WT/DS257/RW 
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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 
 
 
 WT/DS257/RW 
Page C-2  
 
ANNEX C-1 
 
THIRD PARTY SUBMISSION OF CHINA 
 
17 March 2005 
 
 
Table of Contents 
 
I. Introduction................................................................................................................ ........... 3 
II. Whether the USDOC Administrative Review Determination Is Properly Before 
 This Compliance Panel........................................................................................................ 3  
 
 A. The Threshold Issue Presented in These Proceedings ................................................ 3 
 B. Terms of Reference of An Article 21.5 Panel............................................................. 3 
 C. China’s Views on The Threshold Issue ...................................................................... 4 
 
III. Whether “Arm’s-Length Transaction”  and “Non-affiliation” Are One and  
 The Same Condition or Two Separa te Conditions to Necessitate A Pass 
 through Analysis .............................................................................................................. .... 6 
  A. The Analysis of the Appellate Body ........................................................................... 7 
 B. The Rulings of the Original  Panel and the Appellate Body........................................ 7 
 C. China’s View on the Issue of Pass-through ................................................................ 8  
IV. Conclusion ................................................................................................................. ........... 9 
 
   WT/DS257/RW 
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I. Introduction 
1. China welcomes this opportunity to present its views in these proceedings involving the 
United States’ compliance with the DSB recommendations and rulings in United States – Final 
Countervailing Duty Determination With Resp ect to Certain Softwood Lumber from Canada .  China 
believes these proceedings relate to the correct  understanding of Article 21.5 of the DSU and 
Article VI:3 of GATT 1994 as well as the rulings by the original Panel and the Appellate Body in the 
original dispute in which Chin a has systemic interests.   
 
2. In this third party submission, China will focus on the following two key issues: 
  (i) the threshold issue of whether the USDOC administrative review determination is 
properly before this Panel; 
  (ii) whether the five external factors identif ied by the USDOC can be used to exempt the 
US from conducting pass-through analysis as required by the rulings of the original 
panel and the Appellate Body with respect to sales of logs between tenured harvesters/sawmills and unrelated sawmills. 
 
II. Whether the USDOC Administrative Review Determination Is Properly Before This 
Compliance Panel 
 
 A. The Threshold Issue Presented in These Proceedings
 
 3. In the Request for Establishment of A Panel , Canada refers to the following measures by the 
US:  (i) the Section 129 Determination
1;  and (ii) the First Administrative Review Determination (the 
“Review Determination”)2.  In its First Written Submission, Ca nada argues that the US, by adopting 
these “measures taken to comply”, “continues to vi olate its obligations under Article VI:3 of the 
GATT 1994 and Articles 10 and 32.1 of the SCM Agreements”3 and failed to implement the 
recommendations and rulings of the DSB.  The US, in turn, request a prel iminary ruling that the 
Review Determination is not a “measure[] taken to comply” and thus falls outside the scope of these 
Article 21.5 proceedings4.  
 4. Thus, a threshold issue presented in this di spute is whether the Review Determination is 
properly before this compliance panel.   B. Terms of Reference of An Article 21.5 Panel
 
 
5. In China’s view, WTO jurispr udence establishes that the mandate of an Article 21.5 panel is 
subject to two limitations.    
                                                     
 
1 Notice of Implementation Under Section 129 of the Uruguay Round Agreements Act; Countervailing 
Measures Concerning Certain Softwood Lumber Products from Canada , 69 Fed. Reg. 75,305; Section 129 
Determination:  Final Countervailing Duty Determination, Certain Softwood Lumber from Canada ; Notice of 
Amended Final Affirmative Countervailing Duty Determination and Notice of Countervailing Duty Order:  
Certain Softwood Lumber Products from Canada , 67 Fed. Reg. 36,070.  
2 Notice of Final Results of Countervailing Duty Administrative Review and Rescission of Certain 
Company-Specific Reviews:  Certain So ftwood Lumber Products from Canada , 69 Fed. Reg. 75,917; and  Issues 
and Decision Memorandum :  Final Results of Administrative Review:  Certain Softwood Lumber Products from 
Canada . 
3 First Written Submission of Canada, paras. 35~40.   
4 First Submission and Request for Preliminary Ruling of the United States (the “First Submission of 
the US”), para. 12. WT/DS257/RW 
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6. First, the mandate of a compliance panel shall be confined by the coverage of the measures 
referred to by the complaining party in its panel request.  If the parties to a dispute do not agree 
otherwise, a compliance panel, as an ordinary panel,  shall have the standard terms of reference set 
forth in Article 7.1 of the DSU.  Specifically, the ou ter edge of the terms of reference of a compliance 
panel shall be the scope of the panel request by th e complaining party at a given dispute.  This has 
been confirmed by many compliance panels.
5 
 7. Second, the mandate of a compliance panel sh all be limited by the scope of “measures taken 
to comply” with DSB recommendations and rulings.  The Appellate Body in Canada – Aircraft 
(Article 21.5 – Brazil)  held that, 
 
Proceedings under Article 21.5 do not concern just any measure of a Member of the 
WTO; rather, Article 21.5 proceedings are limited to those “measures taken to comply  
with the recommendations and rulings” of the DSB
6. (original emphasis) 
In EC - Bed Linen (21.5) , the Appellate Body explicitly stated that "[i]f a claim  challenges a measure  
which is not a 'measure taken to comply', that claim  cannot properly be raised in Article 21.5 
proceedings."7 (Original Emphasis)   
 8. Practically, there may be fewer disputes over whether a measure is cited by the complaining 
party in its panel request.  Rather, many of the disputes rest with whether a particular measure, 
although cited by the complaining party, is a “measure[ ] taken to comply”.  This is exactly the case in 
this dispute.   
  C. China’s Views on The Threshold Issue
 
 9. In these proceedings, both parties seem to have no dispute on whether the Review 
Determination was cited by Cana da in its panel request.  As noted on the document WT/DS257/19, 
the parties to this dispute agreed that the Panel shoul d have standard terms of reference.  As a result, 
the Panel’s terms of reference sh all be defined by Canada’s Requ est for Establishment of a Panel 
(WT/DS257/15).  In that document, Canada manifes tly referred to the Review Determination issued 
by the USDOC.  However, “Article 21.5 proceedings are limited to those ‘measures taken to comply  
with the recommendations and rulings’ of the DSB”
8 and “it is, ultimately, for an Article 21.5 panel 
— and not for the complainant or the respondent — to determine which of the measures listed in the 
request for its establishment are “measures taken to comply”9.  Therefore, the threshold issue in this 
dispute is whether the Review Determination cited by  Canada in its panel request is properly before 
this panel.  
10. In this dispute, it may be argued, on the one  hand, that the Review Determination was made 
in a totally separate investigation procedure and based on the import data that is irrelevant to that of 
the original investigation.  On the other hand, it is  arguable that the two determinations at issue were 
made under the framework of the same set of pr oceedings which effectively affects import of 
softwood lumber from Canada and the Review  Determination supersedes the Section 129 
Determination.  In China’s view, the first argume nt relates to the questi on of whether the Review 
Determination is a “measure[] taken to comply” while the sec ond argument concerns the matter 
whether the Section 129 Determina tion is rendered non-existent.   
 
                                                     
 
5 EC - Bananas (21.5),  WT/DS27/RW/ECU, para.6.5; Australia - Leather (21.5) , WT/DS126/RW, 
para.6.3. 
6 Canada – Aircraft (Article 21.5 – Brazil) , WT/DS70/AB/RW, para 36.  
7 EC - Bed Linen (21.5) , WT/DS141/AB/RW, para.78. 
8 Canada – Aircraft (Article 21.5 – Brazil) , WT/DS70/AB/RW, para 36.  
9 EC Bed Linen (Article 21.5 – India) , WT/DS141/AB/RW, para 78.  WT/DS257/RW 
 Page C-5 
 
 
11. Initially, the Review Determin ation may not be properly categorized as a “measure[] taken to 
comply”.  This point has been elaborated by the US in its First Submission.  The date of 
commencement of the review process was well before  the date when the DSB adopted the panel and 
Appellate Body report.  The Review Determin ation was not issued under the US domestic 
proceedings that are specifically enacted to address its violation of WTO rules concerning a 
countervailing duty measure (Section 129(b) of the Uruguay Round Agreements Act ).   
 12. However, in China’s view, the fact that th e Review Determination is not a “measure[] taken 
to comply” does not lead to a decisive answer to  the question of whether this measure 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 take n to comply with the recommendations and 
rulings” of the DSB.  China believes that “existence”  and “consistency” are two distinct aspects 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’”
10, but also “in the light of any provision of 
any of the covered agreements.”11  On the other hand, the former relates to the status of the revised 
new measure.  Both aspects are equally important th ough the “existence” matter is crucial in solving 
the threshold issue in these proceedings.  13. The dispute of Australia – Automotive Leather (21.5 – US)  demonstrates similar fact pattern 
that deserves the reference by this Panel.  In that dispute, Australia, subsequent to the DSB 
recommendations and rulings, ordere d the repayment of the grants of A$8.065 million from Howe on 
14 September 1999 and reported to the DSB that it had carried out the recommendations and rulings 
of the DSB.  However, on the same date, Au stralia provided a loan of A$13.65 million on non-
commercial terms to Howe's parent company, ALH.   The U.S. requested an Article 21.5 panel and 
submitted that “it is clear that if the Panel can de termine the "existence" of measures taken to comply 
with the ruling, it can consider whether the meas ures purportedly taken to comply were effectively 
rendered non-existent”.
12  Australia maintained that the loan of A$13.65 was not part of the 
implementation of the DSB’s rulings and recommend ations which was not even notified to the DSB.13  
In considering this issue, the compliance 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 bot h its timing and its nature. In our view, the 
1999 loan cannot be excluded fro m 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 me asure specifically identified in the request 
for establishment is not within our terms of reference. 
14. 
In China’s view, in an Article 25.1 procedure, 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.  To exclude the second measur e would put the panel at the risk of failing to 
make a comprehensive and well-founded judgement on the existence  of a measure taken to comply 
with DSB recommendations and rulings.  
 14. As China understands, the US  applies a retrospective count ervailing duty assessment system.  
Under such a system, the results of a re view (if conducted), not only determine 
the duty that shall be 
                                                      
10 Canada - Aircraft (21.5) , WT/DS70/AB/RW, para.40. 
11 Australia - Salmon (21.5) , WT/DS18/RW, para.7.10. 
12 Australia – Automotive Leather (21.5 – US) , WT/DS126/RW, para. 6.2.   
13 Australia – Automotive Leather (21.5 – US) , WT/DS126/RW, para. 6.1. 
14 Australia – Automotive Leather (21.5 – US) , WT/DS126/RW, paras. 6.5.   WT/DS257/RW 
Page C-6  
 
assessed on the goods imported during the period of review, but also establish the amount of cash 
deposit for future imports of the subject product follow ing the review.  In this sense, the results of a 
review may be deemed to replace the original de termination except in cer tain extraordinary cases 
(e.g., in case where the amount of subsidization found to be zero in a review the result of which will 
not lead to the termination of the original de termination).  Thus, China believes, due to the 
countervailing duty assessment system adopted by th e US, the results of an administrative review 
may, at least in form, replace the original final determination.    15. In the particular factual circumstance of  this dispute, the Review Determination was 
announced ten days after the Section 129 Determinati on took effect.  Thus, the Review Determination 
established a new rate for cash deposit for the goods from Canada and replaced the rate in the Section 
129 Determination.  Such changes in the applicable  duty rate deserve further consideration on whether 
the Review Determination, in substance , rendered the non-existence of the Section 129 
Determination.  Therefore, China is of the vi ew that the facts presented by Canada in these 
proceedings, at least, have demonstrated that ther e is likelihood that the Review Determination may 
nullify the Section 129 Determination.   
 16. On the basis of the above, it follows that if the Review Determination is found not to be a 
“measure[] taken to comply”, it is still of importa nce to establish whether, as a matter of fact, the 
Section 129 Determination is nullified by the Revi ew Determination and therefore, no “measure[] 
taken to comply” exists.  In China’s opinion, in order to perform the duty of “mak[ing] an objective 
assessment of the matter before it” as required by Ar ticle 11 of the DSU, it is advisable for the Panel 
to keep the Review Determination within its terms of reference instead of disregarding it at the very 
beginning of the procedure.  In the meantime, how ever, China wishes to emphasize that, if the Review 
Determination is held not to be a measure taken to comply, the panel need only review the Review 
Determination to the extent that it can make a ruling on whether the Section 129 Determination was 
rendered non-existent and it is not the task of this  Panel to review the Review Determination as a 
“measure[] taken to comply” in paralle l with the Section 129 Determination. 
 17. Furthermore, it has been consistently ruled by  compliance panels that it may be appropriate to 
consider events occurring until the date of panel request.
15  Such a view supports the position that this 
Panel should consider the Review De termination, as relevant facts, which happened prior to the panel 
request.   
 18. In summary, China is of the opinion that, although the Review Determ ination may not be a 
measure taken to comply, it is closely linked to and may have an important effect on the existences of 
the purported measure taken to comply – the Sec tion 129 determination.  On such basis, China 
believes it is the mandate of this Panel to consid er the Review Determination in these proceedings.  
China suggests that the Panel may assess: (i) whethe r Section 129 Determination fully implements the 
DSB recommendations and rulings and is consistent with the covered agreements; and (ii) if it does, 
whether the Review Determination invalidates th e Section 129 Determinat ion and consequently 
renders the non-existence of the latter.    III. Whether “Arm’s-Length Transaction” an d “Non-affiliation” Are One and The Same 
Condition or Two Separate Conditions to  Necessitate A Pass-through Analysis 
 
19. In its First Written Submission, Canada argu es that the US failed to conduct pass-through 
analysis for three reasons, one of which is the US DOC imposed two conditions to limit the number of 
log transactions requiring analysis.  These two conditions  are: (i) the transacting parties are unrelated; 
                                                     
 
15 See, e.g., EC – Bed Linen (21.5) , WT/DS141/RW, para. 6.28; US – Shrimp (21.5) , WT/DS58/RW, 
paras. 5.12~5.13.    WT/DS257/RW 
 Page C-7 
 
 
and (ii) none of the external factors identified by the USDOC exists.16  The US, in its First 
Submission, does not deny its application of these two conditions.17 
 20. In the following, China would like to share w ith the parties to this dispute as well as this 
Panel its views on this disputed issue.   
 
 A. The Analysis of the Appellate Body
 
 21. In the course of reaching its conclusion,  the Appellate Body largely relied on the 
interpretation of Article VI:3 of the GATT 1994.  In its report, the Appellate Body stated that,  
 
The phrase "subsid[ies] bestowed ... indirectly",  as used in Article VI:3, implies that 
financial contributions by the government  to the production of inputs used in 
manufacturing products subject to an investigation are not, in principle, excluded from the amount of subsidies that may be offset through the imposition of 
countervailing duties on the processed produc t. Where the producer of the input is 
not the same entity  as the producer of the processed product, it cannot be presumed, 
however, that the subsidy bestowed on  the input passes through to the processed 
product. In such case, it is necessary to an alyze to what extent subsidies on inputs 
may be included in the determination of th e total amount of subsidies bestowed upon 
processed products. For it is only the subsidi es determined to have been granted upon 
the processed products that may be offset by levying countervailing duties on those 
products.
18 (original emphasis in italic and added emphasis in bold) 
The Appellate Body seemed to be of the view that  if subsidies are bestowed on an entity different 
from the producer of the subject product, pass-thro ugh of subsidies cannot be presumed.  In this 
respect, the Appellate Body did not emphasize that the transactions between the two entities shall be 
free of interference by any external factor.  In addition, the Appellate Body found further supports 
from the definition of subsidy in Article 1 of th e SCM Agreement as well as its interpretation of 
“benefit” in Canada – Aircraft.19  In such analysis, the Appellate  Body also focused on whether the 
cumulative condition in Article 1 of the SCM Agre ement are met for the producer of the subject 
products and whether the producer of the subject produc t is an indirect recipient.  All such legal 
analysis, in China’s view, relies on the presumption that the two entities, producer of the input and 
producer of the subject product, are not the same entity. 
 22. The Appellate Body, in its analysis, did me ntion from time to time the term “arm’s-length 
transactions”.  However, it did not put forward the implication of this term.  Neither did it base its 
analysis on the presumption that the transactions at issue are free from influence by any external 
factors. 
  B. The Rulings of the Original Panel and the Appellate Body
 
 23. Paragraph 167(e) of the Appe llate Body Report is as follows,  
 
upholds
 the Panel's finding, in paragraph 7.99 of the Panel Report, that USDOC's 
failure to conduct a pass-through analysis in respect of arm's length sales of logs by 
                                                      
16 First Written Submission of Canada, paras. 53 and 59. 
17 See the First Submission of the US, para. 34.  The US  argues that “[c]ontrary to Canada’s arguments, 
nothing in the SCM Agreement, the GATT 1994, or the DSB’s recommendations and rulings supports Canada’s 
argument that an arm’s-length analysis should be restri cted to, in essence, a per se test based on affiliation 
alone”.   
18 US – Lumber CVDs Final , WT/DS257/AB/R, Para. 140.   
19 US – Lumber CVDs Final , WT/DS257/AB/R, Paras. 142~143 WT/DS257/RW 
Page C-8  
 
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; 
This ruling does mention the terms “arm’s length sales” and “unrelated” in parallel.  However, 
referring to paragraph 7.99 of the original Pane l Report would easily exclude any potential confusion 
that may be caused by the use of these two terms, which reads, 
 
We therefore conclude that, for the reasons set forth above, the USDOC's failure to conduct a pass-through analysis in respect of logs sold by tenure-holding timber harvesters (whether or not also lumber producers) to unrelated  sawmills producing 
subject softwood lumber; (emphasis added) 
The above ruling does not refer to “arm’s-length tr ansactions” as an extra condition to necessitate 
pass-through analysis.  The condition is only that the tenure-holding timber harvesters are unrelated to sawmills.  If the Appellate Body intended to insert “arm’s-length transaction” as an addition 
condition, it should have said so and should have partially reversed th e original panel’s ruling on this 
matter.  Therefore, the term “ar m’s-length transactions” in the ruling of the Appellate Body can be 
understood to bear the same meaning as that of “unrelated”. 
  C. China’s View on the Issue of Pass-through
 
 24. In China’s view, under the particular fact ual circumstances of this dispute and the 
countervailing duty investigation on so ftwood lumber, it is not necessary to satisfy the test of five 
external factors identified by the USDOC in or der to require for a pass-through analysis.   
 25. First, China agrees with the analysis by the Appellate Body that an instance that require for 
pass-through analysis is one where the direct recipien t of the subsidies at issue is not the same entity 
as the producer of the countervailed subject product.  In this respect, the meaning of the so-called 
“same entity” is obvious – both entities are not related to  or affiliated with each other in any other way 
so that they cannot be treated as one and the same.  Such an instance does not imply that the 
transactions at issue should be free of interference by any of the five external factors identified by the 
USDOC.  26. Second, it is possible that the five external  factors may affect the transactions between the 
separate entities and thereby influence the pass-thr ough of the direct subsidie s on the production of 
logs.  For example, due to limitations on log sales in Crown tenure contracts, the tenured harvester 
may not sell its products to the sawmills at fair market  value.  As a result, the transaction price may be 
lower than fair market value through which, subs idies on logs pass through to the production of the 
subject products.  In China’s view, it is the exte rnal factors and, potentially, other unknown factors 
that cause the transaction price to be below fair market value and thereby, result in pass-through of 
subsidies.    27. China further submits that the influence by any external factor  can be fully taken into account 
if a proper pass-through test is carried out.  By  choosing a permissible market benchmark, the 
investigating authorities could precisely calculate the part of benefits that are passed through to the 
purchasers of logs.  Conversely, if the investigatin g authorities rule that, due to the existence of 
external factors, pass-through of subsidies need not be analyzed and can be presumed in its totality, 
the calculated subsidy amount would not reflect th e actual amount of benefits that are actually 
bestowed indirectly on the production of the subject  product.  Such an approach would most likely 
lead to imposition of countervailing duty in excess of  subsidies bestowed “directly, or indirectly” on 
the subject product in violation of Article VI:3 of the GATT 1994.   
  WT/DS257/RW 
 Page C-9 
 
 
28. On the basis of the above, China is of the view  that the five external factors identified by the 
USDOC could not exempt the US from conducting pass-through analysis with respect to sales of logs between unrelated harvesters/sawmills and sawmills.    
IV. Conclusion 
 29. In conclusion, China is of the following views: 
  (i) Although the Review Determination may not be a measure taken to comply with the 
DSB recommendations and rulings at issue, it is closely linked to and may have an 
important effect on the existences of the purported “measure[] taken to comply” – the 
Section 129 determination; it is the mandate of this Panel to consider the Review 
Determination in these proceedings from the perspective of whether it invalidates the 
Section 129 Determination; 
 
 (ii) The five external factors identified and applied by the USDOC in the Section 129 
Determination could not exempt the U.S.  from conducting pass-through analysis as 
required by the rulings of the original pane l and the Appellate Body with respect to 
sales of logs between unrelated harvesters/sawmills and sawmills.   WT/DS257/RW 
Page C-10  
 
ANNEX C-2  
 
ORAL STATEMENT OF CHINA 
21 April 2005 
  
Introduction 
 1. Mr. Chairman, members of the Panel, it is our great honor to appear before you today to 
present the views of China as a third-party to these proceedings.  As the Panel already has our written 
submission, we do not intend to restate all the commen ts contained in that document.  Rather, we seek 
to offer the Panel a concise synopsis of the views of China in regards to the current dispute between 
Canada and the United States.  In short, the issues  we will focus on today pertain to (1) whether the 
administrative Review Determination of the US Department of Commerce is properly within the 
mandate of this Panel and (2) whether the five exte rnal factors identified by the US Department of 
Commerce exempt the US from conducting a pass throug h analysis as required by the original Panel 
and the Appellate Body in their rulings.    
USDOC Administrative Review Determination 
 
2. China is of the opinion that the mandate of an  Article 21.5 panel is subject to two limitations.  
First, the mandate of a compliance panel shall be c onfined by the coverage of the measures referred to 
by the complaining party in its panel request.  Second, as held by the Appellate Body in Canada - 
Aircraft (Article 21.5 – Brazil ), “Article 21.5 proceedings are limited to those ‘measures taken to 
comply with the recommendations and rulings of’ the DSB.”
1   
 3. Applying the first limitation to this dispute, it seems indisputable that Canada specifically and 
explicitly refers to the DOC’s Administrative Re view Determination in its panel request and 
therefore, this measure passes the test of the first limitation.  However, to reiterate what was said 
above, the mandate of this Panel shall be limited to those “measu res taken to comply with the 
recommendations and rulings” of the DSB.  4. In this regard, given the facts of this dis pute, China tends to agree with the US that the 
Review Determination may not be properly categor ized as a “measure taken to comply”.  However, 
while China does not consider the Review Determina tion to be a “measure taken to comply,” it also 
does not believe that a decisive answer has yet been reached in regards to whether the Review 
Determination is properly before this Panel.  The underlying purpose of these proceedings is to review 
and to resolve this particular dispute as to “the ex istence or consistency with  a covered agreement of 
measures taken to comply with the recommendations  and rulings” of the DSB.  Although the words 
“existence” and “consistency” are of  equal importance, in this particular dispute, China surmises that 
the correct interpretation of “existence” will be cr ucial to the resolution of whether the Review 
Determination is properly before the Panel.   
 5. The dispute of Australia – Automotive Leather (21.5 – US ) offers pertinent insight concerning 
such interpretation and deserves the attention of this Panel.  In a similar fact pattern to the current 
dispute, Australia, on the one hand, ordered the repa yment of a grant, a move that was purported to 
withdraw the illegal subsidy; while on the other ha nd, it provided a non-commercial loan to the parent 
company of the subsidy recipient.  The United States requested an Article 21.5 panel.  That compliance panel stated that the loan in disput e was “inextricably linked to the steps taken by 
                                                     
 
1 Canada – Aircraft (Article 21.5 – Brazil),  WT/DS70/AB/RW, para.36.  WT/DS257/RW 
 Page C-11 
 
 
Australia in response to the DSB’s ruling . . . in view of both its timing and its nature”.2  The panel 
determined that the “loan cannot be excluded fro m our consideration without severely limiting our 
ability of judge, on the basis of the United State’ s request, whether Australia  has taken measures to 
comply with the DSB’s ruling”.3  Consequently, believing there to be no presence of a compelling 
reason to act otherwise, the panel declined “to conc lude that a measure specifically identified in the 
request for establishment . . .”4 was not in the panel’s terms of reference. 
 6. Consequently, in China’s view, because Ca nada has submitted that a “measure taken to 
comply” has been invalidated by a subsequent measur e, this Panel should at l east be allowed to assess 
the relationship between the Secti on 129 Determination and the Review  Determination.  To exclude 
such an assessment would put this Panel at the risk of failing to make a comprehensive and well-
founded judgment as to the “existence” of a measure taken to comply with the relevant DSB recommendations and rulings.    7. Looking at the particular facts of this dis pute, the Review Determination was announced ten 
days after the Section 129 determin ation took effect which resulted in the establishment of a new rate 
for the cash deposit for Canadian goods and replaced th e rate in the Section 129 determination.  Such 
facts warrant further consideration on whether th ese changes rendered the non-existence of the 
Section 129 determination.    8. For all the reasons above, China believes that  while the Review Determination itself may not 
be classified as a “measure taken to comply,” it is in extricably linked to the steps taken by the US in 
response to the DSB’s ruling in both its timing and its nature.  Because excluding the Review Determination would severely limit the Panel’s ability  to judge, upon Canada’s request, whether the 
US has taken measures to comply with the DSB’ s rulings and recommendations, China concludes the 
Review Determination to be w ithin this Panel’s mandate. 
 
The Pass-Through Analysis 
 
9. We now turn briefly to the second issue of the dispute, namely that of the pass-through 
analysis conducted by the US.  Specifically, the issue revolves around the DOC imposing two conditions that in effect limited the number of lo g transactions that were subjected to a pass-through 
analysis.   
 10. The DOC effectively required that releva nt log transactions (1) be conducted between 
unrelated parties;  and (2) satisfy an “arm’s length transaction” test before a pass-through analysis was 
necessitated.  As a result, the question ultim ately becomes whether the phrases “arm’s length 
transaction” and “unrelated” are one and the sa me or rather distinctive terminology.   
 11. In its report, the Appellate Body seemed to be of the view that if subsidies are bestowed on an 
entity different from the producer of the subject pr oduct, then a pass-through of subsidies cannot be 
presumed.  However, the Appellate Body did not  intimate that the transactions between the two 
entities had to be free of interference by external f actors.  Neither did it base its analysis on such a 
premise.   
 12. Referring specifically to paragraph 167(e) of the Appellate Body Report, in which the 
Appellate Body affirms the original Panel’s findi ng with respect to sales of logs by tenured 
harvesters/sawmills to sawmills, the phrases “arm’s length sales” and “unrelated” are mentioned in 
parallel.  However, looking at paragraph 7.99 of th e original Panel Report, which the Appellate Body 
has purportedly affirmed, there is no mention of the phrase “arm’s length transactions” or “arm’s 
                                                     
 
2 Australia – Automotive Leather (21.5 – US) , WT/DS126,RW, para.6.5. 
3 Id. 
4 Id. WT/DS257/RW 
Page C-12  
 
length sales”; rather the only condition referenced is  that the parties be unrelated.  If the Appellate 
Body had intended to impose an extra condition, as the US actually did, it should have said so and 
partially reversed the original Panel’s rulings.  Therefore, China believes that the phrase “arm’s length 
transactions” in the ruling of the Appellate Body shou ld be construed to bear the same meaning as that 
of “unrelated”. 
 
13. Finally, China would like to present its own views on the five external factors identified by 
the US DOC.  China believes that it is not necessary to sa tisfy this test of five external factors in order 
to require a pass-through analysis.  China submits th at an instance requiring a pass-through analysis is 
one where the direct recipient of the subsidies at issue is not the same entity as the producer of the 
countervailed subject product.  Such an instance does not require the transactions to be free of 
influence by any external factors.   14. In addition, China believes th at the five external factors ma y themselves be responsible for 
resulting in the pass-through of subsidies.  Howeve r, to skip a pass-through analysis would presume 
that the subsidies are passed throu gh in its entirety.  Such an appr oach would most likely exaggerate 
the actual benefit indirectly bestowed on the subject product producers.  China believes, by using an appropriate pass-through analysis, the effects of the five external factors can be fully accounted for 
without incorrectly calculating the actual amount of benefit on the subject product producers.    
Conclusion 
 
15. Mr. Chairman, that concludes the third-party statement of China.  Thank you very much for 
the attention.    WT/DS257/RW 
 Page C-13 
 
 
ANNEX C-3  
 
THIRD PARTY SUBMISSION 
BY THE EUROPEAN COMMUNITIES 
 
 
17 March 2005 
  
TABLE OF CONTENTS 
 
I. INTRODUCTION ............................................................................................................. 14 
 II. THE SCOPE OF DSU ARTICLE 21.5 PROCEEDINGS.............................................. 15  
III. IS THE ADMINISTRATIVE REVIEW WITHIN THE SCOPE OF THIS 
 PROCEEDING .................................................................................................................. 17  
 IV. CONC LUSION ................................................................................................................. .19 
 WT/DS257/RW 
Page C-14  
 
I. INTRODUCTION 
 
1. The European Communities (EC) welcomes this  opportunity to present its views in this DSU 
Article 21.5 proceeding.  Canada claims that the United States has failed to implement the recommendations and rulings of the DSB in United States –Lumber  CVD Final .  The Appellate Body 
found that the countervailing duty imposed on soft wood lumber was not based on a pass-through-
analysis ensuring that the numerator is not artific ially inflated through non-subsidised arm’s length 
sales.
1   
 2. The United States informed the DSB on 17  December that it had implemented its 
recommendations and rulings through a determin ation pursuant to Section 129(b) of the Uruguay 
Round Agreements Act  (“Section 129 determination”).  The Section 129 determination reduced the 
original rate of 18.79% to a ra te of 18.62% (because of no pass-through in some cases) and was 
effective on 10 December 2004.
2  However, ten days later, the first administrative review3 of the 
countervailing duty order kicked in, establishing a defi nitive countervailing duty rate for the period of 
review and replacing the amended Section 129 countervailing duty cash deposit rate with a new cash 
deposit rate (17.18%, not containing any reduc tion resulting from a lack of pass-through).4   
 3. Canada claims that the United States failed  to implement the recommendations and rulings of 
the DSB because neither the Section 129 determina tion nor the administrative review carry out the 
pass-through analysis required by Articles VI:3 of the GATT 1994 and Articles 10 and 32.1 of the 
SCM Agreement .
5   
 4. The United States has raised a preliminary objection contending that the administrative review is not a measure “taken to comply” with in the meaning of Article 21.5 of the DSU and 
therefore not within the jurisdiction of this 21.5 Panel.
6   According to the United States, the 
administrative review is legally separate from the or iginal investigation/ S ection 129 determination 
and concerns new factual data.7  The United States relies on EC – Bed linen 21.5 , to argue that annual 
administrative review measures are entirely new dete rminations and therefore not a measure “taken to 
comply” within the scope of Article 21.5 proceeding.8 
 5. The EC considers that the US arguments are entirely misconceived.  The US view (if 
accepted) would turn the US system of countervailing duty assessment into a moving target that 
escapes the WTO disciplines. Given that WTO jurisprude nce is limited, the EC will confine this third 
party brief to this important jurisdictiona l question.  As will be detailed below:  
 
 ► Article 21.5 panels, in principle, have jurisd iction on all factual and legal matters relating 
to the resolution of the original dispute (as defined by that panel’s terms of reference); 
                                                     
 
1 Appellate Body Report, United States – Lumber CVD Final , adopted on 17 February 2004.   
2 19 U.S.C. § 3538(b). Final Countervailing Duty Determination, Certain Softwood Lumber from 
Canada , 6 December 2004;  Notice of Implementation Under Section 129 of the Uruguay Round Agreements 
Act; Countervailing Measures Concerning Certain Softwood Lumber Products From Canada , 69 Fed. Reg. 
75,305 (Dep't Commer ce 16 December 2004). 
3 Referred to as the “assessment review ” in the US First Written submission. 
4 Notice of Final Results of Countervailing Duty Administrative Review and Rescission of Certain 
Company-Specific Reviews:  Certain So ftwood Lumber Products from Canada , 69 Fed. Reg. 75,917 (Dep't 
Commerce 20 December 2004); and  Issues and Decision Memorandum :  Final Results of Administrative 
Review:  Certain Softwood Lumber Products from Canada , December 13, 2004. 
5 panel Request (WTDS257/15), Canada’s First Written Submission, para. 72. 
6 US First Written Submission, para. 12. 
7 US First Written Submission, paras. 21-24. 
8 US First Written Submission, paras. 15-16.  WT/DS257/RW 
 Page C-15 
 
 
 ► The measure to be reviewed by this DSU Artic le 21.5 Panel is the c ontinued application of 
a countervailing duty on the basis of the administrative review (superseding both the original determination and the Section 129 review).  
 
6. This submission concludes that the Panel s hould dismiss the preliminary objection made by 
the United States.  However, the EC wishes to clarif y that it does not take a position on whether or not 
the administrative review complies with the recommendations and rulings of the DSB. The EC expects to provide its views on this substantive issu e at the oral hearing (after having received the 
parties’ rebuttal submissions). 
 
II. THE SCOPE OF DSU ARTICLE 21.5 PROCEEDINGS  
 
7. The scope of DSU Article 21.5 proceedings has several aspects that have not yet been fully 
clarified in WTO jurisprudence.  Some jurisdictional i ssues relate to the claims that can be made in a 
DSU Article 21.5 proceeding.  Here, the Appellate Body has already clarified that panels are to 
review the “totality” of claims relating to th e consistency of that measure with the covered 
agreements
9 (continuing violations, new violations and consequential violations of the covered 
agreements).  The precise issue before this Panel is whether the phrase “taken to comply” limits the 
21.5 Panel’s jurisdiction to reviewing only a measure explicitly taken to comply (here the Section 129 
review) as opposed to an administrative review.  
 
8. Article 21.5 of the DSU provides in relevant part:  
Where there is disagreement as to the ex istence or consiste ncy with a covered 
agreement of measures taken to comply with the recommendations and rulings such dispute shall be decided through recour se to these dispute settlement procedures, 
including wherever possible resort to the orig inal panel.  The panel shall circulate its 
report within 90 days after the date of refe rral of the matter to it.  When the panel 
considers that it cannot provide its report within this time frame, it shall inform the 
DSB in writing of the reasons for the delay together with an estimate of the period 
within which it will submit its report. 
9. Contrary to what the US argues, the phrase “tak en 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.  The phrase “taken to comply” 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 dispute. 
 10. Most importantly, it is preceded by the term  “existence” and followed by the expression “with 
the recommendations and rulings of the DSB”.  This s uggests that the role of a 21.5 Panel is different 
from the task of an original Panel.  While the or iginal Panel is faced with a dispute relating to a 
precise measure, the 21.5 Panel is tasked to assess whether or not there is a failure to comply and 
whether or not the original dispute has been resolved. 
 
11. Indeed, the broader purpose of Article 21.5 of the DSU is to secure the solution of a dispute 
between two WTO Members relating to the measures br ought before the original Panel.  This purpose 
is reflected in Article 3.3 of the DSU which reads;  
The prompt settlement of situations in wh ich a Member considers that any benefits 
accruing to it directly or indirectly under the covered agreements are being impaired 
by measures taken by another Member is essential to the effective functioning of the 
                                                     
 
9 Appellate Body Report, United States – Shrimp (21.5 ) , para. 87 . WT/DS257/RW 
Page C-16  
 
WTO and the maintenance of a proper balan ce between the rights and obligations of 
Members.   
12. Moreover, Article 3.7 of the DSU clarifies th at Article 21.5 proceedings form part of the 
adjudication of an initial dispute by determining wh ether the defendant has withdrawn the measure or 
otherwise complied.  Article 3.7 of the DSU reads: 
 
In the absence of a mutually agreed solu tion, the first objective of the dispute 
settlement mechanism is usually to secure th e withdrawal of the measures concerned 
if these are found to be inconsistent with  the provisions of any of the covered 
agreements.  The provision of compensation should be resorted to only if the 
immediate withdrawal of the measure is impracticable and as a temporary measure 
pending the withdrawal of the measure wh ich is  inconsistent with a covered 
agreement.  The last resort which this  Understanding provides to the Member 
invoking the dispute settlement procedures is the possibility of suspending the application of concessions or other obliga tions under the covered agreements on a 
discriminatory basis vis-à-vis the other Memb er, subject to authorization by the DSB 
of such measures. 
13. This particular nature of the DSU Articl e 21.5 proceeding was explicitly recognised by the 
Panel in Australia – Salmon (21.5)  which even considered a measure taken during the Article 21.5 
proceeding on the basis of the following consideration:  
To do otherwise would, in our view, go agai nst the principle of prompt settlement of 
disputes and could hamper implementati on of both DSB recommendations in the 
original dispute and our findings in this case.
10 
14. Although the Appellate Body has not yet been faced with the precise point at issue here, it has 
already confirmed the above principle in Canada – Aircraft 21.5 : 
 
In our view, the phrase "measures taken to comply" refers to measures which have 
been, or which should be, adopted by a Me mber to bring about compliance with the 
recommendations and rulings of the DSB. In principle, a measure which has been "taken to comply with the recommendations and rulings" of the DSB will not be the 
same measure as the measure which was the subj ect of the original dispute, so that, in 
principle, there would be two separate and distinct measures34: the original measure 
which gave rise to the recommendations and rulings of the DSB, and the "measures 
taken to comply" which are – or should be – adopted to implement those 
recommendations and rulings.
11 
15. Moreover, the Appellate Body clarif ied in the accompanying footnote 34: 
 
We recognize that, where it is alleged that there exist no "measures taken to comply", 
a panel may find that there is no new measure. 
16. The Panel in EC – Bed linen , on which the United States relies,  based itself explicitly on the 
Australia – Salmon  21.5 case law and only discarded later review measures adopted by the EC as they 
were:  
 
                                                      
10 Panel Report, Australia – Salmon (21.5) , para. 7.21. 
11Appellate Body Report, Canada – Aircraft 21.5 , para. 36 (footnote omitted).  WT/DS257/RW 
 Page C-17 
 
 
not so clearly connected to the panel and A ppellate 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”.12  
17. It is important to note that the two measures in EC –  Bed linen  were not dismissed from the 
scope of that 21.5 proceeding because they were “review measures”.  They were dismissed because 
they did not relate to the original dispute between the EC and India.   
 18. The EC submits that the case-by-case test applied by the Panel in EC – Bed linen  should be 
further interpreted in line with the above considerati ons.  In particular, it is the EC’s submission that 
the scope of the 21.5 proceeding is determined by all aspects of the measure giving rise to the initial 
dispute.  The purpose of the 21.5  proceeding is to determine wh ether or not the defendant has 
complied by either withdrawing that measure or bringing it otherwise in full compliance with the 
covered agreements.  Whether a measure is taken to comply must then be decided on a case-to-case basis having regard to the original dispute (as define d by the terms of reference of the Panel) and the 
particular obligations of the covered agreement at issue. 
 
19. As already confirmed by the DSU Article 21.5 Panel in EC – Bed linen , it is for the Panel 
alone to determine which measures it reviews when  determining whether or not there is compliance.
13  
Moreover, the appropriate date for assessing the compliance of a Member with the recommendations of the DSB is the date of establishment of the Article 21.5 panel.
14 
 III. IS THE ADMINISTRATIVE REVIEW WITHIN THE SCOPE OF THIS 
PROCEEDING? 
 
20. Canada claims that the United States failed  to comply with the rulings and recommendations 
of the DSB (pass-through analysis) because none of th e measures taken by the United States carries 
out such pass-through analysis.   
 21. The United States defends itself legally by argui ng that the administrative review is a separate 
measure from the (i) original determination and (ii) Section 129 determination and, hence, not before 
the Panel.    
22. The US view is based on the assumption that the measures to be attacked in countervailing 
duty cases are the determinations made by the investigati ng authorities.  This is false.  As is clarified 
in Article 10 of the SCM Agreement , the measure of concern is the “imposition of a countervailing 
duty”, defined as a “special duty levied” for the pur pose of offsetting a subsidy.  The WTO Member 
imposing the countervailing duty is under the obligati on to demonstrate through an investigation and 
determination that such duty is not “in excess of the … subsidy” as required by Article VI:3 of the 
GATT 1994.  Therefore, the accompanying determinati ons play a significant role in assessing whether 
the duty is in excess of a subsidy.   However, it is  the duty itself that interferes with trade and is the 
measure of concern.  To the extent a counterva iling duty is not imposed on the basis of a proper 
determination, it is incompatible with WTO law.
15   
 
23. The United States has a retrospective syst em of imposing countervailing duties.  The 
administrative review at hand in this case is a hybrid  instrument.  It fixes the final duty rate for the 
assessment period with retrospective effect.  It is  similar to a retrospective assessment within the 
meaning of Article 9.3 of the Anti-Dumping Agreement  and it certainly is not a fully-fledged review 
                                                      
12 Panel Report, EC – Bed linen 21.5 , para. 6.17. 
13 Panel Report, EC – Bed linen 21.5 , para. 6.15. 
14 Panel Report, United States – Shrimp 21.5 , paras. 5.12-5.13. 
15 See description of the measure in Appellate Body Report, United States – Lumber CVD Final , para. 2.  WT/DS257/RW 
Page C-18  
 
of both the subsidy and injury within the meaning of Article 21 of the SCM Agreement .
16 
Significantly, the administrative review does not cha nge the date of the expiry of the measure under 
Article 21.3.  The administrative review happens to change the cash deposit rate provisionally for 
future imports, but only subject to a further annual review in the future.    
24. While footnote 52 of the SCM Agreement  recognises the existence of such annual reviews 
used in a retrospective system, it does not, as suggested by the United States
17, recognise that these 
types of administrative review are separate from the original determination (and or a Section 129 
determination).    
25. The United States has not disputed Canada’s ch aracterisation of the administrative review as 
superseding
 both the original countervailing duty determ ination and the Section 129 determination.18  
As explained by the United States, the Section 129 determination exclusively focused on the original 
investigation and partially redid it.  However, th at Section 129 determination was only in place for 10 
days.  It was then superseded by the administrativ e review which definitively fixed the duties for the 
relevant period.  At the date of the establis hment of the Panel (14 January 2005) only the 
administrative review was effectively in place.   26. According to WTO jurisprudence, a measure  that essentially replaces an earlier measure 
remains within the terms of re ference of an original Panel.
19  A fortiori , a 21.5 Panel must be in a 
position to assess whether an annual administrative  review determination that confirms and 
supersedes the original determination relati ng to the same countervailing duty constitutes a 
“continuing violation”.  27. Contrary to what the US attempts to argue, the Panel in EC – Bed linen  21.5 does not stand 
for a general proposition that any review measure is outside the scope of a 21.5 proceeding.  As noted 
already under point 17 above, the review measures at issue in that  case were entirely different in 
nature.  The EC applies a prospective system of assessing duties and therefore does not carry out such 
annual administrative reviews.  The measures at hand in EC – Bed linen  were either specific reviews 
of anti-dumping duties imposed on exporters from ot her Members (Egypt and Pakistan) or entirely 
new determinations in a review based on results of an event subsequent to the EC having adopted the 
implementing measure in EC – Bed linen .    
 
28. Also the final US argument that it would no t be possible to fully assess a new set of facts 
relating to an assessment review , based on a wholly new administrative record, within the 90 day 
period prescribed by Article 21.5 and that therefor e administrative reviews must be subject to a 
different proceeding
20, is without merit.  The Appellate Body already recognised that the examination 
of an Article 21.5 measure can require assessment of a new set of facts.21  The 90 day period reflects 
the right of the complaining Member to a prompt resolution of the original dispute by determining whether or not compliance exist before he may resort to suspension of concessions.  
 29. Accepting the US view that the administrativ e review is not subject to a DSU 21.5 Panel 
review would turn the US system of duty assess ment into a moving target that escapes from 
countervailing duty disciplines.  Each administrative re view would have to be subject to a new panel 
request, and by the time the panel, Appellate Body and implementation procedure was completed, 
                                                     
 
16 Panel Report US – Softwood Lumber (Preliminary), para 7.151.  
17 US First Written Submission, para. 21 and footnote 23. 
18 Canada’s First Written Submission. 
19 See most recently, Panel Report Dominican Republic – Cigarettes , paras. 7.11-7.21 
20 US First Written Submission, para. 90. 
21 Appellate Body Report, Canada – Aircraft 21.5 , para. 41.  See also, Appellate Body Report, 
United States – Shrimp 21.5 , para. 86.  WT/DS257/RW 
 Page C-19 
 
 
another administrative review would have overtaken the results of any Section 129 determination.  A 
new panel would have to be started against th is review, creating a “Groundhog Day” situation. 
 
IV. CONCLUSION 
 
30. For the above reasons, the EC considers th at the Panel has full jurisdiction over the 
administrative review measure in this case and that  the US preliminary objection should therefore be 
dismissed.    WT/DS257/RW 
Page C-20  
 
ANNEX C-4  
 
ORAL STATEMENT 
BY THE EUROPEAN COMMUNITIES 
 
21 April 2005 
  
TABLE OF CONTENTS 
 
 
I. INTRODUCTION ........................................................................................................... 20 
 II. MEASURE TAKEN TO COMPLY............................................................................... 20  
III. PASS-THROUGH ........................................................................................................... 21  
IV. CONCLU SION ................................................................................................................ 2 3 
  I. INTRODUCTION 
 
Mr. Chairman, Members of the Panel, good afternoon, and thank you for providing the 
European Communities (EC) with an opportuni ty to present its views before you today. 
 
1. The EC intervenes in this proceeding becau se of its systemic interest in the correct 
interpretation of the SCM Agreement , the GATT 1994 and the DSU.  This dispute raises two key 
issues:  
 > What is a “measure taken to comply” within the meaning of Article 21.5 of the DSU? 
 
 > What are the substantive and procedural requirements for ensuring a proper analysis of 
pass-through? 
 
II. MEASURE TAKEN TO COMPLY 
 
2. The US continues to argue in its rebuttal su bmission that the administrative review is not a 
measure taken to comply.
1  Indeed, the US does nothing to defend the administrative review, but only 
focuses on the determination under Section 129.  Th e EC regrets that it has not received Canada’s 
rebuttal submission on the due date (although this is a right of third parties under Article 10 of the 
DSU).2  The EC obtained Canada’s rebuttal submission  only this Tuesday after close of business, and 
had, therefore, only one working day to consider it.    3. From a first reading of Canada’s submission, the EC can confirm that overall, it fully supports 
Canada’s request to dismiss the US objection.  Yet,  the EC notes that there are some differences in the 
legal concepts on how to determine the sc ope of a DSU Article 21.5  proceeding.  
 
4. The EC refers to all its argum ents made in its third party submission, which it will not repeat 
today. As detailed therein, the br oad mandate of DSU Artic le 21.5 panels stems di rectly from the term 
                                                     
 
1 US rebuttal submission, paras.  2 and 46. 
2 Appellate Body, US – FSC 21.5 , para. 251.  WT/DS257/RW 
 Page C-21 
 
 
“existence” of a measure taken to comply read in the light of the broader purpose of DSU Article 21.5 
to secure a prompt solution of a dispute between WTO Members.3  Canada also explicitly agreed with 
the EC’s basic proposition that the jurisdiction of  DSU Article 21.5 Panels must, therefore, be 
determined in a way that prevents implemen tation measures from becoming “moving targets”.  
 
5. There are different legal concepts on how to  do this.  Canada and China put much emphasis 
on the fact that the administrative review while not being the “measure taken to comply” undid the Section 129 determination and, therefore, falls  (as a successor measure) under the Panel’s purview.
4  
While the EC agrees with this characterisation of  the relationship between the administrative review 
and the Section 129 determination5, it considers that this general procedural criterion (Panel’s terms of 
reference also cover successor acts) is not exclusiv ely determinative for the jurisdiction of this DSU 
21.5 Panel.   6. Given the major systemic importance of this  issue, in particular for the EC, the EC 
respectfully requests the Panel to give the third parties further opportunity to comment in detail on 
Canada’s arguments on how to define the scope  of an Article 21.5 proceeding through written 
questions.  7. Let me close today’s observations on this point by noting that, ironically, the US, through its preliminary objection, brings itself into a catch-22 situation.  If it rejects the consideration by the 
Panel of the administrative review as complian ce measure, no measure taken to comply existed 
(because the Section 129 determination had expired be fore the establishment of the 21.5 Panel).  The 
Panel’s report could therefore be quite short.  
III. PASS-THROUGH 
 8. Turning now to the key substa ntive issue in this dispute: pass-through.  The US and Canada 
disagree whether the US investigating authoriti es have done enough in terms of procedure and 
substance to demonstrate that subsidies receive d by certain upstream producers were passed-through 
to the down-stream producer of lumber products.  9. The need to ensure a pass-through an alysis is not written explicitly into the SCM Agreement  
but stems directly from the obligation of a WTO Member imposing a countervailing duty to comply 
with Article VI:3 of the GATT 1994, and Article 10 of the SCM Agreement  which require that 
investigating authorities:  
 before imposing countervailing duties, must  ascertain the precise amount of a subsidy 
attributed to the imported products under investigation.
6 
10. There are different situations in which the need for a pass-through analysis may arise, e.g., 
whether a subsidy was extinguished following a transfer  of ownership.  This Panel is tasked to assess 
whether the US investigating authorities established that subsidies to input producers benefited the 
downstream producers of the processed product subject to the investigation.7  The key question is 
whether the US investigating authorities establishe d that benefits received by the input producers 
 
                                                      
3 EC Third Party Submission, paras. 10-18. 
4 Canada’s rebuttal submission, para. 4, China’s Third Party submission, para 12. 
5 EC Third Party Submission, paras. 2.and 25. 
6 Appellate Body Report, US – Countervailing M easures on Certain EC Products, para. 139. 
7 Appellate Body Report, US – Lumber, para. 146. WT/DS257/RW 
Page C-22  
 
 have been passed through, at least in pa rt, from producers of logs to producers of 
softwood lumber (and remanufactured lumber) which are the products subject to the investigation.
8 
11. The US and Canada disagree on whether the approach taken by the US investigating 
authorities suffices to establish the correct amount of subsidisation.   
 
12. The EC as a third party is not in a position to  comment in detail on this fact-intensive issue 
before the Panel.  However, it wish es to offer a few general comments: 
 13. As regards the test for pass-through, the main  parties appear to disagree on the meaning of 
“arm’s length”, in particular, whether it refers exclus ively to a “related person” test.  The EC notes 
that neither of these two notions are set out anywhere in the SCM Agreement .  The obligation of an 
investigating authority is to establish the precise amount of subsidisation be nefiting the product on 
which a CVD is imposed in accordance w ith Article VI:3 of the GATT 1994.  
 
14. The Appellate Body referred for cont extual guidance to Article 19.3 of the SCM Agreement  
whereby countervailing duties “shall be levied, in  the appropriate amounts in each case, on a non-
discriminatory basis on imports of such product from all sources found to be subsidised and causing 
injury”.  The Appellate Body recognised that th is provision gives investigating authorities broad 
discretion to choose between different means of demonstrating and calculating the amount of the 
subsidisation, in particular whether they reso rt to sampling, aggregate or company specific 
investigations.
9   
 15. The precise methodological approach to dete rmine pass-through (or better: the amount of 
benefit received by the producer of the target pr oduct) inevitably varies from case-to case.  The pass-
through is likely to be somewhere between 0 and 100% depending, amongst other things, on the 
relationship between the input supplier and the proces sor as well as the economic context.  Where the 
producers of the input and the processed  product form part of the same economic entity , it may be 
presumed that 100% of the subsidy passed through.
10  By contrast, where the input product was sold 
on a functioning market at arm’s length and for fair  market value, there is a presumption of 0% pass-
through.11   
 
16. The existence and amount of pass-through must be established on a case-by-case basis.  
While a number of different factors may be relevant , the EC considers that the price charged by the 
input supplier to the producers of the product (in co mparison to some relevant benchmark) plays a key 
role in measuring to which extent (if at all) the subsidy benefited the producer of the processed 
product. 
 
17. The discretion of investigating authoriti es on how to establish pass-through is (as always) 
limited by the general obligation of investigati ng authorities to carry out an objective and unbiased 
examination, and the need to ensure that th e countervailing duties are imposed in “appropriate” 
amounts “in each case” and on a “non-discriminatory basis” from “all sources found to be subsidised”.   
 
18. Procedurally, the investigating authority mu st do its best to facilitate the pass-through 
examination, e.g., by preparing a questionnaire and offering a company-specific approach unless the 
number of respondents is too high to allow a meaningf ul individual examination to take place.  In 
such cases sampling or similar techniques may be required.   
                                                     
 
8 Ibid., para. 147. 
9 Appellate Body Report, US – Lumber, paras. 152-153. 
10 Ibid. para. 142. 
11 Appellate Body Report, US – CVD on Certain EC Products, WT/DS212, para. 126.    WT/DS257/RW 
 Page C-23 
 
 
 19. The investigating authority must then provide  an adequate and reasoned explanation why, on 
the basis of the information received, the amount of  pass-through calculated in the individual case is 
appropriate and that its assessment of the f acts on the record is objective and unbiased.  
 IV. CONCLUSION  
20. Mr. Chairman, Members of the Panel, this c oncludes our oral statement.  I thank you for your 
attention and stand ready to res pond to any questions you may have.