's Preliminary Assessment Review Determination Exhibit CDA-10). 
4.105  The United States did not respond to Canada's cl aim, which concerns the conduct of the First 
Assessment Review.  When asked a question regard ing this claim, the United States responded on the 
basis of the information requested by the USDOC in  the Section 129 Determination, rather than the 
First Assessment Review.
76  We presume that the United States declined to respond in respect of the 
First Assessment Review because of its view that the latter measure falls outside the scope of the 
present proceedings.  We recall, however, our find ing that the First Assessment Review does fall 
within the scope of these proceedings  insofar as the pass-through issue is concerned.  We also recall 
that we warned the parties at our substantive mee ting with them in the present proceeding that, in the 
                                                      
73 Appellate Body Report, para. 16 (italic emphasis in original, bold emphasis supplied). 
74 Appellate Body Report, para. 128 (emphasis supplied). 
75 The scope of the appeal is described in the penultimate sentence of para. 124 of the Appellate Body 
Report.  That sentence refers to certain sales of logs and lumber "to sawmills".  Si nce the word "sawmills" is 
qualified by the abovementioned footnote 151, it is clear th at the scope of the appeal was restricted to certain 
sales of logs and lumber to "enterprise[s] that process[] logs into softwood lumber and do[] not hold a stumpage 
contract". 
76 See US Response to Question 4 from the Panel. WT/DS257/RW                   
Page 30  
 
absence of any ruling on the US preliminary request  at that time, the parties should assume in their 
arguments and submissions that the First Asse ssment Review falls within these proceedings. 
4.106  We find that Canada has prima facie  established, on the basis of the abovementioned 
Exhibits, that the USDOC failed in the First Assessme nt Review to investigate pass-through in respect 
of any sawmill-to-sawmill transactions.  Given th e original panel and Appellate Body findings 
regarding sawmill-to-sawmill transactions, we do not see how the USDOC could have properly 
implemented the rulings and recommendations of the DSB in this case without also analysing pass-
through in respect of sales of logs between sawm ills in the First Assessment Review.  In the absence 
of any argumentation concerning this matter by the United States, we find on the basis of the above 
that Canada has established a prima facie  case that the United States has failed to properly implement 
the rulings and recommendations of the DSB by excluding sawmill-to-sawmill transactions from the 
pass-through analysis in the First Assessment Review. 
C. 
THE BENCHMARKS USED IN THE USDOC 'S PASS -THROUGH ANALYSIS  
1. Arguments of the parties 
4.107  In its first submission, Canada challenges the benchmarks used by the USDOC in determining 
whether subsidy benefits passed thr ough in certain log sales between unrelated parties.  In particular, 
Canada challenges the import price data used by th e USDOC (in conjunction with price data for logs 
purchased from private holders of forested land) in constructing the market price benchmarks for 
determination of benefit.   
4.108  The United States disputes this challenge on two grounds.  First, the United States asserts that 
this issue is outside the Panel's terms of referenc e as it is not referred to in Canada's request for 
establishment of a panel.  Second, the United States ar gues that even if the issue were properly before 
the Panel, it has no substantive merit, as the im port data used by USDOC were reasonable, and 
Canada has pointed to no provision of any covered agreement that has been violated by the use of 
these data. 
2. Evaluation by the Panel 
4.109  Turning to whether this challenge is outside our  terms of reference, we recall that Canada's 
request for establishment refers to four specific a lleged failures by the United States to comply with 
the DSB's recommendations and rulings, which can be summarized as (1) excluding certain categories 
of transactions from pass-through analysis;  (2) pres uming that certain transactions were not at arm's 
length and thus that benefits passed through;  (3) a pplying the results of the pass-through analysis to a 
countervailing duty cash deposit rate that had been inva lidated in judicial review procedures under US 
law77;  (4) failing to conduct a pass-through analysis in the first administrative review of the lumber 
CVD measure. 
4.110  None of these four alleged failures refers to or has any evident connection with either the 
methodology or the data that USDOC used in its calculations of pass-through of benefits in respect of 
those transactions where it performed such calculati ons.  Rather, this issue is distinct from and 
independent of the four listed a llegations.  While Canada, in res ponse to a question from us, asserts 
that "Canada identified its challenge  to the pass-through benchmarks in its panel request", it points to 
no specific language in the request in this regard, and we find no such refere nce.  Canada's argument 
seems to be, rather, that the statement in the re quest that the United States' measure(s) taken to 
comply are "inconsistent with Articles 10 and 32.1  of the SCM Agreement and Article VI:3 of the 
GATT 1994" is sufficient to bring this challenge w ithin our terms of reference.  We disagree.  
                                                      
77 We have already expressed our view that Canada has effectively abandoned th is claim, or at least 
failed to establish a prima facie  case in support thereof.  See note 47 above.  WT/DS257/RW 
 Page 31 
 
 
Canada's request describes the four specific alleged violations (legal claims), none of which has to do 
with the benchmarks used, and then identifies th e various measures which in Canada's view are 
inconsistent by virtue of these alleged violations.  Thus, we find that the issue of the market 
benchmarks used by USDOC represents a separat e challenge, not referred to in the request for 
establishment.  It therefore falls outside our terms of reference. 
4.111  In light of the above, we reject Canada's cl aim regarding the benchm arks used by the USDOC 
in its pass-through analysis. 
D. COUNTERVAILING DUTY AMOUNT  
1. Arguments of the parties 
4.112  Canada submits that the effect of the failu re by the United States to comply with the 
recommendations and rulings of the DSB is an impermissible inflation of the amount of its 
countervailing duties.  Canada submits that the Unite d States is now required to do one of two things: 
either (1) conduct an appropriate pass-through an alysis for all Crown log transactions involving 
unrelated parties, including through the use of aggr egate data; or (2) exclude from the calculation of 
the overall ad valorem  subsidy rate amounts of subsidy that have been presumed to pass through such 
transactions. 
4.113  The United States submits that the USDOC pr operly calculated the revised countervailing 
duty rate by reducing the numerator of the ad valorem  subsidy rate by C$ 28,344,121. 
2. Evaluation by the Panel 
4.114  We have identified a number of deficiencies in  the USDOC's implementation of the rulings 
and recommendations of the DSB regarding US – Softwood Lumber IV , in particular in respect of the 
pass-through issue in both the Section 129 Determ ination and the First Assessment Review.   
4.115  As a result of such failures to properly impl ement the rulings and recommendations of the 
DSB, the USDOC included in its numerator transactions for which it had not demonstrated that the benefit of subsidized log inputs had passed throug h to the processed product.  As in the original 
proceeding, we find that this results in th e imposition of countervailing duties in a manner 
inconsistent with Articles 10 and 32.1 of the SCM Agreement, and Article VI:3 of the GATT 1994. 
V. CONCLUSIONS AND RECOMMENDATIONS 
5.1 In light of the above, we reject: 
• the US request for a preliminary ruling that th e First Assessment Review falls outside the 
scope of the present DSU Article 21.5 proceeding,  insofar as the pass-through analysis is 
concerned; 
• Canada's claim that the USDOC improperly disr egarded all aggregate transaction and pricing 
data submitted by the Canadian respondents; 
• Canada's claim against the benchmarks used  by the USDOC in its pass-through analysis;  
5.2 We uphold Canada's claims that: 
• in the Section 129 Determination, and in the treat ment of pass-through in the First Assessment 
Review, the United States failed to properly implement the recommendations and rulings of 
the DSB in this dispute by failing to conduct a pass-through analysis in respect of sales, found WT/DS257/RW                   
Page 32  
 
by USDOC not to be at arm's le ngth, of logs by tenured timber harvesters, whether or not they 
also produce lumber, to unrelated lumber producers, whether or not they hold a stumpage contract; and 
• in the Section 129 Determination, and in the First Assessment Review , the USDOC therefore 
included in its subsidy numerator transactions for which it had not demonstrated that the 
benefit of subsidized log inputs had p assed through to the processed product.  
5.3 We do not consider it necessary to make any conclusion regarding the claim identified in 
Canada's Request for Establishment of a panel re garding USDOC "applying the results of the 'pass-
through' analysis to a countervailing duty cash depos it rate invalidated as a result of judicial review 
proceedings conducted in accordance with US law, a nd failing to apply the results to a valid rate". 
5.4 We therefore conclude that the United States re mains in violation of Article 10 and 32.1 of 
the SCM Agreement, and Article VI:3 of the GATT 1994.   
5.5 Under Article 3.8 of the DSU, in cases where th ere is infringement of the obligations assumed 
under a covered agreement, the action is considered prima facie  to constitute a case of nullification or 
impairment of benefits under that agreement.  Ac cordingly, we conclude that, to the extent the 
United States has acted inconsistently with the provisions of the SCM Agreement and of GATT 1994, 
and failed to properly implement the recommendations and rulings of the DSB in this dispute, it has 
nullified or impaired benefits accr uing to Canada under that Agreement.   Pursuant to Article 19.1 of 
the DSU, therefore, we recommend that the Unite d States bring its Section 129 Determination and 
First Assessment Review into conformity with these provisions. 
5.6 Pursuant to DSU Article 19.1, Canada has re quested that we suggest ways in which the 
United States could implement our recommenda tion.  In particular, Canada suggests
78 that the 
United States do one of the following two things: 
• It should refund the amount of the countervailing duties it imposed to offset alleged subsidy 
amounts impermissibly presumed to pass through;  
or 
• It should revise its measures to meet its WTO obligations and refund the amount of the 
countervailing duties it imposed to the extent th at they exceeded the amount of the alleged 
subsidy demonstrated to have passed thr ough to the production of softwood lumber. 
5.7 Given the complexities of the issue at hand, we consider that in the first instance the 
modalities of the implementation of our recommendati on are for the United States to determine.  We 
therefore decline to make the suggestions proposed by Canada. 
 
__________ 
 
 
                                                      
78 Canada's suggestion is made at para. 58 of its oral statement (see Annex A – 3).  That paragraph also 
contains a request for a recommendation which differs from the request set forth at para. 72 of Canada's first written submission (see Annex A – 1).  We understand that  para. 58 of Canada's oral statement is intended to 
amend and replace para. 72 of Canada's first written submission.  This was cer tainly the understanding 
expressed by the United States at our meeting with the parties, to which Canada did not object.