WT/DS277/R 
 Page B-1 
 
 
 
 
ANNEX B 
  
PARTIES RESPONSES TO QUESTIONS 
FROM THE SECOND MEETING 
  
Contents Page 
Annex B-1 Canada's Responses to Questions from the Panel - Second Meeting B-2 
Annex B-2 United States' Responses to Questions from the Panel - Second 
Meeting B-6 
 WT/DS277/R 
Page B-2  
 
ANNEX B-1 
  
CANADA'S RESPONSES TO  QUESTIONS FROM 
THE PANEL - SECOND MEETING 
 
 
(17 October 2003) 
 
 
To Canada 
 
 Question 5. At para. 47 of its second oral statement, Canada refers to the “failure” of 
the USITC “to evaluate the effects of any factor ot her than subject imports, in its threat analysis 
– not to mention its failure to separate and distin guish such effects from those attributed to the 
subject imports”.  Is Canada suggesting that  the asserted obligation to “separate and 
distinguish” the effects of other factors from those attributed to subject imports requires some 
particular kind of analysis that consists of sepa rating and distinguishing?  Or is Canada of the 
view that the “separate and distinguish” lang uage describes, in other words, the “non-
attribution” requirement set out in Article 3.5 of the AD Agreement and Article 15.5 of the 
SCM Agreement that “the injuries caused by these other factors must not be attributed to the dumped imports”?  If the former, could Canada pl ease explain how it reconciles this view with 
Appellate Body statements that the AD Agree ment does not prescribe the methodology by 
which an investigating authority must avoid attri buting the injuries of other causal factors to 
dumped imports.    
 
1. Canada is of the view that to comply with the non-attribution requirement of Article 3.5 of the 
Anti-Dumping Agreement  and Article 15.5 of the SCM Agreement , an investigating authority must 
separate and distinguish the effects of other know n causal factors from those of the dumped or 
subsidized imports.  The “separate and distinguis h” language used by the Appellate Body in such 
cases as United States – Hot-Rolled Steel  describes, in other words, th e “non-attribution” requirement 
set out in Articles 3.5 and 15.5.  2. For example, the Appellate Body stated in United States – Hot-Rolled Steel : 
 
In order that investigating authorities, applying  Article 3.5, are able to ensure that the 
injurious effects of the other known factors are not “attributed” to dumped imports, 
they must appropriately assess the injurious effects of those other factors.  Logically, 
such an assessment must involve separating and distinguishing the injurious effects of the other factors from the injurious effects of the dumped imports.  If the injurious 
effects of the dumped imports are not appropriately separated and distinguished from 
the injurious effects of the other factors, the authorities will be unable to conclude 
that the injury they ascribe to dumped impor ts is actually caused by those imports, 
rather than by the other factors.   Thus, in the absence of such separation and 
distinction of the different injurious effects, the investigating authorities would have 
no rational basis to conclude that the dumped imports are indeed causing the injury 
which, under the Anti-Dumping Agreement,  justifies the imposition of anti-dumping 
duties.
1 
                                                      
1 United States – Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan, Report of 
the Appellate Body, WT/DS184/AB/R, adopted 23 August 2001, para. 223 [emphasis added] (“US – Hot-Rolled 
Steel”). The Appellate Body re-iterated the above interpretation in European Communities – Anti-Dumping  WT/DS277/R 
 Page B-3 
 
 
3. The Anti-Dumping  Agreement and the SCM Agreement  do not prescribe any particular 
methodology for this non-attribution analysis.  Neve rtheless, as the Appellate Body has clarified, the 
requirement that an investigating authority examine any known factors other than subject imports and 
not attribute to the latter any injurious effects ca used by the former, means that the authority must 
separate and distinguish the effects of other causal factors from the effects of subject imports.  In 
other words, while the Agreements do not prescrib e how to carry out the non-attribution requirement, 
they clearly impose an obligation to separate and distinguish the effects of all known causal factors 
from those attributed to subject imports. 
 
4. In this dispute, the Commission failed to comply with the requirement to conduct a non-attribution analysis.  In its threat analysis, th e Commission did not identify, much less examine, any 
other known factor that could threaten injury to the domestic industry in addition to the subject 
imports.  This failure is particularly striking given that in its present injury analysis, the Commission 
identified excess domestic supply as another known factor that contributed to injury during the period 
of investigation.
2  Having neglected to even identify any other causal factor in its threat analysis, the 
Commission also did not separate and distinguish th e injurious effects of those other factors from the 
alleged injurious effects of the dumped and subsid ized imports.  Indeed, the Commission explicitly 
rejected the requirement to do so as ha ving no basis in U.S. domestic case law.3 
 
 Question 6. With respect to the analysis of events in th e future which the US argues 
underlies the USITC determination of threat of in jury, Canada appears to argue that the US 
failed to adequately explain the reasoning underlyi ng its conclusions.  For instance, the United 
States argues that the statements concerning the restraining effects of the SLA support the 
conclusion that imports will increase in the fu ture.  It might be argued that from these 
statements, it can be understood that in  the absence of restraining effects, i.e., when the SLA is 
no longer in effect, imports will increase.  Is Canada arguing that the failure to specify this 
latter aspect fatally undermines the USITC’s analys is?  Or would Canada agree that if the path 
of an investigating authority’s reasoning is di scernible, even if not clearly stated in its 
determination, a reviewing Panel may accept that reasoning as adequate? 
 5. The Panel is correct that Canada contends that the Commission did not provide a reasoned 
and adequate explanation of its affirmative threat of injury determination, including its finding that 
subject imports would increase substantially.  As  Canada has explained in its prior submissions, 
panels and the Appellate Body have made clear that an investigating authority must explain how the 
facts as a whole support its determination, addressing factors that detract from as well as support its 
determination and explaining why the fact ors considered were deemed relevant.
4  Therefore, the 
Commission’s reasoning must be evident from its Fi nal Determination and if the Panel is forced to 
speculate about the Commission’s rationale, th e Commission’s explanation is not sufficient. 5    
                                                                                                                                                                     
Duties on Malleable Cast Iron Tube or Pipe Fittings from Brazil, Report of the Appellate Body, 
WT/DS219/AB/R, adopted 18 August 2003, para. 188. 
2 “The Commission had found in its present material injury analysis that excess domestic supply was 
an other known factor”, Answers of the United States to the Panel’s Questions in Connection with the First 
Substantive Meeting, para. 31 n.50. 
3 Softwood Lumber from Canada, Investigations Nos. 701-TA-414 and 731-TA-928 (Final), 
Publication 3509, May 2002, p. 31, n.195 (“Commission Report”).  (Exhibit CDA-1) 
4 See Oral Statement of Canada at the Second Substantive Meeting of the Panel, paras. 8-10; First 
Written Submission of Canada, paras. 47-51; Oral Statement of Canada at the First Substantive Meeting, 
para. 16; Second Written Submission of Canada, paras. 25 and 45; Canada’s Responses to the Questions From 
the Panel in Connection with the First Substantive Meeting, paras. 2, 18-19, 23 and 36. 
5 The concept that the “decisional path be reasonably discernible” is not found in WTO panel or 
Appellate Body jurisprudence. It is a concept introduced by the United States in discussing whether the 
investigating authority’s consideration or evaluation of fa ctors must be explicit or implicit. See First Written 
Submission of the United States, paras. 3, 86 and 114; Second Written Submission of the United States, para. 1; WT/DS277/R 
Page B-4  
 
 
6. With regard to the effects of the SLA, provided as an example by the Panel in its question, the 
key problem with the Commission’s analysis is not that it omitted from its Final Determination an 
explicit statement that without the alleged restraini ng effect of the SLA, imports would increase in the 
future.  Rather, it is that the Commission’s conc lusion that the SLA “appears” to have had only 
“some ” restraining effect
6 does not rationally support its finding of a likely substantial  increase in 
imports.  The lack of any finding that the SLA had a significant  or substantial  restraining effect (and 
the Commission’s discussion of price effects in its current injury determination shows that it 
understands the difference between “some” effect and a “significant” effect) is what renders 
unreasoned the Commission’s reliance on this factor to support its finding that imports would increase 
substantially,  even in absolute terms.   
 
7. The unreasoned nature of the Commission’s re liance on this factor and the other “subsidiary 
factors” on which the Commission relied for its volume finding7 was compounded by its failure to 
explain why a substantial increase in the absolute  volume of subject imports threatened material 
injury without considering whether any such increase during a period of improving demand would translate into a significant increase in the “relatively stable” subject import market share that was such 
an important factor in the Commission’s negative curr ent injury determination.  These evidentiary and 
logical lapses in the Commission’s reasoning are not superficial deficiencies; they are structural ones, 
and cannot be salvaged by the United States’ ex post facto  justifications.   
 
 Question 7. Is it Canada’s view that an examining authority must consider each of 
the Article 3.4/Article 15.4 factors in what it refers to as a “predictive context”?  (Canada’s 
answer to the Panel’s question number 9)  Could Canada indicate what it would envision in this 
analysis?  For instance, is it Canada’s view that  an investigative authority must predict the level 
of wages, employment, productivi ty, growth, etc. in the future, and assess whether these levels 
would support a finding of injury in the future, i.e., threat of injury?  How would Canada 
respond to the argument that such an analysis would of necessity involve a fair degree of 
uncertainty and speculation?  8. Article 3.4 of the Anti-Dumping Agreement  and Article 15.4 of the SCM Agreement  require 
that the examination of the impact of the subject im ports on the domestic industry “shall” include an 
evaluation of “all” relevant economic factors and indices having a bearing on the state of the industry. 
 
9. In the context of a threat of injury analysis, forecasts must be made to evaluate whether or 
how those factors and indices are likely to change in the future as a result of the impact of the subject imports and whether any projected changes will amount to material injury to the domestic industry.  
The precise quantitative level
 of these factors and indices in the futu re does not have to be established. 
What matters is that an investigating authority co nduct a reasoned and adequate analysis concerning 
the likely impact of further dumped imports on the domestic industry.  This was made clear by the 
panel in Mexico – HFCS : 
 
SECOFI concluded that imports were likely to increase, based on the increases during 
the period of investigation, and the availa ble capacity of the exporting producers, but 
there is no meaningful analysis, based on facts, concerning the likely impact of 
further dumped imports on the domestic  industry in the final determination,  e.g., 
whether such increased imports are likely to  account for an increased share of the 
growing Mexican market, have an effect on production or sales of sugar, or affect the 
                                                                                                                                                                     
Answers of the United States to the Panel’s Questions in Connection with the First Substantive Meeting, 
para. 53. 
6 Commission Report, p. 41 [emphasis added].  (Exhibit CDA-1) 
7 Oral Statement of Canada at the Second Substantive Meeting of the Panel, paras. 14-32 (discussing 
the Commission’s analysis of the six factors listed as supporting its volume finding).  WT/DS277/R 
 Page B-5 
 
 
profits of the domestic producers, etc, in such a manner as to constitute material 
injury.8  
10. In this dispute, the Commission failed to conduct such an analysis and did not even attempt to 
make projections as to future changes in the relevant  factors.  Canada recognizes that a prediction of 
future events based on extrapolation of current da ta necessarily involves some uncertainty, but if a 
threat determination rests on conjecture or remote possibility, it does not comply with the 
requirements of Articles 3.7 and 15.7.9 
 
11. In addition, as noted by Canada in its prior submissions, although the Commission did refer to 
trends in the past with respect to Articles 3.4/ 15.4 factors, the Commission did not attribute those 
trends to any material impact of subject imports, nor did it explain how subject imports would affect 
those trends and produce material injury in the im minent future. The Commission did not identify any 
clearly foreseen and imminent ch ange in circumstances under which the subject imports would have 
an injurious impact on the domestic industry in the future.   
 
                                                      
8 Mexico – Anti-Dumping Investigation of High-Fructose Corn Syrup  (HFCS) from the United States , 
Report of the Panel, WT/DS132/R, adopted 24 February 2000, para. 7.132 ( “Mexico – HFCS” ).  [emphasis 
added] 
9 In this regard, in interpre ting the requirement that a threat determination under the Agreement on 
Safeguards  be based upon facts and not on conjecture, the Appellate Body stated at paragraph 136 of its report 
in United States – Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand 
and Australia , Report of the Appellate Body, WT/DS177/AB /R, WT/DS178/AB/R, adopted 16 May 2001: 
 . . . Article 4.1(b) requires that a "threat" determination be based on "facts" and not on "conjecture".  As 
facts, by their very nature, pertain to the present and the past, the occurrence of future events can never be 
definitively proven by facts.  There is, therefore, a tension between a future-oriented "threat" analysis, which, ultimately, calls for a degree of "conjecture" about the likelihood of a future event, and the need for a fact-based 
determination.  Unavoidably, this tension must be resolved through the use of facts from the present and the past 
to justify the conclusion about the future , namely that serious injury is "clearly imminent".  Thus, a fact-based 
evaluation, under Article 4.2(a) of the Agreement on Safeguards , must provide the basis for a projection that 
there is a high degree of likelihood of serious injury to the domestic industry in the very near future. [emphasis 
added] 
See also: First Written Submission of Canada, paras. 73-75. WT/DS277/R 
Page B-6  
 
ANNEX B-2 
 
 
UNITED STATES' RESPONSES  TO QUESTIONS FROM 
THE PANEL - SECOND MEETING 
 
 
(17 October 2003) 
 
 
 Question 1:  The United States appears to argue that there is no obligation for an investigating authority to explicitly identify a change of circumstances that would cause a threat 
of injury to ripen into actual material injury.  Would the US disagree with the proposition that 
a reviewing panel must be able to determine, fr om the investigating authorities determination, 
what the investigating authority considered co nstituted the clearly foreseen and imminent 
change in circumstances which would create a situation in which dumping would cause injury? 
 1. The United States would agree that a review ing panel should be able to discern from the 
investigating authority’s determination the clearly foreseen and imminent change in circumstances 
which would create a situation in which the dumped and subsidized imports would cause injury.  The 
ITC’s determinations in this case  enable the Panel to do just that.  The Commission provided a 
detailed explanation of how the totality of the evidence supported its conclusion, i.e., that there will be 
in the near future substantially increased importation of softwood lumb er from Canada at dumped and 
subsidized prices which would cause injury.  In  doing so, the ITC addressed the facts and likely 
events demonstrating the progression or change in circumstances which would create a situation in which the dumped and subsidized imports would cause injury.  We refer the Panel to paragraph 18 of 
the US second written submission for a demonstrati on of the progression or change in circumstances.
1  
The Commission’s decisional path is reasonably dis cernible, and its determinations are consistent 
with all of the US obligation s under the covered agreements. 
 2. Canada has alleged that there is an  “explicit obligation in Artic les 3.7 and 15.7 to identify” a 
change in circumstance that would cause a threat to ripen into actual injury.
2  While the text provides 
a clear example of the change in circumstances as a sequence or accretion of events, it contains no 
requirement to explicitly “identif y” a change in circumstances.3  In its closing statement at the second 
panel meeting, Canada seems to retreat from its asse rtion of a requirement to “explicitly identify” by 
now equating “identify” with a “demonstration” of  a change in circumstance.  Canada, however, 
questions “[i]f there is any difference between ‘identif y’ and ‘demonstrate’, [and states that] it is not 
apparent to Canada."4  But, there is a clear difference between “explicitly identifying” a change in 
circumstance and addressing the facts and likely events demonstrating the progression or change in 
circumstances which would create a situation in which the dumped and subsidized imports would 
cause injury.  The Commission provided a detailed analysis which demonstrates the progression or change in circumstances, and as such, its determinat ions are consistent with all US obligations under 
the covered agreements. 
                                                     
 
1 See US Second Written Submission, para. 18. 
2 See Canada Second Written Submission, para. 4; Canada’s Response to Panel Question 9, para. 34; 
Canada’s Opening Statement at the First Panel Meeting, paras. 35 and 45. 
3 Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the SCM Agreement state that “[t]he 
change in circumstances which would create a situation in which the dumping [subsidy] would cause injury 
must be clearly foreseen and imminent.”  The Anti-Dumping Agreement provides as an example of the change 
in circumstances “that there is convincing reason to believe that there will be, in the near future, substantially increased importation of the product at dumped [or subsidized] prices.”  Article 3.7 and n. 10 of the Anti-
Dumping Agreement. 
4 Canada’s Closing Statement at Second Panel Meeting, para. 3.  WT/DS277/R 
 Page B-7 
 
 
  Question 2:  The United States observed, at paragraph 17 of its second oral statement, that "Canada's claims that the ITC found no pres ent injurious effects" are erroneous.  Is the 
Panel to understand from this that the United  States asserts that the USITC found that there 
was some degree of injury to the domestic indust ry during the period of investigation but that 
such injury was not material?  Or is the Panel to understand that the USITC found that there 
was no causal link between the subject imports a nd injurious effects to the industry?  Or is the 
Panel to understand that the USITC found that othe r factors caused the injurious effects?  If 
not, could the US please explain the basis of th e negative determination in the present material 
injury context in light of the "injurious effects" found in the analysis? 
 
3. In short, the ITC’s subsidiary findings rega rding present material injury recognized some 
adverse injurious effects to the domestic industry from subject imports, which clearly support the 
ITC’s determination of the existence of a threat of material injury.  As discussed below, the ITC found 
a causal link between the subject imports and injury to the domestic industry, but also found in its 
present injury analysis that an other factor contri buted to the injury to the domestic industry.  In 
particular, the Commission found that the excess supp ly, which resulted in substantial declines in 
prices in 2000 and declines in the financial perf ormance of the domestic industry, was not only 
provided by subject imports but also by domestic production. 
 
4. In conducting a present material injury analysis, the investigating authority is required to consider the evidence and factors regarding the volume of imports, the price effects of imports and their impact on the state of the domestic industry.  This analysis generally follows an order:  first, 
consideration of whether the volume or market shar e of imports is significant; second, consideration 
of whether the price effects of imports ( i.e., either through price undercu tting or price suppression or 
depression) are significant; and third, consideratio n of whether subject imports have had an adverse 
impact on the domestic industry by evaluating all relevant economic factors and indices having a 
bearing on the state of the domestic industry and examining whether there is a causal relationship 
between the dumped and subsidized import s and injury to the domestic industry. 
 
5. In this case, the ITC found, based on the facts as a whole, that the volume and market share of 
subject imports, accounting for 34 per cent of the US  market, were already significant.  This volume 
finding supported an affirmative present material inju ry finding, if combined with significant price 
and impact effects.
5  While a finding that the volume of imports was significant was not by itself 
sufficient to support an affirmative present injury finding in these investigations, this volume finding 
is an integral factor in making an affirmative present material injury determination.6 
 
6. The Commission considered the evidence regarding price trends and found that prices 
declined “substantially through the third and fourth quarters of 2000 to their lowest point in the 
1999-2001 period."7  The Commission found that the substantial volume of subject imports had some  
effect on prices for the domestic like product duri ng the period of investigation, albeit not significant 
effects.  There was a particular fact that played a critical role in the Comm ission’s conclusion of no 
significant present  price effects:  the excess supply in 2000 that resulted in price declines was due to 
both subject imports in addition to  domestic production.  The eviden ce showed that the declines in 
prices resulting from that excess supply had substa ntially affected the domestic industry’s financial 
performance.  The Commission concluded that while subject imports had adversely affected prices of 
domestic products, it could not find significant price effects, because the price declines were due to 
                                                      
5 ITC Report at 32 (“Nonetheless, this large volume of subject imports both in absolute terms and 
relative to consumption in the United States is significant.”). 
6 The simple fact is, imports accounting for a large share of the market generally will be able to affect 
prices in the market, and thus impact the condition of the domestic industry. 
7 ITC Report at 34. WT/DS277/R 
Page B-8  
 
excess supply in 2000 from both Canadian exports and domestic product, and Canadian export market 
share had been relatively stable. 
 
7. The Commission’s finding that subject imports had some  price effects and its reasoning for 
why such effects were not signific ant is set forth in the last three sentences of the Views of the 
Commission (ITC Report at page 35).  The Commission stated as follows: 
 
The evidence indicates that both subject imports and the domestic producers 
contributed to the excess supply, and thus the declining prices.  We conclude that 
subject imports had some  effect on prices for the domestic like product during the 
period of investigation, in particular due to  their large share of the market.  However, 
particularly in light of relatively stable market share maintained by subject imports 
over the period of investigation, we cannot conclude from this record that the subject 
imports had a significant  price effect during the period of investigation.
8 
8. The Commission assessed the condition of the domestic industry and found that it “is 
vulnerable to injury in light of declines in its performance over the period of investigation, 
particularly its fi nancial performance."9  In brief, the record reflects that many performance indicators 
declined significantly from 1999 to 2000, and then declined slightly or stabilized from 2000 to 2001.10  
With respect to the domestic industry’s financia l performance in particular, the evidence also 
generally shows declines during the period of inves tigation, with a dramatic drop from 1999 to 2000, 
as prices declined.11  The Commission found that “the deterioration in the condition of the domestic 
industry during the period of investigation is larg ely the result of substantial declines in price.12 
 
9. In making its negative present material in jury finding, the Commission summarized the 
impact of the subject imports on the domestic industry as follows: “In light of our finding that subject 
imports have not had a significant price effect, a nd the small increase in their market share, we 
conclude that subject imports did not have a significant impact on the domestic industry,”  i.e., they 
had not caused material injury.13 
 
10. Moreover, there also was evidence in the record considered by the Commission in its analysis 
that foreshadowed the existence of threat of mate rial injury.  While the ITC recognized that the 
market share of subject imports was relatively stable  at the significant 34 per cent level during the 
period of investigation, the Commission recognized that it had been higher prior to the imposition of 
the restraining effect of the So ftwood Lumber Agreement (SLA).14  Thus, the ITC found that the 
SLA, which expired, had kept market share rela tively stable.  As discussed in the ITC Report15, 
subject imports held a US market share of 35.7 per cent in 1995, the year prior to the SLA, and 
35.9 per cent in 1996, the year the SLA was imposed (on 29 May 1996).  During the first full year 
under the SLA (1997), subject imports declined to a US market share of 34.3 per cent, the same 
market share held in 2001, with a range from 33.2 per cent to 34.6 per cent during the SLA period.16  
Thus, the relatively stable market share during the SLA period does not negate the finding that the 
                                                      
8 ITC Report at 35. 
9 ITC Report at 37. 
10  See ITC Report at 37-38. 
11  See ITC Report at 38-39. 
12  ITC Report at 36. 
13  ITC Report at 36. 
14  ITC Report at 32 (“Imports of softwood lumber  from Canada held a substantial share of the 
domestic market with fluctuations within a range of 2.7 percentage points over the last seven years, and subject imports’ 2001 market share (34.3 per cent) was lower than that in 1995 prior to the SLA (35.7 per cent).”). 
15  ITC Report at 32 and 41-42; see also ITC Report at Table IV-2. 
16 ITC Report at Table IV-2.  WT/DS277/R 
 Page B-9 
 
 
market share was significant.  Rather it is an indicator of the SLA’s restraining effect and supports an 
affirmative threat of injury finding.  
 
11. Furthermore, there also was evidence at the end of the period of investigation which 
foreshadowed the existence of a threat of material  injury.  The ITC found that “[p]rices during the 
first quarter of 2001 rose somewhat or remained near  their levels in the four th quarter of 2000, then 
significantly increased in mid-2001 before declining again in the third and fourth quarters of 2001.17  
Prices in the third and fourth quarters of 2001 had d eclined to levels as low as 2000.  Subject imports 
also increased in the third quarter until the preliminary duties were imposed in August 2001.18  There 
also was evidence regarding excess supply whic h generally was considered the cause for the 
substantial price declines in 2000.  This time, however, the evidence indicated that US producers had 
curbed their production, but that overproduction remained a problem in Canada.  Therefore, the 
Commission reasonably found that the additional subject imports, which it concluded were likely, 
would further increase the excess supply in the ma rket, putting further downward pressure on prices.19  
Such evidence supports the ITC’s findings of the existence of a threat of material injury. 
 
 Question 3:   The Panel understands the United  States to be arguing that the situation of 
the US lumber market in the imminent future is expected to be much like the situation during 
the period of investigation  – strong, and even  improving demand, significant level of subject 
imports, and increases in those imports, conti nuing oversupply in the market, and consequent 
negative price effects.  However, the Panel understands the United States to contend that, unlike during the period of investigation, domestic prod ucers will not contribute to the oversupply in 
the imminent future, and therefore the negative pr ice effects will be attr ibutable to oversupply 
of Canadian lumber.  Is the Panel's understanding of the theory of the United States correct?  
Could the United States please indicate where in the determination this theory for the future is 
set forth?  Could the United States please indicate  the evidence, other than or in addition to the 
Bank of America analyst's report quoted at fo otnote 217 of the USITC determination, that 
supports the view that unlike during the period of investigation, domestic producers will not 
contribute to the oversupply in the imminent future?   12. While the situation of the US lumber market in  the imminent future is expected to have some 
similarities to the situation during the period of inve stigation, there are differences in addition to the 
oversupply issue referenced by the Pa nel.  In particular, the restraining effect of the Softwood Lumber 
Agreement (SLA) would no longer be in place.  As discussed above, the ITC found that the SLA, 
which expired, had kept market sh are relatively stable.  While the ITC had found that the volume and 
market share of subject imports were already significant and had increased even with the restraining effect of the SLA in place, the Commission also found that subject imports had increased substantially 
during periods without import restraints.  For example, during the April-August 2001 period, which 
was free from import restraints, subject imports ha d increased by 11.3 per cent compared to the same 
period in 2000.
20  Moreover, the increases in imports under th e SLA occurred in spite of some of these 
imports being subject to $50 and $100 fees.  The Commission recognized that the significant 
quantities of imports subject to $100 fees under th e SLA indicated that “in the absence of the SLA 
they [Canadian producers] would have shipped more , given the near prohibitive level of the $100 
fee."21  The Commission discussed its analysis regarding these factors on pages 40-43 of the ITC 
Report. 
 
                                                      
17 ITC Report at 34. 
18 Official import statistics (USA-25). 
19 ITC Report at 43-44. 
20 See ITC Report at 42, n. 269.  In fact, subject imports increased from the April-December 2001 
period by almost 5 per cent, even with the bonding requirements imposed resulting from the August 2001 
preliminary CVD determination. 
21  ITC Report at 41. WT/DS277/R 
Page B-10  
 
13. As the Panel noted, the Commission recognized in its present material injury analysis that 
domestic overproduction had contributed to adverse price effects in 2000.  The Panel is correct in 
understanding that the ITC found the evidence demons trated that domestic production was no longer 
contributing to excess supply, while the continued oversupply by Canadian imports would likely have 
negative price effects in the imminent future.  Wh ile the Commission found in its present material 
injury analysis that both subject imports and domestic production had been the source of the 
oversupply resulting in the substa ntial price declines in 2000, it also found that the evidence 
demonstrated that after 2000, domestic producers had curbed their production, but that overproduction 
remained a problem in Canada.  The Commission ci ted to this evidence regarding events occurring 
toward the end of its period of investigation in its present material injury discussion.  This evidence regarding supply in the latter part of the period of investigation clearly foresh adowed the existence of 
a threat of material injury by reason of the dumped and subsidized imports. 
 
14. In addition to the evidence cite d in footnote 217 of the ITC Report
22, the Commission 
considered domestic supply on pages 24-25, 34-35, 37-38, and 43-44 of the ITC Report and Canadian 
supply on pages 40-41 of the ITC Report.  Specifi cally, the evidence demonstrated that domestic 
production capacity was fairly leve l during the period of investigation, following a small but steady 
increase between 1995 and 1999, as apparent consumption increased.23  Domestic capacity utilization 
was 87.4 per cent in 2001.  With the exception of a peak in 1999 at 92 per cent, it had consistently 
held this level from 1995 to 2001.24  In contrast, Canadian capacity utilization had declined in 2001 to 
83.7 per cent, a rate substantially lower than that reported for any other year in the 1995-2001 period.
25  In spite of this decline in capacity utilizat ion rates, Canadian producers projected slight 
increases in capacity, increases of 8.9 per cent in production, and a return of  capacity utilization to 
90.4 per cent in 2003.26  These facts concerning domestic and Canadian supply reinforce the ITC’s 
affirmative threat determinations.   Moreover, there also was other evidence regarding domestic 
supply in the record before the Commission.  In particular, there was evidence regarding permanent 
mill closures, i.e., permanent reductions in capacity, in the Un ited States and in Canada that showed a 
greater reduction in US production than Canadian production.27 
                                                      
22  See US Opening Statement at Second Panel Meeting, para. 47.  The Bank of America analysis cited 
by the ITC indicates that lumber overproduction may continue even after the lumber market has been vastly 
oversupplied, because it is not exclusively tied to the demand for lumber but rather, may also be tied to demand 
for by-products, e.g., wood chips for pulp and paper manufacturing. 
23 ITC Report at Table III-6 and C-1 (public data).  Domestic producers based on public data reported 
production capacity of 39,800 mmbf in 1999, 40,100 mmbf in 2000, and 40,040 mmbf in 2001.  Id.  Domestic 
producers’ questionnaire responses reported production capacity of 22,847 mmbf in 1999, 24,233 mmbf in 2000, and 24,709 mmbf in 2001, although the industry coverage is not necessarily comparable to the public 
data.  Id. at Table III-7 and C-1. 
24  ITC Report at Tables III-6 and C-1 (public data).  Domestic capaci ty utilization base d on public data 
was 86.1 per cent in 1995, 87.6 per cent in 1996, 89.9 per cent in 1997, 88.5 per cent in 1998, 92.0 per cent in 
1999, 89.7 per cent in 2000 and 87.4 per cent in 2001.  Id.  Domestic producers ’ questionnaire responses 
reported similar capacity utilization rates:  92.8 per cent in 1999, 88.5 per cent in 2000, and 86.1 per cent in 
2001.  Id . at Tables III-7 and C-1. 
25  ITC Report at Tables VII-1 (public data).  Canadian capacity utilization based on public data was 
87.8 per cent in 1995, 87.7 per cent in 1996, 87.4 per cent in 1997, 87.3 per cent in 1998, 90.5 per cent in 1999, 
88.9 per cent in 2000 and 83.7 per cent in 2001.  Id.  Canadian producers ’ questionnaire responses reported 
similar capacity utilization rates:  90.3 per cent in 1999, 88.8 per cent in 2000, 84.4 per cent in 2001, and 
projections of 88.5 per cent in 2002 and 90.4 per cent in 2003.  Id. at Table VII-2. 
26  ITC Report at Table VII-2.  The US market is very important to Canadian producers.  Canadian 
producers rely on sales in the US market for about 65 per cent of their production and have incentives such as 
mandatory cut requirements to produce more softwood lumber and export it to the US market. 
27 The parties disagreed about the reasons for the decline in the number of US mills, but the 
Commission found that the record reflected that at least some of the mill closures were due to conditions in the US market.  ITC Report at 39 and n. 244.  This evidence showed that during the period of investigation, the 
permanent closure of US mills accounted for a greater reduction in US production than the reduction in 
Canadian production from the permanent closure of the Canadian mills and that more US mills than Canadian  WT/DS277/R 
 Page B-11 
 
 
 
 Question 4:  The United States asserted in  its answer to the Panel's question 26, and in 
its second oral statement, that it was "imp ortant to understand that consideration and 
explanation of a factor in any section of the ITC Report does not limit its application to that 
section of the Report".  Accepting that position  for purposes of argument, could the US explain 
how a reviewing Panel is to understand the future impact of factors in the threat context if the 
analysis of those factors is only made in the context of a present injury analysis, with reference 
to historical data for the period of investigat ion?  Is there not an obligation to explain the 
impact of those factors in the context of the analysis of threat of material injury in order for the 
Panel to be able to review the determination?  Is it the view of the United States that an investigating authority need never consider the Ar ticle 3.4/Article 15.4 factors in a predictive 
context, that is, with respect to the impact of imports in the future on those, or other relevant 
factors? 
 
15. The evaluation of whether dumped and subsidized imports have adversely impacted the 
domestic industry may involve: first, an evaluation of all relevant economic factors and indices having 
a bearing on the state of the domestic industry to determine the condition of the industry; and, second, 
an examination of whether the volume and price effects of the dumped and subsidized imports have 
impacted and caused injury to the domestic industry.   
 
16. Where the investigating authority has consid ered the Article 3.4 an d Article 15.4 factors 
regarding the condition of the domestic industry once, it is not required to undertake a separate, second evaluation, as part of an entirely distinct th reat analysis.  This does not mean that additional 
analysis appropriate for assessing whether further dumped and subsidized imports would have a 
consequent adverse impact on the domestic industry may not be required, depending on the facts.  For 
example, in a case where the domestic industry is healthy and profitable during the period of 
investigation, it may be appropriate to provide a more detailed discussion of how its condition would 
likely be affected by further imminent dumped and subsidized imports.  Such discussion would show 
how the condition would deteriorate and material injury  would occur.  On the other hand, in a case, as 
the one before this Panel, where the domestic industry is already in a vulnerable state and where the 
condition has deteriorated significantly during the pe riod of investigation, resulting primarily from 
declines in prices caused by excess supply, the focus is on the likely substantial increases in imports 
and likely effects of declining prices, rather than whet her the condition of the industry is deteriorating, 
as measured by the Articles 3.4 and 15.4 factors. 
 
17. In this case, the Commission assessed the condition of the domestic industry and found that it “is vulnerable to injury in light of declines in  its performance over the period of investigation, 
particularly its fi nancial performance."
28  In brief, the record reflects that many performance 
indicators declined significantly from 1999 to 2000, and then declined slightly or stabilized from 2000 
to 2001.29  With respect to the domestic industry’s fi nancial performance in particular, the evidence 
also generally shows declines during the period of investigation, with a dramatic drop from 1999 to 
2000, as prices declined.30 
 
                                                                                                                                                                     
mills permanently closed from August 2000 to December 2001.  See, e.g.,  Random Lengths  data compiled in 
Petitioners’ Prehearing Brief at Exhibits 38 and 54; CLTA’s Posthearing Brief, Vol. 3 at Tables D and F; Spelter 
Mill Report, 2001; ITC Report at Table III-2. 
28 ITC Report at 37.  The Commission’s analysis of the vulnerable condition of the domestic industry is 
on pages 36-39 of the ITC Report. 
29 See ITC Report at 37-38. 
30  See ITC Report at 38-39. WT/DS277/R 
Page B-12  
 
18. Moreover, the ITC considered the consequent impact of the likely substantial increases in 
imports and likely price effects.
31  The evidence demonstrates that subject imports already at 
significant levels will continue to enter the US ma rket at significant leve ls and are projected to 
increase substantially.  The Commis sion found that the additional subject imports would increase the 
excess supply in the market, putting further downward pressure on prices.  Prices at the end of the 
period of investigation, in the third and fourth quarter s of 2001, had substantially declined to levels as 
low as they had been in 2000.  Evidence regardi ng likely excess supply, which generally caused the 
substantial price declines in 20 00 that led to the deterioration in the condition of the domestic 
industry, indicated that US producers had curbed their production, but that overproduction remains a 
problem in Canada.   The Commission reasonably found that subject imports were likely to increase substantially and were entering at prices that are li kely to have a significant depressing or suppressing 
effect on domestic prices, are likely to increase demand for further imports, and thereby adversely 
impact the US industry.  The ITC’s findings support the existence of a threat of material injury caused 
by subject imports. 
 
                                                     
 
31 The Commission’s assessment of the impact of future imports on the domestic industry is primarily 
on pages 43 and 44 of the ITC Report.