WT/DS257/RW 
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ANNEX A 
  
Submissions of Canada 
  
Contents Page 
Annex A-1 First Written Submission of  Canada – 24 Fe bruary 2005 A-2 
Annex A-2 Second Written Submission of Ca nada:  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 WT/DS257/RW 
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ANNEX A-1 
 
FIRST WRITTEN SUBMISSION OF CANADA 
 
24 February 2005 
  
 
TABLE OF CONTENTS 
 
I. INTRODUCTION ............................................................................................................... 7  
 II. FACTUAL BACKGROUND.............................................................................................. 8 
 
 A. Procedural History.................................................................................................... 8   B. DSB Recommendations and Rulings Concerning the US Failure     to Demonstrate Pass-Through ................................................................................. 9 
 
 C. US Action Taken to Address Pass-Through Subsequent to the    Recommendations and Rulings of the DSB .......................................................... 10     1.      Section 129 Determination ............................................................................ 10  
   2.      The Administrative Review........................................................................... 12 
 III. LEGAL ARGUMENT....................................................................................................... 13   A. GATT 1994 and the SCM Agreement Prohibit the United States 
   From Imposing Countervailing Duties to Offset Subsidization That  
   Has Not Been Demonstrated To Exist................................................................... 14   B. The United States Continues to Impose Countervailing Duties    Based On an Impermissible Presumption of Subsidization ................................ 16 
 
  1. The United States Failed to Conduct Pass-Through    Analysis for Log Transactions Between Unrelated Parties................................. 17    2. In the Few Instances Where the United States Did Perform    Pass-Through Analysis, It Used Inappropriate Benchmarks 
   That Produced Results That Were Subsequently Nullified ................................ 20 
   3. As a Result of Its Failure to Conduct the Required Pass-    Through Analysis, the United States Continues Impermissibly    to Inflate the Amount of Countervailing Duties................................................... 21 
 
IV. REQUEST FOR FINDINGS AND RECOMMENDATIONS ....................................... 21 
  WT/DS257/RW 
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TABLE OF CASES CITED IN THIS SUBMISSION 
 
Appellate Body Report United States - Final Countervailing Duty Determination with Respect to 
Certain Softwood Lumber from Canada , Report of the Appellate Body, 
WT/DS257/AB/R, adopted 17 February 2004. 
Panel Report United States – Final Countervailing Duty Determination with Respect 
to Certain Softwood Lumber from Canada , Report of the Panel, 
WT/DS257/R, adopted 17 February 2004. 
Canada – Aircraft  Canada – Measures Affecting the Export of Civilian Aircraft , Report of 
the Appellate Body, WT/DS70/AB/R, adopted 20 August 1999. 
US – Canadian Pork United States – Countervailing Duties on Fresh, Chilled and Frozen 
Pork from Canada , Report of the Panel, adopted 11 July 1991, 
BISD 38S/30.  
US – Countervailing Measures 
on Certain EC Products  United States – Countervailing Measures Concerning Certain Products 
from the European Communities , Report of the Panel, WT/DS212/R, 
adopted 8 January 2003. 
US – Countervailing Measures 
on Certain EC Products  United States – Countervailing Measures Concerning Certain Products 
from the European Communities , Report of the Appellate Body, 
WT/DS212/AB/R, adopted 8 January 2003. 
US – Lead and Bismuth II  United States – Imposition of Countervailing Duties on Certain Hot-Rolled 
Lead and Bismuth Carbon Steel Products Originating in the United 
Kingdom , Report of the Panel, WT/DS138/R and Corr.2, adopted 
7 June 2000. 
US – Lead and Bismuth II  United States – Imposition of Countervailing Duties on Certain Hot-
Rolled Lead and Bismuth Carbon Steel Products Originating in the 
United Kingdom , Report of the Appellate Body, WT/DS138/AB/R, 
adopted 7 June 2000. 
US – Softwood Lumber III  US – Preliminary Determinations with Respect to Softwood Lumber , 
Report of the Panel, WT/DS236/R, adopted 2 November 2002. 
 WT/DS257/RW 
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TABLE OF ABBREVIATIONS USED IN THIS SUBMISSION 
 
Alberta 21 May 2004 Pass-Through 
Questionnaire Response Response of the Government of Alberta to the Department’s 
14 April 2004 Questionnaire Concerning Pass Through of 
Alleged Benefits (May 21, 2004) (Exhibit CDA-13). 
Alberta 15 September 2004 Supp.Pass-
Through Questionnaire Response Response of the Government of Alberta to the Department’s 
17 August 2004 Supplemental Questionnaire Concerning 
Pass Through of Alleged Benefits (15 September 2004) 
(Exhibit CDA-14). 
Alberta 12 November 2003 AR Questionnaire Response Response of the Government of Alberta to the Department’s 
12 September 2003 Questionnaire (12 November 2003) 
(Exhibit CDA-38). 
B.C. 15 September 2004 Supp. Pass-
Through Questionnaire Response Response of the Government of British Columbia to the 
Department’s 17 August 2004 Supplemental Questionnaire Concerning Pass Through of Alleged Benefits 
(15 September 2004) (Exhibit CDA-32). 
B.C. 12 November 2003 AR Questionnaire 
Response Response of the Government of British Columbia to the 
Department’s 12 September 2003 Questionnaire 12 (November 2003) (Exhibit CDA-33). 
Draft Section 129 Determination USDOC Me morandum from J. Jochum to J. May, Draft 
Decision Memorandum, 12 9 Proceeding for the WTO 
Appellate Body finding in the Final Countervailing Duty Determination, Certain Softwood Lumber from Canada  
(19 November 2004) (Exhibit CDA-6). 
DSB Dispute Settlement Body 
DSU Understanding on Rules and Procedures Governing the 
Settlement of Disputes 
Final AR Determination Issues and Decision Memorandum: Final Results of 
Administrative Review: Certain Softwood Lumber from 
Canada , C-122-839 (13 December 2004) (Exhibit CDA-11). 
Final AR Determination Notice Notice of Final Results of Countervailing Duty 
Administrative Review and Rescission of Certain Company-
Specific Reviews: Certain Softwood Lumber Products from 
Canada , 69 Fed. Reg. 75,917 (Dep’t Commerce, 
20 December 2004) (Exhibit CDA-8). 
Final Section 129 Determination USDOC Memorandum from J. Jochum to B. Tillman, 
Section 129 Determination: Final Countervailing Duty 
Determination, Certain Softwood Lumber from Canada  
(6 December 2004) (Exhibit CDA-5). 
GATT 1994 General Agreement on Tariffs and Trade 1994 
Kalt 2004a J.P. Kalt and D. Reishus, Statement for the First 
Administrative Review , Attachment 1 to Letter from British 
Columbia Lumber Trade Council to USDOC (15 March 2004) (Exhibit CDA-21). 
Kalt 2004d J.P. Kalt and D. Reishus, Economics of Arms’s Length 
Transactions and Subsidy Pass-Through , submitted as 
Response of the Government of British Columbia to the 
Department’s 17 August 2004 Supplemental Questionnaire 
Concerning Pass Through of Alleged Benefits (15 September 2004), Exhibit BC-PT-39 (Exhibit CDA-20). 
Manitoba 21 May 2004 Pass-Through 
Questionnaire Response Response of the Government of Manitoba to the 
Department’s 14 April 2004 Questionnaire Concerning Pass 
Through of Alleged Benefits (May 21, 2004) (Exhibit CDA-43).  WT/DS257/RW 
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Manitoba 12 November 2003 AR 
Questionnaire Response Response of the Government of Manitoba to the 
Department’s 12 September 2003 Questionnaire 
(12 November 2003) (Exhibit CDA-47). 
Norcon A Response of the Government of British Columbia to the 
Department’s April 14, 2004 Questionnaire Concerning Pass Through of Alleged Benefits (21 May 2004), Exhibit BC-PT-
18 (Letter from Steptoe & Johnson to Akin, Gump, Strauss, 
Hauer & Feld (20 May 2004) attaching Survey of Primary 
Sawmills’ Arm’s Length Log Purchases In the Province of 
British Columbia  (21 December 2001), filed with Letter from 
Steptoe & Johnson to USDOC (21 December 2001)) (Exhibit CDA-30). 
Norcon B Response of the Government of British Columbia to the 
Department’s 17 August 2004 Supplemental Questionnaire 
Concerning Pass Through of Alleged Benefits 
(15 September 2004), Exhibit BC-PT-40 ( Supplemental 
Report on Survey of Primary Sawmills’ Arm’s Length Log 
Purchases In the Province of British Columbia  
(14 September 2004)) (Exhibit CDA-15). 
Norcon C  Norcon Forestry Ltd., Survey of Primary Sawmills’ Arm’s 
Length Log Purchases in British Columbia  (15 March 2004), 
submitted with Letter from Steptoe & Johnson to USDOC 
(15 March 2004) (Exhibit CDA-31). 
OFIA/OLMA 15 September 2004 Supp. 
Questionnaire Response Response of the Ontario Forest  Industries Association and 
the Ontario Lumber Manufacturers Association on behalf of their members to the Department’s 17 August 2004 
Questionnaire Concerning Pass Through of Alleged Benefits 
(16 September 2004) (Exhibit CDA-49). 
OFIA/OLMA 25 October 2004 Supp. Questionnaire Response Response of the Ontario Forest  Industries Association and 
the Ontario Lumber Manufacturers Association on behalf of 
their members to the Department’s 5 October 2004 2
nd 
Supplemental Questionnaire Concerning Pass Through of Alleged Benefits (26 October 2004) (Exhibit CDA-50). 
Ontario 21 May 2004 Pass-Through 
Questionnaire Response Response of the Government of Ontario to the Department’s 
14 April 2004 Questionnaire Concerning Pass Through of 
Alleged Benefits (21 May 2004) (Exhibit CDA-48). 
Preliminary AR Determination Notice of Preliminary Results of Countervailing Duty 
Administrative Review: Certain Softwood Lumber from 
Canada , 69 Fed. Reg. 33,204 (Dep’t Commerce, 
14 June 2004) (Exhibit CDA-10). 
SAA “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). 
Saskatchewan 21 May 2004 Pass-Through Questionnaire Response Response of the Government  of Saskatchewan to the 
Department’s 14 April 2004 Questionnaire Concerning Pass 
Through of Alleged Benefits (May 21, 2004) (Exhibit CDA-
39). 
Saskatchewan 12 November 2003 AR Questionnaire Response Response of the Government of Saskatchwan to the 
Department’s 12 September 2003 Questionnaire 
(12 November 2003) (Exhibit CDA-42). 
SCM Agreement Agreement on Subsidies and Countervailing Measures 
USDOC United States Department of Commerce WT/DS257/RW 
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Weyerhaeuser 16 September 2004 Supp. 
Pass-Through Questionnaire Response Response of Weyerhaeuser Company to the Department’s 
14 April 2004 Questionnaire Concerning Pass Through of Alleged Benefits (September 16, 2004) (Exhibit CDA-40). 
Weyerhaeuser 26 October 2004 Supp. 
Pass-Through Questionnaire Response Response of Weyerhaeuser Company to the Department’s 
Second WTO Supplemental Pass-Through Questionnaire 
(26 October 2004) (Exhibit CDA-41). 
  WT/DS257/RW 
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I. INTRODUCTION 
1. This case is about the failure of the Unite d States to implement the recommendations and 
rulings of the DSB in respect of its obligation to demonstrate whether, and to what extent, an input subsidy passes through arm’s-length sales of input  products.  Article VI:3 of the GATT 1994 and 
Articles 10 and 32.1 of the SCM Agreement require  the United States to demonstrate such a “pass 
through” as a precondition to imposing counterva iling duties on downstream products produced from 
those inputs.  The original panel and the Appellate Body in this dispute found that where the United States presumes, rather than demonstr ates, a pass-through, it impermissibly imposes 
countervailing duties where no subsidy has been determined to exist. 
 
2. On the facts of this dispute, the alleged input subsidy is the provision of goods – standing 
timber – by Canadian provincial governments for less  than adequate remuneration.  The input product 
is a log, which is produced from standing timber harvested from public lands (Crown logs).  The 
downstream processed product is softwood lumb er, which is produced from Crown logs. 
 
3. The United States is imposing countervailing du ties on imports of Canadian softwood lumber 
products.  Accordingly, it must demonstrate how, and to what extent, any subsidy to Crown logs is 
also an indirect subsidy to softwood lumber in every instance where, on the facts of this dispute, the 
producer of the Crown log and the producer of the softwood lumber are unrelated.   4. The USDOC has failed to make any such dem onstration.  Despite the recommendations and 
rulings of the DSB requiring a demonstration of pass-through, the USDOC continues to presume that 
pass-through occurred for virtually all arm’s-lengt h transactions.  Based on this presumption, the 
USDOC included the subsidy amount attributable to the production of the log in its calculation of the 
amount of the subsidy attributable to the production of softwood lumber , thereby significantly 
inflating the overall amount of the counte rvailing duty imposed on softwood lumber. 
 
5. A pass-through analysis in this dispute would involve comparisons of log input sale prices to 
a market benchmark price, to establish whether, and to what extent, a benefit within the meaning of 
Article 1.1(b) of the SCM Agreement is conferred upon the recipients that used the inputs in the 
production of softwood lumber.  Because the USDOC fa iled to consider virtually all of the arm’s-
length log transactions at issue, it did not make such comparisons.  The USDOC therefore presumed 
that log producers lowered the price of logs by th e full amount of the alleged input subsidy in their 
sales to unrelated softwood lumber producers.  6. The USDOC failed to consider arm’s-le ngth log transactions for three reasons. 
 
7. First, it refused to collect or analyze record  evidence pertaining to log transactions between 
tenured sawmills.  8. Second, the USDOC ignored record evidence concerning pricing submitted by the Canadian 
respondents because the information was in aggreg ate form.  Although the USDOC used aggregate 
data to conduct the softwood lumber investiga tion, and consistently refused throughout the 
investigation to consider company-specific inform ation, it nevertheless deemed aggregate data 
inappropriate for a pass-through analysis.  No ex ception exists in the GATT 1994 or in the SCM 
Agreement allowing the USDOC to refuse to con duct the required pass-through analysis on the 
grounds that available data are in aggregate form.  
9. Third, with respect to the evidence of l og transactions that the USDOC did consider, it 
deemed there to have been a full pass-through of th e alleged log subsidy if any of five factors it 
identified existed.  Nothing in the original panel or Appellate Body reports suggests that these factors 
are relevant to a pass-through analysis.  Those repo rts confirm that an investigating authority must 
establish the existence and amount of a benefit pass- through where a subsidy is received by someone WT/DS257/RW 
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other than the producer or exporter of the investig ated product; this obligation is without further 
qualification.  The USDOC reliance on such factors to reject log transactions as being not at arm’s length also is contrary to generally accepted economic principles.  10. The USDOC applied the results of the limited pass-through analysis that it did conduct to the 
countervailing duty rate established in the original investigation,  which long before had been 
invalidated as a result of judicial review proceedi ngs conducted in accordance with US law.  A few 
days later, the USDOC imposed a new counterva iling duty rate based on the results of its 
administrative review, in which it conduc ted no pass-through analysis at all. 
 
11. In order to bring its imposition of duties into  conformity with US obligations under the GATT 
1994 and the SCM Agreement, the USDOC must esta blish, and not presume, whether and to what 
extent the benefit from the alleged log subsidy flow s through to the production of softwood lumber 
where the parties to the log transaction are unrelat ed.  The USDOC has not done so.  Instead, it has 
claimed that for the vast majority of transactions  no such analysis was required.  This claim of 
compliance has no basis, and Canada asks the Panel to so determine. 
 12. Canada begins this submissi on with a description of the relevant facts underlying the dispute.  
Canada then addresses the US obligations at issu e, the violation of th ese obligations, and the 
consequential effect on the US countervaili ng duties that continue to be imposed. 
 II. FACTUAL BACKGROUND   A. Procedural History  
 
13. On 17 February 2004, the DSB adopted the r ecommendations and rulings in the reports of the 
original panel and the Appellate Body in United States – Final Countervailing Duty Determination 
with Respect to Certain Softwood Lumber from Canada.
1 
 14. On 5 March 2004, the United States notified the DSB, pursuant to Article 21.3 of the DSU, of its intention to implement these recommendations and rulings.
2  Canada and the United States agreed 
shortly afterward on a ten-month “reasonable peri od of time”, beginning 17 February 2004, for the 
United States to implement the recommendations and rulings of the DSB.3   
 15. At the DSB meeting of 17 December 2004, the United States informed the DSB that it had complied with its recommendations and rulings.  Cana da subsequently requested the establishment of 
an Article 21.5 compliance panel.
4 
 
16. The DSB established this Panel at its meeti ng of 14 January 2005, and referred the matter of 
suspension of concessions to Article 22.6 arbitration.5 
                                                      
 1 DSB, Minutes of Meeting (17 February and 19 March, 2004) , WT/DSB/M/165, 30 March 2004, at 
4(a), para. 49.  See also Appellate Body Report and Panel Report. 
 2 United States – Final Countervailing Duty Determination with Respect to Certain Softwood Lumber 
from Canada , Communication from the United States , WT/DS257/12, 9 March 2004.  
 3 United States – Final Countervailing Duty Determination with Respect to Certain Softwood Lumber 
from Canada, Agreement under Article 21.3(b) of the DSU , WT/DS257/13, 30 April 2004.   
 4 United States – Final Countervailing Duty Determination With Respect to Certain Softwood Lumber 
from Canada, Recourse to Article 21.5 of the DSU by Canada, Request for Establishment of a Panel , 
WT/DS257/15, 4 January 2005; and United States – Final Countervailing Duty Determination With Respect to 
Certain Softwood Lumber from Canada, Recourse to Article 22.2 of the DSU by Canada,  WT/DS257/16, 
4 January 2005.  
5 United States – Final Countervailing Duty Determination With Respect to Certain Softwood Lumber 
from Canada, Recourse by Canada to Article 21.5 of the DSU, Constitution of the Panel , WT/DS257/19, 
14 February 2005; and United States – Final Countervailing Duty Determination With Respect to  Certain  WT/DS257/RW 
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 B. DSB Recommendations and Rulings Co ncerning the US Failure to Demonstrate 
Pass-Through 
 
17. The United States imposes countervailing duties on imports of certain Canadian softwood lumber products based on the USDOC determination that Canadian provincial stumpage programmes 
subsidize the production of softwood lumber.  Stum page programmes impose obligations such as the 
payment of fees, road construction and maintenan ce requirements, and fire protection and insect and 
disease control, in exchange for right s to harvest standing timber on public lands.  Standing timber is 
harvested and processed into logs.
6  Logs may then serve as inputs for further processing in, inter alia , 
sawmills and pulp mills to produce a wide variety of forest products, including softwood lumber.  
These facts, as confirmed by the original panel a nd the Appellate Body, as well as by the panel in US 
– Softwood Lumber III , have not changed since the initia tion of the US countervailing duty 
investigation.7  
 
18. On the basis of these facts, the original pa nel found that the USDOC was required to conduct 
subsidy “pass-through” analysis where:  
• tenured timber harvesters who do not produce softwood lumber provide logs to unrelated 
downstream lumber producers (“independent harvester” transactions); 
 
• tenured timber harvester/lumber producers provide logs to other unrelated lumber producers 
(“sawmill-to-sawmill” transactions);  and 
 
• tenured timber harvester/lumber producers sell lumber to unrelated downstream lumber re-
manufacturers (“re-manufacturer” transactions).
8   
 19. The panel concluded:    
that the USDOC's 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, and we therefore 
uphold 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 (…).
9 
                                                                                                                                                                     
Softwood Lumber from Canada, Recourse by the United St ates to Article 22.6 of the DSU, Constitution of the 
Arbitrator , WT/DS257/20, 14 February 2005. 
 6 These obligations are imposed through co mplex tenure and licensing agreements. 
 7 Panel Report, at para. 7.84 (“In considering Canada's pass-through claim in detail, we recall that 
countervailing measures are applied to imports of certain products (the subject merchandise), which in the countervailing duty investigation in dispute before us comprises softwood lumber products produced by 
sawmills from logs, and re-manufactur ed softwood lumber pr oducts produced by re-manufacturers from lumber 
obtained from sawmills.”); Appellate Body Report, at para. 124 (“We found above that the stumpage 
programmes of Canadian provinces at  the heart of this case provide standing timber to timber harvesters, 
allegedly conferring a benefit. The st anding timber eventually becomes felle d trees or logs, which are processed 
into softwood lumber as well as remanufactured lumber  products.  USDOC defined the product subject to the 
investigation at issue as ‘certain softwood lumber’,  which includes ‘primary’ lu mber and ‘remanufactured’ 
lumber. The United States imposed countervailing duties on imports of these softwood lumber products from Canada.”). See also US – Softwood Lumber III , at paras. 7.68-7.69. 
 
8 Panel Report, at para. 7.99. 
 9 Panel Report, at para. 8.1(c) [emphasis in original]. WT/DS257/RW 
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20. On appeal, the United States accepted th ese findings and conclusions, as applied to 
independent harvester transactions.
10  However, the United States aske d the Appellate B ody to reverse 
the panel’s findings regarding sawmill-to-sawmill tr ansactions and re-manufacturer transactions.  The 
Appellate Body reversed the panel’s findings on re-manufacturer transactions11, but upheld the 
panel’s findings on sawmill-to-sawmill transactions: 
 
[T]he Appellate Body… 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 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 1994.12 
21. The DSB subsequently adopted the Appe llate Body report and the panel report and 
recommended that the United States bring its measure into conformity with its  obligations under the 
SCM Agreement and the GATT 1994.13   
  C. US Action Taken to Address Pass-Th rough Subsequent to the Recommendations 
and Rulings of the DSB 
   1. Section 129 Determination   
 
22. The United States has enacted legislation that provides for proceedings to address DSB 
recommendations and rulings concerning a US counterv ailing duty measure.  Section 129(b) of the 
Uruguay Round Agreements Act authorizes the USDOC to “issue a second determination … to 
respond to the recommendations in a WTO panel or Appellate Body report.”
14  Section 129 
proceedings may involve the issuance of new ques tionnaires and application of new methodologies.  
The section 129 process represents one way in which the United States may bring the imposition of its 
countervailing duties into conformity with its obligations. 
 23. As a result of the DSB recommendations  and rulings concerning the US failure to 
demonstrate a pass-through for independent harv ester and sawmill-to-sawmill transactions, the 
USDOC initiated section 129 proceedings.   
24. In questionnaires issued by the USDOC, the Canadian respondents were requested to identify 
the volume of Crown timber purchased by sawmills in  independent harvester transactions.  With 
respect to sawmill-to-sawmill transactions, the USDO C request for information was limited to only a 
small subset of such transactions.
15  The Canadian respondents replied to these questionnaires, 
providing a detailed breakdown of the volume of inde pendent harvester transactions and, in many 
                                                      
 10 Appellate Body Report, at para. 127, and footnote 154. (“The United States notes that it ‘does not 
appeal  the Panel's finding that, where the subs idy is received by independent harvesters , i.e., entities that do not 
produce [softwood lumber] product[s] under investigation and operate at arm's length, a pass through analysis 
would be required to determine if the subsidy received by the independent harvesters was indirectly bestowed 
on production of softwood lumber’.”[emphasis in original])  
11 Appellate Body Report, at paras. 165, 167(f). 
 12 Appellate Body Report, at para. 167(e) [emphasis in original]. 
 13 DSB, Minutes of Meeting (17 February and 19 March, 2004) , WT/DSB/M/165, 30 March 2004, at 
4(a), para. 49.   
 14 SAA, at 1022 (Exhibit CDA-1) .  See also Uruguay Round Agreements Act , Pub. L. No. 103-465, § 
129(b), 108 Stat. 4838, codified at  19 U.S.C. § 3538(b) (2000) (Exhibit CDA-2).   
 15 Letter from USDOC to Embassy of Canada, Certain Softwood Lumber Products from Canada :  
WTO “Pass-Through” Questionnaire (14 April 2004), Question 2, at 11 (Exhibit CDA-3).  (“Of the total volume of Crown timber entering sawmills reported by the province, what portion does the province claim was sold in 
arm’s length transactions by tenured timber sawmills to sawmills that do not have a tenure and, therefore, 
requires an analysis to determine if th e purchaser received a subsidy benefit?”)  WT/DS257/RW 
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cases, comprehensive data on saw mill-to-sawmill transaction volumes.16  Annex I contains a detailed 
explanation of the volumes of record eviden ce submitted by Canadian provinces and industry 
associations.  For example, British Columbia provide d the USDOC with a survey demonstrating that 
11.6 per cent of Crown logs consumed in B.C. sawmills were purchased from unrelated non-lumber-
producing tenure holders.17  The survey also demonstrated that an additional 6.2 per cent of Crown 
logs consumed in B.C. sawmills were purchased in  arm’s-length transactions from unrelated lumber-
producing tenure holders.18  
 25. The USDOC also requested company- or tran saction-specific information for each individual 
log transaction, such as copies of the applicable log purchase agreements and confirmation of which 
party paid the stumpage fee.
19  In many instances, the Canadian respondents provided sample data, 
explaining that much of the information was im possible to collect as it involved hundreds of 
thousands of arm’s-length transactions by thou sands of companies in Canada.  The USDOC 
nevertheless refused to provide reasonable alternativ es even after Canadian respondents explained the 
impossibility of the USDOC request both in writing and in meetings with USDOC officials, and 
rejected all information provided in aggregate form.20  
 26. The USDOC then eliminated from consideration most of the transactions for which individual 
company data were provided on a transaction-by-tra nsaction basis, claiming that “… a significant 
portion of the transactions included in the claims by  Alberta, British Columbia, Manitoba, Ontario and 
Saskatchewan are not arm’s-length sales.”
21  The USDOC found that transactions between unrelated 
parties were not at “arm’s length” if any of th e following factors existed in the province:  
(1) limitations on log sales in Crown tenure contract s;  (2) wood supply commitment letters;  (3) the 
payment of stumpage fees by the downstream log purchaser;  (4) log purchase agreements of a certain structure; or  (5) fibre exchange agreements be tween tenured sawmills.  Where any of these “factors” 
existed, the USDOC did not undertake any price co mparisons to establish the pass-through of the log 
subsidy benefit or its amount.
22  These factors eliminated the vast majority of log transactions 
remaining after the USDOC had already excluded all aggregate data reported on the record, including 
all transactions in British Columbia and roughl y 90 per cent of the transactions in Alberta. 
 27. The USDOC maintained that a pass-through an alysis was therefore required for only a small 
fraction of the log transactions occurring between unrelated parties.
23  This analysis led to a reduction 
                                                      
 16 The “Canadian respondents” comprise the Government of Canada, the Canadian provincial 
governments, the industry associations and certain Canadian lumber producers. 
 17 See Annex I, at para. 79. 
 18 Ibid. 
 19 Ibid., at para. 75. 
 20 See Letter from Weil, Gotshal & Manges to USDOC (16 September 2004), at 2 (Exhibit CDA-4).  
See also Final Section 129 Determination, at 3-4 (Exhib it CDA-5) (“For sales not co nducted at arm’s length or 
for which respondents failed to provide sufficient data to determine whether they were conducted at arm’s length, we did not conduct any further pass-through analysis and the volume of these sales was not removed 
from the numerator of the subsidy calculations.”); and Comment 8, at 12-13 (“Although the surveys and sample 
data provided by the Canadian parties are sufficient fo r certain analyses undertak en in the context of the 
aggregate case, such data is not sufficient for the purposes of our pass-through analysis.”).  
 
21 Final Section 129 Determination, at 6 (Exhibit C DA-5).  See also Draft Section 129 Determination, 
at 7 (Exhibit CDA-6).  
22 Final Section 129 Determination, at 4 (Exhibit CDA-5) (“[W]here 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 transactions were not conducted at arm’s length.”); and at 6-7 (“If, based on the evidence on the record, we were unable to ascertain that the amount qualified as an arm’s-length transaction or that the stumpage 
for the log was paid by the harvester, we did not compare the price per cubic meter with the benchmark input 
price and the numerator was not reduced by that volume.”).  See also Draft Section 129 Determination, at 5, 7-8 (Exhibit CDA-6).  
 23 Final Section 129 Determination at 7 (Exhibit CD A-5).  (“We determine that the evidence on the 
record sufficiently demonstrates that, during the POI, there were some arm’s-length log sales between sawmills WT/DS257/RW 
Page A-12  
 
in the amount of the countervailing duty imposed by 0.17 percentage points ( i.e., from 18.79 per cent 
to 18.62 per cent), which came into force on 10 December 2004.
24  
 28. On 13 December 2004, the USDOC released the final results of its administrative review, 
which contained no pass-through analysis despite  arguments and evidence supplied by Canadian 
respondents that would have enabled the USDOC to conduct one.  The revised countervailing duty 
amount resulting from the administrative review came into force on 20 December 2004.
25  
Accordingly, ten days after the final section 129 dete rmination came into force, subsequent action of 
the USDOC rendered moot the minor pass-through adjustment resulting from it.    2. The Administrative Review  
 
29. The United States uses a “retrospective” dut y assessment system to periodically review the 
amount of any countervailing duty imposed as a r esult of an original final countervailing duty 
determination.  Where no administrative review is requested by an “interested party”, final assessment 
occurs at the amount of the countervailing duty estab lished in the original determination.  Where an 
administrative review is conducted, the USDOC revi ews data for a period of approximately one year 
from the date of first imposition of final duties (the  “period of review”).  The revised amount of the 
countervailing duty established through an admini strative review applies, for final assessment 
purposes, to imports made during that period of review.
26  The revised amount also serves as the 
amount of duties imposed on imports made after the r esults of the review come into force, and takes 
the form of a cash deposit required pending final assessment. 
 30. As they did for the section 129 proceeding,  the Canadian respondents provided the USDOC 
with all the information necessary to conduct a pass -through analysis in the administrative review.  
Annex I contains a detailed explan ation of this record evidence, which confirmed that a significant 
volume of log transactions required a pass-through analysis.  Here, the USDOC’s request for 
information was limited exclusively to  independent harvester transactions.
27 
 31. On 14 June 2004, nearly four months afte r the adoption of the recommendations and rulings 
of the DSB, the USDOC published the prelim inary results of its administrative review.
28 
 
32. The USDOC’s preliminary results did not cont ain a pass-through analysis for any of the log 
volumes in question.  Instead, the USDOC rejected  all record evidence provided by the Canadian 
respondents for reasons similar to those in its se ction 129 determination.  For example, the USDOC 
rejected record evidence from Alberta, Britis h Columbia and Ontario because, in some log 
                                                                                                                                                                     
and tenured harvesters/sawmills in Alberta, Manito ba, Ontario and Saskatchewan. … The result of these 
calculations is that only a small portion of the Crown harvest volume originally included in the numerator is excluded from the numerator of our revised subsidy calculations.”) 
 
24 Notice of Implementation under Section 129 of th e Uruguay Round Agreements Act; Countervailing 
Measures concerning Certain Softwood Lumber Products from Canada , 69 Fed. Reg. 75,305, at 75,306 (Dept. 
Commerce, 16 December 2004) (Exhibit CDA-7). 
 25 Final AR Determination Notice, 69 Fed. Reg. at 75,919-75,920 (Exhibit CDA-8). 
 26 The amount of duty applies only to those imports that represent merchandise entered or withdrawn 
from warehouse for consumption during this period.  See, e.g., Final AR Determination Notice, 69 Fed. Reg. at 
75,919-75,920 (Exhibit CDA-8).    
27 See Annex I at para. 77.  See  e.g., Letter from USDOC to Embassy of Canada, Countervailing Duty 
Administrative Review: Certain Softwood Lumber Products from Canada  (12 September 2003), Questionnaire 
for the Province of Alberta, Question III (J) at III-6  (Exhibit CDA-9) (“Did the Government of Alberta (GOA) 
permit any person or company that did not own or operate a sawmill and was not affiliated with a sawmill to 
harvest Crown timber during the [period of review]?”). 
 28 Preliminary AR Determination, 69 Fed. Reg. 33,204 (Exhibit CDA-10).  WT/DS257/RW 
 Page A-13 
 
 
transactions, the purchasing sawmill paid the gove rnment stumpage charge rather than the 
independent harvester.29 
 33. The USDOC issued the final results of its administrative review on 13 December 2004.
30  In 
its final results, the USDOC mirrored the approach  it took in its final section 129 determination and 
reproduced its discussion of the same five “factor s” as the basis for not conducting a pass-through 
analysis for any of the transactions in question.31  It applied these factors to reject all record evidence 
provided by the Canadian respondents, and determined  that each province “failed to substantiate its 
claim that logs entering sawmills during the [per iod of review] included logs purchased in arm’s-
length transactions.” 
32 
34. As mentioned, the amount of the counterva iling duty established in the administrative review 
superseded the amount adjusted as a result of its section 129 determination te n days after the latter 
came into force, thereby rendering any purporte d “prompt compliance with recommendations or 
rulings of the DSB” under Article 21.1 of the DSU of no effect. 
 
III. LEGAL ARGUMENT 
 
35. The United States continues to violate its obligations under Article VI:3 of the GATT 1994 and Articles 10 and 32.1 of the SCM Agreement on three fronts.   
36. First, the USDOC failed in both the 129 de termination and the final results of the 
administrative review to collect or analyze reco rd evidence pertaining to log transactions between 
tenured sawmills.  It offered no explanation in its de terminations or questionnaires for its disregard of 
the DSB recommendations and rulings in this respect.  
37. Second, in its section 129 determination, the USDOC failed to analyze whether, and to what 
extent, a subsidy pass-through occurred for the vast  majority of independent harvester transactions 
identified in the record evidence, and failed to do so for all such transactions in its administrative 
review.  To justify this failure in its section 129 de termination, the USDOC clai med that such analysis 
may only be done on a company-specific, transacti on-by-transaction basis.  This claim is without 
basis, and fails to take into account the efforts of the Canadian respondents to provide the necessary 
information in the context of an aggregate case. 
 38. The USDOC also justified its failure to c onduct a pass-through analysis in both its section 129 
and administrative review determinations by claimi ng that unrelated parties do not operate at “arm’s 
length” from each other if any one of five factors ex ternal to the transaction exists.  There is no basis 
for the USDOC position under the GATT 1994 and the SC M Agreement, or in the findings of either 
the original panel or the Appellate Body.  Its po sition also contradicts fundamental principles of 
economics.  The USDOC is required to conduct a pass-through analysis, which involves comparisons 
to market benchmarks, where the direct recipient of an alleged benefit – the producer of the input 
product (in this case, logs) – is not the same entity as the indirect recipient of the benefit – the producer of the further processed product (in this case, softwood lumber).  The United States may not 
now evade this obligation by disregarding transactions  as being not at “arm’s  length” on the basis of 
an unfounded standard.  39. Third, even in the few instances in its section 129 determination where the USDOC 
considered log transactions, it nevertheless failed to  conduct a proper analysis under Article 1.1(b) of 
                                                     
 
 29 Ibid., at 33,208-33,209. 
 30 Final AR Determination (Exhibit CDA-11). 
 31 Compare Final Section 129 Determination, at 5-7 (E xhibit CDA-5) with Final AR Determination, at 
46-47 (Exhibit CDA-11). 
 32 Final AR Determination, at 7.  WT/DS257/RW 
Page A-14  
 
the SCM Agreement because most of the benchmar ks it used did not reflect prevailing market 
conditions for logs in Canada.  40. Thus, for the vast majority of transactions  in its section 129 determination and for all 
transactions in its administrative review, the US DOC conducted no pass-through analysis, and where 
it purported to conduct such anal ysis, it did so incorrectly.  As a result, the USDOC continues 
impermissibly to presume a pass-through of the alleged input subsidy.  In this dispute, the original panel and the Appellate Body have  already confirmed that such a presumption is a violation of WTO 
obligations.   A. GATT 1994 and the SCM Agreement Prohibit the United States From Imposing 
Countervailing Duties To Offset Subsidizat ion That Has Not Been Demonstrated 
To Exist 
 
41. In this section, Canada sets out the basic WTO obligations requiring the United States to demonstrate, rather than presume, the existence a nd amount of a subsidy.  Canada also sets out how 
these obligations have already been interpreted in this dispute as applying in a pass-through context. 
 42. A Member must establish that a subsidy ex ists before it may impose countervailing duties, 
and it may not impose such duties in an amount greater than the amount of the subsidy demonstrated to exist.  Article VI:3 of the GATT 1994 sets out this fundamental obligation: 
 
No countervailing duty shall be levied on any product of the territory of any 
contracting party imported into the territory of another contracting party in excess  of 
an amount equal to the estimated bounty or s ubsidy determined to have been granted, 
directly or indirectly, on the manufacture,  production or export of such product ... The 
term “countervailing duty” shall be underst ood to mean a special duty levied for the 
purpose of offsetting  any bounty or subsidy bestowed, directly, or indirectly, upon the 
manufacture, production or export of any merchandise. [emphasis added] 
43. Under this provision, any countervailing duty levied on a product that has not been 
determined to have been subsidized is necessar ily, and fully, “in excess” and there is no lawful 
“offset”.
33  The obligation is reaffirmed in  Article 10 of the SCM Agreement:  
 
Members shall take all necessary steps to ensure that the imposition of a countervailing duty
36 on any product of the territory of any Member imported into the 
territory of another Member is in accordance with the provisions of Article VI of GATT 1994 and the terms of this Agreemen t.  Countervailing duties may only be 
imposed pursuant to investigations initia ted [footnote omitted] and conducted in 
accordance with the provisions of this Ag reement and the Agreement on Agriculture. 
 ------------------------------------------- 
 36 The term “countervailing duty” shall be understood to mean a special duty levied for the purpose of 
offsetting any subsidy bestowed directly or indirectly upon the manufacture, production or export of 
any merchandise, as provided for in paragraph 3 of Article VI of GATT 1994. 
 
44. Finally, Article 32.1 of the SCM Agreement c onfirms that the imposition of duties is unlawful 
where a Member fails in this obligation.  It prov ides that “[n]o specific action against a subsidy of 
another Member can be taken ex cept in accordance with the provis ions of GATT 1994, as interpreted 
by this Agreement.” 
                                                      
 33 The ordinary meaning of the verb “offset” is “[s]et off as an equivalent  against; cancel out by, 
balance  by something on the other side or of contrary nature; counterbalance , compensate ”.  See New Shorter 
Oxford English Dictionary  (Oxford: Clarendon Press, 1993), at 1985 (Exhibit CDA-12) [emphasis added].    WT/DS257/RW 
 Page A-15 
 
 
 45. Nothing in the context or object and purpo se of these provisions alters the fundamental 
obligation to demonstrate the existence and the amou nt of a subsidy with respect to a product before 
imposing countervailing duties on that product.
34  
 
46. Article 1.1 of the SCM Agreement sets out an exhaustive definition of “subsidy” that applies 
to this obligation.35  Under this provision, there is no “subsidy” when a “benefit” has not been 
conferred upon a recipient.36  The original panel, referring to the findings of the Appellate Body in 
Canada – Aircraft , found that the term “benefit” “implies some kind of comparison” and that the 
“marketplace” provides a basis for this comparison.37 
 
47. In a pass-through context, the obligation on Members is to compare the transactions in question to the marketplace to determine whether, a nd to what extent, a benef it under Article 1.1(b) of 
the SCM Agreement is conferred.
38  As explained by the original pa nel, the results of such analysis 
may not be presumed:  
 
The heart of the pass-through issue is wh ether, 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 confe rred benefits in respect of that product.  
If it is not demonstrated that there has b een such a pass-through of subsidies from the 
subsidy recipient to the producer or exporter  of the product, then it cannot be said that 
subsidization in respect of that product, in  the sense of Article 10, footnote 36, and 
Article VI:3 of GATT 1994, has been found.  Thus, we find that a pass-through analysis is required by these provisions … where there are such upstream transactions.
39 
                                                      
 34 See Panel Report, at paras. 7.90-7.91 (“[B]oth of these provisions make explicit that there must be 
direct or indirect subsidization  in relation to the manufacture, production or export of a product  for a 
‘countervailing duty’ in the sense of the [SCM] Agreement and GATT Article VI to be imposed on that product.” [emphasis in original].  See also US – Softwood Lumber III , at paras. 7.75, 8.1(c), and US – 
Countervailing Measures on Certain EC Products , Panel Report, at paras. 7.41-7.44, as upheld in
 US – 
Countervailing Measures on Certain EC Products , Appellate Body Report, at paras. 139 and 161(a), and US – 
Lead and Bismuth II , Panel Report, at para. 6.56, as upheld in  US – Lead and Bismuth II , Appellate Body 
Report, at para. 63. 
 35 The relationship between the definition in Article 1.1 of the SCM Agreement and the obligations 
under Article VI:3 of the GATT 1994 and Articles 10 and 32.1 of the SCM Agreement has been explained by 
the original panel.  See Panel Report, at para. 7.88 (“[Footnote 36 to Article 10 of the SCM Agreement] defines 
what a countervailing duty is, and in so doing makes explicit the link between a ‘subsidy’ to a recipient in the sense of Article 1.1 and the manufacture, production or export of a product  that is the subject of a CVD 
investigation and ultimately a countervailing duty. [emphasis in original]”).  
 
36 Panel Report, at para. 7.53; Canada – Aircraft , at para. 154. 
 37 The original panel considered this issue in detail in the context of other claims in this dispute. See 
e.g., Panel Report, at paras. 7.53-54.  See also Canada – Aircraft , at para. 157. 
 38 That pass-through analysis requ ired pricing analysis had been established as far back as the US – 
Canadian Pork  dispute.  This GATT panel determined that: 
[G]iven the existence of separate industries for swine and pork production in Canada 
operating at arm’s length, the subsidies granted to swine producers could be considered to be 
bestowed on the production of pork only if they had led to a decrease in the level of prices for 
Canadian swine paid by Canadian pork producers below the level they have to pay for swine from other commercially available sources of supply. 
 US –  Canadian Pork , at para. 4.9. 
 
39 Panel Report, at para. 7.91.  The original panel also explained that a Member may not simply 
presume whether and to what extent any subsequent “benefit” passed thro ugh an input transaction where the 
transacting parties are unrelated.  In agreeing with the findings of the GATT panel in US – Canadian Pork , the 
panel stated: WT/DS257/RW 
Page A-16  
 
48. Accordingly, where a subsidy is received by “someone other than the producer or exporter of 
the product under investigation”, a Member must esta blish whether and to what extent the benefit to 
an upstream recipient passes to a downstream entity through the purchase of an input product. 
 49. The Appellate Body agreed.  Drawing on the text of Article VI:3 of the GATT 1994, it found 
that a Member may not presume that a subsidy passes  through transactions where “the producer of the 
input is not the same entity as the pr oducer of the processed product”.
40  The Appellate Body also 
explained in no uncertain terms that analysis under Article 1.1(b) of the SCM Agreement is required:  
 
Where a subsidy is conferred on input products, and the countervailing duty is 
imposed on processed products, the initial reci pient of the subsidy and the producer 
of the eventually countervailed product, may not  be the same.  In su ch a case, there is 
a direct recipient  of the benefit – the producer of the input  product.  When the input is 
subsequently processed, the producer of the processed product  is an indirect recipient  
of the benefit – provided it can be establis hed that the benefit flowing from the input 
subsidy is passed through, at least in part, to the processed product.  Where the input 
producers and producers of the processed products operate at arm's length , the pass-
through of input subsidy benefits from the direct recipients to the indirect recipients downstream cannot simply be presumed; it must be established by the investigating authority. In the absence of such anal ysis, it cannot be shown that the essential 
elements of the subsidy definition in Article 1 are present in respect of the processed 
product .
41  
50. Despite the clarity of these findings, the United States, in purporting to bring the imposition 
of its countervailing duties into conformity with this  obligation, ignored this obligation entirely with 
respect to some transactions and unilaterally re-d efined the circumstances under which this obligation 
arises with respect to all other transactions.   
 
 B. The United States Continues to Im pose Countervailing Duties Based On an 
Impermissible Presumption of Subsidization 
 
51. Applied to the two factual situ ations at issue in this dispute, both the original panel and the 
Appellate Body have made abundantly clear to the United States that it is required under Article VI:3 
of the GATT 1994 and under Articles 10 and 32.1 of the SCM Agreement to perform a benefit 
analysis under Article 1.1(b) for both independent harvester and sa wmill-to-sawmill transactions.  It 
has not done so.   
                                                                                                                                                                    
 
That panel found, as we do, that investigating authorities had the affirmative obligation to 
make a determination of subsidization in respect of a product , and could not simply assume 
such subsidization where the subsidies were bestowed in respect of a product (the input product) that was different from the product subject to countervailing duty , and where the 
input producers were unrelated to the producers of that subject merchandise. [emphasis in 
original] [at para. 7.92] 
 
40 Appellate Body Report, at paras. 140-141.  See also  US – Softwood Lumber III , at paras. 7.74-7.75. 
 41 Appellate Body Report, at para. 143 [emphasis in original].  See also  Panel Report, at para. 7.92.  
The United States had even agreed with the orig inal panel.  As noted by the Appellate Body: 
[T]he United States accepts that a pass-throug h analysis is required where a subsidy is 
bestowed indirectly  on producers of products subject to the investigation (“subject products”).  
Thus, if a subsidy is received directly by an entity other  than a producer of subject products, 
and that entity subsequently sells inputs to producers of subject products, the investigating 
authority is required to determine whether at least some of that subsidy is passed through in 
the sale to the producers of such products. 
 Appellate Body Report, at para. 129 [emphasis in original], US – Softwood Lumber III , at para. 7.70.   WT/DS257/RW 
 Page A-17 
 
 
52. Instead, the United States has attempted at ever y turn to avoid its obligations to perform the 
required analysis and make the required dem onstration.  This non-compliance with the 
recommendations and rulings of the DSB has allowed the United States to continue to illegally inflate 
the amount of its countervailing duties on softwood lumber.    1. The United States Failed to Conduct Pass-Through Analysis for Log 
Transactions Between Unrelated Parties 
 
53. The USDOC failed to conduct the require d pass-through analysis for three reasons.  
 
54. First, it presumed a full pass-through of the alleged input subsidy for all log transactions 
between tenured sawmills.  In its section 129 determination, the USDOC restricted its request to the 
following information:  
Of the total volume of Crown timber entering sawmills reported by the province, 
what portion does the province claim was sold in arm’s length transactions by tenured 
timber sawmills to sawmills that do not have a tenure and, therefore, requires an 
analysis to determine if the purchaser received a subsidy benefit?
42  
55. By restricting its request to log purch ases by “sawmills that do not have a tenure”, the 
USDOC inexplicably excluded information on tr ansactions in which the purchasing sawmill had 
tenure – transactions that constitute the vast major ity of sawmill-to-sawmill transactions in Canada.  
Nowhere did the USDOC make any request for info rmation relating to purchases by sawmill owners 
that did hold tenure.  It simply ignored the findings of the original panel and the Appellate Body with 
respect to such sawmill-to-sawmill transactions, which provide no basis for refusing to conduct a 
pass-through analysis simply becau se the purchasing sawmill holds tenure.43 
 
56. The transaction volumes between tenured saw mills were excluded by the USDOC despite 
explicit calls for their inclusion.  For example, Al berta noted at the outset of an initial questionnaire 
response that it believed “that the Department also should be requesting data on arm’s length sales of 
logs between tenureholders where both the buyer an d seller are sawmillers” and that it “stands ready 
to collect and supply this additional information on an expedited basis”.44  These calls went 
unanswered. 
 
57. In its administrative review, the USDOC fa iled to request information on any sawmill-to-
sawmill transactions.  In its only request for info rmation on arm’s-length log transactions, the 
USDOC restricted its request in its initial questionna ire to the volume and value of Crown logs sold 
by independent harvesters to softwood lumber pr oducers (“by any person or company that did not 
own or operate a sawmill” or “b y non-mill-owning tenure holders”).45 
                                                      
 42 Letter from USDOC to Embassy of Canada, Certain Softwood Lumber Products from Canada:  
WTO “Pass-Through” Questionnaire (April 14, 2004), Question 2 (Exhibit CDA-3) [emphasis added]. 
 43 Appellate Body Report, at para. 167(e); Panel Report, at paras. 7.99 and 8.1(c).   
 44 Alberta 21 May 2004 Pass-Through Questionnaire Response, at AB-1 (Exhibit CDA-13); See also 
Alberta 15 September 2004 Supp. Pass-Through Questionnaire Response, at 1 (Exhibit CDA-14).  (“At the 
outset, Alberta wishes to note that Alberta’s response to the original questionnaire of 14 April 2004 did not 
provide all the relevant data on arm’s length sellers of Crown logs, due to the constraints imposed by the 
Department’s narrow questions.  Specifically, in the original questionnaire on this subject, the Department told 
Alberta to limit our responses to those sellers of softwood logs harvested from provincial lands who did not own sawmills themselves.”)  
 
45 Letter from USDOC to Embassy of Canada, Countervailing Duty Administrative Review:  Certain 
Softwood Lumber Products from Canada  (September 12, 2003),  attaching Questionnaire for the Province of 
Alberta, Questions III (J), (K), and (L), at III-6; Questionnaire for the Province of British Columbia, Questions 
III (K), (L), and (M), at IV-7; Questionnaire for the Province of Manitoba, Questions III, (D), (E) and (F), at V-
5; Questionnaire for the Province of Ontario, Questions III, (K) and (L), at VI-6; and Questionnaire for the WT/DS257/RW 
Page A-18  
 
 58. Second, in its section 129 determination, the USDOC disregarded a ll aggregate transaction 
and pricing data submitted by the Canadian res pondents.  The USDOC considered only information 
on a company-specific, transaction-by-transactio n basis knowing that there were hundreds of 
thousands of eligible transactions made by thousands of companies.
46  The USDOC disregarded such 
evidence even though its investigation was undertak en on an aggregate basi s precisely because there 
are thousands of companies involved.47  The USDOC thus ignored entir ely the original panel’s views 
that company-specific data are not necessar ily required to conduct pass-through analysis.48  T h e  
USDOC stated only that, while the aggregate info rmation provided by the Canadian parties is 
sufficient for certain analyses undert aken in the context of its aggr egate case, “such data is not 
sufficient for the purposes of our pass-through analysis.” 49 
 59. Third, in both its section 129 and administra tive review determinations, the USDOC applied a 
contrived standard to limit the number of Crown log transactions requiring analysis.  In the USDOC 
view, a log transaction requires analysis only if it is at arm’s length, and a transaction is at arm’s 
length only where:  
 
• the transacting parties are unrelated; and  
 
• none of the external factors identified by the USDOC exists.
50 
 60. While the USDOC did not contest that the Crown log volumes identified by the Canadian respondents satisfy this first condition, it nevertheless  rejected nearly all remaining transactions in its 
                                                                                                                                                                    
 
Province of Saskatchewan, Questions III, (D), (E) and (F),  at VIII-4 (Exhibit CDA-9).  See also Preliminary AR 
Determination, 69 Fed. Reg., at 33,208 (Exhibit CDA-10). 
 46 See e.g.,  B.C. September 15, 2004 Supp. Questionnaire Re sponse, Narrative, at 5 and Norcon B, at 4 
(Exhibit CDA-15).  
47 USDOC Memorandum from B.T. Carreau to F. Shirzad, Issues and Decision Memorandum: Final 
Results of the Countervailing Duty Investigation of Certain Softwood Lumber Products from Canada  
(21 March 2001), at 15 (Exhibit CDA-16) (“In the Initiation Notice , we stated that, due to the extraordinarily 
large number of Canadian producers, we anticipated that we would conduct this investigation on an aggregate 
basis consistent with section 777A(e)(2)(B) of the Act.  No parties objected to this. [footnote omitted] For the 
purposes of this final determination, we have aggregated the subsidy information on an industry-wide basis.  Specifically, we used the information provided by the [Government of Canada] and the Provincial governments 
and calculated one subsidy rate for the Canadian softwo od lumber industry for exports of softwood lumber to 
the United States.”).  See also Final AR Determination, at 47 (Exhibit CDA-11) (“In this procee ding we are examining 
subsidies that directly benefit the lumber manufacturing process in Canada on an aggregate basis ” [emphasis 
added]).  
48 Panel Report, at para. 7.98 (“[W]e  are not convinced that the need to conduct a pass-through analysis 
for these transactions would necessarily or inevitabl y convert every aggregate case into a company-specific 
case.”) and footnote 170 (“For example, inquiry into po ssible relationships between the entities concerned, and 
the use of sampling or other statistical techniques in respect of the relevant transactions at issue, might offer 
possible approaches to be explored.”). 
 49 Final Section 129 Determination, Comment 8, at 12 (Exhibit CDA-5). 
 50 Ibid., at 2 (“[T]o determine whether transactions ar e at arm’s-length requires information about the 
relationship between the parties to the transaction (e.g.  affiliations) and the circumstances surrounding the 
transactions .”[emphasis added]).  See also Draft Sectio n 129 Determination, at 3 (Exhibit CDA-6). 
 Final Section 129 Determination, at 4 (Exhibit CDA-5) (“We first examined whether any of the log 
sale transactions at issue were between affiliated parties,  as defined by section 771(33) of the Tariff Act of 1930, 
as amended. If any of the log sales reported by the Ca nadian parties were determined to have been between 
affiliated parties, we concluded that these were no t arm’s-length transactions and no further pass-through 
analysis was conducted”).  See also Draft Sec tion 129 Determination, at 5 (Exhibit CDA-6).  WT/DS257/RW 
 Page A-19 
 
 
section 129 determination and did reje ct all transactions in its administrative review based on the 
second condition.51   
 61. The second condition in the USDOC test has no foundation under the GATT 1994 or the SCM Agreement, nor does it accord with basic economics.  Under this condition, the USDOC 
excluded from examination any reported independent  harvester and sawmill-to-sawmill transactions 
that included any of the following five “factors”, chosen arbitrarily as exclusive criteria:  (1) 
limitations on log sales in Crown tenure contracts;  (2) wood supply commitment letters; (3) payment 
of the stumpage fees by the downstream lumber producers; (4) the structure of certain log purchase agreements; or (5) fibre exchange ag reements between Crown tenure holders.
52  The USDOC 
concluded, without any demonstrative analysis, that these factors “affect” the outcome of these 
transactions.53  The USDOC conclusion has no basis and should be rejected. 
 62. A transaction between unrelated parties is  by definition an arm’s-length transaction.
54  
Because the external factors identified by the USDOC do not transform an arm’s-length transaction 
into one that is not at arm’s length, the existen ce of any such factors cannot  excuse the United States 
from its obligation to conduct the required benefit pass-through analysis.  As the original panel and 
the Appellate Body confirmed, such analysis is re quired in every instance where the subsidized input 
producer is unrelated to the pr oducer of the subject merchandise.55  The creation of this new definition 
of “arm’s length” by the USDOC is nothing more th an an attempt to resurrect US arguments that 
failed before the panel in Canada – Softwood Lumber III .56 
 
63. The USDOC refusal to conduct a pass-through an alysis on the basis of these factors is also 
inconsistent with basic economics.  Extensive ec onomic evidence placed on the record demonstrated 
that none of the factors identified by the USDOC alters  the fact that sellers of Crown logs attempt to 
obtain the best price available in transactions with unrelated purchasers.57  These factors do not make 
                                                      
 51 See e.g., Draft Section 129 Determinati on, at 9 (“The Department accepted the certifications that the 
transactions listed in the PWC’s survey results submitte d by the [Government of Alberta] were transactions 
between unaffiliated parties.”) and at 10 (“In its 25 October 2004 questionnaire response, the [Government of 
British Columbia] explained that the Norcon survey cont rolled for affiliation between the 74 participating mills 
and independent harvesters based on the Department’s statutory test, which we accepted.”).  The US law 
standard that the USDOC directed th e Canadian respondents to rely on to certify that transactions occurred 
between unrelated parties was section 771(33) of the Tariff Act of 1930 (19 U.S.C. § 1677(33)).  See Exhibit 
CDA-17.  
 52 The United States relied on the same factors in both its section 129 determination and its 
administrative review determination. 
 53 Final Section 129 Determination, at 4 (Exhibit CDA-5) (“Evidence on the record indicates that 
government-mandated restrictions affect many of the log transactions that Canada reported as arm’s-length sales.”).  See also Final AR Determination, at 47 (E xhibit CDA-11), where the USDOC states, in the absence of 
any prior demonstration, that “[t]he  government mandates at issue here are conditions that are placed on the 
tenure licenses that have a direct impact on the disposition of Crown logs sold by independent harvesters.”  
54 See e.g., New Shorter Oxford English Dictionary  (Oxford University Press: New York, 1993) at 114 
(Exhibit CDA-18) (“at arm’s length… (of dealings) with neither party controlled by the other”); Black’s Law 
Dictionary , 6th ed. (St. Paul, Minn.: West, 1990), at 109 (Exhibit CDA-19) (“Arm’s-length transaction… [one 
that is] negotiated by unrelated parties, each acting in hi s or her own self interest; the basis for a fair market 
value determination.”).  The SAA also defines an arm’s length transaction as a transaction between unrelated 
parties “or between related parties such that the terms of the transaction are those that would exist if the 
transaction had been negotiated between unrelate d parties.” See SAA, at  928 (Exhibit CDA-1). 
 55 Panel Report, at para. 7.92 (“…where the input producers were unrelated to the producers of that 
subject merchandise”); Appellate Body Report, at para. 140 (“Where the producer of the input is not the same 
entity as the producer of the pr ocessed product...”).  See also US – Softwood Lumber III , at para. 7.74 (“… here 
a downstream producer of subject merchandise is unrelated to the allegedly subsidized upstream producer of the input ...”). 
 
56 See ibid., at paras. 4.289-4.291, and 7.79.  
 57 See Kalt 2004d (Exhibit CDA-20).  See also Kalt 2004a, at 43-48 (Exhibit CDA-21). WT/DS257/RW 
Page A-20  
 
the transacting parties act in accord ance with interests other than their own, nor do they align the 
parties’ otherwise opposing objectives rega rding the outcome of the transaction.
58  Accordingly, they 
do not obviate the need to demonstrate and quantify any alleged log subsidy pass-through. 
 64. In particular, record economic evidence de monstrated that the government regulations 
identified by the USDOC do not change the fact that transactions between unrelated parties occur in a 
market setting, and that a market absent of any form of government intervention is not a sine qua non  
for an arm’s-length transaction.
59  Requirements by the government to supply, for example, say 
nothing about the subsequent negotia tions and whether the transaction out come is a market price.  The 
evidence also demonstrated that the question of  who remits the government stumpage fee is 
irrelevant; the mere payment of the fee by a down stream purchaser does not mean the upstream seller 
reduced the market value of its log by the amount of the stumpage subsidy.60  This typical business 
arrangement, merely guaranteeing payment of base fees, logically has nothing to do with whether a transaction is at arm’s length.  Nor does the presence of non-cash components in a transaction ( e.g., 
payment through exchange of goods or services) im ply that the harvester has accepted anything less 
than the market value of the log.
61 
 65. As a result of its refusal to analyze log transac tions as required by the findings of the original 
panel and the Appellate Body and by basic pr inciples of economics, the USDOC impermissibly 
presumed that the alleged log input subsidy fully passed through all such transactions. 
   2. In the Few Instances Where the United States Did Perform Pass-Through 
Analysis, It Used Inappropriate Benchmarks That Produced Results That Were Subsequently Nullified 
 
66. Even in the few instances in its section 129 determination where the USDOC considered log 
transactions, it nevertheless failed to conduct prop er analyses under Article 1.1(b) of the SCM 
Agreement.   67. In conducting pass-through analyses in its section 129 determination, the USDOC relied on 
benchmarks that do not reflect a comparison to the “marketplace”.
62  The USDOC, for example, 
derived its benchmark, in part, fro m log imports that were:  (1) extr emely small and highly variable in 
volume;  (2) largely unrepresentative of the sp ecies harvested in each province;  and (3) 
extraordinarily high in value and unrepresentative of  prices paid in each province for logs used in 
softwood lumber production.  Accordingly, these pri ces did not reflect market conditions in Canada 
during the period of investigation.  The Canadian respondents urged the USDOC to correct its use of 
benchmarks, but these comments were disregarded.63 
 
68. The marginal decrease the USDOC made to th e amount of its countervailing duties as a result 
of this flawed benefit analysis in its section 129 determination was in any event overtaken ten days 
later, and after the end of the reasonable period of  time to implement, by full re-inflation of the 
countervailing duty amount as a result of its admini strative review determination.  As explained 
above, the United States undertook no pass-through anal ysis for any of the log transactions identified 
                                                      
 58 See e.g., Kalt 2004a, at 43-46. 
 59 Ibid., at 48-51; Kalt 2004d, at 9-10 (Exhibit CDA-20). 
 60 Kalt 2004d, at 4-7. 
 61 Ibid., at 8-9. 
 62 See e.g., Panel Report, at para. 7.53-54.  See also Canada – Aircraft , at para. 157.  The USDOC used 
as a benchmark company-specific prices that individual purchasing sawmills paid for other logs it obtained from 
private lands or for logs it imported.  Where actual co mpany-specific purchase data were not available, the 
USDOC used a weighted-average of private log prices and imported log prices.  See Final Section 129 
Determination, at 6 (Exhibit CDA-5). 
 63 See Letter from Weil, Gotshal & Manges to USDOC  (26 November 2004), at 5 (Exhibit CDA-22).  WT/DS257/RW 
 Page A-21 
 
 
in the administrative review.  Accordingly, in both its determinations, occurring within days of each 
other, the United States failed to conform to  its obligations concerning the imposition of 
countervailing duties.  
  3. As a Result of Its Failure to Conduct the Required Pass-Through Analysis, 
the United States Continues Impermissibly to Inflate the Amount of 
Countervailing Duties 
 
69. The effect of the failure by the United Stat es to comply with the recommendations and rulings 
of the DSB is an impermissible inflation of the amount of its countervailing duties.  Because the 
USDOC calculated the amount of the subsidy going to the production of softwood lumber based on 
the entire volume of the Crown harvest that entered sawmills, either directly or indirectly , it is now 
required to do one of two things: either (1) conduct an appropriate pass-through analysis for all Crown 
log transactions involving unrelated parties, including through the use of aggregate 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.  
 70. More particularly, should the USDOC c hoose not to conduct the required pass-through 
analysis, it must exclude from the numerator of th e subsidy rate calculation benefit amounts derived 
from the following transaction volumes:   
• Crown logs purchased in independe nt harvester transactions; and  
 
• Crown logs purchased in sawm ill-to-sawmill transactions.  
 71. Only by taking these steps will the United States comply with the recommendations and 
rulings of the DSB.  IV. REQUEST FOR FINDINGS AND RECOMMENDATIONS 
 
72. The United States failed to implement the reco mmendations and rulings of the DSB in respect 
of its obligation to demonstrate whether, and to what extent, a subsidy to the production of Crown 
logs passes through transactions between unrelated parti es.  As such, Canada requests that the Panel: 
 
• Find that the US imposition of countervailing duties in respect of the Crown log transactions 
identified in this dispute is incons istent with Article VI:3 of GATT  1994 and Articles 10 and 
32.1 of the SCM Agreement; 
 
• Recommend in accordance with Article 19.1 of the DSU that the United States:  (1) refund 
the amount of the countervailing duties imposed to offset alleged subsidy amounts presumed to pass through; or, (2) revise its measures to  meet the requirements of Article VI:3 GATT 
1994 and Articles 10 and 32.1 of the SCM Agreement and refund the duties to the extent that 
they exceed the amount of the alleged subsidy demonstrated to have passed through to the 
production of softwood lumber; 
64 and 
 
• Recommend that the United States bring its measures into conformity with its WTO 
obligations. 
                                                      
 64 See US – Canadian Pork , at para. 4.11.  
 WT/DS257/RW 
Page A-22  
 
ANNEX I:  RECORD EVIDENCE 
 
 
73. The Canadian respondents provided the USDOC with detailed evidence that could have been 
used to properly establish and calculate the amount  of any benefit pass-through in both the section 
129 proceedings and the administrative review.  As expl ained, the United States rejected nearly all of 
the record evidence and instead simp ly presumed a full pass-through. 
 74. After initiating implementati on proceedings under section 129,  the USDOC issued a first 
questionnaire on 14 April 2004.
65  The Canadian respondents prov ided responses in accordance with 
the USDOC’s directions on 21 May 2004.  In pr oviding their responses, th e provinces relied on the 
definition of “affiliated person” unde r US law to certify whether the transacting parties were unrelated 
and the USDOC accepted all such certifications.66   
 75. After receiving responses to its first ques tionnaire, the USDOC issued two supplemental 
“pass-through” questionnaires on 17 August and 5 Oc tober 2004, requesting the provinces to collect 
large amounts of company-specific data.
67  The USDOC asked the provinces to collect the 
government tenure agreements applying to every independent harvester and sawmill involved in 
arm’s-length log transactions.68  The USDOC also requested information on all parties related to ( i.e., 
affiliated with) both the independent harvester a nd the purchasing sawmill, on who paid the stumpage 
fee related to the log in question, and on the c ontractual terms and pricing of each individual 
transaction that required a pass-through analysis.69 
                                                      
 65 Letter from USDOC to Embassy of Canada, Certain Softwood Lumber Products from Canada:  
WTO “Pass-Through” Questionnaire (April 14, 2004) (Exhibit CDA-3).  
 66 See e.g., Final 129 Determination, at 9 (Exhibit CDA-5) (“Based on the certifications and 
information provided by the relevant companies and the [Government of Alberta], the Department accepted the 
data reported to be from unaffiliated parties.”). See al so Draft 129 Determination, at 9 (Exhibit CDA-6) (“The 
Department accepted the certifications that the transactio ns listed in the PWC’s survey results submitted by the 
[Government of Alberta] were transactions between una ffiliated parties”); at 10 (“In its October 25, 2004 
questionnaire response, the [Governmen t of British Columbia] explained that the Norcon survey controlled for 
affiliation between the 74 participating mills and independent harvesters based on the Department’s statutory 
test, which we accepted.”); at 12 (“The Department acce pts the [Government of Ma nitoba]’s claim that the 
transactions were conducted between unaffiliated partie s”); at 13 (“The Department accepts the certifications 
that the transactions listed in the [Government of Onta rio]’s breakdowns [are betw een unaffiliated parties]”); 
and at 15 (“The Department accepts the [Government of Saskatchewan]’s claim that the transactions were 
conducted between unaffiliated parties.”).  
67 Letter from USDOC to Embassy of Canada, Certain Softwood Lumber Products from Canada:  
WTO Supplemental “Pass-Through” Questionnaire (17 August 2004) (Exhibit CDA-23); Letter from USDOC 
to Embassy of Canada, Certain Softwood Lumber Products from Canada:  WTO Second Supplemental “Pass-Through” Questionnaire (5 October 2004) (Exhibit CDA-24). 
 
68 See Letter from USDOC to Embassy of Canada, Certain Softwood Lumber Products from Canada:  
WTO “Pass-Through” Questionnaire (April 14, 2004), Question 1(c), Question 2(c), at 10-11 (Exhibit CDA-3); Letter from USDOC to Embassy of Canada, Certain Softwood Lumber Products from Canada:  WTO 
Supplemental “Pass-Through” Questionnaire (August 17, 2004), British Columbia, Questions 3, 9(b), at 3-4; 
Alberta, Question 1, at 8; Manitoba, Question 2, at 10; and Saskatchewan, Question 3, at 12 (Exhibit CDA-23); and Letter from USDOC to Embassy of Canada, Certain Softwood Lumber Products from Canada:  WTO 
Second Supplemental “Pass-Through” Questionnaire (Octobe r 5, 2004), British Columbia, Questions 3, 4, at 3-
5; Alberta, Question 1, at 8 (Exhibit CDA-24).   
 
69 See Letter from USDOC to Embassy of Canada, Certain Softwood Lumber Products from Canada:  
WTO “Pass-Through” Questionnaire (April 14, 2004), Question 1(b), Question 2(b), at 10-11 (Exhibit CDA-3); Letter from USDOC to Embassy of Canada, Certain Softwood Lumber Products from Canada:  WTO 
Supplemental “Pass-Through” Questionnaire (August 17, 2 004), British Columbia, Questions 2, 4, 6-7, 9, at 3-
5; Ontario, Questions 1-4, at 6; Alberta, Questions 2-3, 6-7, at 8-9; Manitoba, Question 3, at 10; and Saskatchewan, Questions 4, 6, at 12-13; and Pass-Through Appendix, at 9-17 (Exhibit CDA-23); and Letter 
from USDOC to Embassy of Canada, Certain Softwood Lumber Products from Canada:  WTO Second 
Supplemental “Pass-Through” Questionnaire (October 5, 2 004), British Columbia, Questions 1, 6-7, 9, at 3-5;  WT/DS257/RW 
 Page A-23 
 
 
 76. The Canadian respondents provided as much info rmation as was practicably available to them 
and emphasized that the USDOC could complete its pass-through analysis with the aggregate 
provincial data.
70  For example, in meetings and written submissions to the USDOC, British Columbia 
noted that the documentation relating to all log purchase agreements and te nure agreements would 
involve several truckloads of paper, and offered several alternative approaches, all of which were 
rejected.  British Columbia nevertheless provide d hundreds of pages of sample agreements, and 
offered to provide any additional samples request ed by the USDOC.  As outlined above, the USDOC 
rejected almost all record evidence submitted in the section 129 proceeding.  
77. In relation to the administrative review, the USDOC initiated this segment of this proceeding 
on 1 July 2003, for the period from 22 May 2002–31 March 2003.
71  In its initial questionnaire issued 
on 12 September 2003, the USDOC requested the Cana dian provinces to report the volume and value 
of Crown logs sold by independent harvesters to unrelated lumber producers, but solicited no 
information on sawmill-to -sawmill transactions.72  The Canadian respondents provided the USDOC 
with evidence that confirmed that there was a signifi cant volume of logs sold in such transactions and 
which therefore required a pass-through analysis.73  The Canadian parties also provided additional 
information throughout the proceed ings and during verification.  The USDOC collected no additional 
information and issued no new questionnaires concer ning pass-through.  In the preliminary and final 
results of the administrative review, the USDOC re fused to conduct a pass-through analysis using any 
of the information provided by the Canadian respondents.74   
 
                                                                                                                                                                     
Ontario, Question 1, at 7; Alberta, Questions 5, 8, 10, at 9-10; Manitoba, Question 1, at 11; Saskatchewan, 
Question 1, at 13, Second Pass-Through Appendix, at 22-23 (Exhibit CDA-24). 
 70 See e.g.,  B.C. 15 September 2004 Supp. Questionnaire Response, Narrative, at 5 and Norcon B, at 4 
(Exhibit CDA-15); B.C. 5 October 2004 Supp. Questionnaire Response, at BC-PT-22, Exhibit BC-PT-55 
(Exhibit CDA-25).  The public version of Exhibit BC-PT-55, which supplements the information provided in 
Norcon B, excludes business proprietary information as it is not susceptible to public summarization.    
71 Initiation of Antidumping and Countervailing Duty Administrative Reviews and Request for 
Revocation in Part , 68 Fed. Reg. 39,055 (Dep’t Commerce 1 July 2003) (Exhibit CDA-26).  On 
16 January 2004, the USDOC extended the time for completion of the preliminary results.  See Certain 
Softwood Lumber Products from Canada:  Extension of Time Limit for Preliminary Results of Countervailing 
Duty Administrative Review , 69 Fed. Reg. 2,568 (Dep’t Commerce 16 January 2004) (Exhibit CDA-27).  
Similarly, in the preliminary results the USDOC extended the amount of time available for the final results of the administrative review.  See Prelim inary AR Determination, 69 Fed. Reg. at 33,205 (Exhibit CDA-10). 
 
72 See Letter from USDOC to Embassy of Canada, Countervailing Duty Administrative Review:  
Certain Softwood Lumber Products from Canada  (12 September 2003), attaching Questionnaire for the 
Province of Alberta, Questions III (J),  (K), and (L), at III-6; Questionnaire for the Province of British Columbia, 
Questions III (K), (L), and (M), at IV-7; Questionnaire for the Province of Manitoba, Questions III, (D), (E) and 
(F), at V-5;  Questionnaire for the Province of Ontario, Questions III, (K) and (L), at VI-6; and Questionnaire for the Province of Saskatchewan, Questions III, (D), (E) and (F), at VIII-4 (Exhibit CDA-9); and Preliminary 
AR Determination, 69 Fed. Reg. at 33, 208 (Exhibit CDA-10) (“During the underlying investigation, the 
Canadian parties claimed that a portion of the Crown logs processed by sawmills were purchased by the mills in arm’s-length transactions with independent harvesters. Canada further claimed that such logs must be excluded 
from the subsidy calculation unless the Department determines that the benefit to the independent harvester 
passed through to the lumber producers. In anticipation of a similar claim in this administrative review, we 
requested in the original que stionnaire that each of the Canadian pr ovinces report the vo lume and value of 
Crown logs sold by independent harvesters to un related parties during the [period of review].”). 
 
73 See Letter from Weil Gotshal & Manges to USDOC, Certain Softwood Lumber from Canada:  First 
Administrative Review, Pass Through of Benefit to Arm’s Length Purchasers of Logs and Lumber Inputs  
(24 May 2004) (Exhibit CDA-28).  See also Norcon C (Exhibit CDA-29), as revised in Letter from Steptoe & Johnson to USDOC (April 26, 2004) (Exhibit CDA-30); and Kalt 2004a, at 43-50 (Exhibit CDA-21). 
 
74 Preliminary AR Determination, 69 Fed. Reg., at 33,208-33,209 (Exhibit CDA-10); Final AR 
Determination, at 45-48 (Exhibit CDA-11). WT/DS257/RW 
Page A-24  
 
78. What follows is a brief summary of the reco rd evidence for each provi nce in both the section 
129 proceedings and the administrative review.   
A. British Columbia 
 79. In the section 129 proceeding, British Columbia provided the USDOC with a study by 
Norcon Forestry Ltd. and the accounting firm Pr icewaterhouseCoopers (“Norcon A”) of 74 sawmills 
representing approximately 53 per cent of the total volume of the Crown timber harvest, which reviewed thousands of log purchase transactions with  unrelated parties.  Norcon A was supplemented 
by a further study by Norcon Forestry Ltd. (“Norc on B”).  Norcon B demonstrated that 11.6 per cent 
of Crown logs consumed in B.C. sawmills were purchased from independent harvesters that held 
tenure.
75  These surveys also demonstrated that an add itional 6.2 per cent of Crown logs consumed in 
B.C. sawmills were purchased in arm’s-length sawmill-to-sawmill transactions.76  T h e  U S D O C  
accepted that the surveys controlled for affiliati on based on the affiliation standard under section 
771(33) of the Tariff Act of 1930 .77  In addition to providing the aggregate results of these surveys, 
British Columbia provided detailed transaction-specific  information on the thousands of transactions 
included in the surveys, including information on volu me, value, the types of logs sold, the purchaser 
and the seller, for both private and Crown log pur chases.  The company-specific evidence provided in 
these surveys was equivalent to the informati on the USDOC requested in its supplemental 
questionnaires and could have been used to calcula te pass-through using the USDOC’s price-to-price 
comparison methodology.78  British Columbia also provided hundreds of pages of sample log 
purchase agreements and tenure agreements, as well as  three economic studies demonstrating that the 
factors identified by USDOC do not alter the arm’ s-length nature of the transactions at issue. 
 80. British Columbia also commissioned Norcon For estry Ltd. to conduct an additional, larger 
survey of sawmills for the administrative review  (“Norcon C”).  Norcon C surveyed 132 sawmills, 
receiving responses that accounted for 87 per cent of the logs consumed by sawmills in 2002.
79  
Norcon C demonstrated that 20 per cent of logs consumed in sawmills were harvested from Crown 
lands and purchased from independent harvesters.80  In addition, British Columbia also provided 
evidence that 5.7 per cent of logs consumed in  sawmills were purchased in sawmill-to-sawmill 
transactions.81  In total, British Columbia demonstrated that a minimum of 25.7 per cent of logs 
harvested from Crown lands and consumed in sawm ills were purchased from unrelated parties during 
the period of review.82  The USDOC subsequently verified  the evidence contained in Norcon C.83   
                                                      
 75 Norcon A (Exhibit CDA-31), as revised in B.C. 15 September 2004 Supp. Pass-Through 
Questionnaire Response, at 2, note 1 (Exhibit CDA-32) and Norcon B, at 2 (Exhibit CDA-15).  
 76 Norcon A, at Appendix III (Exhibit CDA-31); Norcon B (Exhibit CDA-15).  Purchases under fibre 
exchange agreements were not within the scope of the surveys.  
77 Draft 129 Determination, at 10 (Exhibit CDA-6).  
 78 Norcon B (Exhibit CDA-15); and B.C. October 25, 2004 Supp. Pass-Through Questionnaire 
Response, Narrative, at BC-PT-22 and Exhibit BC-PT-55 (Exhibit CDA-25).  The public versions of Norcon B and Exhibit BC-PT-55 do not contain the company-specific eviden ce referred to, as it is business proprietary 
information that is not susceptible to public summarization. 
 
79 Norcon C (Exhibit CDA-29). 
 80 Ibid.; as amended in Letter from Steptoe & Johnson to USDOC (April 26, 2004) (Exhibit CDA-30).  
 81 Ibid. 
 82 Ibid.  As further corroboration of the substantial percenta ge of the B.C. harvest yielding logs traded 
in arm’s-length transactions, the record of the administ rative review also establishes that, over the past three 
years, between 26 and 30 per cent of  the logs from timber harvested on the B.C. Coast was sold through the 
Vancouver Log Market.  Simila rly, in the B.C. Interior, logs accounting for about 26 per cent of the total harvest 
were sold domestically rather than internally consum ed by integrated companies.  See B.C. 12 November 2003 
AR Questionnaire Response, Log Export Response at BC-LER-8, Exhibit BC-LER-1 (Exhibit CDA-33).  WT/DS257/RW 
 Page A-25 
 
 
 
B. Alberta 
 
81. Alberta used a computer database for the se ction 129 proceedings to  identify the volume of 
softwood logs sold by: (1) harvesters who did not  own sawmills; and (2) harvesters that did own 
sawmills but that did not supply these sawmills with  Crown logs from their own tenure.  Alberta 
provided this data to Pricewater houseCoopers, who conducted a confiden tial survey of the recipients 
of these logs.84  The confidential survey requested that the recipient sawmills identify whether each 
transaction was a purchase and whether the tran saction involved an unrelated vendor using the 
definition of “affiliated” found in section 771(33) of the Tariff Act of 1930 .  PricewaterhouseCoopers 
then used the survey results to  determine the volume of logs sold between unrelated parties.85  The 
report contained confidential company-specific da ta on the total qualifying transactions for each 
company broken down by vendors without sawmills  and vendors who were not selling from sawmill-
related tenures.86  Alberta demonstrated on this basis that there were some 730,618 cubic metres of 
arm’s-length transactions between unrelated entities.87   
 
82. Alberta also provided the USDOC in the admini strative review with evidence that 2,399,893 
cubic metres of logs were transf erred to sawmills from unrelated parties in the period of review.88  
Furthermore, Alberta demonstrated that some 1,724,826 cubic metres of logs moved from unrelated parties to the 15 largest lumber-producing mills.
89  Alberta indicated that these data likely represented 
both cash sales and other forms of transactions ( e.g., log swaps).  Alberta also provided evidence 
showing that a total of 1,513,171 cubic metres of logs were purchased in “cash transactions” by mills 
from unrelated entities, from both Crown and private sources.90 
 
C. Saskatchewan 
 83. In the section 129 proceeding, Saskatchewan  provided evidence that Forest Product Permit 
(“FPP”) licensees that did not own sawmills sold some 81,403 cubic metres of logs, which represented approximately 4.9 per cent of the Crown harvest in the period of investigation.
91  
Saskatchewan collected this ev idence through “woodflow reports” maintained in six sawmills as a 
condition of their tenure.92  These “woodflow reports” listed the source of all logs processed in these 
sawmills.  Saskatchewan also requ ested that sawmills identify whethe r they were related to these FPP 
                                                                                                                                                                     
 83 USDOC Memorandum from S. Moore to File, Countervailing Duty Administrative Review of 
Certain Softwood Lumber fr om Canada: Verification of the Norcon Fo restry Survey and the British Columbia 
Lumber Trade Council (BCLTC) Survey  (June 2, 2004) at 9-12 (Exhibit CDA-34). 
 84 Alberta September 15, 2004 Supp. Pass-Through Questionnaire Response, Exhibit AB-S-78; 
revising Alberta 21 May 2004 Pass-Through Questionnaire Response, Narrative at AB-2, Exhibit AB-S-75, and 
Exhibit AB-S-76 (Exhibit CDA-35).  The public versions of Exhibit AB-S-76 and Exhibit AB-S-78 do not contain the cited business proprietary information as  it is not susceptible to public summarization. 
 
85 As Alberta does not have a category for “sawlogs”, Alberta’s submissions use “Section 80/81” logs 
as a basket category of coniferous volume used to produce either lumber products, pulp or roundwood.  
 86 Alberta 15 September 2004 Supp. Pass-Through Questionnaire Response, AB-S-78; revising Alberta 
21 May 2004 Pass-Through Questionnaire Response, at Exhibit AB-S-76 (Exhibit CDA-35).  The public 
versions of Exhibit AB-S-76 and Exhibit AB-S-78 do not contain the cited information as it is business proprietary and not susceptible to public summarization. 
 
87 Ibid.  
 88 See Government of Alberta Verification Exhibit GOA-6, Amended Table 50 (18 April2004) (Exhibit 
CDA-36).  
 89 Government of Alberta Verification Exhibit GOA-7, Amended Table 59 (Exhibit CDA-37).  
 90 See Bearing Point, Timber Damage Assessment (TDA) Table – 2003 Update  (17 October 2003), at 9, 
submitted in Alberta 12 November 2003 AR Questionnaire Response, Exhibit AB-S-69 (Exhibit CDA-38). 
 91 Saskatchewan 21 May 2004 Pass-Through Questionnaire Response, at SK-1, Exhibit SK-S-29 
(Exhibit CDA-39).  The public version of Exhibit SK-S-29 does not contain the cited business proprietary 
information as it is not susceptible to public summarization. 
 92 Saskatchewan May 21, 2004 Pass-Through Questionnaire Response, at SK-3-4 (Exhibit CDA-39). WT/DS257/RW 
Page A-26  
 
licensees.  Saskatchewan and We yerhaeuser also provided additiona l company-specific evidence to 
the USDOC in response to the supplemental questionnaires.
93 
 84. Saskatchewan provided evidence concerning tr ansactions between independent harvesters and 
unrelated sawmills in the administrative review.  In particular, this evidence demonstrated that 
licensees that did not hold a license to operate sawmills harvested 173,766 cubic metres of Crown 
timber during the period of review.
94  Saskatchewan also submitted business proprietary evidence that 
demonstrated that at least 3.8 per cent of the soft wood logs were sold by independent harvesters to 
unrelated sawmills.  D. Manitoba 
 
85. Manitoba provided evidence during the secti on 129 proceeding that some 48,100 cubic metres 
or 8.7 per cent of timber harvested from Crown la nd was sold by Timber Sales Agreement (“TSA”) 
licensees that did not own sawmills.
95  Manitoba requested that these TSA licensees provide 
certification of:  (1) the volume of their Crown harvest; (2) the identity of the purchasing sawmills; 
and (3) whether they were related to the purchasing sawmills.96   
 86. In the administrative review, Manitoba demonstrated that “independent loggers,” i.e., those 
TSA licensees and Quota holders that did not ow n sawmills, harvested 61,583 cubic metres or 
4.45 per cent of the total Crown harvest of logs in the period of review.
97   
 
E. Ontario 
 
87. Ontario provided the USDOC with the request ed pass-through data for the total value and 
volume of Crown timber entering the 25 largest sa wmills from independent harvesters that accounted 
for 91.3 per cent of all Crown softwood timber in the section 129 proceeding.98  Furthermore, these 
sawmills certified that these tran sactions occurred with unrelated tenure holders and provided the 
USDOC with the relevant certifications for specific sales.  On this basis, Ontario determined that 
17.75 per cent of Crown logs were sold at arm’s length.99  The Ontario Forest Industries Association 
and the Ontario Lumber Manufacturers Association also provided extensive transaction specific 
                                                      
 93 Weyerhaeuser 16 September 2004 Supp. Pass-Through Questionnaire Response (Exhibit CDA-40); 
and Weyerhaeuser26  October 2004 Supp. Pass-Through Questionnaire Response (Exhibit CDA-41). 
 94 Saskatchewan 12 November 2003 AR Questionnaire Response, at SK-34-35 (Exhibit CDA-42).   
 95 Manitoba 21 May 2004 Pass-Through Questionnaire Response, Exhibit MB-S-38 (Exhibit CDA-43); 
as revised in Manitoba September 15, 2004 Supp. Pass -Through Questionnaire Response, Revised Exhibit MB-
S-38 (Exhibit CDA-44). 
 96 Manitoba 21 May 2004 Pass-Through Questionnaire Response, at MB-1 (Exhibit CDA-43).  Tembec 
(Manitoba) the largest of the independent harvesters acco unting for 51 per cent of this volume also completed 
the USDOC Pass-Through Appendix.  See Response of Tembec  (Manitoba) to the US Department of 
Commerce 17 August 2004 Supplemental Questionnaire “Pass-Through Appendix” (16 September 2004) (Exhibit CDA-45); and Response of Tembec (Manitoba) to the US Department of Commerce 5 October 2004 
Second Supplemental Questionnaire “Supplemental Pass-Through Appendix” (25 October 2004) (Exhibit CDA-
46).  In its final section 129 determination, the USDOC wrongly excluded all of these transactions on the basis that they occurred outside the period of investigation.  See Draft Section 129 Determination, at 12 (Exhibit 
CDA-6).   
 
97 Manitoba 12 November 2003 AR Questionnaire Response, Narrative at MB-16, Exhibits MB-S-2 
and MB-S-4b (Exhibit CDA-47).   
 98 See Ontario 21 May 2004 Pass-Through Questionnaire Response, Narrative at ON-2, Exhibit ON-
PASS-1, Exhibit ON-PASS-3 (Exhibit CDA-48).  The data provided to the USDOC were drawn directly from 
the TREES database maintained by the Ontario Ministry  of Natural Resources (“MNR”).  This MNR database 
was carefully examined and verified by the USDOC during the period of investigation, as it contains all the needed independent harvester and sawmill-specific sales data for this timeframe.   
 
99 Ibid.  The 17.75 per cent is a subsequent revision to the 18.12 per cent referred to in the Ontario 
21 May 2004 Pass-Through Questionnaire Response.   WT/DS257/RW 
 Page A-27 
 
 
evidence, sales documentation, and other documen ts supporting the absence of pass-through of 
benefit in the data supplied by  the Government of Ontario.100   
 88. In the first administrative review, On tario provided evidence demonstrating that 
approximately 6,465,085 cubic metres (or 42 per cent of the total timber harvested from Crown land) 
was harvested by independent harvesters.
101  In addition, in response to the USDOC’s request at 
verification, Ontario provided detailed evidence c oncerning the largest 25 sawmills in Ontario log 
purchases from unrelated tenure holders during the period of review.102  As the USDOC verified, 
those 25 sawmills purchased 31 per cent or 4,391, 708 cubic metres of Crown softwood logs from 
unrelated tenure holders.103  The 4,391,708 cubic metres of Crown softwood logs from unrelated 
tenure holders equal 29 per cent of the total Crow n softwood volume harvested during the period of 
review. 
                                                      
 100 OFIA/OLMA 16 September 2004 Supp. Questionnaire Response (Exhibit CDA-49) and 
OFIA/OLMA 25 October 2004 Supp. Questionnaire Response (Exhibit CDA-50). 
 101 See Letter from Hogan & Hartson to USDOC, Certain Softwood Lumber Products from Canada : 
Service of Government of Ontario Verification Exhi bits on Petitioner’s Counsel (6 April 2004), Minor 
Corrections, at 16-127 (Exhibit CDA-51 ).  The “Minor Corrections” verification exhibit is not included in 
Exhibit CDA-51 as it contains business proprietary informa tion that is not susceptible to public summarization.  
See also Letter from Hogan & Hartson to USDOC, Certain Softwood Lumber Products from Canada : Factual 
Submission (15 March 2004), Exhibit 9 (final version of Exhibit ON-STATS-1) (Exhibit CDA-52).   
 102 See Letter from Hogan & Hartson to USDOC, Certain Softwood Lumber Products from Canada : 
Service of Government of Ontario Verification Exhib its on Petitioner’s Counsel (6 April 2004), Ownership 
Interest Data, at 4750-4760 (Exhibit CDA-51).  The “Ownership Interest Data” verification exhibit is not 
included in Exhibit CDA-51 as it contains business proprietary information that is not susceptible to public summarization.  See also ibid., Minor Corrections, at 16-127 and Letter from Hogan & Hartson to USDOC, 
Certain Softwood Lumber Products from Canada : Factual Submission (March 15, 2004), Exhibit 9 (final 
version of Exhibit ON-STATS-1) (Exhibit CDA-52).  
 
103 See Letter from Hogan & Hartson to USDOC, Certain Softwood Lumber Products from Canada : 
Service of Government of Ontario Verification Exhib its on Petitioner’s Counsel (6 April 2004), Ownership 
Interest Data, at 4756 (Exhibit CDA-51).  WT/DS257/RW 
Page A-28  
 
TABLE OF EXHIBITS 
CDA-1 “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, 928, 1022-1027 . 
CDA-2  Uruguay Round Agreements Act , Pub. L. No. 103-465, § 129, 108 Stat. 4838, codified 
at 19 U.S.C. § 3538 (2000). 
CDA-3 Letter from USDOC to Embassy of Cana da, Certain Softwood Lumber Products from 
Canada:  WTO “Pass-Through” Questionnaire (14 April 2004). 
CDA-4 Letter from Weil, Gotshal & Manges to USDOC, Certain Softwood Lumber from 
Canada : WTO Implementation Questionnaire Response Concerning Pass-Through of 
Alleged Benefit (16 September 2004). 
CDA-5 USDOC Memorandum from J. Jochum to B. Tillman, Section 129 Determination:  
Final Countervailing Duty Determination,  Certain Softwood Lumber from Canada  
(6 December 2004). 
CDA-6 USDOC Memorandum from J. Jochum to J. May, Draft Decision Memorandum, 129 
Proceeding for the WTO Appellate Body finding in the Final Countervailing Duty 
Determination, Certain Softwood Lumber from Canada  (19 November 2004). 
CDA-7  Notice of Implementation under Section 129 of the Uruguay Round Agreements Act: 
Countervailing Measures concerning C ertain Softwood Lumber Products from 
Canada , 69 Fed. Reg. 75,305 (Dep’t. Commerce 16 December 2004). 
CDA-8  Notice of Final Results of Countervailing Duty Administrative Review and Recission 
of Certain Company-Specific Reviews:  Certain Softwood Lumber Products from 
Canada , 69 Fed. Reg. 75,917 (Dep’t Commerce 20 December 2004). 
CDA-9 Letter from USDOC to Embassy of Canada, Countervailing Duty Administrative 
Review:  Certain Softwood Lumber Products from Canada  (12 September 2003), 
attaching Questionnaire for the Province of Alberta, Questions III (J), (K), and (L), at 
III-6; Questionnaire for the Province of Britis h Columbia, Questions III (K), (L), and 
(M), at IV-7; Questionnaire for the Province of Manitoba, Questions III, (D), (E) and 
(F), at V-5;  Questionnaire for the Province of Ontario, Questions III, (K) and (L), at 
VI-6; and Questionnaire for the Province of Saskatchewan, Questions III, (D), (E) and (F), at VIII-4-5. 
CDA-10  Notice of Preliminary Results of Counterva iling Duty Administrative Review: Certain 
Softwood Lumber from Canada , 69 Fed. Reg. 33,204 (Dep’t Commerce 
14 June 2004)  WT/DS257/RW 
 Page A-29 
 
 
CDA-11 USDOC Memorandum from B.E. Tillman to J.J. Jochum, Issues and Decision 
Memorandum: Final Results of Administra tive Review: Certain Softwood Lumber 
from Canada , C-122-839 (13 December 2004). 
CDA-12  New Shorter Oxford English Dictionary  (Oxford: Clarendon Press, 1993) at 1985 
(“offset”). 
CDA-13 Response of the Government of Al berta to the Department’s 14 April 2004 
Questionnaire Concerning Pass Through of  Alleged Benefits (21 May 2004), 
Narrative at AB-1 – AB-7. 
CDA-14 Response of the Government of Al berta to the Department’s 17 August 2004 
Supplemental Questionnaire Concerning Pass Through of Alleged Benefits 
(15 September 2004), Narrative at 1. 
CDA-15 Response of the Government of British Columbia to the Department’s 
17 August 2004 Supplemental Questionnair e Concerning Pass Through of Alleged 
Benefits (15 September 2004), Narra tive at 5 and Exhibit BC-PT-40. 
CDA-16 USDOC Memorandum from B.T. Carreau to F. Shirzad, Issues and Decision 
Memorandum: Final Results of the Countervailing  Duty Investigation of Certain 
Softwood Lumber Products from Canada , (21 March 2001) at 15. 
CDA-17  Tariff Act of 1930, § 771(33), codified at  19 U.S.C § 1677(33) (2000). 
CDA-18  New Shorter Oxford English Dictionary  (Oxford: Clarendon Press, 1993) at 114 (“at 
arm’s length… (of dealings) with neither party controlled by the other”) 
CDA-19  Black’s Law Dictionary , 6th ed. (St. Paul, Minn.: West, 1990) at 109 (“arm’s-length 
transaction”). 
CDA-20 J.P. Kalt and D. Reishus, Economics of Arms’s Lengt h Transactions and Subsidy 
Pass-Through , submitted as Response of the Government of British Columbia to the 
Department’s 17 August 2004 Supplemental  Questionnaire Concerning Pass Through 
of Alleged Benefits (15 Sept ember 2004), Exhibit BC-PT-39. 
CDA-21 J.P. Kalt and D. Reishus, Statement for the First Administrative Review , Attachment 1 
to Letter from British Columbia Lumber Trade Council to USDOC (15 March 2004). 
CDA-22 Letter from Weil, Gotshal & Manges to USDOC, Certain Softwood Lumber from 
Canada:  Comments on Draft Section 129 Determination  (26 November 2004). WT/DS257/RW 
Page A-30  
 
CDA-23 Letter from USDOC to Embassy of Canada, Certain Softwood Lumber Products from 
Canada:  WTO Supplemental “Pass-Through” Questionnaire  (17 August 2004). 
CDA-24 Letter from USDOC to Embassy of Canada, Certain Softwood Lumber Products from 
Canada:  Second WTO Supplemental “Pass-Through” Questionnaire  
(5 October 2004). 
CDA-25 Response of the Government of British Columbia to the Department’s 
5 October 2004 Supplemental Questionnaire  Concerning Pass Through of Alleged 
Benefits (25 October 2004), Narrativ e at BC-PT-22 and Exhibit BC-PT-55. 
CDA-26  Initiation of Antidumping and Count ervailing Duty Administrative Reviews and 
Request for Revocation in Part , 68 Fed. Reg. 39,055 (Dep’t Commerce 1 July 2003). 
CDA-27  Certain Softwood Lumber Products from Canada: Extension of Time Limit for 
Preliminary Results of Counterva iling Duty Administrative Review , 69 Fed. Reg. 
2,568 (Dep’t Commerce 16 January 2004). 
CDA-28 Letter from Weil, Gotshal & Manges to USDOC, Certain Softwood Lumber from 
Canada : First Administrative Review, Pass-Through of Benefit to Arm’s-Length 
Purchasers of Log and Lumber Inputs (24 May 2004). 
CDA-29 Norcon Forestry Ltd., Survey of Primary Sawmills’ Arm’s Length Log Purchases in 
British Columbia  (15 March 2004), submitted with Letter from Steptoe & Johnson to 
USDOC (15 March 2004). 
CDA-30 Letter from Steptoe & Johnson to USDOC (26 April 2004), recording minor 
corrections to the Norcon Arm’s Length Log Survey . 
CDA-31 Response of the Government of British Co lumbia to the Department’s 14 April 2004 
Questionnaire Concerning Pass Through of Alleged Benefits (21 May 2004), Exhibit 
BC-PT-18 (Letter from Steptoe & Johnson to Akin, Gump, Strauss, Hauer & Feld 
(20 May 2004) attaching Survey of Primary Sawmills’ Arm’s Length Log Purchases 
In the Province of British Columbia  filed with Letter from Steptoe & Johnson to US 
Department of Commerce (21 December 2001)). 
CDA-32 Response of the Government of British Columbia to the Department’s 
17 August 2004 Supplemental Questionnair e Concerning Pass Through of Alleged 
Benefits (15 September 2004), Narrative at 2, note 1. 
CDA-33 Response of the Government of British Columbia to the Department’s 
12 September 2003 Questionnaire (12 N ovember 2003), Log Export Response 
Narrative at BC-LER-7 – BC-LER-9 and Exhibit BC-LER-1.  WT/DS257/RW 
 Page A-31 
 
 
CDA-34 USDOC Memorandum from S. Moore to File, Countervailing Duty Administrative 
Review of Certain Softwood Lumber from Canada: Verification of the Norcon 
Forestry Survey and the British Columbia Lumber Trade Council (BCLTC) Survey  
(2 June 2004) at 9-12. 
CDA-35 Response of the Government of Al berta to the Department’s 14 April 2004 
Questionnaire Concerning Pass Through of Alle ged Benefits (21 May 2004) at AB-2-
3, Exhibit AB-S-75, Exhibit AB-S-76, and Exhibit AB-S-78. 
CDA-36 Government of Alberta Verifi cation Exhibit GOA-6, Amended Table 50 
(18 April 2004). 
CDA-37 Government of Alberta Verification Exhibit GOA-7, Amended Table 59. 
CDA-38 Bearing Point, Timber Damage Assessment (TDA) Table – 2003 Update  
(17 October 2003), submitted in Response of  the Government of Alberta to the 
Department’s 12 September 2003 Questionna ire (12 November 2003), Exhibit AB-S-
69. 
CDA-39 Response of the Government of Saskatch ewan to the Department’s 14 April 2004 
Questionnaire Concerning Pass Through of  Alleged Benefits (21 May 2004), 
Narrative at SK-1 – SK-5 and Exhibit SK-S-29. 
CDA-40 Response of Weyerhaeuser Company to the Department’s 14 April 2004 
Questionnaire Concerning Pass Through of Alleged Benefits (16 September 2004). 
CDA-41 Response of Weyerhaeuser Company to the Department’s Second WTO 
Supplemental Pass-Through Questionnaire (26 October 2004). 
CDA-42 Response of the Government of Saskatchewan to the Department’s 
12 September 2003 Questionnaire (12 November  2003), Narrative at SK-34 – SK-35.   
CDA-43 Response of the Government of Ma nitoba to the Department’s 14 April 2004 
Questionnaire Concerning Pass Through of  Alleged Benefits (21 May 2004), 
Narrative at MB-1, Exhibit MB-S-38. 
CDA-44 Response of the Government of Ma nitoba to the Department’s 17 August 2004 
Supplemental Questionnaire Concerning Pass Through of Alleged Benefits 
(15 September 2004), Revised Exhibit MB-S-38. 
CDA-45 Response of Tembec  Inc. (Manitoba) to the Department’s 17 August 2004 
Questionnaire Concerning Pass Through of Alle ged Benefits (16 September 2004), at 
1-7. WT/DS257/RW 
Page A-32  
 
CDA-46 Response of Tembec Inc. (Manitoba) to the Department’s 5 October 2004 Second 
Supplemental Questionnaire Concerning Pass-Through of Alleged Benefits 
(25 October 2004), Narrative, at 1-2 and Attachments A and B. 
CDA-47 Response of the Government of Manit oba to the Department’s 12 September 2003 
Questionnaire (12 November 2003), Narrative at MB-14 – MB-16, Exhibit MB-S-2 
and Exhibit MB-S-4b.  
CDA-48 Response of the Government of On tario to the Department’s 14 April 2004 
Questionnaire Concerning Pass Through of  Alleged Benefits (21 May 2004), 
Narrative at ON-1 - ON-2, Exhibit ON-PASS-1 and Exhibit ON-PASS-3. 
CDA-49 Response of the Ontario Forest Indu stries Association and the Ontario Lumber 
Manufacturers Association on behalf of th eir members to the Department’s August 
17, 2004 Questionnaire Concerning P ass Through of Alleged Benefits 
(16 September 2004). 
CDA-50 Response of the Ontario Forest Indu stries Association and the Ontario Lumber 
Manufacturers Association on behalf of their members to the Department’s 
5 October 2004 2
nd Supplemental Questionnaire Concerning Pass Through of Alleged 
Benefits (26 October 2004). 
CDA-51 Letter from Hogan & Hartson to USDO C, Certain Softwood Lumber Products from 
Canada: Service of Government of Onta rio Verification Exhibits on Petitioner’s 
Counsel (6 April 2004). 
CDA-52 Letter from Hogan & Hartson to USDOC, Certain Softwood Lumber Products from 
Canada : Factual Submission (15 March 2004), Exhibit 9 (final version of Exhibit 
ON-STATS-1).  WT/DS257/RW 
 Page A-33 
 
 
 ANNEX A-2 
 
RESPONSE OF CANADA TO THE REQUEST 
BY THE UNITED STATES FOR PRELIMINARY RULINGS 
AND REBUTTAL SUBMISSION OF CANADA  
 
31 March 2005 
 
 
TABLE OF CONTENTS 
 
I. INTRODUCTION ............................................................................................................. 35 
 
II. RESPONSE OF CANADA TO THE RE QUEST BY THE UNITED STATES........... 35 
 FOR PRELIMINARY RULINGS 
 
 A. Article 21.5 of the DSU Establishes a Broad Scope for Review ............................ 35 
 
 B. The Final Results of the Administra tive Review Are within the Panel’s ............ 36 
  Jurisdiction of the Panel under Article 21.5 Because They Rendered    Non-Existent Any Purported Compliance Achieved in the    Section 129 Determination  
 C. The Final Results of the Administrati ve Review Are Inextricably Linked.......... 37 
  to the Recommendations and Rulin gs of the DSB and Are Therefore  
  “Measures Taken to Comply ” 
 
 D. The US Request to Exclude the Final Results of the Administrative Review ..... 40 
  from the Panel’s Jurisdiction Igno res the Purpose of Compliance Proceedings 
 
III. REBUTTAL SUBMISSION OF CANADA.................................................................... 41 
 A. The Five “Factors” Used by th e USDOC to Disregard Arm’s-Length ................ 42 
  B. The USDOC Improperly Relied on  Log Import Transactions in .................... 43 
  Performing Its Pass-Through Analysis  
 C. US Arguments Concerning Sawmill -to-Sawmill Transactions Have .............. 44 
  No Basis in the Findings of Either th e Original Panel or the Appellate Body 
 
IV. CONC LUSION ................................................................................................................. .45 
 
 WT/DS257/RW 
Page A-34  
 
 TABLE OF CASES CITED IN THIS SUBMISSION 
 
Panel Report United States – Final Countervailing Duty Determination With 
Respect to Certain Softwood Lumber from Canada , Report of the 
Panel, WT/DS257/R, adopted 17 February 2004. 
Appellate Body Report United States – Final Countervailing Duty Determination With 
Respect to Certain Softwood Lumber from Canada , Report of the 
Appellate Body, WT/DS257/AB/R, adopted 17 February 2004.  
Australia – Automotive Leather II 
(Article 21.5 – US)  Australia – Subsidies Provided to Producers and Exporters of 
Automotive Leather – Recourse to Article 21.5 of the DSU by the United States , Report of the Panel, WT/DS126/RW and Corr. 1, 
adopted 11 February 2000.   
Australia – Salmon 
(Article 21.5 – Canada) Australia – Measures Affecting the Importation of Salmon – Recourse 
to Article 21.5 of the DSU by Canada , Report of the Panel, 
WT/DS18/RW, adopted 20 March 2000.  
Canada – Aircraft (Article 21.5 – 
Brazil)  Canada – Measures Affecting the Export of Civilian Aircraft – 
Recourse by Brazil to Article 21.5 of the DSU , Report of the 
Appellate Body, WT/DS70/AB/RW, adopted 4 August 2000. 
Chile – Price Band System  Chile – Price Band System and Safeguard Measures Relating to 
Certain Agricultural Products , Report of the Appellate Body, 
WT/DS207/AB/R, adopted 23 October 2002. 
Dominican Republic – Cigarettes Dominican Republic – Measures Affecting the Importation and 
Internal Sale of Cigarettes, Report of the Panel, WT/DS302, issued 
26 November 2004 (under appeal). 
EC – Bed Linen (Article 21.5 – India), 
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 , Report of the Panel, WT/DS141/RW, adopted 24 April 2003. 
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 , Report of the Appellate Body, WT/DS141/AB/RW, adopted 
24 April 2003. 
US – Shrimp (Article 21.5 – Malaysia United States – Import Prohibition of Certain Shrimp and Shrimp 
Products – Recourse to Article 21.5 of the DSU by Malaysia , Report 
of the Appellate Body, WT/DS58/AB/RW, adopted 21 November 2001.  
  WT/DS257/RW 
 Page A-35 
 
 
 I. INTRODUCTION 
 
1. In this submission, Canada addresses the argu ments made by the United States in two parts.  
First, Canada responds to the request  by the United States for a preliminary ruling that the final results 
of the administrative review fall outside the jurisdicti on of the Panel in this dispute.  Second, Canada 
rebuts the few assertions the United States makes in its first written submission. 
 2. For the reasons set out in this submission, Canada requests that the Panel reject the US 
request as being without merit, and determine that the final results of the administrative review are 
properly reviewable under Article 21.5 of the Understanding on Rules and Procedures Governing the 
Settlement of Disputes (“DSU”).  Canada also requests that th e Panel reject the US assertion that the 
US Department of Commerce (“USDOC”) conducted proper pass-through analyses. 
 
II. RESPONSE OF CANADA TO THE REQUEST BY THE UNITED STATES FOR 
PRELIMINARY RULINGS 
 3. The request by the United States for a preliminar ily ruling in this dispute is a request that the 
Panel insulate the US imposition of counterva iling measures on softwood lumber from compliance 
under the WTO Agreement.  The Panel should reject th is request as being without legal basis, and as 
running contrary to the very purpose of the dispute settlement system.  
4. First, the final results of the administrative  review are properly before the Panel because they 
rendered the pass-through analyses and resulting adjustment provided in the section 129 determination non-existent.  There is no support in the DSU for the US contention that a panel may 
not review, under Article 21.5, measures that undo clai med “measures taken to comply”.  Article 21.5 
requires the Panel in this case to determine the “exis tence” of any measure taken by the United States 
to bring the imposition of its countervailing duty into compliance with the recommendations and 
rulings of the Dispute Settlement Body (“DSB”) on pass-through.  5. Second, the administrative review results are within the jurisdiction of the Panel under 
Article 21.5 of the DSU because, like the section 129 determination, these results are inextricably 
linked to the recommendations and rulings of the DSB in this case. In both measures, the USDOC 
purports to bring its countervailing duty on softwood lu mber into conformity with its obligations to 
conduct pass-through analyses; in both measures, it s treatment of the pass-through issue and record 
evidence is nearly identical.   6. Third, the US request runs contrary to  the very purpose of Article 21.5 compliance 
proceedings.  If the US position were to prevail,  Canada would be required to bring an absurd 
multiplicity of “new” dispute settlement cases on the sa me issue, involving the same claims, to secure 
the same recommendations and rulings from the DSB.   Acceding to the request would preclude any 
“prompt settlement of situations” under Article 3.3,  “positive solution to a dispute” under Article 3.7, 
or “prompt compliance” under Article 21.1 of the DSU.  Acceptance of the US position would allow 
the United States to evade compliance with DSB rulings in perpetuity, frustrating the very purpose of 
the DSU. 
 
 A. Article 21.5 of the DSU Establishes a Broad Scope for Review 
 
7. Article 21.5 of the DSU provides for expedited dispute settlement procedures to ensure full 
implementation of recommendations and rulings of the DSB: 
 
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 WT/DS257/RW 
Page A-36  
 
 dispute shall be decided through recourse to these dispute settlement procedures, 
including wherever possible resort to the original panel. . . .  
8. The ordinary meaning of the phrase “measures take n to comply,” read in context and in light 
of the object and purpose of Article 21 and of the DSU as a whole, provides the Panel with wide discretion to examine whether a Member has compli ed with the recommendations and rulings of the 
DSB. The Appellate Body in Canada – Aircraft (Article 21.5 – Brazil)  confirmed that the scope of 
Article 21.5 is to be interpreted broadly:  
[T]he phrase “measures taken to comply” refers to measures which have been, or 
which should be , adopted by a Member to br ing about compliance with the 
recommendations and rulings of the DSB.
1  
9. An Article 21.5 panel is therefore not limit ed to examining only those measures that an 
implementing Member claims to have been “taken to comply”.  As the United States itself has 
recognized, it is for the Panel alone to de termine the “measures taken to comply”.2  It is also for the 
Panel to determine whether such measures exist and,  if so, whether they are consistent with the 
implementing Member’s WTO obligations. 
 
 B. The Final Results of the Administrative Review Are within the Panel’s 
Jurisdiction of the Panel under Article 21.5 Because They Rendered Non-Existent Any Purported Compliance Achi eved in the Section 129 Determination 
 
10. In its request for a preliminary ruling, the Un ited States fails to address the fact that the final 
results of the administrative review rendered non- existent, the limited pass-through analysis and 
resulting adjustment provided in the section 129 determination.  11. As explained in Canada’s fi rst written submission, the USDOC failed to perform appropriate 
pass-through analysis for the log transactions  identified in the administrative review.
3  The USDOC 
therefore presumed, rather than demonstrated,  the full pass-through of a benefit in arm’s-length 
transactions.4  Accordingly, on 20 December 2004, the date on which the final results of the 
administrative review came into force, the US DOC nullified the pass-through analysis and resulting 
adjustment it provided in the section 129 determination.5 
 
12. It is an uncontested fact that the final results  of the administrative review rendered ineffective 
the pass-through analysis and adjustment under th e section 129 determination.  Consequently, the 
final results of the administrative review are an in tegral part of the Panel’s determination “as to the 
existence … of measures taken to comply” under Article 21.5 of the DSU.6  
 
                                                      
 1 Canada – Aircraft (Article 21.5 – Brazil) , at para. 36 [emphasis added]. (“[I]n principle, there would 
be two separate and distinct measures:  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.”) [emphasis in original] 
 2 US First Submission and Request for Preliminary Rulings, at para. 14. See also EC – Bed Linen 
(Article 21.5 – India) Appellate Body Report, at para. 78 (“We agree with the Panel that it is, ultimately, for an 
Article 21.5 panel – and not for the complainant or the re spondent – to determine which of the measures listed in 
the request for its establishment are ‘measures taken to comply’.”). 
 3 First Written Submission of Canada, at paras. 53-60. 
 4 Ibid., at paras. 3-5. 
 5 Ibid., at paras. 28, 68. 
 6 An examination of the “existence” of something, according to the ordinary meaning of that term, 
includes assessing “Reality, as  [opposed] to appearance” and establishing “[t]he fact or state of existing”.  The 
New Shorter Oxford English Dictionary  (Oxford:  The Clarendon Press, 1993), at 882. (Exhibit CDA-53)  WT/DS257/RW 
 Page A-37 
 
 
 13. The Appellate Body in EC – Bed Linen (Article 21.5 – India)  explained that the mandate of a 
compliance panel under Article 21.5 includes examini ng the existence of “measures taken to comply” 
and that such an examination is not limited to th e factual circumstances or legal issues addressed in 
the original panel proceedings:  
We addressed the function and scope of Artic le 21.5 proceedings for the first time in 
Canada – Aircraft (Article 21.5 – Brazil) .  (…) We explained there that the mandate 
of Article 21.5 panels is to examine either the “existence” of “measures taken to comply” or, more frequently, the “ consistency with a covered agreement ” of 
implementing measures. This implies that an  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.
7 
14. In Australia – Leather II (Article 21.5 – US) , the United States itself argued that measures that 
undo implementation appropriately fall within  the scope of Article 21.5 of the DSU: 
 
Under Article 21.5, this panel is  to consider “the existence or consistency with a covered 
agreement of measures taken to comply with th e recommendations and rulings.”  Plainly, if 
this Panel can determine the “existence” of measures taken to comply with the 
recommendations, it can consider whether the measures purportedly taken to comply were 
effectively rendered non-existent.8 
 
15. As discussed, the compliance panel in that  case found the government replacement loan at 
issue was within their terms of reference under Article 21.5 of the DSU.  16. The panel in EC – Bed Linen (Article 21.5 – India)  shared the view that the scope of 
Article 21.5 is wide.  In declining to include certa in EC measures in its compliance review, that panel 
specifically noted that India “does not argue that  the subsequent two measures undo the compliance 
effectuated by the first measure.”
9 
 17. Because the final results of the administ rative review undo the pass-through analysis and 
resulting adjustment provided in the section 129 dete rmination, the final results are properly before 
the Panel. 
 
 C. The Final Results of the Administrati ve Review Are Inextricably Linked to the 
Recommendations and Rulings of the DSB and Are Therefore “Measures Taken 
to Comply” 
 
18. The final results of the administrative review are properly before the Panel also 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”.  
                                                     
 
 7 EC – Bed Linen (Article 21.5 – India) , Appellate Body Report, at para. 79 [italics in original]. 
 8 Australia – Automotive Leather II (Article 21.5 – US) , Annex 1-2, at para. 30. See also Third Party 
Submission of China, at paras. 12-18. 
 9 EC – Bed Linen (Article 21.5 – India) , Panel Report, at  para. 6.21. See also Third Party Submission 
of the European Communities, at para. 26, citing Dominican Republic – Cigarettes , at paras. 7.11-7.21 (“The 
Panel also considers it necessary to examine Law 2-04 to secure a positiv e solution to the matter mandated to 
this Panel since Decree 636-03 has b een replaced by Law 2-04.”); and, e.g., Chile – Price Band System , at 
para. 144. (“[A] complaining party should not have to adjust its pleadings throughout dispute settlement 
proceedings in order to deal with a di sputed measure as a ‘moving target’.”) WT/DS257/RW 
Page A-38  
 
 19. As explained in Canada’s first written submission, the treatment by USDOC of the pass-
through issue in the final results of its administra tive review is nearly identical to its section 129 pass-
through determination.
10  The USDOC reproduced in the former the discussion of the five “factors” 
from the latter nearly word for word.11  Moreover, these discussions apply to the same Canadian 
exports over the same period.  In addition, the USDOC published preliminary results for the 
administrative 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 recommendations 
and rulings.12 
 20. The United States, recognizing the complete iden tity of issues in both determinations and the 
relevance of their timing, is left with arguing before the Panel that form ought to prevail over 
substance.  The United States argues that assessment reviews and original investigations are different 
proceedings, and that while the administrative revi ew attempted to address the pass-through issue, the 
review itself was initiated prior to the recommendations and rulings of the DSB.
13  In doing so, the 
United States ignores the fact that, under US la w, the USDOC may implement the recommendations 
and rulings of the DSB concerning an original in vestigation through a subsequent administrative 
review.14 
 21. Article 21.5 of the DSU requires a compliance panel to examine the substance of a Member’s 
measures notwithstanding any argument that the fo rm of the measures could preclude compliance 
review. In Australia – Automotive Leather II (Article 21.5 – US) , for example, the panel rejected 
Australian claims that a government loan issued to an automotive leather producer as a replacement 
measure for a previous grant, which the DSB ha d recommended be withdrawn, was not a measure 
“taken to comply”.  The panel confirmed that th e subsequent loan was within its jurisdiction to 
examine under Article 21.5 of the DSU because it w as “inextricably linked to the steps taken by 
Australia in response to the DSB’s ruling in this di spute, in view of both its timing and its nature.”
 15 
 
                                                      
 10 First Written Submission of Canada, at para. 33. 
 11 Compare USDOC Memorandum from J. Jochum to B. Tillman, Section 129 Determination: Final 
Countervailing Duty Determination, Certain Softwood Lumber from Canada  (6 December 2004), at 5-7 
(Exhibit CDA-5) with Issues and Decision Memorandum: Final Results of Administrative Review: Certain 
Softwood Lumber from Canada , C-122-839 (13 December 2004),  at 46-47 (Exhibit CDA-11). 
 12 First Written Submission of Canada, at paras. 31, 33-34. The USDOC also recognized that 
arguments from the Canadian respondents regarding the need to conduct pass-through analyses were based on 
the recommendations and rulings of the DSB in this respect. See Issues and Decision Memorandum: Final 
Results of Administrative Review: Certain Softwood Lumber from Canada , C-122-839 (13 D ecember 2004), at 
43 (Exhibit CDA-11). (“They argue that, in accordance with recent WTO Appellate Body and Panel findings, 
the Department should conduct a pass-through analysis of logs purchased at arm’s length by lumber producers 
to determine whether the alleged subsidy to timber harv esters from provincial stumpage benefited those lumber 
producers.”) 
 13 US First Submission and Request for Preliminary Rulings, at paras. 21-23. 
 14 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 
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 new determinations in response to a WTO report, new determinations may not be 
necessary in all situations.  In many instances, such as those in which a WT O 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.”) 
 
15 Australia – Automotive Leather II (Article 21.5 –US) , at para. 6.5. (“In our view, the [new] 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.”)  WT/DS257/RW 
 Page A-39 
 
 
 22. In Australia – Salmon (Article 21.5 – Canada) , the panel was faced with a sub-national ban 
on certain imported Canadian salmon products, wh ich was introduced subsequent to national 
measures that Australia declared were taken to co mply.  Australia argued that the sub-national ban 
was not a measure “taken to comp ly” within the meaning of Article 21.5 of the DSU.  The panel 
rejected the Australian argument, reasoning 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” .
16  
23. The United States avoids such rationale and attempts to shield its administrative review 
results from examination by the Panel by selectively quoting from the panel findings in EC – Bed 
Linen (Article 21.5 – India) .17  The US reliance on EC – Bed Linen (Article 21.5 – India) , however, is 
misplaced.  As the EC notes in its third party submi ssion, 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 they did not deal with the subject ma tter upon which the DSB had made recommendations 
and rulings.18  Indeed, the panel expressly noted that “[t]he  situation might be di fferent had there been 
a claim in the original dispute challenging the cu mulative assessment of the effects of imports from 
India, Egypt, and Pakistan.”19 
 24. The United States also attempts to confuse th e issue by claiming that an Article 21.5 panel 
does not have jurisdiction to evaluate USDOC tr eatment of additional record evidence concerning 
exports subject to a US definitive countervailing duty.
20 This assertion misses the point entirely.  The 
Panel’s assessment “as to the existence or consistenc y with a covered agreement of measures taken to 
comply” under Article 21.5 of the DSU necessarily involves an examination of new factual information.  As stated by the Appellate Body in EC – Bed Linen (Article 21.5 – India) : 
 
[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 
                                                     
 
 16 Australia – Salmon (Article 21.5 – Canada) , at para. 7.10(22) [emphasis added]. See also EC – Bed 
Linen (Article 21.5 – India) , Panel Report, at para. 6.17. 
 17 US First Submission and Request for Preliminary Rulings, at paras. 15-16. 
 18 Third Party Submission of the European Communities, at para. 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 dismisse d because they did not relate to the original dispute between the EC and 
India.”).  
19 EC – Bed Linen (Article 21.5 – India) , Panel Report, at para. 6.18, fn. 36. 
 20 US First Submission and Request for Preliminary Rulings, at para. 24. WT/DS257/RW 
Page A-40  
 
 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.
21 
25. The section 129 determination and the final results of the administrative review are 
inextricably linked to the DSB recommendations and rulings in this dispute because they both address 
the obligations of the United States to conduct pass-through analyses with respect to independent 
harvester and sawmill-to-sawmill log transactions fo r the same exports for the same period of time.22 
The mere fact that the administrative review might  have been initiated under a distinct provision of 
US law does not excuse the failure by the USDOC, for example under Article 10 of the Agreement on 
Subsidies and Countervailing Measures (“SCM Agreement”), to “take all necessary steps to ensure 
that the imposition” of the US countervailing duty on softwood lumber “was in accordance with” the 
requirement to conduct pass-through analyses under “t he provisions of Article VI of GATT 1994 and 
the terms of this Agreement”.  
 D. The US Request to Exclude the Final R esults of the Administrative Review from 
the Panel’s Jurisdiction Ignores th e Purpose of Compliance Proceedings 
 
26. As a broader systemic matter, the US request  for a preliminary ruling runs contrary to the 
very purpose of an Article 21.5 panel in its revi ew of the imposition of countervailing measures.  
 27. The US request, taken to its logical conclusi on, would require Canada to make a series of 
identical claims to address an unchanging issue under Article VI:3 of the General Agreement on 
Tariffs and Trade 1994 (“GATT 1994”) and Articles 10 and 32.1 of the SCM Agreement.  The US 
obligation to demonstrate whether, and to what extent, alleged subsidies to log production pass 
through arm’s-length log purchases before  imposing 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.  Such a result 
would leave the DSB in the absurd situation of  having made numerous identical recommendations 
and rulings concerning a definitive countervailing du ty for which compliance may never be secured.  
Were the Panel to allow the US request in this case, it would effectively insulate US countervailing 
measures from compliance with the recommendations  and rulings of the DSB concerning pass-
through.  
28. The EC has noted the absurdity of the US request in this respect in its third party submission: 
 
Accepting the US view that the administra tive 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 disciplines.  Each administrative review would have 
to be subject to a new panel request, and by the time the panel, Appellate Body and 
implementation procedure was completed, a nother administrative review would have 
overtaken the results of any Section 129 determination.
23 
29. Acceding to the US request would therefore preclude any “prompt settlement of situations” 
under Article 3.3, “positive solution to a disput e” under Article 3.7, or “prompt compliance” under 
Article 21.1 of the DSU.  In Australia – Salmon (Article 21.5 – Canada) , the United States 
paradoxically took the following position: 
 
                                                      
 21 EC – Bed Linen (Article 21.5 – India) , Appellate Body Report, at para. 79 [italics in original]. See 
also EC Third Party Submission, at para. 28, referr ing in addition to the Appellate Body’s report in US – Shrimp 
(Article 21.5 – Malaysia) , at para. 86. 
 22 Third Party Submission of China, at paras. 14-15. 
 23 Third Party Submission of the Eu ropean Communities, at para. 29.  WT/DS257/RW 
 Page A-41 
 
 
 [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.
24   
30. In this dispute, the DSB ruled that the Unite d States must demonstrate, rather than presume, 
that a subsidy passes through arm’s-length log tran sactions.  The United States defies this ruling 
when, in an administrative review of the amount of the countervailing duty that gave rise to the matter 
before the DSB, it performs none of the required an alysis and continues to presume pass-through.  
The Panel should therefore reject the U.S. preliminar y ruling request and find that the results of the 
first administrative review are properly before it in this proceeding. 
 
III. REBUTTAL SUBMISSION OF CANADA 
31. Canada established in its first written submission that in both the section 129 determination 
and in the administrative review, the USDOC continued to presume, rather than demonstrate, a pass-through of a subsidy in arm’s-length purchases of l ogs by sawmills in violat ion of US obligations 
under Article VI:3 of the GATT 1994 and Artic les 10 and 32.1 of the SCM Agreement. 
 
32. The United States responds to the entirety of  Canada’s claims in only two paragraphs.
25  In 
these paragraphs, the United States contends th at the USDOC properly determined that the 
overwhelming majority of log purchase transactions were not at arm’s length and properly rejected 
significant volumes of record evidence.  It al so claims that the “recommended analysis” was 
performed for transactions that were found to be at arm’s length, using “appropriate log prices as 
benchmarks”.  Finally, the United States claims that the recommendations and rulings of the DSB 
concerned only those sawmill-to-sawmill transacti ons in which the purchaser did not hold tenure. 
 33. Canada addresses each of these US assertions in turn.   
34. First, the reliance by the USDOC on the five “factors” as a pretense to reject arm’s-length log 
transactions is not supported by the GATT 1994, or  the SCM Agreement, nor does it accord with 
basic economics.  As a matter of well-established economic principles, transactions do not have to 
take place in a regulatory vacuum, if such a mark etplace even exists, to be “at arm’s length”. 
 
35. Second, where the USDOC accepted that tran sactions were at arm’s length, it failed to 
perform proper market comparisons.  36. Third, neither the original panel nor the Appellate Body restricted the requirement for a pass-
through analysis to log transactions where the pur chasing sawmills did not hold tenure, and nowhere 
in the original proceeding or appeal did Canada or  the United States argue that a pass-through analysis 
should be restricted to such transactions.   
 
                                                     
 
 24 Australia – Salmon (Article 21.5 – Canada) , Third Participant Submission of the United States, 
9 December 1999, at para. 5. (Exhibit CDA-54) 
 25 US First Submission and Request for Preliminary Rulings, at paras. 33-34. WT/DS257/RW 
Page A-42  
 
  A. The Five “Factors” Used by the USDOC to Disregard Arm’s-Length 
Transactions Are Irrelevant to Whether Entities Operate at Arm’s Length   
 
37. Both the original panel and the Appellate Body confirmed that a Member may not presume 
that a subsidy passes through transactions where a s ubsidy is received by “someone other than the 
producer or exporter of the product under investigation”  or where “the producer of the input is not the 
same entity as the producer of the processed product”.
26 
 38. Canada has demonstrated that the US soft wood lumber subsidy calculations include amounts 
attributable to log purchases by sawmills from unrelated parties.
27 The Canadian respondents provided 
substantial record evidence concerning such pur chases, which the USDOC rejected without having 
demonstrated that a pass-through occurred.  The United States can point to no record evidence or 
analysis demonstrating that alle ged stumpage subsidies passed through to the purchasing lumber 
producers; instead, it asserts only that “Commerce did not ‘presume’ pass-through”.28  Nevertheless, 
the USDOC continued to include that alleged st umpage subsidy amount in its softwood lumber 
subsidy calculations.   
 39. The reliance by the USDOC on its five “factors” to dismiss, without analysis, the majority of 
the transactions as non-arm’s-length is not suppor ted by the GATT 1994, the SCM Agreement, or 
basic economics.  None of the “factors” identified by the USDOC as having “an impact on the disposition of the Crown logs sold by independent harvesters”
29 transform an arm’s-length transaction 
into one that is not at arm’s lengt h.  Nor can these “factors” otherwi se be used to avoid conducting an 
analysis of log transactions.30  
 40. Basic economic principles dictate that dom estic processing requirements do not affect the 
arm’s-length nature of a transaction, as such regulations do not alter the opposition of economic 
interest between sawmill and harvester.
31  Indeed, if anything, such a requirement may provide the 
harvester greater market power because it would limit where a sawmill may acquire its inputs.32  
Thus, there is no basis to disregard transactions due to the presence of domestic processing requirements.  41. The USDOC’s assertion that a transaction is not at “arm’s length” where a log purchaser is 
responsible for the payment of stumpage fees is equally without support.  An independent harvester 
will extract from a sawmill the full market value  of what it provides to the sawmill ( i.e., the log), 
regardless of who “writes the check”.
33  This fundamental economic principle is commonly found in 
introductory economic texts.  Although the party writi ng the check may affect the observed log price, 
it will never affect the value paid by the sawmill for the logs.34  Moreover, a contractual provision 
specifying the party responsible for remitting stumpa ge is no different than a provision specifying 
                                                      
 26 First Written Submission of Canada, at paras. 47-50. 
 27 Canada First Submission, at paras. 3-5, 26. 
 28 US First Submission and Request for Preliminary Rulings, at para. 33. 
 29 Final Section 129 Determination, at 9 (Exhibit CDA-5). 
 30 First Written Submission of Canada, at paras. 62-64. 
 31 J.P. Kalt and D. Reishus, Statement for the First Administrative Review , Attachment 1 to Letter from 
British Columbia Lumber Trade Council to USDOC (15 March 2004), at 42-43, 48-51, 55 (Exhibit CDA-21); 
J.P. Kalt and D. Reishus, Economics of Arms’s Length Transactions and Subsidy Pass-Through , submitted as 
Response of the Government of British Columbia to the Department’s 17 August 2004 Supplemental Questionnaire Concerning Pass Through of Alleged Benefits (September 15, 2004), Exhibit BC-PT-39, at 9-10 
[“Kalt 2004d”] (Exhibit CDA-20). 
 
32 Kalt 2004d, at 10. 
 33 Ibid., at 4-5. 
 34 Ibid., at 6-7.  WT/DS257/RW 
 Page A-43 
 
 
 which party is responsible for sa tisfying outstanding liens or govern mental obligations that might 
affect a transaction.  42. Finally, in an industrial context it is common for a buyer of goods or services to provide equipment, expertise or materials as part of a tr ansaction.  The essence of an arm’s-length transaction 
is that the seller is able to extract from the buyer the value of what the seller provides.  Accordingly, 
these transactions remain at arm’s length even if  the buyer provides goods or services used by the 
seller – whether cash, material, cred it extended or other consideration.
35  
 43. Moreover, the United States cannot be excused from its obligation to conduct the required 
pass-through analysis on the pretense that transacti on-specific information, which was not reasonably 
required to perform the analysis, was not available.   Given that the investigation and review were 
conducted on an aggregate basis, it is particular ly incongruous for the United States to refuse to 
consider such information with respect to its pass-through analysis.  The Canadian respondents 
provided all information that was reasonably availa ble, including aggregate information sufficient to 
conduct the analysis.
36 
 
 B. The USDOC Improperly Relied on Log Import Transactions in Performing Its 
Pass-Through Analysis 
 
44. In the few instances where the USDOC purporte d to perform a pass-through analysis, it used 
benchmarks derived from log import transactions  that did not reflect “market” conditions.37  As the 
Appellate Body and the original panel made clea r, the USDOC was required to establish whether the 
alleged stumpage subsid y conferred on timber harvesters was passed through the arm’s-length log 
transaction.  The section 129 determination benchm arks, however, which included prices for imported 
logs, were unrepresentative of the timber and ma rket conditions in these provinces for which they 
were being used. 
 45. Specifically, the USDOC used extremely sma ll and highly variable log imports relied on to 
calculate the benchmark for Saskatchewan.  For a ll provinces other than Québec, log import volumes 
are extremely low, representing only 22.85 per cent of imports into Canada.
38  Accordingly, the use of 
import prices in benchmarks for Saskatchewan (whi ch accounted for only 0.00175 per cent of imports 
during the period of investigation) necessarily resulte d in the introduction of unrepresentative values.  
The USDOC did not investigate whether this small vol ume of imported logs was representative of the 
Crown harvest, and should not have assumed that it was.  46. Additionally, log import prices are extraord inarily high in value because they typically 
involve special purchases.  The prices are unrepresent ative of prices paid for logs used in softwood 
lumber production.  The tariff categories that apply to logs are overly inclusive and capture products 
used as inputs for high-end applicati ons.  Tariff item 4403 of the Canadian Customs Tariff , “wood in 
the rough” is a catch-all category for rough wood ite ms not otherwise specified. Subheading 4403.20 
– “other coniferous” – refers to a broad category – coniferous wood in the rough that is untreated.  
                                                     
 
 35 Kalt 2004d, at 8-9. 
 36 First Written Submission of Canada, at paras. 76, 79. 
 37 USDOC Memorandum from Robert  Copyak to James Terpstra, “Pass-Through” Analysis 
Calculations for the Province of Saskatchewan, 129 Proceeding for the WTO Appellate Body Finding in the 
Final Countervailing Duty Determination, Certain Softwood Lumber from Canada  (6 December 2004) (Exhibit 
CDA-59); USDOC Memorandum from R obert Copyak to James Terpstra, “Pass-Through” Analysis 
Calculations for the Province of Ontario, 129 Pro ceeding for the WTO Appellate Body Finding in the Final 
Countervailing Duty Determination, Certain Softwood Lumber from Canada  (6 December 2004) (Exhibit CDA-
60).  
38 Response of the Government of Canada to USDOC’s November 24, 2003 Supplemental Remand 
Questionnaire Response (3 December 2003), at GOC-2 and Exh. GOC-GEN-59 (Exhibit CDA-55). WT/DS257/RW 
Page A-44  
 
 While the category may include untreated logs, it can also include logs that have been debarked, sawn 
logs such as roughly squared logs, house logs, pul p logs, round logs for veneer production, tree 
stumps and roots of special woods, and ‘certain growths’ for making special  furniture veneers or 
smoking pipes.  Many of these products are of higher value and are of a higher price than untreated logs destined, for example,  for housing construction and many ar e not used for lumber production at 
all.
39  As a result, these import prices did not reflect a “market” price for logs used in softwood lumber 
production and should not have been u sed to derive benchmarks.    
 47. Accordingly, the use by the USDOC of these unrepresentative log import prices in the section 
129 determination distorted the results of its limited pass-through analysis. 
 
 C. US Arguments Concerning Sawmill-to-S awmill Transactions Have No Basis in 
the Findings of Either the Original Panel or the Appellate Body 
 
48. Finally, the United States contends that the recommendations and rulings of the DSB were limited to a particular category of sawmill-to- sawmill transactions, even though no such argument 
was made by either Canada or the United States during the original proceedings, and neither the original panel nor the Appellate Body made any such distinction.
40  The United States seeks to place 
tenured sawmills on one side of the transaction, but non-tenured sawmills on the other.41  T h e  
United States, through this limitation, is attempting in yet another creative way to avoid its obligation 
to conduct the pass-through analysis identified by bo th the original panel and the Appellate Body 
under Article VI:3 of the GATT 1994 and Artic les 10 and 32.1 of the SCM Agreement. 
 49. The original panel concluded that a pass-thr ough analysis is required for all arm’s-length log 
transactions between unrelated sawmills:  
[T]he 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, and with Article VI:3 of GATT 1994.
42 
50. The Appellate Body agreed and upheld: 
 
… the Panel’s finding, in paragr aph 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 tenured harvesters/sawmills to unrelated 
                                                      
 39 See also Response of the Government of Alberta to the USDOC’s 25 September 2003 Questionnaire 
(14 October 2003), at AB-17 (“To rep eat, it is critical to note that the statistics [used by the Department] ...are 
for ‘wood in the rough,’ which would include roughly squared timbers, untreated telephone poles and other such 
processed wood products and may not include any logs in the round, with bark attached.”) (Exhibit CDA-56)l Response of the Government of British Columbia to the USDOC’s September 25, 2003 Questionnaire 
(14 October 2003), at BC-19 (Exhibit CDA-57); and Response of the Gouvernement du Québec to the 
USDOC’s 25 September 2003 Questionnaire (October 14, 2003), at 14 (Exhibit CDA-58).  
40 In footnote 151 of its report, the Appellate Body indicates that the term “sawmill” refers to “an 
enterprise that processes logs into softwood lumber and does not hold a stumpage contract.” Appellate Body 
Report, at para. 124, fn. 151. The Appellate Body also cites to record evidence on independent harvester transactions Canada provided before the original panel as confirming the existence of arm’s-length sales of logs 
by “… tenured timber harvesters/sawmills to unrelated sawmills not holding stumpage rights …”, Appellate 
Body Report, at para. 150.  
41 First Submission and Request for Preliminar y Ruling of the United States, at para. 34. 
 42 Panel Report, at para. 7.99.  WT/DS257/RW 
 Page A-45 
 
 
 sawmills is inconsistent with  Articles 10 and 32.1 of the SCM 
Agreement  and Article VI:3 of the GATT 1994.43 
51. The Appellate Body, therefore, upheld the c onclusions of the original panel that a pass-
through analysis was required for all arm’s-length log transactions between sawmills.  There is no 
qualifier in the Appellate Body’s decision that pur chasing sawmills must be “non-tenured”, and there 
is no such qualifier in the original panel decision that it upheld.  There would be no legal or economic 
reason to restrict the requirement to conduct a p ass-through analysis to purchasing sawmills without 
tenure, and had the Appellate Body intended to restrict  the scope of its ruling in this manner, it would 
have done so explicitly.  
52. Whether the purchasing sawmill holds or does not hold stumpage rights is irrelevant to the 
Appellate Body’s reasoning.  The crux of the Appella te Body’s reasoning relates to the fact that the 
transaction concerns an input product ( i.e., a log).  Where a lumber producer sources its log input 
other than from its own timber harvesting and log production , the receipt of an alleged stumpage 
subsidy is necessarily indirect and requires pass-t hrough analysis before it may be countervailed as an 
alleged subsidy to lumber production .
44  The Appellate Body did not  condition its conclusion on 
circumstances concerning the purchasing sawmills.  
II. CONCLUSION  
53. Canada requests that the Panel determine the fi nal results of the first administrative review are 
within the jurisdiction of the Panel under Article 21. 5 of the DSU.  Canada also requests the Panel to 
reject as unfounded the claims made by the United States in its first written submission. 
 
                                                     
 
 43 Appellate Body Report, at para. 167(e) [italics in original]. 
 44 Appellate Body Report, at paras. 146-47, 156-59. WT/DS257/RW 
Page A-46  
 
 TABLE OF EXHIBITS 
  
TABLE OF EXHIBITS 
  
CDA-53 The New Shorter Oxford English Dictionary , (Oxford:  The Clarendon Press, 1993), 
at 882. 
 CDA-54 Australia – Salmon (Article 21.5 - Canada) , Third Participant Submission of the 
United States, 9 December 1999, at para. 5. 
 CDA-55 Response of the Government of Canada to USDOC’s November 24, 2003 
Supplemental Remand Questionnaire Response (3 December 2003), at GOC-2 and 
Exh. GOC-GEN-59. 
 CDA-56 Response of the Government of Al berta to the USDOC’s 25 September 2003 
Questionnaire (14 October 2003), at AB-17. 
 
CDA-57 Response of the Government of British Columbia to the USDOC’s 
25 September 2003 Questionnaire (14 October 2003), at BC-19. 
 CDA-58 Response of the Gouvernment du Qu ébec to the USDOC’s 25 September 2003 
Questionnaire (14 October 2003), at 14. 
 
 
CDA-59 USDOC Memorandum from Robert Copyak to James Terpstra, “Pass-Through” 
Analysis Calculations for the Province of  Saskatchewan, 129 Proceeding for the 
WTO Appellate Body Finding in the Final Countervailing Duty Determination, 
Certain Softwood Lumber from Canada  (6 December 2004). 
 
CDA-60 USDOC Memorandum from Robert Copyak to James Terpstra, “Pass-Through” 
Analysis Calculations for the Province of  Ontario, 129 Proceeding for the WTO 
Appellate Body Finding in the Final Co untervailing Duty Determination, Certain 
Softwood Lumber from Canada  (6 December 2004). 
  WT/DS257/RW 
 Page A-47 
 
 
 ANNEX A-3 
 
ORAL STATEMENT OF CANADA 
 
21 April 2005 
  I. INTRODUCTION 
 
1. We are here today because the Dispute Settleme nt Body has ruled that a subsidy on harvested 
timber – that is, logs – does not necessarily p ass-through to the softwood lumber manufactured from 
those logs.  This is so where the producer sells the logs to an unrelated entity who turns the logs into 
lumber.  In these circumstances, before the Unite d States may apply countervailing duties to the 
softwood lumber manufactured from those logs, it h as an obligation under Article VI:3 of the GATT 
and Articles 10 and 32.1 of the SCM Agreement to establish that the benefit of the subsidy has 
passed-through from the producer of the logs to the producer of the lumber.    2. The United States’ compliance obligations in this case were uncomplicated.  Before it applied 
countervailing duties to lumber made from logs acq uired in such arm’s-length transactions, it had an 
obligation to conduct a pass-though analysis to dete rmine whether the benefit of any subsidies on 
those logs passed through to the lumber.  By agreement with Canada, the United States had ten 
months in which to conduct that analysis.    3. Instead of complying, the United States has gone to great lengths to avoid the obligations 
flowing from the DSB’s ruling.  At the end of th e ten months the United States issued a revised 
countervailing duty determina tion under section 129 of its Uruguay Round Implementation Act .  The 
United States did conduct a pass-through analysis for a small fraction of the transactions that were the 
subject of the DSB’s ruling, but for the overwhelm ing majority of transactions it did no pass-through 
analysis.  Instead, it invented an elaborate threshol d test which it used to exclude most arm’s-length 
transactions from any pass-through analysis.  The t est the United States invented to exclude arm’s-
length transactions from pass-through analysis has no b asis in WTO law.  It defies basic principles of 
economics and is even contrary to the criteria fo r arm’s-length transactions under the United States’ 
own law.    
4. On the basis of its flawed threshold test, the United States has al so sought to evade its 
obligations by claiming that it lacked the necessary information to do a pass-through analysis.  As 
Canada will show, it supplied the United States with all the information it needed and went to great 
lengths to comply with its requests.  The Un ited States’ onerous additional demands involved 
information that was irrelevant to a pass-through an alysis, did not come until most of its reasonable 
period of time to comply had expired, and would have imposed an impossible evidentiary burden on 
Canadian respondents in the process. 
 5. The United States also failed to perform any pass-through analysis for other sales of logs, 
those to companies that produced both logs and lumber.  Nothing in the adopted findings of the panel or the Appellate Body licensed the exclusion of these transactions.   
 
6. In all of these instances, the United Stat es simply assumed that the entire benefit passed 
through from the logs to the softwood lumber and in cluded the full amount of that benefit in its duty 
calculations on the lumber.  In the original case, th e DSB ruled that the Unite d States’ presumption of 
pass-through was inconsistent with its obligations  under the GATT and the SCM Agreement.  The 
United States has repeated its presumption of pass- through in the determinati ons challenged here and 
they are similarly inconsistent with its WTO obligations.  WT/DS257/RW 
Page A-48  
 
  
7. The United States’ purported compliance measure took effect on 10 December 2004.  But then, three days later, the United States issued another determinat ion covering the same products over 
the same period.  In this new determination,  which was made pursuant to the United States’ 
administrative review process, the United States definitively set the countervailing duties for the 
softwood lumber covered by the DSB’s ruling usi ng the same flawed that it used reasoning in its 
section 129 determination.  Yet this time it conducte d no pass-through analysis at all, not even the 
extremely circumscribed analysis of the section 129 determination.    8. This administrative review determination took effect on December 20, 2004 and superseded 
the section 129 determination.  That is, the section 129 determination ceased to be effective after just 
ten days, and just three days after the United Stat es informed the DSB that it had complied with its 
recommendations and rulings by properly conducting a pass-through analysis.   9. In sum, the United States’ section 129 determ ination did not redress its non-compliance with 
its obligations under the GATT and the SCM Agreemen t.  Moreover, to the extent that it even 
partially complied with these obligations, it rende red that limited compliance non-existent by the 
administrative review.    10. Despite this, the United States continues to insist that it has complied with the 
recommendations and rulings of the DSB. It insi sts, as well, that its administrative review 
determination is not properly before  this panel, regardless of how that determination has undone even 
the United States’ purported compliance measure in  this case, the section 129 determination.   
 11. Canada’s response to the United States’ re quest for a preliminary ruling has addressed why 
the administrative review determination is properly within the scope of your review.  The third party 
submission of the European Communities reaches the same conclusion.  So too does the third party 
submission of China, although it takes a different path to get there.  In Canada’s view, this issue is 
crucial, as it goes directly to the ability of the United States to impose a non-compliant measure while 
relying on its domestic anti-dumping and countervail regime to evade its WTO obligations.  Canada 
will be pleased to take questions on this matte r, but because it has been thoroughly canvassed in 
previous submissions and in the third party subm issions, Canada will not take up time today with 
further affirmative argument on it. 
 12. Canada will focus today on the assertions made by the United States in its second written 
submission.  First, Mr. Cochlin will explain why the US presumption of pass-through is contrary to its obligations under the GATT and the SCM Agreement a nd why the threshold test the United States has 
devised is both incorrect and unfounded.  Then, Mr. Owen will explain that the United States had all 
the available information it required to perform the pass-through analysis mandated by the DSB’s 
ruling, and how Canada neverthel ess made considerable efforts to comply with the unreasonable and 
irrelevant US demands for additional information.   
 
II. COMMERCE CONTINUED TO PRESUME, RATHER THAN DEMONSTRATE, 
INDIRECT SUBSIDIZATION 
 
13. Mr. Chairman, Members of the Panel, the central  question in dispute before you is this:  did 
the United States continue to presume  the pass-through of alleged stumpage subsidies in violation of 
Article VI:3 of the GATT and Articles 10 and 32.1 of the SCM Agreement? 
 
14. Contrary to the numerous, repeated assertions by the United States, a presumption of pass-through is exactly what the United States Depart ment of Commerce (“Commerce”) applied where it, 
first, rejected transactions based on its contrive d “arm’s-length” threshold test; second, refused to  WT/DS257/RW 
 Page A-49 
 
 
 consider in any way certain sawmill-to-sawmill tr ansactions; and finally, claimed that information 
necessary to conduct pass-through an alyses was otherwise deficient. 
 15. The issue of “pass-through” arises in this case because, in many instances, sawmills could 
have only received the al leged stumpage subsidy indirectly  – through purchases of Crown log inputs 
from unrelated harvesters or other sawmills.  Indi rect subsidization of softwood lumber production 
therefore would occur only if the input subsidy “p assed through” from the log seller to the purchasing 
sawmill.   16. Both the original panel and the Appellate Body made clear that Commerce is required to 
demonstrate – and not presume – such alleged indir ect subsidization before it could lawfully impose 
countervailing duties under Article VI:3 of the GATT and Articles 10 and 32.1 of the 
SCM Agreement.
1 Commerce must demonstrate that the alleged direct subsidy to log production 
passes through and becomes an indirect subsidy to lumber  production.  Such analysis involves 
demonstrating, by making appropriate market co mparisons, that the purchasing sawmills received a 
“benefit” within the meaning of Article 1.1(b) of the SCM Agreement. 
 17. The United States does not contest that it has an obligation to conduct a pass-through analysis 
in this case.
2 Indeed, for a small fraction of the log transactions identified in its section 129 
determination, Commerce compared log prices to ma rket benchmarks to demonstrate the existence 
and amount of a pass-through.3  In most respects, Canada does not contest this limited analysis.  
 
18. However, for the vast majority of log tran sactions covered by its section 129 determination, 
and for all transactions covered by its administ rative review results, Commerce performed no such 
analysis.  Instead, it attempted at every turn to avoid the obligation to demonstrate a pass-through.  
 
19. For all log volumes rejected by Commerce, it presumed, rather than demonstrated, a pass-
through.  It deemed – without proof or analysis – that the alleged subsidy to the upstream log producer 
automatically  becomes a subsidy to the unrelated downstream purchasing sawmill. 
 20. The United States goes to great lengths to divert the Panel’s a ttention from Commerce’s 
presumption of a pass-through.
4  It wants the Panel to believe that it is operating within its discretion, 
and that it is aggressively trying to meet its pass-th rough obligations.  The fact remains, however, that 
without having done pass-through analyses and w ithout having employed a presumption, Commerce 
would have been required to limit its  numerator to only Crown timber going directly  to softwood 
lumber production.  As the United States explai ns, however, Commerce instead established the 
numerator of its subsidy calculation by requesting and using the total volume of all harvested Crown 
timber entering sawmills either directly or indirectly .5 
 
III. COMMERCE APPLIED A CONTRIVED “ARM’S LENGTH” TEST TO AVOID 
PERFORMING THE REQUIRED PASS-THROUGH ANALYSES 
 
21. The primary way in which Commerce avoided having to perform a pass-through analysis was 
by devising a novel test for determining whether a transaction was at arm’s length.  The United States 
no longer claims that it had no obligation to conduct any pass-through analysis at all, as it did in the 
original proceedings.  It now claims, instead, th at the obligation only arises where Canada can 
demonstrate that a transaction has occurred not only between unrelated parties, but also outside any 
                                                      
 1 First Written Submission of Canada, at paras. 41-50. 
 2 Second Written Submission of the United States, at para. 35-36. 
 3 Ibid., at para. 39. 
 4 Ibid., at paras. 15, 40-42. 
 5 Ibid., at paras. 7 and 9, footnote 12. WT/DS257/RW 
Page A-50  
 
 possible influence of “government-manda ted restrictions and other factors”.
6  The United States 
maintains that an “arm’s length” transaction is defined by more than “mere affiliation”.7  In so doing, 
it ignores even the arm’s length standard set out in  its own law, and which it has routinely used.8 
 22. Through an exercise in ex post facto  rationalization, the United States argues that 
Commerce’s so-called factors are justified by a th ree-pronged test, custom-tailored for this dispute.
9  
First, a transaction must be between unrelated par ties.  Second, one party to the transaction must not 
“effectively control” the other.  Third, both pa rties must have “roughly equal bargaining power”. 
 23. Canada does not contest the first of these requi rements.  It is the only part of Commerce’s 
arm’s length test that is warranted, based on the find ings and conclusions of the original panel, as 
upheld by the Appellate Body.
10 
 24. The second requirement of the US test is no di fferent than the first. “Effective control” is 
already covered in the US statutory definition of “affiliated parties”, which Commerce incorporated in 
its questionnaires.  The only transactions for wh ich Canadian respondents claimed that Commerce 
should do a pass-through analysis were those betw een parties that were not “affiliated”.  That 
statutory definition covers a wide range of relationships between parties to a transaction, ranging from 
family relationships, to direct or indirect owne rship of an organization, and expressly includes any 
situation where one person “controls” any other person.   According to the statute, the term “control” 
refers to situations in which a person “is legally or  operationally in a position to exercise restraint or 
direction over the other person”.
11  Commerce did not contest, but rather confirmed, that the definition 
of “affiliated parties” was applied properly in this case.12 
 25. The third requirement – “roughly equal bargaining  power” – is pure fabrication, tailored for 
this case to justify Commerce’s use of so-called factor s to reject transactions.  Nowhere is it found in 
the analysis of the original panel or the Appella te Body.  Moreover, were “roughly equal bargaining 
power” a requirement for arm’s-length transactions, almost any transaction anywhere could be rejected by investigating authorities on that basis alone.  One party to a transaction will often have 
greater bargaining power than the other, but this do es not mean that the terms of the transaction do not 
reflect a market outcome.   
26. Fundamentally, by rejecting transactions on the hypothesis that their outcome might somehow 
be “affected” by market conditions, Commerce conf lates the obligation to conduct a pass-through 
analysis, which would demonstrate the existence and amount of a pass-through, with the task of 
identifying transactions to which that obligation applies.
13 
 
27. Moving to the five factors themselves, we ha ve detailed in our written submissions why they 
are irrelevant to whether a pass-through analysis is  required.  I therefore propose to make just three 
points today.   
                                                     
 
 6 Ibid., at para. 20. 
 7 Ibid., at paras. 16-17. 
 8 First Written Submission of Canada, at para. 62, footnote 54 (citing SAA at 928; Exhibit CDA-1). 
 9 Second Written Submission of the United States, at para. 16. 
 10 First Written Submission of Canada, at paras. 47-49. 
 11 Ibid., at para. 60, footnote 51, citing to section 771(33) of the Tariff Act of 1930  (19 U.S.C. § 
1677(33)) (Exhibit CDA-17). 
 12 First Written Submission of Canada, at paras. 60, 74; Second Written Submission of the 
United States, at para. 15, footnote 18. 
 13 See, e.g., Third Party Submission of China, at paras. 26-27.  WT/DS257/RW 
 Page A-51 
 
 
 28. First, the United States makes the telling co ncession that its “additional factors” are not 
“exclusively arm’s-length issues”.14  The factors in question here re gard who paid the stumpage fees, 
and whether transactions involved a fibre exchange agreement.  29. As a matter of basic economics, neither factor is  an “arm’s length” issue at all.  The issue of 
who remits the government stumpage fee says not hing about whether the alleged input subsidy   
passed through to the purchaser.  A contractual pr ovision assigning to the buyer the obligation to pay 
a debt owed by the seller does not affect the value of the good sold.  The value of a log is determined 
by the supply and demand for that log.
15  Moreover, what the United States calls the “vehicle by 
which the Crown bestows the subsidy”16 has been found in this case to be the provision by 
government of standing timber to timber harvesters.  Therefore, the US argument that the government 
provided the alleged stumpage subsidy directly to  sawmills, where they paid the stumpage fee on 
behalf of the harvester, is not supported by the facts. Standing timber is provided to the upstream timber harvester, not the downstream sawmill.  Th ese facts do not suddenly change simply because 
the purchasing sawmill might remit the government stumpage on beha lf of the upstream stumpage 
holder.  
 30. Similarly, a barter arrangement in the form of a fibre exchange agreement merely provides 
that the buyer is paying the consideration owed to  the seller in goods rather than in cash.  Indeed, 
barter is perhaps the oldest form of market trans action.  This factor is irrelevant to determining 
whether the seller is able to extract from the buyer the value of what the seller provides, and hence 
whether any subsidy has passed through. 
 31. Second, with respect to Commerce’s “log pur chase agreement” factor, the United States in its 
rebuttal submission cites various possible contractua l arrangements to explain Commerce’s failure to 
conduct a pass-through analysis.
17  These contractual terms are part of the agreed structure of a 
transaction between unrelated parties, and as Canada has explained, simply reflect the results of the 
bargain reached.18  
 32. Finally, Canada e xplained that provincial regulations imposing “limitations on log sales” and 
“wood supply agreements”
19 do not dictate the material terms of the log sale agreement, such as price, 
delivery arrangements, or timing.  A regulatory vacuum is not a prerequisite for arm’s-length 
transactions.20  Were it so, no sale could ever be found to be at arm’s-length.  
 33. By way of conclusion to this section, we not e that the United States to date has offered no 
justification regarding Commerce’s presumption of a pass-through for all transactions in the 
administrative review; it argues only that the measure is not properl y before the Panel.
21  Accordingly, 
up to this point, the United States here has essen tially conceded that the failure by Commerce to 
perform a pass-through analysis in the administrativ e review was inconsistent with US obligations. 
 
                                                      
 14 Second Written Submission of the United States, at para. 22, footnote 29, and at para. 23. 
 15 First Written Submission of Canada, para. at 64; Rebuttal Submission of Canada, at para. 41. 
 16 Second Written Submission of the United States, at para. 23. 
 17 Ibid., at para. 22. 
 18 First Written Submission of Canada, at paras. 64; Rebuttal Submission of Canada, at para. 42. 
 19 Second Written Submission of the United States, at para. 21. 
 20 First Written Submission of Canada, at paras. 64; Rebuttal Submission of Canada, at para. 40. 
 21 Second Written Submission of the United States, at paras. 46-47. WT/DS257/RW 
Page A-52  
 
 IV. COMMERCE Failed TO CONDUCT ANY ANALYSIS WHERE THE PURCHASING 
SAWMILL HELD A STUMPAGE CONTRACT 
 
34. I turn now to address another instance in which Commerce impermissibly presumed a pass-
through. 
 
35. Commerce limited its questionnaires to only a select subset of sawmill-to-sawmill transactions, denying a pass-through analysis where the purchasing sawmills held tenure. 
 36. As justification here, the United States claims  that the Appellate Body reversed, rather than 
upheld, the original panel’s conclusi on in paragraph 7.99 of its report.
22  Allow me to quote directly 
from paragraph 7.99:  
“[T]he USDOC’s failure  to  conduct a pass-through analys is in respect of logs 
sold by tenure-holding timber harveste rs (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, and with 
Article VI:3 of GATT 1994.” 
37. The original panel’s conc lusion covers transactions where the purchasing sawmills held 
tenure.  There is no reversal of this conclusion in  the Appellate Body’s repor t; to the contrary, there 
are pages of reasoning in support.23  
 38. In an attempt to explain Commerce’s exclusi on of these transactions, the United States offers 
only that, “tenure-holding sawmills are direct subsidy recipients”.
24  This statement fails entirely to 
explain how the alleged stumpage subsidy passes fr om upstream timber harvesters to downstream 
purchasing sawmills.  Commerce simply presumed the pass-through. 
 39. The only other reason the United States offers  for Commerce’s refusal to conduct the required 
analysis is that the Canadian respondents faile d to provide necessary data.  As my colleague 
Mr. Owen will now explain, the US claims in this  respect are false, and the Canadian respondents 
provided more than sufficient evidence to allow Co mmerce to conduct a pass-through analysis in both 
determinations. 
 
V. THE RECORD EVIDENCE WAS SUFFICIENT TO PERFORM A PROPER PASS-
THROUGH ANALYSIS 
 
 A. The Canadian Respondents Provide d All Available Evidence Necessary for 
Commerce to Perform a Pass-Through Analysis  
 
40. Mr. Chairman, Members of the Panel, the United States complains that Canada failed to 
provide the necessary data to allow Commerce to conduct a pass-through analysis and is, in fact, 
“attempting to restrict” its ability to conduct such an analysis.
25     
 
41. These assertions are patently false.  Commerc e had everything it needed and more to conduct 
a pass-through analysis.26  The Canadian respondents provided pric ing data that was representative of 
the arm’s-length transactions in these provinces a nd was more than sufficient to conduct a pass-
                                                      
 22 Ibid., at para. 44. 
 23 Rebuttal Submission of Canada, at paras. 51-52. 
 24 Second Written Submission of the United States, at para. 44. 
 25 Ibid., at paras. 14, 32. 
 26 See First Written Submission of Canada, at para. 58.  WT/DS257/RW 
 Page A-53 
 
 
 through analysis.  Commerce should have used th is information to calculate the amount of pass-
through applicable to the entire volume of arm’s-length transactions for each province. 
 42. Allow me to briefly outline this information.  
43. British Columbia provided Commerce with the na me of the seller, volume, value, and species 
information for each of the more than 3,000 arm’ s-length purchases by sawmills that accounted for 
53 per cent of the Crown harvest in that province.
27  In addition, for these same sawmills, British 
Columbia provided equally detailed informati on on more than 2,500 arm’s-length transactions 
involving logs harvested from private lands.28  These data could have been used to calculate the 
amount of pass-through for these transactions and an average amount of pass-through for the 
remaining arm’s-length volumes in this province.   Instead, Commerce ignored all of these data.  
 44. Alberta had PricewaterhouseCoopers comp ile transaction-specific pricing data for 
approximately 80 per cent of arm’s-length transacti ons for which it claimed a pass-through analysis.
29  
Commerce relied on these transaction-specific data to cal culate its pass-through adjustment.  It failed, 
however, to use these pricing data to calculate the average pass-through of subsidies – if any – for the 
remaining volumes of arm’s-length transactions.    45. Saskatchewan and Manitoba both provided exte nsive transaction-specific pricing data.  More 
specifically, Saskatchewan request ed Weyerhaeuser – its largest softwood lumber producer – to 
provide their data.  Weyerhaeuser was involved in approximately 40 per cent of independent harvester 
transactions in this province.
30   Similarly, Manitoba provided Commerce with transaction-specific 
information from Tembec, an independent harvester  which was involved in 51 per cent of the arm’s-
length transactions in that province.31   
 
46. Ontario provided company-specific data relati ng to sawmills responsible for 91.3 per cent of 
the Crown harvest.32  The Ontario industry associations also provided Commerce with transaction-
specific information for two of the largest independ ent harvesters and 23 of the largest sawmills in 
that province.  In fact, Commerce received tr ansaction-specific pricing data from companies 
accounting for over 90 per cent of the Crown ha rvest entering sawmills during the period of 
investigation.33   
 
47. In short, Canadian respon dents provided Commerce with transaction-specific information for 
the majority of transactions between independent harvesters and sawmills in most provinces.  In 
addition, Ontario provided company- or sawmill-specif ic data.  Commerce, therefore, had more than 
enough information to conduct pass-through analyses.  
 
48. No pricing data was requested by Co mmerce in the administrative review.34  Moreover, the 
Canadian respondents had no opportunity to present this information, as Commerce did not request 
this evidence in the section 129 proceeding unt il after closure of the factual record in the 
administrative review.  Commerce is now requesti ng this transaction-specific information in its 
second administrative review.   
 
                                                      
 27 First Written Submission of Canada, at para. 80. 
 28 Ibid. 
 29 Ibid., at para. 81. 
 30 Ibid., at para. 83. 
 31 Ibid., at fn 96. 
 32 Ibid., at para. 87. 
 33 Ibid. 
 34 Ibid., at para. 77. WT/DS257/RW 
Page A-54  
 
 49. Given Commerce’s failure to request transac tion-specific evidence, it should have either 
removed the arm’s-length volumes that had been id entified from the numerator or used the sawmill-
specific information submitted by some provinces to conduct pass-through analyses.  Instead, Commerce chose to rely on its “factors” to once ag ain impermissibly presume a full pass-through of 
the alleged stumpage subsidy.  
 
B. Commerce’s Accusation that Canada Withheld Evidence is Without Merit  
 
50. So, as I have outlined, the United States had ever ything it needed to conduct its analysis.  It 
now accuses Canada, however, of being unprepared to  support its pass-though claims with evidence.  
Why?  Because Canada did not provide transaction-speci fic information for each of the five “factors” 
in response to supplemental questionnaires issued six to eight months into the reasonable period of time.  This information was unnecessary and irrelevant  to a pass-through analysis.  Given the timing 
of the questionnaire and the type of information sought, this information was also impossible to 
provide.   
 
51. A large portion of the evidence Commerce complains it did not receive was irrelevant and unnecessary for conducting a pass-through analysis.
35  As Mr. Cochlin has explained, tenure 
agreements, wood supply commitment letters, paym ent of stumpage fees by the log purchaser, log 
purchase agreements and fibre exchange agreements  are not relevant to whether a transaction is 
conducted at arm’s length.   
 
52. In many instances, the amount of informa tion requested by Commerce was impossible to 
provide.  For example, British Colu mbia was expected to retrieve, c opy and submit more than 3,000 
tenure agreements that were scattered over dozens of district forestry offices.36  This would have 
amounted to upwards of 60,000 pages of documents.  Canada notified Commerce on multiple 
occasions of the impossibility of complying with th is request, offered numerous sample agreements, 
and otherwise sought a reasonable alternative.  Only  after nearly five months did Commerce agree to 
modify its demands, requesting “excerpts” from all agreements in the province containing certain specified provisions.  Commerce’s “compromise” would have required British Columbia to locate and 
manually review all tenure agreements in the prov ince to identify the relevant excerpts, and submit 
reams of complete tenure agreements, in a little over two weeks.   
 
53. Further, Commerce solicited none  of the transaction-specific pricing data that it now asserts 
are so “essential” for a pass-thr ough analysis in its first questionnaire.  Instead, Commerce waited 
until more than half of the reasonable period of tim e had elapsed before requesting these data in its 
supplemental questionnaires a nd pass-through appendices.
37  Commerce also waited until this time to 
request information on three of its five “factors”,  including copies of log purchase agreements and 
fibre exchange agreements for every arm’s-length transaction in the provinces during the period of 
investigation.38  In addition, Commerce demanded that the Canadian respondents identify every 
transaction where a sawmill paid stumpage on behalf of an independent harvester.   
 54. The pass-though appendices used to collect  information from companies on affiliation, 
pricing data and the “factors” contained more than twenty-four pages of questions and attachments.  
The supplemental questionnaires directed the provinces to distribute the appendices to all independent 
harvesters and sawmills  that were involved in arm’s-length transactions.  In the case of British 
Columbia, this would have  required the dist ribution of the appendices to 3,000 independent 
                                                     
 
 35 Ibid., at paras. 75-76. 
 36 Ibid., at para. 76 (citing to BC September 15, 2004 Supp. Questionnaire Response, Narrative, at 5 
and Norcon B, at 4 (Exhibit CDA-15)).  
37 Ibid., at para. 75. 
 38 Ibid.  WT/DS257/RW 
 Page A-55 
 
 
 harvesters and 175 sawmills operating in that provi nce.  If British Columbia had provided Commerce 
with the required nine copies and produced the ot her twenty copies required for the service list, 
without responses , this would have amounted to almost two million, two hundred and ten thousand 
pages of information .  If the independent harvesters and sawmills had filled out the questionnaires, 
Commerce would have received millions more pages of documentation .  As I am sure you will agree, 
it is hardly reasonable to expect British Columbia to manage the printing and submission of millions 
of pages of documents in under two months; in fact, it borders on the absurd.  55. Finally, as we explained earlier, Commerce was given more than enough data to conduct a 
pass-through analysis.  The United States has not offe red a single valid reason for refusing to use most 
of this information.  
 
VI. CONCLUSION 
 
56. In conclusion, the United States presumed a pass-through in violation of its WTO obligations. 
Commerce’s presumption of a pass-through covers the vast majority of log transaction volumes 
identified in the section 129 proceedings, and all transaction volumes identified in the administrative 
review.  Canada has explained that Commerce was not justified in rejecting the log transactions that it 
did, whether by: first, applying a new “arm’s length” threshold test; second, claiming that the Appellate Body reversed the original panel findings  and conclusions with respect to certain sawmill-
to-sawmill transactions; or third, claiming th at information was missing or deficient.  
 
57. In both its section 129 determination and its  administrative review, Commerce once again 
necessarily and impermissibly presumed pass-through.  58. Canada therefore requests that the Panel: 
 
• Find  that the US imposition of countervailing duties in respect of the Crown log transactions 
identified in this dispute is incons istent with Article VI:3 of the GATT and Articles 10 and 32.1 of the 
SCM Agreement;  
• Recommend  that the United States bring its measures into conformity with its obligations under 
those provisions;  and 
 
• Suggest , in accordance with Article 19.1 of the DSU, that the United States do one of the 
following two things:   
  ⁰ It should refund the amount of the countervailing duties it imposed to offset alleged 
subsidy amounts impermissibly presumed to pass through;  
 
or 
 
  ⁰ It should revise its measures to meet its WTO obligations and refund the amount of the 
countervailing duties it imposed to the extent that they exceeded the amount of 
the alleged subsidy demonstrated to ha ve passed through to the production of 
softwood lumber.