UNITED STATES – INVESTIGATION OF THE INTERNATIONAL TRADE COMMISSION IN SOFTWOOD LUMBER FROM CANADA
Document: Report of the Panel
Date: 22 March 2004
Document codes: WT/DS277/R
Complainant: Canada
Respondent: U.S.
Third parties: China, EU, Japan, South Korea
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. VI:6  GATT 1994Art. 1, 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.8, 12, 18.1  Anti-dumpingArt. 10, 15.1, 15.2, 15.3, 15.4, 15.5, 15.7, 15.8, 22, 32.1  Subsidies and Countervailing Measures (SCM)

UNITED STATES – INVESTIGATION OF THE
INTERNATIONAL TRADE COMMISSION IN
SOFTWOOD LUMBER FROM CANADA

Report of the Panel

The report of the Panel on United States-Investigation of the International Trade Commission in
Softwood Lumber from Canada is being circulated to all Members, pursuant to the DSU. The report
is being circulated as an unrestricted documen t from 22 March 2004 pursuant to the Procedures for
the Circulation and Derestriction of WTO Document s (WT/L/452). Members are reminded that in
accordance with the DSU only parties to the dispute may appeal a panel report. An appeal shall be
limited to issues of law covered in the Panel report and legal interpretations de veloped by the Panel.
There shall be no ex parte communications with the Panel or Appellate Body concerning matters
under consideration by the Panel or Appellate Body.

Note by the Secretariat: This Panel Report shall be adopted by the Dispute Settlement Body (DSB) within 60
days after the date of its circulation unless a party to the dispute decides to app eal or the DSB decides by
consensus not to adopt the report. If the Panel Report is appealed to the Appellate Body, it shall not be
considered for adoption by the DSB until after the completion of the appeal. Information on the current status
of the Panel Report is available from the WTO Secretariat.

I. INTRODUCTION
1.1 On 20 December 2002, Canada requested consul tations with the United States pursuant to
Article 4 of the Understanding on Rules and Proce dures Governing the Settlement of Disputes ("the
DSU"), Article XXII of GATT 1994, Article 17 of th e Agreement on Implementation of Article VI of
GATT 1994 ("the Anti-Dumping Agreement"), and Ar ticle 30 of the Agreement on Subsidies and
Countervailing Measures ("SCM Agreement") concerning, inter alia, the United States International
Trade Commission's (USITC) investigation and final determination in Softwood Lumber from
Canada.1 The United States and Canada consulted on 22 January 2003, but failed to settle the dispute.
1.2 On 3 April 2003, Canada requested the Dispute Settlement Body ("the DSB") to establish a
panel pursuant to Articles 4 and 6 of the DSU, Article XXIII of the GATT 1994, Article 17 of the
Anti-Dumping Agreement and Article 30 of the SCM Agreement.2
1.3 At its meeting on 7 May 2003, the DSB established a panel in accordance with Article 6 of
the DSU to examine the matter referred to the DS B by Canada in document WT/DS277/2. At that
meeting the parties to the dispute also agreed that the panel should have standa rd terms of reference.
The terms of reference are, therefore, the following:
"To examine, in the light of the relevant provisions of the covered agreements cited
by Canada in documents WT/DS277/2, the matter referred to the DSB by Canada in
that document and to make such findings as will assist the DSB in making the
recommendations or in giving the rulings provided for in those agreements."
1.4 On 12 June 2003, Canada requested the Director -General to determine the composition of the
panel, pursuant to paragraph 7 of Article 8 of th e DSU. On 19 June 2003, the Director-General
composed the Panel as follows:
3
Chairman: H.E. Mr. Hardeep Singh Puri
Panellists: Mr. Paul O'Connor
 Ms. Luz Elena Reyes de la Torre
1.5 The European Communities, Japan and Korea reserved their rights to participate in the panel
proceedings as third parties.
1.6 The Panel met with the parties on 4-5 September 2003 and on 7 October 2003. It met with the
third parties on 5 September 2003.
II. FACTUAL ASPECTS
2.1 This dispute concerns the investigation and de termination of the USITC in Softwood Lumber
from Canada and the final definitive anti-dumpi ng and countervailing duties applied following the
final determination.
2.2 In this case, the USITC instituted prel iminary anti-dumping and countervailing duty
investigations in response to a petition filed on 2 April 2001 on behalf of the US softwood lumber
industry. In the preliminary phase, the USITC determined, on 16 May 2001, that there was a
reasonable indication that an industry in the United States was threatened with material injury by

1 WT/DS277/1.
2 WT/DS277/2.
3 WT/DS277/3.

reason of imports from Canada of softwood lumber that were alle ged to be subsidized by the
Government of Canada and sold in the United States at less than fair value (“LTFV”).
4
2.3 Subsequent to United States Department of Commerce's ("USDOC") affirmative preliminary
determination that imports of softwood lumber from Canada were subsidized and sold in the United
States at dumped prices, the USITC instituted the final phase of its investigations.
2.4 On 16 May 2002, the USITC unanimously determin ed that an industry in the United States
was threatened with material injury by reason of imports of softwood lumber from Canada found to
be subsidized and sold in the United States at LTFV. 5 On 22 May 2002, the USDOC issued
antidumping and countervailing duty orders on imports of softwood lumber from Canada found by the
USDOC to be subsidized and sold in the United States at LTFV.6
2.5 In its final determination, the USITC found a single domestic like product consisting of
softwood lumber products. Based on the domestic li ke product determination, the USITC concluded
that there was a single domestic industry, which included all producers of softwood lumber in the
United States. The USITC found that several cond itions of competition pertinent to the softwood
lumber industry were relevant to its analysis.
7 In particular, these conditions included the recently
expired United States/Canada Softwood Lumber Agreement (“SLA”); demand, including factors
affecting demand, actual demand da ta and forecasts; supply conditions; species of lumber and
substitutability; prices; and integration of the Nort h American lumber market. The USITC determined
that the domestic softwood lumber industry was not materially injured by reason of subject imports
from Canada found to be sold at LTFV and to be subsidized, but found that there was a threat of
material injury by reason of such imports.
2.6 The USITC found that the domestic industry producing softwood lumber was vulnerable to
injury in light of declines in its performance over th e period of investigation, particularly its financial
performance. The USITC noted that the USDOC had determined that there were 11 programmes that
conferred countervailable subsidies to Canadian producers and exporters of softwood lumber,
including: the Provincial Stumpage programmes in the Provinces of Quebec, British Columbia,
Ontario, Alberta, Manitoba, and Saskatchewan; tw o programmes administered by the Government of
Canada; two programmes administered by the Pr ovince of British Columbia; and one programme
administered by the Province of Quebec. The US ITC found that subject imports were likely to
increase substantially based on: Canadian produ cers’ excess capacity and projected increases in
capacity, capacity utilization, and production; the ex port orientation of Canadian producers to the US
market; the increase in subject imports over the period of investigation; the effects of expiration of the
SLA; subject import trends during periods when th ere were no import restraints; and forecasts of
strong and improving demand in the US market. The USITC found that there was a moderate degree
of substitutability between subject imports of so ftwood lumber from Cana da and the domestic like
product, and that prices of different species affected the prices of other species.
 Given its finding of
likely significant increases in subject import volum es, and its finding of at least moderate
substitutability between subject imports and domes tic product, the USITC concluded that subject
imports were likely to have a significant price depr essing effect in the immediate future. The USITC
recognized that while inventories generally were not substantial in the softwood lumber industry,
Canadian producers’ inventories as a share of pr oduction had increased and we re consistently higher
than that reported by US producers during the period of investigation. Finally, the USITC noted that a
number of domestic producers had reported actual an d potential adverse effects on their development

4 66 Fed. Reg. 28541 (23 May 2001). (CDA-4).
5 67 Fed. Reg. 36022 (22 May 2002). (CDA-2) and the USITC Report in Softwood Lumber form
Canada, Investigations Nos. 701-TA-414 and 731-TA-928 (Final), Publication 3509, (May 2002).
6 67 Fed. Reg. 36068-36077 (22 May 2002). (CDA-2).
7 USITC Report at 21-27 (Exhibit CDA-1).

and production efforts, growth, investment, and ab ility to raise capital due to subject imports of
softwood lumber from Canada.
2.7 Thus, the USITC determined that further significant increases in dumped and subsidized
imports were imminent, that these imports were likely to exacerbate price pressure on domestic
producers, and that material injury to the domestic industry would occur.
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
A. CANADA
3.1 Canada requests the Panel to find that the inves tigation and final determ ination of threat of
material injury by the USITC in Softwood Lumber from Canada and the definitive anti-dumping and
countervailing duties imposed as a result violate Articles 1, 3.1, 3.2, 3.4, 3.5, 3.7, 3.8, 12 and 18.1 of
the Anti-Dumping Agreement and 10, 15.1, 15.2, 15.4, 15.5, 15.7, 22 and 32.1 of the SCM Agreement
and Article VI:6 (a) of GATT 1994.
3.2 Canada requests that the panel recommend that the United States bring its measures into
conformity with its WTO obligations, including by revoking the final determination of threat of
material injury, ceasing to impose anti-dumping and countervailing duties and returning the cash
deposits collected as a result of the United States' actions in Softwood Lumber from Canada.
B. UNITED
 STATES
3.3 The United States requests the panel to reject Canada's claims in their entirety.
IV. ARGUMENTS OF THE PARTIES
4.1 The arguments of the parties are set out in thei r written and oral submissions to the Panel, and
their answers to questions. The parties' arguments as presented in their submissions are summarized
in this section. The parties' written answers to questi ons are set out in full as Annexes to this report.
(see List of Annexes, page iv).
A. FIRST WRITTEN SUBMISSION OF CANADA
4.2 The following summarizes Canada's arguments in its first submission.
4.3 At issue in this dispute is the injury inves tigation of the United States International Trade
Commission (Commission) in Softwood Lumber from Canada and the final definitive anti-dumping
and countervailing duties applied as a result of th e Commission’s final determination made on
16 May 2002. In its final determination, the Commi ssion concluded that the US domestic softwood
lumber industry was not materially injured by reason of subj ect imports from Canada. However, it
determined that the industry was threatened with material injury by reason of such imports.
4.4 As will be demonstrated below, the Commission’ s threat of material injury determination
violated the requirements of Article VI of the General Agreement on Tariffs and Trade (“ GATT
1994”), the Agreement on Implementation of Article VI of the General Agreement on Tariffs and
Trade 1994 (“ Anti-dumping Agreement ”), and the Agreement on Subsidies and Countervailing
Measures (“ SCM Agreement ”). As a result of these violations, the United States imposed
countervailing and anti-dumping duties inconsistently with these Agreements. Accordingly, these
duties are not legal and should be withdrawn.

1. Standard of Review
4.5 As this dispute involves both the Anti-dumping Agreement and the SCM Agreement, both
Article 11 of the Understanding on Rules and Pr ocedures Governing the Settlement of Disputes
(DSU) and Article 17.6 of the Anti-Dumping Agreem ent apply. Article 11 of the DSU sets out the
appropriate standard of review fo r panels established under all the c overed agreements, subject to the
special provisions that apply in the case of the Anti-Dumping Agreement. Given the Appellate Body’s
and panel’s interpretations of Article 11 in past cases, this Panel should consider whether the
Commission: evaluated all the relevant factors that it was required under the Agreements to
investigate; examined all the fact s in the record before it and all of the relevant facts it could have
obtained (including those facts which might have supp orted a negative determination); and provided a
reasoned and adequate explanation of how the f acts as a whole supported the findings made on each
legal issue. According to the Appellate Body in US – Lamb Safeguard, if there is a plausible
alternative explanation of the facts as a whole, in the light of which the Commission’s explanation
does not seem adequate, the Panel should find th at the Commission has not provided a reasoned and
adequate explanation of how the facts support its determination.
4.6 In US – Hot-Rolled Steel, the Appellate Body determined that certain elements of Article 17.6
of the Anti-Dumping Agreement complement or supplement the standard of review contained in
Article 11 of the DSU. With respect to the oblig ation of panels to make an objective assessment of
the facts of the matter before them, the Appellate Bo dy found that both provisions require panels to
“assess” the facts and that this “clearly necessitates an active review or examination of the pertinent
facts”.
 Noting the duty of panels under Article 11 to ma ke an objective assessme nt of the facts, the
Appellate Body stated that it is “inconceivable that Article 17.6(i) should require anything other than
that panels make an objective ‘assessment of the facts of the matter’.”
2. The Requirement Under Article 3.1 of the Anti-dumping Agreement and Article 15.1 of
the SCM Agreement to Base Injury Determin ations on “Positive Evidence” and an
“Objective Examination”
4.7 Given that “injury” is explicitly defined in the Anti-Dumping Agreement and the SCM
Agreement to include both “material injury” and “threat of material injury” to a domestic industry, all
of the requirements set forth in Article 3 of the Anti-Dumping Agreement and Article 15 of the SCM
Agreement regarding injury determina tions apply equally in the context of threat of injury
determinations. Article 3.1 of the Anti-Dumping Agreement and Article 15.1 of the SCM Agreement
contain fundamental, substantive obligations that apply to Members and their investigating authorities
instructing them on how they must conduct their injury investigations and make their injury
determinations. Both of these Articles require that a determination of injury, which includes threat of
material injury, shall be “based on positive evidence and involve an objective examination of both: (a)
the volume of the dumped [or subsidized] imports and the effect of the dumped [or subsidized]
imports on prices in the domestic market for like products; and (b) the consequent impact of these
imports on domestic producers of such products”. As demonstrated below, the Commission’s
evaluation of the requirements contained in paragra phs 2 through 7 of Articles 3 and 15 falls short of
the fundamental, overarching obligations contained in Articles 3.1 and 15.1.
3. The Requirement Under Article 3.8 of the Anti-Dumping Agreement and Article 15.8 of
the SCM Agreement to Consider and Decide Threat of Injury with “Special Care”
4.8 The Commission also failed to satisfy the requirements of Article 3.8 of the Anti-Dumping
Agreement and Article 15.8 of the SCM Agreement which stipulate that “with respect to cases where
injury is threatened by dumped [subsidized] imports, the application of anti-dumping [countervailing]

measures shall be considered and decided with special care”. As demonstrated below, the
Commission’s failure to take “special care” permeates its entire determination.
4. The Requirements of Article 12 of the Anti-Dumping Agreement and Article 22 of the
SCM Agreement to Provide a Reasoned Explanation for Injury Determinations,
Including the Bases for Rejecting Relevant Arguments of the Parties
4.9 Article 12.2 of the Anti-Dumping Agreement and Article 22 of the SCM Agreement impose
upon investigating authorities the obligation to prov ide a reasoned and adequate explanation for the
injury determinations they make. In particular , these provisions require investigating authorities to
publish a notice of final determination of injury th at provides: in sufficient detail, the findings and
conclusions reached on all issues of fact and law cons idered material by the investigating authorities;
all relevant information on the matters of fact and law and reasons which have led to the imposition of
final measures; the reasons for the acceptance or rejection of relevant arguments or claims made by
the exporters or importers; and c onsiderations relevant to the injury determination as set out in
Article 3 and Article 15. As demonstrated belo w, the Commission’s Repor t falls short of these
obligations, and is thus inconsis tent with Article 12.2 of the Anti-dumping Agreement and Article 22
of the SCM Agreement.
5. The United States Has Acted Inconsistently with Article 3.7 of the Anti-Dumping
Agreement and Article 15.7 of the SCM Agreement
4.10 Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the SCM Agreement establish
three distinct requirements for threat of injury determ inations. First, they require that a determination
of threat of material injury “shall be based on facts and not merely on allegation, conjecture or remote
possibility.” Second, they require that “the change in circumstances which would create a situation in
which the dumping [or subsidies] would cause inju ry must be clearly foreseen and imminent”.
Finally, they require consideration of specific enumer ated factors, the totality of which “must lead to
the conclusion that further dumped [or subsidized ] exports are imminent and that, unless protective
action is taken, material injury would occur”.
4.11 The Commission’s Determination Failed to Identify the Clearly Foreseen and Imminent
Change in Circumstances Necessary to Establish a Threat of Injury. The panel in Egypt – Steel
Rebar observed that in a threat of injury investiga tion, “… the central question is whether there will
be a ‘change in circumstances’ that would cause th e dumping [or subsidies] to begin to injure the
domestic industry”. In this case, the Commission failed to provide a reasoned answer to this
fundamental question. In particular, the Commission did not explain how the evidence before it
provided a non-conjectural basis for concluding that the status quo would change such that subject
imports that were found to be non-injurious to the domestic industry during the period of investigation
would cause material injury in the imminent future.
4.12 Indeed, one of the few “change in circ umstances” identified in the Commission’s
determination – its forecast of “strong and improving demand” in the US lumber market “as the US
economy rebounds from recession” – would appear to make threat of injury less likely, rather than
more likely. In fact, the demand forecasts endor sed by the Commission forecast steady growth in
lumber demand beginning in the second half of 2002, leading to all-time record softwood lumber
consumption by 2003 (within the period the Commissi on considered imminent). In the face of this
evidence, the Commission never explained how the in crease in imports it predicted would outstrip the
strong and growing demand forecasted and therefore r esult in a material increase in Canadian market
share above the 34 per cent level found non-injurious during the period of investigation. Thus, the
Commission’s finding of “strong and improving demand”, combined with its finding of a relatively
stable subject import market share in its negative current material injury determination, suggests a
“change in circumstances” that would appear to make the threat of injury less likely, not more likely.
Accordingly, the Commission failed to provide a re asoned, adequate and c onsistent explanation

supporting a finding that there was a change in circum stances that would create a situation in which
the dumping or subsidy would cause injury imminently.
4.13 The Commission Did Not Properly Consider the Enumerated Factors in Article 3.7 of
the Anti-Dumping Agreement and Article 15.7 of the SCM Agreement . The Commission also
failed to consider properly the factors listed in Article 3.7 of the Anti-Dumping Agreement and
Article 15.7 of the SCM Agreement and other rele vant factors based on the evidence before it.
Canada demonstrates that proper consideration of th e totality of the relevant factors does not support
the Commission’s affirmative threat of injury determination.
4.14 The Nature of the Subsidies in Question.
 Pursuant to paragraph (i) of Article 15.7 of the SCM
Agreement, the Commission should have considered th e “nature of the subsidy or subsidies in
question and the trade effects likely to arise there from”. The Commission’s evaluation falls short of
the requirements of Article 15.7 because the Commissi on failed to consider all the relevant evidence
before it concerning the nature of the subsidies and, in particular, the trade effects likely to arise
therefrom. Specifically, the Commission failed to cons ider properly all the relevant evidence before it
regarding the absence of trade effects from the prim ary subsidies at issue – the provincial “stumpage”
programmes.
4.15 The Commission had before it relevant economic evidence from an eminent natural resources
economist demonstrating that the subsidy progra mmes in question do not increase the production of
logs or lumber or lower their prices, or increase the quantity or lower the prices of lumber exports to
the United States, in comparison with the outcome in a market in which government is not involved.
In other words, there was signi ficant evidence before the Commissi on that the subsidies at issue
would have no trade effects.
4.16 The Commission’s mere acknowledgement of the Canadian Trade Lumber Alliance
(CLTA)’s argument regarding the absence of trade ef fects does not constitute adequate consideration
of this factor. If the nature of the subsidy was su ch that it would not lead to an increase in imports
above the non-injurious level observed over the period of investigation, then the Commission’s
finding that imports were likely to increase substan tially and cause material injury could not be based
on positive evidence.
4.17 Moreover, the Commission’s characterization of the CLTA’s evidence contains fundamental
errors. First, the Commission erroneously stated that “Ricardian rent theory relies on the assumption
of fixed supply”, which it does not. Second, the Commission’s observation that “lumber supply is not
necessarily fixed” [emphasis added] is irrelevant be cause the stumpage subsidies relate to the market
for timber, which is upstream from the market for lumber.
4.18 Significant Rate of Increase of Dumped and Subsidized Imports.
 By virtue of paragraph (i) of
Article 3.7 of the Anti-Dumping Agreement and paragraph (ii) of Article 15.7 of the SCM Agreement,
the Commission should have considered whether ther e was “a significant rate of increase of [dumped
or subsidized] imports into the domestic market indicating the likelihood of substantially increased
importation”.
4.19 The Commission did not make the proper consideration required by these provisions. It
merely observed that the “volume of subject im ports from Canada increased by 2.8 per cent from
1999 to 2001” and that “[a]s a share of apparent domestic consumption, subject imports from Canada
increased from 33.2 per cent in 1999 to 34.3 per cent in 2001”. It did not co nduct any evaluation of
whether the rate of increase was “significant” and, if so, whether that rate of increase indicated a
“likelihood of substantially increased importation”. In short, the Commissi on failed to “go beyond a
mere recitation of trends in the abstract and put the import figures into context”, as it was obligated to
do.

4.20 Sufficient Disposable Capacity or Immi nent Substantial Increase in Capacity. Pursuant to
paragraph (ii) of Article 3.7 of the Anti-dumping Agreement and paragraph (iii) of Article 15.7 of the
SCM Agreement , the Commission should have considered whether there was “sufficient freely
disposable, or an imminent, substantial increase in , capacity of the exporter indicating the likelihood
of substantially increased dumped [subsidized] e xports to the importing Member’s market, taking
into account the availability of other export mark ets to absorb any additional exports”. The
Commission failed to consider properly either of the two elements of this requirement.
4.21 With respect to “an imminent, substantial incr ease in capacity of the exporter indicating the
likelihood of substantially increased dumped [subs idized] exports”, the Commission did not find that
there was an imminent, substantial increase in capacity, nor could the evidence before the
Commission reasonably be construed to support such a finding. With respect to “sufficient freely
disposable… capacity of the exporter indicating the likelihood of substantially increased dumped
[subsidized] exports”, the Commission li mited its consideration to the mere existence of Canadian
producers’ freely disposable capacity without expl aining how that theoretical ability to increase
imports would translate into the likelihood of subs tantially increased dumped and subsidized exports
to the United States that the Agreements require. The Commission ignored evidence of projections it
solicited from Canadian producers regarding how they intended to distribute the projected increased
production between their three principal markets – Canada, the United States, and third countries.
These projections showed that exports to the United States were expected to increase only slightly in
absolute terms from the non-injurious levels that occurred during 2001.
4.22 Price Depression and Suppression.
 Under Article 3.7(iii) of the Anti-Dumping Agreement and
Article 15.7(iv) of the SCM Agreement, the Commission should have considered whether “imports are
entering at prices that will have a significant de pressing or suppressing effect on domestic prices and
would likely increase demand for further imports”.
4.23 In its threat of injury analysis, the Commission st ated the following with respect to the effect
of the pricing of the subject goods: “Given our finding of likely significant increases in subject import
volumes, and our finding of at least moderate s ubstitutability between subj ect imports and domestic
product, we conclude that subject imports are likely to have a significant price depressing effect in the
future. Therefore, we find that subject imports from Canada are entering at prices that are likely to
have a significant depressing or suppressing effect on domestic prices, and are likely to increase
demand for further imports”. [emphasis is added]
4.24 In the last sentence of the above excerpt, the Co mmission stated that the subject imports from
Canada “are entering at prices that are likely to have a significant depressing or suppressing effect on
domestic prices, and are likely to increase demand for further imports”. However, that is simply a
restatement of the wording in Article 3.7(iii) of the Anti-Dumping Agreement and Article 15.7(iv) of
the SCM Agreement, and is not grounded in any way in the analysis that precedes it. That analysis
deals with the impact of forecasted volumes of subject imports on prices, not with the impact of
current import prices as required by Article 3.7(iii) of the Anti-Dumping Agreement and
Article 15.7(iv) of the SCM Agreement.
4.25 Moreover, this absence of a proper evaluation b ecomes all the more striking when one recalls
the Commission’s findings that there was no ev idence on the record to demonstrate significant
underselling by the subject imports, nor was there any evidence that the subject imports had
significant price effects either prior to, or following, the filing of the petition.
4.26 In addition, because the Commission’s pred iction of inju rious price effects derives
exclusively from its finding that the volume of im ports was likely to increase substantially, the
fundamental flaws in that finding, in particular the absence of any basis for concluding that such
increase would upset the non-injurious status quo by outpacing strong and improving demand, render
the Commission’s affirmative threat finding unsupported by any evidence at all.

4.27 Inventories of the Product Being Investigated.
 The Commission failed to properly consider
“inventories of the product being investigated”, as required by Article 3.7(iv) of the Anti-Dumping
Agreement and Article 15.7(v) of the SCM Agreement. The Commission’s consideration of this factor
was limited to a single sentence: “[w]hile inventor ies generally are not substantial in the softwood
lumber industry, Canadian producers’ inventor ies as a share of production increased and were
consistently higher than that reported by US pr oducers during the period of investigation”. The
footnote appended to this sentence reveals that th e “increase” to which the Commission referred was
not significant – 0.6 percentage points over th e 1999-2001 period. The Commission provided no
further elaboration regarding how this observation, wh ich relates solely to the period of investigation
during which no material injury due to the s ubject imports was found, supported the Commission’s
determination of threat of material injury to the domestic industry.
4.28 None of the Other Factors Cited in Support of the Commission’s Finding that Imports
Would Increase Substantially Supports it s Affirmative Threat Determination . The
Commission’s affirmative threat of injury determination is grounded in its finding of a likely
substantial increase in the subject imports. On the basis of this finding alone, the Commission
concluded that the subject imports were likely to have a significant depressing or suppressing effect
on domestic prices in the future. Canada has alr eady demonstrated how this central finding of the
Commission is not supported by its analysis of the factors listed in Article 3.7 of the Anti-Dumping
Agreement and Article 15.7 of the SCM Agreement.
4.29 The other factors examined by the Commission th at led to its finding that subject imports
were likely to increase substantially were: foreca sts of strong and improving demand in the US
market; the export-orientation of Canadian produ cers to the US market; the annual allowable cut
(AAC) requirements; the effects of the expiration of the Softwood Lumber Agreement between the
Government of Canada and the Government of the United States of America (“SLA”); and subject
import trends during periods when there were no impor t restraints. As shown below, none of those
factors points to a clearly foreseen and imminent change in circumstances that would create a
situation in which the subject imports would cause material injury.
4.30 Forecasts of Strong and Improving Demand in the US Market. One predicate for the
Commission’s conclusion that subject imports woul d increase substantially in the imminent future
was its finding of “forecasts of strong and improving demand in the US market” in 2002-2003. As
discussed above, “strong and improving demand” would a ppear to be a factor making threat of injury
to the domestic industry less likely, not more likely.
4.31 The Commission failed to evaluate how this f actor supported its finding of a substantial
increase in imports in the future and, more sp ecifically, how moving from a period of “relatively
stable” demand to a period of “strong and improving demand” would upset the non-injurious status
quo and make future injury likely. It ignored a crucial consideration – the projected market share held
by Canadian imports. Only if the increase in Cana dian exports was likely to outstrip the “strong and
growing demand” in the US market could Canadian market share increase materially above the 34 per
cent level the Commission considered non-injurious. But the Commission did not make that finding.
Therefore, there was no basis for it to conclude th at the increased demand in the US market supported
either a finding that imports would increase substantially or an affirmative finding of threat of injury.
4.32 The Export-Orientation of Canadian Producers to the US Market.
 The Commission observed
that “Canadian producers are predominantly export-o riented toward the US market, with exports to
the United States accounting for 68 per cent of their production in 2001.” The Commission provided
no further elaboration regarding the significance of this finding to its affirmative threat determination.
Significantly, the Commission failed to address the fact that Canadian producers were similarly
export-oriented during the period of investigation, over which the Commission made a negative injury

finding and over which the level of imports fro m Canada was non-injurious. The Commission failed
to demonstrate the change that is necessary to upset the non-injurious status quo.
4.33 The Annual Allowable Cut. The Commission observed that “many Canadian provinces
subject tenure holders (lumber producers) to requireme nts to harvest at or near their annual allowable
cut (“AAC”) or be subject to penalties/reducti ons in future AACs”. In its view, these cut
requirements “increase production even when demand is low and thus increase the incentive to export
more softwood lumber to the US market”.
4.34 The Commission failed to explain how these annual allowable cut requirements, which
applied to Canadian producers throughout the peri od of investigation during which the level of
imports from Canada did not increase to injurious levels, would nonetheless provide an incentive to
Canadian producers to increase their exports to injuri ous levels in the imminent future. If anything,
the record indicated that the Canadian cut requirements would have less impact in the imminent
future: the Commission acknowledged that to the extent cut requirements created an incentive to
increase exports, such incentive would occur “when demand is low”; however the Commission found
that the imminent future would be characterized by “strong and improving” demand, rather than the
“relatively stable” demand that occurred over the period of investigation.
4.35 Moreover, the Commission recognized that Québec, Alberta, New Brunswick and Nova
Scotia did not have minimum cut requirements, yet failed to take these facts into account when
making its conclusion that imports were likely to increase substantially in the future.
4.36 The Effects of the Expiration of the SLA. Under the SLA, the United States agreed for a five-
year period not to initiate investigations or othe rwise take action under sever al United States’ trade
statutes with respect to imports of softwood lu mber from Canada, in exchange for Canada’s
commitment to impose export fees on shipments to the United States of lumber produced in the
provinces of British Columbia, Alberta, Ontario and Québec above a negotiated baseline. The
investigations that resulted in the final determina tion at issue were initiated on 2 April 2001, two days
after the expiration of the SLA.
4.37 The Commission found that the “SLA appears to have restrained the volume of subject
imports from Canada at least to some extent ”, and had “ some restraining effects on the volume of
subject imports [emphasis added]. However, the Commission failed to explain how these inconclusive
statements supported its finding that “subject imports are likely to increase substantially”.
4.38 It is notable that the Commission did not find that the SLA had a “significant” or
“substantial” restraining effect on the volume of subject imports. Nor did the Commission find that
the SLA’s removal would lead to an increase in im port volumes sufficient to raise Canadian market
share to injurious levels in an expanding US mark et. The Commission’s finding regarding the effect
of the SLA may reflect its recognition that attributing a greater effect to the SLA could not be squared
with the evidence that Canadian import volumes and market share did not increase substantially
following the SLA’s expiration. Indeed, the data showed that subject import market share increased
only 0.4 percentage points after the expiry of the SLA between April and December 2001 compared
to the same period in 2000.
4.39 The Commission did not consider the slight incr ease in market share that took place after the
expiration of the SLA to be sufficient to translate in to material injury. To the contrary, it made a
negative material injury finding for the period that included a full year after the SLA expired. The
fact that any restraining effect from the SLA was not significant or substantial is also consistent with
the Commission’s finding that “the record does no t indicate that subject imports had a significant
price effect either prior to or following the f iling of the petition”, which occurred on the business day
following the expiry of the SLA. Thus, the alleged restraining effects of the SLA do not explain why
subject imports did not increase to injurious levels in the year following its e xpiration. It logically

follows that the Commission lacked a reasoned b asis for concluding that imports would increase
substantially in the imminent future in the SLA’s absence.
4.40 Subject Import Trends During Period When There Were No Import Restraints
. The
Commission observed that imports of softwood lu mber from Canada increased during periods in
which there were no restraints on their entry into the US market, i.e., prior to the SLA between 1994
and 1996, and during the period immediately afte r the SLA expired and before suspension of
liquidation in these investigations (April to Augu st 2001). It did not evaluate how these facts
supported its conclusion that subject imports were likely to increase substantially in the future.
4.41 With respect to the Commission’s reference to imports during 1994-1996, import trends for
that time period say nothing about likely import tre nds some eight years later without a finding that
market conditions in the two periods were simila r. Yet the Commission cited these prior import
trends without conducting any analysis whatsoever re garding market conditions in this earlier period
or otherwise explaining its reliance on 6-8 year old data, well before the period of investigation, to
project the likely level of imports in the foreseeable future.
4.42 With respect to the Commission’s reference to imports during the period of April to
August 2001, the Commission failed to evaluate wh ether the observed increase in imports over that
period represented: (i) a measure of the allegedly higher level of imports that would have arrived
absent any import restraint; or, instead, (ii) a shift in the timing of imports that otherwise would have
been shipped to the United States because impor ters knew well in advance when the SLA would
expire and when suspension of liquidation would begin, and had every incentive to delay or accelerate
imports to avoid both SLA export fees and bonding requirements.
4.43 Moreover, the Commission failed to explain th e inconsistency between: (i) its position that
trends in imports in the “no restraint” period from April to August 2001 were indicative of what
would happen in the absence of import restraints; and (ii) its statement that “we do not find that
material injury by reason of subject merchandise that is subsidized and sold at less than fair value
would have been found but for any suspension of liqui dation of entries of such merchandise”. Under
the Commission’s logic, given that the imposition of suspension of liquidation was the only
intervening event after August 2001, it must have been the factor that prevented imports from
increasing substantially, and material injury fro m ripening, prior to the Commission’s vote in
May 2002. However, the Commission explicitly concluded that it was not the suspension of
liquidation that prevented injury from occurring. Thus, import trends for the April to August period
cannot logically support a finding that imports woul d increase substantially and to injurious levels in
the imminent future absent protective action.
4.44 Conclusions.
 On the basis of the foregoing, it is clear that the totality of these factors do not
provide a non-conjectural basis for concluding that “subject imports are likely to increase
substantially”, much less lead to a substantial in crease in Canadian market share in a US lumber
market experiencing strong and improving demand. Accordingly, the single factor that forms the
foundation for the Commission’s affirmative threat of injury determination – a likely substantial
increase in subject imports – is not supported by the evidence. For these reasons, the Commission’s
threat of injury determination does not comply with Articles 3.1 and 3.7 of the Anti-Dumping
Agreement and Articles 15.1 and 15.7 of the SCM Agreement.
6. Volume and Price Effects of Subject Imports (Article 3.2 of the Anti-Dumping
Agreement and Article 15.2 of the SCM Agreement)
4.45 Article 3.2 of the Anti-Dumping Agreement and 15.2 of the SCM Agreement require an
investigating authority to consider whether there has been a significant incr ease in the volume of the
dumped or subsidized imports, either in absolute terms or relative to production or consumption in the

importing Member, whether there has been signi ficant price undercutting by those imports, and
whether the effect of such imports is to otherwise depress or suppress prices to a significant degree.
4.46 The Commission failed to explain properly how it could reach its affirmative threat of injury
determination in the light of its findings that: there had been a small increase in subject imports’
market share during the period of investigation; it could not draw any conclusion from the collected
pricing data as to whether there had been signifi cant underselling by the subject imports; and it could
not conclude from the record that the subject impor ts had a significant price effect during the period
of investigation. By failing to do so, the Commission did not comply with Article 3.2 of the Anti-
Dumping Agreement and Article 15.2 of the SCM Agreement in the context of threat of injury.
7. Impact of Imports on Domestic Industry (Article 3.4 of the Anti-Dumping Agreement
and Article 15.4 of the SCM Agreement)
4.47 When investigating authorities have determined that there will likely be an increase in
dumped or subsidized imports, they must assess the likely impact of such an increase on the domestic
industry. In Mexico – High-Fructose Corn Syrup , the Panel recognized that “an investigating
authority cannot come to a reasoned conclusion {regarding threat}, based on an unbiased and
objective evaluation of the facts, without taking in to account the Article 3.4 factors relating to the
impact of imports on the domestic industry”. As a resu lt, it held that “the listed factors in Article 3.4
must be considered in all cases,” along with “other relevant economic factors in the circumstances of a
particular case”.
4.48 In the section of its report concerning threat of material injury, the Commission assessed the
current state of the domestic softwood lumber indus try but failed to evaluate the likely state of the
domestic industry in the future, and, in particular , how further dumped and s ubsidized imports would
affect the domestic industry’s condition during the period of “strong and improving demand” the
Commission predicted for the imminent future. This constitutes a fatal deficiency in the
Commission’s threat of injury analysis. Without such an evaluation, it is impossible to reach a
reasoned conclusion regarding threat of material injury.
4.49 The Commission did address a number of the mandatory factors listed in Article 3.4 of the
Anti-Dumping Agreement and Article 15.4 of the SCM Agreement, but only with respect to the past.
The Commission did not assess how any of the listed factors was likely to evolve in the future.
Therefore, it failed to undertake any meaningful ev aluation of the listed factors for the purpose of its
threat of injury analysis.
4.50 Consequently, the United States has acted in consistently with its obligations under
Articles 3.1 and 3.4 of the Anti-dumping Agreement and under Articles 15.1 and 15.4 of the SCM
Agreement.
8. The United States Has Acted Inconsistently with Article 3.5 and 3.7 of the Anti-Dumping
Agreement and Article 15.5 and 15.7 of the SCM Agreement Which Require the
Demonstration of a Causal Relationship Between the Dumped and Subsidized Imports
and the Injury to the Domestic Industry
4.51 The Commission failed to comply with the re quirements in Articles 3.5 and 3.7 of the Anti-
Dumping Agreement and Articles 15.5 and 15.7 of the SCM Agreement relating to causation. The
requirements of Articles 3.5 and 15.5 can be broken down into two main elements: first, as confirmed
by Articles 3.7 and 15.7, there must be a demonstration of a causal relationship between the dumped
or subsidized imports and the injury to the domestic industry, which must be based on an examination
of all relevant evidence before the authorities; and, second, the authorities must examine any known
factors other than the dumped or subsidized imports which at the same time are injuring the domestic

industry, and the injuries caused by these other fact ors must not be attributed to the dumped or
subsidized imports (“non-attribution” requirement).
4.52 The Absence of a Causal Relationship Be tween the Dumped and Subsidized Imports
and the Threat of Injury. With respect to the first element, now here in its determination of threat of
injury did the Commission explain how its predicte d substantial increase in the volume of subject
imports would be likely to have a significant price depressing effect in the future and therefore would
threaten to cause injury to the domestic industry. In particular, the Commission failed to examine and
evaluate all evidence before it relevant to the demonstration of the necessary causal relationship,
including several “conditions of competition” it c oncluded were “pertinent to the softwood lumber
industry” and “relevant to our analysis”.
4.53 One such finding was the Commission’s acknowledgment that the United States is not self-
sufficient in lumber and that a significant volume of imports is needed to fulfil demand. This finding,
together with the Commission’s prediction of “strong and improving demand” in the US market,
suggests that any increase in imports would continue serving demand that the US industry could not
meet, and thus not upset the non-injurious status quo.
4.54 The Commission also failed to evaluate the im plications of its finding that subject imports
were “at least moderately substitutable” with domestic product. That finding necessarily includes the
concept that competition between subject imports and the domestic product is attenuated to some
extent. Notwithstanding this, the Commission made no effort to assess what portion of the substantial
increase in subject imports it predicted might serve end uses for which US species such as Southern
Yellow Pine are not well suited, or that US produc ers otherwise cannot meet or can meet only to a
limited extent.
4.55 The Commission further failed to integrate into its causation analysis its findings that there
was increasing integration in the North American lumber market, and that US domestic producers
were responsible for purchasing or importing “a sizable volume” of the subject imports. A reasonable
inference, and one supported by the factual record in this case, is that domestic producers purchase
subject imports to complement their own producti on, not displace it, and hence such imports are
unlikely to adversely affect the domestic industry.
4.56 The Absence of the Required Non-attribution Analysis. In the reasons for its affirmative
threat determination, the Commission fa iled to identify, much less examine, any other known factors
that could threaten injury to the domestic indus try in addition to the subject imports. Having
neglected even to identify other causal factors, the Commission also did not separate out and
distinguish the injurious effects of those other factors from the alleged injurious effects of the dumped
and subsidized imports.
4.57 This deficiency in the Commission’s determin ation is particularly acute given the strong
evidence before it that factors other than the subj ect Canadian softwood lumber imports were having
substantial adverse effects on th e US domestic industry during the period of investigation. The
Commission found that: “the deterioration in the condition of the domestic industry during the period
of investigation is largely the result of substantial declines in price. In light of our finding that subject
imports have not had a significant price effect, and the small increase in their market share, we
conclude that subject imports did not have a si gnificant impact on the domestic industry”. [emphasis
added]
4.58 This finding indicates that there were very significant “other factors” that adversely affected
the US domestic softwood lumber industry. The Commission explicitly identified another known
source of injury to the domestic industry in its curr ent injury analysis that it deemed sufficient to
break any alleged causal link between subject imports and injury, i.e., the industry’s own contribution
to the oversupply that led to the price declines over the period of investigation. The domestic

industry’s likely response to the “strong and improving demand” conditions that the Commission
forecast for the US market in the imminent future (i.e., increased output) was thus a potential source
of injury, in addition to any lik ely increase in subject imports, that the Commission was obligated to
take into account in its threat analysis. Howeve r, the Commission failed to do so. Similarly, the
Commission failed to examine the likely future role of non-subject imports and their potential
contribution to any threatened injury to the US industry, as well as other known factors potentially
injurious to the domestic industry, such as changes in the patterns of consumption.
4.59 Accordingly, the United States acted inconsis tently with Articles 3.1 and 3.5 of the Anti-
Dumping Agreement and Articles 15.1 and 15.5 of the SCM Agreement.
9. The Commission Combined Injury Analysis is Inconsistent with the SCM Agreement
and the Anti-Dumping Agreement
4.60 The Anti-Dumping Agreement and the SCM Agreement each contain detailed provisions
outlining the specific requirements that must be fulf illed by an investigating authority when making a
determination of injury, or threat of injury, in an anti-dumping or subsidy investigation. When an
investigation involves both dumped and subsidized im ports, the investigating authority is obliged to
comply with the specific requirements of both the Anti-Dumping Agreement and the SCM Agreement,
as well as of Article VI of GATT 1994.
4.61 The Commission’s threat of injury analysis combined dumped and subsidized imports . In
these circumstances, in order to a pply both anti-dumping and counterv ailing duties, the United States
was obliged to comply with the specific requirements of both the Anti-Dumping Agreement and the
SCM Agreement, as well as of Article VI of GATT 1994.
4.62 The Commission failed to comply with these requi rements by failing to undertake all of the
necessary evaluations specified in the Anti-Dumping Agreement and SCM Agreement respectively.
The Commission’s failures in this regard include, for example: (i) it did not properly consider the
nature and trade effects of the subsidies in question as required by Article 15.7(i) of the SCM
Agreement and failed to provide a reasoned and adequate explanation of how this factor, as well as the
other factors set out in Articles 3.7 and 15.7, supported its threat of injury determination; (ii) it failed
to consider all the mandatory factors under Articles 3.4 of the Anti-dumping Agreement and
Article 15.4 of the SCM Agreement; and (iii) it failed to conduct a proper causation analysis under
Article 3.5 of the Anti-Dumping Agreement and Article 15.5 of the SCM Agreement. Moreover, the
Commission never provided a reasoned explanation of why, in the particular circumstances of this
case, it was appropriate to conduct its analysis as it did.
B. FIRST WRITTEN SUBMISSION OF THE UNITED STATES
4.63 The following summarizes the United States' arguments in its first written submission.
4.64 In this dispute, Canada challenges the dete rminations of the US International Trade
Commission ("ITC") that an industry in the United States producing softwood lumber is threatened
with material injury by reason of imports of softwood lumber from Canada found to be subsidized and
sold in the United States at less than fair value ("LTFV").
4.65 The ITC’s determinations are based on positive evidence and on an objective examination of
all relevant factors and facts. Moreover, the IT C articulated reasoned and adequate explanations
demonstrating how the facts as a whole support its de terminations, permitting the Panel to adequately
discern the rationale for the ITC’s findings. Contrary to Canada’s claims, the ITC’ s determinations
are consistent with US obligati ons under Article 3 of the Antidum ping Agreement and Article 15 of
the SCM Agreement. As such, there is also no basi s for Canada’s claim that the ITC’s determinations

are inconsistent with Articles 1 and 18.1 of the Anti-Dumping Agreement, Articles 10 and 32.1 of the
SCM Agreement, or Article VI:6(a) of the GATT 1994.
4.66 Standard of Review . This dispute is covered by both th e standard of review set forth in
Article 11 of the DSU and the special standard of review for disputes arising under the Anti-Dumping
Agreement, set forth in Article 17.6 of that Agreement. In considering the relationship of Article 17.6
of the Antidumping Agreement to Article 11 of the DSU, the Appellate Body has indicated that these
provisions are complementary or supplementary. Canada, however, ignores the Appellate Body’s
explicit statements that neither of these article s permits, let alone requires, a Panel to conduct a de
novo review of the evidence or to substitute the Panel’s conclusions for those of the competent
authority. Instead, Canada repeatedly, whether im plicitly or explicitly, requests the Panel to reweigh
the evidence and decide the case de novo by substituting Canada’s view of the evidence for that of the
ITC.
4.67 Objective Assessment Is Not De Novo Review . Canada tends to blur the distinction
between the functions of a panel and those of an investigating authority. In making an "objective
assessment" of the matter, the Appellate Body has st ated that a panel is to consider whether the
national "authorities had examined all the relevant facts and had provided a reasoned explanation of
how the facts supported their determination". The Appellate Body describes the panel’s role as one of
evaluating a competent authority’s acts rather than directly evaluating the underlying facts. The
Appellate Body has recognized that it is for the investigating author ity to "determine, objectively, and
on the basis of positive evidence, th e importance to be attached to each potentially relevant factor and
the weight to be attached to it".
4.68 Obligation to Base Determinations on Positive Evidence . The investigating authority must
ensure that its determination of injury is made on the basis of "positive ev idence", which involves the
facts underpinning and justifying the injury determin ation, and involves an "objective examination",
which is concerned with the investigative process itself. The ITC considered the totality of the
evidence and based its determination on "positive eviden ce"; that is, evidence which is affirmative,
objective, verifiable and credible. Moreover, the ITC conducted an "objective examination" in which
the "identification, investigation and evaluation of the relevant factors [was] . . . even-handed".
4.69 Obligation to Provide Reasoned and Adequate Explanations . The requirement to provide
a reasoned explanation has not been interpreted to impose any specific method for assessing the injury
or for explaining the basis for such a determination. The Appellate Body in EC-Pipe recognized that
the evaluation of a factor does not necessarily require an explicit separate evaluation of that factor if
the analysis of the factor is implicit in the analy ses of other factors. The guidance essentially is that
the investigating authority "must be in a position to demonstrate that it did address the relevant issues"
As evident in the Views of the Commission, the ITC considered all relevant arguments raised b.y
parties and provided adequate explanations. Moreover, the Views of the Commission "contain a
persuasive explanation as to how the evaluation of relevant factors led to the determination of injury".
1. The ITC’s Determinations Are Consistent with US Obligations Under Article 3 of the
Antidumping Agreement and Article 15 of the SCM Agreement
4.70 A common thread in Canada’s claims is its repeated assertions that there could be no threat of
material injury because there allegedly were no inju rious effects found in the present material injury
analysis and that the ITC did not identify any immine nt and abrupt change in the status quo. Canada
portrays the ITC’s present material injury findi ng as a negative with no subsidiary findings or
evidence to support an affirmative finding. This si mply is wrong. The ITC found, based on the facts
as a whole, that the volume of imports was significant and thus supported an affirmative present
material injury finding. However, while the subj ect imports had resulted in some price effects, the
ITC recognized that excess supply of both importe d and domestic products had contributed to price
declines, particularly in 2000, and thus could not find that subject imports had had significant price

effects. The condition of the domestic industry, pa rticularly its financial performance, had declined
during the period of investigation as a result of th e price declines. The ITC found that the domestic
industry was vulnerable to injury. The ITC’s subs idiary findings regarding present material injury
foreshadow and clearly support the existence of a threat of material injury.
4.71 The ITC considered all factors relevant to a threat of material injury determination
provided for in the covered Agreements, including Articles 3.2, 3.4, and 3.7 of the Anti-Dumping
Agreement and Articles 15.2, 15.4, and 15.7 of the SCM Agreement. Canada has not met its burden
of establishing a prima facie case of any violation or inconsistencies with US obligations under the
covered Agreements
4.72 Continuum of an Injurious Condition Ascending from Threat to Injury . Threat of material
injury is material injury that has not yet occurred, but remains a future event whose actual
materialization cannot be assured with absolute certain ty but with clear likelihood. Threat of injury,
thus, is an anticipation of material injury that must be on the verge of occurring, i.e., clearly foreseen
and imminent.
4.73 The Anti-Dumping Agreement and the SCM Agreem ent recognize that injury to the domestic
industry does not generally occur suddenly, but rather often involves a progression of injurious effects
ascending from a threat of material injury, and if not prevented, to present material injury. Therefore,
a determination that an industry is threatened with material injury would be warranted when
conditions of trade clearly indicate that material inju ry likely will occur imminently if demonstrable
trends in trade adverse to the domestic industry c ontinue, or if clearly foreseeable adverse events
occur.
4.74 Canada reads the threat provision to require the investigating authority to identify "a" change
in circumstances, i.e., "an event," that will abruptly change the status quo from a threat of material
injury to present material injury , rather than the clearly foreseeable result of a sequence of events.
Canada argues that the ITC should have identified a specific event or change in the status quo in order
to justify its threat determination. But this interp retation is not necessitated, if even justified, by the
text of the covered Agreements, the negotiating hi story of the Agreements, or the Appellate Body’s
analysis in other dispute settlement proceedings involving the threat of injury. Rather, as the
Appellate Body in US-Line Pipe recognized, generally there is a c ontinuum of an injurious condition
of a domestic industry that ascends from a threat of injury up to injury.
4.75 Future-Oriented Analysis Based on Proj ections Extrapolating from Existing Data . A threat
analysis is a future-oriented analysis, based not on allegation or conjecture but rather on the facts. But
facts by definition pertain to the present and past rather than the future. While the occurrence of
future events can never be definitely proven by facts, projections necessarily are based on
extrapolations from existing data. In US-Lamb Meat , the Appellate Body discussed this tension
between the future-oriented threat analysis and the need for a fact-based determination, and
recognized that ultimately it calls for a degree of "c onjecture" about the likelihood that the threat will
ascend to injury. While the prospective nature of the analysis will not provide for certainty, the use of
facts from the present and the past provides the basis for projections about the future.
4.76 Meaning of "Special Care" . Article 3.8 of the Antidumping Agreement and Article 15.8 of
the SCM Agreement provide no discussion regarding what constitutes "special care," nor has any
panel explicitly interpreted this pr ovision. Canada’s argument notwithstanding, the "special care"
provision does not mean that there is a stricter, higher standard of review for threat analysis than for
present material injury analysis in the context of the covered Agreements. In fact, in the safeguards
context, the Appellate Body suggested that the dis tinction between threat of injury and present injury
"serves the purpose of setting a lower threshold for establishing the right to apply a safeguard
measure". The same logic would apply to the covered Agreements.

4.77 Meaning of "Consider"
. The covered Agreements require the ITC to consider all listed
factors. What Canada fails to recognize is that they do not require the ITC to make findings on each
factor. The term "consider" has been interpreted to mean, " inter alia : ‘contemplate mentally,
especially in order to reach a conclusion;’ ‘give a ttention to’; and ‘reckon with; take into account.’"
Accordingly, the term "consider" has not been read to require an explicit "finding" by the
investigating authority. Rather it is sufficient, if it is apparent in the relevant documents in the record,
that the ITC has given attention to and taken the factor into account.
4.78 In EC-Pipe, the Appellate Body recognized that consideration of a factor does not necessarily
require an explicit separate evaluation of that factor if the analysis of the factor is implicit in the
analyses of other factors. In the same manner, the investigating authority is not required to explicitly
address every minute detail or specific aspect of every argument that is raised by parties. Canada fails
to acknowledge that the ITC clearly considered the relevant evidence and arguments raised by parties
but found other evidence to be more persuasive.
2. The ITC’s Consideration of All Factors and Facts Relevant to the Threat of Material
Injury Analysis in this Case and Its Findings Are Consistent with US Obligations Under
the Covered Agreements
4.79 The ITC found that there was a likelihood of su bstantial increases in subject imports based on
evidence regarding, inter alia , Canadian producers’ excess production capacity and projected
increases in capacity, capacity utilization and pr oduction, the export orientation of Canadian
producers to the US market and subject import tr ends during periods when there were no import
restraints, such as the SLA. Furthermore, each of the six subsidiary factors considered by the ITC
related directly to threat factors set forth in Article 3.7 of the Antidumping Agreement and
Article 15.7 of the SCM Agreement, specifically wh ether there is a significant rate of increase in
imports and sufficient freely disposable production cap acity. The ITC addressed the effect of each of
these factors in its findings. The ITC determined that these increases in imports were likely to
exacerbate price pressure on domestic producers, and that material injury to the domestic industry
would occur. Moreover, the ITC found that the domes tic industry was vulnerable to injury in light of
declines in its performance over the period of investigation, particularly its financial performance.
4.80 The ITC’s Finding of Likely Substantial Increases in Subject Imports: a) Demand in US
Market – Forecasts and Possible Effects Supports ITC’s Determinations. Canada emphasizes a single
factor, demand in the US market, which was only one of six subsidiary factors considered by the ITC
in its determinations. Canada a ttempts to persuade the Panel that a purported significant increase in
US demand for softwood lumber was imminent and that this anticipated spike in demand would
restore the US industry’s financial health and insulate it from any further adverse effects from
additional subject imports from Canada. The Achilles h eel in Canada’s argument is that it disregards
substantial portions of the investigatory record and, despite the presence of significant contrary
evidence, offers little more than conjecture to support its theory that future increases in demand would
improve prices. The ITC considered and rejected this theory because it was not supported by the facts.
4.81 Contrary to Canada’s theory, strong demand over the period of investigation not only did not
translate into price improvements but did not prevent substantial declines in prices for softwood
lumber. Moreover, the evidence demonstrated that supply rather than demand had played the pivotal
role in the movement of prices of softwood lu mber in the US market, as the excess supply had
resulted in price declines through 2000. Canada has not refuted the fact that even with strong demand
during the period of investigation, prices dec lined and the condition of the domestic industry
deteriorated – effects opposite to those Canada spec ulates should occur in the future. Nevertheless,
Canada argues that the ITC should have agreed to th is optimistic theory about what effects growth in
demand would have on industry performance and prices.

4.82 Moreover, Canada has not refuted the ITC’s finding regarding forecasts for US demand, that
the US market would continue to be a very a ttractive and necessary one for Canadian lumber (a
market that accounts for about 65 per cent of Cana dian production), that subject imports would
continue to play an important role in the US mark et, and even that there would likely be increases in
such imports. Rather, Canada contends, relying again largely on the thin premise of increases in
demand, so great as to outpace supply increases, that increases in subject import volumes and market
penetration would not be injurious.
4.83 b) Canadian Producers’ Excess Capacity and Projected Increases in Capacity, Capacity
Utilization, and Production Su pport ITC’s Determinations . The ITC found that the evidence
demonstrated that Canadian producers had excess capacity, and increases in capacity and production
were projected in 2002 and 2003. In addition, Cana dian producers, which rely on sales in the US
market for about two-thirds of their sales, had incentives to produce more softwood lumber and export
it to the US market. In light of those facts, th e ITC reasonably found that excess capacity and further
projected increases in Canadian production would likely result in substantial increases of subject
imports.
4.84 The Canadian producers rely on sales in the US market for about two-thirds of their
production. The significance of Canada’s export-orientation is clear. When a single market accounts
for two-thirds of a country’s production, the expor ting industry’s success, and probably survival, is
tied to the importing market. Canada’s argument ignores the ITC’s affirmative finding in its present
injury analysis that the volume of imports fro m Canada, equal to one-third of US apparent
consumption, was significant. The evidence dem onstrated that the US market had been very
important to Canadian producers and was expected to continue to be.
4.85 The Canadian producers had excess capacity . Canadian producers’ capacity utilization had
peaked in 1999 at 90 per cent, and then declined to 84 per cent in 2001. This contrasted with the
relatively stable level for Canadian capacity utiliz ation in the three years prior to the period of
investigation, while operating under the SLA. The Canadian producers projected increases in
capacity and production, and improvements in capacity utilization in 2002 and 2003 . The evidence
showed that there had been a steady increase in Canadian producers’ capacity from 1995 to 1999,
with a more gradual increase from 1999 to 2001. T hus, despite the excess capacity already available
in 2001 as capacity utilization declined to 84 per cent, the evidence demonstrated that Canadian
producers expected to further incr ease their ability to supply the US softwood lumber market. In
particular, capacity utilization was projected to increase to 90 per cent in 2003, as capacity also was
projected to increase.
4.86 There was evidence of incenti ves to produce more softwood lumber and export it to the US
market. The ITC found there was evidence that manda tory cut requirements stimulated increased
production even when demand was low and thus in creased the incentive to export more softwood
lumber to the US market. The ITC found that imports with the annual allowable cut ("AAC")
requirements in place were at significant levels in its present injury analysis. It is disingenuous for
Canada not to acknowledge that one of the provi nces with AAC requirements is British Columbia,
which accounts for almost 50 per cent of Canadian softwood lumber production and 50 per cent of
imports to the US market.
4.87 Canadian producers’ export projections. The ITC found that more weight should be given to
actual data showing excess Canadian capacity, declin es in home market shipments, and declines in
exports to other markets, as well as projected incr eases in production than to the export projections,
which were inconsistent with the other data. While Canadian producers projected that exports to the
US market would increase slightly in 2002 and 2003, these projected increases in exports to the
United States accounted for only about 20 per cent of the planned increases in production. The US
market accounted for 68 per cent of the Canadian softwood lumber producti on in 2001. It was
reasonable, given the evidence as a whole, for the ITC to discount the Canadian producers’ projected

export data and assume that projected increases in production would likely be distributed between the
US market, home market, and other non-US export ma rkets in shares simila r to those prevailing
during the last five years. Canada has offered no positive evidence to refute the ITC’s reasonable
position that production increases would be distributed according to historic proportions. In this case,
the evidence demonstrated that the US market ha d been very important to Canadian producers and
was expected to continue to be.
4.88 c) Likely Increases in Subject Imports Support ITC’s Determinations
. In evaluating whether
there was a likelihood of substantially increased imports of softwood lumber from Canada, the ITC
considered, inter alia, evidence regarding the increase in imports over the period of investigation, the
effects of expiration of the SLA, and subject impor t trends during periods when imports were not
subject to restraints. The ITC found that the evidence demonstrated that the volume of subject
imports was already significant and had increased even with the restraining effect of the SLA in place,
and that subject imports had increased substantially during periods without export restraints as well.
Canada is simply incorrect in contending that th e ITC found such levels of import penetration were
insufficient, much less "non-injurious", in its presen t material injury finding. Moreover, contrary to
Canada’s charges, the ITC did not find that the 2.8 per cent increase in the volume of imports during
the period of investigation was insignificant. It expressly found the volume of imports significant and
that such imports would be injurious if combined with evidence of significant price and impact
effects.
4.89 In this case, the threat analysis begins w ith subject import volumes already at significant
levels. The evidence demonstrates that subject impor ts will continue to enter the US market at this
significant level and are projected to increase. Ca nada acknowledges that imports at this level would
continue and even increase; its argument princi pally concerns whether the increases would be
substantial.
4.90 Restraining effects of the SLA. Canada ignores the evidence supporting the ITC’s finding that
trade during most of the period of investigation was affected by the SLA. Canada claims that imports
after the SLA increased by only 0.4 per cent, but its comparison of import data for
April-December 2001 to April-December 2000 ignores the imposition of other trade restraining
measures, i.e., preliminary countervailing duties, in A ugust 2001. Thus, Canada’s argument is
predicated on a false notion – that trade during the identified period was free of trade incumberances.
In contrast, when the period with no formal trad e restraining measures is considered, the evidence
shows that subject imports increased by 11.3 pe r cent for the April-August 2001 period compared
with the same 2000 period. The facts are, there is a distinction in the le vel of imports depending on
whether restraints are in place and the import vol umes are substantially higher during periods when
they are not subject to restraining measures.
4.91 Trends in subject imports during periods when su ch imports were not subject to some type of
formal or informal restraint . Subject imports during these non-restraint periods increased
substantially. The ITC considered import trends during the period prior to the adoption of the SLA,
between 1994 and 1996. During the seven quarters, from August 1994, when the appeals for the
1991-1992 cases were terminated and imports of soft wood lumber from Canada were not subject to
any trade restraining measure, until the SLA took eff ect in April 1996, subject imports’ market share
increased from 32.6 per cent in 3 rd quarter 1994 to 37.4 per cent in 1st quarter 1996. With the SLA in
effect, the market share for softwood lumber fro m Canada declined to 34.3 per cent in 1997 and
remained fairly stable within a range of 2.7 per centage points. The ITC appropriately considered
these trends. It did not rely solely on this evidence to support its affirmative threat determination.
Moreover, the evidence for the earlier period was cons istent with the evidence for the more recent
restraint-free period (April-August 2001), which showed that imports substantially increased.
4.92 Subject imports increased during the period i mmediately after the SLA expired (April 2001)
and before suspension of liquidation (August 2001). Subject imports by volume for the period of

April to August 2001 were higher than the compar able April-August period in each of the preceding
three years (1998-2000) by a range of 9.2 per cent to 12.3 per cent. This evidence provides a clear
indicator of how subject imports have entered, and w ould enter, the US market in the imminent future
if not subject to trade restraints, and supports th e ITC’s finding of likely substantial increases in
subject imports.
4.93 Canada’s claim that the ITC should have consid ered if this increase was due to a shift in
timing resulting from the pending imposition of duties i gnores the simple fact that imports would be
entering the US market without restraints in subs tantially increased amounts, and continues to focus
on the magnitude of increases rather than the underlying fact that imports already are, and would
continue to be, at injurious levels. Canada’s attempts to portray the ITC’s finding as inconsistent with
its negative finding on the misunderstood "but for" pr ovision in US law that must be considered in
affirmative threat determ inations also fails for a number of reasons. First, the ITC found that the
volume of imports supported a present material inju ry finding; there would have been no need to
change its determination from threat to present if it had been based only on this factor. Second,
Canada is suggesting that the ITC should have base d its entire present material injury determination
on one factor based on only five months of data. However, as the Appellate Body in US-Lamb Meat
explained in the safeguards context, the data for th e entire period of investigation must be assessed in
making a threat of injury determination.
4.94 Canada fails to refute the simple fact that without restraints imports have increased: increases
stopped when the SLA was imposed; substantial increases in imports occurred when the SLA expired;
and increases in imports stopped when preliminary duties were imposed. Canada offers nothing but
speculation about other reasons why imports were not restrained during those periods.
4.95 The ITC’s Finding of Likely Pr ice Effects by Subject Imports. At the heart of Canada’s
arguments regarding the ITC finding of likely price effects is its disagreement with the finding of a
likely substantial increase in subject imports. Canada again mischaracterizes the evidence and
findings in the ITC’s present material injury analysis.
4.96 In evaluating the present price effect s of the subject imports, the ITC found that the
substantial volume of subject imports had some adverse effect on prices for the domestic like
product during the period of investigation, albeit not significant effects. The ITC concluded that
while subject imports had adversely affected prices of domestic products, it could not find significant
price effects because the price dec lines were due to excess supply in 2000 by both Canadian exports
and domestic product. While the evidence again showed substantial declines in prices in the third and
fourth quarters of 2001, to levels as low as 2000, the evidence regarding supply, which generally was
considered the cause for the substantial price dec lines in 2000, indicated that US producers had
curbed their production, but that overproduction "remai ns a problem in Canada". Therefore, the ITC
reasonably found that the additional subject imports , which it concluded were likely, would further
increase the excess supply in the market, putting furt her downward pressure on prices. Moreover, the
evidence demonstrated that pressure would come from excess Canadian supply rather than a
combination of import and domestic supply.
4.97 Canada would have the Panel preclude findings of likely price effects in a threat analysis
because present price effects were not found. Th is view simply has no basis in the covered
Agreements, particularly when, as here, prices declined at the end of the period of investigation. The
ITC’s explanation regarding likely price effects build s, in particular, on its explanation in its present
price effects discussion, among others.
4.98 The ITC’s Consideration of the Nature of the Countervailable Subsidies . The ITC also
considered the nature of the s ubsidies granted by Canada, consis tent with the requirement of
Article 15.7(i) of the SCM Agreement. The ITC exam ined the information presented to it by the US
Department of Commerce regarding the 11 progr ammes that it found conferred countervailable

subsidies to Canadian producers and exporters of softwood lumber. The ITC took into account that
none of the subsidies were of the kind described in Article 3 or 6.1 of the SCM Agreement.
4.99 At the centre of Canada’s claim is a misperception that the SCM Agreement requires the ITC
to make a finding concerning the nature of the subs idies and their likely trade effects. However, the
plain language of the Agreement requires the ITC to consider this factor but not to make a finding.
4.100 While the ITC clearly considered parties’ arguments on the nature and effect of the subsidies,
it declined to adopt the positions of any of the parties due to the conflicting evidence and economic
theories regarding the effects of stumpage fees on lumber output. Canada has provided the Panel with
a one-sided analysis of this issue, and ignored the conflicting evidence presented to the ITC regarding
the applicability of the economic models and their alleged effects. Canada would have the Panel
believe that the Canadian producers’ economic theory was the only information before the ITC on this
issue and that this theory was a proven fact. Neither assertion is true. The domestic producers
presented the ITC with arguments, economic analys is and economic studies to refute the economic
theory provided by Canadian parties. Indeed, ev idence presented to the ITC during its investigation
squarely placed in question whether the Ricardian rent theory was applicable to the timber and lumber
markets, whether the underlying premise to the theory regarding fixed supply was correct, and
whether the results regarding the effects of the st umpage fees on output were very different. The ITC
made an objective examination of this issue by considering all of the evidence and arguments
presented.
4.101 The ITC found that, despite all the evidence of record, the uncertainties regarding these
competing economic theories provided by the parties were such as to preclude reasoned and adequate
conclusions. Therefore, the ITC appropriately co nsidered the parties’ arguments and provided a
reasoned explanation but found it could not reach a finding on the competing economic theories. As
evident in the Views of the Commis sion, its consideration of this threat factor was not a reason that
led to its determinations and thus, it neither supported nor detracted from those determinations that the
domestic industry was threatened with material injury by reason of the subject imports.
4.102 The ITC’s Consideration of the Threat Inventory Factor . The ITC has given attention to
and taken the inventory factor into account. The IT C is not required to make findings on each factor,
but instead is only directed to consider the "totality " of the threat factors in making a determination.
The ITC ’s determination is reasonably based on nu merous factors, including consideration of the
inventories of the subject product.
3. ITC’s Determinations are Consistent with US Obligations Under Articles 3.2 and 3.4 of
the Antidumping Agreement and Articles 15.2 and 15.4 of the SCM Agreement
4.103 In a threat analysis, the investigating author ity should consider th e evidence regarding the
factors listed in Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the SCM Agreement,
as well as the present and past evidence regarding th e factors listed in Articles 3.2 and 3.4 of the
Antidumping Agreement and Articles 15.2 and 15.4 of the SCM Agreement.
4.104 ITC Properly Considered Volume and Price Effects of Subject Imports . The ITC
considered all of the facts from the present and past, specifically regarding the volume of imports,
price effects and the consequent impact of con tinued dumped and subsidized imports on the domestic
industry, in its threat analysis. The ITC’s evaluation of the evid ence regarding relevant factors,
pursuant to Articles 3.2 and 3.4 of the Anti-Dump ing Agreement and Articles 15.2 and 15.4 of the
SCM Agreement, resulted in subsidiary findings that the volume of imports was significant, that there
were some price effects, that the condition of th e domestic industry had deteriorated primarily as a
result of declining prices and that the industry was in a vulnerable state. Moreover, projections based
on the facts provide positive evidence justifying th e ITC’s determination that the domestic industry

was on the verge of material injury by reason of the continued dumped and subsidized softwood
lumber imports from Canada.
4.105 Canada’s arguments are merely variations of the same arguments already raised regarding
likely substantial increases in imports and likely pri ce effects, and are based on Canada’s premise that
there could be no threat because there allegedly we re no findings of injurious effects in the present
material injury analysis. That premise is demonstrably incorrect.
4.106 ITC Properly Considered the Impact of Subj ect Imports on the Domestic Industry . The
ITC also properly conducted a "meaningful evaluation" of the relevant factors listed in Article 3.4 of
the Anti-Dumping Agreement and Article 15.4 of the SCM Agreement, and reasonably concluded that
the deterioration in the performance of the domestic industry, particularly its financial performance,
made it vulnerable to injury. Canada fails to recognize that a finding of vulnerability by its nature is a
finding about the future, i.e., a future assessment of the industry’s susceptibility to injury.
4.107 Canada’s reliance on the panel’s findings in Mexico-HFCS to challenge whether the ITC
conducted a "meaningful evaluation" of these factors is misplaced. The issue in HFCS was not the
manner in which these factors were evaluated but that they did not appear to be considered at all.
Two very important differences distinguish this case from HFCS: first, it is possible, by reading the
ITC’s final determination here, where it was not in HFCS, to understand the overall condition of the
domestic industry with respect to the Article 3. 4 factors; and second, in this case, the domestic
industry was currently experiencing substantial decl ines in its condition, particularly its financial
performance, which was not the case in HFCS.
4. The ITC’s Determinations are Consistent with US Obligations Under Article 3.5 of the
Antidumping Agreement and Article 15.5 of the SCM Agreement
4.108 The ITC Demonstrated a Causal Relationship Between the Dumped and Subsidized
Imports and the Threat of Injury to the Domestic Industry. Canada’s claims under Article 3.5
and 15.5, respectively, are merely variations of the same arguments already raised regarding likely
substantial increases in imports and likely price eff ects, and are based on its premise that there could
be no threat because there allegedly were no injury findings in the present material injury analysis.
The totality of the facts when examined in an unbiased and objective manner support the ITC’s
findings.
4.109 Demand and self-sufficiency
. The ITC, not surprisingly si nce subject imports from Canada
have accounted for about one-third of US consumpti on for more than seven years, recognized that the
United States was not self-sufficient in the produc tion of lumber. Canada’s argument, however,
implies that, if demand increases substantially, th e US industry will not be capable of increasing
supply, because its capacity is fully utilized. Not only is this argument incorrect, it also is inconsistent
with Canada’s own argument regarding attribution to dumped and subsidized imports of injury caused
by other known factors. In that context, Canada assumes that the US industry has the capability to
contribute to excess supply in the future and would be the cause of injury. The facts do not support
either theory. The ITC appropriately considered the conditions of compe tition regarding demand and
the US industry’s ability to supply the US market.
4.110 Substitutability/Attenuated Competition. Canada ignores the analysis conducted by the ITC
and its findings based on considera tion of the totality of the facts, including the evidence provided by
purchasers and home builders, that there are other products that both countries produce that compete
with each other; Canadian softwood lumber and the domestic like product generally are
interchangeable; subject imports and domestic species are used in the same applications; regional
preferences exist, but do not reflect a lack of substitutability, but instead simply reflect a
predisposition toward locally-milled species; and evid ence demonstrated that prices of different

species have an effect on other species’ prices, particul arly those that are used in the same or similar
applications.
4.111 North American integration
. Canada recognizes that the ITC considered the integration of the
North American lumber industry, but criticizes the ITC for not speculating that integrated companies
would not harm related companie s. Yet, Canada provides no evidence whatsoever to support its
supposition that integrated firms will not harm their related parties. Moreover, this integration is not
new. This raises the question of why would it have a different effect in the future than during the
period of investigation, when, with integration in place, the evidence demonstrated that import
volumes were significant, and imports had some adverse price effects.
4.112 The ITC Examined Any Known Causal Factors to Ensure Injury Was Not Attributed to
Subject Imports. Neither Article 3.5 of the Anti-Dumpi ng Agreement nor Article 15.5 of the SCM
Agreement provides any particular methodology that authorities must use in examining other known
causal factors. The Appellate Body in EC-Pipe indicated that, provided that an investigating authority
does not attribute the injurious effects of other causal factors to dumped imports, "it is free to choose
the methodology it will use in examining the ‘cau sal relationship’ between dumped imports and
injury."
4.113 Canada principally alleges that domestic supply is a known causal factor which the ITC found
contributed to injury in its present material injury analysis, but ignored in its threat analysis. The ITC
examined constraints on domestic producers’ ability to meet demand. The ITC also took into
consideration domestic producers’ past contribu tion to oversupply conditio ns. Canada ignores,
however, the evidence cited by the ITC indicati ng that the domestic producers had curbed their
production, but that "overproduction remains a problem in Canada." Thus, while domestic
overproduction had contributed to adverse price effects in 2000, the evidence demonstrated that it was
no longer contributing to excess supply while Canadian imports continued to oversupply. Canada also
omits the fact that domestic production capacity was fa irly level during the period of investigation, a
time when apparent consumption was increasing. These facts concerning domestic supply reinforce
the ITC’s affirmative determinations.
4.114 The ITC considered parties' arguments regarding three other alleged causal factors –
nonsubject imports, other substitutes, and cyclical demand and housing construction cycles – that
Canada refers to in footnotes to its first subm ission. However, upon examination of the record
evidence regarding these issues, it is clear that none of them rise to the level of "other known factors
injuring the domestic industry".
5. The ITC’s Combined Investigations are Consistent with US Obligations Under Covered
Agreements
4.115 The ITC’s decision to cross-cumulate subsid ized and dumped imports of softwood lumber
from Canada in its consideration of whether th e volume and price effects of subject imports
threatened the domestic industry with material inju ry is consistent with US obligations under the
Antidumping Agreement and the SCM Agreement. Th e fact that neither Agreement speaks to the
issue of cross-cumulation does not mean that such an analysis is precluded or inconsistent with either
Agreement. The purpose of the covered Agreements is to provide a remedy against unfair trade
practices causing injury to a domestic industry. To deny a remedy where the cumulative effect of
dumped and subsidized imports is injury to the dom estic industry would frustrate the purpose of these
Agreements.
4.116 Finally, Canada’s allegations that the ITC conducted combined investigations and
cross-cumulated Canadian imports of softwood lumber so as to more likely result in an affirmative
determination in this case has no merit. Canada provides no basis to support this allegation and fails to
acknowledge that the ITC’s consistent practice is to cumulate both subsidized and dumped imports

from a single country for purposes of the ITC’s injury analyses. More significantly, Canada has failed
to explain to the Panel why it considers such prac tice to be inconsistent w ith obligations under the
Anti-Dumping and SCM Agreements, when Canada itself takes the identical approach in its own trade
remedy proceedings, cross-cumulating subsidized and dumped imports.
C. FIRST ORAL STATEMENTS OF CANADA
4.117 The following summarizes Canada's arguments in its first oral statements.
1. Opening Statement of Canada at the First Meeting of the Panel
4.118 The United States has imposed countervailing and antidumping duties on imports of Canadian
softwood lumber products. These duties are imposed in violation of the SCM and Anti--Dumping
Agreements, as well as GATT 1994.
4.119 Even with the market share enjoyed by Canadi an imports during the period of investigation,
the United States International Trade Commission (“Co mmission”) did not find present injury. What
change in circumstances would transform what th e Commission determined to be a non-injurious
status quo into a situation of imminent mate rial injury? The Commission provided no reasoned
answer to this question.
1. Standard of Review

4.120 Canada is asking this Panel to assess whet her the Commission made an objective and
reasoned determination based on the facts before it. Such an asses sment is not de novo review, nor
does it seek to have the Panel reweigh evidence or substitute its judgement for that of the
Commission.
2. The Overarching Obligations in Articles 3.1 and 15.1

4.121 The United States has not complied with Article 3.1 of the Anti--Dumping Agreement and
Article 15.1 of the SCM Agreement, overarching provi sions that require an investigating authority to
ensure that its threat determination is based on “positive evidence” and involves an “objective
examination”. The record reveals that the Comm ission’s examination of the evidence on the likely
volume of the dumped or subsidized imports, their likely effect on prices in the domestic market for
like products, and the likely consequent impact of these imports on domestic producers of such
products failed to meet these overarching requirements.
3. The Obligation to “Consider”

4.122 Article 3 of the Anti-Dumping Agreement and Article 15 of the SCM Agreement require an
investigating authority to “consider” certain factor s. The Commission did not properly consider the
required factors in this case - either explicitly or implicitly. Moreover, the requirement to “consider”
should not be viewed in isolation from the othe r obligations imposed upon the United States under
Articles 3.1 and 3.7 of the Anti-Dumping Agre ement and Articles 15.1 and 15.7 of the SCM
Agreement. In other words, the requirement to “consider” went alongside the Commission’s
obligation to ensure that its determination was based on facts and not on allegation or conjecture; its
obligation that findings be based on positive eviden ce and involve an objective examination; and its
obligation to examine all relevant facts and provide a reasoned and adequate explanation of how the
facts supported its determination under the applicable standard of review.

4. The Requirement to Take Special Care and the Threshold for Threat of Injury

4.123 The requirement to take “special care” in Ar ticle 3.8 of the Anti-Dumping Agreement and
Article 15.8 of the SCM Agreement forms an independent obligation with which a Member
conducting a threat analysis must comply. A fa ilure to take such “special care” permeates the
Commission’s entire determination. The United States now implies that the obligations imposed upon
investigating authorities are somehow lessened when evaluating threat of injury, as opposed to present
injury. This is incorrect. If anything, the standard for determining threat is higher than that for injury.
5. Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the SCM Agreement

4.124 Central to the proper interpretation of Artic le 3.7 of the Anti-Dumping Agreement and
Article 15.7 of the SCM Agreement is that some imminent and foreseeable change from the non-
injurious present must be identified. Perhaps r ealizing that its affirmative threat of injury
determination fails to identify the requisite cha nge in circumstances, the United States now seeks to
introduce ex post facto justifications for its fi nding. US revisionism cannot salvage the obvious
defects in the Final Determination, including the fa ilure to comply with the explicit obligation in
Articles 3.7 and 15.7 to identify a clearly foreseen and imminent change in circumstances that would
transform conditions so as to cause injury to the domestic industry.
6. Articles 3.7 and 15.7 - The Five Listed Factors

4.125 None of the five factors listed in Artic les 3.7 and 15.7 supported the Commission’s
affirmative threat determination. In summary:
• The Commission did not
 conclude that the nature of the subsidy and its likely
trade effects supported an affirmative threat determination or were likely
imminently or foreseeably to change to cause material injury to occur.
• The Commission did not conclude there was any significant rate of increase in
dumped or subsidized imports.
• The Commission did not conclude there was any imminent, substantial increase
in Canadian capacity indicating the like lihood of substantially increased dumped
or subsidized exports, and identified no positive evidence that Canadian
producers were likely to utilize their exis ting unused capacity to increase exports
to the United States.
• The Commission improperly concluded that imports were entering during the
period of investigation at prices that w ould have a significant price-depressing or
-suppressing effect.
• The Commission did not base its affirmative threat determination on a conclusion
that Canadian producers were likely to use their inventories to increase imports to
the United States.
7. The “Other” Factors Examined by the Commission

4.126 The Commission also considered other factors that, in its view, supported its finding of likely
substantial increase in imports. Those factors are: forecasts of strong and improving demand in the
US market; the export orientation of Canadian prod ucers to the US market; annual allowable cut; the
effects of the expiration of the SLA; and subject import trends during periods when there were no
import restraints. Like the factors listed in Articl es 3.7 and 15.7, none of the other factors on which
the Commission relied was sufficient to support its finding that the volume of imports was likely to

increase to injurious levels in the imminent future . The Final Determination, therefore, did not
identify, based on positive eviden ce in the record, a clearly foreseen and imminent change in
circumstances that would create a situation in which the subject imports would cause injury.
8. Articles 3.2 and 15.2
4.127 Articles 3.2 and 15.2 set out obligations relating to the examination of the volume of dumped
and subsidized imports and their effect on prices. With respect to volume, they provide that an
investigating authority consider whether there ha s been a significant increase in the volume of
dumped or subsidized imports, in either absolute or relative terms. The Commission’s actual findings
regarding volume, support the view that present volum es would not lead to a substantial increase in
imports.
4.128 Articles 3.2 and 15.2 also provide that inves tigating authorities consider whether there has
been a significant price undercutting by the subject imports or whether the effects of the subject
imports were likely to be otherwise to depress pric es to a significant degree or prevent price increases
to a significant degree. The Commission’s findings re garding price effects made in its current injury
analysis supported a negative current injury determ ination and provided no support to an affirmative
threat of injury determination.
9. Articles 3.4 and 15.4
4.129 The first sentence of Article 3.4 of the Anti-Dumping Agreement and Article 15.4 of the SCM
Agreement is key: “The examination of the impa ct of the dumped [or subsidized] imports on the
domestic industry concerned shall include an evalua tion of all relevant economic factors and indices
having a bearing on the state of the industry.” In the context of a threat determination, a proper
application of Articles 3.4 and 15.4 requires an as sessment of how the Articles 3.4 and 15.4 factors
and indices are likely to change in the future. The essential problem affecting the Commission’s
3.4/15.4 analysis is that it only refers to the pr esent state of the domestic industry and does not assess
the impact of the subject imports on the domestic i ndustry in the future. A finding of vulnerability is
not enough. The Commission had to analyse the likely im pact of the subject imports in the future. It
failed to do so.
10. Articles 3.5 and 15.5

4.130 Article 3.5 of the Anti-Dumping Agreement and Article 15.5 of the SCM Agreement establish
two main obligations: the first element is the requi rement to demonstrate “a causal relationship” and
the second element is what panels a nd the Appellate Body have characterized as the “non-attribution”
requirement. The Commission failed to satisfy e ither requirement. In order to conduct a proper
causation analysis, the Commission had to take in to account its finding of strong and improving
demand in the US market and the absence of any evidence that Canadian market share would grow
beyond the non-injurious levels of the period of inves tigation. It failed to do so. In conducting its
analysis with respect to the causal relationship, the Commission also should have considered the
impact of several conditions of competition that it concluded were “pertinent to the softwood lumber
industry” and “are relevant to our analysis”. Th ese conditions of competition include the fact that
subject imports were at least moderately substitu table with domestic products and that there was
increasing integration in the North American lumber market.
4.131 Turning to the second element of causation, th e United States failed to identify, much less
examine, any other known factors that could threaten injury to the domestic industry in addition to
Canadian imports. Notably, there was no basis for the United States to ignore the US industry’s likely
contribution to future supply conditions when conducti ng its threat analysis. The failure to evaluate
the effects of this factor, and indeed of any other factor, in its threat analysis – not to mention its

failure to separate and distinguish such effects from those attributed to Canadian imports – constitutes
a clear violation of Articles 3.5 and 15.5.
11. The Commission’s Combined Injury Analysis

4.132 Canada’s argument is not that an investigating authority cannot cross-cumulate, but that when
an investigating authority chooses to cross-cumulate , it must do so in a manner consistent with both
the Anti-Dumping Agreement and the SCM Agreement. In other words, it must ensure that it has
complied with the specific requirements of each Agreement. The Commission failed to do so.
12. Conclusion

4.133 In conclusion, Canada returns to the fundament al question that it asked at the beginning:
where in its Final Determination does the Commissi on identify positive evidence of an imminent and
foreseeable change in circumstances that would tr ansform the non-injurious status quo into a situation
of material injury? The Commission provided no reasoned answer to this question and there is
therefore no justification for its affirmative threat of injury finding.
2. Closing Statement of Canada at the First Meeting of the Panel
4.134 The central finding made by the Commission of a likely substantial increase in imports was
neither supported by the Article 3.7/15.7 factors nor by the other factors that the Commission listed.
Canada would not go over these failures again here.
4.135 The United States tried to defend the Commission ’s final determination as comprehensive.
But it did not and could not fill critical gaps in the final determination.
4.136 First, the United States said that the predicted substantial increase in imports would likely
have a significant price-depressing effect. What is missing from this assertion, however, is an
examination of the causal linkage between increase in subject imports and the adverse impact on
prices. The Commission did not examine whether th ese increased imports would outstrip the increase
in demand. In its present injury determination, the Commission found that Canadian imports did not
have a significant price effect particularly because of their stable market share. Yet, the Commission
omitted consideration of this highly relevant factor in its threat de termination. Would the market
share held by Canadian imports increase from its stab le non-injurious level? The Commission did not
consider, much less answer, this question. Indeed , the United States told the Panel that the market
share issue was simply not part of its threat an alysis – even though it was central to the negative
current injury determination.
4.137 Second, the United States tried to explain away the Commission’s finding of strong and
improving demand by telling the Panel about the adver se price effects that occurred during periods of
strong demand in the period of investigation. What is missing from this explanation is an examination
of the factors other than subject imports that caused the poor performance of the domestic industry
during the period of investigation, and whether they or other factors might threaten the industry in the
future. The most notable and unexplained of these factors was the domestic industry’s own
contribution to the over-supply and its consequent effect on price. Nothing in the Commission’s final
determination, nor in the US presentations to this Pa nel, deals with other possible causes of injury or
sources of threat, especially the domestic industry’s own conduct.
4.138 Third, the United States said that threatened in jury would evolve along a continuum into
actual injury because of adverse trade trends. Th e final determination, how ever, found no adverse
import-related trends during the peri od of investigation that, if continued, would cause an imminent
and foreseeable change in the non-injurious status quo.

4.139 The Commission did not perform an objective examination that considered all relevant factors
and that identified positive evidence of a clearly im minent and foreseeable change in circumstances
that would create a situation in which material injury would occur. Instead, its threat determination is
based on nothing more than conjecture and speculati on about Canadian imports and their impact on
the US domestic industry.
D. FIRST ORAL STATEMENTS OF THE UNITED STATES
4.140 The following summarizes the United States' arguments in its first oral statements.
1. Opening Statement of the United Sates of America at the First Meeting of the Panel
4.141 Overview. In raising numerous claims regarding th e ITC’s affirmative threat determinations,
Canada substantially distorts both the evidence th at was before the ITC and the nature of its
determinations. For example, the majority of Ca nada’s claims rely for support on its erroneous
assertion that the ITC made a negative present injury finding with no evidence or subsidiary findings
that could support an affirmative finding. This simply is not an accurate portrayal of the facts or the
findings. In reviewing the ITC’s determinations, one should be mindful of the following points:
• First, injury to the industry does not generally occur suddenly, but rather often involves a
continuum of injurious effects ascending from a thre at of material injury to injury – a concept
recognized in the Anti-Dumping Agreement (ADA) and the Subsidies Agreement (SCMA).
• Second, the term “consider” as used in the covered Agreements does not mean “make
findings”. The ITC appropriately considered all factors relevant to a threat analysis consistent
with US obligations under the covered Agreem ents and its findings reflect the facts as a
whole.
• Third, the ITC made subsidiary findings in its present injury analysis that supported an
affirmative present injury finding, e.g., the volume of imports was significant, imports had
some adverse price effects on domestic prices and the condition of the domestic industry had
deteriorated, primarily as a result of declining prices, and thus was in a vulnerable state.
These findings foreshadow present injury and cl early support the existence of a threat.
Canada’s claims of no present injurious effects are untrue.
• Fourth, the ITC’s affirmative threat determina tions are based on: (1) six subsidiary factors
showing a likelihood of substantial increases in subject imports; (2) likely price pressure
resulting from these increases in imports, partic ularly with evidence that prices declined
substantially at the end of the period of investiga tion; and (3) the consequent threat of injury
to an industry, already in a vulnerable state, resulting from the likely increases in imports and
price effects.
• Finally, the ITC’s determinations are b ased on positive evidence, and an objective
examination of all relevant factors and fact s. The ITC provided a reasoned and adequate
explanation of its findings and, therefore, its determinations are consistent with US
obligations.
4.142 Standard of Review . While Canada acknowledges the app licable provisions on standard of
review, its arguments would apply a de novo standard of review. Howe ver, the covered Agreements,
as consistently interpreted by the Appe llate Body and prior panels, preclude de novo review by a
Panel in trade remedy cases. They make clear the distinction between the role of an investigating
authority, as the finder of fact, and the role of a pa nel, as evaluator of an au thority’s acts rather than
directly evaluating the underlying facts. Thus, objective assessment by the Panel is not de novo
review.
4.143 Continuum of an Injurious Condition Ascending from Threat to Injury . Canada and the
United States have fundamental differences in inte rpretations of what constitutes a threat and its
distinction from present injury. The texts of the ADA and the SCMA show that threat of material

injury is material injury that has not yet occurred, but remains a future event whose actual
materialization cannot, in fact, be assured with absolute certainty. The covered Agreements, by
inclusion of the threat provision, recognize that injury to the domestic industry need not suddenly
occur, but rather often involves a continuum of an injurious condition that may ascend from threat to
present material injury. While the text of the threat provisions provide a clear example of a sequence
of events, Canada reads these provisions to require th e identification of “an event”, that will abruptly
change the status quo from a threat to present materi al injury. Canada argues that the ITC should have
identified a specific event. Mischaracterizing the ITC’s present material injury determinations and
ignoring the underlying findings, Canada argues that th ere could be no threat of injury because there
allegedly had been no present injurious effects and the ITC did not identify an y imminent and abrupt
change in the status quo. Canada’s argument fails on both the law and the facts.
4.144 The existence of threat of injury must be based on projections extrapolating from existing
data affirming a continuation of adverse trade trends . Accordingly, an authority should consider the
past and present evidence regarding the factor s listed in Articles 3.2 & 3.4 of the ADA and
Articles 15.2 & 15.4 of the SCMA to provide the basi s for projections about the future. While Canada
speculates about the future, it is evident that the ITC’s threat findings are based on consideration of all
relevant facts, i.e., the volume of imports, price effects a nd the consequent impact of continued
dumped/subsidized imports on the domestic industr y. These projections based on facts provide
positive evidence justifying the ITC’s determination that the domestic industry was on the verge of
injury by reason of the continued dumped/subsidized imports.
4.145 “Consider” does not mean “make findings ”. The covered Agreements require the ITC to
“consider” all listed factors in its threat analysis, but do not require the ITC to make findings on each
factor; no dispute settlement report has identified such a requirement. Rather, it is sufficient, if it is
apparent in the relevant document s in the record, that the ITC has given attention to and taken each
factor into account. Canada also fails to recogni ze that the Agreements state unmistakably that the
determinations are to be made on the basis of the totality of the factors considered and that
consideration, or any findings, regarding one specific factor is not necessarily dispositive.
4.146 ITC’s Present Injury Findings . The ITC’s subsidiary findings regarding present material
injury reflect the facts as a whole; the fact s foreshadow actual injury and support the ITC’s
determination of the existence of a threat of materi al injury. A common thread in Canada’s claims is
its repeated assertions that there could be no thr eat because there allegedly were no present injurious
effects. Inherent in Canada’s argument is a c onclusion that a legal determination of no present
material injury negates any affirmative subsidia ry facts or findings. Canada’s underlying premise
regarding the facts, findings, and law simply is wr ong. The ITC found, based on the facts as a whole,
that the volume of imports was already significant a nd thus supported an affirmative present material
injury finding. Moreover, subject imports had been subject to the restraining effect of the Softwood
Lumber Agreement (SLA) or the pendency of trade remedy action during virtually the entire period of
the investigation, and that restraint was now lifte d. The ITC also found that subject imports had
caused some adverse price effects, despite Canada’s selective quotations of the ITC Report.
However, the ITC recognized that excess supply of both imported and do mestic products had
contributed to price declines, particularly in 2000. The condition of the domestic industry,
particularly its financial performance, had declined resulting largely from substantial declines in price,
which the ITC found made it vulnerable to injury. The ITC’s subsidiary findings regarding present
injury were not negative and clearly support the ex istence of a threat of material injury. These
findings, when coupled with the likely increase in imports, a further decline in price levels, and
additional deterioration in the domestic industry’s condition, fully justified the ITC’s threat
determination.
4.147 ITC’s Threat of Material Injury Findings . The ITC considered all relevant threat factors
provided for in the covered Agreements, includi ng Articles 3.2, 3.4, & 3.7 of the ADA and
Articles 15.2, 15.4, & 15.7 of the SCMA.

4.148 The ITC found that there was a likelihood of substantial increases in subject imports
based on six subsidiary factors: (1) Canadian excess capacity and projected increases in capacity,
capacity utilization, and production; (2) the expor t orientation of Canadian producers to the US.
market; (3) the increase in subject imports over the period of investigation; (4) the effects of
expiratin of the SLA; (5) subject import trends dur ing periods when there were no import restraints;
and (6) forecasts of strong and improving demand in the US market. Each of the six subsidiary
factors related directly to threat factors rega rding a significant rate of increase in imports and
sufficient freely disposable production capacity.
4.149 Demand in US Market. Canada emphasizes a single factor in its challenge to whether there
would likely be increases in subject imports: dema nd in the US market. Demand was only one of six
subsidiary factors considered by the ITC. Canada attempts to persuade the Panel that a purported
significant increase in US demand was imminent and that this anticipated spike in demand would
restore the US industry’s financial health and insulate it from any further adverse effects from
additional subject imports. The flaw in Canada’s argument is that it disregards substantial portions of
the record. Despite significant contrary evidence, Canada offers little more than conjecture to support
its theory that future increases in demand would improve prices. The ITC expressly rejected this
theory because it was not supported by the facts. Demand, which was strong and at record levels,
during the period of investigation not only failed to translate into price improvements but did not
prevent substantial declines in softwood lumber prices. Moreover, supply rather than demand had
played the pivotal role in the movement of softw ood lumber prices in the US market, as the excess
supply had resulted in price declines through 2000. Canada seeks to have the Panel reweigh the
record evidence. But, Canada has not refuted th e ITC’s findings regarding forecasts for US demand,
i.e., that the US market would continue to be a very attractive, and necessary, one for Canadian
imports (a market that consumes about 65 per cen t of Canadian production); that subject imports
would continue to play an important role in the US market; and even that there would likely be
increases in such imports. Rather, Canada cont ends that increases in subject import volumes and
market penetration would not be injurious on the basis of its discredited demand theory.
4.150 Sufficient Freely Disposable Production Capacity . The facts clearly support the ITC’s
findings that excess capacity and further projected increases in Canadian production would likely
result in substantial increases of subject imports:
• First, Canadian producers rely on sales in the US market for about two-thirds of their
production. When a market accounts for two-thirds of a country’s production, the exporting
industry’s success, and probably survival, is tied to the importing market. The fact is, the US
market had been very important to Canadian producers and was expected to continue to be.
• Second, the Canadian producers had excess capac ity and projected increases in capacity and
production, and improvements in c apacity utilization in 2002 and 2003 . Thus, despite the
excess capacity available in 2001 as capacity u tilization declined to 84 per cent from 90 per
cent in 1999, Canadian producers expected to further increase their ability to supply the US
market by increasing capacity utilization to 90 per cent in 2003, as capacity also was
projected to increase.
• Third, Canadian producers had incentives such as mandatory cut requirements to produce
more softwood lumber and export it to the US market.
• Finally, Canadian export projections were inconsistent with other data. Given the evidence
as a whole, the ITC reasonably discounted Cana dian producers’ projected export data and
assumed that projected increases in production wo uld likely be distributed between the US
market, home market, and other non-US export ma rkets in shares similar to those prevailing
during the previous five years. Canada has offered no positive evidence to refute the ITC’s
reasonable conclusion.
4.151 The ITC’s Finding of Likely Substantial Increases in Subject Imports begins with subject
import volumes already at significant levels. It shows increases even with the restraining effect of the

SLA in place, and substantial increases during pe riods without trade restraints. Canada does not
dispute that subject imports will continue to ente r the US market at this significant level and are
projected to increase, but challenges whether the increases would be substan tial. Canada’s argument
that imports after the SLA increased by only 0.4 pe r cent is predicated on the false notion that trade
during the April-December 2001 period was free of trade incumberances. Its comparison of import
data ignores the imposition of the preliminary countervailing duties in August 2001. During the April-
August 2001 period, however, subject imports ra nged from 9.2 to 12.3 per cent higher than the
comparable April-August period in each of the prec eding three years (1998-2000). A similar pattern
was observed during the 1994-1996 period prior to th e adoption of the SLA. The facts demonstrate
that without restraints imports have increa sed. Increases stopped when the SLA was imposed;
substantial increases in imports occurred when th e SLA expired; and increases in imports stopped
when preliminary CVD duties were imposed. This evidence provides a clear indicator of how subject
imports have entered, and would enter, the US market in the imminent future if not subject to trade
restraints and supports the ITC’s finding of likely substantial increases in subject imports. Canada
offers nothing but speculation about other reasons why imports were not restrained during those
periods.
4.152 Likely Price Effects . Given its finding of likely significant increases in subject import
volumes, its finding of at least moderate substitutability , its finding that prices of a particular species
affect the prices of other species, and its present findi ng that the substantial volume of subject imports
had some adverse effects on prices for the domestic product, the ITC concluded that subject imports
were likely to have a significant price-depressing effect on domestic prices in the immediate future,
and are likely to increase demand for further import s. The evidence at the end of the period of
investigation showed substantial declines in prices in the third and fourth quarters of 2001. Evidence
indicated that US producers had curbed their produc tion, but that overproduction “remains a problem
in Canada”. The ITC reasonably found that the additional subject imports, which it concluded were
likely, would further increase the excess supply in the market, putting further downward pressure on
prices, thereby resulting in a threat of material injury to the US industry.
4.153 Nature of the subsidies . The ITC examined information on 11 programmes that Commerce
found conferred countervailable subs idies to Canadian producers and exporters of softwood lumber,
and took into account that none of them were export subsidies. While the ITC clearly considered
parties’ arguments, it declined to adopt the positions of any of the parties due to the conflicting
evidence and economic theories specifically regarding the effects of stumpage fees on lumber output.
Canada has provided the Panel with a one-sided analysis of this issu e. Canada would have the Panel
believe that the Canadian economic theory was th e only information before the ITC and that this
theory was an uncontested and proven fact. Neith er assertion is true. Indeed, evidence presented to
the ITC squarely placed in question the very app licability of Canada’s economic theories and the
alleged trade effects of the subsidies. The IT C made an objective examination of this issue by
considering all of the evidence and arguments presented.
4.154 “Other Known Causal Factors”. The ITC’s determinations reflect its consideration of other
factors identified to it as potentially causing material in jury to ensure that it did not attribute injury
from any known other factors to the subject imports. The other factors examined include: domestic
supply, nonsubject imports, cyclical demand and housing construction cycles, North American
integration, and other product substitutes. The fact is, the alleged “other” factors identified by Canada
in its first written submission either were not othe r known causal factors or did not constitute a cause
of injury at the same time as the subject imports.
4.155 Combined Investigations . The ITC’s decision to cross-cumulate subsidized and dumped
imports of softwood lumber from Canada is also co nsistent with the covere d Agreements. Canada
provides no basis to support its contention that the combined investigations were conducted to more
likely result in an affirmative determination and fails to acknowledge the ITC’s consistent cross-
cumulation practice. More significantly, Canada ha s failed to explain why it considers such practice

to be inconsistent with obligations under the c overed Agreements, given its identical approach to
cross-cumulating subject imports in trade remedy proceedings.
4.156 As demonstrated in the ITC Report, the ITC ar ticulated reasoned and ad equate explanations,
indicating its objective consideration of releva nt factors on which it relied in making its
determinations, demonstrating how the facts as a w hole support its determinations, and enabling this
Panel to determine the rationale and evidentiary b asis for the ITC’s findings. These determinations
are based on positive evidence and are consistent with US obligations.
4.157 The United States notes that Canada’s request that the Panel recommend a particular course
of action – that the United States revoke the final determination of threat of injury, cease to impose
duties, and return the cash deposits imposed – seek s action not called for under the WTO agreements
and is inconsistent with Article 19.1 of the DSU.
2. Closing Statement of the United States of America at the First Meeting of the Panel
4.158 Canada continues to seek to have the Pane l impose requirements on the ITC that have no
basis in the covered Agreements. For example, in numerous instances where Canada finds no specific
basis to support a given requirement in the Agreem ents, it instead reverts to a general obligation to
provide a reasoned explanation and argues that the ITC did not provide such an explanation for a
given action, e.g., cross-cumulation, consideration of the competing economic theories, and
consideration of market share. The “reasoned explanation” obligation apparently flows from
Article 12.2 of the ADA and Article 22.5 of the SCMA , which require an inv estigating authority to
state the facts, law, and reasons supporting its de termination. The ITC has done so here. These
articles are not catch-all provisions encompassing the obligations that Canada posits but for which it is
unable to find any other basis in the Agreements.
4.159 Canada made certain concessions at the first panel meeting, including: (1) “consider” does
not mean “make a finding”; (2) "special care" does not involve a standard for determining threat that
is higher than that for determining injury; and (3) the ITC was not required to make a finding
regarding the economic theories concerning the nature of the subsidy if the evidence did not permit
one. Canada’s concessions should narrow the issues in dispute and reinforce the conclusion that the
ITC’s determinations did not violate US obligations under the covered Agreements.
4.160 Finally, the United States provides a few br ief comments clarifying certain issues Canada
raised in its oral presentation. On the issue of cross-cumulation , Canada listed several alleged
specific requirements distinct to each covered Ag reement. The United States notes that, with the
exception of the nature of the subsidies, these alleged requirements are not distinct but rather common
to both Agreements. Thus, none of Canada’s claims seem to relate to cross-cumulation. On the issue
of Articles 3.4 of the ADA and 15.4 of the SCMA , Canada’s reliance on the Panel’s findings in
Mexico-HFCS to challenge whether the ITC conducted a “m eaningful evaluation” is misplaced. The
issue in Mexico-HFCS was not the manner in which these factors were evaluated but rather the failure
to consider them at all. Unlike Mexico-HFCS, it is evident that the ITC conducted a “meaningful
evaluation” in this case. On the issue of substitutability/ attenuated competition , Canada has
misstated that the ITC found that “competition was therefore attenuated” and that “products [had]
limited substitutability”. The ITC found, based on the evidence in the record, that subject imports and
domestic species are used in the same applications, and that prices of a particular species will affect
the prices of other species.
E. SECOND WRITTEN SUBMISSION OF CANADA
4.161 The following summarizes Canada's arguments in its second written submission.

1. Introduction
4.162 Canada demonstrates that the United States h as violated its WTO obligations by imposing
anti-dumping and countervailing duties on imports of Canadian softwood lumber on the basis of an
injury investigation and final de termination by the United States International Trade Commission
(Commission) that were fundamentally flawed and that do not comply with the provisions of the Anti-
Dumping and SCM Agreements, as well as the GATT 1994.
4.163 Having examined the record evidence, the Co mmission made a finding of no present injury

Despite attempts by the United States to argue othe rwise, nowhere in its present injury analysis did
the Commission make a finding that the current volum e of subject imports was injurious. Nor did the
Commission find that Canadian imports had a significant price effect during the period of
investigation.
4.164 Having determined no present injury, the Commissi on proceeded to examine threat of injury.
In its analysis of threat, the Commission failed to co mply with the provisions of Articles 3.7 and 15.7.
Nowhere in its Determination does the Commission identify what clearly foreseeable and imminent
change in circumstances would create a situation in which the dumping/subsidy, found to be non-
injurious in the present, would cause injury to the domestic industry.
4.165 Without identifying any clearly foreseen and imminent change in circumstances, the
Commission based its affirmative threat determination on the erroneous finding of “a likely
substantial increase in subject imports” and then, without reasoned and careful analysis, reached the
conclusion that “these imports are likely to exacerba te price pressure on domestic producers and that
material injury to the domestic industry would o ccur”. However, and as will be discussed in more
detail below, unless Canadian market share increased significantly above the 34 per cent level that the
Commission found non-injurious in its present injury analysis – a finding that the Commission did not
and could not make on the record before it - the future adverse price effects the Commission attributed
to subject imports would not occur.
4.166 Moreover, the finding of a likely substantial incr ease in imports – the central basis for the
Commission’s threat determination - is unsupported by the Commission’s own analysis of the relevant
threat factors, not to mention the evidence on the r ecord. None of the factors outlined in Articles 3.7
and 15.7 provides a non-conjectural basis for the Commission’s conclusion of a likely substantial
increase in subject imports. The Commission’s analyses of the other factors it cites in support of its
finding are similarly flawed. As a result, the Co mmission’s investigation and determination does not
satisfy a fundamental requirement of a threat of inju ry determination; namely, to demonstrate that the
totality of the factors considered leads to the c onclusion that further dumped/subsidized imports are
imminent and that, unless protective action is taken, injury would occur.
4.167 Compounding the deficient evidentiary analysis by the Commission is its failure to perform
an adequate causation analysis. In particular, the Commission’s finding that subject imports “are
likely to have a significant price depressing effect in the future” was made without any examination of
whether a causal linkage could be drawn between predicted increased imports and predicted adverse
price effects. Without any evidence that the pred icted increase in subject imports would outstrip the
“strong and improving” demand, there was no basis for the Commission to assume that the increase in
imports would indeed send prices down. The Commission also failed to consider the extent to which
the increase in subject goods would serve market se gments for which the US and Canadian goods are
not close substitutes, thereby minimi zing the impact of the subject goods on pricing and the state of
the domestic industry. Thus, there was no basis for the Commission to find a causal link between the
anticipated growth in subject imports and injury.
4.168 Furthermore, in its present injury analysis, the Commission found that other known factors,
most notably the domestic industry’s own cont ribution to the oversupply in the US market,

contributed to price declines and poor performance of the domestic industry over the period of
investigation. However, nowhere in its threat analysis does the Commission examine, let alone
“separate and distinguish”, the effects of these other known factors from those attributed to the subject
imports.
4.169 Faced with defending an affirmative threat de termination whose central finding provides no
rational support for that determination and is also unsupported by the evidence before the
Commission, the United States now tries to argue th at findings made in its present injury analysis
somehow “foreshadow” injury and support the threat determination. The record evidence, however,
lends no support to this ex post facto attempt to rehabilitate the Commission’s flawed determination.
4.170 In sum, the final affirmative threat determ ination by the Commission is an example of
precisely what the Agreements are desi gned to prevent. It is a threat determination that is based on a
central finding that is unsupported by a reasoned a nd adequate explanation and positive evidence; that
fails to identify a change in circumstances; that fails to establish a causal link between the subject
imports and threatened injury; and that fails to separate and distinguish the effects of the subject
imports from the effects of other factors, such as the domestic industry’s own oversupply, on the
domestic industry. As such, the determination is grounded in speculation and conjecture, and most
certainly does not demonstrate the “special care” to be employed in threat of injury determinations.
4.171 In this submission, Canada first provides a brief overview of the Commission’s present injury
analysis, followed by an examination of the Commission’s unsupported central finding of a likely
substantial increase in imports. Canada next demonstrates the flaws in the Commission’s causation
and non-attribution analyses and then demonstrates how the Commission’s determination cannot be
rehabilitated by ex post facto rationalizations now offered by the United States.
2. No Present Injury
4.172 Given the ex post facto emphasis now placed by the United States on the Commission’s
present injury analysis, it is useful to review what findings the Commission actually made in its
current injury determination. The Commission found that the US domestic industry did not suffer
present injury by reason of subject imports. This was due, in large part, to the fact that the
Commission could not conclude that subject imports had a significant price effect during the period of
investigation “particularly in light of relatively stable market share”.
4.173 Contrary to what the United States has argued, Canada does not claim that a negative present
injury determination necessarily precludes an affirma tive threat finding. In this case, however, the
findings made by the Commission in its present inju ry analysis and the reco rd evidence left the
Commission without a non-conjectural basis for arriving at its affirmative threat determination.
4.174 Findings made by the Commission in reaching its negative present injury determination that
also had an important bearing on whether a threat of injury existed, include: subject imports from
Canada maintained a relatively stable market shar e during the period of investigation and at levels
lower than in prior years; there was no evidence of price underselling by the subject imports, either
from the confidential pricing data or from the public pricing data; there was no evidence of confirmed
lost sales or revenues due to the subject imports; and there was no other evidence of significant
adverse price effects from the subject imports. In te rms of the condition of the domestic industry, the
Commission also found that declines in performance had levelled off in 2001.
4.175 The Commission summed up its present injury analys is with the statement: “In light of our
finding that subject imports have not had a significant price effect, and the small increase in their
market share, we conclude that subject imports did not have a significant impact on the domestic
industry.”

4.176 The above summary of the Commission’s present injury findings and conclusion is drawn
directly from the Final Determination. What most certainly cannot be drawn from the Final
Determination are the current attempts by the United States to insert explanations into the
Commission’s present analysis in an effort to make up for the absence of analysis and record evidence
underpinning its affirmative threat determination.
3. Threat Finding Not Supported
4.177 The Commission based its threat of injury determination on its central finding of “likely
substantial increases in subject import volumes” and its conclusion that “subject imports are likely to
have a significant price depressing effect in the future”.
4.178 None of the factors listed in Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of
the SCM Agreement supported the Commission’s central finding of a likely substantial increase in
imports or its affirmative determination of threat of injury. Nor did the other factors relied upon by the
Commission provide a non-conjectural basis for its affirmative determination of a threat of injury.
 Listed Factors
 Significant Rate of Increase of Subject Imports
4.179 The Commission lists “the increase in subject im ports during the period of investigation” as
one of the factors supporting its finding of “a likely substantial increase in imports”. However, in its
Final Determination, the Commission simply observe d trends in subject import volume and market
share without further explanation and without indi cating whether the rate of increase of subject
imports during the period of investigation was significant.
4.180 Not only did the Commission fail to explain how its analysis of this factor supports its finding
of a likely substantial increase in imports, but the record evidence relied upon by the Commission also
provides no support for the proposition that there was, as set out in Articles 3.7(i) and 15.7(ii), “a
significant rate
 of increase of dumped/subsidized imports in to the domestic market”. In its current
injury analysis, the Commission found only a 2. 8 per cent increase in volume over the period of
investigation, did not find this volume to be injuri ous, and said nothing about the “rate” of increase.
The Commission also noted the “relatively stable market share maintained by subject imports over the
period of investigation”. These findings certainly do not equate to a finding of “a significant rate of
increase”. Moreover, there is nothing in either the Commission’s determination or the record
evidence to indicate that anything would change in the context of threat of injury.
 Capacity
4.181 The Commission lists “Canadian producers’ excess capacity and projected increases in
capacity, capacity utilisation and production” as suppor ting its finding of a likely substantial increase
in imports. With respect to the “imminent, substantial increase in capacity of the exporter indicating
the likelihood of substantially increased dumped [subs idized] exports” referred to in Articles 3.7(ii)
and 15.7(iii), the Commission simply noted that “Canadian producers projected additional capacity
increases”. The Commission did not find that those increases were substantial nor did the record
permit such a finding given that the only availabl e evidence indicated that the predicted increase in
capacity would be less than one per cent annually.
4.182 With respect to the “sufficient freely dispo sable… capacity of the exporter indicating the
likelihood of substantially increased dumped [subsidi zed] exports”, the Commission simply stated in
the course of its threat of injury analysis that “Canadian producers expect to further increase their
ability to supply the US softwood lumber markets.” This ambiguous statement does not support the
Commission’s finding of a likely substantial in crease in imports, particularly as it offers no

explanation on how the available Canadian capacity would translate into a likelihood of substantially
increased imports. The inadequate analysis perfo rmed by the Commission is all the more striking
given the record evidence that Canadian producer s had had sufficient freely disposable capacity
during the period of investigation to export more subject goods to the United States, but did not do so.
4.183 In addition, the Commission reached its finding th at Canadian producers expected to increase
their ability to supply the US softwood lumber mark ets without taking into account the projections of
the Canadian exporters showing that exports to the United States were expected to increase only
slightly in absolute terms from the non-injurious levels of 2001. In its First Written Submission and in
its Oral Statement, the United St ates argues that it was reasonable for the Commission to discount the
Canadian producers’ projected export data. The Un ited States further argues that Canada has offered
no positive evidence to refute the ITC’s conclusi on that production increase would be distributed
according to historic proportions.
4.184 This argument by the United States constitutes another ex post facto attempt to justify the
Commission’s decision. An analysis of the reliability of Canadian producers’ projections or the likely
distribution of the Canadian exports is nowhere to be found in the Final Determination. On this basis
alone, the US argument should be rejected.
4.185 Even assuming that the Commission made the analysis and came to the conclusion now
attributed to it by the United States, the Commi ssion would have had to e xplain how it could justify
relying on these projections of Canadian producers to find that they would increase production, but
then disregard the very same projections on the lik ely destination of such increased production. In
order to satisfy the requirements of the WTO Agre ements, viewed in the light of the standard of
review, the Commission could not “pick and choo se” data from a set of internally reconciled
projections without providing an adequate justification for so doing.
 Price Depression and Suppression
4.186 The Commission arrived at its conclusion that “subject imports are entering at prices that are
likely to have a significant depressing or s uppressing effect” based on its findings of “likely
significant increases in subject import volumes” a nd “at least moderate substitutability between
subject imports and domestic product”. Such an analys is plainly distorts the focus of the factor listed
in Articles 3.7(iii) and Article 15.7(iv) which directs an investigating authority to look at the impact of
current prices on future volume and not at the impact of volume and/or substitutability on future
prices. Not only did the Commission therefore fail to conduct the proper analysis associated with this
factor, but in any event, there was no evidence on the record to support its conclusion that imports
“are entering at prices that are likely to have a significant depressing or suppressing effect on
domestic prices and are likely to increase demand for further imports”. As acknowledged by the
Commission in its present injury analysis, it was un able to draw conclusions regarding the current
effect of current prices of subject imports during the period of investigation. As a result, the
Commission had no basis on which to reach a conclusion re garding the future effect of current prices.
Finally, the United States’ argument that it relie d on an analysis of “price trends” to support its
conclusion is nothing more than another ex post facto rationalization. Nowhere in the Commission’s
discussion of this factor in the Determination is there any reference to a “price trends” analysis.
 Inventories
4.187 In its report, the Commission indicated that Canadian producers’ inventories as a share of
production increased and were consistently higher than that reported by US producers during the
period of investigation. However, the Commissi on did not explain how this observation supported its
finding of a likely substantial increase in imports. In fact, the Commission did not list inventories as
one of the factors supporting its finding and during the first substantive meeting of the Panel, the
United States acknowledged that the Commission did not rely on inventories to support that finding.

 Nature of the Subsidies and Likely Trade Effects
4.188 In its Oral Statement, the United States cl aims that the Commission made an objective
examination of the evidence and arguments related to the nature of the subsidies and its trade effects.
As indicated in Canada’s First Written Submission and Oral Statement, as well as in its answer to
Question #15 posed by the Panel, the United States did not conduct an objective examination. The
Commission’s analysis is vitiated by its mischaract erization of the applicable economic principles as
well as Canada’s argument and record evidence. Given that the nature of the subsidy was such that it
did not, and would not, affect the volume or price of lumber produced in Canada or exported to the
United States, the Commission was required to give pr oper consideration to this factor. It could not
avoid the issue merely because it thought that th e evidence was conflicting. Canada does not argue
that the Commission was required to make a finding had the evidence not permitted one, but Canada
does contend that the Commission had to consider this factor and provide a reasoned and adequate
explanation for any finding of inconclusiveness, just as it would have had to explain any other
finding. In any event, this factor in no way supported the Commission’s finding of a likely substantial
increase in imports.
 Other Factors Considered by the Commission
• Export Orientation of Canadian Producers to the US Market
4.189 The Commission cited “the export orientation of Canadian producers to the US market” as a
basis for its finding of a likely substantial increase in imports. The total attention devoted by the
Commission to this factor in its report is limited to a few short sentences, the crux of it being that:
“Canadian producers are predominantly export-oriented toward the US market, with export to the
United States accounting for 68 per cent of their production in 2001.”
4.190 The footnote appended to this sentence refers to Tables VII-2 and VII-7 of the Staff Report
and includes the following text: “According to Canadian producers’ questionnaire responses
(covering nearly 80 per cent of production in Canada) exports to the United States increased from
13,021 mmbf in 1999 to 13,041 mmbf in 2000, and to 13,456 mmbf in 2001, and are projected to
increase to 13,660 mmbf in 2002, and to 13,954 mmbf in 2003.” In other words, Canadian producers
projected that exports to the United States would increase 0.84 per cent from 2001 to 2002 and
increase 2.1 per cent from 2002 to 2003. Importantly, the footnote further notes that, as a share of
total Canadian shipments , Canadian exports to the United St ates were projected to decrease
 from
60.9 per cent in 2001 to 58.8 pe r cent in 2002, and decrease still further from 58.8 per cent in 2002 to
58.5 per cent in 2003.
4.191 In the light of the projected decrease in the percentage of total Canadian shipments exported
to the United States, and the longstanding export orie ntation of Canadian producers to the US market,
the Commission failed to provide a reasoned and adequate explanation of how this factor supported its
finding of a likely substantial increase in impor ts. Absent evidence that the degree of export
orientation would substantially increase in the futu re – evidence lacking on the record before the
Commission - this factor does not support the Commission’s finding.
• Annual Allowable Cut
4.192 Annual allowable cut requirements were in place in Canada throughout the period of
investigation when the Commission found no present injury, and the Commission made no finding
that these requirements would change in the immi nent future. The Commission did not provide any
explanation as to how a continuation of the same re quirements would result in substantially increased
imports in the imminent future. To the contra ry, given the Commission’s statement that these
requirements provide an incentive to export when demand is low, and its finding that demand was

projected to be strong and improving, the record evidence indicated that , if anything, the cut
requirements would have less of an impact in the imminent future.
• Expiration of the SLA
4.193 As for the effects of the expiration of th e SLA, the Commission found only that the SLA
“appears to have restrained the volume of subject im ports from Canada at least to some extent”. As
Canada pointed out in its First Written Submission, the Commission failed to explain how this
inconclusive finding supported its finding of a likely substantial increase in imports.
4.194 Furthermore, the Commission began the discussion that led it to that inconclusive finding by
stating that:
Each year during the pendency of the SLA, Canadian producers used all of their fee-
free quota, all of their $50 fee quota, and imported some softwood lumber with $100
fees, suggesting that in the absence of th e SLA they would have shipped more, given
the near prohibitive level of the $100 fee.
4.195 This statement is plainly wrong. As has been acknowledged subsequently by the
United States, Canadian producers did not use all of their $50 fee quota during the period 2000-01. In
fact, they used only 31.4 per cent of that quota. Therefore, even the Commi ssion’s weak finding that
the SLA “appears to have restrained the volume of subject imports from Canada at least to some
extent” is not supported by the evidence on the record.
• Subject Import Trends During Periods When There Were No Import
Restraints
4.196 The Commission relied on the subject import tr ends during periods when there were no
import restraints as a basis for its finding of a li kely substantial increase in subject imports. The
Commission first looked at the import trends durin g the period 1994-1996 and found that the imports
had increased from 32.6 per cent in the 3 rd quarter of 1994 to 37.4 per cent in the 1 st quarter of 1996.
However, the Commission failed to examine whether the market conditions during that period were
sufficiently similar to present conditions to warrant the use of eight year-old data.
4.197 In addition, the Commission failed to take into account its own statement that the evidence
showed that subject import market share increased from 27.5 per cent in 1991 to 35.9 per cent in
1996. Those data show that the increase in im ports during the 1994-1996 period constituted a mere
continuation of the increase that had taken pl ace during the 1991-1994 period, a period during which
import restraints were in place. Therefore, those da ta do not support an inference that subject imports
would grow at a significantly greater rate during a period without import restraints than during a
period with import restraints in place. Conseque ntly, the import trends during the 1994-1996 period
could not be relied upon by the Commission to support its finding of a likely substantial increase in
imports.
4.198 The Commission also looked at the import trends during the April 2001 to August 2001
period, the period between the expiration of the SLA and the suspension of liquidation. However, it
did not analyse whether the increase in imports it observed compared to the same period during
preceding years constituted: (a) a fair measure of th e allegedly higher import level that would arise as
a result of the lifting of import restriction; or rather reflected (b) a shift in the timing of imports that
otherwise would have been shipped to the Unite d States because importers knew well in advance
when the SLA would expire and when suspension of liquidation would begin, and had every incentive
to delay or accelerate imports to avoid both SLA export fees and bonding requirements.

4.199 The Commission’s analysis on that point was all the more essential because evidence on the
record suggested that the increase in imports during the period reflected the latter scenario – in other
words, a shift in the timing of imports in reacti on to the opening of a narrow window of opportunity.
Canada further notes that this explanation for the increases during that short period is supported by the
fact that overall, for 2001, the level of subject im ports was similar to that of 2000. Moreover, the
Commission had to take into account its own finding that the expiration of the SLA had only “some
restraining effect” on the volume of subject impor ts when analyzing what caused the increase in
imports during the April to August 2001 period . For these reasons, the Commission’s reliance on
import trends does not support its finding of a likely substantial increase in imports.
• Strong and Improving Demand
4.200 Having considered the “strong and improving demand” projected for the US market, the
Commission came to the conclusion that the “United States will continue to be an important market
for Canadian producers”. However, this trite conclusion does not point to any increase in subject
imports from Canada, even less to a substantial increase.
4.201 All other things being equal, “improving demand” would make injury less, not more, likely.
In a situation of strong and improving demand, the market share of subject imports would not increase
unless the increase in volume outstripped the incr ease in demand. However, the Commission made
no such finding. Without a predicted increase in mark et share, there is no reason to believe that the
subject imports, which the Commission found did not reach injurious levels during the period of
investigation, would reach such levels in the imminent future.
4.202 As for the United States’ observation that prices declined even with relatively high and stable
demand during the period of investigation, Canada makes two points. First, it is neither Canada’s
argument nor obligation to establish th at strong and improving demand would improve the condition
of the domestic industry; Canada’s point is simply that this finding cannot support the Commission’s
threat determination absent a further finding, whic h the Commission did not make, that the predicted
increase in subject imports would outstrip the growing demand, thus leading to a significant increase
in Canadian market share. Se cond, the US observation underscores Canada’s causation argument.
Any decline in the performance of the domestic industry during a period of stable demand would not
foreshadow (to use the United States’ newly adop ted term) any decline in performance during a
period of improving demand. Had the domestic industry’s condition deteriorated during the period of
investigation when both demand and subject import ma rket share were stable, other factors had to
have contributed to the decline. The Commission i gnored these other factors in its threat analysis, as
will be discussed in more detail below.
4. Causation
4.203 Even had the Commission properly found a likely substantial increase in imports, it could not
have properly found that this increase would cause in jury to the domestic industry. To properly find
that the increase in subject imports would have a significant price depressing effect and cause injury
in the future, the Commission also would have had to find, at minimum, that the increase in imports
would outstrip the strong and improving demand that it found in the US market. During the period of
investigation, the Commission could not conclude that the subject imports had a significant price
effect, particularly in light of relatively stable market share maintained by subject imports. With
“strong and improving demand”, a growth in imports could not be threatening unless the growth
promised to exceed the increase in demand. As stated above, the Commission did not make such a
finding of future increased market share and there was no evidence on the record to support it.
4.204 Moreover, the Commission’s analysis of the imp act of the subject imports in the future did
not take into account the impact of several conditi ons of competition that it concluded were “pertinent
to the softwood lumber industry” and “relevant to our analysis”.

4.205 With respect to substitutability, the Commission failed to consider the extent to which the
increase in subject goods would serve market segment s for which the US and Canadian goods are not
close substitutes, thereby minimizing the impact of the subject goods on pricing and the state of the
domestic industry. There was evidence on the record demonstrating that many US domestic
purchasers do not consider Canadian and US lumber to be close substitutes.
4.206 Similarly, the Commission failed to consider that the domestic producers import or purchase a
sizeable volume of subject import themselves and that integration in the North American market is
increasing. This record evidence detracted from th e Commission’s conclusions regarding price effect
and injury to the domestic industry.
4.207 In concluding as it did that the imports woul d cause injury to the domestic industry, the
Commission also failed to examine the impact of the subject imports on the domestic industry in the
future in terms of the relevant economic factor s and indices listed in Articles 3.4 and 15.4. The
Commission examined the evolution of listed factor s during the period of investigation, but in the
context of threat, it needed to assess how these factors were likely to change. A threat determination
requires a change from the non-injurious status quo. In order to support its finding that the subject
imports would cause injury to the domestic industry in the future, the Commission had to consider the
relevant economic factors and indices in terms of the future.
4.208 With respect to the non-attribution requireme nt contained in Articles 3.5 and 15.5, the
United States claims that the Commission’s Report reflects the Commission’s consideration of other
factors identified as potentially causing injury and co nfirms that it did not attribute injury from any
known other factors to the subject imports. The other factors allegedly examined by the Commission
include: domestic supply; non-subject imports; cyc lical demand and housing construction cycles;
North American integration; and other product substitutes.
4.209 The Commission Report does not bear out the Un ited States’ claim that the non-attribution
analysis was done. There is a complete lack of analys is with respect to the injurious effects of factors
other than the subject imports in the future. Moreover, the Commission explicitly rejected the
requirement, articulated by the Appellate Body, to separate and distinguish the effects of other known
factors from those attributed to subject imports.
4.210 With respect to domestic contribution to oversuppl y, Canada has set out in its Oral Statement
the problems affecting the ex post facto attempt by the United States to demonstrate that the
Commission considered that known factor. The fi nding that the United States now ascribes to the
Commission is nothing more than an industry analys t’s report that was used by the Commission only
in its present injury analysis and only to suppor t the finding that “both subject imports and the
domestic producers contributed to the excess supply” during the period of investigation. The use of
that report for the new US rationale is all the more surprising given that it projected Canadian
production to decline more than US production in 2001, a projection that was proven true by the data
on the record.
4.211 With respect to the other listed factors th at the United States claims the Commission
considered, while they are discussed in th e Commission Report section entitled ”Conditions of
Competition”, they are clearly not considered in the context of their likely impact in the future. The
discussion of non-subject imports is a case in point. In the “Conditions of Competition” section, the
Commission wrote: “While nonsubject imports were present in the US market during the period of
investigation, they never exceeded 3 per cent of appa rent domestic consumption.” Given the fact that
the incremental increases in the volume and mark et share of both subject imports and non-subject
imports were virtually equivalent during the period of investigation, clearly a proper non-attribution
analysis would have required an evaluation of the injurious effects of the non-subject imports in the
future and a separation of those injurious effects from any injurious effects of the subject goods.

5. Adverse Trade Trends
4.212 The United States attempts to rehabilitate th e Commission’s determination and make up for
the lack of analysis and record evidence supporting th e affirmative threat finding by arguing that the
Commission’s present injury findings somehow “f oreshadow” and provide support for the threat
determination. The argument appears to be th at the Commission demonstr ated “an evolution or
progression of adverse trends in conditions” and thus satisfied the requirements for establishing threat
of injury.
4.213 While Canada agrees that it is appropriate to extrapolate from past and present facts in a
threat analysis, the Commission simply did not do th is in its Final Determination. Nowhere in the
Final Determination can be found the explana tions and linkages from the Commission’s present
findings to the future threat determination that the United States would have this Panel believe exist.
For example, there is no evaluation by the Commissi on of the impact of the supposed “adverse trade
trends” on the condition of the domestic industry in the future and no analysis of a causal link
between the predicted injury to the domestic industry and subject imports.
4.214 The absence of support in the Final Determination for the US “adverse trends” argument is
not surprising given that the central theory in the Commission’s analysis is not that there would be a
“continuum of adverse trade trends”, but rather th at there would be a likely substantial increase in
subject imports. However, as shown above, this cen tral finding is unsupported by analysis and
evidence. Perhaps in acknowledgement of the weakness of the Commission’s reliance on its
erroneous volume finding, the United States now seeks to create other explanations for the affirmative
threat determination. In its First Oral Statem ent, Canada highlighted some of the most obvious
attempts by the United States to insert such ex post facto reasoning into the Fi nal Determination.
Such attempts by the United States to alter the Commission’s analysis ex post facto should be rejected
by this Panel.
4.215 Furthermore, the record does not support any fi nding of adverse trade trends. Are there
adverse trends in volume? No, because Canadian imports increased less than 3 per cent over the
period of investigation and their market share was, according to the Commission, “relatively stable”.
Indeed, as noted above, the Commission based its c onclusion that subject imports had no significant
present price effect “particularly in light of rela tively stable market share”. In addition, the
Commission did not
 find the “significant rate of increase” in import volume that Articles 3.7 and 15.7
contemplate as indicating a substantial increase in imports in the future and importantly, failed to
analyse whether the relatively stable market share of subject imports would change in the future.
4.216 Are there adverse trends in prices? No, because the Commission did not find any
underselling by Canadian imports and found that Ca nadian imports did not cause any significant price
effects “particularly in light of relatively stable market share maintained by subject imports over the
period of investigation”. The Commission descr ibed significant price increases as well as price
declines during the period of investigation, but id entified no overall trend. Moreover, the record
showed that the price trend in the first quarter of 2002 was of rising prices: prices had increased
steadily for three months, running to levels more than 10 per cent higher than the fourth quarter of
2001. A review of the Final Determination, therefor e, reveals that the alleged “adverse price trends”
finding referred to by the United States in its First Written Submission is yet another example of an ex
post facto rationalization that appears nowhere in the Commission’s Final Determination.
4.217 Are there adverse trends in the condition of the domestic industry? Again, no, because
although the Commission characterized the domestic industry as vulnerable, it acknowledged that
most of the decline in industry performance occurred in the first half of the period of investigation and
its performance “levelled off” in 2001.

4.218 Moreover, the Commission failed to establish a causal link between the future state of the
industry and subject imports. As described above, the Commission failed to analyse whether the
predicted increase in imports would result in an incr ease in market share. Without such an increase,
what would change from the status quo where subject imports were non-injurious? Furthermore, the
Commission failed to assess whether the alleged adverse trends that it now claims would lead to
injury, could reasonably be attributed to subj ect imports and not to other known causes – other
known causes that were taken into account by the Co mmission in its present injury analysis, but
ignored in its analysis of threat. The failure to perform the requisite causal analysis highlights the
lack of any analysis in the Final Determination of the likely state of the domestic industry in the
future.
4.219 In sum, the positive evidence in the record di d not demonstrate, and the Commission did not
find, any adverse trends that, if continued, would cause a clearly foreseeable and imminent change in
the non-injurious conditions prevalent over the peri od of investigation. The US “adverse trends”
argument, therefore, does not remedy the Commission ’s failure to identify what clearly foreseen and
imminent change in circumstances would create a situation where the dumping/subsidy would cause
injury.
4.220 The finding of the Commission that the domestic industry was “vulnerable” does not excuse
the Commission from the obligation to identif y what would transform the non-injurious status quo in
accordance with Articles 3.7 and 15.7. Something must change to explain why the dumping/subsidy
that did not produce injury during the period of investigation would cause injury in the clearly
foreseeable and imminent future.
4.221 In this context, it is useful to recall that th e Commission found no current injury even though
the US domestic industry was as “vulnerable” during most of the period of investigation as it was at
the end of that period. Indeed, as described ab ove, the Commission’s findings indicated that if
anything, the US domestic industry’s “vulnerability” was decreasing.
4.222 Moreover, vulnerability is less problematic when demand is improving and gives the
domestic industry an opportunity to avoid further dete rioration in its performance. Yet, in the Final
Determination, the Commission did not consider the relationship between its vulnerability finding and
its finding of improving demand. A vulnerable domestic industry may be at a greater risk of injury
when demand is flat or decreasing, but the Commission did not find injury during the period of
investigation even though US demand was flat and the domestic industry was, under the
Commission’s analysis, “vulnerable”. The decline in US prices between 1999 and 2000 during a
period of stable demand does not mean that pr ices would decline during a period of improving
demand like the Commission projected for the imminent future.
4.223 In sum, the Commission did not provide a reas oned and adequate expl anation, supported by
positive evidence and addressing contrary evidence, that any significant increase in the volume of
subject imports would cause even a “vulnerable” US industry to suffer injury.
4.224 Finally, while recognizing that the decision on how to bring a measure into conformity
remains the sovereign right of the Member concer ned, a Panel nevertheless may offer suggestions on
how best to perform this task. In this regard, a nd as demonstrated in Canada’s submissions to this
Panel, the nature and extent of the violations by the United States in this dispute are so pervasive and
the Commission’s affirmative threat determination so clearly fails to meet the standard required by the
Agreements, that the appropriate action would be for the United States to revoke the Final
Determination, cease to impose the duties and return the cash deposits.
F. SECOND
 WRITTEN SUBMISSION OF THE UNITED STATES
4.225 The following summarizes the United States' arguments in its second written submission.

1. Overview
4.226 Canada has failed to demonstrate that the determ inations of the ITC are inconsistent with US
obligations under the covered ag reements. The ITC’s determin ations are supported by positive
evidence and are based on an objective examination of all relevant factors and facts. Moreover, as
evidenced in the ITC Report, the ITC articulated reasoned and adequate expl anations demonstrating
how the facts as a whole support its determinations and permitting the Panel to adequately discern the
rationale for its findings.
4.227 Canada identifies supposed requirements that have no basis in the covered agreements.
Instead, Canada refers to general provisions in the agreements; those provisions do not support the
particular requirements asserted. Canada’s misguided approach should fail because its allegations are
not based on the text of the agreements and becau se the Panel, under DSU Article 19.2, “cannot add
to or diminish the rights and obligations provided in the covered agreements”.
4.228 Canada’s asserted “requirements” involve a number of differe nt issues and take on a variety
of diverse forms. For instance, Canada original ly sought to have the Pa nel construe the term
“consider” to mean “make findings,” at least regard ing certain issues/factors that Canada alleges are
relevant to the ITC’s determination. The covere d agreements do not require such findings. Canada
conceded at the first panel meeting that “consider” as used in the covered agreements does not require
an investigating authority to “make findings”. However, invoking “overarching obligations,” Canada
contends that, although the ITC may have “considered ” factors, it failed in its obligation to provide
“reasoned explanations”.
4.229 Canada invokes the alleged failure to provide r easoned explanations for many other claims as
if it were a catch-all provision encompassing the oblig ations that Canada posits but for which it is
unable to find any other basis in the covered ag reements. The “reasoned explanation” obligation
Canada asserts apparently flows from Article 12. 2.2 of the Antidumping Agreement and Article 22.5
of the SCM Agreement. Those articles, in relevant part, require an investigating authority to state the
facts, law, and reasons supporting its determination. The ITC has done so here. The articles do not
provide for the very specific obligations that Canada attempts to read into them.
8
4.230 Nevertheless, Canada repeatedly asserts that the United States failed to meet an alleged
“requirement” or “obligation” because it did not provide a reasoned explanation. Examples include its
claims that the ITC was required to: (1) “identify” a changed circumstance; (2) explain its decision
to cross-cumulate; (3) explain its finding that the competing evidence on economic rent theories was
inconclusive; and (4) provide certainty regarding futu re events, such as projections of future market
shares or whether future imports would outstrip demand.
4.231 "Reasoned explanation” is not the only basis Cana da cites for asserted obligations not based
in the covered agreements. Another basis is Article 3.1 of the Antidumping Agreement and
Article 15.1 of the SCM Agreement. These overarc hing provisions “require [] an investigating
authority to ensure that its threat determina tion is based on ‘positive evidence’ and involves an
‘objective examination’”. Canada relies on these pr ovisions to argue that the ITC was required to
consider Articles 3.2 and 3.4 of the Anti-Dumping Agreement, and Articles 15.2 and 15.4 of the SCM
Agreement, for a second time, i.e., in the context of the ITC’s threat analysis. However, nothing in
the covered agreements requires an investigating aut hority to treat its present injury and threat of
injury analyses as two separate undertakings with one having no bearing on the other. Canada’s
asserted requirement that certain of these factors be considered a second time in the context of a threat

8 The requirement to provide a reasoned explanation does not prescribe a specific method for assessing
injury or for explaining the basis for such a determination; nor does it require an explicit, separate evaluation.
See EC-Pipe, Appellate Body Report, paras. 160-161. Simply, an investigating authority “must be in a position
to demonstrate that it did address the relevant issues”. See Korea-Dairy, Panel Report, para. 7.31.

analysis in order for a determination to be based on positive evidence has no basis in the covered
agreements and is not supported by any Appellate Bo dy or panel report. In fact, even Canada’s own
practice does not involve the additional analysis it claims is required.
4.232 Finally, Canada urges this Panel to find that the “special care” language in Article 3.8 of the
Anti-Dumping Agreement and Article 15.8 of the SCM Agreement requires a higher standard of
review for threat cases than for present injury cases. Canada bases this alle ged higher standard on its
view that “in addition to considering all of the f actors that are required in an injury analysis, an
investigating authority must meet at least thre e additional requirements for threat: first, the
requirement to identify a foreseen and imminent change in circumstances; second, the requirement to
consider the factors set out in Articles 3.7 and 15.7; and third, the requirement to take ‘special care’
as outlined in Articles 3.8 and 15.8”.
4.233 While Canada conceded at the first panel meeting that the standard for determining threat was
not higher than that for injury, it still improperl y asserts a requirement to “identify a change in
circumstances,” and a vague concept of what constitu tes special care. Canada contends that the ITC’s
“failure to take such ‘special care’ permeates the Commission’s entire determination”. Yet, Canada’s
only explanation as to what this elusive obligat ion involves is that it “requires [investigating
authorities] to undertake an especially careful examin ation of the required elements of Article 3 of the
Anti-Dumping Agreement and Article 15 of the SCM Agreement as a crucial safeguard against the
dangers inherent in the predictive nature of threat determinations”.
4.234 Contrary to Canada’s attempt to establish a special review standard for either the Panel or the
investigating authority, the United States understands the “special care” language to be a recognition
that projections about the future must be based on present and past facts. Projections involve
extrapolations from existing data, which reinforces the requirement to base determinations on positive
evidence. For example, a threat determination must be based on positive evidence tending to show
that future imports are likely to be at injurious le vels. Special care is the recognition that projections
are about future events, and that such projections mu st be based on past and present facts. Moreover,
basing the future-oriented determination on fact s is in accord with the requirements that the
investigating authority conduct an “objective examination”.
2. Continuum of an injurious condition ascending from threat to injury.
4.235 The covered agreements recognize that injury need not, and frequently does not, occur
suddenly, but rather often involves a progression of injurious effects ascending from a threat of
material injury, and if not prevente d, to present material injury. Th erefore, a determination that an
industry is threatened with material injury would be warranted when conditions of trade clearly
indicate that material injury likely will occur imminently if demonstrable trends in trade adverse to the
domestic industry continue, or if clearly foreseeable adverse events occur.
4.236 Canada fails to recognize that threat of inju ry generally involves an accretion of adverse
conditions and thus that the threat and present ma terial injury analyses necessarily are intertwined
rather than entirely separate. Canada reads the threat provision as requiring the investigating authority
to “identify a change in circumstance,” i.e., “an event” that will abruptly change the status quo from a
threat of material injury to present material inju ry. Canada ignores that injury may be the clearly
foreseeable result of a sequence of events.
4.237 Moreover, Canada’s alleged “e xplicit obligation in Articles 3. 7 and 15.7 to identify” the
change in circumstance does not exist. The An ti-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 th e product at dumped [or subsidized] prices”.
However, it contains no requirement to explicitly “i dentify” a change in circumstances, as Canada
alleges. Consistent with all of its actual obliga tions, the ITC provided a detailed explanation of how

the totality of the evidence supported its conclusion that there will be in the near future substantially
increased importation of softwood lumber from Canada at dumped and subsidized prices. In doing so,
the ITC addressed the likely events and facts that were clearly foreseen for dumped and subsidized
imports in the imminent future which would affect the US market and would cause injury to the US
industry to occur.
3. The facts and likely events demonstrating the progression or change in circumstances
which would create a situation in which the dumping and subsidies would cause injury
included:
4.238 (1) subject import volumes already at significant levels in both absolute terms and relative to
consumption, which supported an affirmative presen t material injury finding; (2) increases of 2.8 per
cent in the significant volume of subject imports fro m 1999 to 2001, even with the restraining effect
of the Softwood Lumber Agreement (“SLA”) in pl ace; (3) conversely, declines of 16 per cent in
subject imports by value from 1999 to 2001; (4 ) expiration of the trade restraining SLA;
(5) substantial increases in import volumes ranging from 9.2 per cent to 12.3 per cent during the
April-August 2001 period without trade restraints compar ed to the same period in the previous three
years with trade restraints in place; (6) increas es in imports stopped when preliminary countervailing
duties were imposed in August 2001; (7) a similar pattern of increases in subject imports during the
1994-1996 period prior to the adoption of the SLA, which stopped when the SLA was imposed;
(8) no dispute that subject imports will continue to enter the US market at this significant level and are
projected to increase
9, (9) Canadian producers had excess production capacity already available in
2001 as capacity utilization declined to 84 per cen t from 90 per cent in 1999; (10) excess Canadian
capacity in 2001 had increased to 5,343 mmbf, which wa s equivalent to 10 per cent of US apparent
consumption; (11) Canadian producers expected to further increase their ability to supply the US
softwood lumber market, projecting to increase th eir capacity utilization to 90 per cent in 2003 (from
84 per cent in 1999), as they also projected to increase their production capacity; (12) Canadian
producers, which rely on sales in the US market for about two-thirds of their production, had
incentives such as mandatory cut requirements to pr oduce more softwood lumber and export it to the
US market; (13) since the US market had been very important to Canadian producers and was
expected to continue to be so, it was reasonable for the ITC to conclude, with no positive evidence
offered to the contrary, that Canadian productio n increases would be distributed among markets,
including the United States, according to historic proportions; (14) forecasts for US demand, i.e., that
it would remain relatively unchanged or increase sli ghtly in 2002, followed by increases in 2003 as
the US economy rebounds from recession, ensured that the US market (a market that consumes about
65 per cent of Canadian production) would continue to be a very attractive, and necessary, one for
Canadian exports and thus that s ubject imports would continue to play an important role in the US
market; (15) many domestic industry performance indicators declined significantly from 1999 to
2000, and then declined slightly or stabilized fro m 2000 to 2001; (16) with respect to the domestic
industry’s financial 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; (17) the domestic
industry “is vulnerable to injury in light of declines in its performance over the period of
investigation, particularly its fi nancial performance”; (18) excess supply played a pivotal role in the
decline of softwood lumber prices in the US market through 2000, which led to the deterioration in
the condition of the domestic industry; (19) both subject imports and domestic producers contributed
to the excess supply in the US market, which resulted in substantial price declines in 2000 and led to
the deterioration in the condition of the domestic industry; (20) US producers had curbed their
production after excesses in supply in 2000, but overproduction remained a problem in Canada;
(21) Canada acknowledges that it is a “much smalle r market with abundant timber resources” and, as
noted above, its producers projected to incr ease capacity and production in 2002 and 2003;
(22) during the period of investigation, th e substantial volume of subject imports had some adverse

9 Canada acknowledges that imports at this level wo uld continue and even increase, and that Canada is
“a much smaller market with abundant timber resources”.

effects on prices for the domestic product; (23) su bject imported and domestic softwood lumber were
at least moderately substitutable and are used in the same applications; (24) prices of a particular
species affect the prices of other species; and ( 25) prices for softwood lumber in the US market
declined substantially at the end of the period of investigation (third and fourth quarters of 2001).
4.239 In light of the foregoing factors, the ITC reas onably found that the additional subject imports,
which it concluded were likely, would further increase the excess supply in the market, putting further
downward pressure on declining prices, thereby resulti ng in a threat of materi al injury to the US
industry.
4.240 Canada dismisses any evidence from the present inju ry analysis showing that the US industry
was on the verge of injury by reason of subject impo rts. Canada contends that it has not argued that
the “Commission’s negative current injury finding ‘precluded’ a finding of threat”. According to
Canada, its argument is that “the evidence before the Commission did not provide any non-conjectural
basis for finding a clearly foreseeable and imminent change in circumstances that would upset the
non-injurious status quo”.
4.241 Inherent in Canada’s repeated assertions, that there could be no threat of material injury
because there allegedly were no present injurious effect s, is a conclusion that a legal determination of
no present material injury negates any affirmative subs idiary facts or findings of adverse or injurious
circumstances already existing or evolving. Cana da’s view is that if the amalgamated current
circumstances do not support a legal conclusion of curre nt injury, they must be wholly disregarded in
addressing threat. Canada’s underlying premise is wrong.
4.242 Moreover, Canada’s claims of a “non-injurious status quo” rest on its dismissal or avoidance
of affirmative subsidiary facts or findings. The ITC found, based on the facts as a whole, that the
volume of imports was already significant and thus supported an affirmative present material injury
finding. While a finding that the volume of imports is significant may not “by itself” be sufficient to
support an affirmative present injury finding, this affirmative subsidiary finding is an integral factor in
making an affirmative present material injury dete rmination and cannot be dismissed as an isolated
finding lacking broader implications. Moreover, Canada urges the Panel to disregard the ITC’s
present price effects findings by denying that certain findings exist and simply ignoring them when it
selectively quotes from the ITC’s Report.
10 In particular, Canada’s quotation from the Report at page
35 ignores the two sentences immediately preceding the quotation, which state:
The evidence indicates that both subject imports and the domestic producers
contributed to the excess supply, and thus th e 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.

4. Specific issues regarding the threat of material injury analysis.
4.243 Canada urges the Panel to consider the threat factors listed in Article 3.7 of the Anti-Dumping
Agreement and Article 15.7 of the SCM Agreement in isolation. It suggests that other factors and
facts that the ITC found were related to the liste d factors are distinct and should be considered
separately. But the factors considered, the record evidence, and, most importantly, the likely effects
being assessed are interrelated and should not be c onsidered and analyzed as isolated fragments.
Implicit in Canada’s approach is that the non-listed factors or facts should be given less weight than
those listed in the covered agreements. However, the covered agreements provide that relevant
factors other than those listed should be considered. Such consideration of other factors demonstrates
a reasoned analysis.

10 Canada’s Opening Statement at First Panel Meeting, para. 44.

5. The ITC’s finding of likely substantial increases in subject imports.
4.244 The ITC found that there was a likelihood of su bstantial increases in subject imports based on
evidence regarding, inter alia , Canadian producers’ excess production capacity and projected
increases in capacity, capacity utilization and pr oduction, the export orientation of Canadian
producers to the US market and subject import tr ends during periods when there were no import
restraints, such as the SLA. Furthermore, each of the six subsidiary factors considered by the ITC
relates directly to threat factors set forth in Article 3.7 of the Antidumping Agreement and
Article 15.7 of the SCM Agreement. Specifically, they relate to whether there is a significant rate of
increase in imports and sufficient freely disposab le production capacity. The ITC determined that
these increases in imports were likely to put pressure on already declining prices, and that material
injury to the domestic industry would occur. More over, the ITC found that the domestic industry was
vulnerable to injury in light of declines in its performance over the period of investigation,
particularly its financial performance.
4.245 The ITC found that the evidence demonstrated that the volume of subject imports was already
significant and had increased even with the restraini ng effect of the SLA in place, and that subject
imports had increased substantially during periods without export restraints as well. Canada is simply
incorrect in contending that the ITC found such leve ls of import penetration were not significant,
much less “non-injurious,” in its present material injury finding. Moreover, contrary to Canada’s
assertion, the ITC did not find that the 2.8 per cent increase in the volume of imports during the period
of investigation was “only a small increase”.
11 It expressly found that the volume of imports was
significant and would be injurious if combined with evidence of significant price effects and impact
effects. Moreover, it recognized that the subject imports had increased despite being subject to the
SLA for most of the period of investigation.
4.246 Canada’s claims that the ITC ignored the projections made by Canadian producers simply are
inaccurate. The ITC considered that data but conc luded that Canadian producers’ export projections
were inconsistent with other data . The ITC found that more weight should be given to actual data
showing excess Canadian capacity, declines in home market shipments, and declines in exports to
other markets, as well as projected increases in pr oduction. While Canadian producers projected that
exports to the US market would increase slight ly in 2002 and 2003, these projected increases
accounted for only about 20 per cent of the planne d increases in production. The US market
accounted for 68 per cent of the Canadian softwood lumber production in 2001. It was reasonable to
conclude that projected increases in production woul d likely be distributed in shares similar to those
prevailing during the prior five years. Canada has offered no positive eviden ce to refute the ITC’s
reasonable conclusion.
6. Likely price effects.
4.247 Given its findings of likely significant increases in subject import volumes, its finding of at
least moderate substitutability, its finding that prices of a particular species affect the prices of other
species, and its finding that the substantia l volume of subject imports presently had some adverse
effects on prices for the domestic product, the ITC conc luded that subject imports were likely to have
a significant price-depressing effect on domestic prices in the immediate future, and likely to increase
demand for further imports. Canada ignores the evid ence at the end of the period of investigation
showing substantial declines in prices in the third and fourth quarters of 2001. Evidence regarding
likely excess supply, which generally caused the subs tantial price declines in 2000 that led to the

11 Canada’s Opening Statement at the First Panel Meeting, para. 58. Canada acknowledged during the
first panel meeting that there were situations where a significant volume of imports, and not necessarily a
significant rate of increase, particul arly if volumes were large, would cause injury and support an affirmative
determination. The United States contends that such a situation exists here, despite Canada’s claims to the
contrary.

deterioration in the condition of the domestic industr y, indicated that US producers had curbed their
production, but that overproduction “remains a problem in Canada”. Therefore, the ITC reasonably
found that the additional subject imports, which it c oncluded were likely, would further increase the
excess supply in the market, putting further downwar d pressure on declining prices, resulting in a
threat of material injury to the US industry by reason of subject imports.
7. Inventories.
4.248 Canada acknowledges that the ITC considered the evidence regarding inventories. That is all
the ITC is required to do. Moreover, Canada recognizes that “there is no indication in the
Commission’s analysis that it relied on the level of inventories to reach its conclusion of threat of
injury”. Nevertheless, resorting to the general “r easoned explanation” obligation, Canada makes an
argument that would be relevant only if the ITC had made a finding on this factor. Specifically,
Canada states: “Canada has shown that the Commission did not explain how its observation supported
the Commission’s determination and that the Commission ignored the Canadian producers’
projections that their inventories would remain virtually unchanged over the 2002-2003 period, and
therefore not lead to a substantial increase in exports to the United States.” It is evident that the ITC
appropriately considered this listed threat factor but did not make a finding.
8. Nature of the subsidies.
4.249 The ITC also considered the nature of the subs idies granted by Canada, consistent with the
requirement of Article 15.7(i) of the SCM Agre ement, and took into account that none of the
subsidies were of the kind described in Articles 3 or 6.1 of the SCM Agreement. The ITC clearly
considered parties’ arguments, but declined to adopt the positions of any of the parties due to
conflicting evidence and economic theories, specifica lly regarding the effects of stumpage fees on
lumber output. The relevant provisions of the covered agreements state that the ITC “should
consider” the nature of the subsidies, but do not require it to make a finding. In spite of its concession
that “consider” does not mean “make a finding”, Canada’s argument essentially is that unless the ITC
made a finding, its determination w ould be in violation of the SCM Agreement. However, the ITC is
not required to make a finding, particularly when the conflicting record evidence did not provide “a
sufficient factual basis to allow [it] to draw reasoned and adequate conclusions”.
12
4.250 Further, Canada has provided the Panel with a one-sided analysis of this issue and ignored the
conflicting evidence. Canada would have the Pane l believe that the Canadian producers’ economic
theory was the only information before the ITC and that this theory was uncontested and equivalent to
proven fact. Neither assertion is true. Indeed, ev idence presented to the ITC during its investigation
squarely placed in question the very applicability of Canada’s economic theories and the alleged trade
effects of the subsidies. The ITC made an objectiv e examination, considering all of the evidence and
arguments presented.
9. Articles 3.2 and 3.4 of the Anti-Dumping Agreement and Articles 15.2 and 15.4 of the
SCM Agreement.
4.251 The ITC considered all of the facts from th e present and past, specifically regarding the
volume of imports, price effects a nd the consequent impact of c ontinued dumped and subsidized
imports on the domestic industry, in its threat analys is. The ITC’s evaluation resulted in findings that
the volume of imports was significant, that there we re some price effects, that the condition of the
domestic industry had deteriorated primarily as a r esult of declining prices and that the industry was
in a vulnerable state. Projections based on these facts constitute positive evidence justifying the ITC’s
threat determination.

12 US-Lamb Meat, Appellate Body Report, paras. 130-131.

4.252 Canada’s arguments on Ar ticles 3.2 and 3.4 of the Anti-Dumping Agreement and
Articles 15.2 and 15.4 of the SCM Agreement are mere ly variations on its arguments regarding likely
substantial increases in imports and likely price effects, and are based on Canada’s premise that there
could be no threat, because there allegedly were no findings of injurious effects in the present material
injury analysis. That premise is demonstrably incorrect. Canada’s claims that, having considered
these factors once, the ITC was required to consider them a second time in the context of the threat
analysis has no basis in the two Agreements.
4.253 Canada’s reliance on the panel’s findings in Mexico-HFCS to challenge whether the ITC
conducted a “meaningful evaluation” of the Article 3.2 and 3.4 and Article 15.2 and 15.4 factors is
misplaced. The issue in Mexico-HFCS was not the manner in which these factors were evaluated but
that they did not appear to have been considered at all. It is possible, by reading the ITC’s final
determination here, where it was not in Mexico-HFCS, to understand the ov erall condition of the
domestic industry with respect to the Article 3.4 fact ors. Also, in this case, the domestic industry was
currently experiencing substantial declines in its condition, particularly its financial performance,
which was not the case in Mexico-HFCS.
10. The ITC demonstrated a causal relation ship between the dumped and subsidized
imports and the threat of injury to the domestic industry.
4.254 Canada’s claims under Articles 3.5 and 15.5, r espectively, are merely variations on its
arguments regarding likely substantial increases in imports and likely price effects, and are based on
its premise that there could be no threat of inju ry, because there allegedly were no findings of any
injurious effects in the present mate rial injury analysis. Moreover, the ITC considered each of these
issues, but the evidence did not support the findings urged by Canada.
4.255 The evidence demonstrates that the volume of subject imports, already at significant levels,
will continue to enter the US market at significant levels and are projected to increase substantially.
The ITC found that the additional subject imports would increase the excess supply in the market,
putting further downward pressure on declining prices. Prices at the end of the period of investigation
had substantially declined to levels as low as they had been in 2000. The ITC reasonably found that
subject imports were likely to increase substantially a nd were entering at prices that are likely to have
a significant depressing or suppressing effect on domest ic prices, and are likely to increase demand
for further imports. The ITC’s findings support the ex istence of a threat of material injury caused by
subject imports.
4.256 Canada argues with respect to the likelihood of substantially increased imports, particularly in
claiming that future Canadian market share must “ outstrip” demand, that the investigating authority
must identify an absolute amount or percentage change in import volumes that would necessarily be
“substantial” in all or most cases. However, determ ination of a threat of injury is, by its nature,
industry specific and dependent on the particular indus try’s circumstances. As part of the threat
analysis, the covered agreements direct the inves tigating authority to consider whether the evidence
indicates the likelihood of substantially increased imports but, recognizing that this is a future event
whose actual materialization cannot be assured with certainty, does not require the investigating
authority to find that imports will increase by a certain amount. In Mexico-HFCS, the Appellate Body
recognized that a threat analysis involves projecti ons extrapolating from existing data and as such can
never be definitely proven by facts.
4.257
Canada ignores the ITC’s consideration of Cana da’s theory about the effects of demand,
which the ITC rejected because it was not supported by the facts. The evid ence showed that while
demand remained relatively stable in 2000 and 2001 at the record levels it reached in 1999, substantial
declines in price occurred, particularly in 2000, wh ich resulted in a deterior ation in the condition of
the domestic industry. Thus, contrary to the Ca nadian exporters’ and now Canada’s theory, strong
demand did not translate into price improvements. In fact, the evidence demonstrated that it had been

excess supply rather than demand that had played a pivotal role in the price declines of softwood
lumber in the US market.
4.258 Moreover, the ITC appropriately considered the conditions of competition regarding demand
as well as the substitutability between domestic a nd imported species of softwood lumber, and North
American integration. On the issue of substitu tability/attenuated competition, Canada has stated
incorrectly that the ITC found that “competition was therefore attenuated” and that “products [had]
limited substitutability”. Canada ignores the evid ence in the record and the ITC’s analysis and
findings. Subject imports and domestic species of soft wood lumber are used in the same applications
and compete with each other. Moreover, prices of a particular species will affect the prices of other
species. Canada ignores the ITC’s findings based on consideration of facts, including the evidence
provided by purchasers and home builders, that Ca nadian softwood lumber and the domestic like
product generally are interchangeable; subject import s and domestic species are used in the same
applications; regional preferences exist, but do not reflect a lack of substitutability, and instead simply
reflect a predisposition toward locally-milled species; there are other products that both countries
produce that compete with each other; and evidence de monstrated that prices of different species have
an effect on other species’ prices, particularly those that are used in the same or similar applications.
4.259 Canada recognizes that the ITC considered the integration of the North American lumber
industry, but criticizes the ITC for not speculating th at integrated companies would not harm related
companies. Yet, Canada provides no evidence to s upport its supposition that integrated firms will not
harm their related parties. This integration is not new, and there was no evidence that it would have a
different effect in the future than during the pe riod of investigation, when import volumes were
significant, and imports had some adverse price effects.
11. The ITC examined any known causal factors to ensure injury was not attributed to
subject imports.
4.260 Consistent with Article 3.5 of the Anti-Du mping Agreement and Article 15.5 of the SCM
Agreement, the ITC’s methodology involves examining other factors to determine if any of them are
other “known” causal factors and to ensure that injury from any such causal factors is not attributed to
subject imports. When the ITC has found a factor not to have injurious effects on the domestic
industry, such factor is not an “other known fact or”, and no further consideration or examination of
the factor is called for. In EC-Pipe, the Appellate Body stated (paras. 175, 178-179) that when injury
has “effectively been found not to exist”, there is no factor to examine further, pursuant to the covered
agreements.
4.261 Neither Article 3.5 of the Anti-Dumping Agreement nor Article 15.5 of the SCM Agreement
prescribes any particular methodology that authorit ies must use in examining other known causal
factors. The Appellate Body in EC-Pipe indicated that, “provided that an investigating authority does
not attribute the injurious effects of other causal factors to dumped imports, it is free to choose the
methodology it will use in examining the ‘causal relationship’ between dumped imports and injury”.
4.262 Canada urges the Panel to find the ITC’s methodology in violation of the covered agreements,
based on Canada’s selective reading of the ITC’s st atements regarding US case law. Canada ignores
the ITC’s reference to the appropr iate methodology: “[T]he Commission need not isolate the injury
caused by other factors from injury caused by unfair imports. . . . Rather, the Commission must
examine other factors to ensure that it is not attributing injury from other sources to the subject
imports.”13 The ITC’s methodology is consistent with US obligations.

13 ITC Report at 31, n. 195 quoting Taiwan Semiconductor Industry Ass’n v. USITC , 266 F.3d 1339,
1345 (Fed. Cir. 2001) (emphasis in original).

4.263 Canada principally alleges that domestic supply is a known causal factor which the ITC found
contributed to injury in its present material injury analysis, but ignored in its threat analysis.
However, the ITC examined constraints on domestic producers’ ability to meet demand. The ITC also
took into consideration domestic producers’ past contribution to oversupply conditions. Canada
charges that the evidence cited by the ITC could no t support the ITC’s threat of injury finding merely
because of its location in the ITC Report.
4.264 Canada attempts to challenge the facts regarding domestic production by comparing
percentage decreases in production and ignores the absolute levels as well as the evidence regarding
domestic and Canadian production capacity utilizati on. Domestic capacity utilization was 87.4 per
cent in 2001 and, with the exception of a peak in 1999 at 92 per cent, had consis tently held this level
from 1995 to 2001. In contrast, Canadian capacity utilization had declined in 2001 to 83.7 per cent, a
rate substantially lower than that reported for an y other year in the 1995-2001 period. Moreover, in
spite of this decline in capacity utilization rates, Canadian producers projected slight increases in
capacity, increases in production, and a return of capacity utilization to 90.4 per cent in 2003.
12. Conclusion.
4.265 As demonstrated in the Views of the Commission, the ITC articulated reasoned and adequate
explanations, indicating its objective considerati on of relevant factors on which it relied in its
determinations, demonstrating how the facts as a w hole support its determinations, and enabling this
Panel to determine the rationale and evidentiary basi s for its findings in order to perform its review
function. The ITC’s determinations are based on positive evidence and are consistent with US
obligations under Article 3 of the Anti-Dumping Ag reement and Article 15 of the SCM Agreement.
As such, there is also no basis for Canada’s claim th at the ITC’s determinations are inconsistent with
Articles 1 and 18.1 of the Anti-Dumping Agreement, Articles 10 and 32.1 of the SCM Agreement, or
Article VI:6(a) of the GATT 1994. The Panel should reject Canada’s claim in its entirety.
G. SECOND
 ORAL STATEMENTS OF CANADA
4.266 The following summarizes Canada's arguments in its second oral statements.
1. Opening Statement of Canada at the Second Meeting of the Panel
1. INTRODUCTION

4.267 The Final Determination of the International Trade Commission (“Commission”) represents
exactly what the WTO Agreements were negotiated to prevent. Among its fundamental shortcomings:
the Determination is based on a central finding that is unsupported by a reasoned and adequate
explanation and positive evidence; it fails to identif y what clearly foreseen and imminent change in
circumstances would create a situation in which th e dumping or subsidies would cause injury; it fails
to establish a causal link between the subject imports a nd the alleged threat of injury; and it fails to
separate and distinguish the injurious effects of other known factors from any injurious effects of the
subject imports on the domestic industry. As a result, the United States has imposed countervailing
and anti-dumping duties on imports of softwood lu mber from Canada in violation of the Anti-
Dumping Agreement, the SCM Agreement and the GATT 1994.
4.268 Several key elements must be present for an affirmative threat determination to be WTO-
consistent. For example, the requirement to pr ovide reasoned and adequate explanations is a
substantive obligation that is enco mpassed in Articles 3 and 15, viewed in the light of the applicable
standard of review, as confirmed by the panel report in Mexico – HFCS. Articles 3 and 15, viewed in
the light of the applicable standard of review, require an investigating authority to: explain why
particular factors were deemed relevant and supported th e determination; explain why factors that

detract from a finding of threat of injury did not weigh significantly in the decision or were dismissed
as not being relevant; and explain fully the nature and complexities of the data.
4.269 The Commission’s failure to provide reasoned a nd adequate explanations forms an integral
part of the United States’ violations of Articles 3.1, 3.2, 3.4, 3.5 and 3.7 of the Anti-Dumping
Agreement and of the equivalent provisions of the SCM Agreement . Canada’s Articles 12 and 22
claim is separate.
2. THE COMMISSION’S FLAWED THREAT DETERMINATION

4.270 With that introduction, Canada responds to the United States’ attempt to salvage the
Commission’s Final Determination on five key issues.
A. THE SIX FACTORS DO NOT
 SHOW A LIKELIHOOD OF SUBSTANTIAL
INCREASES IN SUBJECT IMPORTS

4.271 The Commission did not provide a reasoned a nd adequate explanation as to how the six
factors it lists as supporting its volume finding, co nsidered individually or cumulatively, supported
this finding. The Commission simply stated: “The refore, based on the factors discussed above, we
find a likely substantial increase in subject im ports.” There is no discussion in the Final
Determination of the interrelationship between the factors.
1. Canadian Producers’ Excess Capacity and Projected Increases in Capacity,
Capacity Utilization and Production

4.272 The first factor listed by the Commission is th at Canadian producers had excess capacity and
projected increases in capacity, capacity utilisation and production. Ca nada has already demonstrated
the inadequacies of the Co mmission’s treatment of that factor. Rather than respond to Canada’s
demonstration of inadequacies, the United States proffers an ex post facto justification. The
United States argues that, since the US market had been very important to Canadian producers and
was expected to continue to be so, it was reasona ble for the Commission to conclude that Canadian
production increases would be distributed among mark ets, including the US market, according to
historic proportions. This ex post facto argument should be rejected notably because footnote 258 of
the Final Determination – the only source that the United States cites for this assertion – contains no
such analysis.
4.273 With respect to this factor, the Commission concluded that: “Canadian producers expect to
further increase their ability to supply the US so ftwood lumber markets.” This statement is
ambiguous and inconclusive and does not support the Commission’s finding of a likely substantial
increase in imports. There is no indication in the Commission Report as to how this so-called “ability
to supply the US softwood lumber market” was likely to translate into substantially increased imports.
2. Export Orientation of Canadian Producers to the US Market

4.274 As a second factor, the Commission relied on th e export orientation of Canadian producers to
the US market, but it did not find, and no positive evidence would have supported a finding, that this
export orientation would increase in the imminent future. On the cont rary, the projections referred to
by the Commission indicate a decrease in export orientation.
3. Increase in Subject Imports Over the Period of Investigation

4.275 The Commission’s treatment of the third factor it cites in support of its central volume
finding, the increase in subject imports over the period of investigation, also is minimal. The
Commission did not indicate that the rate of increase in subject imports during the period of

investigation was significant. Indeed, such a conclu sion would have been difficult to justify given the
Commission’s finding in its current injury analysis that the market share maintained by subject
imports during the period of investigation had been “relatively stable”.
4.276 The United States refers constantly to the volume of subject imports being at injurious levels
during the period of investigation. The US statement is merely another ex post facto justification
presented by the United States. That no such statement can be found in the Final Determination is not
surprising given that the Commission found no curre nt injury. The Commission found only that the
volume was significant, and because it also found th at Canadian imports did not have a significant
impact on the US industry, the United States must recognize that import volumes that are significant
are not necessarily injurious.
4. Effects of Expiration of the SLA

4.277 In its list of six factors on which it based its finding of a likely substantial increase in imports,
the Commission refers to the effects of expiration of the SLA. However, the discussion found in the
Final Determination does not concern the effects of expiration of the SLA. Rather, the Commission
refers to some data and makes some statements with respect to what happened during the period of
investigation. It does not make any projections as to what the effects of the expiration of the SLA
would be in the future. Moreover, the Commission’s conclusion that the SLA “appears” to have
restrained subject imports “at least to some extent ” does not support its finding of a likely substantial

increase in imports.
5. Subject Import Trends During Periods When There Were No Import Restraints

4.278 Subject import trends during periods when there were no import restraints constitutes the fifth
factor that the Commission listed as a basis for its finding of a likely substantial increase in imports.
The US has provided no direct response to Canada ’s demonstration that the Commission could not
properly rely on these trends to project the likely volume of subject imports in the imminent future.
6. Forecasts of Strong and Improving Demand in the US Market

4.279 The sixth factor on which the Commission based its finding of a likely substantial increase in
imports is its forecast of strong and improving de mand in the US market. Having referred to the
forecasts for softwood lumber demand and US hou sing starts, the Commission concluded that the
United States “will continue to be an important market for Canadian producers”.
4.280 This uncontroversial statement about the con tinued importance of the US market does not
support a finding of a likely substantial increase in im ports in the imminent future. After all, during
the period of investigation, the United States was an important market for the Canadian producers, yet
Canadian imports did not increase substantially. Ca nada also notes that without a predicted increase
in their market share, there is no reason to belie ve that the subject imports, which the Commission
found did not reach injurious levels during the period of investigation, would reach such levels in the
imminent future.
4.281 By failing to base its volume finding on positive evidence and reasoned consideration of the
six identified factors, or the factors set out in Articles 3.2, 3.7, 15.2 and 15.7, the Commission failed
to satisfy the requirements of these Articles, and the US acte d inconsistently with its WTO
obligations.
4.282 A listed factor that is relevant to likely proj ected import volumes is the nature of the subsidy
and its likely trade effects. The United States c ontends that the Commission was entitled to end its
consideration of this critical issue merely because the parties submitted allegedly
 conflicting evidence.
But the existence of conflicting evidence necessitat es an adequate explanation of the nature and

complexities of that evidence. As for the US assertion that the Commission found the evidence
“inconclusive”, the short answer is the Commission made no such finding. The United States also
does not provide any answer to Canada’s demonstr ation that the Final Determination fundamentally
mischaracterized the economic and empirical arguments of the Canadian parties.
B. THE COMMISSION COULD NOT
 DEMONSTRATE THAT SUBJECT IMPORTS
WOULD LIKELY HAVE A SIGNIFICANT PRICE EFFECT

4.283 The second basis cited by the United States for the Commission’s affirmative threat
determination is a finding of significant price effects. The Commission’s price analysis is
fundamentally flawed, as Canada has demonstrated. What is the US response? It repeats essentially
verbatim the points that Canada has already addressed.
4.284 The United States continues to defend the Co mmission’s price effects conclusion as being
based on a purported analysis of “price trends”. This is not in the Commission’s determination. It is
pure fiction. The only basis for the Commission’s price finding is its volume finding, which is in
itself fundamentally flawed. Another fiction is the US invocation of a purported finding that
producers in the US, but not in Canada, had curbed their production. The Commission did not find
that US overproduction had been curbed, much less that it would be relative to Canadian production.
4.285 The United States also continues to ignore the f act that the Commission failed to reconcile its
conclusion on price effects with its finding rega rding demand. The finding of strong and improving
demand should have prevented the Commission fro m simply concluding, without analysis or
explanation, that additional subject imports would increase the excess supply in the market, put
further downward pressure on prices and have a significant price depressing effect. For the increase
in the volume of subject imports to have a significant impact on pricing, the Commission would have
had to find, at a minimum, that the increase in subject imports would translate into a significantly
higher market share.
C. THE COMMISSION DID NOT
 ESTABLISH A CAUSAL LINK BETWEEN
SUBJECT IMPORTS AND THREAT OF INJURY

4.286 The Commission did not establish a causal link between subject imports and the threat of
injury. The Commission failed to comply with either of the obligations set out in Articles 3.5 of the
Anti-Dumping Agreement and 15.5 of the SCM Agreement.
4.287 In order to conduct a proper causation analysis, the Commission had to take into account its
finding of strong and improving demand in the US market and the absence of any evidence that
Canadian market share would grow beyond the non-injurious levels of the period of investigation. It
failed to do so. The mere fact that Canadian producers might respond to improving demand in the US
cannot justify a finding that imports would increase to injurious levels unless
 the increase was likely
to outstrip the growth in demand and materially increase Canadian market share above the present
level that the Commission had found to be non-injurious.
4.288 With regard to causation, the Commission also fa iled to address other factors that it explicitly
found earlier in the final determination to be “pertinent” and “relevant to our analysis”. The
Commission therefore did not comply with the ob ligation under Articles 3.5 and 15.5 to base a
finding of a causal relationship “on an examination of all relevant evidence
 before the authorities”.
4.289 For example, despite evidence of moderate s ubstitutability and increasi ng integration in the
North American lumber market, the Commission failed to address these factors in its threat analysis.
Similarly, the Commission failed to consider the evidence that domestic US producers import or
purchase a sizeable volume of subject imports them selves when reaching its conclusions of price
effect and injury to the domestic industry.

4.290 In concluding that the imports would cause injury to the domestic industry, the Commission
also failed to examine the impact of the subject imports on the domestic industry in the future, in
terms of the relevant economic factors and indices listed in Articles 3.4 of the Anti-Dumping
Agreement and 15.4 of the SCM Agreement. It was not sufficient for the Commission to examine the
state of the domestic industry in the past, a peri od during which it found that the subject imports had
not caused injury. In order to arrive at its threat determination, as indicated by Articles 3.1, 3.4, 15.1
and 15.4, the Commission had to conduct a related but distinct analysis of the impact of the predicted
increased volume of subject imports on the domestic industry. However, it failed to do so.
D. THE COMMISSION DID NOT CONDUCT A NON-ATTRIBUTION ANALYSIS

4.291 The Commission did not conduct a non-attribution analysis. The US claim that the other
factors it identified as significant to understanding the condition of the US industry are not “other
known factors injuring the domestic industry” is inco mprehensible. The US points to no passage in
the Commission's determination where such a conc lusion can be found. In addition to the likely
contribution of the domestic industry to future supp ly conditions, other factors also were clearly
known and relevant. For example, the Commission ignored the likely future role of non-subject
imports and their potential contribution to any threatened injury to the US industry.
4.292 The US argues that the Commissi on’s failure to examine non-subject imports was justified
because their market share was sma ll in absolute terms during the PO I and they were not subject to
import restraints. Not only is this explanati on not found in the threat section of the Final
Determination, but the Commission did not address the fact that non-subject imports increased in
absolute terms nearly as much as subject imports a nd that their annual rate of increase during the POI
was over 20 per cent – compared to only 1.4 per cent for subject imports. These facts were
undeniably relevant because the Co mmission’s threat of injury anal ysis focused exclusively on the
effect of the projected incremental
 increase in subject imports.
E. NO CHANGE IN CIRCUMSTANCES

4.293 The Commission failed to identify, based on pos itive evidence in the record, what clearly
foreseen and imminent change in circumstances woul d create a situation in which the subject imports
would cause injury.
4.294 In response, the US mischaracterizes Canada ’s argument as requiring an event “that will
abruptly change the status quo”. This is an argu ment that Canada has never made. Throughout this
dispute, Canada has relied on the wording of Articles 3.7 of the Anti-Dumping Agreement and 15.7 of
the SCM Agreement that “the change in circumstances . . . must be clearly foreseen and imminent”.
4.295 Then, the United States introduces a theory that appears nowhere in the Commission’s Final
Determination – namely, that the Commission foun d a change in circumstances because it found a
“progression of circumstances”. However, a theory cannot replace facts, and the facts in this case do
not support the US ex post facto explanation.
4.296 With respect to the twenty-five factors listed by the United States in paragraph 18 of its
Second Written Submission, Canada notes that the US has taken statements scattered throughout the
Commission’s Final Determination – plus some assertions nowhere to be found in that Determination
– and combined them into a single paragraph w ith 25 numbered subparagra phs, as if their bulk will
somehow make them credible and coherent. Bu t this repackaging does not make the whole any
greater than the sum of the parts. The problems with the Final Determination are substantive, not
presentational, and they are not remedied by a superficial reshuffling.
4.297 The US argument that the analysis of threat should not be divorced from the analysis of
current injury mischaracterizes Canada’s argument and misses Canada’s point. Canada agrees that

the threat analysis should be relate d to, and consistent with, the current injury analysis. Indeed, that
proposition forms the basis of Canada’s argument that the Commission’s determination completely
failed to consider how several critic al findings in the current injury analysis relate to its threat
analysis. Most notably, the Commission considered th e role of relatively stable market share and the
response of the US industry in its current injury analysis, but it ignored these factors in its threat
analysis. It is not Canada, but the United States, th at “would start the threat of injury analysis with a
clean slate”.
4.298 In sum, the positive evidence in the record di d not demonstrate, and the Commission did not
find, any adverse trends that, if continued, would cause a clearly foreseeable and imminent change in
the non-injurious conditions prevalent over the period of investigation. The United States has
therefore failed to comply with its obligations under Articles 3.7 and 15.7.
CONCLUSION

4.299 The United States has not satisfied the essential requirements set out in the SCM and Anti-
Dumping Agreements for the determination of a threat of material injury. As such, its Final
Determination has no basis and must be revoked.
2. Closing Statement of Canada at the Second Meeting of the Panel
4.300 In this Closing Statement, Canada only r esponds to a few contentions made by the
United States in its Oral Statement.
4.301 The United States asserts (in para. 5) that Cana da argued “that the circumstances of this case
give rise to obligations that might not exist in ot her cases”. This is not true. The obligations under
the Agreements do not vary from case to case. Canada has argued that the application of these
principles may be different in different cases depe nding on the facts. For example, the United States
questions (para. 43) the basis for Canada’s clai m that the Commission was required to assess the
likely future market share of subject imports. But Article 3.5 and 15.5 require that the demonstration
of a causal relationship between subsidized/dumped imports and injury to the domestic industry “shall
be based on an examination of all relevant evidence before the authorities”. Canada contends that the
Commission’s treatment of causation in its threat analysis in the circumstances of this case should
have included consideration of likely future mark et share because market share was not merely
relevant but a decisive factor in its negative current injury determination.
4.302 The United States asserts (in paras. 3 and 16) that neither the Anti-Dumping nor the SCM
Agreement imposes any obligation to “identify” the cha nge in circumstances required by Articles 3.7
and 15.7. Canada would draw the Panel’s attenti on to the United States’ First Written Submission to
the Appellate Body in the High Fructose Corn Syrup case. There, the United States faulted the
investigating authority for failing to “ demonstrate why there was a clearly foreseen and imminent
change in circumstances that threat ened injury to an industry not cu rrently injured, as the Panel ruled
was required in Article 3.7”. 14 If there is any difference between “identify” and “demonstrate”, it is
not apparent to Canada. If this Panel cannot determine from the Commission’s final determination
what was the change in circumstances required by Articles 3.7 and 15.7, how can the Panel conclude
that the United States satisfied this obligation?
4.303 In addition, the United States contends (in para. 26) that “[i]mplicit in Canada’s approach, of
course, is that the non-listed factors, or facts relate d to those factors, should be given less weight than
those factors listed in the covered agreements”. Canada recognizes that the investigating authority

14 First Written Submission of the United States of America, 17 November 2000 before the Panel -
Recourse to Article 21.5 of the DSU by the United States in Mexico – Anti-Dumping In vestigation of High
Fructose Corn Syrup (HFCS) From the United States. [emphasis added] (Exhibit CDA-33)

may appropriately consider factors that are not listed. Canada's point is that the Commission’s
analysis of both listed and non-listed factors, individually and collectively, does not support its
affirmative threat finding.
4.304 Next, Canada responds to the US Oral Stat ement concerning several instances where the
United States continues to try to re-write the Commission’s final determination.
4.305 The United States continues to assert (for exampl e, in paras. 13, 15) that the Commission
found in its current injury analysis that subject imports had injurious effects. However, if the
Commission had found such effects, it would have reached an affirmative, not a negative, current
injury determination. It is true that the Commission found that subject imports had some price effects,
but it also found that they were not significant.
15
4.306 A related point involves the United States’ claim (in para. 39) that the Commission conducted
a price trends analysis, can be found on page 43 of the Commission’s Final Determination. However,
that page merely recited information about pr ices and changes in prices during the period of
investigation. The Panel would not find on page 43, or anywhere el se in the Final Determination, a
conclusion that these changes in price were cau sed by subject imports during the period of
investigation; in fact, the Commission explicitly fo und that subject imports had no significant price
effect. Nor did the Commission rely anywhere on pr ice trends to support a finding of material injury
in the imminent future.
4.307 On another price-related issue, the United Stat es faults (in para. 40) Canada for failing to
point out that the composite price for the first qua rter of 2002 was lower than the composite price for
the third quarter of 2001 and substantially lower than that for the second quarter of 2001”. However,
the United States correctly recognizes (and falsely accuses Canada of failing to recognize) that
“seasonality generally affects comparisons between f ourth an first quarter prices.” Para. 40. A
comparison of prices in the first quarter of 2002 with prices in the first quarter of 2001, which avoids
the seasonality problem, shows that prices were roughly 10 per cent higher in the corresponding
quarters of 2002 and 2001.
16
4.308 The United States now suggests (in paras. 22 and 36) that the SLA had a substantial
restraining effect, as shown by the slight decrea se in Canadian market share between 1996 and 2001.
In fact, in the Final Determination, the Commis sion stated only that the SLA “appears” to have
restrained subject imports “at least to some extent ”, and then continued to note that “market share
remained relatively constant” from 1995 to 2001. 17 Moreover, the final determination contains no
analysis demonstrating that the slight decline in Canadian market share was in fact due to the SLA
and not to other factors that the Commission did not analyze.
4.309 The United States continues to assert (para. 33) that the Commission had reasonable grounds
to question the projections of Canadian producers concerning exports to the United States in 2002 and
2003. But the Commission’s Final Determination contains no such finding. Canada asks the Panel to
look at the data reported in the Final Determinat ion, which show that the percentage of their
production projected to be exported to the Unite d States in 2002 and 2003 (58.8 and 58.5 per cent)
was entirely consistent with the three prior years (57.4, 57.4 and 60.9 per cent).
18
4.310 Finally, in discussing non-attribution, the United States implies that the Commission found
certain factors “not to have injurious effects on the domestic industry” and that these factors were

15 Commission Report, p. 35.
16 CLTA pre-hearing brief, Ex. 56; CLTA post-hearing brief, Ex.1 – showing lumber prices trending up
in the first quarter of 2002. (Exhibit CDA-29)
17 Commission Report, p. 41.
18 Commission Report, p. 41, n.258, citing Table VII-2.

therefore not “other known factors” for purposes of Ar ticle 3.5 and 15.5. However, the United States
explicitly acknowledges in its answers to questions that “[t]he Commission had found in its present
material injury analysis that excess domestic suppl y was an other known factor” that contributed to
injury during the period of investigation.19 The Commission utterly failed to analyze the likely role of
the domestic industry, and all factors other than subject imports, in the imminent future.
4.311 Although the Panel has received voluminous subm issions from the parties, the fundamental
question is whether the cursory threat analysis contained in the Commission’s final determination
complies with the relevant US obligations under th e WTO Agreements. Canada respectfully submits
it does not.
H. SECOND ORAL STATEMENTS OF THE UNITED STATES
4.312 The following summarizes the United States' arguments in its second oral statements.
1. Opening Statement of the United States at the Second Meeting of the Panel
4.313 Canada consistently fails to locate in the covere d agreements certain obligations that it claims
the United States has breached. Two examples illustrate the point. First , Canada asserts an obligation
to explicitly identify a change in circumstances that would cause a threat of injury to ripen into actual
injury. It claims that "[i]n the circumstances of this dispute" an "objective examination," as required
by Article 3.1 of the Anti-Dumping Agreement and Article 15.1 of the SCM Agreement "could not be
achieved without identifying the change in circumstances from the non-injurious status quo ".
However, it does not explain what about this disput e supports an obligation that might not exist in
other disputes. Second , Canada claims that the ITC was required to explain why it conducted a
combined injury analysis. Once again, Canada reverts to "the circumstances of this case" as the
supposed basis for the obligation, but fails to explai n how the circumstances of this dispute give rise
to an obligation that does not apply to all disputes.
4.314 The most striking example of Canada reading into the WTO agreements an obligation that
applies to the particular circumstances of this dis pute only, but not necessarily to other disputes, is its
assertion of breaches of a general obligation to provi de a "reasoned and adequate explanation" of
certain conclusions. Canada appears to rely on "reasoned and adequate explanation" as a sort of
placeholder obligation. Given the importance of "reasoned and adequate explanation" in its argument,
one would expect Canada to have clearly defined its basis, but it has not done so.
4.315 An additional general observati on concerns Canada’s argument that certain statements by
Canadian lumber producers and exporters were not appropriately considered by the ITC. For
example, Canada claims that the ITC did not take into account exporters’ projections of exports to the
United States. Elsewhere, Canada reasons, somewhat circularly, that its economic theory regarding
the effects of the subsidy should have given decisive guidance to the ITC. It cannot possibly be the
case that an investigating authority violates WTO obligations simply by discounting self-interested
statements by parties to an investigation.
4.316 In considering this dispute, it s hould be borne in mind that: First
, the legal determination of
no present material injury by reason of dumped and s ubsidized imports does not negate the subsidiary
affirmative findings made in the present injury analysis. Second , the ITC conducted an objective
examination, as evident in the ITC Report, in which its evaluation of the relevant factors and facts was
unbiased and even-handed; Canada, on the other ha nd, focuses on only those facts and findings that
favour its arguments. Third , all of the factors considered by the ITC, whether or not listed in
Articles 3.7 and 15.7 of the covered agreements, th e record evidence, and the likely effects being
assessed are interrelated, and should not be cons idered and analyzed in isolation. Fourth , Canada

19 US Answers, para. 31 n.50.

frequently asserts that the United States failed to me et an alleged obligation, when no such obligation
exists. Fifth
, the theories presented by Canada, including the demand theory and the economic rent
theory, are not proven facts and are not uncontested, as it asserts. Finally , the ITC’s determinations
are based on positive evidence, and an objective examination of all relevant factors and facts.
4.317 Legal Determination of No Present Materi al Injury Does Not Negate Subsidiary
Affirmative Findings. The ITC made subsidiary findings in its present material injury analysis that
supported an affirmative present injury finding. Specifically, the volume and market share of imports
were significant, imports had some adverse effe cts on domestic prices, and the condition of the
domestic industry had deteriorated, primarily as a result of declining prices, and thus was in a
vulnerable state. These findings foreshadow injury and clearly support the existence of a threat of
material injury. Canada erroneously argues that if the current circumstances taken together do not
support a legal conclusion of present injury, they must be wholly disregarded in addressing threat.
4.318 Canada simply ignores the existence of any evidence from the present injury analysis showing
that the US industry was on the verge of injury by reason of subject imports. For example, the ITC
found that the volume and market share of subject imports, accounting for 34 per cent of the US
market, were already significant and thus supported an affirmative present material injury finding.
Canada, however, erroneously describes this as a finding that such imports were not injurious and thus
dismisses its importance in the context of the threat of injury analysis. Its claims rest largely on this
error. For example, while Canada observes that the ITC recognized that the 34 per cent market share
held by Canadian imports was relatively stable, it omits that the ITC recognized that it had been
higher prior to the imposition of the restraining e ffect of the Softwood Lumber Agreement (SLA).
The relatively stable market share during the SLA pe riod does not negate the finding that the market
share was significant. Rather, it is an indicator of the SLA’s restraining effect and supports an
affirmative threat of injury finding.
4.319 Regarding present price effects, Canada selectively quotes from the ITC Report, omitting the
ITC’s finding that subject imports had some price effects and its reasoning for why such effects were
not significant. The ITC found that "the deteriora tion in the condition of the domestic industry during
the period of investigation is largely the result of substantial declines in price". Canada states that
"the [ITC] also found that declines in performance had levelled off in 2001". But, it disregards the
ITC ’s prior statement that "[t]he record indicat es that prices did increase in the second quarter of
2001, coincident with the filing of the petition, and this price increase abated some of the domestic
industry’s declining performance indicators".
4.320 Threat of Material Injury Analysis – General Issues . Canada urges the Panel to consider
the threat factors listed in Articles 3.7 and 15.7 in isolation from other factors. But all of the factors
considered by the ITC, whether listed or not, are interrelated, as are the different pieces of record
evidence, and the likely effects being assessed. The text of the covered agreements provides a clear
example of the change in circumstances as a seque nce or accretion of events and does not include an
"obligation to identify" the change in circumstances, as Canada alleges. Consistent with all of the US
obligations under the covered agreements, the ITC provided a detailed explanation of how the totality
of the evidence supported its conclusion, incl uding addressing the facts and likely events
demonstrating the progression or change in circum stances, as set forth in paragraph 18 of the US
second written submission.
4.321 Specific Issues Regarding Threat of Material Injury Analysis . The ITC found that there
was a likelihood of substantial increases in s ubject imports based on evidence regarding, inter alia,
Canadian producers’ excess production capacity a nd projected increases in capacity, capacity
utilization and production, the export orientation of Canadian producers to the US market and subject
import trends during periods when there were no im port restraints. The ITC determined that these
increases in imports were likely to put pressure on alr eady declining prices, and that material injury to
the domestic industry would occur. It also found th at the domestic industry was vulnerable to injury

from likely increases in imports and price pressure in light of declines in performance, particularly
financial performance.
4.322 Likely Substantial Increases in Subject Imports. Contrary to Canada’s characterization,
the ITC found that the volume and market share of subject imports were already significant and had
increased even with the restraining effect of th e SLA in place. Moreover, subject imports had
increased substantially during the periods without import restraints.
4.323 Capacity. Canada selectively quotes from the ITC’s Report to claim that the ITC performed
an "inadequate analysis" and offe red "no explanation" for its findi ng that Canadian producers expect
to further increase their ability to supply the US market. Yet the ITC provided an explicit explanation
(ITC Report, page 40) that Canada simply has ig nored. Moreover, the ITC also recognized that
"Canadian producers projected . . . capacity utiliza tion increases to 90.4 per cent" in 2003 from the
low of about 84 per cent in 2001. Further, rega rding capacity, Canada would require a showing of
both sufficient freely disposable capacity and an imminent substantial increase in capacity, even
though these factors in the relevant provisions are separated by "or" rather than "and".
4.324 Export Orientation and Export Projections. The US market has generally accounted for about
65 per cent of Canadian softwood lumber production. Yet, Canadian producers ’ projected increases
in exports to the United States accounted for only about 20 per cent of their planned increases in
production. This aspect of producers’ projections, coupled with projected home market shipments
that did not correlate to Canadian demand forecas ts, reasonably caused the ITC to conclude that
projected production increases would likely be distributed among the US, Canadian, and other
markets in shares similar to those prevailing during the prior five years.
4.325 Restraining Effect of the SLA . Canada’s claims regarding the ITC’s use of "all" rather than
"some" for $50 fee imports in 2000-2001 ignore the significant quantities of exports subject to $100
fees for the period. The fact is, since $100 f ee imports entered in the 2000-2001 period, some
Canadian producers had used all of their $50 fee quota in that period. Moreover, this does not affect
the ITC’s conclusion that the significant quantities of imports subject to $100 fees indicated that "in
the absence of the SLA they [Canadian producers] would have shipped more, given the near
prohibitive level of the $100 fee".
4.326 Substantial Increases in Imports in Periods with No Import Restraints . Canada’s arguments
regarding the ITC’s finding that subject imports increased substantially during periods with no import
restraints rely on the omission of significant evid ence and findings. In fact, at one point, Canada
claims that the 1994-1996 period does not support an "inference" regarding the subject imports. But
the ITC did not need to make an inference to de termine what occurred when the trade restraint, i.e.,
the SLA, was imposed, because it relied on and discu ssed actual data showing a decline in subject
imports to 34.3 per cent with the SLA in effect fro m 35.9 per cent prior to its imposition. Moreover,
Canada’s challenge to the ITC’s consideration of import data fo r the 1994-1996 period on the basis
that market conditions were not taken into account is not consistent with its own reliance on data
outside the period of investigation. In addition, Canada’s claim that the substantial increase in
imports during the April-August 2001 period only reflect s "a shift in the timing of imports" fails to
respond to the simple fact that imports did increase. For example, subject imports increased by
11.3 per cent for the April-August 2001 period compared with the same period in 2000, and by 4.9 per
cent for the April-December 2001 period compared with 2000. The fact that imports increased after
expiration of the SLA and have continued to increase does not support Canada’s argument that a shift
in timing accounted for the higher level of imports after the SLA expired.
4.327 Likely Price Effects . Canada’s arguments regarding lik ely price effects largely ignore the
ITC’s analysis and findings. For example, Cana da has claimed that "[n]owhere in the [ITC’s]
discussion of this factor in the Determination is ther e any reference to a ‘price trends’ analysis." The
facts refute this claim. The ITC did analyze price trends in its threat analysis (ITC Report, page 43)

and found that prices declined substantially at th e end of the period of investigation, supporting a
conclusion that imports "are entering at prices th at are likely to have a significant depressing or
suppressing effect on domestic prices". Canada’s a ttempt to show that prices increased after the
period of investigation fails to point out that th e composite price for the first quarter of 2002 was
lower than the composite price for the third quarter of 2001 and substantially lower than that for the
second quarter of 2001.
4.328 Causation. Canada’s claims on causation are vari ations on its arguments regarding likely
substantial increases in imports and likely price effects. When the ITC finds a factor not to have
injurious effects on the domestic industry, such fact or is not an "other known factor," in which case
there is no obligation to further examine it. Canada states that the ITC was required to "assess[] the
future market share of subject imports". However, such a requirement does not exist in the covered
agreements.
4.329 Substitutability
. Regarding substitutability, subject imports and domestic species of softwood
lumber are used in the same applications and compete with each other. Moreover, prices of a
particular species will affect the prices of othe r species. Canada quotes selectively from the ITC’s
preliminary investigation and ignores the totality of the facts, including the evidence provided by
purchasers and home builders that Canadian softwood lumber and the domestic like product generally
are interchangeable and are used in the same applications.
4.330 Canada’s claims regarding attenuated competition centre on whether Canadian SPF, which
accounts for about 85 per cent of its production, and US Southern Yellow Pine (SYP), which accounts
for about 45 per cent of US production, are interchangeable and compete. Canada provides the Panel a
single quote from an employee of Home Depot, a large US retailer. However, other evidence,
including testimony from another employee of Home Depot from Texas, show both SPF and SYP are
used for the same applications, with regional pr eferences reflecting availability and a predisposition
for locally-milled species, but not a lack of substit utability (USA-23). In addition, there are other
species, such as Douglas fir and hem-fir, that both countries produce that compete with each other,
and with SPF and SYP. There was significantly more evidence in the record demonstrating the
interchangeability of the species.
4.331 Domestic Supply
. Canada has made two charges rega rding the evidence cited by the ITC
indicating that domestic producers have curbed th eir production, but that overproduction remains a
problem in Canada. First, Canada argues that, base d on the location of this finding in the ITC Report,
it could not support the ITC’s threat of injury findi ng. Second, Canada alleges that this "excerpt
therefore referred only to ‘ overproduction in order to secure wood chips for pulp and paper
manufacturing’ and not to overproduction in the lumber i ndustry generally." But, the motivation for
lumber overproduction does not eliminate or lessen the central problem – lumber is being
overproduced. Moreover, it actually is more problem atic, because it indicates that the production of
lumber is not tied exclusively to the demand for lumber.
4.332 Finally, Canada’s renewed request for a suggestion by the Panel as to how the United States
should come into compliance with its WTO obligations goes beyond anything contemplated by the
WTO agreements and should be rejected.
2. Closing Statement of the United States at the Second Meeting of the Panel
4.333 As we indicated this morning, the Commission conducted an objective examination, as
evident in the ITC Report, in which its evaluation of the relevant factors and facts was unbiased and
even-handed. Canada, on the other hand, continues to draw to the Panel’s attention only those facts
and findings that favour Canada’s arguments. Canada overlooks s ubstantial parts of the ITC’s
discussion of various issues and arguments, and substa ntial parts of the record evidence, in presenting
its arguments to the Panel.

4.334 Canada frequently asserts that the United States in relying on ex post facto rationalizations
and justifications in its defe nce of the ITC determinations. 20 Yet in making these assertions Canada
dismisses and omits explicit statements made by th e Commission in its opinion. We have cited to a
number of these omissions in our written submissions. This morning, in our opening statement, we
quoted statements explicitly made by the Commission, or referred the Panel to pages, in the ITC’s
Report, that Canada has ignored and instead often characterizes as ex post facto rationalizations.
21
One example, discussed this morning involves Cana da’s claims that the ITC did not discuss price
trends in its threat of injury analysis. 22 It is clear on pages 43 of the ITC Report (attached to the US
opening statement) that the ITC explicitly did conduct a price trends analysis.
4.335 An examination of the ITC Report demonstrates that the Commission’s determinations reflect
the facts as a whole and are consistent with a ll US obligations under th e covered agreements.
Contrary to Canada’s claims, it is important 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. The
report must be viewed as a whole, with analysis c onducted in any particular section potentially having
a bearing on analysis in other sections.
4.336 The United States has addressed the issues in deta il in written submissions to this Panel and
will not repeat those arguments here. We will, however, provide a few brief comments clarifying or
placing in perspective certain issues raised by Canada.
• The Commission properly examined any known factors other than the dumped and
subsidized imports that might be injuring the domestic industry to ensure that it did
not improperly attribute injury from other causal factors to the subject imports.
Canada implies that further consideration or examination is required even if an
alleged factor is found not to be an “other known factor.” 23 When the Commission
finds a factor not to have injurious effects on the domestic industry, such factor is not
an “other known factor” for purposes of Ar ticle 3.5 of the Anti-Dumping Agreement
or Article 15.5 of the SCM Agreement. If a factor is not an “other known factor,”
there is no obligation to further examine it. Canada is wrong.

• One example where evidence demonstrates that an alleged other factor is not a
“known” other factor is nonsubject imports. Canada continues to attempt to portray
nonsubject imports as other known factors in face of the facts to the contrary. Non-
subject imports never accounted for more than 2.6 per cent of apparent consumption;
subject imports accounted for at least 34 per cent of the US market. Moreover,
individual country non-subject imports woul d have been deemed negligible, with no
individual country accounting for more than 1.3 per cent of imports while Canadian
imports accounted for about 93 per cent of all imports.
24

• On the issue of substitutability/attenuated comp etition, it is Canada that has failed to
address the evidence before the Commission. As discussed in the US first written
submission and the ITC Report, and this morn ing, the simple fact is, subject imports
and domestic species of softwood lumber ar e used in the same applications, and

20See Canada Oral Statement at Second Panel Meeting, para. 3
21See, e.g., US Opening Statement at Second Panel Meeting, paras. 23, 25-27, 31, 36, and 43.
22Canada Second Written Submission, para. 26.
23See Canada’s Oral Statement at Second Panel Meeting, paras. 43-47.
24See US Response to Panel Question 26, para. 33, n. 60; ITC Report at II-7, n. 23 (“Official statistics
from the Department of Commerce rev eal that nonsubject imports accounte d for 6.9 per cent of the overall
quantity of softwood lumber imports into the US market in 2001, with Brazil, Chile, and New Zealand
accounting for 1.3, 1.1, and 1.0 per cen t, respectively. Germany, Sweden, and Austria accounte d for 1.0, 0.8,
and 0.5 per cent, respectively, while Lithuania, the Czech Republic, Mexico, and all other countries accounted
for the remaining 1.2 per cent of 2001 softwood lumber imports.”).

prices of a particular species will affect the prices of other species.
25 Canada states
that “some Canadian imports in high dema nd in the United States were employed for
end uses for which domestic products competed only on a limited basis.” 26 But, the
facts do not support its claim. Canadian imports are primarily SPF; SPF accounts for
about 87.7 per cent of Canadian imports a nd about 85 per cent of Canadian softwood
lumber production. As demonstrated by Exhibit USA-23, discussed this morning,
Canadian SPF and US Southern Yellow Pine are used for the same applications.
Thus, these products compete. Canada also imports Douglas fir, hem-fir, western red
cedar, and a few other products; all of these species also are produced in the
United States. Canada now attempts to rely on a US court case with a very different
fact pattern to support its attenuated compe tition arguments. But, this attempt should
fail because in that court case about 20 per cent of the imports were for a niche
product which had no comparable domestic product, i.e., the products were not used
in the same applications nor were they interchangeable.

4.337 Mr. Chairman, members of the Panel, we have just one final point to make. In its opening
statement, Canada took issue with the US discussion of Canada’s request for a suggestion pursuant to
DSU Article 19.1. The United States does not deny—as implied by Canada’s statement—that
Article 19.1 allows a panel to make a suggestion in appropriate cases. What we have argued is that no
suggestion, and certainly not the suggestion Canada proposes, is appropriate in this case. Canada asks
the Panel to make a suggestion that goes well beyond steps to bring about conformity with WTO
obligations. For that reason, this Panel, like the panel in United States-Hot Rolled Steel , should
decline the request for a suggestion. Of course, as we discussed in our earlier submissions, there is no
need for any suggestion in this case because the IT C’s determination was entirely consistent with
WTO obligations.
4.338 Mr. Chairman and members of the Panel, our arguments today and in our prior submissions
demonstrate that the ITC’s determination in this case was entirely consistent with US obligations
under the covered agreements. For the reasons we have laid out, the Panel should reject Canada’s
claim in its entirety.
V. ARGUMENTS OF THE THIRD PARTIES
5.1 The arguments of the third parties, the Europ ean Communities, Japan, and Korea are set out
in their written submissions and oral statements, and are summarized in this section. Third parties'
answers to questions are annexed in full to this report (see List of Annexes, page iv).
A. THIRD
 PARTY WRITTEN SUBMISSION OF THE EUROPEAN COMMUNITIES
5.2 The following summarizes the European Comm unities arguments in its third party written
submission.
1. The Applicable Standard of Review
5.3 This dispute concerns a determination that is mixed (involving subsidised and dumped
imports) and consists, in the strict sense of two legally separate determinations on which the final
countervailing and anti-dumping duties are based wh ich are to be reviewed separately under the SCM
Agreement and the Anti-Dumping Agreement . The European Communities agrees with Canada that
the applicable standard of review under the SCM Agreement is Article 11 of the DSU. The European
Communities also agrees with both parties that Article 17.6 of the Anti-Dumping Agreement

25 US First Written Submission, paras. 269-278 and ITC Report at 25-27 (USA-1).
26Canada’s Oral Statement at Second Panel Meeting, para. 40.

complements Article 11 of the DSU and that the duties of the Panels under both provisions do not
differ significantly.
5.4 However, the European Communities strongly disagrees with Canada that the standard of
review developed for the purpose of reviewing safe guard measures should automatically be applied in
this dispute.
5.5 Article 11 of the DSU defines generally a panel’ s mandate in reviewing the consistency with
the covered agreements of measures taken by Member s. However, the specific standard of review a
Panel is called upon to apply paralle ls the substantive and procedur al obligations of the domestic
authorities. Thus, the Appellate Body explained th e standard of review concerning a violation of
Article 4.2 of the Agreement on Safeguards, in the following way:
5.6 Because the standard of review reflects the underlying substantive obligation, an automatic
transfer of the standard of review from one Agreement to the other could result in a de facto
modification of the substantive obligations.
5.7 The European Communities would give one exam ple where the standard of review proposed
by Canada on the basis of the standard of review applied in the context of safeguard cases would not
have a legal basis in the Anti-Dumping Agreement and the SCM Agreement and would, indeed,
amount to a de facto modification of the substantive obligations.
5.8 Thus, the European Communities fails to see, on which legal basis Canada would ask this
Panel to determine whether the USITC has cons idered all the facts, including those that should have
been before the ITC but were not raised by the inter ested parties. The latter standard was developed
in the particular context of the Agreement on Safeguards , where the competitive authorities may not
satisfy themselves with the facts and arguments provi ded by interested parties but must actively seek
to obtain all relevant facts. As already explaine d above, this particular role of the investigating
authorities is justified by the fact that safeguard measures apply to fairly traded imports irrespective of
their source, while anti-dumping and countervailing du ties, apply to dumped or subsidised products
from specific sources.
5.9 Article 17.5 of the Anti-Dumping Agreement confirms that domestic authorities have no
investigative duties to obtain facts in addition to the facts submitted by the interested parties.
5.10 The European Communities considers that the same principle applies under the SCM
Agreement although that Agreement does not contain an e xplicit confirmation to that end. This is
supported by the fact that both, the Anti-Dumping Agreement and the SCM Agreement, contain the
same very detailed and elaborate provisions regulating the conduct of the investigation, including the
“best facts available” rule as provided under 6.8 ADA and 12.7 SCM.
5.11 The European Communities considers that the re view this Panel is called upon to exercise in
reviewing an injury determination involving both subsidised and dumped products can be deduced, in
particular, from the overarching obligations of domestic authorities in an injury (or threat thereof)
determination under Articles 3.1 ADA/15.1 SCM.
5.12 Given that the wording of Articles 3.1 ADA/ 15.1 SCM is identical, the European
Communities considers that the jurisprudence on th e standard of review for Article 3.1 of the Anti-
Dumping Agreement may also apply to the review of an injury determination under Article 15.1 of the
SCM Agreement . Moreover, both provisions relate to a “determination of injury for purposes of
Article VI of GATT 1994”, thus suggesting that in jury determinations from subsidised and dumped
products do, in principle, not differ.

5.13 In short, the European Communities submits that the applicable standard of review cannot be
“imported” from the Agreement on Safeguards , but that the Panel should determine the appropriate
standard of review for the injury determinati on involving both dumped and subsidised imports in
accordance with Articles 11 of the DSU and 17.6 of the Anti-Dumping Agreement by carefully
considering the substantive obligations of the domestic authorities under the Anti-Dumping Agreement
and SCM Agreement , in particular the requirements under the general obligation in Articles 3.1
ADA/15.1 SCM.
2. Threat of Injury Determination
5.14 Notwithstanding these minor deviations in the text, the European Communities agrees with
the main parties that both, Article 3.7 ADA and Article 15.7 SCM should be read harmoniously to
require a prospective analysis of the situ ation of the domestic industry in addition to
 the analysis of
the current state of the domestic industry to be carried out under Articles 3.1- 3.6 ADA and
Article 15.1-15.6 SCM.
5.15 A proper threat analysis must fulfil three different requirements. First, the threat analysis
“shall be based on facts and not merely on allega tion, conjecture or remote possibility”. This
elements relates to the factual basis of the determin ation, requiring that the prospective analysis must
be based on existing facts from which reasonable pr edictions can be made about the state of the
industry in the future. Second, the purpose of the th reat analysis is to demonstrate that a “change in
circumstances” is “clearly foreseen and imminent ”. Third, as regards the methodology, domestic
authorities should consider “the totality of factors” and that consideration “must lead to the conclusion
that further dumped imports are imminent and that, unless protective action is taken, material injury
would occur”. The factors enumerated in Articles 3.7 ADA/ 15.7 SCM essentially relate to the
likelihood of increased imports (rate of increase of imports, capacity of exporters to increase exports,
availability of other export markets and inventori es) and the effects of import prices on future prices
and demand. The list of factors is not exhaustiv e and none of them can by itself give decisive
guidance.
• Change in Circumstances under Articles 3.7/15.7
5.16 The European Communities disagrees with the Un ited States that there is no requirement to
identify a “change in circumstances”. The United States would want to make the Panel believe that it
is not feasible or meaningful to analyse possible changes in circumstances, because it is impossible, as
clarified by the Appellate Body in the context of sa feguard disputes, to make out a point in time at
which a threat of injury becomes material injury”.
5.17 However, the case law relating to the Agreement on Safeguards is of no relevance to the
interpretation of the phrase “change of circumstances”, because only the Anti-Dumping Agreement
and the SCM Agreement contain the specific requirement of a “change of circumstances” analysis.
The ordinary meaning of the second sentence of Artic le 3.7 ADA/ 15.7 SCM is straightforward: The
domestic authorities are required to determine that a “change in circumstances” that would “create a
situation” in which the dumping/subsidisation wo uld cause injury must be “clearly foreseen and
imminent”.
5.18 The European Communities agre es with the commonplace that the economic development
from the current (non-injured) state of the domestic industry to a situation where material injury
realises is a continuous one and th at it is not possible to predict the
 precise moment in time when the
change occurs. However, that is not the point . The second sentence of Articles 3.7 ADA/ 15.7 SCM
does not require a determination of when circumstances change, but rather analysis of factors that
would create a change in circumstances.

5.19 Read contextually with the example contained in footnote 10 of the Anti-Dumping
Agreement) and the specific factors listed in the thir d sentence of Article 3.7 ADA/ 15.7 SCM, the
requirement of a change of circumstances analysis essentially breaks down in two basic questions: (i)
Is there a high likelihood of conti nued dumped/subsidised imports and (ii) would the effects of these
imports compel the conclusion that “unless protective action is taken” material injury as defined under
Articles 3.1-3.6 ADA and 15;1-15.6 SCM would occur.
5.20 This analysis does not require identification of an “abrupt change in circumstances” within
the meaning of, e.g., “unforeseen developments”, but rather an analysis of particular factors relating to
the occurrence of facts of future dumped/subsidi sed imports resulting in the conclusion that the
domestic industry is on the brink of being injured.
• Individual Threat of Injury Factors
5.21 The European Communities supports Canada’s interpretation of Articles 3.7(ii) ADA/
15.7(iii) SCM that the authorities must analyse the likelihood of increased dumped/subsidised exports
in relation to
 establishing the existence of sufficient di sposable capacity or imminent, substantial
increase in capacity. This is consistent with the requirement to consider the availability of other
export markets and the general purpose of the individual threat factors to establish a high likelihood of
continued dumped/subsidised imports.
5.22 The European Communities also agrees with Canada’s position that Article 3.7(iii) ADA/
15.7(iv) SCM requires the authorities to consider the impact of the current import prices. This can be
deduced from the use of the present continuous in the phrase “imports are entering at prices”.
5.23 The European Communities would, however, ta ke issue with Canada’s interpretation of
Articles 3.7(iv) ADA/ 15.7(v) SCM. According to Canada, the authorities are required to establish
that inventories are likely to be liquidated in the imminent future. Such requirement is not supported
by the text of Article 3.7(iv) ADA/ 15.7(v) SCM whic h only refers to an assessment of “inventories”.
Contextually, this is further corroborated by the di fference in language with Article 3.7(i) and (ii)
ADA/15.7(ii) and (iii) SCM. The factors relating to in creased imports and the capacity of exporters to
increase imports contain an explicit requirement to establish the likelihood of substantial increases of
importation’s or dumped/subsidised imports.
5.24 It is true that the chapeau of Article 3.7 ADA/15.7 SCM woul d require consideration of all
specific enumerated factors with a view of whethe r they point to the likelihood of further increased
imports. However, in that respect it would be suffi cient, as implicitly admitted by the United States in
its defence on that point, that inventories provide ex porters “with the added ability to likely increase
substantial imports to the US market”.
• Meaning of “Consider” in Article 3.7 ADA/ 15.7 SCM
5.25 The European Communities supports the US argument relating to the meaning of the term
“consider” that the investigating authority is not ob liged to make an explicit finding or determination
on each of the factors for the following reasons:
5.26 The term “consider” is defined, inter alia , as “look at attentively”, “pay heed to”, “think
over”, “weigh the merits of”, “take note of”, “think carefully, reflect”. Thus, the ordinary meaning
does not suggest that a separate determination must be made on each of the factors, but rather, that the
determination is based on an evaluation that takes note of the different factors. This is corroborated by
the interpretation of the phrase “shall consider” in Article 3.2 of the Anti-Dumping Agreement in
Thailand – H- Beams:

5.27 The same approach was taken by the Appellate Body in EC – Tube and Pipe. With respect to
the examination of injury factors under Article 3.4 of the Anti-Dumping Agreement the Appellate
Body explicitly confirmed the finding of the Panel:
5.28 It is noteworthy that the first sentence of Article 3.7 ADA/ 15.7 SCM does not even require
that the domestic authorities “shall” consider all those factors as Articles 3.2 ADA/ 15.2 SCM do, but
only that they “should” consider, “inter alia” such factors as enumerated. Neither does it require an
“examination” of factors as Article 3.4 ADA/15.4 SCM does. Thus, it appears that Article 3.7 ADA/
15.7 SCM leaves an even broader measure of discr etion to investigating authorities regarding the
manner in which they make a threat of injury determination.
5.29 What is more, a conclusion that a threat of injury exists may be justified by at least one threat
factor pointing towards a threat of material injury. Thus, the phrase “none of these factors can
necessarily give decisive guidance” in the third sentence of 3.7/15/7 clarifies that, indeed, one of these
factors may give decisive guidance and it may be suffi cient to justify a threat of injury determination
on the basis of one sole factor pointing towards a threat of injury.
B. THIRD
 PARTY ORAL STATEMENT OF THE EUROPEAN COMMUNITIES
5.30 The following summarizes the European Communities arguments in its third party oral
statement.
1. Introduction
5.31 As noted in the European Communities written th ird party submission, many of the issues
before the Panel in this dispute relate to detailed questions of fact which the European Communities is
not in a position to comment upon. Therefore, the European Communities concentrates on some of
the systemic issues raised by the European Communities regarding the interpretation of the
Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the
“Anti-Dumping Agreement” or “ADA”) and th e Agreement on Subsidi es and Countervailing
Measures (the “SCM Agreement” or “SCMA”). The European Communities comments would not
repeat the detailed comments already provided in its third party submission, but would briefly add
some comments on the legal issues relating to the causation analysis carried out by the USITC and the
applicable standard of review in relation to “known factors”.
2. Interpretation of Articles 3.5 ADA/15.5 SCM Agreement
5.32 The parties to the dispute disagree over whethe r the USITC carried out an analysis of the
existence of a causal link which conformed with Article 3.5 of the Anti-Dumping Agreement and
Article 15.5 of the SCM Agreement. In particular, Canada claims that the USITC failed to identify,
much less examine any known factors that could have threatened injury to the domestic industry in
addition to the relevant imports. Having neglected even to identify other causal factors, the US
authorities, according to Canada, also did not separ ate out and distinguish the injurious effects of
those other factors from the alleged injurious effects of the dumped and subsidised imports.
5.33 Canada appears concerned that the US even denies its very obligation under WTO because, in
its report, the US authority explicitly stated that it is not required, under US case law, to separate and
distinguish the injurious effects of the other known factors from the injurious effects of the dumped
and subsidised imports.
 27 Therefore, according to Canada, the determination does not comply with

27 USITC Report “Softwood Lumber From Canada”, Investigations Nos. 701-TA-414 and 731-TA-
928(Final), Publication 3509, Ma 2002 (hereinafter the “ITC Report”) (Exh.CDA-1), p. 31. Footnote 195.

the requirements in the third and four th sentences of Article 3.5 of the Anti-Dumping Agreement and
Article 15.5 of the SCM Agreement relating to non-attribution.28
5.34 Article 3.5 ADA provides in relevant part:
It must be demonstrated that the dumped imports are, through the effects of dumping,
as set forth in paragraphs 2 and 4, causing injury within the meaning of this
Agreement. The demonstration of a causal relationship between the dumped imports
and the injury to the domestic industry shall be based on an examination of all
relevant evidence before the authorities. The authorities shall also examine any
known factors other than the dumped imports which at the same time are injuring the
domestic industry, and the injuries caused by these other factors must not be
attributed to the dumped imports. Factors which may be relevant in this respect
include, inter alia , the volume and prices of imports not sold at dumping prices,
contraction in demand or changes in the pa tterns of consumption, trade restrictive
practices of and competition between the foreign and domestic producers,
developments in technology and the export performance and productivity of the
domestic industry.
5.35 Article 15.5 SCMA states:
It must be demonstrated that the subsid ized imports are, through the effects of
subsidies, causing injury within the meani ng of this Agreement. The demonstration
of a causal relationship between the subsidized imports and the injury to the domestic
industry shall be based on an examination of all relevant evidence before the
authorities. The authorities shall also ex amine any known factors other than the
subsidized imports which at the same time are injuring the domestic industry, and the
injuries caused by these other factors must not be attributed to the subsidized imports.
5.36 The European Communities considers that Article 3.5 ADA/15.5 SCM requires a detailed
examination of other factors causing injury to the domestic industry and a rigorous segregation of
those factors from the effects of dumping. The European Communities would agree that a detailed
examination must take place. The European Communities notes with satisfaction that the
United States does not, as alleged by Canada, deny its obligations to comply with Articles 3.5
ADA/15.5 SCMA. The United States accepts, as the EC understands from the first US written
submission, that Articles 3.5 and 15.5 require investigating authorities in their causation
determinations not to attribute to dumped [subsidized] imports the injurious effects of other causal
factors, so as to ensure that dumped [subsidized] im ports are, in fact, “causing injury” to the domestic
industry.
5.37 The European Communities argued before the Appellate Body and the Appellate Body agreed
that “provided that an investigating authority does not attribute the injuries of other causal factors to
dumped imports, it is free to choose the methodology it will use in examining the “causal
relationship” between dumped imports and injury”.
29 The EC also agrees with the US that factors that
are found not to have injurious effects are not an ”other known factor” for purposes of Article 3.5
ADA or Article 15.5 SCM and no furthe r consideration or examination of the factor is called for.
Moreover, if a factor has been found not to cause injury, it does not need to be separated.

28 Canada’s First Written Submission, para. 163.
29 EC-Pipe, AB Report, para. 189, citing US-Hot-Rolled Steel, AB Report, para. 224.

5.38 As stated at the outset, the European Communities is not in a position to appreciate the factual
aspects and whether the USITC has properly analy sed other factors, e.g., the industry’s own
contribution to the oversupply that led to price declines.
30
3. Standard of Review
5.39 Turning now to the standard of review, the EC would like to add one more argument why
Panels should not review whether a competen t authority has considered any facts that should have
been before them. 31 According to Articles 3.5 ADA/15.5 SCM domestic authorities in antidumping
and countervailing duty investigation only have a duty “to examine any known factors”.
5.40 In Thailand – H Beams the Panel stated:
We consider that other "known" factors would include those causal
factors that are clearly raised befo re the investigating authorities by
interested parties in the course of an AD investigation. We are of the
view that there is no express requi rement in Article 3.5 ADA that
investigating authorities seek out and examine in each case on their
own initiative the effects of all possible factors other than imports
that may be causing injury to the domestic industry under
investigation
32.
5.41 This statement suggests that the onus lies on the interested parties to raise factors which may
be relevant to the causal link before the investigating authorities. It would seem logical that in raising
other relevant issues, the interested parties must provide some prima facie evidence or argument that a
particular factor may be relevant and merits detailed examination by the investigating authority.
Otherwise, an interested party would simply list the factors set out in Article 3.5 and an investigating
authority would be obliged to fully investigate such factors, hence circumventing the deliberate choice
of language of Article 3.5 illustrated in the use of the term “any known factors”, by transforming the
list of factors into mandatory factors to be examined.
5.42 This further confirms that the domestic author ities do not have an independent obligation to
investigate each and every factor listed in the relevant provision of the ADA/SCMA ex officio, as is
the case under the Safeguards Agreement. Consequent ly, Panels are not mandated to review whether
the domestic authorities have considered any facts that should have been before them, but are limited
to review if the authorities have considered those facts which were effectively before them.
C. THIRD PARTY WRITTEN SUBMISSION OF JAPAN
5.43 The following summarizes Japan's arguments in its third party written submission.
1. Introduction
5.44 The Government of Japan (“Japan”) wishes to address crucial systemic issues raised by the
Government of Canada (“Canada”) relating to the authorities’ obligations in making threat of material
injury determinations. As explained in detail below, Article 3 of the Agreement on Implementation of
Article VI of the General Agreement on Tariffs and Trade 1994 (the “AD Agreement”) requires the
authorities, in determining a threat of material inju ry, to comply with all the provisions of Article 3,

30 Canada’s First Written Submission, para. 166.
31 See EC Third Party Submission.
32 Panel Report, Thailand – Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy
Steel and H-Beams from Poland (“Thailand – H-Beams”), WT/DS122/R, adopted 5 April 2001, as modified by
the Appellate Body Report, WT/DS122/AB/R, para. 7.273.

not limited to Article 3.7. The Agreement on Subsidies and Countervailing Measures (the “SCM
Agreement”) also impose the same obligations on the authorities. The United States International
Trade Commission (the “ITC”) failed to make its threat determination in accordance with these
Agreements, particularly Articles 3.1, 3.4 and 3. 5 of the AD Agreement and Articles 15.1, 15.4 and
15.5 of the SCM Agreement, and thus acted inconsistently therewith.
5.45 The following arguments discuss WTO-inconsiste ncy of the ITC’s final determination of
threat of material injury in Softwood Lumber from Canada 33 with the AD Agreement. These
arguments are, however, not limited to the AD Agreement, but are equally applicable to WTO-
inconsistency of the determinati on with the SCM Agreement. Footnote 45 and Articles 15.1, 15.4,
15.5, and 15.7 of the SCM Agreement relevant to the following arguments are corollary to footnote 9,
and Articles 3.1, 3.4, 3.5, and 3.7 of the AD Agreement. Further, the ITC made the final
determination, simply referring to both dumped a nd subsidized imports as the subject imports without
making any distinctions between them. Thus, th ere are no differences in underlying facts and
rationales in connection with the inconsistency of the final determination with the SCM Agreement
and the AD Agreement. By presenting the following ar gument, therefore, Japan also argues that the
ITC acted inconsistently with the SCM Agreement.
2. Argument
(a) The AD Agreement Requires the Authorities to Determine Threat of Material Injury in
Accordance with All the Provisions of Article 3

5.46 Japan agrees with Canada that the AD Agreemen t requires the authorities to make threat of
material injury determination in accordance with all the provisions of Article 3, not limited to
Article 3.7. Perhaps, most relevant provisions for the Panel’s review of ITC’s threat determination in
this case would be Articles 3.1, 3.4 and 3.5. The text of the AD Agreement explicitly provides that
provisions in Articles 3.1, 3.4 and 3.5, i.e., analysis on state of injury of the domestic industry and
impact of dumped imports thereon, causation, and no n-attribution of other factors to dumped imports,
apply to Article 3.7.
5.47 Article 3.7 provides:
. . . The change in circumstances which would create a situation in which the
dumping would cause injury must be clearly foreseen and imminent.
. . . the totality of the factors considered must lead to the conclusion that further
dumped imports are imminent and that, unl ess protective action is taken, material
injury would occur. (emphasis added.)
5.48 The term “injury” must be interpreted to include the “threat of material injury” stipulated in
Article 3.7. Footnote 9 defines the term “injury” that:
Under this Agreement the term “injury” shall, unless otherwise specified, be taken to
mean material injury to a domestic industry, threat of material injury to a domestic
industry or material retardation of the estab lishment of such an industry and shall be
interpreted in accordance with the provisions of this Article.

33 Softwood Lumber from Canada, Investigations Nos. 701-TA-414 and 731-TA-928 (Final) ,
Publication 3509, May 2002 (Exhibit CDA-1).

Footnote 9 clarifies that, when the AD Agreement uses the term “injury,” it means to include
threat of material injury.

5.49 The context of Article 3 also provides that all the provisions of Article 3 apply to a
determination of threat of material injury under Article 3.7. A previous panel in Mexico – HFCS
explained:
Moreover, the entirety of Article 3, which serves as context for the interpretation of
Article 3.7, supports this conclusion. Article 3 as a whole deals with the
determination of injury in anti-dumping inv estigations, which is defined as material
injury, threat of material injury, or material retardation of the establishment of a
domestic industry.
34
To find “threat of material injury,” theref ore, provisions in Article 3 setting forth
requirements for finding “injury”, such as those in Articles 3.1, 3.4 and 3.5, must be satisfied.

5.50 The texts of the individual provisions of Articl es 3.1 and 3.4 further clarify that requirements
in Articles 3.1 and 3.4 apply to a determination of threat of materi al injury under Article 3.7.
Article 3.1 sets forth general requirements for a de termination of “injury.” There is no language that
limits the meaning of “injury” in Article 3.1. Th e requirements for a determination of “injury” in
Article 3.1 thus apply to a determin ation of threat of material injury. The Appellate Body has also
confirmed that “Article 3.1 is an overarching pr ovision that set forth a Member’s fundamental,
substantive obligation in this respect, Article 3.1 informs the more detailed obligations in succeeding
paragraphs.35” Among others, Article 3.1 requires the authorities to base their determination of threat
of material injury on positive evidence and objective examination of “the consequent impact of these
imports on domestic producers of such products.” The term “these imports” means dumped imports
in this context, and the term “domestic producer s of such products” means the domestic industry
under the definition of Article 4.1. Article 3.1 thus requires the authorities to examine the impact of
dumped imports on the domestic industry for determining threat of material injury. Article 3.4 then set
forth how “the impact of dumped imports on the domestic industry” must be examined. It requires the
authorities to evaluate all individual factors as lis ted in Article 3.4 for that purpose. As such,
Article 3.4 provides the detailed requirements for th e examination of the impact of dumped imports
under Article 3.1, and therefore, for a determinati on of threat of material injury. As such, the
authorities must satisfy the requirements in Articles 3.1 and 3.4 to determine threat of material injury.
5.51 Article 3.5 also has no language modifying the meaning of the term “injury”. The term
“injury” in Article 3.5, thus also includes “threat of material injury” in accordance with Footnote 9.
The causation and non-attribution requirements under Artic le 3.5, therefore, must be satisfied to make
a determination of threat of material injury.
5.52 Japan notes that Article 3.7 provides that “the change in circumstances which would create a
situation in which the dumping would cause injury must be clearly foreseen and imminent”. It also
provides that the authorities must find “further dum ped imports are imminent” and “material injury
would occur”. These phrases clarify that the authoriti es must demonstrate that a situation, in which
“injury” in terms of Article 3.4 is caused by e ffects of dumping of further dumped imports without
attributing effects of other known factors thereto in terms of Article 3.5, is foreseen and imminent.
The authorities must further demonstrate that th e change in circumstances would bring such a
situation.

34 Mexico – Anti-Dumping Investigation of High Fructo se Corn Syrup (HFCS) from the United States
(“Mexico – HFCS”), WT/DS132/R (28 January 2000) para. 7.132.
35 Thailand – Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel and H-
Beams from Poland, Appellate Body Report, WT/DS122/AB/R (12 March 2001), para. 106.

5.53 In this respect, the United States misplaced the Appellate Body’s statement in US-Pipe Line.36
It appears that the United States argues that “an abrupt change” 37 needs not be identified because
injuries are imminent if status quo that is adverse to the domestic industry continues. The Appellate
Body did not go that far. Rather, the Appellate Body simply indicated that “[p]resent serious injury is
often preceded in time by an injury that threaten s clearly and imminently to become serious injury.”38
In this case, however, the ITC concluded “we do not find present material injury by reason of subject
imports”. (emphasis added.)39 Thus, mere continuation of “no in jury” situation could not develop a
“threat of material injury,” unless any “change in circumstances” will take place. Moreover, for the
treaty interpretation, Canada first looks at explicit la nguage of Article 3.7. It explicitly provides that
the authorities must show that “change in circumstances” is “foreseeable and imminent”. Canada may
not ignore the explicit text. This text obliges the authorities to make a reasoned conclusion that the
change in circumstance is imminent based on positive evidence and objective examination.40
(b) The ITC Failed to Satisfy Requirements in Articles 3.4 and 3.5, and Thus, Acted
Inconsistently with the AD Agreement

5.54 Canada claims that the ITC made its final dete rmination of threat of material injury in
Softwood Lumber from Canada 41 without satisfying requireme nts under Articles 3.4 and 3.5. 42 I t
appears that the ITC’s final determination supports Canada’s claims.
5.55 In the final determination, the ITC found that th e domestic industry was “vulnerable to injury
in light of declines in its performance over the period of investigation”, based on the evidence
showing past and current economic s ituations of the domestic industry. 43 In the same final
determination, the ITC also found, based on the sa me evidence, that the dumped imports “did not
have a significant impact on the domestic industry”. 44 These findings demonstrate that the dumped
imports were not a cause of the current “vulnerable to injury” situations of the domestic industry. The
ITC’s analysis on the vulnerability of the domestic industry alone does not constitute a valid basis to
find a threat of material industry. The ITC must evaluate the impact of likely further dumped imports
on the domestic industry in accordance with Articles 3.1 and 3.4. Canada, howev er, were not able to
find any such evaluation by the ITC in its final dete rmination. The ITC thus has acted inconsistently
with Articles 3.1 and 3.4.
5.56 The ITC also failed to show that dumped imports would cause material injury to the domestic
industry in accordance with Articles 3.1 and 3.5. The ITC found that dumped imports from Canada
were “likely to have a significant depr essing or suppressing effect on domestic prices” 45 and were
“likely to exacerbate price pressure on domestic industry”. 46 The ITC, however, made no
demonstration that such price effects would be for eseen and imminent to cause material injury to the
domestic industry. Instead, the ITC leaped to the conclusion “material injury to the domestic industry
would occur” without any explanation. 47 Such unsubstantiated determ ination cannot be a reasoned
conclusion based on the positive evidence and objec tive examination in accordance with Article 3.1

36See US First Written submission (15 August 2003), paras 99-101.
37 Id., para.101
38 See United States – Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality
Line Pipe from Korea, Appellate Body Report, WT/DS202/AB/R (15 February 2002), para. 168.
39 The Final Determination, supra, n.1., p37.
40 Japan notes that the text does not require the authorities to show “an abrupt change.”
41 The Final Determination, supra, n. 1.
42 See Canada’s First Written Submission (18 July 2003), paras 141-167.
43 The Final Determination, supra, n. 1., at pp. 37-39.
44 Id., at p. 36
45 Id., at pp. 43-44.
46 Id., at p. 44
47 See id.

and 3.5. The ITC thus has acted inconsistently with the causation requirement under Articles 3.1 and
3.5.
5.57 More significantly, the ITC made no attempt to separate and distinguish effects of other
known factors on the domestic industry from effects of dumping of further dumped imports thereon in
accordance with Article 3.5. The ITC found that “both subject imports and the domestic producers
contributed to the excess supply, and thus the declining prices”.
48 The ITC, however, could not
separate or distinguish effects of domestic produ cers themselves from effects of subject imports. 49
The ITC also recognized the existence of imports from countries other than Canada. 50 The ITC thus
knew, at minimum, the existence of these two other factors actually or potentially contributing to the
threat of material injury. In making a determination of a threat of material injury, however, the ITC
did not even consider c ontributory effects of these known factors to the future state of the domestic
industry. The ITC thus acted inconsistently with the non-attribution requirement under Article 3.5.
5.58 Japan would like to note that United States De partment of Commerce’s erroneous “dumping”
determination, which is pending in the other panel of WTO,
51 may render the “dumped imports” and
“injury” determination by the ITC inconsistent with Article 3 of the AD Agreement.
3. Conclusion
5.59 For the reasons set forth above, Japan respectfully requests this Panel to clarify that the ITC
acted inconsistently with Articles 3.1, 3.4, 3.5 a nd 3.7 of the AD Agreement, and Articles 15.1, 15.4,
15.5, and 15.7 of the SCM Agreement.
D. THIRD PARTY ORAL STATEMENT OF JAPAN
5.60 The following summarizes Japan's arguments in its third party oral statement.
1. Introduction
5.61 The Government of Japan welcomes the opportunity to present its views as a third party in the
present dispute. Japan joined this dispute to address a critical systemic issue in the AD and SCM
Agreements of methodologies for determining thr eat of material injury. This case will have
significant impact on operation of the vital pr ovisions of the AD and SCM Agreements, and
accordingly on practice of the AD and CVD regime of WTO Members. Japan would not repeat its
arguments in its written submission. Rather, Japan would like to focus on certain arguments presented
by other parties that Japan did not address in details in its written submission.
2. Insufficient Threat Analysis By ITC
5.62 In this case, the United States International Trade Commission (“ITC”) found that the other
“known” factor had also contributed in causing th e current state of the domestic industry, and
concluded that no material injury had been caused by the effects of the dumping or subsidies. The
question presented in this dispute is thus how the au thorities shall make a threat of material injury

48 Id., at p. 35.
49 Id., at p. 35 (“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.”)
50 Id., at p. 25, n. 152.
51 See United States – Final Dumping Determination on Softwood Lumber from Canada , Constitution
of the Panel Established at the Request of Canada - Note by the Secretariat , WT/DS264/3 (5 March 2003); See
also United States - Final Dumping Determination on Softwood Lumber from Canada - Request for the
Establishment of a Panel by Canada, WT/DS264/2 (9 December 2002).

determination, where the other “known” factor at l east partly caused the current state of the domestic
industry.
5.63 It appears that all parties, including the United States, agree that provisions of Articles 3.1,
3.4, and 3.5 of the AD Agreement and Articles 15.1, 15.4, and 15.5 of the SCM Agreement apply to a
threat of material injury determination. It ap pears, however, that the United States attempts to
undermine applicability of these provisions to a threat of material injury. The United States explained
in its first written submission that the ITC’s thr eat determination was consistent with the AD and
SCM Agreements because it found that “the condi tion of the domestic industry had deteriorated
primarily as a result of declining prices, and that the industry was in a vulnerable state”
52, and
therefore the domestic industry was “on the verge of material injury by reason of the continued
dumped and subsidized imports”.53
5.64 In this case, the ITC also found that such curre nt “vulnerable” state of the domestic industry
was partly caused by other known factors, such as oversupply by the domestic industry of the product
under consideration. For the purpose of the threat of material injury determination, however, the ITC
paid no attention to its own causal analysis on the current state of the domestic industry.
5.65 Instead, the ITC narrowed the scope of a threat of material injury determination into whether
the potential volume increase of the subject imports would give the last push to make the domestic
industry fall from the “verge” into the state of material injury. Such determination made Articles 3.1,
3.4 and 3.5 of the AD Agreement and Articles 15.1, 15.4 and 15.7 of the SCM Agreement effectively
inapplicable to a threat of material injury determ ination, and therefore was inconsistent with these
Articles.
5.66 As Japan discussed in its written submission, th ese provisions are applicable to determination
of material injury and a threat of material injury with an equal force. The only difference is set forth
in Articles 3.7 and 15.7 of the AD and SCM Agreemen ts that the authorities must determine whether
further dumped or subsidized imports are “imminent ” and material injury would occur in a threat
case.
54 This difference affect only the time of the occu rrence of material injury. In case of a material
injury determination, the authorities must examine the occurrence of material injury at the time of
investigation. In case of a threat of material inju ry determination, the authorities must examine the
occurrence of material injury at the time of the imminent future. This difference of the time of
occurrence of material injury, however, have no effects on the applicability of requirements in
Articles 3.1, 3.4 and 3.5 of the AD Agreemen t and Articles 15.1, 15.4 and 15.5 of the SCM
Agreement to the authorities’ examination of “material injury.”
5.67 In a threat case, the authorities must analyze the impact of the subject imports to the state of
the domestic industry at the time of an imminent future in accordance with Articles 3.4 and 15.4 of
the AD and SCM Agreements. The authorities also must demonstrate that dumping or subsidization
of the subject imports would cause material inju ry in an imminent future, in accordance with
Articles 3.5 and 15.5 of the AD and SCM Agreements. Furthermore, the authorities must separate
and distinguish effects of the other known factors to material injury in an imminent future from the
effects of dumping or subsidization thereto to make an affirmative determination in accordance with
these provisions. There are no provisions, in either Article 3.7 of the AD Agreement or Article 15.7
of SCM Agreement, or in any other parts of th ese Agreements, that allow the authorities not to
examine the impact of the subject imports or effects of the other known factors for the purpose of a
threat of material injury determination. The ex amination of these factors must be included in the
authorities’ considerations and demonstration of foreseen and imminent material injury through the
effects of dumping or subsidies.

52 The First Written Submission by the United States, para. 228.
53 Ibid.
54 See Third Party Submission of Japan (22 August 2003), para. 9 for further discussion on this issue.

5.68 By ignoring the impact of the subject imports and effects of other “known” factors for
determining a threat of material injury, the United States acted inconsistently with Articles 3.1, 3.4,
3.5 and 3.7 of the AD Agreement and Articles 15.1, 15.4, 15.5 and 15.7 of the SCM Agreement.
3. Consideration to Factors Enumerated in Articles 3.7 And 15.7
5.69 Japan discusses here the EC’s view that th e authorities are not mandated to consider
individual factors in Article 3.7 of the AD Ag reement and Article 15.7 of the SCM Agreement.
55
According to the EC, Articles 3.7 and 15.7 require only that the authorities “should” consider, inter
alia, these factors, and therefore, “a conclusion that a th reat of injury exists may be justified by at
least one threat factor pointing towards a threat of material injury”.56 Japan disagrees.
5.70 The EC assumes that the word “should” is hor tatory, not mandatory, and failed to consider
this term in the context of Articles 3 and 15 of the AD and SCM Agreements in accordance with
Article 31 of the Vienna Convention on the Law of Treaties (“Vienna Convention”) . The EC’s view
also ignores a Member’s general obligation to perfo rm a treaty in good faith under Article 26 of the
Vienna Convention, which states “every treaty in force is bi nding upon the parties to it and must be
performed by them in good faith”. The importance of the basic principle of the treaty interpretation
and the general obligation of the good faith perform ance was recognized by previous panels and the
Appellate Body.
5.71 The WTO jurisprudence shows that, contrary to the EC’s assumption, the word “should” is
used in a mandatory sense in the context of certain provisions of the WTO Agreements. For example,
the Appellate Body found “the word ‘should’ in the third sentence of Article 13.1 of the Dispute
Settlement Understanding is, in the context of the w hole of Article 13, used in a normative, rather
than a merely exhortative, sense” such that it creates “a duty and an obligation” on Members. 57 The
panel in US – Steel Plate also found that paragraph 3 of Annex II of the AD Agreement, which uses
the term “should”, is mandatory in the context of Article 6.8 and Annex II of the AD Agreement.58
5.72 The term “should” in the third sentence of Articles 3.7 and 15.7 of the AD and SCM
Agreements must also be interpreted in the contex t of Articles 3.7 and 15.7, and other provisions of
Articles 3 and 15. The first sentence in Articles 3.7 and 15.7 explicitly mandates that the authorities
shall base its threat determination on facts. Th e last sentence of these Articles also explicitly
mandates the authorities to base their threat determination on “the totality of the factors considered”
and provides “no one of these factors by itself can necessarily give decisive guidance”. These
provisions mandate the authorities to consider relevant factors. In this context, four (five) factors as
enumerated in Articles 3.7 and 15.7 represent Me mbers’ agreement that these factors would be
relevant to the authorities’ consideration on a threat of material injury.
5.73 Further, Articles 3.1 and 15.1 of the AD and SC M Agreements set forth that the authorities
must examine “the volume of the dumped {subsidized} imports” and “the effect of the dumped
{subsidized} imports on prices”. Articles 3.2 and 15.2 then mandate the authorities to consider
whether there has been “a significant increase in dumped {subsidized} imports” and whether there has
been “a significant price undercutting by the dumped {subsidized} imports” or whether the effect of
dumped imports is “otherwise to depress prices to a significant degree or prevent price increases”. In

55 EC Third Party Submission (22 August 2003), at para 52.
56 Ibid, at para 53.
57 Canada – Measures Affecting the Export of Civilian Aircraft , Report of the Appellate Body,
WT/DS70/AB/R (2 August 1999), para. 187; accord United States – Tax Treatment for Foreign Sales
Corporations, Report of the Appellate Body, WT/DS108/AB/R, AB-1999-9, para. 111 n. 124 (“In our view,
many binding legal texts employ the word ‘should’ and, depending on the context, the word may imply either an
exhortation or express an obligation.”).
58 United States – Anti-Dumping and Countervailing Measures on Steel Plate from India (“US – Steel
Plate”), the Panel Report, WT/DS206/R (28 June 2002) at para. 7.56.

a threat determination, therefore, the authorities mu st consider these factors. Factors of “a significant
rate of increase of dumped {subsidized} import” and “a significant depressing or suppressing effect
on domestic prices” in Articles 3.7 and 15.7 are quite relevant to the authorities’ factual examination
in accordance with Articles 3.1 and 3.2 of the AD Agreement and Articles 15.1 and 15.2 of the SCM
Agreement.
5.74 The capacity and inventory factors in Articl es 3.7 and 15.7 of the AD and SCM Agreements
also represent the Members’ understanding on the rele vancy of these factors to the threat analysis.
For example, the text of the item of the capacity ex plicitly states that the capacity factor is closely
related to the future export volume of the dumpe d or subsidized products. Indeed, if foreign
producers’ capacity has been full y utilized to produce the product unde r consideration, without any
inventory, it would be less than probable for these pr oducers to increase their export volumes. On the
other hand, foreign producers would be ready to export additional volume to an importing Member, if
they have substantial production capacity availabl e for immediate increase of production or have
excessive volume of inventory, but had no other market s to sell additional production. As such, these
factors also represent the Members’ understanding that they are relevant to the authorities’ threat
analysis.
5.75 Japan would also like to recall the normative requirement of the good faith performance of a
treaty under the Vienna Convention . Ignoring these factors, which Me mbers agreed to put into the
AD and CVD Agreements as relevant and essential to a threat analysis, would not be a good faith
performance required by the Vienna Convention.
5.76 In sum, the authorities have a normative duty and obligation to consider all four (five) factors
in Article 3.7 of the AD Agreement and Article 15.7 of the SCM Agreement. Japan thus submits that
the Panel should find that the authorities must consider all these factors in making a threat of material
injury determination.
4. Conclusion
5.77 As such, Japan asks this Panel to find that (i ) the United States acted inconsistently with
Articles 3.1, 3.4, 3.5 and 3.7 of the AD Agreement, and Articles 15.1, 15.4, 15.5 and 15.7 of the SCM
Agreement; and, (ii) the authorities have a normati ve duty and obligation to consider all factors as
shown in Articles 3.7 and 15.7 of the AD and SCM Agre ements to make a threat of material injury
determination.
E. THIRD
 PARTY WRITTEN SUBMISSION OF KOREA
5.78 The following summarizes Korea's arguments in its third party written submission.
1. Introduction
5.79 In Korea’s view, the United States International Trade Commission’s (USITC) investigations,
findings and reviews and the manner in which that inte rpretation is applied in this particular case, are
inconsistent with the Agreement on Implementation of Article VI of the General Agreement on Tariffs
and Trade 1994 (“Anti-Dumping Agreement ”) and the Agreement on Subsidies and Countervailing
Measures (“SCM Agreement”).

2. Article 3.1 of the Anti-Dumping Agreement and Article 15.1 of the SCM Agreement
Require the Injury Determination to be Based on “Positive Evidence” and an “Objective
Examination.”
5.80 The Anti-Dumping Agreement and the SCM Agreement require that an injury investigation
and its subsequent determination comp ly with all of the relevant requirements set forth in Article 3 of
the Anti-Dumping Agreement and Article 15 of the SCM Agreement.
5.81 The text of Article 3.1 of the Anti-Dumping Agreement and Article 15.1 of the SCM
Agreement contain general standards that require a Member to base its determination of injury or
threat of material injury
59 “on positive evidence and involve an objective examination of both: (a) the
volume of the dumped [or subsidized] imports and th e effect of the dumped [or subsidized] imports
on prices in the domestic market for like products; a nd (b) the consequent impact of these imports on
domestic producers of such products”.
5.82 Korea is of the view that the US investiga ting authority failed to develop “positive evidence”
that dumped or subsidized imports had an effect on domestic prices, or any impact on the domestic
industry. The failure by the United States to base its determination of injury in this case on “positive
evidence” that dumped or subsidized imports had an effect on domestic prices, or any impact on the
domestic industry, constitutes a violation of the “p ositive evidence” requirement of Article 3.1 of the
Anti-Dumping Agreement and Article 15.1 of the SCM Agreement.

3. The United States Violated the Requirement of Article 3.5 of the Anti-Dumping
Agreement and Article 15.5 of the SCM Agreement to Demonstrate that the Dumped or
Subsidized Imports were Causing Injury.
5.83 Article 3.5 of the Anti-Dumping Agreement and Article 15.5 of the SCM Agreement provide
that, in demonstrating the causal relationship between dumped or subsidized imports and injury, “[t]he
authorities shall also examine any known factors other than the dumped [or subsidized] imports which
at the same time are injuring the domestic industry, and the injuries caused by these other factors must
not be attributed to the dumped [or subsidized] imports.”
5.84 In particular, the United States violated Article 3.5 of the Anti-Dumping Agreement and
Article 15.5 of the SCM Agreement when it failed to take account of the effects of several other
“known factors” that were injuring the domestic indus try, and instead attributed the effects of those
other known factors to the dumped or subsidized imports of lumber.
5.85 Evidence on record shows that the United States did not meet its obligation under Articles 3.5
and 15.5 to demonstrate the existence of a causal link between the allegedly dumped or subsidized
imports and the injury to the domestic industry.

4. There are at Least Two Facts that Would Lead the Panel to the Inevitable Conclusion
that the US Investigating Authority Did No t Demonstrate the Existence of a “Causal
Relationship” Between the Imports and the Injury to the US Market.
• First, the USITC Failed to Evaluate Properly Its Own Findings During the Causal
Analysis in Order to Determine Whether or Not a Threat of Injury in Fact Existed.
5.86 The USITC acknowledged, but ultimately and inexplicably ignored, the fact that the
competition between Canadian imports and domestic lu mber products are virtually non-existent since

59 See footnote 9 of the Anti-Dumping Agreement and footnote 45 of the SCM Agreement.

the two are at most moderately substitutable – the majority of Canadian lumber imports come from
different species that have different characteristi cs and uses than the predominant US species of
lumber.
5.87 The USITC also acknowledged that the United States domestic industry cannot supply the
entire US market for lumber, thus making substan tial softwood lumber imports necessary to satisfy
US consumer and industrial demands.
5.88 In addition, cross border investment is pr evalent among the lumber industry since US
producers import or purchase a “sizable volume of subject imports” (emphasis added). Thus, there
has been “substantial and increasing integration of the North American lumber market”.
5.89 In connection with the evidence shown, the US investigating authority did not demonstrate
the existence of a causal relationship, that there was a foreseen increase in the absolute volume of
subject imports in response to “strong and improving demand” in the US domestic market.60
5.90 Only if the US industry failed to take advant age and thus respond to this favourable market
condition of strong and improving demand by also increasing its own output could the predicted
increase in Canadian import volumes substantially outpace the increase in US production and result in
increased Canadian market share materially above the 34 per cent the USITC found to be non-
injurious.
5.91 However, the US industry did not increase its own production, and ther efore failed to take
advantage and thus respond to this favourable market condition of strong and improving demand.
That is why the increase in import volumes of Canadi an lumber substantially outpaced the increase in
US production and led to an increase in Canada’s market share beyond the 34 per cent that the USITC
found to be non-injurious.
5.92 Therefore, the injury that the domestic industry allegedly suffered must be attributed not to
dumped imports but rather to United States’ own failure to keep up with the increase in domestic
demand.
• The Second Fact that Should Lead the Panel to Conclude that the US Investigating
Authority Did Not Demonstrate the Existence of a “Causal Relationship” is that the
USITC Attributed to the Subject Imports the Injury to the Domestic Industry
Caused by Other Facts, in Violation of Article 3.5 of the Anti-Dumping Agreement.
5.93 The other factors that injured the domestic i ndustry and which the USITC failed to separate
and distinguish from subject imports include th e domestic industry’s own contribution to the
oversupply that led to the price declines over the period of investigation.
5.94 In USITC’s current injury analysis, it e xplicitly identified the domestic industry’s
contribution to oversupply as a known source of injury that it could not attribute to the Canadian
imports and that therefore broke the causal link between the Canadian imports and injury.61
5.95 However, in its injury threat determinati on, the USITC failed to consider the domestic
industry’s most likely action in response to the future “strong and improving” demand that it cited as a
basis for concluding that Canadian imports would increase substantially to injurious levels in the
imminent future.

60 Commission Report, pp. 40,42-43
61 Commission Report, p. 35

5.96 In concluding that subject imports threatened injury, the USITC ignored the likelihood of US
production contributing to any future price decline.
5. USITC’s Presumption of Likelihood of Threat of Dumping is Inconsistent with
Article 17.6 of the Anti-Dumping Agreement.
5.97 It is Korea’s view that the investigating au thority’s determination of the facts was not
“proper”, and its evaluation of the facts was not “objective” and “unbiased,” as required by
Article 17.6 of the Anti-Dumping Agreement.
62 Article 17.6(i) of the Anti-Dumping Agreement
governs the standard of review applicable to the review of a dumping order. It is similar to Article 4.2
of the Safeguards Agreement in that it contains both formal and substantive requirements
5.98 The Appellate Body in Thailand – H-Beam stated that the ordina ry meaning of the word
“proper” in Article 17.6(i) is “accurate” or “correct”. 63 The Appellate Body further stated that: “the
ordinary meaning of ‘establishment’ suggests an action to ‘place beyond dispute: ascertain,
demonstrate, prove’.”64 With respect to the term “objective” in Article 17.6(i), the Appellate Body in
US-Safeguards on Lamb Meat , stated that an “objective” ass essment under Article 4.2 of the
Safeguard Agreement has two elements. First, a panel must review whether (a) the competent
authorities have evaluated all relevant factors; a nd, (b) second, a panel must review whether those
authorities have, as a substantive matter, provided a reasoned and ad equate explanation of how the
facts support their determination.65
5.99 The US determination failed to observe these sta ndards. The USITC replaced the process of
making unbiased and objective assessment of facts with the consideration of these limited facts that
must satisfy arbitrarily pre-determined scenarios in order to support an affirmative determination.
5.100 The USITC’s affirmative threat determination rests solely on its prediction that the Canadian
imports would “increase substantially” absent an ti-dumping and countervailing duty orders, and
thereby “increase the excess suppl y in the market, putting further downward pressure on prices”. In
its injury analysis, the USITC failed to evaluate and consider how all the other economic factors had a
bearing or affected the state of the domestic industry.
5.101 The USITC also failed to properly take into account its own finding of only a small increase
in the market share of the Canadian imports and of a lack of evidence either that there had been
significant underselling by the subject imports or that they had a significant price effect during the
period of investigation. Thus, the United States did not meet the standard under Article 17.6(i).
6. Conclusion
5.102 In conclusion, Korea is of the view that the USITC did not base its threat of injury
determination on positive evidence or conduct an objec tive examination of all of the factors it was
required to consider.
66

62 Article 17.6(i) provides, in relevant part, that “in its assessment of the facts of the matter, the panel
shall determine whether the authorities’ establishment of the facts was proper and whether their evaluation of
those facts was unbiased and objective.”
63 Thailand – Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel H-
Beams from Poland , Report of the Appellate Body, WT/DS122/A B/R, adopted April 5, 2001, para. 116
(“Thailand – H-Beams, AB Report”).
64 Ibid.
65 US-Safeguards on Lamb Meat, WT/DS177,178/AB/R,para.141
66 Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the SCM Agreement state the
requirement to base injury determinations on positive evidence by mandating that threat of injury determinations
“shall be based on facts and not merely on allegation, conjecture or remote possibility”.

5.103 Furthermore, although the USITC identified othe r factors that caused injury to the domestic
industry, such as the domestic industry’s own cont ribution to oversupply, it nevertheless attributed
such injuries to Canadian imports.
5.104 Moreover, the USITC’s affirmative threat dete rmination rests solely on its unscientific
prediction that subject imports would “increase substantially” absent anti-dumping and countervailing
duty orders.
5.105 For the reasons stated above, the investigati on and final determination of the USITC, along
with the final anti-dumping and countervailing duti es imposed as a result of this determination,
constitute a violation by the United States of its obligation under the Anti-Dumping Agreement, the
SCM Agreement and GATT 1994.
5.106 Korea requests that the Panel recommend that the United States bring its measures into
conformity with its WTO obligations.
F. THIRD PARTY ORAL STATEMENT OF KOREA
5.107 The following summarizes Korea's arguments in its third party oral statement.
5.108 Korea agrees generally with the points made by Canada in its first submission, and wishes to
focus on certain issues which deserve clarification.
5.109 The Anti-Dumping Agreement and the SCM Agreement require that an injury investigation
and its subsequent determination comp ly with all of the relevant requirements set forth in Article 3 of
the Anti-Dumping Agreement and Article 15 of the SCM Agreement. The text of Article 3.1 of the
Anti-Dumping Agreement and Article 15.1 of the SCM Agreement contain general standards that
require a Member to base its determination of injury or threat of material injury “on positive evidence
and objective examination of both: (a) the volume of the dumped or subsidized imports and the effect
of the dumped or subsidized imports on prices in the domestic market for like products; and (b) the
consequent impact of these imports on domestic producers of such products”.
5.110 Korea is of the view that the US investigati ng authority failed to develop “positive evidence”
that dumped or subsidized imports had an effect on domestic prices, or any impact on the domestic
industry. Consequently, the United States also violated the requirement of Article 3.5 of the Anti-
Dumping Agreement and Article 15.5 of the SCM Agreement to demonstrate that the dumped or
subsidized imports were causing injury.
5.111 In particular, the United States acted inconsistently with Article 3.5 of the Anti-Dumping
Agreement and Article 15.5 of the SCM Agreement when it failed to take account of the effects of
several other “known factors” that were injuring the domestic industry, and instead attributed the
effects of those other known factors to the dumped or subsidized imports of lumber.
5.112 Evidence on record shows that the United St ates did not meet its obligation under these
Articles to demonstrate the existence of a causal link between the allegedly dumped or subsidized
imports and the injury to the domestic industry. There are at least two facts that would show that the
US investigating authority did not demonstrate the existence of a “causal relationship” between the
imports that were specifically found to be dumped or subsidized and the injury to the US market.
5.113 First, the USITC failed to evaluate properly its own findings during the causation analysis in
order to determine whether or not a threat of inju ry in fact existed. The USITC acknowledged, but
ultimately and inexplicably ignored, the fact th at the competition between Canadian imports and
domestic lumber products are virtually non-existent since the two are at most moderately substitutable
since the majority of Canadian lumber imports come from different species that have different

characteristics and uses than the predominant US species of lumber. In addition, cross border
investment is prevalent among the lumber industry since US producers import or purchase a “sizable
volume of subject imports”.
5.114 It is also important to note, in connecti on with the evidence that shows that the US
investigating authority did not demonstrate the exis tence of a causal relationship, that there was a
foreseen increase in the absolute volume of subject imports in response to “strong and improving
demand” in the US domestic market. The US in dustry did not increase its own production, and
therefore failed to take advantage of and thus res pond to this favourable ma rket condition of strong
and improving demand. That is why the increase in import volumes of Canadian lumber substantially
outpaced the increase in US production and led to an increase in Canada’s market share beyond the
34 per cent that the USITC found to be non-injurious. Therefore, the injury that the domestic industry
allegedly suffered must be attributed not to dumped imports but rather to its own failure to keep up
with the increase in domestic demand.
5.115 The second fact indicating that the US investigating authority did not demonstrate the
existence of a “causal relationship” is that the USITC attributed to the subject imports the injury to the
domestic industry caused by other factors, in violation of Article 3.5 of the Anti-Dumping Agreement.
Specifically, the other factors that injured the domestic industry and which the USITC failed to
separate and distinguish from subject imports includ e the domestic industry’s own contribution to the
oversupply that led to the price declines over the peri od of investigation. In USITC’s current injury
analysis, it explicitly identified the domestic i ndustry’s contribution to oversupply as a known source
of injury that it could not attribute to the Canadian imports. However, in its threat determination, the
USITC failed to consider the domestic industry’s mo st likely action in response to the future “strong
and improving” demand that it cited as a basis for c oncluding that Canadian imports would increase
substantially to injurious levels in the imminent fu ture. In concluding that subject imports threatened
injury, the USITC ignored the likelihood of US production contributing to any future price decline.
5.116 It is Korea’s view that the investigating au thority’s determination of the facts was not
“proper”, and its evaluation of the facts was not “objective” and “unbiased,” as required by
Article 17.6 of the Anti-Dumping Agreement which governs the standard of review applicable to the
review of a dumping order.
5.117 The Appellate Body in Thailand – H-Beam stated that the ordina ry meaning of the word
“proper” in Article 17.6(i) is “accurate” or “correct ”. The Appellate Body further stated that: “the
ordinary meaning of ‘establishment’ suggests an action to ‘place beyond dispute: ascertain,
demonstrate, prove’.”
5.118 With respect to the term “objective” in Article 17.6(i), the Appellate Body in US-Safeguards
on Lamb Meat , stated that an “objective” assessment under Article 4.2 of the Safeguard Agreement
has two elements. A panel must review whether (a) the competent authorities have evaluated all
relevant factors; and, (b) a panel must review whether those authorities have, as a substantive matter,
provided a reasoned and adequate explanation of how the facts support their determination.
5.119 Korea is of the view that the US determination failed to observe these standards. The USITC
replaced the process of making unbiased and objective assessment of facts with the consideration of
these limited facts that would satisfy arbitrarily pre-determined scenarios in order to support an
affirmative determination. The USITC’s affirmative threat determination rests solely on its prediction
that the Canadian imports would “increase substantially” absent anti-dumping and countervailing duty
orders, and thereby “increase the excess supply in the market, putting further downward pressure on
prices”. In its injury analysis, the USITC failed to evaluate and consider how all the other economic
factors had a bearing or affected the state of the domestic industry. The USITC also failed to properly
take into account its own finding of only a small in crease in the market share of the Canadian imports

and of a lack of evidence either that there had b een significant underselling by the subject imports or
that they had a significant price effect during the period of investigation.
5.120 In conclusion, Korea is of the view that the USITC did not base its threat of injury
determination on positive evidence or conduct an objec tive examination of all of the factors it was
required to consider. Furthermore, although the USIT C identified other factors that caused injury to
the domestic industry, such as the domestic industr y’s own contribution to oversupply, it nevertheless
attributed such injuries to Canadian imports. More over, the USITC’s affirmative threat determination
rests solely on its unscientific prediction that s ubject imports would “increase substantially” absent
anti-dumping and countervailing duty orders.
5.121 For the reasons stated above, the investigati on and final determination of the USITC, along
with the final anti-dumping and countervailing duties imposed as a result of this determination, should
be found to constitute a violation by the United States of its obligation under the Anti-Dumping
Agreement, the SCM Agreement and GATT 1994.
VI. INTERIM REVIEW
6.1 On 19 December 2003, we transmitted the interim report in this dispute to the parties. Both
parties submitted written requests for the review of pr ecise aspects of the interim report. Each party
also subsequently submitted written comments on the other party's comments. Neither party
requested an interim review meeting.
6.2 We have made certain necessary technical revisi ons and corrections to our report, some based
on comments by the parties and others based on ou r own review of the report. We address below
those of the parties' comments that concerned more than merely technical or typographical
corrections.
6.3 The United States requests that we reconsider our findings at paragraphs 6.89 to 6.96, 6.122,
and 6.132 to 6.137 of the interim report, in light of the record as a whole. The United States presents
no new arguments or reasons in support of this requ est, stating rather that it believes that the Panel
should have reached contrary conclusions in view of the reasons set forth in the United States’
previous submissions to the Panel. The United States asks us to reconsider our conclusions in light of
the record and USITC analysis as a whole, asserting that the record and analysis amply support the
USITC’s conclusion that the US lumber industry was threatened with material injury by reason of
dumped and subsidized imports.
6.4 Canada opposes this aspect of the United States' request.
6.5 We decline to change our views and conclusions as set forth in the referenced paragraphs. In
the course of our consideration of this dispute, we have carefully consid ered the record in the
underlying investigation, the USITC's analysis and conclusions, and the argument of the parties
before reaching our conclusions. Given no new argum ents, we see no basis to alter our views in any
material respect.
6.6 The United States requests that, in the first sente nce of paragraph 6.10 of the interim report,
and first, third, and last sentences of paragraph 6.11 of the interim report, we change the word
“determination” to “determinations” and make conforming changes in those sentences.
6.7 Canada considers that it would be inappropria te to pluralize "determination" in these
sentences. Canada understands the USITC to have issu ed a single threat of injury determination with
respect to both dumped and subsidized imports.

6.8 We decline to make the changes requested by the United States to paragraphs 6.10 and 6.11
of the interim report. We share the view of Canada that the USITC issued a single threat of injury
determination, which was equally applicable in the anti-dumping and counter vailing investigations.
We note that our view in this regard does not, of c ourse, affect the fact that under US law, it may be
that, formally, separate determinations ar e made in anti-dumping and countervailing duty
investigations. However, we considered the US ITC's report as constituting a single determination on
the question of injury and threat of injury throu ghout our analysis, and we see no reason to change
that treatment in these paragraphs. We note that in a few instances, we referred to "determinations" in
the plural in the interim report. We have changed such references in the final report at paragraphs 6.1,
6.41, and 6.144, as these were inadvertent or typographical errors.
6.9 The United States proposes a change to the text of paragraph 6.13 of the interim report, to
clarify its meaning. Canada made no comment on this aspect of the United States' request.
6.10 We agree with the United States that this pa ragraph could be clearer, and have therefore
modified it along the lines suggested by the United States.
6.11 The United States requests that we amend the last sentence of paragraph 6.31 of the interim
report to more accurately reflect its position, as se t out in its first submission. Canada made no
comment on this aspect of the United States' request.
6.12 We have reviewed the United States' submissions, and agree that the proposed text more
accurately reflects the United States arguments, and have therefore made the requested modification
to this paragraph.
6.13 Canada notes that, in the third sentence of pa ragraph 6.34, the interim report states that
“Canada has not asserted any specific legal requireme nts with respect to special care”. Canada
asserts, it did make submissions in this regard, referring to paragraph 64 of its First Written
Submission ("the standard of special care is one that requires an investigating authority to undertake
“an especially meticulous examination”"), and to paragraph 7 of Canada’s response to Question #3
from the First Meeting with the Panel ("Canada ar ticulated the standard as being “a particularly
careful examination”). Canada considers that these formulations echo the first sentence of
paragraph 6.34 of the interim report, which states that this obligation requires an investigating
authority “to act with an enhanced degree of atte ntion” and paragraph 6.37, which refers to “this
obligation to act with an extra degree of attention” . Accordingly, Canada requests that we replace the
word “specific” in the third sentence of paragra ph 6.34 of the interim report with the word
“additional” to more accurately reflect Canada’s submissions.
6.14 The United States made no comment on this aspect of Canada's request.
6.15 We decline to make the change proposed by Ca nada. As set out in the report, we found the
parameters of the "special care" requirement set forth in Article 3.8 of the AD Agreement and
Article 15.8 of the SCM Agreement unclear. It is in our discussion of this point that we observed that
Canada had not asserted any specific legal requirements with respect to special care – that is, Canada
made no arguments as to what might constitute the special care required by the Agreements in threat
cases. This is not a question of additional requirements, but rather a question of specifying, in the
sense of defining, the requirement of special care set out in the Agreements themselves. While the
special care obligation might be considered an "a dditional" obligation in the sense that it is an
obligation on investigating authorities cons idering threat of material injury in addition
 to other
obligations set out in Articles 3 and 15 of the AD and SCM Agreements, the use of the word
"additional" as proposed by Canada might be mis understood to imply that Canada could have, or
should have, suggested obligations in addition to those set out in the text of Article 3.8 of the AD
Agreement and Article 15.8 of the SCM Agreement themselves. Nonetheless, we have modified this
paragraph in order to clarify our views in this respect.

6.16 The United States proposes the addition of a sente nce to paragraph 6.83 of the interim report,
to more accurately reflect the USITC analysis discussed in that paragraph. Canada made no comment
on this aspect of the United States' request.
6.17 We have reviewed the USITC determination in this respect, and have made clarifying
changes to this paragraph, along the lines suggested by the United States.
6.18 The United States proposes deleting the fourth sen tence of paragraph 6.93 of the interim
report, asserting that it is somewhat redundant of the preceding sentence, but is a less accurate
characterization of the USITC Final Report.
6.19 In Canada’s view, the sentence proposed by th e United States for deletion in paragraph 6.93
of the interim report is not redundant of the pr eceding sentence because the two sentences cover two
different concepts. Canada asserts that the thir d sentence deals with the increase in the volume of
imports during the period of investigation while th e second sentence deals with the rate of increase
during the period of investigation. Canada, referring to the Panel's findings at paragraphs 6.77-6.78 of
the Interim Report, considers that the two senten ces constitute an accurate characterization of the
USITC Final Report, and therefore requests that the Panel retain its current wording.
6.20 We share Canada's view that the two senten ces in question deal with different aspects of
analysis of threat of injury, the increase in impor t volume, and the rate of increase in imports. The
existing wording, which addresses the two concepts separately, accurately describes our assessment of
the USITC determination in this regard, and we therefore decline to change it.
6.21 Canada comments that, in paragraph 6.131 of the interim report, the sentence immediately
following the quote from the footnote 195 of the USITC Final Report does not reflect fully Canada’s
submissions concerning that footnote. Canada ar gues that its submissions focused on the USITC’s
explicit rejection of the requirement, articulated by the Appellate Body, to separate and distinguish the
effects of other known factors from those attributed to subject imports as part of fulfilling the non-
attribution requirements in Articles 3.5 and 15.5. Accordingly, Canada proposes modifications to the
last three sentences of this paragraph.
6.22 The United States expresses concern that Canada ’s proposed modification of paragraph 6.131
of the interim report could be misconstrued as not si mply a summary of Canada’s argument, but as an
implication by the Panel itself that the Appellate Body has articulated a specific methodology that
investigating authorities must employ in ensuring that they do not attribute injuries caused by other
known factors to dumped or subsidized imports. The United States asserts that the Appellate Body in
EC Pipe explicitly indicated that no specific methodolog y for this analysis is required. (Appellate
Body Report, European Communities - Anti-Dumping Duties on Malleable Cast Iron Tube or Pipe
Fittings from Brazil , WT/DS219/AB/R, adopted August 18, 20 03, para. 189 (“provided that an
investigating authority does not attribute the injuries of other causal factors to dumped imports, it is
free to choose the methodology it will use in examining the ‘causal relationship’ between dumped
imports and injury”)) Moreover, the United States comments that Canada’s characterization of the
meaning of the quoted portion of the USITC Final Report and the US case law it referenced omits the
response made in the US submissions and could be misconstrued as the Panel’s statement regarding
US law. Therefore, the United States urges the Pane l not to adopt the proposed modification, in order
to avoid any confusion between Canada’s argumen ts and the Panel’s own views, and because the
implication that could be attributed to the Pane l under Canada’s proposal is inaccurate. The United
States further comments that Canada’s argument on the issue of non-attribution is accurately set forth
at paragraphs 4.56 and 4.209 of the interim report, and the summary statement in paragraph 6.131 is
consistent with the arguments set forth at those two paragraphs. Because the summary as drafted is
accurate, while the proposed modification is potentially confusing, the United States requests that the
Panel decline to make the modification to this paragraph that Canada proposed.

6.23 The referenced text to which Canada proposes modifications is merely a summary statement
of Canada's arguments on this issue, which are more fully set forth earlier in the Report, as are the
United States' arguments in response. Particularly since our resolution of this aspect of Canada's
claims did not turn on our evaluation of the quoted footnote from the USITC's Final Report, nor on
Canada's arguments regarding the import of that footnote, we see no need to expand on the summary
of Canada's arguments in this paragraph.
VII. FINDINGS
A. INTRODUCTION
7.1 At issue in this dispute is the United States International Trade Commission's investigation
and determination of threat of material injury cau sed by dumped and subsidized imports of softwood
lumber imports from Canada and the anti-dumpi ng and countervailing measures imposed on such
imports. This is the latest in a series of Canadian challenges to various aspects of these investigations.
WTO Panels have previously considered, inter alia , challenges to the United States Department of
Commerce's preliminary countervailing duty and critical circumstances determinations
67, the United
States Department of Commerce's fi nal countervailing duty determination 68, and the United States
Department of Commerce's final anti-dumping duty determination. 69 However, those previous
disputes do not have any direct bearing on the issues before the Panel in this case, which concerns
exclusively the injury aspects of th e investigations, which were not addressed in the other disputes.
The majority of the claims put forward by Cana da in this case challenge the United States
International Trade Commission's consideration of th e evidence underlying its determination of threat
of material injury by reason of dumped and subsidized imports of softwood lumber from Canada.
B. FACTUAL ASPECTS
7.2 Under US law, two agencies share respons ibility for the conduct of anti-dumping and
countervailing duty investigations – the United States Department of Commerce (USDOC) and
United States International Trade Commission (USI TC). USDOC has responsibility for the formal
initiation of investigations, and the determination of the existence and margins of dumping and/or
subsidization. USITC has responsibility for the de termination of material injury to a domestic
industry caused by dumped or subsidized imports. USITC conducts its investigation in every case on
a timetable which is separate from but overlaps th e time table for USDOC's investigation of dumping
and subsidization. Moreover, USITC and USDOC both conduct their investigations in two phases,
preliminary and final. The preliminary phase of the injury investigati on begins on the day an
application for anti-dumping or countervailing duty me asures is filed, and is completed before the
preliminary determination of dumping and/or subsid ization is made by USDOC. The final phase of
USITC's injury investigation usually is begun afte r USDOC's preliminary determination and overlaps
the issuance of USDOC's final determination of du mping and/or subsidization. If USDOC's final
determination is affirmative, USITC completes the final phase of its investigation and issues a final
determination.
7.3 In this case, USITC instituted preliminary anti-dumping and countervailing duty injury
investigations in response to a petition filed on 2 April 2001 on behalf of the US softwood lumber
industry. In the preliminary phase, USITC determin ed, on 17 May 2001, that there was a reasonable

67 Panel Report, United States – Preliminary Determinations with Respect to Certain Softwood Lumber
from Canada ("US – Softwood Lumber III "), WT/DS236/R, adopted 1 November 2002.
68 Panel Report, United States – Final Countervailing Duty Determination with respect to certain
Softwood Lumber from Canada ("US – Softwood Lumber IV "), WT/DS257, circulated 29 August 2003, appeal
pending.
69 United States – Final Dumping Determination on Softwood Lumber from Canada ("US – Softwood
Lumber V ") WT/DS264 (pending before Panel).

indication that an industry in th e United States was threatened with material injury by reason of
imports from Canada of softwood lumber that were alleged to be subsidized by the Government of
Canada and sold in the United States at dumped prices - less than fair value (“LTFV”) in US
parlance.70 71
7.4 Subsequent to USDOC's affirmative preliminar y and final determinati ons that imports of
softwood lumber from Canada were subsidized and sold in the United States at dumped prices,
USITC instituted the final phase of its investigation.
7.5 On 16 May 2002, the USITC unanimously determin ed that an industry in the United States
was threatened with material injury by reason of imports of softwood lumber from Canada found to
be subsidized and sold in the United States at LTFV.72 On 22 May 2002, USDOC issued antidumping
and countervailing duty orders on imports of softwood lumber from Canada.73
7.6 In its final determination, the USITC found a single domestic like product consisting of
softwood lumber products. Based on the domestic like product determination, the USITC concluded
that there was a single domestic industry, which included all producers of softwood lumber in the
United States. The USITC found that several cond itions of competition pertinent to the softwood
lumber industry were relevant to its analysis.
74 In particular, these conditions included the recently
expired United States/Canada Softwood Lumber Agreement (“SLA”); demand, including factors
affecting demand, actual demand data and forecasts; supply conditions; species of lumber and
substitutability; prices; and inte gration of the North American lumber market. The USITC
determined that the domestic softwood lumber i ndustry was not materially injured by reason of
subject imports from Canada found to be sold at LTF V and to be subsidized, but found that there was
a threat of material injury by reason of such imports.
7.7 The USITC found that the domestic industry producing softwood lumber was vulnerable to
injury in light of declines in its performance over th e period of investigation, particularly its financial
performance. The USITC noted that the USDOC had determined that there were 11 programmes that
conferred countervailable subsidies to Canadian producers and exporters of softwood lumber,
including: the Provincial Stumpage programmes in the Provinces of Quebec, British Columbia,
Ontario, Alberta, Manitoba, and Saskatchewan; tw o programmes administered by the Government of
Canada; two programmes administered by the Pr ovince of British Columbia; and one programme
administered by the Province of Quebec. The USITC found that subject imports were likely to
increase substantially based on: Canadian produ cers’ excess capacity and projected increases in
capacity, capacity utilization, and production; the ex port orientation of Canadian producers to the US
market; the increase in subject imports over the period of investigation; the effects of expiration of the
SLA; subject import trends during periods when th ere were no import restraints; and forecasts of
strong and improving demand in the US market. The USITC found that there was a moderate degree
of substitutability between subject imports of so ftwood lumber from Cana da and the domestic like
product, and that prices of different species affected the prices of other species. Given its finding of
likely significant increases in subject import volum es, and its finding of at least moderate
substitutability between subject imports and domes tic product, the USITC concluded that subject
imports were likely to have a significant price depr essing effect in the immediate future. The USITC
recognized that while inventories generally were not substantial in the softwood lumber industry,

70 66 Fed. Reg. 28541 (23 May 2001). (Exhibit CDA-4).
71 Under US law, the standard of determination in preliminary antidumping or countervailing duty
investigations is whether there is a “a reasonable indication” of material injury or a threat of material injury by
reason of dumped and subsidized imports of softwood lumber from Canada.
72 67 Fed. Reg. 36022 (22 May 2002) (Exhibit CDA-2) and USITC Report in Softwood Lumber from
Canada, Investigations Nos. 701-TA-414 and 731-TA-928 (Final), Publication 3509, (May 2002) (hereinafter
USITC Final Report) (Exhibit CDA-1).
73 67 Fed. Reg. 36068-36077 (22 May 2002). (Exhibit CDA-2).
74 USITC Final Report at 21-27 (Exhibit CDA-1).

Canadian producers’ inventories as a share of pr oduction had increased and we re consistently higher
than that reported by US producers during the period of investigation. Finally, the USITC noted that a
number of domestic producers had reported actual an d potential adverse effects on their development
and production efforts, growth, investment, and ab ility to raise capital due to subject imports of
softwood lumber from Canada.
7.8 Thus, the USITC determined that further significant increases in dumped and subsidized
imports were imminent, that these imports were likely to exacerbate price pressure on domestic
producers, and that material injury to the domestic industry would occur as a result.
C. CLAIMS
 SET FORTH IN CANADA'S PANEL REQUEST
7.9 Canada alleges violations of various provisions of the Anti-Dumping (AD) and
SCM Agreements. Canada characterizes three of th ese as "overarching" violations, specifically the
alleged violations of Article 3.1 of the AD Ag reement and Article 15.1 of the SCM Agreement,
Article 3.8 of the AD Agreement and Article 15.8 of the SCM Agreement, and Article 12 of the
AD Agreement and Article 22 of the SCM Agreement. Canada also alleges violations of specific
provisions of Article 3 of the AD Agreement, Article 15 of the SCM Agreement and Article VI of the
General Agreement on Tariffs and Trade 1994 (“GA TT 1994”), in particular Article 3.7 of the
AD Agreement and Article 15.7 of the SCM Agre ement, Article 3.2 of the AD Agreement and
Article 15.2 of the SCM Agreement, Article 3. 4 of the AD Agreement and Article 15.4 of the
SCM Agreement, Article 3.5 of the AD Agreement and Article 15.5 of the SCM Agreement. Finally,
Canada alleges violations of Articles 1 and 18.1 of the AD Agreement, Articles 10 and 32.1 of the
SCM Agreement and Article VI:6(a) of the GATT 1994.
7.10 These claims for the most part require us to consider the substance of the USITC's final
determination to determine wh ether it is consistent with US obligations under the AD and
SCM Agreements. There are also several issues of interpretation of the Agreements raised by
Canada's claims. Therefore, we address below first the general issues of standard of review and
relevant principles of treaty interpretation, and then go on to address the specific claims.
75
D. STANDARD OF REVIEW
7.11 The injury determination of the USITC was ba sed on a single analysis of the facts, and
applies without distinction in the context of the anti-dumping and the countervailing duty measures
issued by USDOC. The provisions of the AD and SCM Agreements governing injury determinations
are in large part identical, and the differences that do exist do not undermine the extensive similarity.
Thus, in order for us to find that the United Stat es acted consistently with its obligations under the
provisions AD and SCM Agreements, we must concl ude that the determination of the USITC is
consistent with the requirements of both Agreements . This raises the question of the standard of
review to be applied in our examination of the USITC's determination.

75 On 14 August 2003, the Secretariat received an unsolicited amicus curiae communication in
connection with this dispute from the Northwest Ecosyste m Alliance, which indicated that copies had been sent
to each of the parties and third parties to the dispute. Having considered carefully the question of how to treat
that communication, and any further such communications that might be received, and in light of the absence of
consensus among WTO Members on the question of how to treat amicus submissions, we decided not to accept
unsolicited amicus curiae submissions in the course of this dispute. However, we noted that we would consider
any arguments raised by amici curiae to the extent that these arguments were taken up in the written
submissions and/or oral statements of any party or third parties, noting that the communication in question had
been received prior to the first meeting with the parties, and had been sent to the parties and third parties. We
noted that, as a consequence of our decision in this regard, the communication from the Northwest Ecosystem
Alliance does not form part of the record in this disput e. The parties, third parties, and the submitter were
informed of our decision on 1 September 2003

7.12 Article 11 of the DSU sets forth the appropriate st andard of review for panels for all covered
agreements, including the SCM Agreement. Ar ticle 11 imposes upon panels a comprehensive
obligation to make an "objective assessment of th e matter", an obligation which embraces all aspects
of a panel's examination of the "matter", both fact ual and legal. Article 17.6 of the AD Agreement
sets forth a special standard of review applicable to anti-dumping disputes. It provides, with respect
to the evaluation of factual issues:
“(i) in its assessment of the facts of the matter, the panel shall determine whether
the authorities’ establishment of the facts was proper and whether their evaluation of
those facts was unbiased and objective. If the establishment of the facts was proper
and the evaluation was unbiased and objectiv e, even though the panel might have
reached a different conclusion, the evaluation shall not be overturned;”
With respect to questions of legal interpretation, Article 17.6 provides:
“(ii) the panel shall interpret the rele vant provisions of the Agreement in
accordance with customary rules of interpreta tion of public international law. Where
the panel finds that a relevant provision of the Agreement admits of more than one
permissible interpretation, the panel sha ll find the authorities’ measure to be in
conformity with the Agreement if it rests upon one of those permissible
interpretations".
Thus, together, Article 11 of the DSU and Article 17.6 of the AD Agreement set out the standard of
review the Panel is to apply with respect to both th e factual and legal aspects of its examination of the
claims and arguments raised by the parties in a case under the AD Agreement.
76

7.13 To date, no WTO panel has addressed to what extent, if any, these two standards are different.
Thus, it is not clear from previous decisions whethe r the application of the Article 11 standard to a
determination could, in appropriate factual ci rcumstances, lead to differing outcomes than the
application of the Article 11 and Article 17.6(i) sta ndards together to the same determination. That
issue would appear to be presented by this case.
7.14 Canada's argument as originally presented suggest ed that, in Canada's view, the Article 11
standard required something different and perhaps stri cter than the Article 17.6 standard. This raised
the possibility that, in Canada's view, different conclusions might be reached, on the basis of the same
determination, regarding viola tions of corollary provisions of the AD and SCM Agreements.
However, in response to questions from the Panel, Ca nada clarified that it did not consider that the
standard of review under Article 11 of the DSU is stricter than that under Article 17.6 of the
AD Agreement, but rather that they compleme nt each other and should be read together. 77 Canada
further clarified that it was not claiming that th e USITC should have obtaine d additional information
during the course of its investigation. Rather, Ca nada specified, its challenge concerned the USITC's
evaluation of the evidence that w as on the record before it. Finally, Canada observed that its
understanding of the applicable standard of revi ew for this dispute was compatible with the
Declaration of Ministers relating to Dispute Settlement under the AD and SCM Agreements, which
recognized the need for consistent resolutio n of disputes arising from anti-dumping and
countervailing duty measures.
7.15 Under the Article 17.6 standard, with respect to claims involving questions of fact, Panels
have concluded that whether the measures at issue are consistent with relevant provisions of the
 AD Agreement depends on whether the investigati ng authority properly established the facts, and

76 Appellate Body Report, United States – Anti-Dumping Measures on Certain Hot-Rolled Steel Products
from Japan ("US – Hot-Rolled Steel "), WT/DS184/AB/R, adopted 23 August 2001, paras. 54-62.
77 Canada's Responses to Questions from the Panel and the United States - First Meeting, question 1.

evaluated the facts in an unbiased and objective ma nner. This latter has been defined as assessing
whether an unbiased and objective decision maker, taki ng into account the facts that were before the
investigating authority, and in light of the explanations given, could have reached the conclusions that
were reached. A panel's task is not to carry out a de novo review of the information and evidence on
the record of the underlying investigation. Nor ma y a panel substitute its judgment for that of the
investigating authorities, even though the Panel might have arrived at a different determination were it
considering the record evidence for itself.
7.16 Similarly, the Appellate Body has explained that , under Article 11 of the DSU, a panel’s role
is not to substitute its analysis for that of the investigating authority.
78 The Appellate Body has stated:
"We wish to emphasize that, although panels are not entitled to conduct a de novo
review of the evidence, nor to substitute their own conclusions for those of the
competent authorities, this does not mean that panels must simply accept the
conclusions of the competent authorities". 79
7.17 In light of Canada's clarification of its position, and based on our understanding of the
applicable standards of review under Article 11 of the DSU and Article 17.6 of the AD Agreement,
we do not consider that it is either necessary or appropriate to conduct separate analyses of the USITC
determination under the two Agreements.
7.18 We consider this result appropriate in view of the guidance in the Declaration of Ministers
relating to Dispute Settlement under the AD and SC M Agreements. While the Appellate Body has
clearly stated that the Ministerial Declaration does not require the application of the Article 17.6
standard of review in countervailing duty investigations,
80 it nonetheless seems to us that in a case
such as this one, involving a single injury determin ation with respect to both subsidized and dumped
imports, and where most of Canada's claims involve identical or almost identical provisions of the AD
and SCM Agreements, we should seek to avoid inconsistent conclusions.
7.19 With respect to the question of legal interpretation, Article 3.2 of the DSU provides that
Members recognise that the dispute settlement system serves to clarify the provisions of the covered
agreements "in accordance with customary rules of interpretation of publi c international law".
Article 31.1 of the Vienna Convention on th e Law of Treaties ('Vienna Convention') 81, which is
generally accepted as such a customary rule, provides:
"A treaty shall be interpreted in good faith in accordance with the ordinary meaning
to be given to the terms of the treaty in their context and in the light of its object and
purpose".
7.20 There is a considerable body of WTO case la w dealing with the application of these
provisions on treaty interpretation in dispute settlement in the WTO. It is clear that interpretation
must be based above all on the text of the treaty
82, but that the context of the treaty also plays a role in

78Appellate Body Report, United States – Transitional Safeguard Measure on Combed Cotton Yarn
from Pakistan ("US – Cotton Yarn "), WT/DS192/AB/R, adopted 5 November 2001, para. 74; Appellate Body
Report, United States – Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New
Zealand and Australia ("US – Lamb "), WT/DS177/AB/R, WT/DS178/AB/R, adopted 16 May 2001, para. 106.
79 Appellate Body Report, US - Cotton Yarn, para. 69, n.42, citing Appellate Body Report, US - Lamb,
para. 106.
80 Appellate Body Report, United States – Imposition of Countervailing Duties on Certain Hot-Rolled
Lead and Bismuth Carbon Steel Products Originating in the United Kingdom ("US – Lead and Bismuth II "),
WT/DS138/AB/R, adopted 7 June 2000, DSR 2000:V, 2601 at para 49.
81 (1969) 8 International Legal Materials 679.
82 Appellate Body Report, Japan – Taxes on Alcoholic Beverages ("Japan – Alcoholic Beverages II "),
WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, 97, p. 11.

certain circumstances. It is also well-established that these principles of interpretation "neither require
nor condone the imputation into a treaty of words that are not there or the importation into a treaty of
concepts that were not intended".
83 Furthermore, pane ls "must be guided by the rules of treaty
interpretation set out in the Vienna Convention, and must not add to or diminish rights and obligations
provided in the WTO Agreement".84
7.21 In the context of WTO disputes under the AD Ag reement, the Appellate Body has made it
clear that Article 17.6(ii)
" The first sentence of Article 17.6(ii), echoing closely Article 3.2 of the DSU, states
that panels "shall" interpret the provisions of the Anti-Dumping Agreement "in
accordance with customary rules of interpreta tion of public intern ational law." Such
customary rules are embodied in Articles 31 and 32 of the Vienna Convention on the
Law of Treaties (" Vienna Convention "). Clearly, this aspect of Article 17.6(ii)
involves no "conflict" with the DSU but, rather, confirms that the usual rules of treaty
interpretation under the DSU also apply to the Anti-Dumping Agreement. …
The second sentence of Article 17.6(ii) … presupposes that application of the rules
of treaty interpretation in Articles 31 and 32 of the Vienna Convention could give
rise to, at least, two interpretations of some provisions of the Anti-Dumping
Agreement, which, under that Convention, would both be " permissible
interpretations". In that event, a measure is deemed to be in conformity with the
 Anti-Dumping Agreement "if it rests upon one of those permissible
interpretations".
85
7.22 Thus, it is clear to us that under the AD Agreem ent, a panel is to fo llow the same rules of
treaty interpretation as in any other dispute. The di fference is that if a pa nel finds more than one
permissible interpretation of a provision of the AD Agreement, it may uphold a measure that rests on
one of those interpretations. It is not clear whether the same result could be reached under
Articles 3.2 and 11 of the DSU. However, it seems to us that there might well be cases in which the
application of the Vienna Convention principles together with the additional provisions of
Article 17.6 of the AD Agreement could result in a different conclusion being reached in a dispute
under the AD Agreement than under the SCM Agreemen t. In this case, it h as not been necessary for
us to resolve this question, as we did not find an y instances where the question of violation turned on
the question whether there was more than one permi ssible interpretation of the text of the relevant
Agreements.
E. BURDEN OF PROOF
7.23 While the parties have not raised burden of pr oof as an issue, we have kept in mind the
general principles applicable to burden of proof in WTO dispute settlement, which require that a party
claiming a violation of a provision of a WTO Agreement by another Member must assert and prove
its claim.
86 In this dispute, Canada, which has cha llenged the consistency of the United States'
measures, thus bears the burden of demonstrating that the measures are not consistent with the
relevant provisions of the releva nt Agreements. It is generally for each party asserting a fact to
provide proof thereof. 87 Therefore, it is also for the United States to provide evidence for the facts

83 Appellate Body Report, India – Patent Protection for Pharmaceutical and Agricultural Chemical
Products ("India – Patents (US) "), WT/DS50/AB/R, adopted 16 January 1998, DSR 1998:I, 9, para. 45.
84 Ibid., para. 46.
85 Appellate Body Report, US – Hot-Rolled Steel, para. 57.
86 Appellate Body Report, United States – Measure Affecting Imports of Woven Wool Shirts and
Blouses from India ("US – Wool Shirts and Blouses") , WT/DS33/AB/R and Corr. 1, adopted 23 May 1997,
DSR 1997:I, 323, p. 337.
87 Ibid.

which it asserts. We note in addition that a prima facie case is one which, in the absence of effective
refutation by the other party, requires a panel, as a matter of law, to rule in favour of the party
presenting the prima facie case.
F. ALLEGED
 VIOLATIONS OF ARTICLE 3.1 OF THE AD AGREEMENT AND
ARTICLE 15.1 OF THE SCM AGREEMENT - OBLIGATIONS REGARDING “POSITIVE
EVIDENCE” AND “OBJECTIVE EXAMINATION”
7.24 Article 3.1 of the AD Agreement and Article 15.1 of the SCM Agreement are substantively
identical. Article 3.1 provides
"A determination of injury for purposes of Article VI of GATT 1994 shall be based
on positive evidence and involve an objective examination of both (a) the volume of
the dumped imports and the effect of the dumped imports on prices in the domestic
market for like products, and (b) the consequent impact of these imports on domestic
producers of such products".
Article 15.1 of the SCM Agreement states:

"15.1 A determination of injury for purposes of Article VI of GATT 1994 shall be
based on positive evidence and involve an objective examination of both (a) the
volume of the subsidized imports and the eff ect of the subsidized imports on prices in
the domestic market for like products and (b) the consequent impact of these imports
on the domestic producers of such products". (footnote omitted)
7.25 Canada asserts that the obligations set out in Article 3.1 of the AD Agreement and
Article 15.1 of the SCM Agreement contain substa ntive, overarching obligations that must be
observed by investigating authorities in making inju ry determinations. Canada considers that the
alleged violations of other, more specific provisions of Article 3 of the AD Agreement and Article 15
of the SCM Agreement demonstrate the asserted viol ations of Article 3.1 of the AD Agreement and
Article 15.1 of the SCM Agreement in this case. Thus, Canada has not made separate arguments
supporting these claims of violation. In response to questions from the Panel, Canada clarified that it
did not consider these claims to be dependent on th e more specific claims it raised, but acknowledged
that they are closely related. Canada explained th at the "same facts give rise to violations under the
overarching provisions as well as the specific provisions Canada has invoked in this dispute".88
7.26 In the absence of independent argumen t supporting these overarching claims under
Articles 3.1 and 15.1, and in light of Canada's explanation, it is ou r view that the resolution of these
claims is substantively dependent on our resolution of the specific claims. In this regard, we note
Canada's statement that, "Given substantive differe nces in the obligations in Articles 3.1 and 15.1
compared to [Articles 3.2, 3.4, 3.5 and 3.7 of the AD Agreement and Articles 15.2, 15.4, 15.5 and
15.7 of the SCM Agreement], certain factual scenarios could give rise to violations of Article 3.1 and
15.1 without violating the provisions of the other Articles. However, Canada is not raising such
facts in this dispute ".
89 Thus, in the absence of any additio nal arguments supporting the allegations
of violation of Articles 3.1 and 15.1, if we find that the facts give rise to a conclusion of no violation
under one of Canada's specific claims, we will also consider that those facts give rise to the same
conclusion, no violation, with respect to th e overarching claims under Article 3.1 of the
AD Agreement and Article 15.1 of the SCM Agreement. With respect to any aspect of the
determination that is found to be inconsistent w ith any other provision of Articles 3 and 15 of the
Agreements asserted by Canada, we can see no reason to conclude, in addition, that it also violates
Article 3.1 of the AD Agreement and Article 15.1 of the SCM Agreement. In the absence of

88 Canada's Responses to Questions from the Panel and the United States - First Meeting, question 6.
89 Ibid., (emphasis added).

additional arguments in support of th ese claims, to say that a viola tion of a specific provision of the
Agreements also violates the overarching obligations in Articles 3.1 and 15.1 does not clarify the
obligation set out in Articles 3.1 of the AD Agreement and 15.1 of the SCM Agreement. Nor would it
provide any guidance in the context of implem entation of any recommendation of the DSB.
Therefore, we will make no findings with respect to these claims.
7.27 Of course, we recognize the importance of the obligations in Article 3.1 of the AD Agreement
and Article 15.1 of the SCM Agreement to our evalua tion of the USITC determination at issue in this
dispute.90 Thus, in considering Canada's specific clai ms of violation, we have considered the
obligations established in those provisions in eval uating the USITC's determination in light of the
specific allegations of violation.
7.28 In this regard, we have kept in mind statemen ts of the Appellate Body regarding the meaning
of "positive evidence" and "objective examinati on". While “positive evidence” involves the facts
underpinning and justifying the injury determinati on, “objective examination” is concerned with the
investigative process itself.91 The Appellate Body has interpreted “positive evidence” as follows:
"The term "positive evidence" relates, in our view, to the quality of the evidence that
authorities may rely upon in making a determin ation. The word "positive" means, to
us, that the evidence must be of an affirmative, objective and verifiable character,
and that it must be credible. "92 (emphasis in original)
The Appellate Body has defined an "objective examination":

"The term "objective examination" aims at a different aspect of the investigating
authorities' determination. While the te rm "positive evidence" focuses on the facts
underpinning and justifying the injury determination, the term "objective
examination" is concerned with the i nvestigative process itself. The word
"examination" relates, in our view, to th e way in which the evidence is gathered,
inquired into and, subsequently, evaluated; that is, it relates to the conduct of the
investigation generally. The word "objective", which qualifies the word
"examination", indicates essentially that the "examination" process must conform to
the dictates of the basic principles of good faith and fundamental fairness. "
93
(footnote omitted)
The Appellate Body summed up the requirement to conduct an "objective examination" as follows:

"In short, an "objective examination" re quires that the domestic industry, and the
effects of dumped imports, be investigated in an unbiased manner, without favouring
the interests of any interested party , or group of interested parties, in the
investigation. The duty of the investigating authorities to conduct an "objective
examination" recognizes that the determinati on will be influenced by the objectivity,

90 We note in this respect the statement of the Appellate Body: "Article 3 as a whole deals with
obligations of Members with respect to the determination of injury. Article 3.1 is an overarching provision that
sets forth a Member's fundamental, substantive obligation in this respect. Article 3.1 informs the more detailed
obligations in succeeding paragrap hs." Appellate Body Report, Thailand – Anti-Dumping Duties on Angles,
Shapes and Sections of Iron or Non-Alloy Steel and H-Beams from Poland (Thailand – H-Beams ),
WT/DS122/AB/R, adopted 5 April 2001, para. 106.
91 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 ("EC – Bed Linen (Article 21.5 – India ) "),
WT/DS141/AB/RW, adopted 24 April 2003, para 114, quoting Appellate Body Report, US – Hot-Rolled Steel ,
para. 192.
92 Ibid.
93 Ibid., quoting Appellate Body Report, US – Hot-Rolled Steel, para. 193.

or any lack thereof, of the investigative process".
 94 (footnote omitted, emphasis in
original)
G. ALLEGED VIOLATIONS OF ARTICLE 3.8 OF THE AD AGREEMENT AND
ARTICLE 15.8 OF THE SCM AGREEMENT REQUIREMENTS REGARDING “SPECIAL
CARE”
7.29 Article 3.8 of the AD Agreement and Article 15.8 of the SCM Agreement provide that:
“with respect to cases where injury is threatened by dumped [subsidized] imports, the
application of anti-dumping [countervailing] measures shall be considered and
decided with special care”.
No WTO panel has addressed the interpretation of these provisions to date.

(a) Parties' Arguments
7.30 Canada asserts that these provisions establish an independent obligation with which Members
must comply, and that they provide context to assist in the interpretation of the other paragraphs of
Article 3 of the AD Agreement and Article 15 of th e SCM Agreement that govern threat of injury
determinations. However, as is the case concerning the alleged violations of Article 3.1 of the
AD Agreement and Article 15.1 of the SCM Agreem ent, Canada does not make any independent
arguments with respect to these claims, but rather asserts that the "failure to take "special care"
permeates the entire determination of the [USITC]".95
7.31 The United States asserts that Canada's argument indicates it considers that the “special care”
provision means that there is a stricter, higher standa rd of review for threat analysis than for present
material injury analysis in the context of the c overed Agreements. The United States, referring to the
decision of the Appellate Body in a safeguards dispute, US – Line Pipe , noted that the Appellate
Body suggested that the distincti on between threat of injury and present injury “serves the purpose of
setting a lower threshold for establishing the right to apply a safeguard measure” .96
7.32 However, in response to questions from the Pa nel, Canada clarified that it was not arguing
that the Panel must apply a different standard of review in cases involving threat of material injury. 97
Rather, Canada's argument was that the "special care" provisions imposed a stricter standard of
determination in threat cases, requiring a "particularly careful examination of the required elements of
Article 3 of the AD Agreement and Article 15 of the SCM Agreement".98 Canada asserts that “special
care” in threat cases is a crucial safeguard to pr otect against the dangers inherent in the predictive
nature of such determinations.
(b) Analysis by the Panel
7.33 The adjective “special” is defined as, inter alia, “Exceptional in quality or degree; unusual;
out of the ordinary". 99 The noun “care” is defined, inter alia, as "Serious attention, heed; caution,
pains, regard".100 Thus, it seems clear to us that a degree of attention over and above that required of

94 Ibid.
95 Canada's first written submission at para 65.
96 Appellate Body Report, United States – Definitive Safeguard Measures on Imports of Circular
Welded Carbon Quality Line Pipe from Korea ("US – Line Pipe "), WT/DS202/AB/R, adopted 8 March 2002,
para. 169 (emphasis in original).
97 Canada's Responses to Questions from the Panel and the United States - First Meeting, question 4.
98 Ibid
99 The New Shorter Oxford English Dictionary (Clarendon Press 1993)
100 Ibid.

investigating authorities in all anti-dumping and co untervailing duty injury cases is required in the
context of cases involving threat of material injury. We note that Articles 3.8 and 15.8 explicitly
state that "the application of measures shall be considered and decided with special care" (emphasis
added). Thus, it might be argued that the provision comes into play only after the investigation and
consideration of all the relevant factors set out in other provisi ons of Articles 3 and 15 concerning the
analysis of injury.
101 However, we consider that such a conc lusion is not appropriate in the context of
Article 3.8 of the AD Agreement or Article 15.8 of the SCM Agreement. These provisions are part of
the Article of each Agreement, Articles 3 and 15, wh ich, governs the overall determination of injury,
which under both Agreements is defined as including threat of material injury. 102 Articles 3.7 and
15.7, set forth factors specific to the determination of threat of material injury, and state that
investigating authorities shall base a determination of threat of material injury on facts and not
allegation, conjecture or remote possibility. In our view, Articles 3.8 and 15.8 reinforce this
fundamental obligation. Thus, we consider that Article 3.8 and Article 15.8 apply during the process
of investigation and determination of threat of material injury, that is, in the establishment of whether
the prerequisites for application of a measure exis t, and not merely afterward when final decisions
whether to apply a measure are taken.
7.34 Thus, we are faced with the question of what is entailed by this obligation to act with an
enhanced degree of attention, so as to demonstrate compliance with the "special care" obligation. The
Agreements require, as noted above , an objective evaluation based on positive evidence in making
any injury determination, including one based on thr eat of material injury. Canada has not asserted
any specific legal requirements with respect to speci al care – it has made no arguments as to what it
considers might constitute the special care required by the Agreements in threat cases. It is not clear
to us what the parameters of such "special care" in the context of an objective evaluation based on
positive evidence would be. In these circumstances, we consider it appropriate to consider alleged
violations of Articles 3.8 and 15.8 only after co nsideration of the alleged violations of specific
provisions. While we do not consider that a violation of the special care obligation could not be
demonstrated in the absence of a violation of th e more specific provision of the Agreements
governing injury determinations, we believe such a demonstrati on would require additional or
independent arguments concerning the asserted viola tion of the special care requirement beyond the
arguments in support of the specific violations,
7.35 Our review of Canada's arguments indicates that the factual circumstances Canada asserts
demonstrate the failure of the USITC to take th e requisite "special care" are the same factual
circumstances that give rise to the asserted specifi c violations. Indeed, Canada points to examples of
what it considers are aspects of the USITC determination that demonstrate a lack of special care
which are the same aspects that Canada argues demonstrate violations of other provisions of
Articles 3 of the AD Agreement and 15 of the SCM Agre ement. Thus, it appears to us that Canada is
asserting that the violations of the specific provision s cited in Canada's claims and the violations of
Article 3.8 and 15.8 are co-extensive.
7.36 In light of the foregoing, in the circumstances of this case we can see no basis for a finding of
violation of the special care requirement with r espect to any aspect of the determination which is
otherwise found to be consistent with the other provisions of Articles 3 and 15 asserted by Canada.
On the other hand, with respect to any aspect of the determination th at is found to be inconsistent

101 We note that, in the context of interpreting Ar ticle 15 of the AD Agreement, which requires
Members to give special regard to the special situation of developing countries "when considering the
application of anti-dumping measures", this phrase has been found to refer "to the final decision whether to
apply a final measure, and not intermediate decisions co ncerning such matters as in vestigative procedures and
choices of methodology during the course of the investigation." Panel Report, United States – Anti-Dumping
and Countervailing Measures on Steel Plate from India ("US – Steel Plate "), WT/DS206/R and Corr.1, adopted
29 July 2002, para 7.111.
102 Footnote 9 of the AD Agreement, and footnote 45 of the SCM Agreement.

with any other provision of Ar ticles 3 and 15 the Agreements asserted by Canada, we can see no
reason to conclude, in addition, that it also violat es the special care requirement. Clearly, whatever
the precise parameters of "special care" in the cont ext of a threat determination may be, an aspect of
the determination which does not satisfy the other, more specific obligations of Articles 3 and 15
cannot satisfy the special care obligation. However, to say so does not in any respect clarify the
obligation set out in Articles 3.8 of the AD Agreement and 15.8 of the SCM Agreement. Nor would it
provide any guidance in the context of implemen tation of any recommendation of the DSB.
Therefore, we will make no findings with respect to this claim.
7.37 We do, nonetheless, consider the obligation of special care to be important in our evaluation
of the allegations of violations of specific provisions. Even thou gh we do not address the issue of
special care as a separate violati on, that obligation provides important context for our understanding
of the obligations on the USITC in making a determin ation of threat of material injury. We have
therefore kept this obligation on the investigating au thority to act with an extra degree of attention in
the forefront of our minds in evaluating the particular claims in this dispute.
H. ALLEGED
 VIOLATIONS OF ARTICLE 12 OF THE AD AGREEMENT AND
ARTICLE 22 OF THE SCM AGREEMENT
7.38 Article 12.2.2 of the AD Agreement provides:
"A public notice of conclusion or suspension of an investigation in the case of an
affirmative determination providing for the imposition of a definitive duty or the
acceptance of a price undertaking shall contain, or otherwise make available through a
separate report, all relevant information on the matters of fact and law and reasons
which have led to the imposition of final measures or the acceptance of a price
undertaking, due regard being paid to the requirement for the protection of confidential
information. In particular, the notice or report shall contain the information described
in subparagraph 2.1, as well as the reasons fo r the acceptance or re jection of relevant
arguments or claims made by the export ers and importers, and the basis for any
decision made under subparagraph 10.2 of Article 6".
Article 12.2.1, referred to in Article 12.2.2, provides:
"A public notice of the imposition of provisional measures shall set forth, or
otherwise make available through a separate report, sufficiently detailed explanations
for the preliminary determinations on dum ping and injury and shall refer to the
matters of fact and law which have led to arguments being accepted or rejected. Such
a notice or report shall, due regard being paid to the requirement for the protection of
confidential information, contain in particular:
 (i) the names of the suppliers, or when this is impracticable, the
supplying countries involved;
 (ii) a description of the product which is sufficient for customs purposes;
 (iii) the margins of dumping established and a full explanation of the
reasons for the methodology used in the establishment and comparison of the export
price and the normal value under Article 2;
 (iv) considerations relevant to th e injury determination as set out in
Article 3;
 (v) the main reasons leading to the determination".

7.39 Article 22.5 of the SCM Agreement, and Article 22 .4 referred to therein, are similar, and the
minor textual differences are not relevant to this dispute.
7.40 As with its other overarching cl aims, Canada does not make specific arguments with respect
to these claims. Rather, as Canada clarified in re sponse to the Panel's questions, Canada's claims
under these provisions are procedural, dealing with the content of the notices, and not with the
substantive elements of the underlying USITC dete rmination. Canada specified that the asserted
requirement for a "reasoned and adequate explan ations" of the USITC's determination, which it
alleges was not provided in this case, did not derive from Articles 12.2.2 and 22.5, but rather from the
substantive obligations of Article 3 of the AD Agreement and Article 15 of the SCM Agreement. 103
In our view, Canada's claims under Articles 12.2.2 of the AD Agreement and 22.5 of the
SCM Agreement are thus dependent on the disposition of the specific claims of violation.
7.41 In evaluating these claims, we note that our conc lusions with respect to each of the alleged
substantive violations asserted by Canada rest on our examination of the USITC's published
determination, which constitutes the notices provide d by the United States under Article 12.2.2 of the
AD Agreement and Article 22.5 of the SCM Agreement with respect to the injury determination in
this case. No additional materials have been cite d to us with respect to the determination for
consideration in determining whether or not the USITC's determination are consistent with the
relevant provisions of the Agreemen ts. Thus, if we find no violati on with respect to a particular
specific claim, such a conclusion must rest on the USITC's published determination. In this
circumstance, it is clear to us that no violation of Articles 12.2.2 and 22.5 could be found to exist in
this case, where it is not disputed that the USIT C determination accurately reflects the analysis and
determination in the investigations. On the other ha nd, if we find a violation of a specific substantive
requirement, the question of whether the notice of the determination is "sufficient" under
Article 12.2.2 of the AD Agreement or Article 22.5 of the SCM Agreement is, in our view,
immaterial.
7.42 As was pointed out by the Panel in EC – Bed Linen:
"A notice may adequately explain the de termination that was made, but if the
determination was substantivel y inconsistent with the rele vant legal obligations, the
adequacy of the notice is meaningless. Further, in our view, it is meaningless to
consider whether the notice of a decision that is substantively in consistent with the
requirements of the AD Agreement is, as a separate matter, insufficient under
Article 12.2. A finding that the notice of an inconsistent action is inadequate does not
add anything to the finding of violation, the resolution of the dispute before us, or to
the understanding of the obligations imposed by the AD Agreement".
104
We share the views of the EC – Bed Linen Panel in this respect, and adopt them as our own. In this
regard, we note Canada's statement that "as a pr actical matter, Canada recognizes that it would be
unusual for an injury determination to either sa tisfy the obligations in Articles 3 and 15 but not
Articles 12.2.2 and 22.5 or vice versa". 105 Canada has made no arguments to suggest that this is such
an unusual case. Therefore, we will make no findi ngs with respect to the alleged violations of
Article 12.2.2 of the AD Agreement and Article 22.5 of the SCM Agreement.

103 Canada's Responses to Questions from the Panel and the United States - First Meeting, question 7.
104 Panel Report, European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen
from India ("EC – Bed Linen "), WT/DS141/R, adopted 12 March 2001, as modified by the Appellate Body
Report, WT/DS141/AB/R, at para. 6.259.
105 Canada's Responses to Questions from the Panel and the United States - First Meeting, question 7.

I. ALLEGED
 VIOLATIONS OF ARTICLE 3.7 OF THE AD AGREEMENT AND
ARTICLE 15.7 OF THE SCM AGREEMENT
7.43 Article 3.7 of the AD Agreement provides:
"A determination of a threat of material injury shall be based on facts and not merely
on allegation, conjecture or remote possibilit y. The change in circumstances which
would create a situation in which the dumping would cause injury must be clearly
foreseen and imminent. 10 In making a determination regarding the existence of a
threat of material injury, the authorities should consider, inter alia, such factors as:
 (i) a significant rate of increase of dumped imports into the domestic
market indicating the likelihood of substantially increased importation;
 (ii) sufficient freely disposable, or an imminent, substantial increase in,
capacity of the exporter indicating the like lihood of substantially increased dumped
exports to the importing Member's market, taking into account the availability of
other export markets to absorb any additional exports;
 (iii) whether imports are entering at prices that will have a significant
depressing or suppressing effect on domes tic prices, and would likely increase
demand for further imports; and
 (iv) inventories of the product being investigated.
No one of these factors by itself can necessarily give decisive guidance but the
totality of the factors considered must l ead to the conclusion that further dumped
exports are imminent and that, unless protective action is taken, material injury would
occur.
Article 15.7 of the SCM Agreement is the same except that it sets out an additional factor the
authorities should consider – "nature of the subsid y or subsidies in question and the trade effects
likely to arise therefrom".

7.44 Canada alleges a series of violations of these provisions, which are addressed below.
1. "Change in circumstances"
(a) Parties' Arguments
7.45 Canada asserts that Article 3.7 of the AD Agreement and Article 15.7 of the SCM Agreement
require that the “change in circumstances” from the non-injurious period of investigation that will
create a situation in which the dumping or subsid y will cause injury must be “clearly foreseen and
imminent”. Canada refers to this as the "logical predicate" for an affirmative finding of threat of
material injury.
106 Canada asserts that the change in circ umstances which would create a situation in
which the dumping or the subsidy would cause injury must be clearly anticipated and on the brink of

106 Canada's first written submission at para. 76.

happening. Canada argues that in this case, the US ITC failed to provide a reasoned evaluation of this
fundamental question. In particular, Canada argu es that the USITC did not explain how the evidence
before it provided a non-conjectural basis for concluding that the status quo would change such that
imports that did not cause injury to the domestic industr y during the period of investigation would
cause material injury in the imminent future.
7.46 Canada argues that one of the few “change[s] in circumstances” identified in the USITC's
determination, the prediction of “strong and im proving demand” in the US lumber market, would
appear to make threat of injury less likely, not mo re likely. Thus, Canada asserts, the USITC failed
to provide a reasoned, adequate and consistent explanation supporting a finding that there was a
change in circumstances that would create a situ ation in which the dumping or subsidy would cause
injury imminently. Canada notes that the USITC f ound that imports were likely to increase and that
subject imports were likely to have a significant pr ice depressing effect in the future. However,
Canada asserts that the USITC did not pr operly evaluate whether “the change in
circumstances…would cause injury” or whether “unless protective action is taken, material injury
would occur”.
7.47 The United States argues that threat of materi al injury is material injury that has not yet
occurred, but remains a future event whose actual materialization cannot be assured with absolute
certainty. Thus, the United States asserts that the Agreements recognize that a Member need not wait
until material injury actually has occurred before ta king remedial action. Moreover, the United States
argues that the threat provision recognizes that injury may not occur suddenly but may result from a
progression of trade conditions adverse to the industry. The United States points to the text in this
regard, which provides an example of the requisite "c hange in circumstances" in footnote 10 -- “that
there is convincing reason to believe that there w ill be, in the near future, substantially increased
importation of the product at dumped [subsidized] prices".
7.48 The United States takes issue with the view that the "change in circumstances" language
requires the investigating authority to identify “ a” change in circumstances, i.e., “an event,” that will
abruptly change the status quo from a threat of material injury to present material injury. In the US
view, this interpretation is neither necessary nor justif ied. In this regard, the United States points to
the statement of the Appellate Body in US-Line Pipe as describing the reality of how injury may occur
to a domestic industry:
"In the sequence of events facing a domestic industry, it is fair to assume that, often
there is a continuous progression of inju rious effects eventually rising and
culminating in what can be determined to be “serious injury”. Serious injury does not
generally occur suddenly. Present serious injury is often preceded in time by an
injury that threatens clearly and imminently to become serious injury, as we indicated
in US-Lamb. Serious injury is, in other words, often the realization of a threat of
serious injury. . . . the precise point where a “threat of serious injury” becomes
“serious injury” may sometimes be difficult to discern. But, clearly, “the serious
injury” is something beyond a “threat of serious injury".
107
7.49 The United States further argues that the Appella te Body has recognized generally that there
is a continuum of an injurious condition of a domest ic industry that ascends from a threat of injury up
to injury, citing the Appellate Body statement that:
"In terms of the rising continuum of an injurious condition of a domestic industry that
ascends from a “threat of serious injury” up to “serious injury”, we see “serious

107 Appellate Body Report, US – Line Pipe, para. 168 .

injury” – because it is something beyond a “threat” – as necessarily including the
concept of a “threat” and exceeding” the presence of a “threat”.
108
7.50 The United States argues that based on the facts regarding the present and past situation of the
domestic industry, an investigating authority can make reasonable projections about the future,
namely whether material injury is “clearly foreseen and imminent". The United States argues that the
USITC determined that the domestic industry was vu lnerable based on its analysis of the factors in
Article 3.4, found that the volume of dumped and su bsidized imports was significant, but did not find
that those imports had caused material injury in li ght of the lack of significant price effects. The
USITC then found that dumped and subsidized impor ts were likely to increase, and were likely to
have significant price effects in the near future, s upporting a finding of threat of material injury. In
the US view, there is no need to find that there will be an abrupt change in the status quo to justify a
finding of threat of material injury – it is sufficient that material injury is the foreseeable result of the
sequence of events.
7.51 The EC, as third party, considers that the inv estigating authorities are required to determine
that there is a clearly foreseen and imminent change in circumstances that would create a situation in
which dumping or subsidization would cause injury. However, the EC also is of the view that the
condition of a domestic industry may develop in a c ontinuous line from non-injury to injury, and that
it is not possible to predict when the change occurs. However, in the EC's view, the point is not when
circumstances will change, but that there must be an analysis of the factors that create a change in
circumstances. Thus, the EC does not consider th at an abrupt change in circumstances must be
identified, but rather that there mu st be an analysis of the factors relating to the future dumped and/or
subsidized imports that leads to the conclusion that the industry is on the brink of injury.
7.52 Japan, as third party, supports Canada's view that an investigating authority must comply with
the obligation to identify the "change in circumstances" that is necessary to move from "no injury" at
the time of the determination to imminent injury ju stifying a threat determination. However, Japan
does not consider that there must be an abrupt change in this context.
(b) Analysis by the Panel
7.53 The text of Articles 3.7 and 15.7 concerning "change of circumstances" is not a model of
clarity. It provides "The change in circumstan ces which would create a situation in which the
dumping would cause injury must be clearly foreseen and imminent. 10" Thus, Articles 3.7 and 15.7
on their face seem to require that some "change of circumstances" must be clearly foreseen and
imminent, and that it is this change of circumstan ces that would create a situation in which injury
would occur. Footnote 10 in the AD Agreement, which is not repeated in the SCM Agreement,
provides an example of what might constitute a change in circumstances: "One example, though not an
exclusive one, is that there is convincing reason to believe that there will be, in the near future,
substantially increased importation of the product at dumped prices".
7.54 Thus, the sole example given of a "change of circ umstances" in the text is that there will be
substantially increased importation of the product at dumped prices. However, the likelihood of
substantially increased imports is also one of the spec ific factors that Articles 3.7(i) and 15.7(ii) of the
AD and SCM Agreements, respectively, provide should be considered in determining the existence of
a threat of material injury. The text also specifies that no one of the factors listed in Article 3.7 or
Article 15.7 "by itself can necessarily give decisive gui dance, but the totality of the factors considered
must lead to the conclusion that further [dumpe d/subsidized] exports are imminent, and that unless
protective action is taken, material injury would o ccur". Thus, the text indicates that both the change
of circumstances, and further dumped or subsidized imports, must be imminent, and the likelihood of
increased imports is both a relevant change of circumstances and a factor to be considered in

108 Appellate Body Report, US – Line Pipe, para. 170.

determining the existence of threat. In our view, based on the text of the Agreements, it is not clear
that these various elements of Articles 3.7 and 15.7 need necessarily be distinct factual circumstances,
each of which must be considered separately in assessing whether there is a threat of material injury.
7.55 Moreover, while the change in circumstances must be clearly foreseen and imminent, the text
does not clearly require the identification of a single event as the relevant change in circumstances.
Thus, the text does not give us clear guidance as to the nature of the change in circumstances, or the
degree of specificity with which it must be identified.
7.56 Looking at the context of Articles 3.7 and 15.7, in particular the remainder of Articles 3 and
15 as a whole, we note that Article 3 of the AD Agreement and Article 15 of the SCM Agreement
both deal with the determination of injury. "Injury" is defined in the Agreements to mean "material
injury to a domestic industry, threat of material in jury to a domestic industry, or material retardation
of the establishment of such and industry".
109 It seems clear to us that these three concepts describe
different types of injury, occurring at different times and potentially in different ways. 110 Thus, the
focus of Article 3.7 and Article 15.7, in the c ontext of Articles 3 and 15 as a whole, is the
determination of one of these three types of injury, th reat of material injury. The factors set out in
Article 3.7 and Article 15.7 are elements that s hould be considered in ma king a determination of
threat of material injury.
7.57 Following this view, we consider that the releva nt "change in circumstances" referred to in
Articles 3.7 and 15.7 is one element to be considered in making a determination of threat of material
injury. However, we can find no support for the conc lusion that such a change in circumstances must
be identified as a single or specific event. Rather, in our view, the change in circumstances that would
give rise to a situation in which injury would occu r encompasses a single event, or a series of events,
or developments in the situation of the industry, and/or concerning the dumped or subsidized imports,
which lead to the conclusion that injury which has not yet occurred can be predicted to occur
imminently.
7.58 Of course, a reviewing Panel must be able, in dispute settlement, to determine that the
investigating authority has considered this element in its analysis. Thus, the investigating authorities'
consideration must be discernible fro m its determination. The nature of that consideration would, in
our view, necessarily vary depending on the facts of the particular case. Again, however, it must be
possible for the reviewing Panel to ensure that the consideration of the investigating authority took
into account relevant facts before it, and was an unbiased and objective evaluation of those facts.
What is critical, however, is that it be clear from th e determination that the investigating authority has
evaluated how the future will be different from th e immediate past, such that the situation of no
present material injury will change in the imminent future to a situation of material injury, in the
absence of measures.
7.59 In this case, Canada argues that the USITC failed to identify any circumstances that would
change such that material injury would occur in th e near future. The United States, on the other hand,
argues that the discussion of facts and likely events throughout the USITC analysis, demonstrated a
progression of circumstances which would create a situation in which dumpi ng and subsidies would
cause injury. In the US view, the continuation of ad verse trends into the future, as identified in the
USITC determination, is sufficient to satisfy the change in circumstances requirement.

109 AD Agreement footnote 9, SCM Agreement footnote 45.
110 The Appellate Body, in interpreting the analogous injury provision of the Safeguards Agreement,
which allows for a finding of "serious injury or threat thereof" and defines "threat of serious injury" as "serious
injury that is clearly imminent", found that "we agree with the Panel that the respective definitions of "serious
injury" and "threat of serious injury" are two distinct concepts that must be given distinctive meanings in
interpreting the Agreement on Safeguards." Appellate Body Report, US – Line Pipe, para. 167.

7.60 As noted above, we do not disagree, in principle, with the United States' view that Article 3.7
and Article 15.7 do not require that the investigat ing authority identify a sp ecific event that will
change such that a situation of no injury will become a situation of in jury in the future. In this case,
the facts the United States points to as demonstrating the "progression" of circumstances which would
create a situation in which injury would occur in the near future ar e thoroughly intertwined with the
USITC's discussion of the present condition of the domestic industry, the present impact of imports,
and the facts asserted in support of the conclusion that imports will increase substantially. Thus, in
our view, the USITC considered these various elemen ts in concluding that the continuation of the
trends in the situation of the domestic industry, coupled with predicted substantially increased
imports, would result in an imminent change in circumstances such that injury would occur.
However, while this may be enough to allow us to conclude that the USITC considered whether there
would be a change in circumstances such that th e dumped and subsidized imports would cause injury,
it does not answer the question whether the overall determination of threat, based on the totality of the
factors considered, is consistent with the requireme nts of the Agreements. That question is addressed
further below.
2. Consideration of factors in Article 3.7 of the AD Agreement and Article 15.7 of the
SCM Agreement
(a) Parties' Arguments
7.61 Canada argues that the USITC failed to consider properly the factors listed in Article 3.7 of
the AD Agreement and Article 15.7 of the SCM Agreement and other relevant factors based on the
evidence before it. Canada points to the decision of the Panel in Thailand – H-Beams with respect to
the meaning of the term "consider", asserting that that Panel found that "consider" means
“‘contemplate mentally, especially in order to r each a conclusion’; ‘give attention to’; and ‘reckon
with; take into account’”.
111 The Panel went on to state that it must “be apparent in the relevant
documents in the record that the investigating au thorities have given attention to and taken into
account” the factors required to be considered. 112 It found that the investigating authorities
“considered” the significance of an increase in imports where they “went beyond a ‘mere recitation of
trends in the abstract and put the import figures into context’”. 113 Canada asserts that the USITC
failed in this regard.
7.62 Canada asserts that the USITC's affirmative threat of injury determination is grounded in its
finding of a likely substantial increase in the subject imports. Canada considers that, on the basis of
this finding alone, the USITC concluded that the s ubject imports were likely to have a significant
depressing or suppressing effect on domestic prices in the future. Canada argues that this central
finding is not supported by the USITC's analysis of the factors listed in Article 3.7 of the
AD Agreement and Article 15.7 of the SCM Agreemen t. Moreover, Canada maintains that this
central finding is also not supported by the other factors examined by the USITC. Thus, Canada
considers that the totality of the factors consid ered by the USITC do not provide a non-conjectural
basis for concluding that “subject imports are likel y to increase substantially,” and therefore the
USITC's threat of injury determination does not comply with Article 3.7 of the AD Agreement and
Article 15.7 of the SCM Agreement. Moreover, Ca nada maintains that the USITC's prediction that
subject imports are likely to have a significant pr ice depressing effect in the future is derived
exclusively from its finding that the volume of subject imports was likely to increase substantially. In
Canada's view, the fundamental flaws in the vol ume finding thus mean that the price finding is
equally flawed and cannot be sustained.

111 Panel Report, Thailand – H-Beams, para. 7.161
112 Ibid.
113 Ibid., at para. 7.170.

7.63 The United States does not disagree with the contention that the USITC was required to
consider the factors in Articles 3.7 and 15.7. Ho wever, the United States argues that the Agreements
do not require the investigating authorities to make findings on each factor. Rather, the United States
argues that it sufficient, if it is apparent in the re levant documents in the record, that the USITC has
given attention to and taken the factor into account . The United States notes that after interpreting the
term "consider", the Panel in Thailand - H-Beams went on to state: "We therefore do not read the
textual term ‘consider’ in Article 3.2 to require an explicit ‘fi nding’ or ‘determination’ by the
investigating authorities". 114 The United States argues that while Thailand – H-Beams involved
Article 3.2 of the AD Agreement, the conclusion that “consider” does not mean “make a finding”
should equally apply to Article 3.7 of the AD Agreement and Article 15.7 of the SCM Agreement.
7.64 Moreover, the United States asserts that consideration of a factor does not necessarily require
an explicit separate evaluation of that factor if the analysis of the factor is implicit in the analyses of
other factors, and that what is important is that the investigating authority’s decisional path be
reasonably discernible, not that there be an explic it explanation or finding for each factor to be
considered.
115 The United States considers that this c onclusion follows from the fact that the
Agreements provide that "No one of these factors by itself can necessarily give decisive guidance but
the totality of the factors considered must lead to the conclusion that further dumped exports are
imminent and that, unless protective action is taken, material injury would occur". Further, the United
States argues, the investigating authority is not required to explicitly addr ess every minute detail or
specific aspect of every argument that is raised by parties. The United States asserts that the USITC
clearly considered the relevant evidence and argum ents raised by parties but found other evidence to
be more persuasive. In the US view, Canada's ar guments have little to do with whether the USITC’s
findings are reasonable and supported by positiv e evidence, or whether the USITC addressed
alternative arguments, but rather ask the Panel to weigh the evidence for itself. The United States
maintains that the USITC's conclusion that impor ts would increase substan tially, and would have
significant price depressing or suppressing effects, was based on an adequate consideration of relevant
factors.
7.65 The EC, as third party, supports the US argument that the term "consider" does not require an
explicit finding on each of the relevant factors.
(b) Analysis by the Panel
7.66 We begin our analysis by addressing the interp retation of the term "consider" as used in
Article 3.7 of the AD Agreement and Article 15.7 of the SCM Agreement. The decision of the Panel
in Thailand – H-Beams is pertinent to our analysis. While th at Panel was faced with the question of
interpreting the term "consider" as used in Article 3. 2 of the AD Agreement, we find that a consistent
interpretation is necessary, as the term "consider" h as, in our view, the same purpose in Article 3.2 as
in Article 3.7 of the AD Agreement and Article 15. 7 of the SCM Agreement. Article 3.2 of the
AD Agreement establishes factors that the investigati ng authorities are to "consider" with regard to
the volume of imports and the impact of imports on prices, in the context of making a determination
of material injury. Article 3.7 of the AD Ag reement and Article 15.7 of the SCM Agreement
similarly set forth a series of factors investigati ng authorities should "consider" in the context of
making a determination of threat of injury. We can conceive of no basis for concluding that a
different understanding of the term mi ght be appropriate in these two contexts. Therefore, the views
of the Thailand – H-Beams Panel are highly persuasive in our understanding of the term as used in
Article 3.7 of the AD Agreement and Article 15.7 of the SCM Agreement.

114 Ibid., at para. 7.161.
115 Appellate Body Report , European Communities – Anti-Dumping Duties on Malleable Cast Iron
Tube or Pipe Fittings from Brazil ("EC – Tube or Pipe Fittings "), WT/DS219/AB/R, 22 July 2003, paras. 160-
161.

7.67 Thus, we are of the view that, in order to conclude that the investigating authorities have
"considered" the factors set out in Articles 3.7 and 15.7, it must be apparent from the determination
before us that the investigating authorities have given attention to and taken into account those
factors.
116 That consideration must go beyond a mere rec itation of the facts in question, and put them
into context. 117 However, the investigating authorities are not required by Articles 3.7 and 15.7 to
make an explicit "finding" or "determination" with respect to the factors considered.118
7.68 In this context we note that the parties agreed th at the use of the word "should" in Article 3.7
of the AD Agreement and Article 15.7 of the SCM Agreement indicated that, unlike the situation
under Article 3.4 of the AD Agreement, consideration of each of the factors listed in Articles 3.7 and
15.7 is not mandatory.119 Consequently, a failure to consider a f actor at all, or a failure to adequately
consider, a particular factor would not necessarily demonstrate a violation of the provisions. Whether
a violation existed would depend on the particular f acts of the case, in light of the totality of the
factors considered and the explanations given. In this case, it is clear from the face of the
determination that the USITC in fact addressed th e facts concerning each of the factors set out in
Articles 3.7 and 15.7 of the Agreements. Indeed, Ca nada does not argue that any relevant factor was
ignored by the USITC, or not addressed in the dete rmination. Thus, we cannot conclude that the
USITC failed to consider the factors set forth in Articles 3.7 and 15.7, in the sense of not taking them
into account at all.
7.69 However, this does not answer the question wh ether the USITC's overa ll determination of a
threat of material injury is consistent with the re quirement of Articles 3.7 and 15.7 that the totality of
the factors considered lead to the conclusion that further dumped and subsidized exports are imminent
and that, unless protective action was taken, material injury would occur. In assessing this question,
for the sake of clarity, we discuss each of the f actors considered by the USITC, and the parties'
arguments concerning that consideration individuall y. However, our determination is based on our
assessment of the USITC's determination as a whole, taking into account the evidence that was before
it and the analysis in the determination itself. This is, in our view, in line with the injunction in the
text that no one factor can necessarily give decisive guidance, but the totality of the factors considered
must lead to the conclusion regarding threat of material injury.
7.70 As is discussed in more detail below, the USIT C's affirmative threat determination was based
principally on the conclusion that dumped a nd subsidized imports were likely to increase
substantially. In making this conclusion, the USITC relied on a number of factors it considered
relevant which are not specifically identified in Article 3.7 of the AD Agreement and Article 15.7 of
the SCM Agreement. The USITC found that the proj ected increased imports were likely to have a
significant price depressing effect in the future. Therefore, the USITC concluded that imports were
entering at prices that were likely to have a signi ficant depressing or suppressing effect on domestic
prices and were likely to increase demand for furthe r imports. The USITC determined that further
dumped and subsidized imports were imminent, th at these imports were likely to exacerbate price
pressure on domestic producers, and that material injury to the domestic industry would occur.
(i) The nature of the subsidies in question
7.71 Canada argues that the USITC’s evaluation of this factor was limited to a description of the
programmes found by the USDOC to confer countervailable subsidies, a statement that “[n]one of the
subsidies identified by Commerce are subsidies descr ibed in Article 3 or 6.1 of the WTO Subsidies
Agreement,” and a footnote regarding eviden ce submitted by the CLTA, a Canadian party

116 See ibid.
117 See ibid., at para. 7.170.
118 See ibid., at para. 7.161.
119 See Canada's Responses to Questions from the Panel and the United States - First Meeting and
United States Response to Questions from the Panel – First Meeting, question 34.

participating in the investigation, regarding the stumpage programmes. 120 Canada argues that the
USITC failed to consider all the relevant evidence before it concerning the nature of the subsidies and,
in particular, the likely trade effects of stumpage programmes. Specifically, Canada argues that the
USITC failed to take account of evidence that stumpage programmes do not increase the production
of logs or lumber or lower their prices, or increase the quantity or lower the prices of lumber exports,
and thus have no trade effects. Canada relies, in this regard, principally on the studies that were
presented as evidence to the USITC by representatives of Canadian producers.
7.72 The United States argues that Canada misper ceives the obligation of the investigating
authorities with respect to this factor. In the US view, Canada implies that a proper consideration
would have required the USITC to make a finding concerning the nature of the subsidies and their
likely trade effects. However, the United States contends that the Agreements do not require a
finding. The United States maintains that the USIT C’s determinations reflect consideration of the
information the USDOC provided the USITC rega rding the subsidies, which was information
regarding the nature of the subsidies, but not findi ngs regarding the effects of the subsidies. The
parties to the investigations did present such inform ation, in the form of competing economic theories
about the nature and effects of the countervailabl e subsidies. The United States asserts that the
USITC considered all of the evidence presented on th is issue by the parties, but did not make the
finding sought by the Canadian parties. This is, in the US view, consistent with the requirements of
the Agreement, particularly when the evidence did not prov ide a sufficient factual basis to allow the
USITC to draw reasoned and adequate conclusions about the trade effects of the subsidies.
7.73 We note that during the investigation proceeding, Canadian parties presented arguments,
economic theories and analysis, primarily based on studies prepared by an economist, Dr. William
Nordhaus. Contrary arguments, theories, and anal ysis were presented to the USITC by US lumber
producers. These same arguments, theories and analysis have been put before us in this dispute. The
USITC did not accept the Canadian arguments, but did not make any specific factual findings as to
the effects of the subsidies. Canada's argument suggests that it believes that the absence of a
conclusion regarding the evidence and theories pre sented concerning the effects of the subsidies
demonstrates that the USITC did not adequately cons ider this factor, and essentially asks the Panel to
resolve the underlying issue regarding trade effects of the subsidies.
7.74 We do not agree with Canada's position on this poi nt. It seems clear to us the USITC did in
fact consider the evidence before it regarding the nature of the subs idies and the trade effects arising
therefrom. As discussed above, we do not understand the obligation to "consider" a factor to require
the investigating authorities to make an explicit fi nding regarding the evidence concerning that factor.

120 "Stumpage programmes" are the agreements under which enterpri ses are accorded the right, for a
fee, to harvest timber on government lands in Canada. According to the Panel in US – Softwood Lumber IV,
"stumpage programmes provide standing timber owned by the provinces to harvesters. The
only way for harvesters to obtain the trees standing on government-owned Crown land for
harvesting and processing is by concluding stumpage agreements (tenures or licences) with
the governments concerning these trees. The only way for the government to provide the
standing timber that it owns to the harvesters and the mills for processing is by allowing the
harvesters to come on the land and harvest the trees. Such legal rights and obligations are
transferred through the stumpage agreements. It is thus through the stumpage agreements that
the governments provide the standing timber to the harvesters. The price to be paid for the
timber, in addition to the volumetric stumpage charge for the trees harvested, consists of
various forest management obligations and other in-kind costs relating to road-building or
silviculture for example. In return, the tenure holders receive ownership rights over the trees
during the period of the tenure. In other words, with the stumpage agreements, ownership
over the trees passes from the government to the tenure holders. Standing timber has thus
been provided to the tenure holders."
US – Softwood Lumber IV, para. 7.15 (footnotes omitted).

The USITC noted the types of subsidies found to exist by the USDOC, and considered the arguments
by the parties on this issue. The USITC conclude d that the economic theory underlying the Canadian
party's argument was "not clearly applicable" in the market, and explained, albeit briefly, why it took
that view.
121 In our view, this demonstrates that the US ITC considered this factor. Moreover, to
accept Canada's position in this dispute, we would have to resolve the underlying factual question in
order to conclude that the USITC erred in not accepti ng the Canadian party's argument in this regard.
Such a ruling would, we believe, require us to trespass into the realm of de novo fact-finding, which
we will not do.
7.75 Moreover, the USITC did not rely on its consid eration of the nature of the subsidies as an
element of its affirmative determination of threat of material injury. In such a case, where the nature
of the subsidies is not an element cited in support of the determination in dispute, we cannot conclude
that the failure to make an explicit finding on this factor demonstrates a violation of the Agreement.
(ii) Significant rate of increase of dumped and subsidized imports
7.76 Canada argues that the USITC merely made observations concerning the increase in volume
and apparent domestic consumpti on of dumped and subsidized imports without any evaluation of
whether the rate of increase was “significant” and, if so, whether that rate of increase indicated a
“likelihood of substantially increased importation”. Moreover, Canada argues, the USITC could not
have found a significant rate of increase in light of its earlier findings on material injury.
7.77 The United States does not appear to rely on this factor directly as support for the USITC's
determination of threat. However, the United St ates notes that the USITC found that the level of
imports was already significant during the period of investigation, and had increased, and that the
volume increased substantially during periods when no restraints were in place.
7.78 We note that the USITC found that the volume of imports was likely to increase substantially,
based on factors other than the rate of increase during the period of investigat ion. Thus, it appears
that this factor was not an element supporting the USITC's affirmative determination of threat. Again,
given our understanding of the term "consider", we believe that the discussion of this factor in the
determination is sufficient to pr eclude a conclusion that the USITC failed to properly consider this
factor.
(iii) Sufficient disposable capacity or imminent substantial increase in capacity
7.79 Canada argues that rather than considering th is factor, the USITC merely made observations
concerning the evidence on capacity. Canada notes th at the USITC stated that Canadian capacity
increases were projected, but did not find that there was an imminent, substantial increase in capacity.
Moreover, Canada argues, the USITC merely noted the existence of excess Canadian capacity without
explaining how that theoretical ability to increase imports would translate into the likelihood of
substantially increased dumped and subsidized export s. In this respect, Canada asserts that the
USITC ignored the projections provided by Canadian producers regarding their future exports to the
United States.
7.80 The United States argues that the USITC gave mo re weight to the actual capacity data in
concluding that capacity existed to increase expor ts. With respect to the Canadian producers'
projections concerning likely future exports to the United States, the USITC found it likely that
exports to the United States and ot her destinations would increase consistent with the historical
distribution of exports, while the Canadian produ cers' export projections showed a lesser proportion
of the projected increases being exported to the Unites States. Thus, the USITC concluded that

121 USITC Final Report (Exhibit CDA-1) at page 39, footnote 245.

information regarding capacity s upported the conclusion that exports to the United States would
increase.
7.81 Again, it seems clear to us the USITC consider ed the capacity factor in its analysis, but
reached a conclusion divergent from that argued before it by the Canadian parties and by Canada in
this dispute. This alone does not, of course, demonstrate a violation of the Agreements with respect to
consideration of the relevant factors. This factor did play a part in the USITC's overall affirmative
threat determination, as discussed further below.
(iv) Price depression and suppression
7.82 With respect to this factor, Canada ar gues that the USITC failed to evaluate present import
prices to determine whether, given their level, th ey are likely to cause significant price depression or
suppression in the future and whether that level of pricing is likely to increase demand for further
imports. In Canada's view, the USITC's conclusion on this factor relies on an analysis of the impact
of future imports on prices, and does not address the impact of current import prices. Moreover,
Canada asserts that in light of the USITC's finding of no significant price effects during the period of
investigation, there is no basis for a finding that imports would have a significant depressing or
suppressing effect on prices in the future.
7.83 In its analysis of the present condition of th e domestic industry, the USITC did consider
present import prices. The USITC concluded that du mped and subsidized imports had some effect on
prices in the domestic market, noting that both im ports and domestic producers contributed to excess
supply and thus declining prices. However, in light of the relatively stable (albeit large) share of the
market held by imports, the USITC did not find any significant price effects. This conclusion,
however, formed part of the basis for the USITC's conclusion that dumped and subsidized imports
would have a significant price depressing effect in th e future. Thus, in our view, it seems clear that
the USITC considered this factor, and that it formed part of the USITC's overall threat determination,
as discussed further below.
(v) Inventories of the product being investigated
7.84 Canada argues that the USITC’s consideration of this factor was limited to a single sentence,
which does not contain any explanation of how this factor weighed in the determination.
7.85 The United States asserts that this suffices as "consideration", and that in any event, the
USITC did not rely on the level of inventories in order to reach its conclusion of threat of injury.
7.86 It is clear to us that, in light of the factors and analysis presented in the determination actually
made, the USITC did not rely on this factor in support of its determination of threat of material injury.
In light of this, we cannot conclude that the consid eration of the inventories factor was so inadequate
as to constitute a violation of Article 3.7 of the AD Agreement and 15.7 of the SCM Agreement.
(vi) Consideration of other factors
7.87 Having concluded that the USITC did not violate Articles 3.7 and 15.7 of the AD and
SCM Agreements by failing to properly consider the f actors listed therein, we are then left with the
question whether the USITC's determination, based on the totality of the factors considered, including
factors not listed in the Agreements, is consistent with those provisions. Thus, we turn now to an
assessment of the elements that the United Stat es relies on as demonstrating the adequacy of the
reasoning and factual basis underlying the USITC's determination.
7.88 The United States asserts that the USITC determin ed that during the period of investigation,
imports were at a significant level, and prices declined , particularly at the end of the period, such that

the condition of the industry had deteriorated and was vulnerable. The USITC concluded that imports
were likely to increase substantially based on (1) Canadian producers’ excess capacity and projected
increases in capacity, capacity utilization, and produc tion; (2) the export orientation of Canadian
producers to the US market; (3) the increase in the volume of subject imports over the period of
investigation; (4) the effects of expiration of the SLA; (5) subject import trends during periods when
there were no import restraints; and (6) forecasts of strong and improving demand in the US market.
The USITC then concluded that, in light of the at least moderate substitu tability of domestic and
imported lumber, the fact that prices of one species affected the prices of other species, and that the
significant volume of imports during the period of investigation had some adverse effects on prices,
the projected substantial increase in imports would likely have a significant price depressing effect on
domestic prices and were likely to increase demand for imports.
7.89 It is clear to us that the fundamental basis of the USITC's affirmative threat determination is
the conclusion that dumped and subsidi zed imports from Canada would increase substantially.
However, looking at the evidence relied on by the Un ited States in support of the determination, we
cannot accept that this conclusion is one that coul d be reached by an objective and unbiased decision
maker. It seems to us that, at most, the evidence relied upon by the USITC could support a
conclusion that imports of softwood lumber would continue at the historical levels, and might increase
somewhat, in keeping with increased demand, and consistent with historical patterns. But we can find
no rational explanation in the USITC's determinati on, based on the evidence cited, for the conclusion
that there would be a substantial increase in impor ts imminently. In reaching this decision we have
kept in mind that we may not substitute our judgment for that of the USITC, but must nonetheless
carry out a detailed and searching analysis of the evidence relied upon and the reasoning and
explanations given.
7.90 During the period of investigation, dumped and subsidized imports from Canada were, in the
USITC's judgement, already at significant levels in terms of absolute volume and in terms of market
share. As noted above, the USITC did not rely on a significant rate of increase during the period of
investigation in support of its conclusion that su bject imports would increase substantially in the
future. With respect to the capacity of Canadian producers, the evidence be fore the USITC indicated
that Canadian capacity was projected to increase by less than one per cent in 2002, and a further 0.83
per cent in 2003.
122 This certainly does not, in our view, support a conclusion that that there would be
a substantial increase in capacity, and indeed, the USITC does not appear to have found otherwise.
7.91 Thus, it is only the existing excess capacity th at might be viewed as supporting a finding that
imports would increase substantially in the future. Excess capacity had increased during the period of
investigation, without resulting in a finding by th e USITC of a significant increase in imports to the
United States. The share of total Canadian shipme nts represented by exports to the United States
during the period of investigation was 57.4 in 1999 and 2000, and increased to 60.9 in 2001.
Canadian producers projected a decline in that share, but only to 58.8 per cent in 2002 and 58.5 per
cent in 2003, figures well within the historical range.
123 These figures cannot, in our view, support the
conclusion that excess capacity indicates a likelihood of substantially increased exports.
7.92 The United States argues that reliance on the historical distribution of exports to the United
States and other countries supports the USITC's findi ng. Nothing in the USITC's determination
suggests that the share of production shipped to the United States would alter in any significant
degree. Thus, we do not see how this factor s upports the conclusion of a substantial increase in
imports. Similarly, while the USITC relied on th e "export-orientation" of the Canadian industry
toward the United States market, this was true thr oughout the period of investigation. The data
regarding exports to the United States do not, however, suggest that there would be any notable
change in the levels of exports to the United States, but rather a continuation of the historical patterns.

122 USITC Final Report (Exhibit CDA-1) at Table VII-2.
123 Ibid.

Nothing in the USITC determination addresses how the projected increases in exports to the United
States supports the finding that imports would increase substantially.
7.93 The United States also relies on the effects of the expiration of the Softwood Lumber
Agreement (SLA). The USITC found that "the SLA a ppears to have restrained the volume of subject
imports from Canada at least to some extent as subject imports only increased by 8.8 per cent and
market share remained relatively constant while apparent consumption increased by 13.1 per cent
from 1995 to 2001". 124 First, we note that the increase in the volume of imports during the period of
investigation was apparently not considered signifi cant by the USITC. Nor did the USITC consider
that there was a significant rate of increase during the period of investigation. Second, the USITC
noted that shipments from provinces not covered unde r the SLA, and whose exports were therefore
not affected, more than doubled. However, the USITC did not explain how it concluded that this
indicated that the SLA had acted to restrain overall exports, as opposed to resulting in a shift in supply
distribution from provinces covered by the SLA to those not covered. The USITC had not found that
the SLA had significantly restrained exports during the period it was in effect, which might have
suggested that its expiration would lead to a substantial increase in exports. The USITC
determination simply does not address why the expiration of an agreement during the term of which
exports nonetheless increased, would result in an imminent substantial increase in exports.
7.94 The United States argues that trends in imports during periods when the SLA was not in
effect support the conclusion that imports were lik ely to increase substantially. There were two
periods relied upon in this regard – the period prior to the SLA from 1994-1996, and the period from
April 2001 to August 2001, immediately after th e SLA expired and before the imposition of
provisional measures. There is no discussion in the USITC's determination that would suggest that
market conditions during the period before the imposition of the SLA, a period that precedes the
period of investigation in this case, would be suffici ently similar to predicted market conditions, so as
to warrant the conclusion that imports would increase substantially. With respect to the period from
April to August 2001, the USITC did not discuss whether the increase in imports during that period
represented an accurate gauge of what would happen in the future, in the absence of anti-dumping and
countervailing measures, or simply a shift in timin g of exports to take advantage of the window
between expiration of the SLA and provisional measures. In this regard, we note that the applications
for anti-dumping and countervailing measures were f iled the business day after the expiration of the
SLA, and thus exporters would be aware of the possibility of provisional measures at a predictable
date. While it seems obvious that the expiration of the SLA would result in unrestrained exports, the
facts cited by the USITC, in light of the lacunae in the explanations given, do not support the
conclusion of an imminent substantial increase in imports.
7.95 The last factor relied on by the United States is the forecast of strong and improving demand
in the US market. All the USITC found in this regard was that the United States would continue to be
an important market for Canadian producers. 125 We cannot see how this conclusion, which simply
posits the continuation of the historical situati on, supports a finding that imports would increase
substantially. This is particularly the case give n the complete absence of any discussion of third
country imports, which had increased during the period of investigation. A situation of strong and
improving demand would certainly suggest that th e US market would be an attractive one for
exporters, but this would seem to be true for all exporters not only Canadian producers. Moreover, in
a situation of strong and improving demand, incre ases in imports proportional to the increase in
demand would seem to be without any injurious effect. The USITC did not make any findings that
imports from Canada would increase more than dema nd, thereby accounting for an increased share of
the US market. Indeed, the USITC did not address mark et share at all in the context of its threat of
material injury determination.

124 USITC Final Report (Exhibit CDA-1) at p. 41.
125 USITC Final Report (Exhibit CDA-1) at p. 43.

7.96 Based on the foregoing, we are of the view that, in light of the totality of the factors
considered and the reasoning in the USITC's determin ation, we cannot conclude that the finding of a
likely imminent substantial increase in imports is one which could have been reached by an objective
and unbiased investigating authority. Therefore, we find that the USITC's determination is not
consistent with the obligations set forth in Articles 3.7 and 15.7.
J. ALLEGED
 VIOLATIONS OF ARTICLES 3.2 AND 3.4 OF THE AD AGREEMENT AND
ARTICLES 15.2 AND 15.4 OF THE SCM AGREEMENT
7.97 Articles 3.2 of the AD Agreement and 15.2 of the SCM Agreement require an investigating
authority to consider whether there has been a significant increase in the volume of the dumped or
subsidized imports, either in abso lute terms or relative to productio n or consumption in the importing
Member, whether there has been significant price undercutting by those imports, and whether the
effect of such imports is to otherwise depress or suppress prices to a significant degree. Canada
asserts that the provisions of Articles 3.2 and 3.4 of the AD Agreement and Article 15.2 and 15.4 of
the SCM Agreement apply equally to investigations i nvolving threat of injury determinations, in light
of the definition of the term “injury” in footnote 9 to the AD Agreement and footnote 45 of the
SCM Agreement to include “threat of material injury”.
(a) Parties' Arguments
7.98 Canada argues that the USITC did not undertake the required consideration of these factors.
Thus, Canada asserts that the USITC did not consid er whether the increase in the volume of subject
imports it observed over its period of investigati on was significant, which Canada maintains it was
not, and acknowledged that it could not draw any conclusion as to whether there had been significant
underselling by the subject imports, and could not c onclude that the dumped and subsidized imports
had a significant price effect during the period of in vestigation. Canada then asserts that the USITC
failed to explain properly how it could reach its affirmative threat of injury determination in the light
of these findings, and thus violated Article 3. 2 of the AD Agreement and Article 15.2 of the
SCM Agreement in the context of threat of injury.
7.99 Canada also argues that the USITC failed to assess the likely impact of the likely increase in
imports on the domestic industry. In Canada's view , a threat of injury determination case "requires a
meaningful evaluation of how each of the factors listed in Article 3.4 of the AD Agreement and
Article 15.4 of the SCM Agreement will evolve in the future".
126 Canada notes that an evaluation of
each of the factors is required, and asserts that in this context, “evaluation” has been interpreted to
mean “a process of analysis and assessment requiring the exercise of judgment on the part of the
investigating authority” and “not simply a matter of form”.127 Canada cites the decision of the Panel
in European Communities –Bed Linen (Article 21.5 – India ) in asserting that the investigating
authority must “assess the role, relevance and relative weight of each factor in the particular
investigation”.
128 An “evaluation” “implies the analysis of data through placing it in context in terms
of the particular evolution of the data pertaining to each factor individually, as well as in relation to
other factors examined”.129 Canada argues that the USITC assessed the current state of the domestic
softwood lumber industry in its “vulnerability” analys is, but failed to evaluate the likely state of the
domestic industry in the future, and in particular , how further dumped and subsidized imports would
affect the domestic industry’s condition. In Canada's view, this constitutes a fatal deficiency in the
USITC’s threat of injury analysis. Canada considers that while the USITC did address a number of

126 Canada's first written submission at para. 145.
127 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 ("European Communities –Bed Linen (Article 21.5 –
India)"), WT/DS141/RW, adopted April 24, 2003, as modified by the Appellate Body Report, para. 6.162.
128 Ibid.
129 Ibid.

the mandatory listed factors, but only with respect to the past, and did not assess how any of the listed
factors was likely to evolve in the future. Theref ore, it failed to undertake any meaningful evaluation
of the listed factors for the purpose of its threat of injury analysis.
7.100 The United States argues that consideration of th e factors listed in Articles 3.2 and 3.4 of the
AD Agreement and Articles 15.2 and 15.4 of the SCM Agreement establishes a background against
which the investigating authority can evaluate whether dumped and subsidized imports will likely
increase substantially, likely will have price eff ects, and consequently will affect the industry’s
condition in such a manner that material injury w ould occur in the absence of protective action. The
United States argues that the USITC addressed all of the factors in its analysis of present material
injury analysis, finding that the volume of imports was significant, there were some price effects by
subject imports, that the condition of the domestic industry had deteriorated primarily as a result of
declining prices, and that the industry was in a vul nerable state. Moreover, the United States argues,
projections based on the present and past facts, provide positive evidence justifying the USITC’s
determination that the domestic industry was on th e verge of material injury by reason of the
continued dumped and subsidized softwood lumber imports from Canada.
7.101 The United States asserts that Canada’s arguments are variations of the arguments raised
regarding likely substantial increases in imports and likely price effects, which the United States
argues are based on Canada’s premise that there could be no threat because there allegedly were no
findings of injurious effects in the present material injury analysis. The United States considers that
premise to be incorrect. The United States notes th e finding of the USITC, in its material injury
analysis, that the volume of imports was significan t and supported a finding of material injury, but
that there were no significant price effects. The United States argues that the USITC’s findings in its
present injury analysis regarding the impact of subject imports on the domestic industry foreshadows
and supports its finding of threat of material injury. Like Canada, the United States refers to the Panel
decision in Mexico – Corn Syrup to the effect that consideration of the factors relating to the impact of
imports on the domestic industry “establish a bac kground against which the investigating authority
can evaluate whether imminent further dumped import s will affect the industry’s condition in such a
manner that material injury would occur in th e absence of protective action, as required by
Article 3.7".
130 The United States asserts that the USIT C established such a background in finding
that the domestic industry producing softwood lumber was vulnerable to injury in light of declines in
its performance over the period of investigation, particularly its financial performance, and reasonably
concluded that the deterioration in the performance of the domestic i ndustry, particularly its financial
performance, made it vulnerable to injury. In the US view, Canada’s challenge suggests a
requirement to quantify future events, a requirement the United States maintains does not exist in the
relevant Agreements.
7.102 Japan, as third party, asserts that the dumped imports were not a cause of the vulnerable state
of the domestic industry, and thus that conclusion do es not form a valid basis for the determination of
threat of injury. Japan considers that the USIT C failed to evaluate the impact of likely further
dumped (and subsidized) imports on th e domestic industry and thus failed to comply with Article 3.4
of the AD Agreement and Article 15.4 of the SCM Agreement.
7.103 With respect to the alleged violations of Ar ticles 3.4 of the AD Agreement and 15.4 of the
SCM Agreement, Canada clarified its view, in response questions from the Panel, that an examination
of the listed "injury" factors must be carried out in a "predictive context" in making a threat of injury
determination.131 Canada argues that in the absence of an evaluation of these factors in the future, it is
impossible to determine whether future dumped/subs idised imports will cause injury. The United

130 Panel Report, Mexico – Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the
United States ("Mexico – Corn Syrup "), WT/DS132/R and Corr.1, adopted 24 February 2000, DSR 2000:III, 1345,
para. 7.132.
131 Canada's Responses to Questions from the Panel and the United States - First Meeting, question 8.

States, on the other hand, argues th at it is not necessary to specifi cally address these injury factors a
second time where, as it asserts is the case here, it is clear from the discussion of these factors what
the condition of the industry is, such that a bac kground for the conclusion of likely future injury
caused by dumped/subsidized imports is established.
(b) Analysis by the Panel
7.104 In this context, we recall that the Agreements define "injury" to include threat of injury unless
otherwise specified. Thus, the requirements of Articles 3.2 and 3.4 of the AD Agreement and
Articles 15.2 and 15.4 of the SCM Agreement mi ght, as Canada argues, be understood to apply
directly in the threat of injury context such that a predicted "impact" with respect to each of the listed
factors must be assessed. However, in our view the text, context, and object and purpose of the
relevant provisions do not lead to such an interpretation.
7.105 It seems clear to us that, as the Panel found in Mexico – Corn Syrup, there must, in every case
in which threat of material injury is found, be an evaluation of the condition of the industry in light of
the Article 3.4/15.4 factors to establish the b ackground against which the impact of future
dumped/subsidized imports must be assessed, in addition to an assessment of specific threat factors.
However, once such an analysis h as been carried out, we do not read the relevant provisions of the
Agreements to require an assessment of the likel y impact of future imports by reference to a
consideration of projections regarding each of the Ar ticle 3.4/15.4 factors. There is certainly nothing
in the text of either Article 3.7 of the AD Agre ement and Article 15. 7 of the SCM Agreement, or
Article 3.4 of the AD Agreement and Article 15.4 of the SCM Agreement, setting out an obligation to
conduct a second analysis of the injury factors in cases involving threat of material injury. Of course,
such an assessment could be undertaken, to the exte nt available information permitted, and might be
useful. However, in many instances, it seems lik ely that the necessary information would not be
available, for instance projected productivity, return on investment, projected cash flow, etc. Even if
projections are made on the basis of the information ga thered in the investigation, this might result in
a degree of speculation in the decision–making process, which is not consistent with the requirements
of the Agreements.
7.106 In this case, it is clear on the face of the USIT C determination that the injury factors were
considered in the context of finding no present ma terial injury. Indeed, Canada does not contend
otherwise. It also seems clear to us that the USITC took that consideration into account in its threat of
material injury analysis. At least, that is our un derstanding of the USITC's statement at the beginning
of the section of the report entitled "threat of material injury by reason of subject imports" that "[a]s
an initial matter, we find that the domestic industry producing softwood lumber is vulnerable to injury
in light of declines in its performance over the peri od of investigation, part icularly its financial
performance".
132 The USITC then went on to address th e additional threat factors set out in
Article 3.7 of the AD Agreement and Article 15.7 of the SCM Agreement. In our view, this is an
adequate approach to the analysis of threat of ma terial injury with respect to the requirements of
consideration of the elements set out in Articles 3.2, 3.4, and 3.7 of the AD Agreement, and the
corresponding provisions of the SCM Agreement.
7.107 In this context, we note the findings of the Panel in Mexico – Corn Syrup with respect to the
nature and purpose of consideration of the Article 3.4 factors in the context of a threat of material
injury determination:
"With respect to the question of threat of ma terial injury, we believe an investigating
authority cannot come to a reasoned conc lusion, based on an unbiased and objective
evaluation of the facts, without taking into account the Article 3.4 factors relating to
the impact of imports on the domestic industry. These factors all relate to an

132 USITC Final Report (Exhibit CDA-1) at p. 37.

evaluation of the general condition and ope rations of the domestic industry – sales,
profits, output, market share, productivity, return on investments, utilization of
capacity, factors affecting domestic prices, cash flow, inventories, employment,
wages, growth, ability to raise capital. Cons ideration of these factors is, in our view,
necessary in order to establish a background against which the investigating
authority can evaluate whether imminent further dumped imports will affect the
industry's condition in such a manner that ma terial injury would occur in the absence
of protective action, as required by Article 3.7".
133 (emphasis added)
7.108 We share the view of the Mexico-Corn Syrup Panel in this regard. In our estimation, this
requirement of consideration of the Article 3.4 factor s in a threat determination is satisfied by what
the USITC did in this case. That is, the USITC di d consider the Article 3.4/15.4 factors to establish a
background against which to evaluate the effects of future dumped and subsidized imports.
7.109 Canada points to another passage in the Panel's decision in Mexico – Corn Syrup Panel in
support of its argument that a "predictive analysis" of the Article 3.4/15.4 injury factors is required.
That Panel, in finding a violation of Article 3. 4, stated that SECOFI, the Mexican investigating
authority:
"concluded that imports were likely to increase, based on the increases during the
period of investigation, and the available 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 indus try 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 pr oduction or sales of sugar, or affect the
profits of the domestic producers, etc., in such a manner as to constitute material
injury".
134
In Canada's view, this demonstrates that an analys is of projections regarding the injury factors is
required.

7.110 We do not agree. The Mexico – Corn Syrup Panel was faced with a case in which there was
no discussion of the Article 3.4 injury factors at all . The Panel found that, in the absence of any
discussion of the condition of the domestic industry agai nst which the impact of future imports was to
be assessed, findings that imports would increase a nd be priced below the domestic like product were
insufficient to support a conclusion of threat of material injury. The issue of whether a second
analysis of the Article 3.4 factors was required in the context of making a determination of threat of
material injury was simply not a question in that dispute, and was not specifically addressed by the
Panel. In this case, the USITC specifically fo und that the domestic industry was in a vulnerable
condition, based on its consideration of the Article 3.4/15.4 injury factors. Against that background,
conclusions that an imminent substantial increase in imports is likely, at prices likely to have
significant price depressing and suppressing effect s and likely to increase demand for imports,
exacerbating price pressure on domestic producers, and t hus that material injury would occur, could,
if those conclusions are themselves consistent w ith the obligations of the Agreements, support a
finding of threat of material injury.
7.111 With respect to the factors set out in Article 3.2 of the AD Agreement and Article 15.2 of the
SCM Agreement, we see even less basis for concludi ng that they must be directly considered in a
"predictive" context in making a threat of material injury determination. These provisions require the
investigating authorities to consider events in th e past, during the period investigated, in making a
determination regarding present material injury. Thus , the text directs the investigating authorities to

133 Mexico – Corn Syrup, para. 7.132.
134 Ibid., at para. 7.140

consider whether there "has been" a significant increase in imports, whether there "has been"
significant price undercutting, or whether the effect of imports is otherwise to depress prices or
prevent price increases which otherwise "would have " occurred. As with the consideration of the
Article 3.4/15.4 factors, the consideration of the Ar ticle 3.2/15.2 factors forms part of the background
against which the investigating authorities can evaluate the effects of future dumped and/or subsidized
imports.
135
7.112 We therefore find no violation of Articles 3.2 and 3.4 of the AD Agreement or of
Articles 15.2 and 15.4 of the SCM Agreement.
K. ALLEGED VIOLATIONS OF ARTICLES 3.5 AND 3.7 OF THE AD AGREEMENT AND
ARTICLE 15.5 AND 15.7 OF THE SCM AGREEMENT
7.113 Article 3.5 of the AD Agreement and Article 15.5 of the SCM Agreement provide as follows:
"3.5 It must be demonstrated that the dumped imports are, through the effects of
dumping, as set forth in paragraphs 2 and 4, causing injury within the meaning of this
Agreement. The demonstration of a causal relationship between the dumped imports
and the injury to the domestic industry shall be based on an examination of all
relevant evidence before the authorities. The authorities shall also examine any
known factors other than the dumped imports which at the same time are injuring the
domestic industry, and the injuries caused by these other factors must not be
attributed to the dumped imports. Factors which may be relevant in this respect
include, inter alia, the volume and prices of imports not sold at dumping prices,
contraction in demand or changes in patte rns of consumption, trade-restrictive
practices of and competition between forei gn and domestic producers, developments
in technology and the export performance and productivity of the domestic industry".
"15.5 It must be demonstrated that the subsidized imports are, through the effects
47
of subsidies, causing injury within th e meaning of this Agreement. The
demonstration of a casual relationship betw een the subsidized imports and the injury
to the domestic industry shall be based on an examination of all relevant evidence
before the authorities. The authorities sh all also examine any known factors other
than the subsidized imports which at the same time are injuring the domestic industry,
and the injuries caused by these other factors mu st not be attributed to the subsidized
imports. Factors which may be relevant in this respect include, inter alia, the
volumes and prices of non-subsidized imports of the product in question, contraction
in demand or changes in the patterns of c onsumption, trade restrictive practices of
and competition between the foreign a nd domestic producers, developments in
technology and the export performance and productivity of the domestic industry.

subsidized imports which at the sa me time are injuring the domestic industry, and the injuries caused
by these other factors must not be attributed to the dumped or subsidized imports. In Canada's view,
the USITC failed to satisfy the requirements relating to each element.
7.115 The United States does not dispute that there ar e two main elements to the establishment of
the causal relationship in anti-dumping and counterva iling duty investigations. However, the United
States contends that the USITC determination in di spute fully complies with those requirements, in
that the USITC considered all the relevant ev idence in establishing the causal relationship, and
properly avoided attributing injuries caused by othe r factors to the dumped and subsidized imports
from Canada.
7.116 Japan, as third party, supports Canada's view th at the USITC failed to demonstrate a causal
relationship and failed to comply with the non-attrib ution requirement in Articles 3.5 and 15.5 of the
AD and SCM Agreements, respectively. In the latte r context, Japan focuses on the asserted failure of
the USITC to separate and distinguish the effects of other known factors on the domestic industry
from the effects of further dumped (and subsidized) imports.
7.117 Korea, as third party, considers that the USIT C determination fails to properly demonstrate a
causal relationship and non-attri bution on positive evidence. Korea considers that the USITC
identified other known factors causing injury, specifically the domestic industry's contribution to
oversupply, but nevertheless attributed injury to the Ca nadian imports. Korea is also of the view that
the USITC's threat determination rests on an "unscientific" prediction that imports would increase
substantially in the absence of anti-dumping and countervailing duty orders.
7.118 We address below the two aspects of Canada's claim regarding the causal analysis separately.
1. Alleged failure to demonstrate a causal relationship
(a) Parties' Arguments
7.119 In Canada's view, the USITC failed to explain how the predicted substantial increase in the
volume of imports would be likely to have a signi ficant price depressing effect in the future and
therefore would threaten to cause injury to the domestic industry. In particular, Canada considers that
the USITC failed to examine and evaluate all evidence relevant to the question of causal relationship,
including several “conditions of competition” USIT C considered were pertinent to the softwood
lumber industry and relevant to the analysis. In this regard, Canada points to the fact that the
United States is not self-sufficient in lumber and that a significant volume of imports is needed to
fulfil demand, the concept that competition betw een subject imports and the domestic product is
attenuated to some extent, and the fact that ther e was increasing integration in the North American
lumber market and US domestic producers were responsible for purchasing or importing lumber from
Canada. Canada argues that the USITC stated that these conditions were both pertinent and relevant,
but then ignored them in its threat of injury analys is. Canada also argues that there is nothing in the
USITC's determination to support its finding that su bject imports were likely to have a significant
price depressing effect in the future.
7.120 The United States argues that, in making its dete rmination, the USITC examined all record
evidence and carried out a thorough analysis of all relevant factors that the dumped and subsidized
imports threaten to cause injury to the domestic indus try. The United States asserts that, in its present
material injury analysis, the USITC found the domes tic industry vulnerable to injury, but concluded
that it could not find that subject imports had in jured the domestic industry, largely because it had not
found that there were significant price effects. Th e United States asserts that the USITC concluded in
its threat analysis that dumped and subsidized impor ts already at significant levels would continue to
enter the US market at significant levels and were projected to increase substantially. The additional
imports would increase the excess supply in the ma rket, putting further downward pressure on prices,

which at the end of the period of investigation had d eclined to levels as low as they had been in 2000.
The United States asserts that USITC reasonably found that subject imports were likely to increase
substantially and were entering at prices that ar e likely to have a significant depressing or suppressing
effect on domestic prices, and were likely to increas e demand for further imports, thereby threatening
material injury. The United St ates considers that Canada’s claims under Article 3.5 and 15.5 are
based on the premise that there could be no threat because there allegedly were no injury findings in
the present material injury analysis, a premise which the United States rejects.
7.121 Moreover, the United States asserts that the USITC considered and addressed each of the
issues raised by Canada, but reached different conc lusions based on the evidence from those urged by
Canada. Thus, for instance, the United States argue s that the USITC consid ered growth in demand
and the need for imports in light of the inability of US producers to satisfy demand, but found that
demand was not likely to increase in the manner Cana da suggests or to have the effects that Canada
posits, as strong demand had not, during the period of investigation, translated into price
improvements, and was not expected to do so in the future. The United States also maintains that the
USITC appropriately considered the substitutab ility of subject imports and domestic product and
properly took the record evidence into account in maki ng its determinations as evident in its opinion.
The USITC found that imports and domestic speci es of softwood lumber are used in the same
applications and that regional preferences merely reflect availability of species, and that the
differences in species between subject imports and domestic product did not a ttenuate competition in
a significant manner. The United States maintains that Canada recognizes that the USITC considered
the integration of the North American lumber indus try as a condition of competition, but criticizes the
USITC for not speculating that integrated companies would not harm related companies without
referring to any evidence to support its supposition th at integrated firms will not harm their related
parties.
(b) Analysis by the Panel
7.122 As discussed above, we have found that the USIT C's determination is in consistent with the
requirements of Article 3.7 of the AD Agreement a nd Article 15.7 of the SCM Agreement in that the
conclusion that imports would increase substantially is not one that could have been reached by an
unbiased investigating authority based on an obj ective examination of the evidence concerning
relevant factors in the investigation. The entire an alysis of the USITC with respect to causation rests
upon the likely effect of substantially increased im ports in the near future. Having found that a
fundamental element of the causal analysis is not co nsistent with the Agreements, it is clear to us that
the causal analysis cannot be consistent with the Agreements. We therefore find that the
determination is not cons istent with Article 3.5 of the AD Agreement and Article 15.5. of the
SCM Agreement in this regard.
2. Alleged absence of the required non-attribution analysis
(a) Parties' Arguments
7.123 Canada argues that the USITC failed to identify, much less examine, any other known factors
that could threaten injury to the domestic indus try in addition to the subject imports. Canada
maintains that having neglected even to identify ot her causal factors, the USITC also did not separate
out and distinguish the injurious effects of those ot her factors from the alleged injurious effects of the
dumped and subsidized imports. Canada notes that in a footnote to its report, the USITC stated that it
is not required, under US case law, to separate and distinguish the injurious effects of the other known
factors from the injurious effects of the dumped and subsidized imports. 136 Therefore, Canada argues
that the USITC determination does not comply with the requirements in the third and fourth sentences

136 USITC Final Report (Exhibit CDA-1) at p. 31, footnote 195.

of Article 3.5 of the AD Agreement and Article 15.5 of the SCM Agreement relating to “non-
attribution”.
7.124 In Canada's view, there was strong evidence be fore the USITC that factors other than the
subject Canadian softwood lumber imports were having substantial adverse effects on the US
domestic industry during the period of investigation. Canada also notes that the USITC found that the
industry had itself contributed to the oversupply that led to price declines over the period of
investigation, and argues that the USITC failed to examine this, as well as the likely future role of
non-subject imports and their potential contribution to any threatened injury to the US industry, and
other known factors potentially injurious to the domes tic industry, such as chan ges in the patterns of
consumption.
7.125 The United States argues that the USITC properly examined any known factors other than the
dumped and subsidized imports which are injuring the domestic industry to ensure that it did not
attribute injury from other causal factors to the su bject imports. The United States asserts that the
USITC’s methodology was consistent with the AD and SCM Agreements, which it argues do not
specify how the investigating authority is to satisfy th e non-attribution test. In the US view, the
purpose of the non-attribution requirements is to en sure the existence of an unsevered causal link
between the dumped and subsidized im ports and the injury to the domestic industry. In this context,
the United States cites the decision of the Appellate Body in EC – Tube or Pipe Fittings , which stated
that “provided that an investigating authority does not attribute the injuries of other causal factors to
dumped imports, it is free to choose the methodology it will use in examining the ‘causal relationship’
between dumped imports and injury".137
7.126 The United States maintains that the USITC’s methodology ensures that the injurious effects
of other causal factors are not attributed to subject imports. The United States describes that
methodology as involving the examination of othe r “known” factors to assess whether they may be
causing injury to the domestic industry. When the US ITC finds a factor not to have injurious effects
on the domestic industry, the United States states that such factor is not an “other known factor” for
purposes of Article 3.5 of the AD Agreement or Article 15.5 of the SCM Agreement and no further
consideration or examination of the factor is ca lled for. The United States considers that this
approach is sanctioned by the Appellate Body decision in EC – Tube or Pipe Fittings

7.127 The United States considers that Canada's princi pal argument is that US domestic supply was
a known causal factor which the USITC found contribut ed to injury in its present material injury
analysis, but ignored in its threat analysis. The Un ited States argues that in its threat evaluation, the
USITC found that the domestic producers had curbed their production, but that overproduction
remained a problem in Canada. 138 Thus, while US domestic overproduction had contributed to
adverse price effects in 2000, the United States main tains that the evidence demonstrated that it was
no longer contributing to excess supply while Ca nadian imports continued to oversupply.
Consequently, the USITC was entitled to not consider this as an "other factor" causing injury, and was
not required to address it further in its threat determination..
7.128 With respect to the other causal factors whic h Canada alleges the USITC failed to consider
(non-subject imports, other substitutes for lumber , and cyclical demand and housing construction
cycles) the United States maintains that it is cl ear from the determination that these issues were
considered and parties' arguments were addressed, but that the USITC did not consider these issues as
rising to the level of “other known factors injuring the domestic industry”. Consequently, the United
States argues that there was no obligation to address them further.

137 Appellate Body Report, EC – Tube or Pipe Fittings, para. 189, citing to Appellate Body Report, US-
Hot-Rolled Steel, para. 224.
138 USITC Final Report (Exhibit CDA-1) at p. 35, footnote 217.

(b) Analysis by Panel
7.129 The non-attribution requirement in anti-dumping investigations has been addressed by the
Appellate Body in several recent cases. Alt hough it has not been specifically considered in a
countervailing duty case, given that the relevant provi sions in the two Agreements are identical, and
in light of the Declaration of Ministers relating to Dispute Settlement under the AD and
SCM Agreements, it is clear to us that the requirement is the same in the context of both anti-dumping
and countervailing duty investigations.
7.130 In its most recent statement on the non-attribution requirement in anti-dumping cases, the
Appellate Body explained that:
"This obligates investigating authorities in their causality determinations not to
attribute to dumped imports the injurious effects of other causal factors, so as to
ensure that dumped imports are, in fact, "causing injury" to the domestic industry. In
US – Hot-Rolled Steel we described the non-attribution obligation as follows:
… In order that investigating authorities, applying Article 3.5, are able
to ensure that the injurious effect s 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 imports is actually caused by those imports, rather
than by the other factors.
Non-attribution therefore requires separation and distinguishing of the effects of other
causal factors from those of the dumped imports so that injuries caused by the
dumped imports and those caused by other factors are not "lumped together" and
made "indistinguishable".
139
We underscored in US – Hot-Rolled Steel , however, that the Anti-Dumping
Agreement does not prescribe the methodology by which an investigating authority
must avoid attributing the injuries of other causal factors to dumped imports: . . .
Thus, provided that an investigating authority does not attribute the injuries of other
causal factors to dumped imports, it is free to choose the methodology it will use in
examining the "causal relationship" between dumped imports and injury".
140
7.131 In this case, in addition to pointing out what it considers to be the deficiencies in the USITC's
analysis, Canada points to a statement in the USITC's decision:
"CLTA [a Canadian party] contended th at the Commission “must separate and
distinguish the injurious effects of the ot her factors from the injurious effects of
dumped imports.” CLTA’s Prehearing Brief at 8; see also. Government of Canada’s
Prehearing Brief at 4-11. This argument does not have a basis in the case law.
Asociacion de Productores de Salmon y Trucha de Chile AG v. United States, 180 F.
Supp. 2d 1360, 1375 (Ct. Int’l Trade 2002) (“Chilean Salmon”) (affirmed that “[t]he
Commission is not required to isolate the effects of subject imports from other factors

139Ibid., para. 228.
140 Appellate Body Report, EC – Tube or Pipe Fittings, paras. 188-189.

contributing to injury” or make “bright line distinctions” between the effects of
subject imports and other causes. Id.); Taiwan Semiconductor Industry Ass’n v.
USITC, 266 F.3d 1339, 1345 (Fed. Cir. 2001) (“[T]he Commission need not isolate
the injury caused by other factors from injury caused by unfair imports. . . . Rather,
the Commission must examine other factors to ensure that it is not attributing injury
from other sources to the subject imports.” Id. (emphasis in original))".
141
Canada contends that this statement makes it clear that the USITC failed to satisfy the non-attribution
test. However, Canada does not dispute that non-at tribution is required under US law. Thus, the
question facing us in this dispute is whether the USITC analysis of causation satisfies the non-
attribution requirement set forth in the Agreements.
7.132 As discussed above, having found that a fundamental element of the causal analysis is not
consistent with the Agreements, we consider that the USITC's causal analysis cannot be consistent
with the Agreements, and we therefore concluded that the determination is not consistent with
Article 3.5 of the AD Agreement and Article 15.5. of the SCM Agreement in this regard. In light of
this conclusion, we consider that we cannot meanin gfully evaluate the question of violation of the
non-attribution aspect of those provisions. In th e absence of a finding that dumped and subsidized
imports caused – in this case threatened – material inju ry that is consistent with the Agreements, the
question of whether injuries caused by other factor s are attributed to dumped and subsidized imports
becomes meaningless. Nonetheless, we do have serious concerns with the analysis of the USITC in
this regard. In order to elucidate our views s hould the Appellate Body reach the question and give
some guidance should the issue arise in implementation, and in view of the fundamental significance
of the non-attribution requirement, we set out our concerns below.
7.133 It is clear from the determination that USITC addressed other factors potentially causing
injury in the context of its determination, in pa rticular in discussing the "conditions of competition"
relevant to the US softwood lumber industry, with re spect to the finding of no present material injury.
Thus, it would seem that there was some analysis in the USITC decision that addressed other factors
potentially causing injury. For instance, the USITC noted in discussing the volume of imports that
imports from countries not subject to investigation were small in volume but had increased during the
period of investigation.142 In this regard, we note particularly the USITC's finding that both domestic
and imported Canadian softwood lumber contributed to excess supply in the market during the period
of investigation, and thus to the declining prices. 143 This finding was fundamental to the further
conclusion that Canadian imports had no significant effect on prices, and did not have a significant
impact on the domestic industry, and the ultimate fi nding of no present material injury caused by the
subject Canadian imports. Based on this reasoning, it seems to us that the USITC did undertake some
analysis of other factors potentially causing injury, wh ich analysis led in part to the negative finding
with respect to present material injury caused by imports.
7.134 However, in the context of its analysis of threat of material injury, we see no similar
discussion of other factors that are threatening inju ry at the same time as dumped and subsidized
imports. There is no reference at all to imports fro m countries not subject to investigation. Yet, in
light of the increase in such imports during the period of investigation, and given that the matter was
specifically put before the USITC in arguments, it would seem that some discussion of the likely
future impact of such imports should have been undertaken. Nor is there any discussion of the
relationship between predicted increases in impor ts and the predicted strong and increasing demand
for lumber in the US market. In the absence of so me increase in Canadian market share in the future,
it is difficult to see how the USITC could come to the conclusion that Canadian imports would cause
injury in the future when they had not done so during the period of investigation, despite their

141 USITC Final Report (Exhibit CDA-1) at page 31, footnote 195.
142 USITC Final Report (Exhibit CDA-1) at page 32, footnote 199.
143 USITC Final Report (Exhibit CDA-1) at page 35.

significant and increased volume and market share. There is similarly no discussion of the effects of
increasing integration of the North American lumb er market on the behaviour of lumber producers
and the potential effects on trade flows.
7.135 A glaring omission is the failure to discuss the likely future effects of domestic supplies of
lumber. The single reference to domestic oversupply and its potential effect on the domestic industry
in the future is in a footnote in the section of th e report discussing price declines during the period of
investigation. The last sentence of that footnote cites a consultant's report stating that lumber
overproduction had been "curbed considerably [i n the United states] but remains a problem in
Canada".
144 Even were this single statement drawn from a consultant's report deemed sufficient to
support the conclusion that there would be no US oversupply affecting lumber prices in the future,
there is nothing in the report to link such a conclusion to the USITC's analysis of causation of material
injury in the near future.
7.136 We do not mean to suggest that all aspects of th e investigating authorities' determination must
be entirely contained in the specific parts of the repor t dealing with particular issues. Certainly, in
dispute settlement, a Member may argue the cons istency of an anti-dumpi ng or countervailing duty
determination based on the entirety of that dete rmination. However, that does not excuse the
investigating authority from the necessity of, at the time of its determination, providing an adequate
explanation of its analysis such that a Pane l can, with confidence, understand the reasoning
underlying the decision that was actually made in or der to be able to assess its consistency with the
relevant provisions of the Agreements.
7.137 Given the overall absence of discussion of ot her factors potentially causing injury in the
future, we would conclude that the USITC determin ation is not consistent with the obligation in
Article 3.5 of the AD Agreement and Article 15.5 of the SCM Agreement that "injuries caused by
these other factors must not be attributed" to the subject imports.
L. ALLEGED VIOLATIONS OF THE SCM AGREEMENT AND THE AD AGREEMENT IN
THE USITC’S COMBINED INJURY ANALYSIS
(a) Parties' Arguments
7.138 Canada argues that by carrying out a combin ed injury analysis in the anti-dumping and
countervailing duty investigations, the USITC failed to comply with the specific requirements that
must be satisfied by an investigating authority wh en making a determination of injury, or threat of
injury, in an anti-dumping or subsidy investigation. Specifically, Canada asserts that Articles 1, 9.1,
and 18.1 of the AD Agreement establish that a fi nal anti-dumping duty can be imposed only when the
investigating authority has complied with the specific requirements of the AD Agreement, and that the
same principle applies for the imposition of a fina l countervailing duty in light of parallel provisions
in Articles 10 and 32.1 of the SCM Agreement. Ca nada asserts that when an investigation involves
both dumped and subsidized imports, the investigating authority is obliged to comply with the specific
requirements of both the AD Agreement and the SCM Agreement. Canada considers this obligation
to satisfy the distinct requirements of both the AD Agreement and the SCM Agreement is reinforced
by paragraph (a) of Article VI:6 of GATT 1994, which provides: “No contracting party shall levy any
anti-dumping or countervailing duty on the importati on of any product of the territory of another
contracting party unless it determines that the effect of the dumping or subsidization, as the case may
be, is such as to cause or threaten material injury to an established domestic industry, or is such as to
retard materially the establishment of a domestic industry” [emphasis added].
7.139 Canada asserts that by combining the dumped and subsidized imports in its threat of injury
analysis, the USITC failed to comply with the sp ecific requirements of the AD Agreement and the

144 USITC Final Report (Exhibit CDA-1) at page 35, footnote 217.

SCM Agreement, and of Article VI of GATT 1994, because it failed to undertake all of the necessary
evaluations specified in the AD Agreement and SCM Agreement respectively. Canada points to
several of the asserted substantive violations as exam ples in this regard – alleged failure to properly
consider the nature and trade effects of the subsid ies in question as required by Article 15.7(i) of the
SCM Agreement, failure to consider all th e mandatory factors under Articles 3.4 of the
AD Agreement and Article 15.4 of the SCM Agreem ent; and failure to conduct a proper causation
analysis under Article 3.5 of the AD Agreement and Article 15.5 of the SCM Agreement. Moreover,
Canada maintains, the USITC never provided a r easoned explanation of why, in the particular
circumstances of this case, it was appropriate to conduct its analysis as it did.
7.140 Canada asserts that the USITC failed to satis fy the specific requirements of the AD and
SCM Agreements by carrying out a combined analysis, thereby making it more likely that an
affirmative determination would be the result. In th is regard Canada refers to the statement of the
Appellate Body in US-Hot Rolled Steel that, “investigating authorities are not entitled to conduct their
investigation in such a way that it becomes more likely that, as a result of the fact-finding or
evaluation process, they will determine that the domestic industry is injured”.145
7.141 In USITC practice, the consideration of s ubsidized and dumped imports jointly in the
consideration of whether the volume and price effe cts of subject imports threatened the domestic
industry with material injury is known as "cross-c umulation". The United States contends that
USITC’s cross-cumulation in this case, that is, the conduct of combined inves tigations, is consistent
with US obligations under the AD Agreement and th e SCM Agreement. The United States maintains
that the requirements contained in the AD and SCM Agreements regarding the determination of injury
are virtually identical. In the US view, the fact that neither Agreement speak s to the issue of cross-
cumulation does not mean that such an analysis is pr ecluded or inconsistent with either Agreement, as
Canada alleges.
7.142 The United States argues that Canada’s reliance on the “effect of dumping or subsidization”
language in Article VI:6 of GATT 1994 to mandate separate investigations fails to recognize the more
specific language in each of the covered Agreements regarding the injury analysis, which specifies
that the appropriate focus for an injury assessment is the “effect of dumped imports” and the “effect
of subsidized imports” rather than the “effect of dumping or subsidization". In this regard, the United
States points to the decision of the Panel in EC-Bed Linen which stated that the language “through the
effects of dumping” in Article 3.5 of the AD Agreement “did not require that the volume, price, and
impact ‘effects’ to be considered be those of dumping, but rather those of the dumped imports, that is,
the ‘effects of dumping’ were equated . . . with ‘the effects of dumped imports.’”
146
7.143 The United States asserts that the purpose of th e Agreements is to provide a remedy against
unfair trade practices causing injury to a domestic in dustry, and suggests that it would frustrate that
purpose to deny a remedy where the cumulative effect of dumped and subsidized imports is injury to
the domestic industry. The United States poi nts to the Appellate Body decision in EC – Tube or Pipe
Fittings addressing the cumulation provision in the AD Agreement (Article 3.3) in support of its
view. The Appellate Body stated that “the role of cumulation [is to] ensur[e] that each of the multiple
sources of ‘dumped imports’ that cumulatively contribute to a domestic industry’s material injury be
subject to anti-dumping duties". 147 The United States argues that although the Appellate Body

145 Appellate Body Report, US – Hot-Rolled Steel, para. 196.
146 Panel Report, EC-Bed Linen, para. 6.141.
147 Appellate Body Report, EC – Tube or Pipe Fittings, para. 117. The Appellate Body observed:
"A cumulative analysis logically is premised on a recognition that the domestic industry faces
the impact of the “dumped imports” as a whole and that it may be injured by the total impact
of the dumped imports, even though those imports originate from various countries. . .
.negotiators appear to have recognized that domestic industry confronted with dumped
imports originating from several countries may be injured by the cumulated effects of those

decision concerned Article 3.3 of the AD Agreemen t, and involved cumulation of dumped imports
from more than one country, the same logic supports the USITC's consistent practice of considering
dumped and subsidized imports from the same country together. The United States asserts that other
countries, including Canada, have this same practi ce. Finally, the United States maintains that the
allegation that the USITC conducted its investigations on a joint basis so as to more likely result in an
affirmative determination in this case has no merit.
7.144 Canada clarified, in its oral statement and in its answer to the Panel's question 14 after the
first meeting, that it is not arguing that a comb ined analysis of injury caused by dumped and
subsidized imports is per se inconsistent with the Agreements. Rather, Canada argues that the alleged
violations of Articles 1, 9.1, and 18.1 of th e AD Agreement and Articles 10 and 32.1 of the
SCM Agreement, and Article VI:1 of GATT 1994 are "consequential" to the asserted specific
violations, and argues that any violation of any of the common provisions in Articles 3 and 15 of the
AD and SCM Agreements respectively should result in a finding by the Panel that the injury
determination as a whole is inconsistent with both Agreements. The United States does not appear to
disagree with the principle underlying Canada's position, i.e., that a finding of violation of a provision
of either Agreement would undermine the entire dete rmination. However, the United States argues
that the attempt to raise the specific alleged viola tions a second time as separate violations based on
the mere carrying out of combined investigations and making of a single determination should be
rejected.
(b) Analysis by the Panel
7.145 Although the focus of Canada's argument was not entirely clear at the outset of this
proceeding, over the course of the proceeding it was made clear that Canada is not arguing that a
combined analysis or a single determination of injury caused by dumped and subsidized imports is per
se inconsistent with the cited provisions of the Agreements.
148 However, in the absence of a
challenge to a combined analysis or combined determination per se, it is less than clear to us what the
alleged violation asserted by Canada is.
7.146 The request for establishment and the argument in the first submission both refer to the failure
of the USITC to undertake the evaluations require d by the AD and SCM Agreements. Thus, it seems
to us that Canada is relying on the specific viola tions alleged in support of an argument that, if any
provision of either Agreement is found to have been violated, both the anti-dumping and
countervailing duty measures should be found to be inconsistent with th e Agreements due to that fact
that a single combined investigation and determination are at issue. It is clear to us that both measures
depend on the single injury determination. We agree with the view that if that single determination is
found to be inconsistent with a provision of e ither the AD or SCM Agreement, then a necessary
underpinning of both measures is lacking, and both measures must be found to be inconsistent with
the United States' obligations. Any other conc lusion would of necessity involve the Panel in a
speculative exercise of attempting to decipher what the analysis and conclusions of the USITC would

imports, and that those effects may not be adequately taken into account in a country-specific
analysis of the injurious effects of dumped imports."
Id. at para. 116.
148 Indeed, it seems clear that, as the US asserts, Canada itself undertakes a combined analysis in
similar circumstances. In a recent case involving dumped and subsidized imports of stainless steel bar from
Brazil and subsidized stainless steel bar from India, the Canadian International Trade Tribunal conducted a
single, integrated injury analysis. Moreover, although the CITT discussed whether to cumulate the imports from
India and Brazil, it did not distinguish in any way between dumped and subsidized imports in that discussion, or
elsewhere in its analysis. Certain Stainless Steel Round Bar Originating In or Exported from Brazil and India ,
Inquiry No.: NQ-2000-002. See also, Certain Grain Corn Originating In or Exported from the Unites States of
America and Imported into Canada for use or consumption west of the Manitoba-Ontario Border , Inquiry No.:
NQ-2000-005 (Exhibit USA-22) and cases cited therein at footnote 14.

have been in the absence of the aspect found to be in violation. We do not believe such an exercise
could be carried out consistent with the standard of review in either Article 11 of the DSU, or
Article 17.6 of the AD Agreement.
7.147 However, is not altogether clear to us that such a finding would also, without more, support a
finding of violation of Articles 1, 9.1, and 18. 1 of the AD Agreement, Articles 10 and 32.1 of the
SCM Agreement, and paragraph (a) of Article VI:6 of GATT 1994. Canada has made no independent
arguments in support of these claims. Indeed, Ca nada acknowledged in response to questions from
the Panel that these violations are consequential to the finding of violations under the specific
requirements of the AD and SCM Agreements. 149 Thus, in absence of any additional or independent
argument in support of Canada's claims under these pr ovisions, a finding of violation with respect to
any of the specific allegations would result in a finding of violation of these provisions as well.
However, such a finding would neither elucidat e the scope of these provisions nor assist in any
meaningful way in implementation of any recommendation of the DSB. Therefore, in these
circumstances, we consider that it is neither appropriate nor necessary to make findings on these
claims.
VIII. CONCLUSIONS AND RECOMMENDATION
8.1 In light of the findings above, we conclude
(a) that the USITC determination is not cons istent with Article 3.7 the AD Agreement
and Article 15.7 of the SCM Agreement in that the finding of a likely imminent
substantial increase in imports is not one which could have been reached by an
objective and unbiased investigating authority in light of the totality of the factors
considered and the reasoning in the USITC determination.
(b) With respect to the allegations of violati ons of Article 3.7 of the AD Agreement and
Article 15.7 of the AD Agreement in respect of other aspects of the USITC
determination, we conclude that the USITC determination is not inconsistent with the
asserted provisions.
8.2 In light of the findings above, we conclude
(a) that the USITC determination is not consis tent with Article 3.5 of the AD Agreement
and Article 15.5 of the SCM Agreement in that the causal analysis is based on a
finding which is, itself, not consistent with Article 3.7 the AD Agreement and Article
15.7 of the SCM Agreement.
(b) With respect to the allegations of violati ons of Article 3.5 of the AD Agreement and
Article 15.5 of the AD Agreement in respect of other aspects of the USITC
determination, we conclude that it is neither necessary nor appropriate to make
findings with respect to these claims.
8.3 In light of the findings above, we conclude that the USITC determinati on is not inconsistent
with Articles 3.2 and 3.4 of the AD Agreement and Articles 15.2 and 15.4 of the SCM Agreement.
8.4 With respect to those of Canada's claims not addressed above, i.e., alleged violations of
Articles 1, 3.1, 3.8, 12, and 18.1 of the AD Agreement and Articles 10, 15.1, 15.8, 22, and 32.1 of the
SCM Agreement, and Article VI:6(a) of the GATT 1994
, we conclude, in light of the findings above,
that it is neither necessary nor appropriate to make findings with respect to these claims.

149 Canada's Responses to Questions from the Panel and the United States - First Meeting, question 14.

8.5 Under Article 3.8 of the DSU, in cases where there is infringement of the obligations assumed
under a covered agreement, the action is considered prima facie to constitute a case of nullification or
impairment of benefits under that agreement. Accordingly, we concl ude that to the extent the United
States has acted inconsistently with the provisions of the AD and SCM Agreements, it has nullified or
impaired benefits accruing to Canada under that Agreement.
8.6 We therefore recommend that the Dispute Settleme nt Body request the United States to bring
its measures into conformity with its obligations under the AD and SCM Agreements.
8.7 In addition to its request for findings of viol ation, Canada requests that we recommend that
the United States bring its measures into confor mity with its WTO obligations, "including by
revoking the final determination of threat of injury, ceasing to impose anti-dumping and
countervailing duties and returning the cash deposits imposed as a result of th e United States’ actions
in this matter".
150
8.8 Article 19.1 of the DSU provides that:
"In addition to its recommendations, the pa nel or Appellate Body may suggest ways
in which the Member concerned could implement the recommendations".
While we are free to suggest ways in which we believe the United States could appropriately
implement our recommendation, we decide not to do so in this case. We have found that the United
States failed to act consistently with the requireme nts of the AD and SCM Agreements in its analysis
and explanation of its determination of threat of material injury, and have recommended that the
United States bring its measures into conformity with its obligations. In this regard, we note
Article 21.3 of the DSU, which provides:
"At a DSB meeting held within 30 days afte r the date of adoption of the panel or
Appellate Body report, the Member concerne d shall inform the DSB of its intentions
in respect of implementation of the r ecommendations and rulings of the DSB".
(footnote omitted).
Thus, while a panel may suggest ways of implem enting its recommendation, the choice of means of
implementation is decided, in the first instance, by the Member concerned. In this case, we see no
particular need to suggest a means of implementation, and therefore decline to do so.