UNITED STATES – FINAL DUMPING DETERMINATION ON SOFTWOOD LUMBER FROM CANADA
Document: Report of the Appellate Body
Date: 11 August 2004
Document codes: WT/DS264/AB/R
Complainant: Canada
Respondent: U.S.
Third parties: China, EU, India, Japan, New Zealand, Thailand
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. 1, 2, 4, 5, 9  Anti-dumpingArt. VI  GATT 1994Art. 18  Anti-dumping

UNITED STATES – FINAL DUMPING DETERMINATION ON
SOFTWOOD LUMBER FROM CANADA

AB-2004-2

Report of the Appellate Body

APPELLATE BODY

United States, Appellant/Appellee
Canada, Appellant/Appellee

European Communities, Third Participant
India, Third Participant
Japan, Third Participant
 AB-2004-2

 Present:

 Ganesan, Presiding Member
 Baptista, Member
 Janow, Member

I. Introduction
1. The United States and Canada appeal certain issu es of law and legal interpretations in the
Panel Report United States – Final Dumping Determ ination on Softwood Lumber from Canada (the
"Panel Report").

1 The Panel was established to consider a complaint by Canada concerning anti-
dumping duties imposed by the United States on imports of certain softwood lumber products
("softwood lumber") from Canada. Before the Panel, Canada challenged a number of aspects of the
Final Determination by the United States Depart ment of Commerce ("USDOC") that led to the
imposition of anti-dumping duties.
2. On 23 April 2001, USDOC initiated an anti-dumpi ng investigation of imports of softwood
lumber from Canada.

2
 Due to the large number of exporters of softwood lumber, USDOC limited its
investigation to the six largest Canadian producer s and exporters of that product, namely, Abitibi,
Canfor, Slocan, Tembec, West Fraser, and Weyerhaeuser Canada. 3 On 2 April 2002, USDOC
published, in the United States Federal Regist er, a final anti-dumping duty order, which was

1, 13 April 2004.
2Panel Report, para. 2.2.
3Ibid.

subsequently amended on 22 May 2002.
4 This order imposed anti-dumping duties on imports of
softwood lumber from Canada, ranging from 2.18 per cent to 12.44 per cent.
5 The final anti-dumping
order contained a number of product exclusions. 6 The factual aspects of this dispute are set out in
greater detail in paragraphs 2.1 to 2.6 of the Panel Report.
3. The Panel considered claims by Canada that , in imposing anti-dumping duties on softwood
lumber from Canada, the United States acted inconsiste ntly with Articles 2, 2.1, 2.2, 2.2.1, 2.2.1.1,
2.2.2, 2.4, 2.4.2, 3, 5, 5.2, 5.3, 5.8, 6.10, 9, 9.3, and 18.1 of the Agreement on Implementation of
Article VI of the General Agreem ent on Tariffs and Trade 1994 (the "Anti-Dumping Agreement"), as
well as with Articles VI:I and VI:2 of the General Agreement on Tariffs and Trade 1994 (the
"GATT 1994"). Canada asked the Panel to recommend that the Dispute Settlement Body (the "DSB")
request the United States to bring its measure into conformity with its obligations under the
Marrakesh Agreement Establishing the World Trade Organization (the "WTO Agreement"), to revoke
the anti-dumping order in respect of softwood lumb er from Canada, and to return the cash deposits
collected pursuant to the investigation and determination of dumping.7
4. The Panel Report was circulated to Members of the World Trade Organization (the "WTO")
on 13 April 2004. In its Report, the Panel conclude d that the United States had acted inconsistently
with:
Article 2.4.2 of the [ Anti-Dumping] Agreement in
determining the existence of margins of dumping on the basis
of a methodology incorporating the practice of "zeroing"[.]
8

4USDOC's final anti-dumping determination was published in the United States Federal Register as
"Notice of Final Determination of Sales at Less Than Fair Value: Certain Softwood Lumber Products from
Canada" (the "Final Determination"), United States Federal Register, 2 April 2002 (volume 67, number 63),
p. 15539 (Exhibit CDA-1 submitted by Canada to the Panel); and as "Notice of Amended Final Determination
of Sales at Less Than Fair Value and Antidumping Duty Order: Certain Softwood Lumber Products from
Canada", United States Federal Register, 22 May 2002 (volume 67, number 99), p. 36068 (Exhibit CDA-3
submitted by Canada to the Panel). Both these Notices make reference to a document entitled "Issues and
Decision Memorandum for the Final Determination in the Antidumping Duty Investigation of Certain Softwood
Lumber Products from Canada" ("IDM") (Exhibit CDA-2 submitted by Canada to the Panel).

5Panel Report, para. 2.6.
 6Ibid., paras. 2.6 and 7.139.
 7Ibid., para. 3.1(f).
8Ibid., para. 8.1(a)(i).

5. The Panel further concluded that the United States had not acted inconsistently with:
(i) Article 5.2 of the [ Anti-Dumping] Agreement in
determining that the application contained such
information as is required by Article 5.2;
(ii) Article 5.3 of the [ Anti-Dumping] Agreement
 by
determining that there was sufficient evidence of
dumping to justify the initiation of the investigation;
(iii) Article 5.8 of the [ Anti-Dumping] Agreement
 by not
rejecting the application prior to initiation of the
investigation, or by not te rminating the investigation,
due to the alleged insuffici ency of the evidence on
dumping;
(iv) Article 2.6 of the [ Anti-Dumping] Agreement
 by
determining there to be only a single like product and
product under consideration;
(v) Article 2.4 of the [ Anti-Dumping] Agreement
 by not
granting an adjustment for differences in physical
characteristics (differences in dimensions), as requested
by some respondents;
(vi) Articles 2.2, 2.2.1, 2. 2.1.1, 2.2.2 and 2.4 of the [ Anti-
Dumping] Agreement
 in its calculation of the amounts
for financial expense for softwood lumber in the case of
Abitibi;
(vii) Articles 2.2, 2.2.1, 2. 2.1.1, 2.2.2 and 2.4 of the [ Anti-
Dumping] Agreement
 in its calculation of the amounts
for general and administrative costs for softwood
lumber in the case of Tembec;
(viii) Articles 2.2, 2.2.1, 2.2.1.1, 2.2.2 and 2.4 of the [ Anti-
Dumping] Agreement
 in its calculation of the amounts
for general and administrative costs for softwood
lumber in the case of Weyerhaeuser;
(ix) Articles 2.2, 2.2.1, 2.2.1.1 and 2.4 of the [ Anti-
Dumping] Agreement in its calculation of the amounts
for by-product revenue from the sale of wood chips as
offsets for Tembec and West Fraser;
(x) Article 2.4 of the [ Anti-Dumping] Agreement by not
granting Slocan an adjustment for the net revenue
earned on its trading of softwood lumber futures
contracts, or Articles 2.2, 2.2.1, 2.2.1.1, and 2.2.2 of the
Anti-Dumping Agreement
 by not taking this net
revenue into account when determining the
constructed (normal) value;

(xi) Articles 1 and 18.1 of the [ Anti-Dumping] Agreement,
and Article VI of GATT 1994 with respect to Canada's
claims referred to [in items (i)–(iv) above]; and
(xii) Articles 1, 9.3 and 18.1 of the [ Anti-Dumping]
Agreement, and Article VI of GATT 1994 with respect
to Canada's claims referred to [in items (v)–(x)
above].
9
6. The Panel found that, to the extent the Unite d States had acted inconsistently with the
provisions of the Anti-Dumping Agreement, it had nullified or impaired benefits accruing to Canada
under that Agreement.
10 The Panel recommended that the DSB request the United States to bring its
measure into conformity with the Anti-Dumping Agreement , but denied Canada's request to make
more specific suggestions regarding implementation.11

7. On 13 May 2004, the United States notified the DSB, pursuant to paragraph 4 of Article 16 of
the Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU"), of
its intention to appeal certain issues of la w covered in the Panel Report and certain legal
interpretations developed by the Pa nel, and filed a Notice of Appeal 12 pursuant to Rule 20 of the
Working Procedures for Appellate Review (the "Working Procedures"). On 24 May 2004, the United
States filed its appellant's submission.
13 On 28 May 2004, Canada filed an other appellant's
submission.
14 On 7 June 2004, Canada and the United States each filed an appellee's submission.
15
On the same day, the European Communities and Japan each filed a third participant's submission.
16

On the same day, India notified the Appellate Body S ecretariat of its intention to make a statement at
the oral hearing as a third participant.17

9Panel Report, paras. 8.1(b)(i)–(xii). The Panel decided to exercise judicial economy and not to rule on
Canada's claim under Article 2.4 of the Anti-Dumping Agreement in respect of zeroing. The Panel also
exercised judicial economy in not ruling on Canada's claims under Articles 1, 9.3, and 18.1 of the Anti-Dumping
Agreement and Article VI of the GATT 1994 with respect to determining the existence of margins of dumping
on the basis of a methodology incorporating the practice of "zeroing". (Panel Report, para. 8.1(c))
10Panel Report, para. 8.2.
11Ibid., paras. 8.3–8.6.
12WT/DS264/6, 18 May 2004, attached as Annex 1 to this Report.
13Pursuant to Rule 21(1) of the Working Procedures. The United States appeals the Panel's finding
that the United States acted inconsistently with Article 2.4.2.
14Pursuant to Rule 23(1) of the Working Procedures . In its other appellant's submission, Canada
challenges the Panel's findings related to the allocation of financial expenses for Abitibi and the calculation of
by-product revenue for Tembec.
15Pursuant to Rules 22(1) and 23(3) of the Working Procedures.
16Pursuant to Rule 24(1) of the Working Procedures.
17Pursuant to Rule 24(2) of the Working Procedures.

8. The oral hearing was held on 22 June 2004. Th e participants and third participants presented
oral arguments and responded to questions put to them by the Members of the Division hearing the
appeal.
9. During the oral hearing, Canada requested author ization to file the preliminary results of an
anti-dumping duty administrative review, concerni ng softwood lumber from Canada, conducted by
USDOC and, according to Canada, published in the United States Federal Re gister on 14 June 2004,
as well as a memorandum of USDOC of 2 June 2004.18 Canada argued that these documents "directly
contradict the United States' assertions concerning its own practice and put into question the Panel's
acceptance of the United States' position on the va luation of inter-divisional transfers of by-
products".19 The United States objected to this requ est, arguing that the introduction of these
materials would be inconsistent with Article 17.5(ii) of the Anti-Dumping Agreement and with the
Working Procedures . The United States submitted that these materials constituted new factual
evidence; concerned a preliminary determination wh ich did not have a "separate legal status"; and
were "not relevant" to USDOC's practice at the time when the determinations subject to the present
appeal were made.20 In response to the United States' objections, Canada argued that the documents it
wished to introduce constituted "additional proof" that there was no consistent practice on the part of
USDOC and, therefore, the documents "pertained di rectly to a legal point raised by the Panel". 21 The
Division agreed that the materials at issue constitute d new factual evidence and, therefore, pursuant to
Article 17.6 of the DSU, fell outside the scope of th e appeal. Accordingly, the Division informed the
participants in the course of the oral hearing that it denied Canada's request.
II. Arguments of the Participants and the Third Participants
A. Claim of Error by the United States – Appellant
10. The United States challenges the Panel's finding that the United States acted inconsistently
with Article 2.4.2 of the Anti-Dumping Agreement in determining the existence of margins of
dumping on the basis of a methodology incorporating the practice of zeroing (hereinafter "zeroing").
The United States argues that the Panel committed the following specific errors in its interpretation of
Article 2.4.2.

18Canada noted that these documents only became available after the filing of Canada's other
appellant's submission.
19Canada's statement at the oral hearing. Canada stated that it made this request pursuant to Rule 16 of
the Working Procedures.
20United States' statement at the oral hearing.
21Canada's statement at the oral hearing.

11. First, according to the United States, Article 2.4.2 provides no guidance as to how results of
multiple comparisons are to be aggregated in order to calculate an overall margin of dumping for the
product under consideration. The United States submits that, in fact, "Article 2.4.2 itself does not
require that the results of those multiple comparisons be aggregated at all."
22
12. The United States contends that the Panel "acknow ledged" that a permissible interpretation of
the term "margins of dumping" in Article 2.4.2 "is that it refers to the results of comparing averages
'for each category of product/transaction compared'." 23 Accordingly, "the only comparison results
identified in Article 2.4.2 are the results (' margins of dumping') derived from the multiple
comparisons of the various groups of comparable transactions." 24 The United States concludes that
"[t]here is, therefore, no basis to read into Article 2.4.2 a requirement for an additional result derived
from aggregating those margins of dumping." 25 In other words, Article 2.4.2 "simply does not
address the issue of aggregating the results of multiple comparisons." 26 According to the United
States, the term "margins of dumping" in Article 2.4. 2 refers to the results of "comparisons in which
the normal value exceeds the export price". 27 Comparison results in which the weighted average
normal value is less than the weighted average export price are, "by definition, not margins of
dumping."28 The United States concludes from this that, even if "Article 2.4.2 could be read to
implicitly require an aggregation, the only candidates for inclusion in that aggregation, by the Article's
own terms, are margins of dumping."29
13. The United States asserts, further, that, in fi nding that Article 2.4.2 addresses the issue of
aggregating the results of multiple comparisons, the Panel failed to apply the standard of review set
out in Article 17.6(ii) of the Anti-Dumping Agreement , which "requires panels to recognize that a
given provision of the [ Anti-Dumping] Agreement may be susceptible to multiple permissible
interpretations, and to find a Memb er's actions consistent with its obligations if those actions are
based on one of those permissible interpretations."30

23Ibid., para. 37.
24Ibid.
25Ibid. (original emphasis)
26Ibid., para. 28.
27Ibid., para. 23. (emphasis added)
28Ibid., para. 39. (original emphasis) The United States, refers in this regard, to the description of
dumping contained in Article 2.1 of the Anti-Dumping Agreement.
29Ibid. (emphasis added)
30Ibid., para. 31.

14. Secondly, the United States contends that th e Panel's finding that Article 2.4.2 imposes an
obligation to apply the results of certain comparisons as "offsets" 31 to the results of other comparisons
is inconsistent with the Panel's earlier finding that multiple comparisons are permissible. A
requirement to offset the amount of dumping found on certain comparisons would deprive the term
"comparable" of any meaning and would require an investigating authority "to compare non-
comparable transactions."32 Moreover, according to the United States, an offset requirement would be
"equivalent to a requirement that all transactions, regardless of comparability, be incorporated into a
single average-to-average comparison."33
15. Thirdly, the United States contends that the Panel's interpretation is not supported by the
context of Article 2.4.2. Thus, although the Pane l appeared to agree that average-to-average and
transaction-to-transaction comparisons should be subject to the same rule with respect to aggregation,
the text on which the Panel relied in finding a rule applicable to the average-to-average comparison
methodology—namely, the phrase "all comparable e xport transactions"—has no textual equivalent for
the second methodology. According to the United States, "[t]here is no rational basis for an
interpretation that assumes that Members intended to address aggregation of margins (in particular,
offsets), but then only did so with respect to one out of three permissible methodologies." 34 T h e
United States suggests that "[p]erhaps that explai ns why the Panel majority chose to avoid this
argument all together."35
16. Fourthly, the United States argues that an exam ination of the historical background of the
Anti-Dumping Agreement demonstrates that two practices employed by individual Contracting
Parties to establish margins of dumping at the time of the Uruguay Round negotiations are relevant
for the interpretation of Article 2.4.2. The first practice consisted of making "asymmetrical" 36
comparisons, that is, comparisons between indivi dual export transactions and weighted average
normal values. The second relevant practice was zero ing. At the conclusion of the negotiations,
negotiators were able to agree only on the issue of "asymmetry". 37 Thus, according to the United
States, it would be reasonable to expect that, absent modified text, zeroing would continue to be found
consistent with the Anti-Dumping Agreement.

31See for instance United States' appellant's submission, para. 4.
32Ibid., para. 22.
33Ibid., para. 45.
34Ibid., para. 47.
35Ibid., para. 47.
36Ibid., paras. 52 and 54.
37Ibid., paras. 51, 54, 63, as well as footnote 52 to para. 52 and footnote 56 to para. 54.

17. With respect to the relevance of the Appellate Body Report in EC – Bed Linen , the United
States refers to the Appellate Body Report in Japan – Alcoholic Beverages II, in which the Appellate
Body found that dispute settlement reports "are not binding, except with respect to resolving the
particular dispute between the parties to that dispute".
38 The United States submits that, similarly, the
findings of the Appellate Body in EC – Bed Linen "do[] not govern the present appeal." 39 T h e
United States explains that it was not a party to that case and observes that the United States' practice
of zeroing was not at issue in that appeal. In addition, the United States points out that in the EC –
Bed Linen dispute, the Appellate Body was not asked to, and therefore did not, address a number of
the arguments advanced by the United States in the pr esent case. For example, in this dispute, both
parties and the Panel agree that multiple comparisons are consistent with Article 2.4.2. According to
the United States, this finding by the Panel and "its fundamental importance to the issue at hand ... are
cause for giving fresh consideration to the legal issues and arguments presented in this dispute."40
18. Finally, the United States requests that, in th e event the Appellate Body reaches the question
of whether the aggregation methodology applied by th e United States is consistent with Article 2.4 of
the Anti-Dumping Agreement , the concept of a "fair comparison" under that provision should be
interpreted as referring to a comparison that is ma de in accordance with the specific rules set out in
Article 2.4. Thus, a "fair comparison" is ensure d by making due allowance for differences that affect
price comparability, including the level of trade, physical characteristics as well as terms and
conditions of sale. According to the United States, "[t]hese parameters are the sole textual basis for
establishing the extent of the 'fair comparison' requirement". 41 By making the required adjustments,
the United States claims that it made a "fair comparis on" in this investigation within the meaning of
Article 2.4.

38United States' appellant's submission, para. 56 (quoting Appellate Body Report, Japan – Alcoholic
Beverages II, at 108).
39Ibid.
40Ibid., para. 62.
41Ibid., para. 66.

B. Arguments of Canada – Appellee
19. Canada requests the Appellate Body to uphol d the Panel's finding that the United States'
practice of zeroing as applied in this case was inconsistent with Article 2.4.2 of the Anti-Dumping
Agreement.
20. Canada emphasizes that the Appellate Body addressed the same issue in EC – Bed Linen and
found that zeroing non-dumped transactions in a cal culation to determine the existence and amount of
dumping for the product under investigation as a whol e is inconsistent with Article 2.4.2 of the Anti-
Dumping Agreement. According to Canada, "[t]here is no distinction to be drawn between EC – Bed
Linen and the present dispute." 42 Canada submits that, as the Appellate Body found in EC – Bed
Linen, although "[a]n investigating authority enjoys c onsiderable discretion in defining the scope of
the product under consideration ... a final determination of dumping must still be based on all of the
export sales for the product under consideration." 43 Thus, the Anti-Dumping Agreement "does not
permit a determination of dumping for mode ls of the product under consideration." 44 In other words,
"margins of dumping" within the meaning of Article 2.4.2 "can only mean the margins determined for
the product as a whole." 45 Canada concludes that "[i]n view of the legal and factual similarities
between this case and EC – Bed Linen ... there is no legally justifiable reason for the Appellate Body
to arrive at a conclusion in this case that would be materially different from that in its report in that
case."46 In support of its argument, Canada notes that "the Appellate Body h as developed a coherent
body of case-law or jurisprudence that provides guidance to WTO panels and also gives rise to
'legitimate expectations' as to how the Appellate Body will rule in future cases."47
21. Canada finds contextual support for its interpretation in Article 2.4 of the Anti-Dumping
Agreement. Canada argues that "zeroing should be found inconsistent with the terms of Articles 2.4
and 2.4.2 because it 'distorts' dumping findings, a nd therefore does not permit a 'fair' comparison." 48
In this regard, Canada refers to the Appellate Body Report in US – Corrosion-Resistant Steel Sunset
Review, in which the Appellate Body found that "zeroing produces 'an inherent bias' that 'may distort

43Ibid., para. 17.
44Ibid.
45Ibid., para. 40.
46Ibid., para. 21.
47Ibid., para. 19.
48Ibid., para. 25.

not only the magnitude of a dumping margin, but also a finding of the very existence of dumping'."
49
According to Canada, "[i]gnoring certain transacti ons that demonstrate an absence of dumping cannot
be considered fair, for it serves to prejudge the outcome of the required analysis of whether dumping
exists for the product under consideration as a whole."50 Thus, Canada does not agree with the United
States that "'fairness' refers to 'in accordance with the rules or standards' [set out in Article 2.4]." 51
Instead, "fair", as used in Article 2.4, has a broader meaning. According to Canada, "[t]here can be no
fair comparison when an investigating authority does not actually average all model-specific values,
but instead disregards those values calculated in respect of non-dumped models."52
22. Canada agrees with the Panel that there wa s no need to rely upon negotiating history to
interpret Article 2.4.2 because of "the clear meaning of the language of Article 2.4.2." 53 Moreover,
the "historical circumstances", to which the Unite d States refers, establish nothing more than that
zeroing was an issue during the Uruguay Round negotiations.
23. Canada further asserts that the Panel correctly r estricted its analysis to the weighted-average
normal value to weighted-average export price met hodology, because that is the only methodology at
issue in this dispute. In any event, "[e]ven if it were appropriate to cons ider the permissibility of
zeroing in transaction-to-transaction comparisons, the transaction-to-transaction analysis does not
support the U.S. interpretation of Article 2.4.2." 54 According to Canada, "the transaction-to-
transaction methodology requires that each transaction-specific comparison of an export price and a
normal value be included in the calculation of the overall margin."
55 If it did not, an investigating
authority could "select arbitrarily" the comparisons it uses to calculate the overall margin of dumping
and thus "vitiate" the results of the transaction-to-transaction methodology.56

49Canada's appellee's submission, para. 25 (quoting Appellate Body Report, US – Corrosion-Resistant
Steel Sunset Review, para. 135).
50Ibid. (emphasis added)
52Ibid. (footnote omitted)
53Ibid., para. 27. (footnote omitted)
54Ibid., para. 47.
55Ibid., para. 48. (footnote omitted)
56Ibid.

24. Finally, Canada submits that the example provided by the United States seeking to
demonstrate that "averaging of multiple comparisons will always be equivalent to 'comparing a single
average normal value to a single average export price'"57 is "wrong" "as a mathematical matter".58
C. Claims of Error by Canada – Appellant
1. Allocation of Financial Expenses for Abitibi
25. With respect to the allocation of financial expe nses for Abitibi, Canada argues, first, that the
Panel erred in finding that the requirement in Artic le 2.2.1.1 to "consider all available evidence on the
proper allocation of costs" does not require an i nvestigating authority to assess the advantages and
disadvantages of alternative proposed cost allocation methodologies. Canada submits that the Panel's
interpretation implies that the investigating aut hority's obligation can be met by simply "receiving
evidence", as opposed to undertaking "meaningful consideration of that evidence."59
26. In Canada's view, a "proper" allocation of costs within the meaning of Article 2.2.1.1
demands a case-by-case examination, using the appropriate methodology, on the basis of "all
available evidence". USDOC made no factual findings as to the advantages or disadvantages of either
of the methodologies that it was required to "consider". In the absence of any such fact-finding,
explanation, or reasoning, the Panel, according to Canada, had no basis on which to conclude that
USDOC had met the requirements of Article 2.2.1.1.
27. Secondly, Canada submits that the Panel erred in finding that Article 2.2.1.1 does not require
an investigating authority to c onsider evidence on the allocation of a specific cost where that
allocation has not been historically utilized by the producer or exporter. Canada maintains that
Article 2.2.1.1 does not impose a strict requirement that all types of cost allocation evidence provided
by the producer or exporter must have been histor ically utilized. In Canada's view, the phrase in
Article 2.2.1.1 that begins with "including" does not impose a limitation on the consideration, by the
investigating authority, of evidence submitted by a producer. Instead, this phrase "limits the
circumstances under which a producer's ev idence must be given controlling weight."
60 The use of the
word "including", according to Canada, confirms that this clause, rather than defining evidence that
may be excluded from consideration, "defines particular evidence to be given particular weight".61

57Canada's appellee's submission, para. 58 (quoting United States' appellant's submission, para. 43).
58Ibid., para. 61.
59Canada's other appellant's submission, para. 2.
60Ibid., para. 43.
61Ibid., para. 44.

28. Canada reads Article 2.2.1.1 as containing an "express preference"
62 for the use of allocation
methodologies used by producers, to the extent that these methodologies have been historically
utilized. Canada argues that the phrase "in partic ular in relation to", in the second sentence of
Article 2.2.1.1, identifies the cost allocations to wh ich the historic utilization requirement applies; the
phrase furthermore narrows the scope of the evidence that an investigating authority may refuse to
regard as "controlling" 63 on the ground that the exporter or producer did not historically utilize this
allocation methodology. Furthermore, in Canada's view, the historic utilization requirement does not
apply in the present case because th e evidence at issue "relates to the allocation of a general expense
for which there has been no historic utilization".64
29. Thirdly, Canada takes issue with the Pane l's conclusion that an unbiased and objective
investigating authority could ha ve allocated Abitibi's financial expenses on the basis of USDOC's
methodology. This conclusion, acco rding to Canada, is based on an incomplete evaluation of the
evidence, as the Panel did not evaluate USDOC's fa ctual determinations concerning the advantages
and disadvantages of the different cost allocation methodologies. 65 Rather, the Panel reached this
conclusion as a result of its finding that no evalua tion of the merits of alternative cost allocation
methodologies was required, as well as on its own finding that both USDOC's and Abitibi's
methodologies had shortcomings. In Canada's view, the Panel's interpretation of the phrase "consider
all available evidence"—such that no comparison of methodologies is required—is too narrow, and
the shortcomings of the two methodologies identifie d by the Panel were not identified in USDOC's
final determination. Canada ther efore requests the Appellate Body to declare the relevant conclusion
of the Panel to be "without effect" 66 and to "direct the United Stat es to weigh the advantages and
disadvantages of these methodologies in order to r each a 'proper' determination on an accurate
allocation of financial costs".67
30. Canada also requests that the Appellate Body reverse the Panel's conclusion that the United
States had not acted inconsistently with Articles 2.2, 2.2.1, and 2.4 of the Anti-Dumping Agreement.
In Canada's view, given the legal errors of the Pa nel with respect to Article 2.2.1.1, the Panel's

62Canada's other appellant's submission, para. 48.
63Ibid., para. 46.
64Ibid., para. 49.
65In response to questioning at the oral hearing, Canada clarified that the Panel could not evaluate
USDOC's determinations properly in so far as those determinations themselves were insufficient.
66Canada's other appellant's submission, para. 53.
67Ibid., para. 54.

findings in relation to Canada's cl aims of "consequential violations" 68 of Articles 2.2, 2.2.1, and 2.4
are also incorrect.
2. Calculation of By-Product Revenue for Tembec
31. With respect to the calculation of the by-produc t revenue for Tembec, Canada argues that the
Panel erred in finding that the United States did not act inconsistently with Articles 2.2 and 2.2.1.1 of
the Anti-Dumping Agreement . According to Canada, USDOC treated Tembec differently from all
other respondents in the underlying investigation, on the ground that Tembec was organized as a
single corporation, as opposed to being divided into legally separate entities. In so doing, USDOC, in
Canada's view, "fail[ed] to assess Tembec's by-p roduct offset in an objective and even-handed
manner".69
32. Canada argues, first, that the test applied by USDOC with regard to Tembec—as compared to
all other respondents in the underlying investigati on—"operates systematically to inflate dumping
margins".70 According to Canada, USDOC, in the inves tigation at issue, created a "new test" for
internal transfers that relies upon the records kept by a producer only if the internal transfer prices
were "significantly lower" than market value. 71 In Canada's view, this test "systematically lowers the
by-product offset, but never raises it." 72 As a result, USDOC's test, according to Canada, serves only
to lower the by-product offset for corporations with internal transfer values; therefore, by applying
that test, USDOC did not exercise its discretion in an objective and even-handed manner.
33. Secondly, Canada argues that USDOC's treatme nt of Tembec was not even-handed because
USDOC applied the so-called "arm's-length test" in the case of some companies, but did not apply this
test in the case of Tembec. The jus tification for this "uneven treatment" 73, according to Canada, was
related solely to Tembec's corporate structure. Canada submits that the Panel did not consider
whether the different factual situations of the two respective companies provided reasonable
justification for the differential treatment at issue.
34. Canada also relies on the Appellate Body Report in US – Hot-Rolled Steel as support for its
proposition that the different factual situations at issue in the present case do not justify the use of

68Canada's other appellant's submission, para. 5.
69Ibid., para. 75.
70Ibid., para. 57. In response to questioning at the oral hearing, Canada stated that Canada bases its
claim on appeal in this respect on "Article 2.2 in the context of Article 2.2.1.1".
71Ibid., para. 61.
72Ibid.
73Ibid., para. 62.

different methodologies. Canada argues that, in US – Hot-Rolled Steel , the Appellate Body found
that the fact that certain sales were more highly pri ced than others did not permit the use of a different
test by USDOC. Canada claims that, despite di fferences in their respective corporate structure,
Tembec and West Fraser, another respondent in the underlying investigation, were similarly situated,
in that they both had the ability to determine pr icing in wood chips tran sactions between related
parties. The fact that USDOC, in the instance of West Fraser, measured cost of production by
subtracting there from the value of all by-produc t revenue (market value), while, in the case of
Tembec, USDOC subtracted the "surrogate cost"
74, or internal transfer value, of the by-product,
demonstrates that USDOC failed to exercise its discretion in an even-handed fashion.
35. Canada is of the view that USDOC's treatment "penalizes corporations that consume their
own by-products rather than selling them to a who lly-owned affiliate for consumption in the same
manner."75 The fact that USDOC may value interdiv isional sales of input products in the same
manner in which it treated Tembec's offset sales has, in Canada's view, "no bearing" 76 on whether
USDOC's treatment of Tembec was even-handed wh en compared to other similarly-situated
respondents. Canada argues that USDOC has consiste ntly applied the so-called arm's length test for
the valuation of by-products. Canada points out that USDOC applied this test to Tembec at the
preliminary stage in the anti-dumping proceedings, but subsequently found that its "normal" practice
for valuing by-product offset s was to accept "low book values within a single corporation." 77 I n
Canada's view, USDOC's departur e from its normal practice in th is case demonstrates USDOC's
failure to provide even-handed treatment.
36. Finally, Canada submits that, because the Panel erred in finding that the United States did not
act inconsistently with Article 2.2.1.1, the Panel also erred in failing to address Canada's claims of
consequential violations of Articles 2.2, 2.2.1, and 2.4 of the Anti-Dumping Agreement.
37. In addition to its arguments concerning the Pa nel's findings, Canada requests the Appellate
Body "to recommend that the DSB request that the United States bring its measures into conformity
with its WTO obligations, includi ng by revising the anti-dumping order and returning cash deposits

74Canada's other appellant's submission, para. 67 (ref erring to Panel Report, para. 7.318 which in turn
quotes United States' response to Question 42 posed by the Panel, para. 98; Panel Report, pp. A-103 and 104).
75Ibid., para. 68.
76Ibid., para. 70.
77Ibid., para. 74. (footnote omitted)

imposed as a result of the investigation, the Final Determ ination and the anti-dumping order
concerning certain softwood lumber from Canada."78
D. Arguments of the United States – Appellee
1. Allocation of Financial Expenses for Abitibi
38. The United States requests the Appellate Body to uphold the Panel's finding on the issue of
allocation of financial expenses for Abitibi.
39. At the outset, the United States argues that Canada, in its arguments, "distorts" 79 the Panel's
legal findings and conclusions. Contrary to Canada's claim, the Panel did not reduce the obligation to
"consider all available evidence" to an "extremely low threshold level", nor did the Panel find that this
obligation could be satisfied by "merely accepting evidence". 80 Equally, contrary to Canada's
arguments, USDOC did not use USDOC's cost of goods sold ("COGS") methodology simply because
that methodology was "consistent and predictable". 81 Instead, the Panel found that USDOC's
observation about the consistency and predictab ility of the COGS methodology was unrelated to
USDOC's reasons for rejecting Abitibi's proposed a lternative methodology. Finally, in the United
States' view, Canada's arguments concerning th e Panel's discussion of "generic" and "specific" 82
reasoning used by USDOC also incorrectly imply that the Panel read Article 2.2.1.1 as permitting
strict adherence to a methodology without any co nsideration of alternative methodologies. The
United States submits that the Panel "carefully an alyzed [USDOC's] determination to use the COGS
methodology and properly concluded that [USDOC] had fulfilled its obliga tion to 'consider' all
available evidence on the proper allocation of costs."83
40. With respect to Canada's interpretation of Artic le 2.2.1.1, the United States first takes issue
with the proposition that the clause of the second sen tence of Article 2.2.1.1 beginning with the word
"including" limits the circumstances under which a producer's evidence must be given "controlling

78Canada's appellee's submission, para. 66. See also Canada's other appellant's submission, para. 76.
In response to questioning at the oral hearing, Canada confirmed that this request had been made pursuant to
Article 19.1 of the DSU.
80Ibid., para. 25 (referring to Canada's other appellant's submission, paras. 33 and 34).
83Ibid., para. 29.

weight". The United States submits, as a preliminary matter, that this is a new argument that Canada
did not present to the Panel; the United States cont ends that the Appellate Body should decline to
examine an argument presented for the first time on appeal and relies, for this purpose, on the
Appellate Body's findings in US – FSC.
84
41. On the substance of Canada's argument, the United States submits that Article 2.2.1.1
contains no reference to the weight to be given to any particular piece of evidence. The United States
also disagrees with Canada's proposition that the use of the word "including" confirms that the clause
beginning with this word only defines particular evidence to be given particular weight, and does not
define evidence that may be excluded from consideration. Instead, as the Panel found, the word in the
clause at issue that limits the consideration of due evidence submitted by a producer is the word
"provided". Moreover, according to the United St ates, as Abitibi's proposed allocation had not been
"historically utilized" by Abitib i, USDOC was not "obligated" 85 to consider this alternative allocation
methodology.
42. The United States also submits that Canada's "controlling weight" argument rests on a
"strained and illogical reading" 86 of the clause that begins with th e words "in particular". The United
States disagrees with Canada's reading of this cl ause as narrowing the scope of the evidence that an
investigating authority may refuse to regard as controlling, on the ground that the exporter or producer
did not historically utilize the allocation methodology. Instead, the clause at issue describes the types
of cost allocations that authorities are required to consider. The United States supports this reading
with an analysis of the punctuation of that phrase th at, in its view, identifies the phrase at issue as a
"parenthetical phrase"87; thus, according to the United States, the "including" phrase is a stand-alone
phrase, not modified by the "in particular" phrase.
43. The United States submits furthermore that the Panel correctly found that USDOC had
considered Abitibi's proposed cost allocation methodology. The United States disagrees with
Canada's assertion that USDOC had an obligation to make "factual findings as to the advantages or
disadvantages of either of the methodol ogies that it was required to 'consider'." 88 A requirement to
"consider" is not a requirement to make express fact ual findings. In any event, it was apparent from
USDOC's determination that USDOC had given atte ntion to and had taken into account the evidence

84United States' appellee's submission, para. 32 (referring to Appellate Body Report, US – FSC ,
para. 102).
85Ibid., para. 38.
86Ibid., para. 39.
87Ibid., para. 42.

made available by Abitibi 89; the United States relies on the findings of the panel in US – Softwood
Lumber VI , concerning the meaning of the word "to consider", as support for its argument.90
44. In the United States' view, because Canada's ar gument with respect to Article 2.2.1.1 is
without merit, Canada's dependent argument that the Panel erred in finding that an unbiased and
objective investigating authority could have used the allocation used by USDOC must also be
rejected.
2. Calculation of By-Product Revenue for Tembec
45. The United States requests that the Appellate B ody reject Canada's appeal concerning the
Panel's finding on the by-product revenue offset calculation for Tembec.
46. First, the United States argues that the ques tion raised by Canada—whether USDOC's by-
product offset calculation was objective and even-h anded—is a factual matter falling outside the
scope of appellate review. The United States quotes the Appellate Body Reports in EC – Hormones
and Argentina – Footwear (EC) as support for its proposition. Although the United States does not
dispute the general proposition that an investigatin g authority must make its determination in an
objective and even-handed manner, the United States submits that this obligation is not grounded in
the text of Article 2.2.1.1. As a consequence, Ca nada's argument should not be construed as raising a
question about the consistency or inconsistency of a gi ven fact or set of facts with the requirements of
Article 2.2.1.1. Instead, in the United States' view, the question raised by Canada is a factual question
of how the Panel assessed USDOC's actions and, th erefore, pursuant to Article 17.6 of the DSU, a
question not subject to appellate review.
47. Secondly, the United States submits that, even if the Appellate Body were to consider the
merits of Canada's arguments, the Appellate Body should nevertheless dismiss Canada's appeal. The
United States notes that the Panel made the contested finding only assuming, arguendo, that
Article 2.2.1.1 does impose an obligation posited by Canada regarding rejection of a producer's
records in particular circumstances, and that Cana da did not appeal that Panel finding. The United
States also argues that Canada's argument on even-handedness is "internally inconsistent" 91, because

89In response to questioning at the oral hearin g, the United States submitted that Canada's
understanding of the term "consider" relates to the investigating authority's weighing of the evidence, which,
according to the United States, is a factual question and not a question of law or le gal interpretation that is
within the scope of appellate review.
90United States' appellee's submission, para. 46 (referring to Panel Report, US – Softwood Lumber VI ,
para. 7.67).
91Ibid., para. 70.

Canada argued, before the Panel, that the approach used by USDOC for West Fraser should have been
used for Tembec, and the approach used for Tembec should have been used for West Fraser.
48. The United States further submits that Canada's argument that the Panel erred in finding
USDOC's by-product valuation to be objective a nd even-handed is based on the "flawed premise"
92
that Tembec and West Fraser were similarly situated and that, therefore, USDOC should have valued
each company's by-product offset using the same methodology. According to the United States,
Canada offers no support for the proposition that West Fraser and Tembec were similarly situated. In
the United States' view, the different corporate st ructures of Tembec and West Fraser, respectively,
justified the use of different methodologies by USDOC, because "the different corporate structures
raised different questions for purposes of valuing by-product offsets".
93
49. In the United States' view, Canada's reli ance on the Appellate Body Report in
US – Hot-Rolled Steel is misplaced. According to the Un ited States, the Appellate Body Report in
that dispute stands for the proposition that the same rule should apply in an "apples-to-apples"
comparison—in that dispute, specifically, when comparing affiliated transactions to affiliated
transactions. By contrast, Canada's even-handedness argument in the present case is not based on an
"apples-to-apples" comparison. This is because, in th e United States' view, Canada is not arguing that
USDOC treated inter-divisional transfers for one company differently from how it treated inter-
divisional transfers for another company; instead, Canada is arguing that USDOC treated inter-
divisional transfers for one company differently from how it treated sales to affiliated entities for
another company. The United States maintains that Ca nada has failed to substantiate its assertion that
Tembec and West Fraser were similarly situated. As a result, Canada has not demonstrated that the
things being compared—interdivisional transfer s, on the one hand, and sales between affiliated
entities, on the other hand—are similar; therefor e, in the United States' view, Canada's even-
handedness argument "must fail"
94, even on Canada's own terms.
50. In sum, in the United States' view, the Pa nel correctly concluded that an unbiased and
objective authority could have determined that the valuation in Tembec's books for internal transfers
of wood chips was not unreasonable.

93Ibid., para. 71.
94Ibid., para. 75.

51. In the event that the Appellate Body were to reve rse, in the light of Canada's other appellant's
submission, any aspect of the Panel Report, the Un ited States requests the Appellate Body to decline
Canada's request for specific recommendations. The United States submits that Canada's request for
an Appellate Body recommendation that the United States amend the final anti-dumping duty order,
reduce the anti-dumping duties, and return cash de posits would "go beyond anything relevant to
implementing a recommendation and ... seeks action nowhere called for under the WTO
Agreement."95
E. Arguments of the Third Participants
1. European Communities
52. The European Communities asserts that the zeroing methodology as used by the United States
in this case "differs in no meaningful way" 96 from the methodology previously employed by the
European Communities and found to be inc onsistent with Article 2.4.2 of the Anti-Dumping
Agreement in EC – Bed Linen.
53. The European Communities asserts that the United States misinterprets the term "comparable
transactions" in Article 2.4.2. According to th e European Communities, "comparable transactions"
within the meaning of Article 2.4.2 "assumes that the transactions used to compute the margin of
dumping have been made 'comparable' in an intermediary step by cleansing them from any other
factors than dumping that might have influenced the prices."
97
54. The European Communities agre es with the United States, Canada, and the Panel that
multiple averaging is permitted under Article 2.4.2 but submits that "[t]he key flaw in the US
argument is the assumption that it is not possible to aggregate the results of the model by model
comparisons, because the different models are not 'comparable' between themselves."
98 According to
the European Communities, "[t]his is false beca use the multiple averaging methodology is precisely
the means to render transactions involving sub-pro ducts with different characteristics comparable." 99
Multiple comparisons are "nothing but intermediary steps leading to the calculation of an overall
margin for all transactions for the whole product." 100 Once multiple averaging has been applied, all
transactions are considered to be "comparable" within the meaning of Article 2.4.2 of the Anti-

96European Communities' third participant's submission, para. 4.
97Ibid., para. 29.
99Ibid., para. 33.
100Ibid.

Dumping Agreement. According to the European Communities, "[t]he US argument that ... different
models are not 'comparable' is tantamount to sa ying that dumping is a factor affecting price
comparability that requires an adjust ment, the adjustment being zeroing."
101 However, "[a]n
adjustment for 'non-dumping', is not permitted by the Anti-Dumping Agreement and [would be]
contrary to the text and purpose of Article 2.4 and 2.4.2."102
55. The European Communities points out that it is clear from the text of Article 2.4.2 that the
calculation of the weighted average export pri ce for the product as a whole must include all
comparable export transactions. Article 2.4.2 of the Anti-Dumping Agreement "is, therefore, not
'silent' on the obligation to aggregate or a requi rement to offset negative margins of dumping."103 The
European Communities asserts that this obliga tion flows "from the obligation to make a fair
comparison on the basis of all comparable export transactions."104
56. The European Communities also argues that the term "margins of dumping" in Article 2.4.2
"relates to the entire subject product." 105 Moreover, according to the European Communities,
Article 2.4.2, "and particularly the wo rd 'margin', requires a simple and complete comparison
between normal value and export pri ce, being one that does not prejudge how the two elements to be
compared are juxtaposed". 106 In addition, the European Comm unities submits that "investigating
authorities applying 'zeroing' necessarily act inconsistently with Articles 3.1, 3.2 and 3.5 [of the] Anti-
Dumping Agreement , because they examine the impact of non-dumped imports on domestic
producers, when they are only entitled to examine the impact of dumped imports."107
57. With respect to Article 2.4, the European Communities asserts that Article 2.4 creates an
"overarching and independent obligation" 108 to make a "fair comparison" between normal value and
export price. Relying on the "ordinary meaning" of the word "fair", the European Communities
asserts that the obligation to make a fair comparison "must involve a balanced comparison ... that is, a
symmetrical comparison absent the specific conditio ns provided in Article 2.4.2, second sentence."
109
According to the European Communities, by using "a model zeroing method without any

101European Communities' third participant's submission, para. 34.
102Ibid. (footnote omitted)
103Ibid., para. 36.
104Ibid. (original emphasis)
105Ibid., para. 46.
107Ibid., para. 53.
108Ibid., para. 63.
109Ibid., para. 65.

justification"110, the United States acted inconsistently with its obligation to make a "fair comparison"
under Article 2.4 of the Anti-Dumping Agreement.
2. Japan
58. Japan requests that the Appellate Body reject the arguments raised by the United States on
appeal and find that USDOC acted incons istently with Article 2.4.2 of the Anti-Dumping Agreement
by applying the practice of zeroing to determine the existence of "margins of dumping" in this case.
59. Japan submits that Article VI:1 of the GATT 1994 and Article 2.1 of the Anti-Dumping
Agreement clarify that the determination of dumping must be made on the basis of the product under
consideration as a whole and "not on a tr ansaction-specific or model-specific basis." 111 Japan adds
that those provisions, read together with Article 6.10 of the Anti-Dumping Agreement, require that
the "determination of dumping must be based on an overall dumping margin for all export sales by an
exporter/producer."
112 Thus, there is an "abundant textual basis" in the Anti-Dumping Agreement to
conclude that "the overall margin of dumping mu st be the aggregate of both negative and positive
margins, and that zeroing is prohibited in establishing the margin of dumping."113
60. Japan moreover disagrees with the United States' interpretation of the word "comparable" as
used in Article 2.4.2. According to Japan, that wo rd confirms that the investigating authority is under
an obligation to make due allowance for differen ces which affect price comparability and to make a
fair comparison between normal value and export pri ces pursuant to Article 2.4. Having defined the
scope of the product under consider ation, investigating authorities must then determine the existence
of dumping and injury with respect to that same pr oduct. Japan further refers to the Appellate Body
Report in EC – Bed Linen and asserts that "[v]arious models of the 'product' are, by definition,
comparable".114 Accordingly, Japan disagrees with the Un ited States that certain product types "must
be treated differently from other types" 115 of the same product. For these reasons, the United States'
interpretation of the word "comparable", wh ich contradicts other provisions of the Anti-Dumping
Agreement, should be rejected.
61. Japan submits moreover that zeroing is also prohibited by virtue of the requirement in
Article 2.4 to conduct a "fair comparison" between the export price and the normal value of the

110European Communities' third participant's submission, para. 65.
111Japan's third participant's submission, para. 6.
112Ibid., para. 21.
113Ibid.
114Ibid., para. 26.
115Ibid.

product under investigation. This is so because, "[b]y artificially decreasing prices of certain export
sales, the zeroing method inflates, and in some cases, creates, a positive margin of dumping."
116 In
this regard, Japan refers to the Appellate Body Report in US – Corrosion Resistant Steel Sunset
Review, in which the Appellate Body found that "the inherent bias in a zeroing methodology of this
kind may distort not only the magnitude of a dumping margin, but also a finding of the very existence
of dumping."
117
III. Issues Raised in this Appeal
62. The issues raised in this appeal are:
(a) whether the Panel erred in finding, in para graphs 7.224 and 8.1(a)(i) of the Panel
Report, that the United States acted inconsistently with Article 2.4.2 of the Agreement
on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994
(the "Anti-Dumping Agreement") in determining the existence of margins of dumping
on the basis of a methodology incorporating the practice of "zeroing";
(b) whether the Panel erred in finding, in para graphs 7.238–7.245 and 8.1(b)(vi) of the
Panel Report, that the United States did not act inconsistently with Articles 2.2, 2.2.1,
2.2.1.1, and 2.4 of the Anti-Dumping Agreement in its calculation of the amount for
financial expenses for softwood lumber in the case of Abitibi; and
(c) whether the Panel erred in finding, in para graphs 7.319–7.326 and 8.1(b)(ix) of the
Panel Report, that the United States did not act inconsistently with Articles 2.2, 2.2.1,
2.2.1.1, and 2.4 of the Anti-Dumping Agreement in its calculation of the amount for
by-product revenue from the sale of wood chips in the case of Tembec.

116Japan's third participant's submission, para. 12.
117Ibid., para. 13 (quoting Appellate Body Report, US – Corrosion-Resistant Steel Sunset Review ,
para. 135).

IV. Article 2.4.2 of the Anti-Dumping Agreement – The Practice of Zeroing
A. Introduction
63. We begin by identifying the precise scope of the appeal before us. First, we note that both
Canada and the United States agree that this dispute relates to the consistency, with Article 2.4.2 of
the Anti-Dumping Agreement , of a methodology incorporating the practice of zeroing (hereinafter
"zeroing") as applied in the anti-dumping investigation at i ssue in this case. In other words, no
methodology, as such, has been challenged in this appeal. 118 Secondly, we understand that Canada's
claim before the Panel was limited to the consiste ncy of zeroing when used in calculating margins of
dumping on the basis of a comparison of a weighted average normal value with a weighted average of
prices of all comparable export transactions (the "weighted-average -to-weighted-average
methodology") under Article 2.4.2 of the Anti-Dumping Agreement. Therefore, in this appeal, we are
not required to, and do not address, the issue of whether zeroing can, or cannot, be used under the
other methodologies prescribed in Article 2.4.2, namely, comparing normal value and export prices on
a transaction-to-transaction basis (the "transac tion-to-transaction methodology"), or comparing a
normal value established on a weighted average basis to prices of individual export transactions (the
"weighted-average-to-individual methodology").119
64. We next set out a brief description of zeroing as applied by the United States Department of
Commerce ("USDOC") in this case. First, USDOC divided the product under investigation (that is,
softwood lumber from Canada) into sub-groups of identical, or broadly similar, product types. Within
each sub-group, USDOC made certain adjustments to ensure price comparability of the transactions
and, thereafter, calculated a weighted average nor mal value and a weighted average export price per
unit of the product type. When the weighted av erage normal value per unit exceeded the weighted
average export price per unit for a sub-group, the difference was regarded as the "dumping margin"
for that comparison. When the weighted average normal value per unit was equal to or less than the
weighted average export price per unit for a sub- group, USDOC took the view that there was no

118Canada's response to questioning at the oral hearing. See also Panel Report, footnote 341 to
para. 7.187 and footnote 343 to para. 7.196. See also Canada's appellee's submission, para. 2, in which Canada
submits that the Panel found that the United States' practi ce of "zeroing" "as applied" was inconsistent with the
requirements of the Anti-Dumping Agreement.
 119The Panel found in paragraph 7.219 of the Panel Report that:
... it is not within the Panel's terms of reference to rule on whether zeroing
can, or cannot, be used when determining the overall margin of dumping
under the other comparison methodologies set forth in Article 2.4.2, i.e.,
transaction-to-transaction and weighted average normal value-to-individual
transaction export price. (footnote omitted)

"dumping margin" for that comparison. USDOC aggregated the results of those sub-group
comparisons in which the weighted average nor mal value exceeded the weighted average export
price—those where the USDOC considered there was a "dumping margin"—after multiplying the
difference per unit by the volume of export transactions in that sub-group. The results for the sub-
groups in which the weighted average normal value wa s equal to or less than the weighted average
export price were treated as zero for purposes of this aggregation, because there was, according to
USDOC, no "dumping margin" for those sub-groups. Finally, USDOC divided the result of this
aggregation by the value of all export tran sactions of the product under investigation ( including the
value of export transactions in the sub-groups that were not included in the aggregation ). In this
way, USDOC obtained an "overall margin of dumping", for each exporter or producer, for the product
under investigation (that is, softwood lumber from Canada).
120
65. Thus, as we understand it, by zeroing, the inves tigating authority treats as zero the difference
between the weighted average normal value and the weighted average export price in the case of those
sub-groups where the weighted average normal value is less than the weighted average export price.
Zeroing occurs only at the stage of aggregation of the results of the sub-groups in order to establish an
overall margin of dumping for the product under investigation as a whole.
66. We now turn to the interpretations and finding s of the Panel regarding the consistency of
zeroing with Article 2.4.2 of the Anti-Dumping Agreement.
B. The Panel's Findings
67. The Panel121 found that zeroing as applied in this case is inconsistent with Article 2.4.2 of the
Anti-Dumping Agreement, which provides:

 120For a description of the methodology at issue in this dispute, see United States' response to
Question 109 posed by the Panel, paras. 52–56; Pane l Report, pp. B-49 and B-50. Zeroing as applied by
USDOC is also described in paragraph 7.185 of the Panel Report.
121One member of the Panel dissented with respect to the finding of the Panel that zeroing is not
permitted under Article 2.4.2.

Article 2
Determination of Dumping

2.4.2 Subject to the provisions governing fair comparison in
paragraph 4, the existence of margins of dumping during the
investigation phase shall normally be established on the basis of a
comparison of a weighted average normal value with a weighted
average of prices of all comparable export transactions or by a
comparison of normal value and export prices on a
transaction-to-transaction basis. A normal value established on a
weighted average basis may be co mpared to prices of individual
export transactions if the authorities find a pattern of export prices
which differ significantly among different purchasers, regions or time
periods, and if an explanation is provided as to why such differences
cannot be taken into account appropriately by the use of a weighted
average-to-weighted average or transaction-to-transaction
comparison.
68. The methodology followed by USDOC in this case involved "multiple averaging", by which
we mean the practice of investigating authorities of sub-dividing the product under investigation into
sub-groups of comparable transactions and dete rmining a weighted average normal value and a
weighted average export price for the transactions in each sub-group.
122 The Panel stated that "in
practice, the issue of zeroing arises in the contex t of the weighted average-to-weighted average
methodology only where the investigating authority engages in so-called 'multiple averaging'."123
69. The Panel's approach was to consider first whether multiple averaging is permissible under
Article 2.4.2, and, if so, whether zeroing as applied in this case is permissible. In considering whether
multiple averaging is permissible under Article 2.4.2, the Panel examined the text of that provision
and concluded that "[i]f the drafters [of the Anti-Dumping Agreement] had intended to require that the
existence of a dumping margin for a product always be calculated by comparing a single weighted
average normal value and a single weighted average of prices of all export transactions"124, the word
"comparable" would not have been included in Ar ticle 2.4.2, as it "would serve no purpose in the
text."125 The Panel observed that "[t]he word 'compara ble', in its ordinary meaning, indicates that a
weighted average normal value is not to be compared to a weighted average export price that includes

122For the sake of clarity, we point out that "multiple averaging" occurs at the level of sub-groups prior
to the stage of aggregation, whereas zeroing, as noted above, occurs at the stage of aggregation.
123Panel Report, para. 7.200. See also infra, footnote 142.
124Ibid., para. 7.203. (emphasis added)
125Ibid.

non-comparable export transactions".
126 The Panel went on to find that the term "all comparable
export transactions" in Article 2.4.2 would "appear to signify that Members may only compare those
export transactions which are comparable, but that it [sic] must compare all such transactions."127
70. The Panel then turned to Article 2.4 of the Anti-Dumping Agreement , which provides in
relevant part:
Article 2
Determination of Dumping

2.4 A fair comparison shall be made between the export price
and the normal value. This comparison shall be made at the same
level of trade, normally at the ex-factory level, and in respect of sales
made at as nearly as possible the same time. Due allowance shall be
made in each case, on its merits, for differences which affect price
comparability, including differences in conditions and terms of sale,
taxation, levels of trade, quantities, physical characteristics, and any
other differences which are also demonstrated to affect price
comparability. (footnote omitted; emphasis added)
71. The Panel noted that one way to ensure "price co mparability" between transactions is to make
"due allowance[s]" pursuant to Article 2.4. The Panel emphasized, however, that it was "not
convinced that this method ... is the exclusive means allowed by the [ Anti-Dumping] Agreement to
ensure comparability."128 The Panel explained that:
[w]hile some differences, such as differences in taxation, may be
easy to quantify and adjust for, adjustments for differences in
physical characteristics may be complex and highly uncertain,
depending upon the number and extent of the differences in physical
characteristics, and the extent to which those reflect differences in
costs of production. .... It is therefore not surprising that many
investigating authorities – and responde nt exporters – prefer to limit
to the extent possible the need fo r such adjustments by performing
their comparisons on the basis of groups of transactions sharing
common characteristics.
129

126Panel Report, para. 7.203.
127Ibid., para. 7.204. (original emphasis)
128Ibid., para. 7.207.
129Ibid.

72. Based, inter alia, on this analysis of Article 2.4.2, the Panel concluded, and agreed with the
parties to the dispute , that the use of "multiple averaging is not prohibited" 130 by the Anti-Dumping
Agreement.
73. The Panel next turned to examine whether zer oing, as applied by USDOC in this case when
aggregating the results of multiple comparisons, is permissible under Article 2.4.2. The Panel
explained that it saw the calculation of margin s of dumping for a product under investigation as a
"coherent process" 131, which starts with the determination of normal value, and continues with the
establishment of the export price. The Panel further opined that Article 2.4.2 applies to the process of
calculating a margin of dumping as a whole , and not merely to one stage of that process, namely,
multiple averaging. Relying on the Appellate Body Report in EC – Bed Linen, the Panel emphasized
that "Article 2.4.2 requires that all comparable e xport transactions have to be taken into account when
the weighted average normal value is compared to the weighted average of prices of all comparable
export transactions."132 The Panel noted that "[t]hrough the use of zeroing ... the entirety of the prices
of some export transactions, i.e., those export tran sactions where the weighted-average-export-price is
greater than the weighted-average-normal-value, in the second stage of the process, are not taken into
account."133
74. The Panel concluded that, when calculati ng margins of dumping for the product under
investigation, the United States was required, by virt ue of Article 2.4.2, to establish such margins "on
the basis of a comparison of the weighted-average-n ormal-value with the weighted average of prices
of all comparable export transactions, that is, fo r all transactions involving all types of the product
under investigation." 134 By not "taking into account all comparable export transactions" 135 in its
calculation of the overall margin of dumping, the United States had, according to the Panel, acted
inconsistently with Article 2.4.2 of the Anti-Dumping Agreement.
75. We begin our analysis of Article 2.4.2 in the light of the arguments raised on appeal.

130Panel Report, para. 7.211.
131Ibid., para. 7.214.
132Ibid., para. 7.215.
133Ibid., para. 7.216. (footnote omitted)
134Ibid., para. 7.224.
135Ibid.

C. Interpretation of Article 2.4.2
1. Introduction

76. Article 2.4.2 of the Anti-Dumping Agreement 136 permits the use of three methodologies,
applicable during the investigation phase, for establ ishing the existence of "margins of dumping".
The first two methodologies are set out in the first sentence of Article 2.4.2, which provides that the
existence of "margins of dumping" during an investigation phase "shall normally be established on the
basis of a comparison of a weighted average normal value with a weighted average of prices of all
comparable export transactions or by a comparison of normal value and export prices on a
transaction-to-transaction basis." The third me thodology is set out in the second sentence of
Article 2.4.2, which provides that, under the specifi ed circumstances, the existence of "margins of
dumping" may be determined by comparing a we ighted average normal value with prices of
individual export transactions.
77. As stated above
137, this appeal is concerned with USDO C's use of zeroing in establishing the
existence of "margins of dumping" using the firs t methodology specified under the first sentence of
Article 2.4.2—"a comparison of a weighted average normal value with a weighted average of prices
of all comparable export transactions". On this issue, the participants disagree as to the proper
interpretation of the terms "margins of dumping" and "all comparable export transactions".
78. The United States asserts that, after having co rrectly found that "multiple averaging" is
permitted under Article 2.4.2, the Pa nel erred in proceeding further and finding that the United States
acted inconsistently with Article 2.4.2 "in dete rmining the existence of margins of dumping on the
basis of a methodology incorporating the practice of 'zeroing'." 138 The United States argues that the
term "margins of dumping" in Article 2.4.2 does not refer to margins of dumping for the product
under investigation as a whole, but instead refers to "the results of comparing averages 'for each
category of product/transaction compared'."139 More specifically, "margins of dumping", according to
the United States, is used in Article 2.4.2 to refer to the results of multiple comparisons "in which the
normal value exceeds the export price". 140 Finally, the United States posits that Article 2.4.2 "does
not address the issue of aggregating the results of multiple comparisons."141

136This provision is set out in para. 67 of this Report.
137See supra, para. 63.
138United States' appellant's submission, para. 73 (quoting Panel Report, para. 8.1(a)(i)).
140Ibid., para. 22.
 141Ibid., para. 28.

79. The position of the United States hinges on two distinct propositions. First, that multiple
averaging is permitted under Artic le 2.4.2 and that the term "all comparable export transactions"
refers only to all comparable export transactions within each sub-group . Secondly, that the term
"margins of dumping" in Article 2.4.2 does not refer to margins of dumping for the product as a
whole, but instead refers to "margins of dumping" for individual product types in cases in which the
investigating authority conducts multiple averaging. Thus, the United States argues that Article 2.4.2
deals only with multiple comparisons at sub-group levels, and does not address the issue of how the
results of such comparisons are to be aggregated in order to calculate an overall margin of dumping
for the product as a whole.
80. We note that there is no disagreement among th e participants in this dispute as to the
permissibility of "multiple averaging" under Article 2. 4.2. All participants agree that an investigating
authority may choose to divide the product under investigation into product types or models
142 for
purposes of calculating a weighted average normal va lue and a weighted average export price for the
transactions involving each product type or mode l or sub-group of "comparable" transactions. 143 In
addition, we note that Canada has not claimed, with regard to the investigation at issue, that the
United States has acted inconsistently with Artic le 2.4.2 when calculating the weighted average
normal value and weighted average export price for each sub-group of comparable transactions.
81. We agree with the participants in this di spute that multiple averaging is permitted under
Article 2.4.2 to establish the existence of margins of dumping for the product under investigation. We
disagree with those who suggest that the Appellate Body Report in EC – Bed Linen is premised on
an assumption that multiple averaging is prohibited. The issue of multiple averaging was not before
the Appellate Body in EC – Bed Linen and the reasoning of the Appellate Body in that case should
therefore not be read as prohibiting that practice. This is not to say that EC – Bed Linen is not

142In this regard, the Panel notes that:
[a]lthough multiple averaging based on different types or models may be
particularly common, multiple averaging may also be used in other contexts.
For example, an investigating authority might perform multiple averaging in
respect of sales made at different levels of trade (e.g., retail versus wholesale)
or on the basis of sub-periods of the period of investigation (the latter may
arise in cases where hyper-inflationary economies are involved). Thus, an
investigating authority might well resort to multiple averaging to ensure
comparability even in a case of absolute product homogeneity, i.e., where all
of the product under investigation is identical and is being compared to
transactions involving identical goods in the market of the exporting country.
143See United States' appellant's submission, para. 23; European Communities' third participant's
notes that there was no dispute as to the "appropriateness or consistency" with the Anti-Dumping Agreement of
multiple averaging as such.

relevant in this appeal. Indeed, there are a number of relevant findings to which we refer to below.
However, the Appellate Body did not rule on mu ltiple averaging in that case and therefore it is
incorrect to argue, as the United States does, that "[t] he agreement of both parties to this dispute and a
unanimous Panel that Article 2.4.2 permits multiple comparisons is a fundamental departure from the
premise"
144 of the Appellate Body Report in EC – Bed Linen.
82. Although all participants in this dispute agr ee on the permissibility of multiple averaging,
they disagree as to the proper interpretation of the terms "all comparable export transactions" and
"margins of dumping" in Article 2.4.2 as they rela te to zeroing. The United States argues that once
"all comparable export transactions" have been ta ken into account at the sub-group level, the
requirement of Article 2.4.2 is satisfied and that, th erefore, the obligation to consider "all comparable
export transactions" does not extend to the aggreg ation stage. A contrary interpretation of
Article 2.4.2 would, according to the United States, require investigating authorities to compare
"dumped" and "non-dumped" transactions, which the United States considers to be non-comparable,
at the aggregation stage.
83. In contrast, Canada argues that the "word 'all' ope rates to ensure that every transaction is fully
included in the calculation of the dumping margin" 145 and that the word "'comparable' must relate to
the entire product under consideration."146 Canada further submits that the United States' definition of
the word "comparable" is "inconsistent with its own practice"147 and that "[t]here is no difference as to
comparability between different models that ar e dumped versus those that are not dumped." 148 The
European Communities similarly submits that "[t]he United States misinterprets the term 'comparable
transactions' in Article 2.4.2" 149, and that "[o]nce the multiple averaging methodology has been
applied, all transactions are considered 'comparable'."150
84. The second area of their disagreement concerns th e proper interpretation of the term "margins
of dumping" as used in Article 2.4.2. That disagre ement turns on the question of whether that term
applies to the product under investigation as a w hole, or, at the sub-group level, when multiple
averaging is undertaken.

146Ibid., para. 24.
147Ibid., para. 36.
148Ibid., para. 37.
149European Communities' third participant's submission, para. 29.
150Ibid., para. 33.

85. With these considerations in mind, we turn ne xt to examine the terms "all comparable export
transactions" and "margins of dumping" as they apply to this dispute. As both of these terms occur in
the same sentence and relate to establishing the exis tence of margins of dumping under Article 2.4.2,
we emphasize that they should be interpreted in an integrated manner.
2. "All Comparable Export Transactions" in Article 2.4.2
86. Article 2.4.2 requires that the existence of ma rgins of dumping "shall normally be established
on the basis of a comparison of a weighted average normal value with a weighted average of prices of
all comparable export transactions". (emphasis added) It is clear from the language of Article 2.4.2
that a weighted average normal value is to be co mpared with a weighted average of the prices of
"comparable" export transactions, and not with prices of "non-comparable" export transactions. At the
same time, the word "all" in "a ll comparable export transactions" makes it clear that Members cannot
exclude from a comparison any transaction that is "comparable". Thus, we agree with the Panel that the
term "all comparable export tr ansactions" means that a Member "may only compare those export
transactions which are comparable, but [] it must compare all such transactions."
151
87. It is not in dispute in this case that, in the cal culation of the weighted average export price for
each sub-group, USDOC took into account "all comparable export transactions", and thus no
comparable export transactions were excluded at the sub-group level.
152
88. However, the participants have divergent views with respect to the aggregation of the results
of the multiple comparisons of "all comparable expor t transactions". The United States is of the view
that Article 2.4.2 does not require the aggregation of the results of such comparisons, and that, even if
there were such a requirement, it would be permissi ble to exclude the results of those comparisons
where the weighted average normal value is less than the weighted average export price (which
comparisons according to the United States cons titute "non-dumped comparisons"). The United
States emphasizes that Article VI:1 of the General Agreement on Tariffs and Trade 1994 (the
"GATT 1994") "explicitly condemns dumping" 153 and that the Anti-Dumping Agreement "does not
recognize a 'negative dumping margin'."154 As we understand it, the United States is of the view that a

151Panel Report, para. 7.204. (original emphasis) In re sponse to questioning at the oral hearing, all the
participants and third participants indicated that they agreed with this interpretation.
152The United States stated at the or al hearing that the United States and Canada "both agree that the
United States made comparisons between comparable subs ets of export and normal value transactions based on
distinctions in level of trade and physical characteristics. Additionally, the United States and Canada both agree
that when these comparisons were made, all comparable transactions were included in the subsets." (United
States' statement at the oral hearing)
153United States' appellant's submission, para. 44. (original underlining)
154Ibid., para. 38.

requirement to include results of "non-dumped" co mparisons at the aggregation stage would amount
to giving offsets unjustifiably to "dumped" amounts from "non-dumped" amounts.
89. In contrast, Canada, the European Communities, India, and Japan are of the view that the
terms "dumping" and "dumping margins" in the Anti-Dumping Agreement apply to the product under
investigation as a whole, and that, therefore, the results of multiple comparisons must be aggregated
in their entirety to establish the existenc e of margins of dumping for the product as a whole. In their
view, the Anti-Dumping Agreement does not permit a determination of "dumping" at the level of a
product type or model. Moreover, according to Canada and the European Communities, treating
comparisons at the sub-group level as "dumped" or "non-dumped" is inconsistent with Article 2.4.2
and amounts to "prejudging" the outcome of an analysis to determine whether dumping exists for the
product under investigation as a whole.
90. There is no basic disagreement among the participants that "all comparable export
transactions" must be taken into account in establishi ng margins of dumping. Rather, the participants'
disagreement centres on how the results of multiple co mparisons are interpreted and aggregated when
all comparable transactions have admittedly been taken into account at the sub-group level.
155 And
this disagreement flows, in essence, from the part icipants' respective interpretations of the terms
"dumping" and "margins of dumping" in the Anti-Dumping Agreement—whether these terms apply at
the product or sub-product level. We therefore tu rn now to an analysis of these terms as used in
Article 2.4.2 of the Anti-Dumping Agreement.
3. "Margins of Dumping" in Article 2.4.2
91. As we noted above, the United States' position rests on the proposition that "margins of
dumping" can be established, and "dumping" can be found, at the sub-group level. According to the
United States, the term "margins of dumping" in Artic le 2.4.2 refers to the results of those multiple
comparisons "in which the normal value exceeds the export price".156 In addressing this argument, we
turn first to Article VI:1 of the GATT 1994 and Article 2.1 of the Anti-Dumping Agreement, which
define "dumping" in the context of the GATT 1994 and the Anti-Dumping Agreement, respectively.
92. Specifically, Article VI:1 defines "dumping" as occurring where "products of one country are
introduced into the commerce of another count ry at less than the normal value of the products".

155See supra, footnote 152.
156United States' appellant's submission, para. 22. At the oral hearing the Un ited States stated that
"'margins of dumping' is the term used in Article 2.4. 2 to describe the results of those multiple comparisons
when the normal value is greater than the export price. If the normal value is less than or equal to the export
price, that comparison did not involve dumping and there is no margin of dumping for that comparison."
(United States' statement at the oral hearing)

(emphasis added) This definition is reiterated in Article 2.1 of the Anti-Dumping Agreement, which
provides that:
Article 2
Determination of Dumping
2.1 For the purpose of this Agreement, a product is to be
considered as being dumped, i.e. introduced into the commerce of
another country at less than its normal value, if the export price of the
product exported from one country to another is less than the
comparable price, in the ordinary course of trade, for the like
product when destined for consumption in the exporting country.
(emphasis added)
93. It is clear from the texts of these provisions that dumping is defined in relation to a product as
a whole as defined by the investigating authority. Moreover, we note that the opening phrase of
Article 2.1—"[f]or the purpose of this Agreemen t"—indicates that the definition of "dumping" as
contained in Article 2.1 applies to the entire Agreem ent, which includes, of course, Article 2.4.2.
"Dumping", within the meaning of the Anti-Dumping Agreement, can therefore be found to exist only
for the product under investigation as a whole, and ca nnot be found to exist only for a type, model, or
category of that product.
94. Other provisions of the Anti-Dumping Agreement confirm this view. For example,
Article 9.2 (as well as Article VI:2 of the GATT 1994) stipulate that an anti-dumping duty is to be
imposed in respect of the product under investigation.
157 In addition, Article 6.10 of the Anti-
Dumping Agreement provides that the investigating auth orities "shall, as a rule, determine an
individual margin of dumping for each know n exporter or producer concerned of the product under
investigation". (emphasis added)

157Article 9.2 of the Anti-Dumping Agreement provides in relevant part:
Article 9
Imposition and Collection of Anti-Dumping Duties

9.2 When an anti-dumping duty is imposed in respect of any product,
such anti-dumping duty shall be collect ed in the appropriate amounts in each
case, on a non-discriminatory basis on imports of such product from all
sources found to be dumped and causing injury ... . (emphasis added)

95. Having examined the definition of "dumping", we now turn to examine the term "margin of
dumping" as defined in Article VI:2 of the GATT 1994, second sentence, which provides that:
... the margin of dumping is the price difference determined in
accordance with the provisions of paragraph 1 [of Article VI of the
GATT 1994]. (footnote omitted)
96. The Appellate Body found in EC – Bed Linen that "[w]hatever the method used to calculate
the margins of dumping ... these margins must be, and can only be, established for the product under
investigation as a whole."
158 While "dumping" refers to the introduction of a product into the
commerce of another country at less than its normal va lue, the term "margin of dumping" refers to the
magnitude of dumping. As with dumping, "margi ns of dumping" can be found only for the product
under investigation as a whole, and cannot be found to exist for a product type, model, or category of
that product.
97. It is clear that an investigating authority may undertake multiple averaging to establish
margins of dumping for a product under investigati on. In our view, the results of the multiple
comparisons at the sub-group level are, however, no t "margins of dumping" within the meaning of
Article 2.4.2. Rather, those results reflect only in termediate calculations made by an investigating
authority in the context of establishing margins of dumping for the product under investigation. Thus,
it is only on the basis of aggregating all these "intermediate values" that an investigating authority
can establish margins of dumping for the product under investigation as a whole.
98. We fail to see how an investigating authority could properly establish margins of dumping for
the product under investigation as a whole without aggregating all of the "results" of the multiple
comparisons for all product types. There is no textual basis under Article 2.4.2 that would justify
taking into account the "results" of only some mult iple comparisons in the process of calculating
margins of dumping, while disregarding other "results ". If an investigating authority has chosen to
undertake multiple comparisons, the investigating au thority necessarily has to take into account the
results of all those comparisons in order to establish margins of dumping for the product as a whole
under Article 2.4.2. Thus we disagree with the Un ited States that Article 2.4.2 does not apply to the
aggregation of the results of multiple comparisons.

158Appellate Body Report, EC – Bed Linen , para. 53. (original emphasis) The Appellate Body further
explained in US – Hot-Rolled Steel that "'margins' means the individual margin of dumping determined for
each of the investigated exporters and producers of the product under investiga tion, for that particular product."
(Appellate Body Report, US – Hot-Rolled Steel, para. 118) (footnote omitted)

99. Our view that "dumping" and "margins of dumping" can only be established for the product
under investigation as a whole is in consonance with the need for consistent treatment of a product in
an anti-dumping investigation. Thus, having defined the product under investigation, the
investigating authority must treat that product as a whole for, inter alia , the following purposes:
determination of the volume of dumped imports, injury determination, causal link between dumped
imports and injury to domestic industry, and cal culation of the margin of dumping. Moreover,
according to Article VI:2 of the GATT 1994 and Article 9.2 of the Anti-Dumping Agreement, an anti-
dumping duty can be levied only on a dumped pro duct. For all these purposes, the product under
investigation is treated as a whole, and export tr ansactions in the so-calle d "non-dumped" sub-groups
(that is, those sub-groups in which the weighted average normal value is less than the weighted
average export price) are not excluded. We see no basis, under the Anti-Dumping Agreement , for
treating the very same sub-group transactions as "non-dumped" for one purpose and "dumped" for
other purposes. Indeed, in the anti-dumping investig ation at issue in this dispute, the product as a
whole—softwood lumber—has been treated as a "dumpe d" product, except at the stage of zeroing.
100. Moreover, we observe that Article 2.4.2 c ontains no express language that permits an
investigating authority to disregard the results of multiple comparisons at the aggregation stage.
Other provisions of the Anti-Dumping Agreement are explicit regarding the permissibility of
disregarding certain matters. For example, Article 2.2.1 of the Anti-Dumping Agreement , which
deals with the calculation of normal value, sets forth the only circumstances under which sales of the
like product may be disregarded. 159 Similarly, Article 9.4 of the Anti-Dumping Agreement expressly
directs investigating authorities to "disregard" zero and de minimis margins of dumping, under
certain circumstances, when calculating the weighted average margin of dumping to be applied to
exporters or producers that have not been individu ally investigated. Thus, when the negotiators
sought to permit investigating authorities to disregard certain matters, they did so explicitly.
101. We now turn to the implications of zeroing as applied in this case. 160 Zeroing means, in
effect, that at least in the case of some export transactions, the export prices are treated as if they
were less than what they actually are. Zeroi ng, therefore, does not take into account the entirety of
the prices of some export transactions, namely, the prices of export transactions in those sub-groups

159Article 2.2.1 of the Anti-Dumping Agreement stipulates that:
[s]ales of the like product in the domes tic market of the exporting country ...
may be disregarded in determining normal value only if the authorities
determine that such sales are made within an extended period of time in
substantial quantities and are at prices which do not provide for the recovery
of all costs within a reasonable period of time. (footnotes omitted; emphasis
added)
160For a description of zeroing, see supra, para 64.

in which the weighted average normal value is less than the weighted average export price.
161 Zeroing
thus inflates the margin of dumping for the product as a whole.
102. We understand the United States to argue that a prohibition of zeroing would amount to a
requirement to compare "dumped" and "non-dumped" transactions at the aggregation stage. The
United States contends that results of multiple comparisons in which the weighted average normal
value exceeds the weighted average export pri ce may be excluded because they do not involve
"dumping". As we have stated earlier, the terms "dumping" and "margins of dumping" in Article VI
of the GATT 1994 and the Anti-Dumping Agreement apply to the product under investigation as a
whole and do not apply to sub-group levels. The treatment of comparisons for which the weighted
average normal value is less than the weighted average export price as "non-dumped" comparisons is
therefore not in accordance with the requirements of Article 2.4.2 of the Anti-Dumping Agreement.
103. For all these reasons, we do not agree with the United States that the results of comparisons at
the sub-group level constitute margins of dumping. Nor do we agree with the United States that the
results of the comparisons in which the weighted average normal value is less than the weighted
average export price could be excluded in calculating a margin of dumping for the product under
investigation as a whole.
4. Other Methodologies as Context
104. We recall that the issue of whether zeroing is permitted under the transaction-to-transaction
methodology or the average-to-individual methodology is not before us in this appeal. The United
States does not argue otherwise 162, but it emphasizes that this issue must be considered as it provides
"important context"163 for consideration of the permissibilit y of zeroing under the average-to-average
methodology.
105. We fail to see how we could find that the tr ansaction-to-transaction and average-to-individual
methodologies could provide contextual support for th e United States' interpretation of Article 2.4.2
without examining first whether zeroing is permitted under those methodologies.164 Indeed the United

161We note that the Panel reached the same conclusion in para. 7.216 of its Report.
162United States' response to questioning at the or al hearing. The United States acknowledged that
"there is not a formal claim before you under these two methodologies."
163United States' response to questioning at the oral hearing.
164In response to questioning at the oral hearing, the United States asserted that, in its view, zeroing is
permitted under all three methodologies set out in Article 2.4.2. In contrast, Canada argued that zeroing is
permitted under the third methodology but prohibited under the first two methodologies set out in Article 2.4.2.

States faulted the Panel for making observations in this regard. 165 As we have observed, the United
States acknowledged at the oral hearing that the issu e before us is confined to determining whether
zeroing is prohibited under the average-to-average methodology.166
106. We turn now to examine the United States' arguments concerning the relevance to this case of
the historical background of Article 2.4.2.
5. Historical Background of Article 2.4.2
107. The United States argues that recourse to th e circumstances of the conclusion of the Anti-
Dumping Agreement is appropriate in this case as a s upplementary means of interpretation under
Article 32 of the Vienna Convention on the Law of Treaties .167 Specifically, the United States argues
that an examination of the historical background 168 of the Anti-Dumping Agreement demonstrates
that two practices employed by WTO Members to establish "margins of dumping" at the time of the
Uruguay Round negotiations are relevant for an interp retation of Article 2.4.2. The first practice
consisted of making "asymmetrical" comparisons, th at is, comparisons between individual export
transactions and weighted average normal values in anti-dumping investigations. The second practice
was zeroing. The United States asserts that, because the negotiators were able to agree only on the
issue of "asymmetry"
169 at the conclusion of the negotiations, it would be reasonable to expect, that,
absent modified text in the Anti-Dumping Agreement addressing zeroing, that practice would
continue to be consistent with the Anti-Dumping Agreement.
108. We are unable to agree with the United States. The material to which the United States refers
does not, in our view, resolve the issue of whether the negotiators of the Anti-Dumping Agreement
intended to prohibit zeroing. In any event, we ha ve concluded, based on the ordinary meaning of
Article 2.4.2 read in its context, that zeroing is prohibited when establishing the existence of margins
of dumping under the weighted-average-to-weighted-average methodology.

165See United States' appellant's submission, para. 47 (referring to Panel Report footnote 361 to
para. 7.219).
166See supra, para. 63.
167Done at Vienna, 23 May 1969, 1155 U.N.T.S. 331; 8 International Legal Materials 679.
168The "historical background" that the United States invokes as support for its position consists of
prior GATT panel reports and certain proposals submitted by various delegations in the context of the
negotiations on the Anti-Dumping Agreement. (See United States' appellant's submission, paras. 50–54) At the
oral hearing, the United States acknowledged that these materials do not constitute "travaux préparatoires".
169By "asymmetry" the United States refers to the practice of establishing margins of dumping by
comparing "an average on one side of the comparison [to] a single transaction on the other side [of the
comparison]" (United States' appellant's submission, para. 51)

6. Relevance of Appellate Body Report in EC – Bed Linen

109. With regard to the relevance to this a ppeal of the Appellate Body Report in EC – Bed Linen,
the United States has requested that the Appellate Body not "import wholesale the findings and
reasoning"170 from that case. In making this request, the United States underlines that it was not a
party to the dispute in EC – Bed Linen, that the arguments raised in that case were different, and that
the United States' practice of zeroing was not at issue in that appeal.171
110. Canada acknowledges that the "Appellate Body is not subject to a strict doctrine of stare
decisis", but adds that "the suggestion that each case st ands on its own and should be decided without
regard to the recommendations and rulings of the Dispute Settlement Body in other WTO cases would
deny the major achievement of a coherent body of WTO case-law or jurisprudence."172
111. The Appellate Body found in Japan – Alcoholic Beverages II that:
[a]dopted panel reports are an important part of the GATT acquis.
They are often considered by subsequent panels. They create
legitimate expectations among WT O Members, and, therefore,
should be taken into account where they are relevant to any dispute.
However, they are not binding, ex cept with respect to resolving the
particular dispute between the parties to that dispute.
173
 The Appellate Body further clarified in US – Shrimp (Article 21.5 – Malaysia) that:
[t]his reasoning [from Japan – Alcoholic Beverages II ] applies to
adopted Appellate Body Reports as well. Thus, in taking into
account the reasoning in an adopted Appellate Body Report ⎯ a
Report, moreover, that was directly relevant to the Panel's disposition
of the issues before it ⎯ the Panel did not err. The Panel was correct
in using our findings as a tool for its own reasoning.174
112. Bearing these previous findings in mi nd, and noting Article 3.2 of the Understanding on
Rules and Procedures Governing the Settlement of Disputes (the "DSU"), which states that "the
dispute settlement system of the WTO is a central element in providing security and predictability to
the multilateral trading system," we have given full c onsideration to the particular facts of this case
and to the arguments raised by th e United States on appeal, as well as to those raised by Canada and

171We note that the United States was a third participant in that dispute.
173Appellate Body Report, Japan – Alcoholic Beverages II, at 108. (footnote omitted)
174Appellate Body Report, US – Shrimp (Article 21.5 – Malaysia), para. 109.

the third participants. In doing so, we have taken into account the reasoning and findings contained in
the Appellate Body Report in EC – Bed Linen, as appropriate.175
7. Article 17.6(ii) of the Anti-Dumping Agreement
113. The United States claims that, in finding that "zeroing" is prohibited under Article 2.4.2, the
Panel failed to apply the standard of revi ew set out in Article 17.6(ii) of the Anti-Dumping
Agreement, which provides, in relevant part, that:
... the panel shall interpret the rele vant provisions of the Agreement
in accordance with customary rule s of interpretation of public
international law. Where the panel finds that a relevant provision of
the Agreement admits of more than one permissible interpretation,
the panel shall find the authorities' me asure to be in conformity with
the Agreement if it rests upon one of those permissible
interpretations.
114. The United States also claims that "the Panel acknowledged that the term 'margins of
dumping' in Article 2.4.2 may be in the plural 'precisely because multiple averaging produces a
dumping margin for each category of product/transaction compared ... '."
176 Thus, according to the
United States, the Panel "effectively acknowledged that it was permissible to interpret Article 2.4.2
as addressing only the manner in which comparisons between export price and normal value are to be
made."177 The United States submits that if the Panel had applied the standard of review set out in
Article 17.6(ii) of the Anti-Dumping Agreement , it would have ended its analysis of Article 2.4.2.
with that acknowledgment.
115. We do not agree with the United States. Our r eading of the Panel Report does not indicate to
us that the Panel acknowledged that margins of dumping can be established for sub-groups. Rather,
the Panel emphasized that "[ a]lthough it could be argued that this phrase is in the plural precisely
because multiple averaging produces a dumping margin for each category of product/transaction
compared, it could just as well be the case that it is in the plural because in many cases there will be
multiple exporters or producers." 178 In our view, "margins of dumping" is in the plural because a

175We note that neither the United States nor Canada has argued that the reasoning and findings of the
Appellate Body should not be taken into account in this case. (United States' appellant's submission,
paras. 55–58; Canada's appellee's submission, paras. 18–21)
176United States' appellant's submission, para. 34 (quoting Panel Report, para. 7.210). (emphasis added)
177Ibid.
178Panel Report, para. 7.210. (emphasis added)

single investigation may involve establishing marg ins of dumping for a number of exporters or
producers
179, and may relate to more than one country.180
116. The United States also claims that its interpretation of Article 2.4.2 is "permissible", inter
alia, on the ground that "margins of dumping" within the meaning of Article 2.4.2 can be established
for product types. In our view, the Anti-Dumping Agreement, when interpreted in accordance with
customary rules of interpretation of public internat ional law, as required by Article 17.6(ii), does not
permit establishing margins of dumping for product types when the product as a whole is under
investigation. The United States' interp retation of Article 2.4.2 is, therefore, not a "permissible
interpretation" of that provision within the meaning of Article 17.6(ii). 181 Hence, we see no error on
the part of the Panel with respect to the Panel's obligations under Article 17.6(ii) of the Anti-Dumping
Agreement.
8. Conclusion
117. In the light of the foregoing, we uphold the Panel's finding that the United States acted
inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in determining the existence of
margins of dumping on the basis of a methodology incorporating the practice of "zeroing".182
V. Allocation of Financial Expenses for Abitibi
A. Introduction
1. Factual Background
118. Before we begin our analysis, we review the background information that is relevant to the
issue raised by Canada on appeal.

179In this regard, we observe that Article 6.10 of the Anti-Dumping Agreement requires that the
investigating authorities "shall, as a rule, determine an individual margin of dumping for each known exporter
or producer concerned of the product under investigation." (emphasis added)
180See Article 3.3 of the Anti-Dumping Agreement.
181We note that the Panel referred in footnote 343 to para. 7.196 of the Panel Report to the IDM's
references to Sections 771(35)(A) and 771(35)(B) of the Un ited States' Tariff Act. Our task in this appeal is
confined to clarifying certa in provisions of the WTO Anti-Dumping Agreement as applied by USDOC in the
anti-dumping investigation at issue.
182Panel Report, paras. 7.224 and 8.1(a)(i).

119. The issue on appeal pertains to the alloca tion of financial expenses for Abitibi for its
softwood lumber production. In its investiga tion, USDOC, "consistent with its 'established
practice'"183 adopted the so-called cost-of-goods-sol d ("COGS") methodology to calculate and
allocate financial expenses. 184 In essence, this methodology allocat es the total financial expenses for
the company as a whole to the product under investig ation (softwood lumber in this case) on the basis
of a comparison of the total cost of goods sold for the entire production of the company, on the one
hand, and the total cost of goods sold for the pr oduct under investigation, on the other. Hence its
nomenclature, the "cost of goods sold" methodology.185
120. In its questionnaire, USDOC requested Abitibi to calculate and allocate its financial expenses
on the basis of the COGS methodology. However, in its response to the questionnaire, Abitibi used a
different methodology for calculating and allocati ng financial expenses for its softwood lumber
production, namely a "total assets-based methodology". 186 Abitibi claimed that softwood lumber
production requires fewer assets than production of Abitib i's other products (that is, it is less capital
intensive) and, therefore, requires less financing th an the production of Abitib i's other products, such
as newsprint, pulp, and other pape r products. Under this alternat ive methodology, Abitibi allocated
its financial expenses "among its different busin ess segments based on the total assets required to
produce and sell each different product as a percentage of the total assets used to produce and sell
all [Abitibi's] products."187 From this asset-based ratio, Abitibi then derived its financial expenses for
its softwood lumber production and then divided th is amount by the cost of goods sold for that
production. 188

183Panel Report, para. 7.228.
184Although in describing the methodologies at issue we use the term "financial expenses", which may
include many types of financial expenses, the financial expense at issue in this case is, in essence, the net
interest expense of Abitibi for its softwood lumber production.
185For details on the COGS methodology followed by USDOC, see United States' appellee's
submission, para. 11.
186Canada's other appellant's submission, para. 20. See also Canada's other appellant's submission,
para. 17.
187Ibid., para. 19. (emphasis added)
188With respect to Abitibi's allocation methodology, see also Canada's other appellant's submission,
para. 18.

121. USDOC nevertheless applied its own methodology and, in doing so, stated:
[USDOC] disagree[s] with Abitibi that [it] should depart from its
established practice of calculating th e financial expense ratio based
on the financial expenses and cost of goods sold from the parent
company's audited consolidated financial statements (i.e., based on
the concept that money is fungible). Because there is no bright-line
definition in the Act of what a financial expense is or how the
financial expense rate should be calculated, [USDOC] has developed
a consistent and predictable prac tice for calculating and allocating
financial expenses. This method is to calculate the rate as the
percentage of net interest expense over cost of sales, based on the
consolidated financial statemen ts of the respondent's parent
company. Further, the record of this investigation does not support
the conclusion that [USDOC]'s methodology distorts the allocation of
Abitibi's financial expenses. Setting aside Abitibi's assumptions that
the debt of the company only relates to assets belonging to the pulp
and paper activities, [USDOC]'s method addresses Abitibi's concern
that those activities are more capita l intensive. Specifically, those
activities would have a higher depreciation expense on their
equipment and assets. Thus, when the consolidated financial expense
rate is applied to the cost of manufacturing of lumber products, less
interest will be applied because the total cost of manufacturing for
lumber products includes a lower depreciation expense. In view of
the above factors, [USDOC has] used the verified cost of goods sold
including depreciation submitted as part of Abitibi's revised financial
expense ratio calculation to allo cate the company's net financial
expenses.
189
2. Canada's Appeal
122. On appeal, Canada raises three issues: first, Canada refers to the finding of the Panel that the
phrase "consider all available evidence on the proper allocation of costs", in the second sentence of
Article 2.2.1.1, "does not require that inv estigating authorities compare various allocation
methodologies to assess their advantages and disadva ntages but to 'consider' all available evidence on
the proper allocation of costs."190 Canada argues that this finding of the Panel equates the requirement
to "consider" to a "mere requirement for an inv estigating authority to take notice of evidence
presented to it". 191 Secondly, Canada reads Article 2.2.1.1 as c ontaining an "express preference" for
the use of allocation methodologies used by the producer s, in so far as they have been historically
utilized192; however, Canada would not agree that investigating authorities are never required to

189Panel Report, para. 7.228 (quoting USDOC Issues and Decision Memorandum, Comment 15, p. 77).
(Exhibit CDA-2 submitted by Canada to the Panel) (footnote omitted)
190Panel Report, para. 7.238.
191Canada's other appellant's submission, para. 34.
192Ibid., para. 48.

consider available evidence provided by a produ cer that has not been "historically utilized". 193
Canada relies for this position on the phrase "in particular in relation to", which follows the
"historically utilized" phrase, arguing that it "narrows the scope of the eviden ce that an investigating
authority may refuse to regard as 'controlling'." 194 Thirdly, with respect to Article 2.2.2 of the Anti-
Dumping Agreement, Canada appeals the Panel's finding that an unbiased and objective investigating
authority could have allocated Abitibi’s financia l expenses on the basis of USDOC's methodology.
Canada requests that the Appellate Body declare th is conclusion of the Panel to be "without effect" 195
and "direct the United States to weigh the advantages and disadvantages of these methodologies in
order to reach a 'proper' determination on an accurate allocation of financial costs".
196
123. The United States requests the Appellate Body to uphold the Panel's findings concerning the
allocation of financial expenses for Abitibi. Accordi ng to the United States, Canada's appeal is based
in part on a mischaracterization of the Panel's findi ngs; for instance, the Panel did not, according to
the United States, find that the obligation to "c onsider" could be satisfied by "merely accepting
evidence". The United States further submit s that the phrase in the second sentence of
Article 2.2.1.1—"including that which is made available by the exporter or producer"— limits the
requirement to consider evidence submitted by a producer to circumstances where a proposed
allocation has been historically utilized. As fo r the phrase beginning with "in particular in relation
to", in the second sentence of Article 2.2.1.1, the Unite d States contends that it relates to the first part
of the second sentence of Article 2.2.1.1, and not to the phrase beginning with "including".
Consequently, the phrase beginning with "in particular in relation to" does not modify the requirement
with respect to using historically utilized alloca tions. The United States furthermore argues that
USDOC was not obligated to make factual findings as to the advantages or disadvantages of either of
the methodologies that it considered. According to the United States, it is evident from USDOC's
determination that USDOC gave attention to and took into account the evidence presented by Abitibi.
In the United States' view, the Panel therefore correctly found that USDOC had "considered" Abitibi's
proposed cost allocation methodology within the meaning of Article 2.2.1.1.

193In this regard, we note footnote 17 to para. 19 of Canada's other appellant's submission which states:
As required by both Canadian and U.S. generally accepted accounting
principles, Abitibi reports in its financial statements and normal accounting
the total amount of financial expense incurred in a given period as a distinct
income statement line item, "Interest on long term debt," without allocation
to particular products. Abitibi Section A Questionnaire Response (June 22,
2001), Annex 12, at 249 (Exhibit CDA-82).
194Canada's other appellant's submission, para. 46.
195Ibid., para. 53.
196Ibid., para. 54.

124. We will address these issues in turn.
B. Analysis
125. Before we begin our analysis, it is useful to set out the full text of the first and second
sentence of Article 2.2.1.1.
126. Article 2.2.1.1, first sentence, stipulates that:
For the purpose of paragraph 2, costs shall normally be calculated on
the basis of records kept by the exporter or producer under
investigation, provided that such records are in accordance with the
generally accepted accounting principles of the exporting country and
reasonably reflect the costs associated with the production and sale of
the product under consideration.
 Article 2.2.1.1, second sentence provides:
Authorities shall consider all available evidence on the proper
allocation of costs, including that which is made available by the
exporter or producer in the course of the investigation provided that
such allocations have been histori cally utilized by the exporter or
producer, in particular in relation to establishing appropriate
amortization and depreciation periods and allowances for capital
expenditures and other development costs.
1. "Consider All Available Evidence on the Proper Allocation of Costs" in
Article 2.2.1.1
127. Canada argues that the Panel erred in finding that the second sentence of Article 2.2.1.1 "does
not require that investigating authorities compar e various allocation methodologies to assess their
advantages and disadvantages but to 'consider' a ll available evidence on the proper allocation of
costs."197

128. The Panel found, in this respect, as follows:
Finally, Canada argues that DOC could not have complied with its
obligations under Article 2.2.1. 1 without assessing the advantages
and disadvantages of the methodology used by DOC and asset-based
allocation methodologies in light of the evidence submitted by
Abitibi. In our discussion of Article 2.2.1.1 in paragraphs 7.236-
7.237 supra, we have set out our understanding with respect to the
obligations imposed by that provision. In our view, Article 2.2.1.1,
when stating that "[a]uthorities sha ll consider all available evidence
on the proper allocation of costs ", does not require that investigating
authorities compare various allocation methodologies to assess their
advantages and disadvantages but to "consider" all available evidence
on the proper allocation of costs . We find that DOC met the
requirement set forth in Article 2.2.1.1.198
129. We observe, as a preliminary matter, that we disagree with Canada's claim that the Panel
reduced the requirement to "consider all available evidence" to a mere procedural requirement that
can be fulfilled, to use Canada's language, by simply "receiving evidence" 199 or "tak[ing] notice of
evidence".200 We do not see anything in the Panel report that would suggest that the Panel intended to
interpret the phrase "consider all available evidence" in the manner identified by Canada.
130. Nevertheless, our reading of the Panel Report on this question shows that the Panel gave scant
attention to the interpretation of the word "consid er" when dealing with Canada's specific argument
that USDOC "could not have complied with its ob ligations under Article 2.2.1.1 without assessing the
advantages and disadvantages of the methodology used by [US]DOC and asset-based allocation
methodologies in light of the evidence submitted by Abitibi".201
131. The Panel refers to paragra phs 7.236 and 7.237 of its Report as "set[ting] out [its]
understanding"202 of the obligations 203 imposed by Article 2.2.1.1. A plain reading of those
paragraphs reveals, however, that the Panel did not examine either the meaning or scope of the word
"consider" as used in the second sentence of Article 2. 2.1.1. The Panel merely restated the text of
Article 2.2.1.1 and did not offer any analysis of the phrase "consider all available evidence". In
paragraph 7.238, before addr essing Canada's argument concerning the requirement to compare

198Panel Report, para. 7.238. (original italics; underlining added)
199Canada's other appellant's submission, para. 2.
200Ibid., paras. 2 and 34.
201Panel Report, para. 7.238.
202Ibid.
203The obligations in the Panel's view are: that costs be calculated on the basis of records kept by the
exporter or producer under investigation; that investig ating authorities consider all available evidence on the
proper allocation of costs including that which is made available by respondents in the context of an anti-
dumping investigation; and that costs be adjusted under certain circumstances.

alternative allocation methodologies, the Panel addr essed certain other arguments by Canada relating
to the second sentence of Article 2.2.1.1, but not relating to the issue whether a comparison of
allocation methodologies was required under that provision. The Panel then made the broad and
unqualified statement that "Article 2.2.1.1 ... does no t require that investigating authorities compare
various allocation methodologies to asses their advantages and disadvantages."
204
132. We are unable to discern any reasons in the Panel Report for the Panel's assertion that
Article 2.2.1.1, in requiring an authority to "c onsider all available evidence", does not require the
comparison of allocation methodologies to asses their advantages and disadvantages. Nor can we
infer the Panel's reasoning from its findings addressi ng other arguments made by Canada with respect
to the requirement to "consider all available evidence", which findings Canada does not appeal. None
of the statements made by the Panel on the other arguments made by Canada
205, taken separately or
read together, discloses the Panel's view as to the proper interpretation of the phrase "consider all
available evidence on the proper allocation of cost s". Nor do we see a finding or statement by the
Panel that, in this particular case, USDOC's consideration of evidence included explicitly or implicitly
a comparison of alternative allocation methodologies. 206 The Panel simply concluded, without
providing any reasoning, that the phrase "consider a ll available evidence on the proper allocation of
costs" "does not require that investigating au thorities compare various allocation methodologies to
assess their advantages and disadvantages".207 By not qualifying the statement in any way, we cannot
but read the Panel to mean that a comparison of allocation methodologies is never "require[d]" by
the second sentence of Article 2.2.1.1.
133. Having explained our understanding of the Pa nel's approach to the phrase "consider all
available evidence on the proper allocation of costs", we turn to our own analysis of that phrase. We
begin, as always, with the ordinary meaning of the terms of the provision in question, in their context
and in the light of their object and purpose. The ordinary meaning of the term "consider" is, inter

204Panel Report, para. 7.238.
205These statements by the Panel are as follows: that "using generic reasoning in support of a specific
determination [does not] constitute[], in and of itself, a reason which would justify a conclusion that [the
requirement to 'consider all available evidence' has been violated]"; that USDOC's statement that the "record of
this investigation does not support the conclusion that [USDOC's] methodology distorts the allocation of
Abitibi's financial expenses" "could not have been made without [US]DOC having examined the evidence and
considered the arguments relevant to the issue"; and that an examination of the discussion, in the USDOC's
Issues and Decision Memorandum, following that statement, "shows that [US]DOC considered the main
argument that Abitibi put forward in support of its proposed allocation methodology". (Panel Report,
para. 7.238)
207In this regard, we note that Canada has, however, not made a claim under Article 12.7 of the DSU
that the Panel failed to set out a "basic rationale" for its finding.

alia, to "look at attentively", "reflect on", or to "weigh the merits of ".208 In the context of the second
sentence of Article 2.2.1.1, we read the term "cons ider" to mean that an investigating authority is
required, when addressing the question of proper a llocation of costs for a producer or exporter, to
"reflect on" and to "weigh the merits of" "all availa ble evidence on the proper allocation of costs". As
we stated above, the requirement to "consider" evidence would not be satisfied by simply "receiving
evidence" or merely "tak[ing] notice of evidence".
209
134. We observe that the second sentence of Article 2.2.1.1 requires the consideration of "all
available evidence on the proper allocation of costs". (emphasis added) The word " proper", in our
view, supports our reading of the word "consider", because it suggests some degree of deliberation on
the part of the investigating authority in "consider [ing] all available evidence" , so as to ensure that
there is a proper allocation of costs. The nature of this deliberative process will depend on the facts of
a particular case before the investigating authority.
135. We are aware that the term "comparison", which is derived from the verb "compare", is used
in other provisions of the Anti-Dumping Agreement. For instance, Articles 2.4 and 2.4.2 refer to the
"comparison" of export prices and normal value, fo r purposes of establishing the existence of margins
of dumping. As both the word "consider" and the word "comparison" are used in the Anti-Dumping
Agreement, it follows, in our view, that the non-inclusion, by the drafters of the Anti-Dumping
Agreement, in Article 2.2.1.1 of the word "compare" is not a mere oversight, but rather a purposeful
act of drafting.
210 However, as we explain below, we do not believe that this requires an
interpretation that the second sentence of Article 2.2.1.1 does not, under any circumstances , require
an investigating authority to compare methodologies.
136. At the oral hearing, we requested the particip ants to clarify their understanding of the word
"consider" for purposes of interpreting the second senten ce of Article 2.2.1.1. Canada stated that
"consideration" and "comparison" "are very close." The United States, in turn, stated that "one way to
consider might be to in fact compare different allocations. There might be other ways in which those
types of allocations could be considered".
137. The second sentence of Article 2.2.1.1 requires an investigating authority to "consider" all
available evidence on the proper allocation of costs, which in certain circumstances may require the

208Shorter Oxford English Dictionary , 5th ed., W.R. Trumble, A. Stevenson (eds.) (Oxford University
Press, 2002), Vol. 1, p. 493.
209See supra, para. 129 as well as footnotes 199 and 200 thereto.
210The French and Spanish versions, which are equally authentic, also employ different terms in this
regard. Whereas Article 2.2.1.1 uses the terms "prendre en compte" and "tomar en consideración", respectively,
Article 2.4.2 uses the terms "comparaison" and "comparación", respectively.

investigating authority to consider alternative a llocation methodologies. Therefore, the issue before
us is not simply whether the word "consider", in a nd of itself, entails a requirement to "compare".
Rather, the issue before us is whether a requireme nt to "consider all available evidence on the proper
allocation of costs" does or does not require an i nvestigating authority to "compare" advantages and
disadvantages of alternative cost allocation methodologies.
138. In our view, the parameters of the obligation to "consider all available evidence" will vary
case-by-case. It may well be that, in the light of the facts of a particular case, the requirement to
"consider all available evidence" may be satisfied by the investigating authority without comparing
allocation methodologies or aspects thereof. Howeve r, in other instances—su ch as where there is
compelling evidence available to the investiga ting authority that more than one allocation
methodology potentially may be appropriate to ensure that there is a proper allocation of costs—the
investigating authority may be required to "reflect on" and "weigh the merits of" evidence that relates
to such alternative allocation methodologies, in or der to satisfy the requirement to "consider all
available evidence". Thus, although the second senten ce of Article 2.2.1.1 does not, as a general rule,
require investigating authorities to compare allocation methodologies to assess their respective
advantages and disadvantages in each and every case, there may be particular instances in which the
investigating authority may be required to compare them in order to satisfy the explicit requirement of
the second sentence of Article 2.2.1.1 to "consider all available evidence on the proper allocation of
costs".
139. In the light of the foregoing analysis, we disag ree with what we understand to be the Panel's
interpretation of the phrase "consider all available evidence", namely, that an investigating authority is
never required, by virtue of the requirement to "cons ider all available evidence", to "compare various
allocation methodologies to assess their advantages and disadvantages".
211 In our view, that
interpretation will not always hold true. We therefor e reverse the Panel's finding that "Article 2.2.1.1
... does not require that investigating authorities compare various allocation methodologies to assess
their advantages and disadvantages but to 'consider' all available evidence on the proper allocation of
costs".212
140. We emphasize that our reversal of the Panel finding is limited to a disagreement with the
Panel's interpretation of the legal standard against which the Panel assessed USDOC's approach to
this issue. We are not expressing a view or making any finding on whether USDOC, in the instant

211See supra, para. 132.
212Panel Report, para. 7.238.

case, should have "compared" its own and Abitib i's methodologies and, assuming USDOC was under
such an obligation, whether USDOC in fact complied with it.
141. At the oral hearing, Canada clarified that it was not requesting us to both reverse the Panel's
finding on Article 2.2.1.1 and to find that the United States acted inconsistently with
Article 2.2.1.1.213 Instead, Canada stated that it requested us only to reverse the Panel's aforesaid
finding under Article 2.2.1.1. 214 We therefore do not proceed to complete the legal analysis and
examine whether the United States did or did not act consistently with Article 2.2.1.1 in relation to the
phrase "consider all available evidence".
142. As we have reversed the Panel's finding under Article 2.2.1.1 on the basis of the Panel's
interpretation of the phrase "consider all available evidence on the proper allocation of costs", we are
not required to address Canada's related arguments concerning the phrase "historically utilized", or its
argument relating to the sufficiency of factual evidence on the basis of which the Panel concluded that
an unbiased and objective investigating authority could have used USDOC's cost allocation method.
2. Consequential Claims
143. Canada has also appealed the Panel's findings th at the United States did not act inconsistently
with Articles 2.2, 2.2.1, and 2.4 of the Anti-Dumping Agreement.215 The Panel found that Canada's
claims before it under Articles 2.2, 2.2.1, and 2. 4 "rest upon a finding of violation of either
Article 2.2.1.1 or 2.2.2 or of both." 216 As the Panel found that the United States had violated neither
Article 2.2.1.1 nor Article 2.2.2, it rejected Canada's "dependent" 217 claims under Articles 2.2, 2.2.1,
and 2.4. Canada does not disagree with the Panel' s characterization of its claims under Articles 2.2,

213In its other appellant's submission, Canada requested the Appellate Body to:
reverse the Panel’s finding in paragraphs 7.236-7.245 and 8.1(b)(vi) of its
report and find, instead, that the United States violated Articles 2.2, 2.2.1,
2.2.1.1 and 2.4 of the [Anti-Dumping] Agreement by imposing anti-dumping
duties without properly weighing eviden ce on the proper allocation of costs
under Article 2.2.1.1 and determining that an unbiased and objective
investigating authority could make this determination without considering
factual findings made by that investigating authority[.]
(Canada's other appellant's submission, para. 76)
 214Canada's opening statement at the oral hearing. Moreover, Canada stated that "the facts were heavily
contested ... and Canada does not believe that this is a point on which the Appellate Body can complete the
analysis."
215Panel Report, paras. 7.245 and 8.1(a)(vi).
216Ibid., para. 7.245.
217Ibid.

2.2.1, and 2.4 as "dependent"
218 on a violation of Article 2.2.1.1; indeed, Canada itself describes these
claims of violations as "consequential". 219 Canada submits that "given the legal errors made by the
Panel in respect of Article 2.2.1.1, the Panel's determ inations with respect to Article 2.2, 2.2.1 and 2.4
are also incorrect."220
144. As we have reversed the Panel's findings under Article 2.2.1.1, we must, as a consequence,
reverse the Panel's findings that rest upon a finding of a violation of Article 2.2.1.1. We therefore
reverse the Panel's findings pursuant to Articles 2.2, 2.2.1, and 2.4 of the Anti-Dumping Agreement.
145. We note that Canada requests us not only to re verse the Panel's findings under Articles 2.2,
2.2.1, and 2.4 of the Anti-Dumping Agreement , but also to find that the United States acted
inconsistently with these provisions. At the oral hearing, Canada confirmed that it wished us to
complete the Panel's legal analysis to this effect. However, there is no finding by us of a violation of
Article 2.2.1.1—which violation w ould constitute the premise for a violation of Articles 2.2, 2.2.1,
and 2.4—and, therefore, there is no basis for us to determine as a consequence whether the United
States has acted inconsistently with Articles 2.2, 2.2.1, and 2.4 of the Anti-Dumping Agreement.
VI. Calculation of By-Product Revenue for Tembec
A. Introduction
1. Background
146. Before we begin our analysis, we review the background information that is relevant to the
issue raised by Canada on appeal.
147. As explained by the Panel, wood chips are one of the by-products of the process of sawing
logs into softwood lumber. 221 These wood chips are subsequently sold by sawmills, for example, to
pulp mills to produce paper. In calculating the cost of production of softwood lumber for Tembec and
West Fraser, two companies under investigation, USDOC treated the revenue generated by those
companies' "sales"222 of wood chips as income and subtracted from the cost of production of softwood
lumber the amount of that income. The issue ra ised by Canada before the Panel concerned the
determination of the appropriate amounts to be attributed to the sales of wood chips by Tembec and

218Panel Report, para. 7.245.
219Canada's other appellant's submission, para. 5.
220Ibid.
221Panel Report, para. 7.306.
222In this Report, we refer to the sales to affiliated pa rties by West Fraser, as well as the interdivisional
transfers by Tembec, as "sales".

West Fraser.223 More specifically, the issue before the Pa nel was "the extent to which [USDOC] was
required to, or precluded from, deriving wood chip revenue from valuations in the records of the
producers in question."224
148. The Panel observed that Tembec and West Fraser had different corporate structures. The
Panel stated that Tembec was a single entity including, inter alia, sawmills and pulp mills, and that
Tembec's sawmills sold wood chips to Tembec's pulp mills through " interdivisional transactions"225,
that is, through transactions within the same company . In contrast, West Fraser, according to the
Panel Report, "was divided in legally separate companies" 226, and sold wood chips to " affiliated
parties"227 (and not to entities within the same company).
149. In the case of West Fraser, USDOC valued sales transactions to affiliated parties based on
the price of wood chips sold by West Fraser to unaffiliated parties because the transactions between
affiliated parties did not occur at "arm's length pr ices". In contrast, in the case of Tembec, USDOC
concluded that the values contained in Tembec's records for interdivisional transfers (that is,
transfers between various divisions of the company) of wood chips were reasonable and non-
preferential; USDOC therefore rejected Tembec's arguments that these internal transfer prices were
below market prices, and declined to value the wood chips trans actions according to actual market
prices derived from arm's length sales made by Tembec to unaffiliated parties.228
2. The Panel's Findings
150. We next review briefly the Panel's findings concerning the valuation of wood chip revenue for
Tembec.
151. Canada claimed before the Panel that, in valuing wood chip revenue on the basis of the values
recorded in Tembec's books, USDOC acted inconsistently with Article 2.2.1.1, because it used records
kept by the exporter which did not "reasonably refl ect the costs associated with the production and

223Before the Panel, Canada argued that USDOC should have used, with respect to West Fraser, the
values included in that company's records for sales of wood chips to affiliated parties in British Columbia. With
respect to Tembec, Canada argued that USDOC was requi red to disregard the values recorded in Tembec's
books for internal transfers of wood chips and, instead, to use the values of transactions with unaffiliated parties.
(Panel Report, para. 7.307)
224Panel Report, para. 7.307.
225Ibid., para. 7.299.
226Ibid., para. 7.320.
227Ibid., para. 7.299.
228USDOC IDM, Comment 11, pp. 60 and 61. See also Panel Report, paras. 7.307, 7.314, and 7.327.

sale of the product under consideration". Canada ar gued that Article 2.2.1.1 obliges an investigating
authority to reject such records.
152. The Panel disagreed with Canada's contention that Article 2.2.1.1 requires that an
investigating authority reject the records of an exporter or pr oducer, where calculation of costs for
the product under investigation woul d be overstated or understated if the investigating authority were
to use those records as a basis for its cost calculations. The Panel therefore rejected Canada's claim.
229
The Panel proceeded, however, with its analysis, in addressing other arguments made by Canada, on
the assumption that Article 2.2.1.1 imposes on an investig ating authority the obligation posited by
Canada, that is, to reject an exporter's record wh en the records do not "reasonably reflect the costs
associated with the production and sale of the product under consideration."
153. Canada also argued before the Panel that US DOC applied a different methodology in the case
of Tembec than in the case of West Fraser and thereby failed to act in an even-handed manner.
Canada asserted that, by applying a different methodology to Tembec than to West Fraser, USDOC
acted in an other than "even-handed" manner. According to Canada, the methodology applied to
Tembec would "penalize" corporations that consum e their own by-products rather than selling these
by-products to other separate entities. 230 The Panel observed that West Fraser and Tembec "were in
different factual situations"; specifically , that Tembec was a "single entity including, inter alia ,
sawmills and pulp mills", while "West Fraser w as divided in legally separate companies." 231 T h e
Panel found that, in the light of the different factua l situations of the two companies, USDOC did not
"discriminate[] against Tembec by treating it differently from West Fraser." 232 Moreover, the Panel
found that USDOC's treatment of Tembec was th e same as that normally applied by USDOC for
"valuing costs in interdivisional sales." 233 As a result, the Panel rejected Canada's claim that USDOC
"acted in a biased, non-objective or non-even-hande d manner in applying a methodology to Tembec
different from that used with respect to West Fraser."234
154. The Panel furthermore rejected Canada's claim th at Article 2.2.1.1 requires that a by-product
offset must reasonably reflect the market value for that by-product. The Panel also concluded that an

229Panel Report, para. 7.316.
230In addition, Canada claimed that Article 2.2.1.1 requires that a by-product offset must reasonably
reflect the market value of this by-product, and that USDOC's valuation was incorrect because it assumed—
erroneously, according to Canada—that by-products have costs and can yield profits. Finally, Canada also
brought claims under Articles 2.2, 2.2.1, and 2.4 of the Anti-Dumping Agreement . (Panel Report,
paras. 7.321–7.325)
231Panel Report, para. 7.320.
232Ibid.
233Ibid.
234Ibid.

unbiased and objective investigating authority "could have used the actual cost of the input as
recorded in Tembec's books as a benchmark for valu ing internal transfers of wood chips" and that
such an authority "could have determined that the valuation in Tembec's books for internal transfers of
wood chips was not unreasonable."235
3. Canada's Appeal
155. Canada appeals only the Panel's conclusions concerning Tembec, and does not appeal those
concerning West Fraser.236 However, in its arguments on appeal, Canada refers to USDOC's approach
to valuing by-product revenue for West Fraser in support of its argument that USDOC failed to treat
Tembec in an even-handed manner. Canada argues that corporate structure provides "no rationale" 237
for the use of different tests in the valuation of by-products. USDOC's "new test"—the test it applied
to Tembec—is not even-handed because "it serves only to lower the by-product offset for corporations
with internal transfer values."238
156. Canada further argues that USDOC applied its ar m's-length test to West Fraser to determine
whether affiliated by-product sales reflected "market value", but did not apply that test in the case of
Tembec. The reason for this uneven treatment, in Canada's view, was related solely to Tembec's
corporate structure.
157. Canada submits that the Panel did not consider whether the "different factual situations"
provided a reasonable justification for the different treatment by USDOC and relies on the Appellate
Body's ruling in US – Hot-Rolled Steel to argue that USDOC "failed to exercise its discretion in an
even-handed fashion".239 Canada argues that USDOC's "only normal practice with by-products is to
use the arm's length test to valu e these offsets at market value" 240, but that, in the underlying
investigation, USDOC determined that "its new 'nor mal' practice" for valuing by-product revenue was

235Panel Report, para. 7.324. The Panel also rejected Canada's claims regarding Articles 2.2, 2.2.1, and
2.4 because Canada had based these claims on the premise that the United States had acted inconsistently with
Article 2.2.1.1. Given that Canada had not establishe d that the United States had acted inconsistently with
Article 2.2.1.1, the Panel rejected Canada's claims under Articles 2.2, 2.2.1, and 2.4 as well. (Panel Report,
paras. 7.325 and 7.326)
236Before the Panel, Canada claimed that USDOC erred both in its valuation of the by-product revenue
for Tembec, as well as for West Fraser. The Panel exam ined separately the conclusions of USDOC in relation
to Tembec and West Fraser, respectively, and concluded that, with respect to both companies, USDOC had not
acted inconsistently with Article 2.2.1.1 of the Anti-Dumping Agreement. (See Panel Report, paras. 7.314–7.326
for Tembec and paras. 7.327–7.348 for West Fraser)
237Canada's other appellant's submission, para. 57.
238Ibid., para. 61.
239Ibid., paras. 64 and 67 (referring to Panel Report, para. 7.320)
240Ibid., para. 72.

to "accept low book values within a single corporation."
241 In Canada's view, USDOC's departure
from its normal practice in this case demonstrates USDOC's failure to provide even-handed treatment.
158. The United States "does not dispute the genera l proposition that an investigating authority
must make its determinations in an objective and even-handed manner" 242; however, the United
States submits that the question whether USDOC' s by-product offset calculation was objective and
even-handed is a factual matter falling outside the scope of appellate review. The United States
argues that, if the Appellate Body were not to agree that this is a factual matter and thus decides to
consider the merits of Canada's appeal, it should reject the claim. The United States asserts that
Canada's argument is based on the "flawed premise" 243 that Tembec and West Fraser were similarly
situated and that, therefore, USDOC should have valued each company's by-product revenue using the
same methodology. According to the United States , the different corporate structures of these two
companies justified the use of different me thodologies by USDOC. Canada's reliance on the
Appellate Body Report in US – Hot-Rolled Steel is thus misplaced, because in that dispute the
Appellate Body found that the same rule should a pply when comparing similar things, that is, when
comparing affiliated transactions to affiliated tran sactions. However, according to the United States,
in this case, "Canada has not demonstrated that th e things being compared—interdivisional transfers,
on the one hand, and sales between affiliated entities, on the other hand—are similar". 244
B. Analysis
159. Before addressing the substance of Canada's appeal, we address the argument by the United
States concerning our jurisdiction on this aspect of the appeal.
1. The United States' Argument That the I ssue Raised by Canada Is an Issue of
Fact
160. The United States submits that the issue rais ed by Canada on appeal—whether USDOC
exercised its discretion in calculating wood chip of fset revenue for Tembec in an "objective" and
"even-handed" manner—is "a factua l [issue] and, accordingly, is beyond the scope of appellate
review".245

241Canada's other appellant's submission, para. 74. (footnote omitted)
243Ibid., para. 69.
244Ibid., para. 75.
245Ibid., para. 55. The United States maintains that the Appellate Body should decline to consider
Canada's argument for failure to raise an issue of law covered in the Panel Report or a legal interpretation
developed by the Panel, within the meaning of Article 17.6 of the DSU. (United States' appellee's submission,
paras. 55 and 63)

161. As we have noted, the United States does " not dispute the general proposition that an
investigating authority must make its determinati ons in an objective and even-handed manner, as the
Panel correctly found that [USDOC] did in this case" 246, but does not find such an obligation in
Article 2.2.1.1 of the Anti-Dumping Agreement. The United States further asserts that:
Given that Canada’s argument is premised on an obligation not found
in Article 2.2.1.1, Canada’s ar gument should not be construed as
raising a question about the consiste ncy or inconsistency of a given
fact or set of facts with the requirements of that provision. Rather, it
is a pure factual question of how the Panel assessed [USDOC's]
actions.247
162. We also note that, in US – Hot-Rolled Steel, the Appellate Body stated:
Although we believe that the Anti-Dumping Agreement affords
WTO Members discretion to determine how to ensure that normal
value is not distorted through the inclusion of sales that are not "in
the ordinary course of trade", that discretion is not without limits. In
particular, the discretion must be exercised in an even-handed way
that is fair to all parties affect ed by an anti-dumping investigation .248
(original italics; underlining added)
163. In our view, the issue raised by Canada—whether an investigating authority has exercised its
discretion in an even-handed manner—is a question of la w. The fact that such an "obligation [is] not
found in Article 2.2.1.1" is not dispositive. Whet her a particular approach of an investigating
authority is, or is not, even-handed is, ultimat ely, a matter of the "legal characterization" 249 of facts
and, as such, a matter of law. We are thus unable to agree with the United States that the issue raised
by Canada with respect to the lack of even-ha nded treatment on the part of USDOC is beyond the
scope of appellate review.
164. We now turn to the two factual assertions that serve as the basis for Canada's legal argument
concerning even-handed treatment, namely that the two companies, Tembec and West Fraser, were
"similarly situated" and that USDOC acted inconsiste ntly with its "normal practice" for valuing by-
products in the case of Tembec. Without embracing Canada's articulation of the elements of even-
handed treatment, we examine Canada's arguments on appeal.
165. Canada argues that USDOC, in evaluating whether Tembec's records "reasonably reflect" the
cost of production of the product under consideration (t hat is, softwood lumber), failed to exercise its

247Ibid., para. 63.
248Appellate Body Report, US – Hot-Rolled Steel, para. 148.

discretion in an even-handed manner. In this r espect, we understand Canada to argue that USDOC's
treatment of Tembec was other than even-handed because Tembec and West Fraser were "similarly
situated" and were treated differently in the valu ation of their by-product revenue (that is, wood
chips)
250; Canada also argues that USDOC failed to provide even-handed treatment to Tembec
because USDOC, in this case, "d epart[ed] from normal practice" 251, which practice, according to
Canada, is to apply the "arm's length test for the valuation of by-products".252
2. Differential Treatment of Tembec and West Fraser
166. The first sentence of Article 2.2.1.1, the provi sion under which the Panel made the contested
finding, stipulates:
For the purpose of paragraph 2, costs shall normally be calculated on
the basis of records kept by the exporter or producer under
investigation, provided that such records are in accordance with the
generally accepted accounting principles of the exporting country and
reasonably reflect the costs associated with the production and sale of
the product under consideration.
167. Canada contends that USDOC's treatment of Tembec was not even-handed because Tembec
was treated unlike any other respondent (more specif ically, that Tembec was treated differently from
West Fraser) and that USDOC's "internal transfer test systematically increases dumping margins".
253
Canada relies upon the Appella te Body's findings in US – Hot-Rolled Steel as the basis for its claim,
and argues that in that case, the Appellate Body re jected the proposition that "high-priced sales were a
different factual situation [from low-priced sal es] to which a different test would apply". 254 Canada
submits that the "essence of the Panel's error in the instant case was no diffe rent", because the Panel
accepted USDOC's contention that the "different fact ual situations" at issue permitted differential
treatment of different respondents.

250Canada's other appellant's submission, para. 67.
251Ibid., para. 74.
252Ibid., heading II.A.3, p. 26. See also Canada's other appellant's submission, para. 72. We note that
Canada's appeal relates to the Panel's arguendo finding, which the Panel made on the assumption that
Article 2.2.1.1 contains the obligation— previously rejected by the Panel—for an investigatin authority to reject,
as the basis for cost calculations, the re cords of an exporter or producer that do not "reasonably reflect" the cost
of production of the product under consideration. (See Panel Report, paras. 7.316 and 7.317)
253Canada's other appellant's submission, heading II.A.1, p. 22.
254Ibid., para. 64.

168. We recall the following statement of USDOC:
[w]ith respect to Tembec, the facts of this case differ slightly [from
the situation of West Fraser] in that the wood chip transactions are
between divisions of the same legal entity.
255
169. In this regard, the Panel stated that:
West Fraser and Tembec were in different factual situations. While
Tembec was a single entity including, inter alia, sawmills and pulp
mills, West Fraser was divided into legally separate companies. For
this reason, we do not consider th at [US]DOC discriminated against
Tembec by treating it differently from West Fraser.
256
170. As both parties have referred to certain findings in the Appellate Body Report in US – Hot-
Rolled Steel, we briefly turn to consider the relevance of that appeal for the issue before us. In US –
Hot-Rolled Steel, the Appellate Body addressed USDOC's approach to determining whether sales to
affiliated parties were or were not made in the ordi nary course of trade. The analysis in that case did
not involve the issue of whether two different resp ondents were or were not similarly situated, or
whether the investigating authority was required to ac t in an even-handed manner in its treatment of
two such respondents. It is nece ssary to bear these factual differe nces in mind when relying on the
Appellate Body Report in US – Hot-Rolled Steel in this appeal.
171. Canada acknowledged at the oral hearing that neither the methodology applied by USDOC to
Tembec, nor the methodology applied by USDOC to West Fraser, taken separately and independently
of each other, is incompatible with the Anti-Dumping Agreement.
257 Canada's claim is that USDOC's
approach to valuation of by-product revenue in the case of Tembec stands in "unjustifiable contrast"258
to USDOC's approach in the case of West Fraser. Canada contends that there is no reason "why
Tembec, in its inter-divisional transfers, should be treated differently from the affiliated transactions
between West Fraser and its affiliates, some of which were wholly-owned subsidiaries."
259 Canada
also argues that, if two respondents in an anti-dumpi ng investigation are "similarly situated, then there
is no reason to differentiate." 260 However, Canada said that if we were to find that the two
respondents were not "similarly situated", Canada wo uld "insist only on a consistency

255USDOC IDM, Comment 11, p. 60.
256Panel Report, para. 7.320.
257Canada's response to questioning at the oral hearing.
258Canada's other appellant's submission, para. 67.
259Canada's response to questioning at the oral hearing.
260Ibid.

requirement".
261 The logical consequence of Canada's position, therefore, is that if the two
respondents are not similarly situated, the application of the same methodology to both respondents
would not necessarily be required.
172. Canada further submits that the Panel "did not consider whether the 'different factual
situations' provided a reasonable justif ication for the different treatment". 262 Canada argues that,
although Tembec and West Fraser differ in their corporate structure, this difference is not a reasonable
justification for applying different methodologies to the two companies, because both companies also
share certain characteristics. According to Canada, Tembec is a "large corporation that has many
divisions that operate for the most part as indepe ndent entities" and West Fraser "operates sawmills
and controls wholly owned subsidiaries". 263 As a result, according to Canada, "both companies have
the ability to determine related-party pricing for wood chips".264
173. In our view, Canada objects to the Panel's char acterization of the two companies, which led
the Panel to conclude that the two companies were differently situated (such that, as a consequence,
the application of different methodologies was justified) . We note that the Panel, in its brief analysis
of this issue, based itself on the fact that Tembec was a "single entity including, inter alia, sawmills
and pulpmills", while West Fraser was "divided in le gally separate companies". On the basis of these
facts, the Panel drew the conclusion that West Fraser and Tembec were "in different factual
situations", such that USDOC "[did not] discriminate[] against Tembec by treating it differently from
West Fraser" and that, therefore USDOC had not "acted in a biased, non-objective or non-even-
handed manner".
265
174. We recall our view 266 that the question whether an inv estigating authority exercised its
discretion in an even-handed manner is a legal issue; in contrast, the underlying question in the case
before us whether two companies were or were not in "different factual situations" is a question of
fact. This being a factual question, we must determin e whether there is any reason for us to interfere
with the Panel's factual finding on this point. As the Appellate Body has often observed, it will not
interfere lightly with a Panel's assessment of the facts. 267 We are not persuaded that in this case the

261Canada's response to questioning at the oral hearing.
263Ibid., para. 66.
264Ibid.
265Panel Report, para. 7.320.
266Supra, para. 163.
267Appellate Body Report, US – Wheat Gluten, para. 151. See also Appellate Report, EC – Hormones,

Panel, in exercising its function as the trier of fact s, committed an error that warrants disturbing the
Panel's factual finding.
175. We further recall that the logic of Canada's position is that if two respondents are not similarly
situated, the application of the same methodology to both respondents would not necessarily be
required. As we do not disturb the Panel's factua l finding that Tembec and West Fraser were "in
different factual situations", the basis for Canada's appeal regarding lack of even-handed treatment of
Tembec has not been established.
176. We now turn to Canada's argument that USDO C "has consistently applied the arm's length
test for the valuation of by-products" 268 and that, by departing from this "normal practice" 269 in the
case of Tembec, USDOC failed to accord even-handed treatment to Tembec.
3. The "Requirement" to Apply a Met hodology Consistent with "Normal"
Practice
177. As we have noted above, Canada argues that, if the Appellate Body were to find that Tembec
and West Fraser were not similarly situated, Canada w ould "only insist on a consistency
requirement".270 According to Canada, USDOC's "only normal practice with by-products is to use the
arm's length test to value th ese offsets at market value".271 To address this argument, we will assume,
arguendo, that Canada's "consistency with normal practi ce" criterion is applicable when determining
whether the exercise of discretion by an investigating authority is even-handed.
178. As stated above, Canada is of the view that in its approach to valuing Tembec's by-product
revenue, USDOC "depart[ed] from [its] normal practice" 272 of valuing by-products. The participants
disagree on what constitutes USDOC's "normal" practi ce in this regard. Canada argues that this
"normal practice" is that used by USDOC in a previous case to value by-products273, while the United
States contends that the appropriate practice is USDOC's general approach to valuing inputs in
interdivisional transfers . The facts concerning USDOC's normal practice on by-product revenue
valuation in interdivisional transfers are thus contested.

268Canada's other appellant's submission, heading II.A.3, p. 26.
269Ibid., para. 74.
270Canada's response to questioning at the oral hearing. We again recall Canada's argument that
USDOC's "departure from normal practice in this case demonstrates its failure to provide even-handed
treatment". (Ibid., para. 74)
271Ibid., para. 72.
272Ibid., para. 74.
273Canada refers to the Notice of Final Determinati o n o f S a l e s a t L e s s T h a n F a i r V a l u e : P u r e
Magnesium From Israel, 66 Fed. Reg. 49349 (Dept. Comm. Sept. 27, 2001). (Ibid., para. 72)

179. The Panel found, as a matter of fact , that the methodology applied by USDOC to Tembec's
wood chip sales was the same as that normally applied by USDOC for "valuing costs in
interdivisional sales".
274 We understand the Panel to find th at USDOC had not departed from its
normal practice regarding valuations in interdivisional transactions in the case of Tembec.
180. Here again, we are not persuaded that there is any reason that warrants disturbing the Panel's
factual finding with respect to consistency of the methodology applied in the case of Tembec.
4. Conclusion
181. We recall that in this case Canada' articula tion of the elements of even-handed treatment
depends on factual findings that the two comp anies are "similarly situated" and that USDOC
"depart[ed] from [its] normal practice". On these tw o elements the Panel made factual findings to the
contrary, and we have not disturbed these factual findings. Therefore, even assuming for the sake of
argument that the two elements put forward by Cana da in this case could possibly serve as a basis for
even-handed treatment, Canada's case falls on its own grounds. We wish to make it clear that we are
not making a finding as to whether Canada has corr ectly articulated the elements of even-handed
treatment for the purposes of this case. Accordingly, we uphold the Panel's findings that the United
States did not act inconsistently with Article 2.2.1.1 of the Anti-Dumping Agreement.
5. Consequential Claims
182. Canada submits that "[a]s a result of the Panel' s findings in relation to Article 2.2.1.1, the
Panel concluded that the United States did not act inconsistently with its obligations under
Articles 2.2, 2.2.1 and 2.4 of the [ Anti-Dumping Agreement ]."275 As we have upheld the Panel's
finding under 2.2.1.1, we consequently uphold the Pa nel's findings that the United States did not act
inconsistently with Articles 2.2, 2.2.1, and 2.4 of the Anti-Dumping Agreement.

274Panel Report, para. 7.320.
275Canada's other appellant's submission, para. 75.

VII. Findings and Conclusions
183. For the reasons set out in this Report, the Appellate Body:
(a) upholds the Panel's finding, in paragraphs 7.224 and 8.1(a)(i) of the Panel Report, that
the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping
Agreement in determining the existence of margins of dumping on the basis of a
methodology incorporating the practice of "zeroing";
(b) reverses the Panel's finding, in paragraphs 7. 238–7.245 and 8.1(b)(vi) of the Panel
Report, that the United States did not act inconsistently with Articles 2.2, 2.2.1,
2.2.1.1, and 2.4 of the Anti-Dumping Agreement in its calculation of the amount for
financial expense for softwood lumber for Abitibi, but does not make findings on
whether the United States acted consistently or inconsistently with these provisions;
and
(c) upholds the Panel's findings, in paragraphs 7. 319–7.326 and 8.1(b)(ix) of the Panel
Report, that that the United States did not act inconsistently with Articles 2.2, 2.2.1,
2.2.1.1, and 2.4 of the Anti-Dumping Agreement in its calculation of the amount for
by-product revenue from the sale of wood chips as offsets in the case of Tembec.
184. The Appellate Body recommends that the Dispute Settlement Body request the United States
to bring its measure into conformity with its obligations under the Anti-Dumping Agreement.

Signed in the original at Geneva this 22nd day of July 2004 by:

A.V. Ganesan
Presiding Member

 _________________________ _________________________
 Luiz Olavo Baptista Merit E. Janow
 Member Member

ANNEX 1

18 May 2004
 (04-2166)
 Original: English

Notification of an Appeal by the United States
under paragraph 4 of Article 16 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes (DSU)

 The following notification, dated 13 May 2004, from the Delegation of the United States, is
being circulated to Members.

Pursuant to Article 16 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes ("DSU") and Rule 20 of the Working Procedures for Appellate Review, the
United States hereby notifies its decision to appeal to the Appellate Body certain issues of law
covered in the Report of the Panel on (WT/DS264/R) and certain legal interpretations developed by the Panel.

The United States seeks review by the Appellate Body of the Panel's legal conclusion in
paragraphs 7.224 and 8. 1(a)(i) of the Panel's Report, and the reasoning leading thereto. Therein, the
Panel found that the determination of the U.S. Department of Commerce was inconsistent with
Article 2.4.2 of the Agreement on Implementation of Article VI of the General Agreement on Tariffs
and Trade 1994 inasmuch as it was based on a methodology whereby sales in the United States of
different models or types of merchandise at a bove their normal value were not accounted for by
offsetting or reducing the amount of dumping found to have occurred with respect to other models or
types (a methodology referred to by the Panel as "zer oing"). This finding is in error and is based on
erroneous findings on issues of law and related le gal interpretations contai ned in paragraphs 7.213
through 7.223 of the Panel's Report.