Document: WT/DS257/R Page A-1 ANNEX A PARTIES' RESPONSES TO QUESTIONS FROM THE FIRST MEETING Contents Page Annex A-1 Canada Response to Questions from the Panel at First Meeting A-2 Annex A-2 United States Response to Questions from the Panel at the First Meeting A-35
Document codes: WT/DS257/R
Complainant: Canada
Respondent: U.S.
Third parties: China, EU, India, Japan
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. 10, 11, 32, 1, 2, 12, 14, 19, 22  Subsidies and Countervailing Measures (SCM)Art. VI, X:3  GATT 1994Art. 21  Subsidies and Countervailing Measures (SCM)

ANNEX A
PARTIES' RESPONSES TO QUESTIONS
FROM THE FIRST MEETING
Contents Page
Annex A-1 Canada Response to Questions from the Panel at First Meeting A-2
Annex A-2 United States Response to Questions from the Panel at the First
Meeting
A-35

ANNEX A-1
CANADA RESPONSE TO QUESTIONS FROM
THE PANEL AT THE FIRST MEETING
(24 February 2003)
Q2. Could Canada please indicate what the stumpage fee covers, i.e, what the timber
harvester pays for with the stumpage fee. Is it the right to own the harvested tree? The right to
cut the tree? Both? Something else? In this context, please comment on the statement at
paragraph 3 of the 12 February 2003 closing statement of the United States that "[t]he mills pay
to get that tangible timber – not intangible rights – and they pay only for the timber they
harvest".
Reply
1. A stumpage fee is not a price paid by tenure holders in return for “timber”. This is because
provinces transfer stumpage – the right to harvest trees on Crown land – in exchange for a number of
obligations to be assumed by the tenure holder, one of which is the payment of a stumpage fee or
charge after the timber is cut. The tenure holder thus “pays” for its right to harvest by accepting these
obligations – the payment of the fee upon harvest as well as in-kind payments regardless of harvest.
2. From the perspective of both the provinces and the tenure holder, the distinction between the
right to harvest and the end product has significant legal and economic consequences. A tenure or
licence represents the right to current and futu re harvests. Tenure holders incur silviculture
responsibilities and stumpage fees based on the amount of standing timber they harvest. A tenure or
licence also carries current and future obligations such as forest management planning, fire protection,
and insect and disease control. These obligations are independent of any harvest. Finally, in
accepting a long-term tenure, a harvester accepts responsibility for transforming immovable or real
property into movable personal property or g oods, and to provide ongoing conservation and
management services in respect of the real property.
3. In this way, the right to harvest standing timber granted by Canadian provincial governments
is fundamentally different from a simple ownership right in harvested trees. A tenure holder incurs
costs and risks that it would not incur if it simply purchased trees. Provincial governments require the
discharge of several responsibilities before the right to harvest timber may be exercised. In contrast,
the simple sale of short-term cutting rights on public lands in the United States concerns the harvest
that is currently available. In addition, in US forests, the government undertakes many of the
obligations that are borne by Canadian tenure holders.
4. Canada notes, of course, that the question of the existence of a financial contribution must be
approached from the perspective of the alleged provider of the alleged good – in this case, the
provincial governments. In this vein, it is instructive to note that outside the United States, most
natural resources are owned by governments. When production decisions are turned over to the
private sector, the question arises of the fiscal mechanisms by which governments should be
compensated for the extraction or use of the resources. The practices by which governments levy
charges on government-owned and privately managed natural resources vary greatly. They all
involve similar issues.
5. The principal problem governments face in determining charges is the trade-off between
production efficiency and ensuring a maximum return to the government. In a world of incomplete

information and imperfect markets, no fiscal mechanism guarantees both productive efficiency and
maximum return.1
6. Governments use a wide variety of instruments to balance the tension between these two
goals. The United States often relies on private ownership—based on prior transfer of the land
itself—or on auctions for oil and gas, minerals, and standing timber on lands still in public ownership.
Other governments use specialized fiscal devices, such as production-sharing arrangements, resource-
rent royalties, and gross or net revenue sharing. In many instances, these charges are denominated as
taxes rather than royalties or production charges. An example is the “resource-rent tax” or RRT in
Australia.
2
7. As the Australian RRT illustrates, these fisc al instruments generally do not and cannot collect
100 per cent of the resource rents. All of the levies governments use impose some penalty on
production efficiency, and governments strive to develop fiscal mechanisms that will not stifle the
incentive to produce.
Q3. Canada argues that there is a meaningf ul legal distinction, under the stumpage
programmes, between the right to harvest and the right to own the harvested tree. Could
Canada please indicate the significance, in con crete terms in respect of this dispute, of this
distinction – i.e., are there any stumpage contra cts where the timber harvester does not have
ownership rights to the harvested timber? If so, please provide a specific description of these
situations and an indication of their magnitude in relation to total stumpage.
Reply
8. In Canada most forms of tenure confer a right to harvest standing timber that is in the nature
of a proprietary interest. The legal nature of this right, and the point at which the harvester owns the
harvested tree varies depending on the form of tenure and the provincial jurisdiction.
British Columbia
9. Long-term tenure holders in British Columbia have the legal right to cut timber on a defined
area of Crown land. The tenure holder owns the lo gs resulting from the harvest of standing timber.
The right to harvest also includes a right of access to the land for that purpose. These two aspects
constitute one integral interest in land described in the common law as a profit à prendre.
3
Alberta
10. In Alberta the two forms of long-term tenure arrangements are the Forest Management
Agreement (“FMA”) and the Timber Quota. FMAs account for more than 60 per cent of the annual
allowable cut in Alberta. Timber Quotas account for close to 30 per cent of the annual allowable cut.
11. The legal nature of FMAs is set out in Section 16(2) of Alberta’s Forests Act:

1 In the case of volumetric stumpage charges for the exercise of timber-harvesting rights in British
Columbia, this trade-off is discussed and illustrated in Nordhaus 2001a. (Exhibit CDA-13)
2 The Australian RRT is levied on net cash flows for oil and gas projects that achieve a specified return.
The return was originally set at 15 percentage points above the long-term bond rate. The threshold rate
compounds pre-tax cash flows until a positive cumulative cash flow emerges. At that point, a tax rate of 40 per
cent is levied on resource rents. The government’s share of net rents on a present value basis is therefore 40 per
cent, while 60 per cent is retained by the producer.
3 See footnote 12 of Canada’s First Written Submission and Exhibits CDA-9 to CDA-12.

Except as against the Crown and subject to any agreement to the contrary, ownership
of all Crown timber on land subject to a forest management agreement or forest
management lease is, during the term of the agreement or lease, vested in the holder
of the agreement or lease, who is entitled to reasonable compensation from any
person who causes loss of or damage to any of the timber or improvements created by
the holder.
4 [emphasis added]
12. This provision confers a proprietary interest in the standing timber to the FMA holder.
However, it does not convey complete ownership of the standing timber as the provision stipulates
that the Crown retains its superior rights after the tenure is conferred. The FMA holder obtains full
ownership rights in the harvested timber only after the harvest.
13. Timber Quotas give the tenure holder the right to harvest a percentage of the annual allowable
cut in a particular forest area. These tenures do not convey a real property interest. Instead, the
tenure holder receives a licence to cut a certain number of trees in an area if it meets certain
obligations. Licences generally are issued every 3 or 4 years. Full ownership interest in the harvested
timber vests in the quota holder when the timber is cut.
Ontario
14. In Ontario the province uses two major forms of licence to provide access to Crown timber:
Sustainable Forest Licences and Forest Resource Licences. These licences provide a legal right to
harvest standing timber, but do not confer a proprietary interest in land. 5 Ontario also differs from
other provinces in that the ownership of harvested timber is not transferred to the harvester until all
stumpage fees have been paid.6
Québec
15. In Québec the Crown timber supply is manage d through a long-term form of tenure referred
to as a Timber Supply and Forest Management Agreement (“TSFMA”). This form of tenure accounts
for 99.4 per cent of the annual Crown softwood harvest. The provisions of the Forest Act govern
ownership rights in the province.7
16. A TSFMA provides for the right to enter specified public lands and harvest a limited volume
of timber as described in the agreement. 8 For each TSFMA, an annual forest management plan must
be submitted to the Ministère des Ressources Naturelles for approval. After the plan is approved, the
TSFMA holder receives a forest management permit that allows it to harvest specific cutting areas in
accordance with the plan. The Québec Forest Act provides that this forest management permit
confers harvesting rights that are immovable rights. 9 It also provides that ownership of harvested

4 Forests Act, R.S.A. 2000, Chapter F-22. (Exhibit CDA-115) Under section 1(l) of the Forests Act,
the term “timber” means all trees living or dead, of any size or species and whether standing, fallen, cut or
extracted.
5 Crown Forest Susta inability Act, 1994, S.O. 1994, c. 25, at s. 36. (Exhibit CDA-116) Black’s Law
Dictionary defines a licence as follows:
A revocable permission to commit some act that would otherwise be unlawful; esp., an agreement (not
amounting to a lease or profit à prendre) that it will be lawful for the licensee to enter the licensor’s land to do
some act that would otherwise be illegal, such as hunting game.
See: B.A. Garner, ed., Black’s Law Dictionary, 7
th Ed. (St Paul: West Group, 1999), at 931. (Exhibit
CDA-117)
6 Crown Forest Sustainability Act, 1994, S.O. 1994, c. 25, at s. 33. (Exhibit CDA-116)
7 S.Q., Ch. F-4.1. (Exhibit CDA-118)
8 Ibid., at s.42.
9 Ibid., at s. 87.

timber vests in the harvester once logs reach the processing facility, or when the harvester pays the
appropriate stumpage fee.10
Q4. Is it possible for a tenure holder to sell to another party its own contractual right to
harvest, without the permission of the provincial government, and while maintaining its tenure
contract in force? In other words, can someone enter into a stumpage contract and then sell off
the rights to harvest under that contract?
Reply
17. The answer to this question varies from province to province.
British Columbia
18. In British Columbia tenures themselves are transferable with the approval of the provincial
government. In fact, tenures are frequently traded. As well, a tenure holder may arrange a contract
with a third party – usually a logging contractor who is already working on behalf of the tenure holder
– that allows that third party to log a part of the tenure at his/her own risk and take the resulting profit
or loss. In this scenario, the tenure holder is in effect assigning his/her initial ownership rights to a
third party. Government approval is not required. The tenure holder remains ultimately responsible
for the forest management obligations on the tenure, including road construction and maintenance,
planning and silviculture.
Alberta
19. In Alberta, the tenure holder may sell or su bcontract the right to harvest without seeking
government permission. The tenure holder remains responsible to the government for all obligations.
A tenure holder may also transfer tenure. Government approval is required, but this is routinely
granted.
Ontario
20. In Ontario harvest licences are not property rights that can be sold. Where a business holding
tenure is sold or sells assets (harvesting equipm ent, physical buildings, goodwill, etc.) the provincial
government may consent to forest resource licences being transferred to the buyers of a business, and
has regularly done so.
21. Tenure holders may enter into contracts under which the other contracting party receives their
right to harvest. This may be done through the use of an “overlapping agreement” that is recognized
by the provincial government.
Québec
22. In Québec, TSFMAs are not transferable to another party. TSFMAs are agreements between
the province and a specific party. If the party to a TSFMA sells the related timber processing facility,
the accompanying TSFMA is revoked and reverts to the province as the owner and steward of the
public forest. A new TSFMA between the province and the new owner of the timber processing
facility must be approved by the province and executed. There is no guarantee that an entity
purchasing a timber processing facility will acquire the tenure that was previously associated with that
facility.

10 Ibid., at s. 8.

23. In the recent examples of large scale timber processing facility acquisitions, applications to
re-issue the same tenures to the new mill owner were presented to and approved by the Ministère des
Ressources Naturelles after confirmation that the new owner had the necessary resources to ensure the
continuing fulfilment of the obligations that run with the tenures and that the necessary forest plans
were in place. In those cases, new TSFMAs were executed with the new timber processing facility
owner. In all cases, TSFMAs are linked to the actual, residual supply needs of timber processing
facilities and the parties’ capacity to fully perform the duties and obligations that run with the tenures.
Q5. Concerning newcomers seeking access to stumpage:
(a) Could Canada please indicate how a newcomer seeking stumpage goes about
obtaining it. Please discuss, inter alia, the availability of forested land that is not
already subject to tenure contracts; the required capacities that the newcomer
must have in order to obtain a tenure contract; how long it typically takes
between an initial request from a newcomer and the execution of a stumpage
contract; and any other relevant elements.
Reply
24. “Stumpage” is the right to harvest standing timber. It is transferred to harvesters as part of
tenure agreements that generally require harvesters to assume a variety of obligations including road-
building, silviculture and numerous other forest management responsibilities.
25. Canada understands the Panel to be asking how newcomers enter into tenure agreements and
obtain stumpage as part of those agreements. Canadians have been harvesting forests for centuries
and there are claims of one kind or another, whether through private ownership or tenure
arrangements, on most accessible forests. Consequently, there are inevitable and obvious limits on
the creation and availability of entirely new tenures, which imply grants of access to previously
unclaimed stands of trees. Some new tenures are created, but the much more common phenomenon is
trade, in one form or another, in already established tenures. Such trade is very common and very
widespread. What follows is a discussion based on British Columbia, Alberta, Ontario and Québec.
Together these provinces account for 96 per cent of lumber exports from Canada.
British Columbia
26. In British Columbia there are various ways for a “newcomer” to obtain stumpage rights.
First, short-term tenures are advertised publicly and are open to application by registrants in the Small
Business Forest Enterprise Programme (“SBFEP”). For one type of short-term tenure, registrants
must be market loggers who do not own processing facilities.
11 The applications are awarded solely
on the basis of the highest bid pursuant to an auction process. For the second type of short-term
tenure, registrants cannot hold a major long-term tenure. Applications are awarded on the basis of a
number of neutral factors including price. Hundreds of these short-term tenures are awarded each
year under the SBFEP programme. These SBFEP tenures collectively accounted for about 12 per
cent of the Crown harvest during the period of investigation. These licences are generally of one to
two years duration, are not replaceable, and have no forest management obligations. The Ministry of
Forests advertises the availability of new tenures and newcomers can then apply to participate in the
bids for those new tenures.
12

11 See Response of the Government of British Columbia to US Department of Commerce 1 May 2001
Questionnaire (28 June 2001), Vol. 1 at BCIII-1 to III-3. (Exhibit CDA-119)
12 Ibid., Vol. 1 at BCIII-1; BCIV-50 to 51.

27. Second, long-term tenures may be and are purchase d from existing tenure holders. Transfers
of tenure in British Columbia are quite frequent. 13 A majority of British Columbia’s major long-term
replaceable tenures in fact have been transferred in market transactions since their issuance to the
initial tenure holders.14 This demonstrates that newcomers have access to stumpage rights in British
Columbia through the acquisition of existing tenures. Numerous major US companies, for example,
have obtained tenures in this manner.
28. In general, eligibility for concluding tenure agreements with the province is open to any legal
or natural person satisfying easily met criteria. For example, US corporations can purchase and have
purchased tenures in British Columbia and are also free to participate in the SBFEP programme.
Transfers of tenure are subject to approval of the provincial government, which is generally granted.
Alberta
29. There are three types of commercial tenure arrangements in Alberta used to harvest
coniferous timber: the long-term Forest Mana gement Agreement (FMA) and the Timber Quota
(already discussed above), and the short-term Commercial Timber Permit (CTP).
30. A newcomer seeking access to Alberta stumpage would have several options for obtaining it.
First, approximately 4 per cent of Alberta’s fo rests are not under tenure, and a newcomer could
compete for new tenures that might be offered. Second, a newcomer could buy a company holding
tenure or could buy that company’s tenure. While provincial permission is required for tenure
transfers, it is routinely granted. It is not uncommon for companies to be bought and sold, with their
tenure rights being conveyed to the purchaser. During the period of investigation, for example, seven
small Timber Quotas were transferred. Third, a newcomer could compete for the short-term permits
(CTPs). These permits convey rights to cut timber for 3 to 5 years. They are issued either through
open auctions, sealed tender or by direct sale in certain communities to the residents there. CTPs
represent about 7 per cent of Alberta’s annual allowable cut.
31. The basic eligibility criterion for entering into a tenure arrangement offered in Alberta for
timber harvesting rights is that the person be 18 years of age. The process thereafter depends on the
tenure type. Timber Quotas generally have been sold in auctions open to all, with no processing
requirements attached. Timber Quota auctions are advertised ahead of time. A bidder must make a
lump sum cash bid for the tenure, as well as commit to paying regulation stumpage dues and
miscellaneous fees, and promise to undertake a variety of forest management obligations. It generally
has taken less than 6 months between the advertis ement for the Timber Quota and issuance of the
Quota.
32. FMAs are not sold at public auction, but are entered into after a competitive selection process.
The selection process considers which proposal is best able to fulfill the purpose of the FMA, which
includes goals such as long-term utilization of the resource, protection of the environment, and
government revenues and taxes. Typically, when large timber supplies afford the opportunity, the
province advertises the availability of timber development areas. The province gives interested
parties a specified period to analyze the resources in the area and prepare and submit their proposals
for managing and developing it. The province reviews each proposal to ensure it addresses forest
management objectives established by the province.
33. Once a company has decided on its timber development proposal, the province will
incorporate a commitment based on that proposal into the FMA to ensure the timber is not wasted.
However, the government does not encourage any particular type of facility and there are no

13 See Response of the Government of British Columbia to US Department of Commerce
17 December 2001 Supplemental Questionnaire at Exhibit BC-S-168. (Exhibit CDA-120)
14 Ibid., at 3.

requirements that the FMA timber be used in the facility. In addition, subject to government
approval, the company can change its development direction. The FMA process is detailed and
therefore time consuming. On average, it might take 2 to 4 years from the advertisement of timber
area to the completion of the FMA.
34. CTPs sold by auction or sealed tender are advertised ahead of time. These auctions/tenders
generally involve per cubic metre bids, agreement to pay reforestation levies and miscellaneous
charges, and limited forest management obligations. Directly-sold CTPs pay regulation stumpage
fees, as opposed to bids, but otherwise are the same as their bid counterparts. CTP eligibility criteria
beyond the basic age requirement noted above differ from area to area. Some sales include residency
requirements, or require possession of a manufacturing facility, possession of logging equipment, or
may require the bidder to have operated a CTP recently, and may exclude Timber Quota or FMA
holders from bidding. In some cases, sales conditions may consider the need for support to small
businesses in rural communities and therefore may ensure that only small operators bid. About half of
the CTPs require the wood to be processed at a specified mill, which means that the winner would
negotiate with the mill owner after winning the sale. The time between the notice of sale and the
actual conferral of tenure averages is typically less than 3 months.
Ontario
35. Two general types of tenure arrangements govern timber harvests in Ontario: (1) Section 26
Sustainable Forest Licenses (“SFLs”), and (2) Section 27 Forest Resource Licenses (“FRLs”). In
addition, while not constituting a form of tenure, the Crown also makes use of other forms of wood
supply commitments, including Supply Agreements issued under Section 25 of the Crown Forest
Sustainability Act (“CFSA”), Commitment Letters, and licences to harvest trees that are not in a
Crown forest but are still reserved to the Crown.
36. Generally, to obtain any type of licence, an applicant must either own a forest resource
processing facility (e.g., a sawmill, pulpmill, veneer mill, etc.), or must have a market to supply wood
to some type of forest resource processing facility. Licencees must be able to demonstrate their
ability to fulfill their obligations under the licence ( i.e., meet environmental protection requirements,
perform silviculture obligations, etc.).
37. Section 26 SFLs also require that the licence holder have the ability to meet the substantial
obligations of the SFL’s terms and conditions. The Ontario SFL holder must be able to ensure the
delivery of a comprehensive planning and renewal programme, as required by the SFL. This
includes, for example, obligations regarding forest management planning, performing inventories,
annual work schedules, compliance activities, First Nations relations and providing information.
Québec
38. Most of the accessible forest land in Québec’s public forest is covered by TSFMAs. Those
areas represent 87.4 per cent of forests in the public forest, leaving 12.6 per cent as public forest
reserves which are not subject to harvest. This does not mean that new market entrants have been
unable to enter into TSFMAs with the province.
39. If a newcomer wishes to enter into a TSFMA with the province, it must own a timber
processing facility and demonstrate that it is capable of fulfilling its obligations under the TSFMA.
There are no restrictions as to who may own or operate a timber processing facility.
(b) Could Canada please indicate how often newcomers are granted stumpage – that
is, how common an occurrence is this, versus the situation of long-standing
tenure relationships that are renewed upon expiry.

Reply
40. Assured supply through long-term tenures is an essential feature of obliging companies to
build roads, plant trees, and pay for forest fire protection and protections against insects and disease.
Long-term tenures do not mean, however, a closed market. Mills open and close all the time,
everywhere in Canada. They are bought and sold. Changes in mill ownership, the closing of old
mills and the opening of new ones, always impact tenures. Changes in technology often drive mills
out of business while stimulating the construction of new mills.
41. There are abundant examples of this fluidity. On a grand scale, in the last five years,
Weyerhaueser, the largest lumber producer in North America, bought MacMillan Bloedel, what was
then the largest producer in Canada. Donahue, which at the time was the largest producer in Québec,
was bought by Abitibi Consolidated. Bowater, an American company, bought Alliance, one of
Québec’s largest producers, last year. International Paper, the leader and largest member of the US
Coalition for Fair Lumber Imports, bought Weldwood in Canada. Louisiana Pacific is building a
state-of-the-art mill in Ontario to access black spruce for specialized use. The notion that Canadian
trees are controlled in perpetuity by an entrenched group of long-term tenure holders is a caricature of
the Canadian market.
42. The situation in each of British Columbia, Alberta, Ontario and Québec is set out below.
British Columbia
43. Even though there are relatively few new long-term tenures awarded in British Columbia,
new tenures can be made available from time to time. New tenures are advertised publicly and
applications are examined and awarded on the basis of price and other relevant factors, such as First
Nations employment. There are generally no restrictions on who can apply for such long-term
tenures.
44. It should also be noted that the majority of long-term tenures do not “expire” prior to renewal
but rather are renewable pursuant to evergreen provisions. Those long-term tenures are renewed
(replaced) on a fixed periodic basis (such as every 5 years) so long as the terms of the agreement are
honoured.
Alberta
45. As indicated in the response to question 5(a) above, newcomers have multiple opportunities
to obtain stumpage under long-term tenure in Alberta. The province does not track the number of
new companies that secure tenure, but there have been multiple instances where long-term tenures
originally issued to one company have been tran sferred to another company. Recent examples of
these transfers are West Fraser Timber’s purchase of their FMA from Alberta Energy Company and
Weldwood’s purchase of their FMA from Sunpine Forest Products. (Weldwood was subsequently
made a wholly owned subsidiary of International Pa per). In the period of investigation alone, seven
small Quotas were transferred.
Ontario
46. The Ontario Minister of Natural Resources has the right to amend licences and reallocate
forest resources to other licensees. Significant reallocations have and continue to occur.
47. During the period of investigation (POI) in this case, four Section 26 Sustainable Forest
Licenses (SFLs), twenty Section 27 Forest Resour ce Licenses (FRLs) and one Section 25 Supply
Agreement were transferred in Ontario. In addition, between 1993 and 2001, approximately
5,774,600 cubic metres of the total available harvest during the POI (about 25 million cubic metres)

was reallocated without compensation to the original tenure holders. This reallocation over time
constituted about 23 per cent of the harvest available during the POI. Lastly, Ontario is committed to
a significant expansion of parks and protected areas. In 1994, the Crown began removing land from
existing tenures in order to create new parks and protected areas. By March 31, 2003, 1.3 million
hectares will have been removed for this purpose. The total 2.7 million hectares that will be removed
represents a 9 per cent reduction in total area th at was under tenure. Again, compensation was not
provided to the tenure holders.
Québec
48. Between 31 March 1996 and 31 March 2001, a total of 75 TSFMAs were revoked for the
following reasons: plant closures; sale of assets; change in needs; bankruptcy; and failure to respect
silviculture obligations. In the same period of time, 70 new TSFMAs were entered into by the
province, and 92 TSFMAs were renewed.
31-Mar 31-Mar 31-Mar 31-Mar 31-Mar
1996-1997 1997-1998 1998-1999 1999-2000 2000-2001 Totals
New TSFMAs 34 9 8 13 6 70
Revoked TSFMAs 18 18 11 21 9 77
Renewed TSFMAs 69 18 3 1 1 92
Source: Ministère des Ressources Naturelles, 18 February 2003
49. As these numbers show, there is significant turnover in TSFMAs. Whenever a TSFMA is
revoked, it is subject to reallocation. As mentioned above in response to Question 5(a), if a newcomer
wishes to enter into a TSFMA with the province, it must own a timber processing facility and
demonstrate that it is capable of fulfilling its obligations under the TSFMA. There are no restrictions
as to who may own or operate a timber processing facility.
Q6. Could Canada please describe in detail what happens if a tenure holder does not meet its
obligations under a tenure contract, including, specifically, road building and maintenance,
forestry management obligations (silviculture, pe st control, reforestation, etc.), minimum cut
requirements, and timber processing requirements. In particular in respect of minimum cut
requirements and timber processing requirements, can a tenure holder lose its tenure for failure
to meet these requirements?
Reply
50. The details vary from province to province.
British Columbia
51. One key element of the bundle of rights and obligations represented by tenure agreements are
tenure holder’s forest management obligations. The province has the authority to impose severe
penalties, including fines, for failure to meet obligations regarding road construction and maintenance,
silviculture, protection and other forest management obligations, as set out in Sections 117 and 143 of
the Forest Practices Code of British Columbia Act. In addition, the Forest Act provides for
suspension (Section 76) or cancellation (Section 77) of a tenure agreement for failure to comply with
the requirements of the Forest Act or the Forest Practices Code of British Columbia Act . If a tenure
holder fails to meet its forest management obligations, it is subject to significant penalties, including
fines and possible suspension or cancellation of the underlying tenure agreement itself. Although loss
of the underlying tenure has never happened, it is a potential penalty for non-compliance.

52. Similarly, tenure holders are subject to potential loss of allowable annual cut for any failure to
meet minimum cut requirements, as described in Section 66 of the Forest Act. In addition, tenure
holders are also subject to loss of allowable annual cut for failure to meet any timber-processing
requirement that may be applicable to a specific tenure. Minimum cut and timber-processing
requirements are not applicable to all types of tenure. Moreover, processing requirements are
applicable only as set forth in individual tenure agreements and are not required in all cases even for
the same tenure types.
Alberta
53. No minimum cut requirements are enforced on any of the tenures available in Alberta.
54. If a tenure holder does not meet forest management, road maintenance or other similar
obligations under a tenure contract, penalties would be imposed on the errant tenure holder. Some
CTPs do tie the wood cut to particular mills, but these CTPs account for a very small percentage of
the province’s annual allowable cut. If the violations were severe and pervasive, Alberta could
withdraw the tenure from the tenure holder. Alberta has found, on occasion, tenure holders to be in
default and has imposed penalties including calling on performance bonds posted by the company. In
these circumstances, the province has required these tenure holders to take remedial measures,
including restoring the performance bonds, in order for the tenure holder to maintain their tenure
rights.
Ontario
55. There are no processing requirements associated with the tenures available in Ontario.
Licence holders are, however, generally required to indicate to the province that they have a market
for the timber they intend to harvest. That market may be a facility in which they have an ownership
interest or one in which they have no interest.
56. Ontario does not have minimum cut requirements.
57. With respect to tenure holders that breach their obligations (road building, forest
management, etc.) in Ontario, the Crown has the ri ght to pursue enforcement actions. A wide range
of penalties and remedies are available to address any breach, including the potential denial of a
tenure right or refusal to extend such a right. As a factual matter, Ontario has never encountered
failures to meet tenure obligations so egregious as to revoke a tenure completely.
Québec
58. In Québec, there is no minimum cut requirement. If a tenure holder does not meet the
obligations imposed under its tenure contract, it may lose its tenure. Québec indicated in its
questionnaire response that several tenures were revoked during the fiscal year 1999-2000 for failure
to respect tenure obligations (although unstated, at issue were silviculture obligations).
Q7. In the event that, arguendo, a Member were permitted under certain circumstances to
use as a benchmark for the determination of benefit market conditions in a market other than
that of the country of provision, what in Canada's view should have guided the USDOC's choice
of such a benchmark assuming that it were permissible to disregard in-country prices?
Reply
59. As the question recognizes, Canada submits that a Member may only use market conditions in
the country of provision to determine the adequacy of remuneration. If it were permissible to ignore
in-country prices for private stumpage, however, Canada first notes that there was evidence on the

record that could have been used by Commerce as a benchmark in this case – evidence which
Commerce has consistently used as a benchmark in cases where it has determined that no in-country
prices exist. As set out in response to question 10, Commerce had extensive evidence before it that
demonstrated that provincial stumpage systems are operated consistently with market principles. This
evidence included a demonstration that the provinces earned substantial profits from timber
harvesting sales during Commerce's period of investigation.
15
60. Contrary to the United States’ assertions, Commerce has consistently used this type of
benchmark evidence where it has determined no in-country prices exist because the government has a
monopoly or a near monopoly. 16 Furthermore, the United States’ efforts to distinguish its previous
practice from the circumstances of the present case must fail. In its Closing Statement at the First Oral
Hearing the United States argued that it “only” resorted to this benchmark in these other cases
because there was no world market price for the good or service in question that was commercially
available in the countries in question. It is abundantly clear that there is no “world market price” for
standing trees in the forest nor are standing tree s in a forest in the United States “commercially
available” in Canada. Thus, on the basis of the United States’ own argument, if it were able to
disregard in-country prices in this case, it should have considered the evidence the Canadian
provinces submitted that to determine, “consistent with market principles”, whether remuneration was
adequate.
61. This being said, if it were permissible to use as a benchmark for the determination of benefit
market conditions in a country other than the country of provision, Commerce should have
determined whether the out-of-country benchmarks it used were available to purchasers in the country
of provision. If these out-of-country benchmarks were available to purchasers in the country of
provision they would then form part of prevailing market conditions “in” the country of provision.
Here they did not, since neither timber harvesting rights nor standing timber in the United States is
available in Canada.
62. In addition, Commerce should have determined whether the prevailing market conditions in
the country used as a benchmark (here the United States) were the same as the prevailing market
conditions in the country of provision, and if not, whether it would be possible to quantify the impact
of the differences on relative in-country prices. In the case of stumpage, the market conditions
affecting it include all of the factors that US agencies (such as those in the states of Maine and
Wisconsin
17) identify as critical for intra-jurisdictional comparisons, such as timber size and quality,
terrain, distance from mills, and conditions of sale. Equally important, the investigating authority
would have to identify all of the factors that necessarily affect price levels in different countries
including cost of capital, prevailing wage rates, inflation rates, and different monetary, tax, labour and
environmental regulations and policies. These factors make prices for most goods and services, and
certainly for stumpage and other property rights, different in different countries. Here, the multitude
of differences that exist because of the border make valid cross-border comparisons impossible to do,
as Commerce itself found in all previous lumber investigations.

15 See Canada’s First Written Submission at paragr aphs 106-108. As is demonstrated there Canadian
provinces earned substantial profits from their stumpage programmes. For instance, during the Period of
Investigation, British Columbia earned a profit of C$541 million, representing a return of 75 per cent of
expenditures. The other major producing provinces also showed substantial profits on their stumpage
programmes – 35 per cent for Ontario, 67 per cent for Québec, and 25 per cent for Alberta See also
PricewaterhouseCoopers Report (Exhibit CDA-47). See also Analysis of the Profitability of Standing Timber
Sales in the Public Forests for the Québec Ministèr e des Resources Naturelles, attached to Letter of
7 January 2002 from Matthew J. Clark to Hon. Donald L. Evans. (Exhibit CDA-49).
16 Certain Hot-Rolled Carbon Steel Flat Products from South Africa , 66 Fed. Reg. 50,412 (2001) (final
determination) (Exhibit CDA-50); Certain Hot-Rolled Carbon Steel Flat Products from Thailand , 66 Fed. Reg.
50,413 (2001) (final determination) (Exhibit CDA-51); Carbon and Certain Alloy Steel Wire Rod from Trinidad
and Tobago, 67 Fed. Reg. 55810 (2002) (final determination) (Exhibit CDA-52).
17 See Canada’s First Written submission, at para. 85, footnote 59.

63. The impossibility of valid cross border price comparisons underlies the reason why the
Members, including the United States, made the choice to use only the actual market within the
country being investigated to find a benchmark. Remaining within the country allows the benchmark
to automatically take into account the natural comparative advantages or disadvantages that a country
may enjoy as well as the effects on the market of that countries’ monetary, tax, labour and
environmental regulations and policies. These important market influences cannot be integrated into
the benchmark if the benchmark comes from another country.
Q9. The USDOC final determination (Exhibit CDA-1), at pages 39-40, contains the following
statements:
"…StatsCan data show that approximately 2.5 million cubic meters of softwood
logs were imported into Canada during the POI, and each of the investigated
Provinces imported US logs during the POI. …
"This extensive record evidence that Canadian lumber producers had actual
imports of US logs and purchased US stumpage during the POI would support
basing our benchmark on tier one of the regulatory hierarchy [market prices
from actual transactions within the country under investigation]. However, we
do not have sufficiently detailed import prices on the record to use as the
benchmark for all Provincial stumpage programmes. Therefore, we are using
stumpage prices in the United States under tier two of the regulatory hierarchy
[world market prices that would be available to purchasers in the country under
investigation]."
Reply
64. Canada would like to make several comments with respect to the excerpts from the Final
Determination quoted in this question from the Panel.
65. First, the programmes found by Commerce to be countervailable subsidies were provincial
stumpage programmes. Under these programmes, provinces transfer a right to harvest standing
timber to timber harvesters. The “good” that Commerce claims was provided at a subsidized price is
standing timber or the right to harvest such timber. It is not logs – whether imported or domestically
produced. Commerce’s benefit analysis, therefore, necessarily involved a determination of whether
stumpage was provided by the provinces at less than adequate remuneration. There was ample
evidence provided to Commerce by the provinces (as detailed in Canada’s answer to question 10
below) that would have allowed Commerce to answer this question, without resort to import price
data for logs.
66. Second, with the exception of imports of logs into Québec, the import of logs into Canada
represent less than 1 per cent of the total annual harvest. In western Canada this is largely due to
extensive log export bans that have been imposed by the United States.
18 With respect to log imports
into Québec, the United States itself explained in its Second Written Submission to the panel in

18 As noted in Canada’s First Written Submission at paragraph 75, log export restrictions are in place
for the public lands in Washington, Idaho and Montana that Commerce used as a benchmark for British
Columbia, the source of 58 per cent of Canadian exports subject to countervailing duties.

United States – PD Softwood Lumber19, that these imports, from Maine into Southern Québec relate to
particular factors that are unique to this area.20
67. Third, determining “adequate remuneration” for any Canadian province based on prices of
imported logs is an intractable problem. Complete data on the species and other characteristics of
imports do not exist. Statistics Canada data are for a broad category of “wood in the rough” that is not
limited to logs. Nor does the record contain all the necessary information concerning harvesting
costs, which may be different, for example, because of differences in the terrain or in the distance to
mill or market. There is therefore no valid means to estimate the harvesting and transportation costs
that should be deducted for imported log prices as a measure of stumpage charges, even (incorrectly)
assuming that in this case the necessary information about log imports were available by species,
grade and other relevant criteria.
Q10. The parties seem to have very different views as to what the record evidence shows in
respect of the existence or not of a private market for stumpage in Canada. Could the parties
clarify for the panel what they consider the pertinent record evidence was, and why they
consider that it was, or was not, representative and/or usable?
Reply
68. The record evidence in the underlying investig ation that relates to the provincial stumpage
markets may be broken down into two separate categories: (1) record evidence of prevailing market
conditions in Canada including evidence of private markets for stumpage in Canada; and (2)
information relating to alleged “price suppression” which Commerce claims was caused by significant
involvement of the provincial governments in the Canadian market. Article 14(d) of the SCM
Agreement provides that the former is central to a calculation of a benefit. The latter is not mentioned
in this provision.
21 Canada nonetheless has provided information on both categories in order to assist
the Panel in understanding this evidence.
Private Markets For Stumpage in Canada
69. The in-country benchmark evidence provided by Québec, Ontario, Alberta and British
Columbia in this investigation (from which 96 per cent of exports of softwood lumber from Canada
originate) was as follows:
Québec
70. Québec submitted a study prepared by independent forest consultants entitled The Private
Forest Standing Timber Market in Québec.
22 The study concluded that the use of the Québec private
market “as the basis for calculating public forest dues is … appropriate and justified”, 23 because the
private forest is an independent market with near perfect competition, that is free of distortion from
government influence.24

19 United States – Preliminary Determinations With Respect to Certain Softwood Lumber From
Canada, Report of the Panel, WT/DS236/R, adopted 1 November 2002 (“United States – PD Softwood
Lumber”).
20 United States – PD Softwood Lumber , US Second Written Submission, at para. 27. (Exhibit CDA-
121)
21 United States – PD Softwood Lumber, at para. 7.52.
22 See Response of the Gouvernement du Québec to US Department of Commerce 5 July 2001
Supplemental Questionnaire (August 3, 2001), Vol. 3, Exhibit QC-S-100 (“The Private Forest Standing Timber
Market In Québec” (“Del Degan I”)) (Exhibit CDA-29).
23 Del Degan at 154.
24 Ibid., at Summary VIII and 152.

71. The study also examined the question of market size and representativeness, looking at
numerous authoritative real-world examples and providing a case analysis of the US milk sector. 25 It
concluded that it is the nature of the competition in a market that determines whether the market
produces reliable prices, not the size of the market.26
72. The record evidence before Commerce also demonstrated the validity of the private prices
used by Québec in setting public stumpage fees. In its own extensive verification of Québec’s
responses Commerce learned that Québec does not create the private timber prices used in the parity
technique by administrative whim, but rather collects data on standing timber sales in the private
forest in a rigorous, objective, and careful manner. The following verified facts describe the
systematic way in which Québec collects the private prices:
• The Ministère des Resources Naturelles (“MRN”) begins by collecting private forest standing
timber prices through outside consultants
27 in the form of annual surveys of forestry
companies that purchase standing timber in the private forest.28
• The consultants conducting the surveys perform on-site interviews and verify the information
provided by reviewing source documents.29
• The annual surveys of private forest transactions cover at least 75 per cent of the
approximately 150 private forest operators in Québec. The MRN also conducts a complete
census of private forest contractors every three years.30
73. Commerce was presented with three years of the annual private forest stumpage surveys and
census. Commerce was also presented with copies of the original survey results reporting private
forest stumpage transactions in Québec.
31 As stated in its Verification Report, Commerce found no
discrepancies in this information.32 And, as the United States conceded in its First Written Submission
“Quebec … submitted actual prices from non-government transactions.”[emphasis added]33
74. The record evidence also demonstrated the existence of two distinct and separate standing
timber markets in Québec. The two markets have different suppliers and different purchasers. This
separation exists in large part because the vast majority of Québec sawmills are shut out of the public
forest. It also exists because, by law, the public forest in Québec may only operate as a residual
supply source .34 A sawmill in Québec must therefore look to the private forest and other external

25 Ibid., at 108-123 and Appendix 1.
26 Ibid., at 122-123 and 153.
27 These outside consultants are firms that specialize in forest assessments, economic analysis, and
forestry market surveys. See Response of the G ouvernement du Québec to US Department of Commerce
5 July 2001, Vol. 1 at 126. (Exhibit CDA-138)
28 Response of the Gouvernement du Québec to US Department of Commerce 1 May 2001
Questionnaire (28 June 2001),Vol. 1 at 58. (Exhibit CDA-138)
29 Response of the Gouvernement du Québec to US Department of Commerce 1 May 2001
Questionnaire (28 June 2001), Vol. 1 at 126-127. (Exhibit CDA-138)
30 Response of the Gouvernement du Québec to US Department of Commerce 1 May 2001
Questionnaire (28 June 2001), Vol. 1 at 73. (Exhibit CDA-138)
31 Ibid. at Exh. QC-S-66 (Exhibit CDA-32), QC Aug. 3 Supplemental Response at Exh. QC-S-90
(Exhibit CDA-33), and Memorandum from Eric Greyno lds to Melissa G. Skinner, Countervailing Duty
Investigation of Certain Softwood Lumber Products from Canada: Verification of the Questionnaire Responses
Submitted by the Government of Québec (Feb. 15, 2002) (“Québec Verification Report”) at 2 and Verification
Exhibit 2 (Exhibit CDA-34).
32 See, e.g., Québec Verification Report at 12, 14. (Exhibit CDA-34)
33 US First Written Submission, at para. 66.
34 Under Section 43 of the Québec Forest Act (Exhibit CDA-118), the public forest is subordinate to
the private forest and to other external sources of supply. An applicant for a public tenure in Québec must justify

sources before the public forest may be used. This forces demand onto the private forest. Commerce
verified data objectively demonstrating that the private forest in Québec is a premium market.
75. Further evidence of the existence and validity of the Québec private forest standing timber
market is the longstanding and vigorous log tr ade between private landowners in the Northeastern
United States and dozens of mills in Québec. During the exclusion process in this investigation,
Commerce reviewed in detail the log sourcing of sixteen mills commonly referred to as “Border
Mills.”35 Based on this examination, Commerce verified that approximately 73 per cent of the
softwood logs purchased by those mills during the period of investigation came from the United
States.36 The reality of this trade belies United States’ “suppression theory” that the Québec
government’s sale of timber distorts the prices in the Québec private forest standing timber market.
This position makes no economic sense in light of the Québec Border Mills’ long and active log trade
with the United States, and in particular the state of Maine.
37
Ontario
76. Ontario provided evidence of the existence of a private market by submitting information
regarding the overall volume of private stumpage sales. 38 In addition, Ontario also submitted to
Commerce an expert study by Resource Information Systems Inc. (“RISI”) entitled “Ontario’s Private
Timber Market” that provided a detailed overview and assessment of the significant private market
timber sales in the province.39 In its Final Determination, Commerce acknowledged the existence of a
private market in Ontario.
77. The information submitted regarding Ontario’s private market was representative of the
Ontario private market as a whole. The RISI study examined 129 specific transactions for the sale of
one million cubic metres of timber. This volume amounts to more than one third of the estimated
private timber market in Ontario. 40 This study – which contrary to US assertions, was not prepared
for the purposes of litigation - provides a detailed analysis of actual private market prices in the
province. The RISI Study concluded that:

a need for public supply by proving that alternative pr ivate supplies are not available. Allocation of public
forest land will only be allowed up to a level of supply not available from private sources.
35 See Memorandum from The Team Office VI to The File, Final Calculations for Companies
Requesting Exclusion, March 21, 2002. (Exhibit CDA-122)
36 Ibid. at Appendix A page 1. This accounted for approximately 2.3 million cubic metres of softwood
logs.
37 Commerce correctly recognized in Lumber III , that the Québec Border Mills’ log trade does not
make economic sense if Québec private forest prices truly are suppressed:
Finally, export restrictions, according to the Coalition’s own argument, depress domestic prices relative
to the export market. The Coalition fails to provide a credible reason why mills in Québec and
Ontario, which supposedly benefit from significantly underpriced domestic logs, would bother to buy
such a significant volume of expensive US logs.37 [emphasis added]
See: Lumber III , 57 Fed. Reg. at 22,621. Since Commerce’s Lumber III determination, the operation
of the Québec private forest has not changed in any ma terial manner except for accounting for a larger share of
the total provincial softwood timber harvest (increasing from approximately 10 per cent to 17 per cent).
(Exhibit CDA-28)
38 This information was provided in Ontario’s first questionnaire response to Commerce. Response of
the Government of Ontario to US Commerce Department May 1, 2001 Questionnaire (28 June 2001) at Exhibit
ON-STATS-1. (Exhibit CDA-36)
39 RISI is an acknowledged leading source for independent economic analysis of timber markets
throughout the world. See Letter from Hogan & Hartson L.L.P. to US Department of Commerce, dated
30 July 2001, regarding the Private Timber Market in the Province of Ontario which contains Resource Info.
Sys. Inc., Ontario’s Private Market (June 2001)). (Exhibit CDA-37)
40 Ibid., at 1. (Exhibit CDA-37).

The results of the survey suggest that the market for private timber in Ontario appears
to be both competitive and efficient. Bu yers and sellers have the same information
about market conditions, sellers produce homogeneous products, they are price-takers
and they can enter and exit the market easily. Hence the market meets the classic
definition of a competitive market. The market can also be classified as efficient
given its low transaction costs and low level of government involvement.
 41
78. The RISI Study and the separate analysis of the softwood transactions by Charles River
Associates (“CRA”) provided Commerce with private transaction pricing information on both a
transaction-specific and a weighted average basis.
42 In addition, the CRA Study evaluated the market
conditions in Ontario for private timber sales and concluded that the prices for private timber were
established by the marginal supply of timber within Ontario. It also calculated the average price for
private timber purchased by sawmills during Commerce’s period of investigation.
79. Commerce verified the accuracy and completeness of the submitted private transaction
information. Commerce did not argue or claim that the pricing information contained in the RISI
Study and used in the CRA Study was based on an unrepresentative sample of transaction prices for
private stumpage in Ontario. Therefore, it was uncontested that these studies provided Commerce
with private transaction information that reflected the pricing for private timber in Ontario. Finally,
these studies both considered the effect of the involvement of the government of Ontario in the
marketplace. In reality, Commerce’s only reason for rejecting this evidence was its allegation of
“price suppression”.
Alberta
80. Alberta provided record information on the derived market value of mature standing timber.
The Timber Damage Assessment (“TDA”) value is made available in an annual consultant’s report
that is prepared for commercial interests. Although this TDA value has been characterized as a form
of compensation it is calculated based on information derived from arm’s length log transactions,
combined with a smaller number of bids from competitive government auctions for stumpage in the
same period, to determine the full value of the standing timber. The majority of the timber values are
calculated using arm’s length log transactions from public and private sources. The standing timber
values used for TDAs are then derived by deducting the attendant logging and hauling costs.
81. The TDA valuation methodology was jointly developed by commercial interests in the oil and
gas, mining and forestry sectors in Alberta in an effort to derive the proper valuation of mature
standing timber that would be destroyed when energy and mining development occurs. The TDA
values provide a basis for recompense to forest sector companies for this destruction. TDA stumpage
values are highly reliable, as they have been calculated in the normal course of business by an
independent consultant using a consistent procedure dating back to 1993.
43
82. In 2000, TDA values were derived from data on wood volumes equivalent to 6 per cent of
Alberta’s harvest,44 a portion of the harvest many times larger than the portion of Minnesota’s timber

41 Ibid., at 15.
42 Dr. George Eads of CRA, a former Member of the US President’s Council of Economic Advisors,
was the principal author of the CRA Study.
43 In addition, as Commerce officials noted at verification, the consultant spot-checks the data to
confirm its accuracy. Verification of the Questionnaire Responses Submitted by the Government of Alberta
(15 Feb. 2002), at p. 18-19. (Exhibit CDA-130)
44 Response of the Government of Alberta to the US Department of Commerce 1 May 2001
Questionnaire, Alberta Vol 1 – Narrative Response and Appendix A (28 June 2001), at AB-X-15 (Exhibit CDA-
123); Response of the Government of Alberta to the US Department of Commerce Supplemental Questionnaire
(3 August 2001), at AB-SUP-5 (Exhibit CDA-124); Response of the Government of Alberta to the Department
of Commerce 19 November 2001 Questionnaire (17 December 2001), Exhibit 63. (Exhibit CDA-45)

harvest which Commerce relied on for Alberta’s comparison. The consultant compiled this data from
20 locations from across the province.45
British Columbia
83. In addition to economic analysis that demonstrated that British Columbia’s stumpage system
was administered in a manner consistent with market principles, 46 British Columbia provided
evidence concerning the limited market for private stumpage in British Columbia. In order to respond
to Commerce’s request for information in this regard, the British Columbia lumber industry engaged
consultants to survey whether mills had purchased any standing timber from private lands on the
prices paid. That consultant’s report indicated that nearly all private wood fibre sales are of logs
rather than standing timber, and that 99,000 cubic me tres of standing timber from private lands was
purchased during the year 2000, which represents 0.1 per cent of the total B.C. harvest.47
84. British Columbia also provided evidence concerning competitive auctions are held under
Section 20 of the Small Business Forest Enterprise Programme (“SBFEP”). As previously described,
these Section 20 auctions are awarded to the highest bidder on the basis of price and amount to 6 per
cent of British Columbia’s harvest.
48
Other Relevant Record Evidence From All Provinces
85. These four provinces provided information demonstrating that, consistent with market
principles, they earned substantial profits from their stumpage programmes. This evidence
demonstrates that harvesters cannot be said to be receiving stumpage “for less than adequate
remuneration”. Canada’s First Written Submission at paragraphs 106-108, discusses this evidence in
detail.49
86. In conclusion, Commerce had ample evidence of prevailing market conditions in Canada,
including detailed economic analysis. This evidence clearly was not “limited”, as the United States
claims.
Price Suppression
87. Commerce rejected this in-country evidence on the basis that there were “no useable market-
determined prices between Canadian buyers and sellers…” Its reason for this conclusion was that
“the large government presence” in the market suppressed private prices, making it “difficult to find a
market price that is independent of the distortions caused by the government’s actions.”50 None of the
sources relied on by Commerce to arrive at this conclusion d emonstrated “based on the facts and
economics that the predominance of the government supply significantly distorts the market.”51

45 Response of the Government of Alberta to the US Department of Commerce 19 November 2001
Questionnaire (17 December 2001), Exhibit 63, at 4. (Exhibit CDA-45)
46 See Canada’s First Written Submission at paragraphs 109-110.
47 See Norcon Forestry Ltd. and PricewaterhouseCoopers L.L.P., “Survey of Primary Sawmills Arm’s-
Length Log Purchases in the Province of British Columbia,” Addendum, “Arms-Length Purchases of Softwood
Standing Timber from Private Lands,” (attached to letter from Steptoe & Johnson, 21 December 2001) (Exhibit
CDA-60). No information on grade or species of this minimal volume of private stumpage sold is available.
48 Response of the Government of British Columbia to US Department of Commerce 1 May 2001
Questionnaire (29 June 2001) Vol. 1, at IV-46-66; Vol. 3, at Exhibit BC-S-1, attachments G-1 and G-2.
(Exhibit CDA-42)
49 See also answer to Question 7.
50 Issues and Decision Memorandum: Final Results of the Countervailing Duty Investigation of Certain
Softwood Lumber Products from Canada, 21 March 2001, at pp. 36-37 [ “CVD FD”] (Exhibit CDA-1).
51 United States – PD Softwood Lumber , US Answers to the Panel’s 26 April 2002 Questions, at
para. 88. (Exhibit CDA-137)

88. Commerce’s finding of “distortion” and “price suppression” in the Final Determination relied
heavily on the Preamble to its Regulations. 52 It described the Preamble as stating that “ if the
government provider constitutes a majority or a substantial portion of the market, then such prices in
the country will no longer be considered market-based and will not be an appropriate basis of
comparison for determining whether there is a benefit.” [emphasis added]
53 Thus, Commerce treated
the Preamble as if it prescribes a per se rule that requires the rejection of in-country prevailing market
conditions in any situation where the government is the majority provider of the good. Commerce
therefore assumed price suppression without any factual or economic analysis.
89. Even if Article 14(d) permitted the rejection of in-country benchmarks on the basis of price
suppression, the Preamble does not contain such a per se rule. Nowhere does the Preamble, the
regulation itself or the statute, state that if the government constitutes a majority of the market then
private prices will no longer be considered an appropriate basis for comparison. The Preamble merely
invites an inquiry into whether a large government presence in the market may create distortion.
90. That type of analysis was never undertaken by Commerce. The “evidence” which the
United States claims supports Commerce’s finding of market distortion does not withstand even
limited scrutiny.
91. The “economic” evidence relied on by Commerce to conclude that private market prices were
suppressed consisted of a single report prepared by Economists, Inc. (‘EI”) for the petitioner.54
92. Although the EI report purports to provide an economic model of some provincial stumpage
markets in Canada, it is entirely theoretical. It does not examine private market prices or transactions
anywhere in Canada and consequently, does not demonstrate that there is actual “price suppression”
in any province. It therefore, provides no support for Commerce’s conclusion that “in each of the
Provinces, the stumpage market is clearly driven by the government’s control of the total softwood
timber harvest”.
93. Further even as a theoretical analysis the report is flawed. The economic model on which the
report is based is premised on the erroneous assumption that Crown timber supply in the provinces
increases as price increases.
94. The report commences with the proper assump tion that the supply of Crown timber cannot
supply the entire provincial market.
55 In the ensuing analysis, however, this assumption changes. The

52 The preamble provides that,
While we recognize that government involvement in a market may have some impact on the price of
the good or service in that market, such distortion will normally be minimal unless the government
provider constitutes a majority or, in certain circumstances, a substantial portion of the market . Where
it is reasonable to conclude that actual transaction prices are significantly distorted as a result of the
government’s involvement in the market, we will resort to the next alternative [benchmark] in the
hierarchy. [emphasis added].
See: Countervailing Duties – Final Rule, 19 C.F.R. Part 351, or 63 Fed. Reg., 65,348 at 65,377.
(Exhibit CDA-125)
53 CVD FD, at 47. (Exhibit CDA-1) It is clear from the reports submitted to Commerce by Canada
that it is the nature of the competition in a market that determines whether the market produces reliable prices,
not the size of the market. Economically, the central question is not whether government presence is large,
rather it is whether the “market” being analysed has the characteristics or essential indicia of a market. In this
case, they do and thus they should have been considered by Commerce.
54 R. Stoner and M. Mercurio, Economic Analysis of Price Distortions in a Dominant-Firm/Fringe
Market” (4 January 2002) (“EI Report”). (Exhibit US-22)

report creates a second scenario in which “through some policy change, the ‘supply schedule’ in the
administered sector is no longer unresponsive to price. Rather than a fixed administrative price P A,
the price (sic) in the administered sector responds positively to price.”56 Accordingly, the conclusions
of the EI report are premised on: (1) an assumed “policy change” that does not exist; and (2) an
assumption that the Crown timber supply will increase if the price of timber increases. As the record
evidence flatly contradicts these assumptions this economic model simply does not stand up to even
minimal scrutiny.
57
95. As Canada noted in its First Written Submission and First Oral Statement the remaining
evidence relied on by the United States to support “the conclusion that stumpage fees on public lands
are the price driver for the stumpage markets in those Provinces” consisted of little more than the
following anecdotal evidence. It is far from “substantial”, as claimed by Commerce.
96. First, was a letter of the Québec Minister of Natural Resources to the President of the
Fédération des producteurs de bois du Québec (“FPQ”), submitted to Commerce by the petitioner to
argue that “private stumpage prices in Quebec are affected by the administratively-set price for public
stumpage.” 58
97. This letter is a Government response to the private land owners’ association’s criticisms of
the cost adjustments used to make public and private timber comparable in Québec’s parity system,
which itself is used for setting public land stumpage rates. The relevant portion of the letter relied
upon by Commerce states:
98. The verb “puisse,” as used in the letter, translated means “could” or “might”. It does not
translate into “does”. Therefore, the above sentence, translated, reads:
However, I am aware that public land stumpage charges [ could or might] have an
indirect influence on the private market.
99. This in itself demonstrates the United States’ gross mischaracterization of the value and
import of the letter. However, the context of the above passage is equally revealing: the statement is
simply the reason given by the Minister as to why the Government of Québec continues to undertake
meaningful dialogue with Québec private landowners. It is clearly not proof of “price suppression”.
100. The second piece of “evidence” the United States alleges Commerce relied on to conclude
that Québec private stumpage prices were distorted was a 1995 thesis by a university student that

55 The report states that, “firms in the administered sector cannot fulfill all market demand at the
administered price”[emphasis in original] EI Report at 7. (Exhibit US-22)
56 Ibid., at 8.
57 In Ontario, for example, the CRA report demonstrates that private sellers sell softwood timber at
prices higher than the Crown price. CRA report, at Attach 5 (Exhibit CDA-38). If the EI report’s assumption
were correct, Crown supply would expand to fill demand before the market would tolerate higher prices.
Moreover, Québec and Ontario both imported softwood from the United States during the period of
investigation. This indicates that the supply of timber is not sufficient to meet demand for these markets.
In addition, this economic analysis is completely inapplicable to Québec where there is not a “single
stumpage market” sourced from both the private and public forests. Instead, the public and the private markets
in Québec constitute two entirely separate and distinct markets for timber with marked differences in
purchasers. This separation is reinforced by the provisions of Québec’s Forest Act. See para. 74 above.
58 Letter from J. Brassard, Ministre des Ressources naturelles, Gouvernement du Québec, to J.-C.
Nadeau, Fédération des producteurs de bois du Québec, dated 12 July 2000. (Exhibit CDA-126). See CVD FD,
at 38. (Exhibit CDA-1)

analysed forms of tenure in Québec. 59 Although the paper refers to sources as late as 1993 the only
studies that substantively examine “price suppression” discuss the Québec stumpage regime that was
replaced in 1989. Interestingly, in Lumber III, the Coalition (the petitioner in this case) made the
same “distortion” argument regarding Québec private stumpage prices. 60 In commenting on the
argument in that case, Commerce described the study relied on by the Coalition at that time as
completely outdated and irrelevant since it examined a system that was replaced in 1989 by Québec’s
current system of 28 “biophysically and geologically homogeneous tariffing zones.” It went on to say
that “the evidence cited by the Coalition is either outdated and irrelevant or anecdotal…
61 Thus, in
Lumber III Commerce rejected evidence that was arguably more current, reliable and relevant than the
material it is now relying on to arrive at the opposite conclusion.
101. A third piece of evidence relied on by Commerce are statements made by Mr. Jean-Pierre
Dansereau the Executive Director of the FPQ. In its verification report Commerce suggests that the
Mr. Dansereau stated that his syndicate might lobby the Government of Québec because,
[P]rivate wood lot owners have an interest in the level of stumpage fees because if the
GOQ sets fees at an arbitrarily low level, it would depress stumpage fees and log
prices …[emphasis added]
62
102. Commerce neglects to mention that this statement was made only with respect to hardwood
lumber.63 In Québec’s rebuttal brief the province attached an affidavit of Mr. Dansereau that provides
critical information on this conversation, noting that:
The report fails to mention that my statements regarding the concern of private
landowners as regards the level of private stumpage is a matter of historic fact, that in
recent years is relevant mainly to hardwood species, which are in oversupply in
Quebec and have been for many years.
The report also fails to mention my statements that softwood lumber and logs in
Québec are now in undersupply, and have been for many years, with the result that
private prices for softwood lumber and logs have gone up and have been at a
satisfactory level for many years. [emphasis added]64
103. This affidavit confirms that this conversation only pertained to the effect that public stumpage
might have on private hardwood timber prices. It also confirms that Commerce was informed that
there was high demand for softwood in Québec during this period. This conversation cannot be relied
upon to establish that “price suppression existed in this province”. In fact, it establishes the opposite.
104. Fourth, with respect to Ontario, Commerce relied on a report prepared by the petitioner.
That report purportedly relied on a survey of “marketing boards, logging contractors and foresters” in
Ontario, yet conceded that, “Most people contacted refused to provide information.” 65

59 Luc Parent, “A Financial Strategy for the Development of Private Timber Lands in Quebec”
(June 1995). See US Answers, at para. 40 and footnote 52. (Exhibit US-33). The study was not actually cited in
the Final Determination. It was cited in the Preliminary Determination and in the United States’ First Written
Submission.
60 Certain Softwood Lumber Products from Canada , 57 Fed. Reg. 22,570, 22,597 (Dep’t Commerce
28 May 1992) (final determination). (Exhibit CDA-24).
61 Ibid., at 22,598.
62 Québec Verification Report, at 28-29. (Exhibit CDA-34)
63 In the CVD FD, Commerce only conceded that Qu ébec, “questions the accuracy of our verification
report”. See: CVD FD, at 38. (Exhibit CDA-1)
64 Québec Rebuttal Brief, 1 March 2002, Exhibit 2. (Exhibit CDA-127)
65 David Cox et al., Examining the Market Value of Public Softwood Timber in Canada 106-08
(27 July 2001). (Exhibit CDA-128)

105. There is no actual evidence in the record regarding the underlying survey. Further, the report
contains neither a summary of survey responses nor any individual responses. In addition, no
information was provided regarding how the survey was structured or its response rate, nor was a
sample survey instrument attached. Accordingly it was impossible to confirm the facts allegedly
supporting the report. In spite of this complete absence of facts, the strongest conclusion it could
manage was that, “(s)tumpage prices in all of Ontario . . . appear to be influenced by Crown
prices.’’[emphasis added]
66
106. Fifth, with respect to British Columbia, Commerce pointed to a report prepared by
environmentalists in B.C., to establish “price suppression” in that province. 67 This report does not
analyse whether domestic benchmarks in BC are s uppressed. Instead, the report argues that Crown
stumpage is subsidizedusing a cross-border compar ison that is even more inaccurate than that
undertaken by the Commerce in the underlying investigation. In an attempt to support its
methodology the report asserts that:
[S]ince loggers bidding on Small Business sales have no choice but to dispose of their
timber in an environment where timber prices are artificially low, even the bonus bids
in the Small Business Programme will tend to underestimate timber value.[emphasis
added]68
107. This assertion was supported by no evidence or analysis whatsoever. This single sentence is
the only sentence in the report that speaks of “price suppression” of domestic benchmarks.
108. Commerce pointed to no other evidence regarding “price suppression” in any other province.
109. As should now be clear there was ample evidence of in-country benchmarks for Commerce to
consider in this case and simply no reasonable basis for Commerce to conclude that prices in Canada
were “suppressed” or “distorted” by the fact of significant provincial government ownership of
forestry resources.
Q11. With regard to its pass-through claim, coul d Canada clarify whether it is arguing that a
pass-through analysis was required in all cases in th e investigation, i.e. even in case of complete
identity between the timber harvester and the sawmills (lumber producers); or does Canada
consider that a pass-through analysis was requi red only in those cases where there allegedly
existed arm's length transactions between timber harvesters and lumber producers and between
lumber producers and remanufacturers?
Reply
110. Subsidy pass-through analysis is required in every instance where the subsidy found to exist
is allegedly bestowed on one person while the countervailing duty is imposed on the products of
another. Where the timber harvester and the producer of subject merchandise are the same “recipient”
of the alleged subsidy, no pass-through analysis would be required.
111. The United States found subsidization (albeit incorrectly) only for those producers of subject
lumber who participate in the stumpage programmes directly. Though a Member may average the
amount of a subsidy found to exist over all such producers, it may not average its obligation to
demonstrate that a subsidy exists over instances of direct participation and potential indirect

66 Ibid, at 106.
67 T.L. Green and L. Matthaus, Cutting Subsidies or Subsidized Cutting? , Report commissioned by BC
Coalition for Sustainable Forestry Solutions (12 July 2001). (CDA Exhibit – 129)
68 Id., at 9.

participation. The relevant nexus for the imposition of countervailing duties on the merchandise of a
given producer is direct participation in the alleged stumpage programme, not simply production of
subject merchandise.
112. In this case, the United States admits to the existence of arm’s-length transactions. 69 Because
the United States has failed to conduct any pass-through analysis, the volume of Crown timber
harvested by entities that did not produce subject lumber and the amount of subsidy derived from that
volume, for example, must therefore be excluded from the numerator in the aggregate rate calculation.
Likewise, no duty can lawfully be imposed on the products of lumber remanufacturers purchasing at
arm’s length.
Q13. Could Canada take the Panel through its analysis of each of the provisions it alleges
have been violated by the failure of the USDOC to conduct a pass-through analysis, and indicate
why it considers each of these provisions has been violated?
Reply
113. Under Article 1.1 of the SCM Agreement, a subsidy may be direct or indirect. A direct
subsidy exists where the recipient of the alleged subsidy receives the financial contribution directly
from the government. Where such direct relationship does not exist, then a Member must establish
that the alleged recipient has received an indirect financial contribution that has conferred a benefit.
A Member may not presume the existence of an indirect subsidy in such circumstances any more than
it may presume the existence of a direct subsidy. Under Articles 10, 19.1, and 32.1 of the SCM
Agreement and Article VI of the GATT 1994, a c ountervailing duty may be imposed only where an
investigating authority demonstrates that the producer of subject merchandise has benefited from a
“subsidy”; under Article 19.4, countervailing duties may be imposed only in respect of subsidies
legally determined to have existed, and only at the amounts permitted by the SCM Agreement.
70
Where, therefore, a subsidy is alleged to have been bestowed on one person, and countervailing duties
are imposed against the products of another, the “pass-through” of the subsidy from the one to the
other must be established and may not be presumed.
114. The United States has acknowledged the existence of arm’s-length transactions, 71 and is
therefore under an obligation to demonstrate the ex istence of a “subsidy” in all such cases. Because
the United States presumed rather than demonstrated the existence of a “subsidy” in those cases, the
United States acted inconsistently with Article 1.1 of the SCM Agreement and therefore violated: (a)
Article 10 by failing to impose countervailing duties in accordance with the provisions of the SCM
Agreement; (b) Article 19.1 by imposing countervailing duties in the absence of a final determination
of the existence and amount of a subsidy; (c) Article 19.4 by levying countervailing duties in excess
of the amount of the subsidy found to exist; (d) Article 32.1 by taking action against a subsidy not in
accordance with the provisions of GATT 1994, as interpreted by the SCM Agreement; and (e)
Article VI:3 of the GATT 1994 by imposing duties in the absence of an indirect subsidy finding.
Q15. In paragraph 179 of its first submission , Canada argues that Article 19.4 SCM is
violated where, for example, a countervailing duty is based on a subsidy calculation in which the
amount of a subsidy is higher than permitted by the methodologies set out in the SCM
Agreement. Could Canada explain what it considers to be the "methodologies set out in the
SCM Agreement"? Could Canada also please explain the relationship of this argument to

69 US First Written Submission, at paras. 106, 113; US Oral Statement, at para. 30. See also
United States – PD Softwood Lumber, at para. 7.74.
70 See, e.g., United States – Countervailing Meas ures Concerning Certain Products from the European
Communities, WT/DS212/AB/R, 9 December 2002, at paras. 139, 147, and 149.
71 US First Written Submission, at paras. 106, 113; US Oral Statement, at para. 30. See also
United States – PD Softwood Lumber, at para. 7.74.

paragraph 121 of its oral statement: "…neithe r Article 19.4 nor Article VI:3 refers to a
calculation methodology".
Reply
115. Neither Article 19.4 nor Article VI:3 refers to a specific calculation methodology for
determining the amount of a subsidy or subsidy per unit rate. At the same time, various provisions of
the SCM Agreement, as interpreted and applied by panels and the Appellate Body, set out general
guidelines to be followed in determining a correct subsidy per unit rate as required by Article 19.4.
116. Article 19.4 provides:
No countervailing duty shall be levied on any imported product in excess of the
amount of the subsidy found to exist, calculated in terms of subsidization per unit of
the subsidized and exported product. [footnote omitted]
117. It therefore requires that the maximum amount of a countervailing duty is limited to the per
unit rate of subsidization on the allegedly subsidized and exported products. For Article 19.4 to have
any meaning, the calculation of a per unit subsidy rate must be done correctly. That is, a
countervailing duty may be imposed only to the extent that the rate reflects the subsidy attributable to
the allegedly subsidized and exported product.
118. Article 19.4 incorporates four concepts, all of which are grounded in the provisions of the
SCM Agreement: subsidy, amount of the subsidy, subsidization per unit, and countervailing duty.
Because none of these concepts is defined in Article 19.4, it must be presumed that the provision
incorporates by reference elements fundamental to subsidy and countervailing duty determinations
found elsewhere in the SCM Agreement, and that those elements have in turn been correctly
determined.
119. First, a countervailing duty imposed as against a practice that is not a subsidy within the
meaning of Article 1 violates Article 19.4 to the extent that the countervailing duty rate exceeds the
subsidy rate, which would be zero. Such a countervailing duty rate would not be imposed in
accordance with the subsidy determination methodolo gy set out in Article 1 of the SCM Agreement,
and would be inconsistent with Article 19.4.
120. Second, where the amount of a subsidy has been impermissibly created or inflated by using
incorrect benchmarks, by definition the subsidy per unit rate attributable to an allegedly subsidized
and exported product is illegally inflated. Such a countervailing duty rate would be inconsistent with
Article 19.4. One calculation methodology to determine that amount is set out in Article 14, which
provides mandatory guidelines for the “calculation of the amount of a subsidy in terms of the benefit
to the recipient”. Article 14 sets out “methods” of determining the amount of the benefit to the
recipient in paragraphs (a) to (d). Other methods have been developed and amplified in various panel,
arbitration and Appellate Body reports.
121. Finally, even where a subsidy has been correctly determined to exist, and the amount has been
correctly calculated, Article 19.4 imposes an obligation on a Member to calculate the rate by dividing
the total subsidy (the numerator) by the total sales volume of all products to which the alleged subsidy
is attributable (the denominator), to arrive at the per unit rate of subsidy on the allegedly subsidized
and exported product. Or, where only a subset of those products are included in the denominator,
only the portion of the subsidy attributable to that subset of products should be in the “numerator”.

122. Article 19.4 is the only provision in the SCM Agreement (in conjunction with Article VI:3 of
GATT 1994) that limits the level of the countervailing duty to the per unit subsidy rate. As such,
Article 19.4 is the operative obligation in the context of Canada’s calculation-related claims.
Q16. Could Canada please respond to the US argument that Article 19 SCM Agreement does
not establish any requirements concerning how a subsidy is to be determined, and that such
obligations are found elsewhere in the Agreement, in Article 14 in particular (US first
submission, para. 95), a provision not invoked by Canada. Does Canada consider that
Article 14 SCM Agreement is relevant to its claims concerning the calculation of the rate of
subsidization by the USDOC?
Reply
123. Canada refers the Panel to its answer to question 15 which explains Canada’s view of the
relationship between Article 19.4 and other provisions of the SCM Agreement including Article 14.
Article 14 goes to the measurement of the subsidy (the numerator in the subsidy rate calculation),
while Article 19.4 expressly addresses the necessity of calculating a per unit subsidy rate, involving
matching the numerator and denominator.
17. Assuming, arguendo, that the total amount of subsidy benefit has been determined in
conformity with the Agreement, could both partie s clarify what, in their view, was or should have
been the product scope of the numerator and the denominator in the USDOC subsidization
calculation?
124. Article 19.4 provides that the countervailing duty rate may not exceed the “subsidization per
unit of the subsidized and exported product.” A countervailing duty may be imposed, therefore, only
in the amount of the alleged subsidy attributable to the subsidized and exported product.
125. This means that if the numerator is the total subsidies received by a producer, then the
denominator must be all output products of that producer. In the facts of this case, the numerator of
the subsidy per unit calculation is “all logs entering sawmills.” Accordingly, the denominator should
have been “all output products produced from those logs” – in other words, all products to which the
subsidy may be attributed. In this case, Commerce excluded certain output products produced from
those logs (certain “residual products”). By dividing the total subsidy by only a portion of the alleged
subsidized products, Commerce inflated the subsidy per unit rate.
126. The following softwood products are produced from softwood log and lumber inputs in
sawmill establishments:
(1) in-scope softwood lumber;
(2) softwood co-products resulting from the lumber production process (including chips,
sawdust, etc.); and
(3) other non-scope “residual” softwood products (including any non-scope softwood
products shipped from the sawmill establishment, for example, remanufactured
products that were further milled in the same sawmill establishment, pallets, fuel
wood, logs and particle board or wafer board that was manufactured on-site from the
chips and sawdust resulting from the lumber production process).
127. In addition, a host of products are produced by remanufacturers of lumber who use softwood
lumber products (from sawmills) as their input products . These remanufactured lumber products all
result from the original softwood logs that entered sawmills. Commerce grossly understated the value

of these remanufactured products (in contradiction to the record evidence), thereby further
understating the denominator and overstating the subsidy rate.
128. Of course the more accurate way to determine the subsidy per unit rate of the subject
merchandise would have been to limit the numerator of the equation to only the volume of logs used
in the production of softwood lumber ( i.e., the alleged subsidy directly attributable to the production
of subject merchandise) and then to divide that amount by the value of softwood lumber products.
Q18. Could Canada please identify the relevan t record evidence as to the products that it
argues should have been included in the sales denominator of the subsidization calculation, and
explain why those products should and could have been included.
Reply
129. In Canada’s original questionnaire response, Canada provided provincial and country-wide
shipment data (Statistics Canada survey data) for in-scope softwood lumber and softwood co-
products.72 Further, in its 21 December 2002, supplemental questionnaire response, Canada provided
a country-wide estimate for residual product shipments from sawmills.73 These data were verified by
the Department and the verification exhibits are attached as Exhibit CDA-___. 74 In addition, in a
submission dated 7 January 2002, Canada provided detailed estimates for shipments of
remanufactured products as compiled by Natural Resources Canada’s Pacific Forestry Centre. 75
These data were verified by Commerce and the verified values are attached at Exhibit CDA-___.76
130. As described in response to question 17, the four groups of products above are all produced
originally from softwood logs. Consequently, si nce the numerator in the equation included all logs
entering sawmills, then the denominator necessarily needed to include the output of those logs.
Q19. According to Canada, the USDOC used "manifestly incorrect data" (para. 132
Canada's oral statement) in its selection of a conversion factor which led to the inflation of the
subsidy and amounts to a legal error. In Canada's view, was it manifestly incorrect of the
USDOC not to accept the conversion factor suggested by Minnesota in its Public Stumpage
Price Review and Price Index (CDA-113), when it is clearly noted in this Minnesota document
that "the reader should use caution when comparing the prices shown in this report with actual
prices received or expected on any specific timber sale. Individual sale prices will vary
significantly from the averages shown in this report because of variability in both economic and
physical conditions"? (CDA-113, p. IV.A)
Reply
131. The text in the Minnesota Public Stumpage Pr ice Review and Price Index (“Price Report”) to
which question 19 refers in no way speaks to the applicability of the conversion factor that appears on
the face of the Price Report. The purpose of the disclaimer cited in question 19 is simply to caution
readers that the Price Report lists average prices per species. These average prices, of course, will
differ somewhat from actual prices paid by specific purchasers of public timber in Minnesota, which

72 Response of the Government of Canada to the US Department of Commerce 1 May 2001
Questionnaire (29 June 2001) at Exh. GOC-GEN-3. (Exhibit CDA-131)
73 Response of the Government of Canada to the US Department of Commerce 26 November 2001
Questionnaire (21 Dec. 2001) at Exh. 41. (Exhibit CDA-132)
74 Verification of the Government of Canada (23 January 2002) at Exhibit. 7 (all calculations) (Exhibit
CDA-133); and Exhibit 13 (residual products) (Exhibit CDA-86).
75 Estimated Added Value of Remanufacturer Shipments (8 January 2002). Exhibit CDA-134)
76 Verification of the Survey of Secondary Manufacturing conducted at the Pacific Forestry Centre
(15 February 2002), Exhibit CALC-1 (redacted public version). (Exhibit CDA-135).

are based on the specific economic conditions of each sale and the physical conditions of the
particular stand. Actual transaction prices may be higher or lower than the average prices listed in the
Price Report, and the Price Report cautions readers regarding this fact lest they assume that the listed
price is what they will receive or pay in a sale. Therefore, it would be incorrect to infer anything
about the validity of the conversion factor on the face of the Price Report from this standard
disclaimer about average prices.
132. The front cover of the Minnesota Price Report also notes that all reported volumes and values
(i.e., sales prices) in the Price Report are predicated on the specified conversion factor. Any departure
from the conversion factor underpinning the data in the Price Report renders the price data
meaningless for comparison purposes – a basic fact that Commerce never addressed.
Q20. Could each party clarify how it sees the role of the Panel in respect of the calculation-
related claims, in light of the Panel's standard of review?
133. The Panel’s standard of review is set out in Article 11 of the Understanding on Rules and
Procedures Governing the Settlement of Disputes. Article 11 provides in relevant part as follows:
[a] panel should make an objective assessment of the matter before it, including an
objective assessment of the facts of the case and the applicability of and conformity
with the relevant covered agreements, and make such other findings as will assist the
DSB in making the recommendations or in giving the rulings provided for in the
covered agreements.
134. The Appellate Body in United States – Transitional Safeguard Measure on Combed Cotton
Yarn from Pakistan summarized “a panel’s standard of review under Article 11 of the DSU in
assessing whether the competent authorities complied with their obligations in making their
determinations”:
This standard may be summarized as follows: panels must examine whether the
competent authority has evaluated all relevant factors; they must assess whether the
competent authority has examined all the pertinent facts and assessed whether an
adequate explanation has been provided as to how those facts support the
determination; and they must also consider whether the competent authority’s
explanation addresses fully the nature and complexities of the data and responds to
other plausible interpretations of the data. However, panels must not conduct a de
novo review of the evidence nor substitute their judgement for that of the competent
authority.
77
135. It would not be appropriate for this Panel to conduct a de novo review of the evidence. For
instance, this Panel is not required to determine which conversion factors were appropriate (assuming
that any are appropriate) to convert from thousand board feet to cubic metres. Rather, the question
that the Panel may, and indeed is required to, address is whether Commerce examined all the pertinent
facts, provided an adequate explanation of how th e facts supported its determinations and addressed
the complexities of the data. Commerce did not do so and the facts on the record firmly contradict the
conclusions reached by Commerce. A review, in accordance with Article 11 of the DSU, of the
conclusions of Commerce in the light of the evidence before it reveals that Commerce violated
Article 19.4 in imposing countervailing duties in excess of the alleged per unit rate of subsidization.
Q23. The US argues that nothing in Article 12 SCM imposes on the investigating authority an
obligation to engage in an endless cycle of no tice and comment, and that Article 12.3 rather

77 United States – Transitional Safeguard Measure on Combed Cotton Yarn from Pakistan , Report of
the Appellate Body, WT/DS192/AB/R, adopted 5 November 2001, para. 74.

reflects the time constraints imposed on comple tion of the investigation, requiring only that
relevant information be provided, "whenever practicable". Could Canada please react to this
US argument that linking Articles 12.1 and 12.3 to 12.8 would create an endless cycle of notice
and comment?
Reply
136. Nothing in Article 12 (or, indeed, in Canada’s submissions) suggests that an investigating
authority is required to engage in an endless cycle of notice and comment.
137. Each of Articles 12.1, 12.3 and 12.8 is aimed at information or evidence of varying degrees of
importance to the investigation or final determination. And, depending on the importance of the
information or evidence at issue, each provision contains internal qualifiers designed to limit its
application.
138. In the facts of this case, the issue is whether the United States provided an opportunity to the
Canadian interested parties to comment on new information and evidence. In respect of Canada’s first
claim, the United States failed to give interested parties any notice of its choice of benchmark state for
Alberta and Saskatchewan prior to the Final Determination, let alone an opportunity to defend their
interests. With respect to Québec, Commerce accepted and relied upon new evidence submitted by
the petitioners without permitting any comments by interested parties. Canada’s claims under
Article 12 involve factual circumstances in which parties were denied any opportunity to comment,
and not an “endless cycle of comment and rebuttal” as the United States claims. Accordingly, the
hypothetical posed by the United States is not relevant to this dispute.
Q24. What in Canada's view is the temporal relationship between the obligation of
Article 12.1 and 12.3 on the one hand and Article 12.8 on the other hand. In Canada's view, do
the obligations of Article 12.1 and 12.3 continue to apply even after a disclosure under
Article 12.8?
Reply
139. There is no “temporal” relationship between Articles 12.1 and 12.3, and Article 12.8.
Specifically, nothing in Articles 12.1 and 12.3 or Article 12.8 suggests that compliance with
Article 12.8 remedies violations of Articles 12.1 and 12.3 in the course of the investigation or that
compliance with Article 12.8 obviates the need to comply with Articles 12.1 and 12.3.
140. Each of these provisions is an independent obligation. Each concerns information, evidence
or facts of different degrees of importance to an ongoing investigation or to a final determination. For
instance, Article 12.8 concerns disclosure of “essential facts under consideration which form the basis
for the decision whether to apply definitive duties” while Article 12.3 concerns timely opportunities to
see and prepare presentations on the basis of “ relevant” information that is used in an investigation
whenever practicable. It is possible, even after disclosure of essential facts under Article 12.8, for an
investigating authority to come into possession of relevant information within the purview of
Article 12.3. Article 12.8 should not be interpreted to reduce Articles 12.1 and 12.3 to inutility for
any period following an Article 12.8 disclosure.
Q25. Could both parties comment on the views of the EC concerning Article 12.8 as presented
in paragraphs 23 and 24 of the EC's oral statement ?
Reply
141. Paragraph 23 of the EC’s oral statement concerns Article 12.3 of the SCM Agreement.
Canada agrees with the EC that Article 12.3 imposes two distinct obligations on investigating

authorities: to provide timely opportunities both to see relevant information and to prepare
presentations on the basis of that information. This accords with Canada’s position as set out in
paragraphs 211 and 212 of Canada’s First Written Submission.
142. With respect to paragraph 24, Canada agrees that Article 12.8 does not require an
investigating authority to engage in an endless cycle of notice and comment or comment and rebuttal.
Canada further agrees that the disclosure of essential facts required by Article 12.8 must be done as
early as is feasible so as to ensure that the partie s have sufficient time to defend their interests. The
EC is also correct in its analysis that the obligation to disclose essential facts under Article 12.8 is not
limited or qualified by any considerations of practicability.
Q26. Could the parties please provide an ov erview of the dates of the communications
concerning the MFPC report, and explain the natu re of such communications in each case ?
Could the US explain why this MFPC letter wa s not put on the record when it was received by
the administration, and indicate where in the record these reasons are reflected? Please provide
a copy of the USDOC regulations concernin g submission and service of documents in
countervailing duty investigations.
Reply
143. An overview of the dates of communications concerning information provided by the Maine
Forest Products Council (“MFPC”) and the nature of that information is provided in the timeline
below.
144. The MFPC comprises the largest private timber owners in the state of Maine. MFPC
members submit the data that is collected by the Maine Forest Service (“MFS”) and appears in the
MFS Stumpage Price Report. The MFS Stumpage Price Report was the sole source of pricing
information used by Commerce in its subsidy calculation when it made the cross-border comparison
of Québec public timber to Maine private timber. Thus, the information the MFPC provided was the
single most important information Commerce received regarding the subsidy analysis it performed for
Québec. The MFPC information directly contradicted Commerce’s findings in the Preliminary
Determination. It stated, among other things, that:
• The MFS Stumpage Price Report “is not a pricin g tool and is not used as one by private
landowners in Maine.”
• The product described in the MFS Stumpage Price Report “as a ‘sawlog’ is a log having a
butt diameter (inside bark) equal to or greater than 9 inches, the accepted and standard
definition of a sawlog in Maine. In fact, most of the timber we sell for sawlogs yields
logs with diameters greater than 9 inches. Logs with diameters of 10, 12, and 15 inches
are the most common sawlog sizes in Maine.”
• Less expensive pulpwood and studwood had to be included in any Maine benchmark.
• Expensive sawlogs not used in lumber production ( i.e., used in furniture production and
high-end millwork) identified in MFS Stumpage Price Report should be removed from
any Maine benchmark.
145. The MFPC told Commerce that they had comp ared two very different things and thereby
grossly overstated the alleged subsidy being provided by the Québec government to its lumber
producers. Moreover, the MFPC noted in their letter to Commerce that Commerce had acknowledged
these errors in its calculation during their meeting with the MFPC: “But we recognize, as did the

Department, that the comparison in the preliminary determination was not apples-to-apples because,
in Quebec, there is no sawlog, pulpwood, or studwood distinction.”) [emphasis added].78
146. The US assertion that “a filing error” resulted in the MFPC information not being put on the
record is not credible. The MFPC had met with the lead officials running the investigation on two
occasions in Washington, D.C. during the investigation. The Deputy Assistant Secretary received the
information sent by the MFPC. Commerce put the information on the record only when the Québec
government independently became aware of its existence and made a request to that effect.
Commerce then relied on new information filed by the petitioners, and denied Québec to an
opportunity to comment on this new information.

78 See MFPC 20 December 2001, Letter attached to Letter from US Department of Commerce to All
Interested Parties (20 February 2002) at p. 4. (Exhibit CDA-100)

Handling of the Information from the
Maine Forest Products Council
2001
14 May MFPC first meeting with Commerce officials in Washington, D.C.
Commerce officials present at the meeting:
- Assistant Secretary of Import Administration
- Deputy Assistant Secretary, Group II
- Senior Director, Office IV, Import Administration
- Director, Office VI, Import Administration
14 May NAFTA P.R. 88 Ex Parte Memo commemorating meeting of 5/14
17 August Preliminary Determination published
30 October MFPC second meeting with Commer ce officials in Washington, D.C. Commerce is
told that their cross-border comparison in the Preliminary Determination between
Québec public timber and Maine private timber is seriously flawed and dramatically
inflates the subsidy rate. In the letter submitted by the MFPC on December 20, 2001,
it states that Commerce officials at this meeting recognized that the comparison in the
Preliminary Determination was not “apples-to-apples” because, in Quebec, there is no
sawlog, pulpwood, or studwood distinction.
Commerce officials present at the meeting:
- Deputy Assistant Secretary, Group II
- Director, Office VI, Import Administration
- Special Assistant to the Assistant Secretary for Import Administration
31 October NAFTA P.R. 554 Ex Parte Memo commemorating meeting of 10/30
20 December Certified letter with the MFPC information addressed to Deputy Assistant Secretary,
Group II received by Commerce. The information explains in detail the flaws with
the agency cross-border comparison. Among other errors, the MFPC notes that the
term sawlog in Maine refers to a log with a diameter of at least 9 inches and that
pulpwood and studwood must be included in any Maine benchmark.
2002
7 January Investigation record officially closes
17 January Last day to comment on or rebut factual evidence submitted on or before
7 January 2001
21-29 January Commerce verification of Québec (during which Québec officials learn for the first
time that Commerce has in its possession information from Maine private timber
owners discussing the cross-border comparison in the Preliminary Determination
(i.e., the MFPC information)

8 February Québec’s written request for any information that Commerce has received from
Maine landowners to be put on the record
15 February Verification Report for Québec issued
20 February Memorandum from the Director, Office VI, Import Administration circulated to
parties attaching MFPC information. Memorandum characterizes the MFPC
information as “important to certain central issues in the proceeding” but “untimely.”
No explanation from Commerce on how information it sought and received prior to
the close of the record could be untimely.
1 March Rebuttal briefs are submitted
4 March Coalition files new factual information in the form of two expert reports attacking the
substance of the MFPC information. Quebec is prohibited from commenting on this
new information.
21 March Final Determination due but not issued
25 March Final Determination actually issued to the parties
2 April Final Determination published
Q27. Could Canada please react to the US argume nt that in Canada's theory, an income tax
exemption granted solely to two industries – the auto industry and the textile industry is not
specific under Article 2.1 because the two industries in the group manufacture dissimilar
products? Does Canada agree with the US proposition that Canada's approach concerning
specificity would mean that even a subsidy limited to a single large industry – whether steel,
autos, textiles, telecommunications or the like – could not be specific because of the diversity of
products of each of those producers?
Reply
147. Canada is asked to react to the assertion of the United States that under Canada’s reasoning, a
subsidy granted solely to auto and textile producers, or to a “single large industry” such as steel or
autos, would not be specific under Article 2.1. Ca nada can confirm that in principle such a subsidy
could be found to be specific in either case.
148. The United States, however, makes general assertions about the import and consequences of
Canada’s submissions without in any way addressing the interpretation of the relevant provisions of
the SCM Agreement. The provision at issue is Article 2 of the SCM Agreement and in particular, in
this question, the words “industry” and “group of industries”. The ordinary meaning of “industry” is
“[a] particular form or branch of productive labour; a trade, a manufacture”. 79 The ordinary meaning
of “group” is “[a] number of people or things regarded as forming a unity or whole on the grounds of
some mutual or common relation or purpose, or classed together because of a degree of similarity.”
80
As explained in Canada’s First Written Submission, these terms, read in context and in light of the
object and purpose of the Agreement, require product-based identification of industries.
81

79 New Shorter Oxford English Dictionary (Oxford: Clarendon Press, 1993), at 1356. (Exhibit CDA-
66)
80 Ibid., at 1151. (Exhibit CDA-136)
81 Canada’s First Written Submission, at paras. 159-162.

149. Applying the meaning of those terms to the hypothetical proposed by the United States,
Canada does not dispute that a subsidy limited to what the United States calls “a single large industry”
(such as “steel”, “autos”, “textiles”, “telecommunications”, or the like)82 could be found specific, even
though the producers make a diversity of products. These so-called “single large industries” may well
fit the Article 2.1 definition of “certain enterprises”. That term, as defined in Article 2.1, refers to “an
enterprise or industry or group of enterprises or industries”.
150. Under the facts of a particular case, it may be completely appropriate to find that producers of
a wide variety of steel products (or automobile products, or textile products, etc.) are a group of “steel
industries” (or “automobile industries”, “textile industries”, etc.) because of the similarity and
relatedness of their output products. The fact that a government used the similarity and relatedness of
the products of these “certain enterprises” to limit access to a subsidy programme would indeed be the
type of government action the specificity test was designed to address.
151. Similarly, Canada does not claim that “an income tax exemption granted solely to two
industries – the auto industry and the textile industry – is not specific ... because the two industries
manufacture dissimilar products.”
83 In a case like that posited by the United States, a tax exemption
granted solely to two dissimilar industries may ind eed be an instance of government rendering the
subsidy “specific to certain enterprises”. But such a finding would not flow from the United States’
erroneous reasoning that those unrelated industries form a single “group” consisting of “all users” of
the subsidy. If the evidence in the hypothetical case supports the conclusion, it may be reasonable to
find that the “certain enterprises” that use the subsidy are the industries producing “autos” and the
industries producing “textiles”. Because Article 2.1(c) provides that “use of a subsidy programme by
a limited number of certain enterprises” may indicate government targeting, and those two groups of
industries appear to be a “limited number” of certain enterprises that the government has targeted,
such a subsidy may indeed be specific to certain enterprises.
152. However, simply labelling an aggregation of producers as a “single large industry” merely
because they use a particular programme, without any analysis of whether they are appropriately
considered “certain enterprises”, does not satisfy the requirements of Article 2. Under the
United States’ reasoning, one could easily refer to the “single large industry” of agricultural
producers. But even the United States acknowledges, as a matter of law,
84 that the diversity of
products produced by agricultural producers is sufficiently varied that agriculture is neither a “single
large industry” nor even a group of industries.
153. By aggregating a potentially vast number of enterprises, industries, and groups of industries
into a single “industry” through such labels as “autos”, “textiles”, or “steel”, the United States
impermissibly interprets the term “industry” without context. 85 The drafters of the SCM Agreement
did not negotiate the language of Article 2 in a vacuum. Contrary to the US contention, Canada is
indeed interpreting these terms consistent with the “common practice” of referring to industries by the
type of products they produce.
86 And in contrast to the standardless approach advocated by the
United States, the record evidence on specificity submitted by Canada is based on established,
objective criteria. The Standard Industrial Classification in Canada is similar to multilateral systems

82 US First Written Submission, at para. 152
83 US First Written Submission, at para. 151.
84 19 C.F.R. § 351.502(d). (Exhibit CDA-74)
85 The Lumber III Canada-United States Binational FTA Panel reviewing an almost identical de facto
specificity finding did not accept this US approach. It fo und the determination in that case “circular, depending
upon the identification and labelling of the group of stumpage users rather than upon a reasoned analysis of the
actual businesses in which those users were engaged.” For the Panel, this approach revealed “a mechanical and
arbitrary exercise which is not supportable under US law.” See FTA Lumber III CVD Panel (2d) at 39 (Exhibit
CDA-68).
86 US First Written Submission, at para. 150.

of industrial classification such as the United Nations International Standard Industrial Classification
of All Economic Activities (ISIC), 87 and the North American Industry Classification System
(NAICS).88 This evidence demonstrates that immediate users of stumpage – that is, not taking into
account the multiple downstream industries that purchase wood products as inputs – include
thousands of enterprises in at least 23 categories of industries, and the industries are as unrelated as
lumber, agricultural chemicals, paper, and furniture.
Q28. On specificity, could Canada please indicate whether, if a subsidy is used by only three
companies, out of a total of 1 million, an "industry" analysis of the three users also would be
required under Article 2 for a finding of specificity to be legal? In Canada's view, is it
impossible to find specificity solely on the basis of a limited number of users ?
Reply
154. Article 2 does not require an industry analysis in all cases. The definition of “certain
enterprises” encompasses enterprises as well as i ndustries. An investigating authority may therefore
determine that three companies are three “certain enterprises”, without resort to an analysis of whether
those three companies belong to a common industry.
89 Under Article 2.1(c), “use of a subsidy
programme by a limited number of certain enterprises” is a factor that may be considered as an
indication that a government has rendered a subsidy specific in fact. Canada’s position is that a
limited number of users may well be an indication of specificity, and in some cases, after analysis of
all the relevant evidence, may even be sufficient for a specificity finding. But the mere fact that there
might be a limited number of users does not, and cannot, create an irrebuttable presumption of
specificity. Even in the hypothetical given, where only three companies are users, Article 2.1(c) does
not support an interpretation that the subsidy programme will necessarily be found specific – for
example, the fact that the subsidy is new may provide a perfectly reasonable explanation for a limited
number of users, and indicate that there is no government targeting of certain enterprises.

87 United Nations, International Standard Indu strial Classification of all Economic Activities ,
Statistical Papers Series M No. 4, Rev. 3 (ISIC Rev. 3.1). See the following Internet site:
http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=17&Lg=1. Under the ISIC, the mere reference to “autos”,
for example, refers to many different industries. See
http://unstats.un.org/unsd/cr/registry/regcs.asp?Cl=17&Lg=1&Co=3410. The same is true for a reference to
“textiles”. See http://unstats.un.org/unsd/cr/registry/regcs.asp?Cl=17&Lg=1&Co=17.
88 See in particular Statistics Canada’s explanation of the NAICS at
http://www.statcan.ca/english/Subjects/Standard/naics/1997/naics97-intro.htm.
89 Canada notes, however, that the vast number of enterprises is uncontested in this case.

ANNEX A-2
UNITED STATES RESPONSE TO QUESTIONS
FROM THE PANEL AT THE FIRST MEETING
(24 February 2003)
Q1. Does the US consider that the "good" pr ovided through the stumpage programmes is
the "right" to harvest timber or is it the standing timber itself. Could the US comment on the
USDOC determination (p.30) that "the term 'g oods' encompasses all 'property'. The term
'property' includes 'the right to possess, use a nd enjoy a determinate thing. In its widest sense,
property includes all a person's legal rights of whatever description'. Therefore, the sale of a
license or right to harvest timber also constitu tes the provision of a good within the meaning of
Section 771 (5) (B) (iii) of the Act."
Reply
1. As the United States stated in the Final Determination, “we determine that the Provincial
governments provide a good (timber) to lumber producers within the meaning of
Section 771(5)(B)(iii) of the Act.”1 It is therefore the view of the United States, as discussed in our
first written submission and statements at the first panel meeting, that the provinces provide standing
timber and that standing timber is a “good” within the ordinary meaning of that term.
2. In response to Canada’s arguments that the provinces merely provided a “right” to harvest
timber, the United States also stated in the Final Determination:
Finally, we note that, even assuming arguendo that the Provinces are providing
stumpage in the form of a license or right to cut timber, Section 771(5)(B)(iii) would
still apply. As noted above, the term “goods” encompasses all “property”. The term
“property” includes “the right to possess, use, and enjoy a determinate thing (either a
tract of land or a chattel). . . [and] [a]ny external thing over which the rights of
possession, use, and enjoyment are exercised. . . . In its widest sense, property
includes all a person’s legal rights of whatever description.” Black’s Law Dictionary
at 1232. Therefore, the sale of a license or right to harvest timber also constitutes the
provision of a good within the meaning of Section 771(5)(B)(iii) of the Act.2
As stated in the quoted passage, this was an argument in the alternative, not the interpretation relied
upon as the basis for the United States’ determination. Although the passage demonstrates that the
ordinary meaning of the term “goods” is sufficiently broad to encompass certain rights, it is the view
of the United States that it is unnecessary for the Panel to reach the issue of whether the right to
harvest timber in and of itself would constitute a “good” within the meaning of Article 1.1(a)(1)(iii) of
the SCM Agreement because standing timber is unquestionably a “good” within the meaning of that
Article.

1 See Issues and Decision Memorandum: Final Resu lts of the Countervaili ng Duty Investigation of
Certain Softwood Lumber Products from Canada, 30 (21 March 2002) (Exhibit CDA-1) (“ Issues and Decision
Memorandum”). The referenced provision of the US Trade Act is equivalent to Article 1.1(a)(iii) of the WTO
Agreement on Subsidies and Countervailing Measures (“SCM Agreement”).
2 Issues and Decision Memorandum, at 29.

3. All sales transactions, including timber sales, entail the transfer of legal rights and
obligations. A contract for the sale of semiconductors necessarily confers on the buyer the right to
take the semiconductors. Likewise, to sell standing timber, the seller must give the buyer the right to
cut the timber. In either sales transaction, the item sold (the semiconductor or standing tree) and the
right to take the item are not severable.
4. In determining whether goods are sold under tenure contracts, what actually occurs must be
taken into account.3 Under the provincial tenure systems, the tenure holder pays only for the volume
of trees it harvests, and those trees are the only things the tenure holder acquires. As Canada has
acknowledged, timber is a “market asset” and through tenures the provincial governments relinquish
ownership of those assets to the lumber companies. 4 All other rights of ownership of the land and
everything on it remain with the province. 5 These facts support the United States’ conclusion that
tenures are contracts for the sale of a good – timber.
Q2. Could Canada please indicate what the stumpage fee covers, i.e, what the timber
harvester pays for with the stumpage fee. Is it the right to own the harvested tree? The right to
cut the tree? Both? Something else? In this context, please comment on the statement at
paragraph 3 of the 12 February 2003 closing statement of the United States that "[t]he mills pay
to get that tangible timber – not intangible rights – and they pay only for the timber they
harvest".
Reply
5. The record evidence in the underlying investigation demonstrates that stumpage is payment
for the actual timber. The tenure holder pays the stumpage fee after the timber is harvested and pays,
on a volumetric basis, only for the timber it harvests. 6 As noted in the amicus submission by the
Natural Resources Defense Council, the British Columbia (“B.C.”) Supreme Court held that “[t]he
Crown exerts its financial interest in the forests of the province through stumpage appraisal, a process
which places value on timber harvested. Stumpage is the price a licensee must pay to the Crown for
its timber.”7 This was confirmed by B.C. in its questionnaire response when it described its timber
pricing system as “a means of charging specif ic stumpage according to the relative value of each
stand of timber being sold.”8
6. Moreover, tenure holders do not acquire ownership of the trees unless and until they harvest
the trees, and payment for the cut timber has b een made to the government. For example, the
Government of Quebec acknowledged that it “sells standing timber” and that “stumpage is charged on
the volume harvested, i.e., . . . after trees have been felled. Stumpage charges are not based on

3 See e.g., Panel Report, Australia – Subsidies Provided to Producers and Exporters of Automotive
Leather, WT/DS126/R, adopted 16 June 1999, para. 9.45.
4 Joint Case Brief Submitted to the Commerce Department on Behalf of the Government of Canada,
Government of Alberta, Government of British Columbia, Government of Manitoba, Government of Ontario,
Gouvernement du Quebec, Government of Saskatch ewan, Government of the Northwest Territories,
Government of the Yukon Territory, and British Columbia Lumber Trade Council, vol. 2, B6
(22 February 2002) (“Canada Case Brief”) (Exhibit US-3).
5 Response of the Government of Ontario to the Department of Commerce’s 1 May 2001
Questionnaire, vol. 4, Exhibit ON-GEN-18, sec. 36 (28 June 2001) (Exhibit US-56).
6 Issues and Decision Memorandum, at 29-30 (Exhibit CDA-1).
7 British Columbia v. Canadian Forest Products (8 February 1999), Victoria 972176, (1999) BCJ 335
(B.C.S.C.), affirmed 2000 BCCA 456 (Exhibit US-57).
8 Response of the Government of British Columbia to the Department of Commerce’s 1 May 2001
Questionnaire, vol. 1, at IV-16 (28 June 2001) (emphasis added) (Exhibit US-58).

inventories of standing timber.”9 Thus, the facts demonstrate that the tenure holder is paying for the
tree, not merely the right to cut the tree.
Q3. Canada argues that there is a meaningf ul legal distinction, under the stumpage
programmes, between the right to harvest and the right to own the harvested tree. Could
Canada please indicate the significance, in con crete terms in respect of this dispute, of this
distinction – i.e., are there any stumpage contra cts where the timber harvester does not have
ownership rights to the harvested timber? If so, please provide a specific description of these
situations and an indication of their magnitude in relation to total stumpage.
Reply
7. The United States wishes to clarify that when the Panel refers to “stumpage contracts where
the timber harvester does not have ownership rights to the harvested timber”, we interpret that as not
including those situations in which the party to the stumpage contract (the tenure holder) pays a
subcontractor to harvest the timber on its behalf. In those situations, the subcontractor (harvesting
company) is not a party to the stumpage contract and does not have ownership rights in the timber.
The subcontractor is simply providing a service to the tenure holder.
8. As is typical in a contract for the sale of goods, the record evidence demonstrates that the
actual tenure holder or licensee obtains ownership rights to the timber it harvests, provided it pays the
stumpage fee. For example, section 8 of the Quebec Forest Act provides that “[f]ull ownership of the
timber authorized for harvesting under a forest management permit remains in the domain of the State
until the timber is felled and delivered to the de stination indicated in the permit [i.e., the sawmill
owning the tenure], unless the prescribed dues are paid in full.”
10 Likewise, section 33(1) of the
Ontario Crown Forest Sustainability Act provides that “[p]roperty in forest resources that may be
harvested under a forest resource license remains in the Crown until all Crown charges have been paid
in respect of the resources.”11 Section 28(4) of the Alberta Forests Act also provides that “[t]he holder
of a timber license or permit becomes the owner of timber authorized to be cut pursuant to the license
or permit when the timber is actually cut by him or on his behalf”. 12 The United States also
understands that, under B.C. law, ownership of th e objects covered by a profit à prendre (B.C.'s
description of its tenure licenses) is acquired when the objects are “captured”.13
9. There is no record evidence of stumpage contracts under which the contracting party (tenure
holder or licensee) does not have ownership rights to the harvested timber.
Q4. Is it possible for a tenure holder to sell to another party its own contractual right to
harvest, without the permission of the provincial government, and while maintaining its tenure
contract in force? In other words, can someone enter into a stumpage contract and then sell off
the rights to harvest under that contract?

9 Response of the Government of Quebec to the Department of Commerce’s 21 November 2001
Questionnaire, at 5 (17 December 2001) (Exhibit US-59).
10 Response of the Government of Quebec to the Department's 1 May 2001 Questionnaire, vol. 3,
Exhibit QC-S-16 (28 June 2001) (Exhibit US-24).
11 Response of the Government of Ontario to the Department of Commerce’s 1 May 2001
Questionnaire, vol. 4, Exhibit ON-GEN-18, sec. 31(1) (28 June 2001) (Exhibit US-60).
12 Response of the Government of Alberta to the Department of Commerce’s 1 May 2001
Questionnaire, vol. 2, Exhibit AB-S-9 (28 June 2001) (Exhibit US-61).
13 Jessica Clogg and Andrew Gage, A Legal Opinion Regarding the Report, “An Economic Analysis of
Whether Long-Term Tenure Systems in British Columbian Provincial Forests Provide Countervailable
Subsidies to Softwood Lumber Importe d into the United States” by William D. Nordhaus, 3 (7 August 2001),
appended to Letter from Natural Resources Defense Council to Donald Evans (August 13, 2001) (Exhibit US-
62).

10. The record evidence demonstrates that all of the Canadian provinces place legal restrictions
on the transfer of tenure harvesting rights.
British Columbia: Section 54 of the B.C. Forest Act provides that the written consent of the Minister
of Forests is required for “the disposition of a [tenure] agreement or an interest in an agreement.”
Section 55 of the Act provides that failure to obtain consent may result in the cancellation of the
timber license.14
Quebec: Section 39 of the Quebec Forest Act provides that “[a]greements are not transferable” and
section 84(2) provides that the Minister of Natural Resources “shall terminate the [TSFMA]
agreement without prior notice . . . where the agreement holder has made an assignment of his
property.” In fact, TSFMAs are not transferable even among sawmills owned by the same company.
15
Ontario: Section 35 of the Ontario Crown Forest Sustainability Act provides that “[a] transfer,
assignment, charge, or other disposition of a forest resource license,” including any interest therein, is
void without the written consent of the Minister of Natural Resources.
16
Alberta: Section 28(2)-(3) of the Alberta Forests Act provides that “[n]o person shall assign” a tenure
license without the prior written consent of the Minister for Sustainable Resource Development and
that any assignment, to be valid, must be “an unconditional assignment of the entire interest of the
assignor” in the tenure license.17
Saskatchewan: Section 31 of the Saskatchewan Forest Resources Management Act provides that
“[n]o licence is to be assigned, transferred, charged or otherwise disposed of without the minister’s
written consent provided in accordance with the regulations”.18
Manitoba: Section 12 of the Manitoba Forest Act provides that “[e]xcept as otherwise authorized or
approved by the minister, and subject to such terms and conditions as he may consider fit to impose, a
right to cut timber under this Act is not assignable or transferable.”19
Q8. Concerning the subsidy calculation, the US argues that the USDOC used US price data
as the "starting point" for an assessment of the fair market value of Canadian timber, and then
made adjustments to the US price data for obligations such as road building and silviculture (as
"conditions of sale" in Canada) to arrive at an assessment of fair market value of timber in
Canada (US first submission, para. 79-82). The implication of this argument seems to be that
the USDOC did not simply make an unadjusted "cross-border" comparison, but rather, that it
adjusted the US prices to arrive at some sort of a proxy price, based on the US price, to use as
the "market value" benchmark in Canada. Howe ver, Attachment 1 to the US First Written
Submission seems to show that in fact the unadjusted US price was used as the benchmark for
"market value" in Canada. While Attachment 1 makes clear that, on the "government price"

14 Response of the Government of British Colombia to the Department of Commerce’s 1 May 2001
Questionnaire, at vol. 7, Exhibit BC-S-36 (28 June 2001) (“B.C. 28 June Response”) (Exhibit US-63).
15 Response of the Government of Quebec to the Department of Commerce’s 1 May 2001
Questionnaire, vol. 1, at 49 (28 June 2001) (Exhibit US-64).
16 Response of the Government of Ontario to the Department of Commerce’s 1 May 2001
Questionnaire, vol. 4, Exhibit ON-GEN-18, sec. 35 (28 June 2001) (Exhibit US-65).
17 Response of the Government of Alberta to the Department of Commerce’s 1 May 2001
Questionnaire, vol. 2, Exhibit AB-S-9 (28 June 2001) (Exhibit US-61).
18 Response of the Government of Saskatchewan to the Department of Commerce’s 1 May 2001
Questionnaire, Exhibit SK-S-13 (28 June 2001) (Exhibit US-66).
19 Response of the Government of Manitoba to the Department of Commerce’s 1 May 2001
Questionnaire, vol. 1, MB-S-13 (28 June 2001) (Exhibit US-67).

side of the equation, the stumpage fees were increased to account for the in-kind costs borne by
Canadian harvesters under stumpage contracts, it seems to the Panel that such costs would have
had to be included on that side of the equation, no matter what market benchmark was used
(whether from inside Canada, from another market , etc.), simply to arrive at the total cost to
the stumpage holder of the trees that it harves ts on Crown land. As such, therefore, these
adjustments seem to have nothing to do with adjusting the benchmark to which that
government price is compared to determine the amount of subsidy benefit. Could the
United States please comment.
Reply
11. Article 14(d) requires the investigating authority to determine the adequacy of remuneration
“in relation to prevailing market conditions for the good or service in question in the country of
provision . . . (including price, quality, availability, marketability, transportation and other conditions
of purchase or sale).” Thus, in establishing a market benchmark price, the investigating authority
must make adjustments to account for differences in prevailing market conditions to ensure a proper
comparison between the government price and the ma rket benchmark price. The United States made
such adjustments in this case.
12. To minimize the need for adjustments, the United States sought data for comparable timber.
Nevertheless, some adjustments were necessary. Species mix is an important market condition
because the industry in a given area will seek to maximize the revenue based on the relative mix of
very valuable species, such as douglas fir, and less valuable species, such as spruce. To take account
of differences in species, the United States averaged the price data by species to match the species in
the relevant province. Where the species mix was different between the benchmark state and
province, the United States “re-mixed” the US species prices to reflect the relative species mix in the
province, thus adjusting for the differing market conditions. The United States also made adjustments
for other differences in market conditions, such as road building and silviculture requirements. As the
Panel notes in its question, in the benchmark calculation, the United States made these adjustments to
the Canadian stumpage price. The relevant issue is the difference between the benchmark price and
the government price; therefore, it is mathematically irrelevant whether adjustments were made by
adding adjustments to the government price, or subtracting them from the benchmark price.
13. While it is true that some adjustments may be necessary regardless of what market benchmark
price is used, the adjustments made in this case would not necessarily be made if the market
benchmark was different. The adjustments are dictated by what, if any, differences exist in the market
conditions. For example, if the market conditions (species mix, road building and silviculture
obligations, etc.) in the benchmark market were id entical to those in the province, no adjustments to
either price would be required. Similarly, if anot her benchmark market had been selected with other
differences in market conditions from the selected benchmark market, the adjustments would differ as
well.
Q9. The USDOC final determination (Exhibit CDA-1), at pages 39-40, contains the following
statements:
"StatsCan data show that approximately 2.5 million cubic meters of softwood
logs were imported into Canada during the POI, and each of the investigated
Provinces imported US logs during the POI.
"This extensive record evidence that Canadian lumber producers had actual
imports of US logs and purchased US stumpage during the POI would support
basing our benchmark on tier one of the regulatory hierarchy [market prices
from actual transactions within the country under investigation]. However, we

do not have sufficiently detailed import prices on the record to use as the
benchmark for all Provincial stumpage programmes. Therefore, we are using
stumpage prices in the United States under tier two of the regulatory hierarchy
[world market prices that would be available to purchasers in the country under
investigation]."
Could the US please indicate in detail the reasons why the record did not contain "sufficiently
detailed" import price data to use as the benchmark ? What did the USDOC do to obtain such
data? Did it request such detailed data from Canada? Please indicate where in the record the
relevant information on this point can be found (i.e., both any requests for, or other efforts to
obtain, such information, as well as the data of record on import prices, and any memoranda or
other documents discussing the problems with those data). If neither party has yet provided
this part of the record to the Panel, could the US please submit it.
Reply
14. The provincial governments provide timber on the stump (i.e., standing trees). The market
benchmark price must, therefore, also be a stumpage price. In theory, one could derive a stumpage
price from log import prices, but it would be far more complex and, in all likelihood, less accurate,
than using an actual stumpage price because of the need for complex adjustments. The United States
did request data on average import prices for US logs. The United States did not, however, request
the data necessary to derive stumpage prices from the US log import prices because it was able to
obtain data for the US timber on the stump. Using the prices for US timber on the stump eliminated
the need for the complex adjustments that would ha ve been necessary if US. log import prices were
used. The United States did, however, rely on the evidence of log imports, s well as evidence of
Canadian purchases of US stumpage, to establish that the US timber is commercially available to
Canadian lumber producers.
Q10. The parties seem to have very different views as to what the record evidence shows in
respect of the existence or not of a private market for stumpage in Canada. Could the parties
clarify for the panel what they consider the pertinent record evidence was, and why they
consider that it was, or was not, representative and/or usable?
Reply
15. Manitoba and Saskatchewan : Manitoba and Saskatchewan did not provide any private
stumpage price data.20
16. Alberta: According to Alberta’s questionnaire response, only one per cent of the harvest in
Alberta comes from private land.21 Alberta did not provide any data on private stumpage prices. The
“Timber Damage Assessments” (“TDAs”) provided by Alberta do not represent private market prices
for stumpage. In describing this data, Alberta stated:

20 See Response of the Government of Manitoba to the Department of Commerce’s 1 May 2001
Questionnaire, vol. 1, MB-55-MB-56 (28 June 2001) (Exhibit US-20); see also Response of the Government of
Saskatchewan to the Department of Commerce’s 1 May 2001 Questionnaire, SK-81-SK-82 (28 June 2001)
(Exhibit US-21).
21 Response of the Government of Alberta to the Department of Commerce’s 19 November 2001
Questionnaire, vol. 1, Amended Table 1, Exhibit AB-S-1 (17 December 2001) (Exhibit US-68). That revised
document demonstrates that Alberta had a private sawlog harvest of 1 per cent during the POI (138,154 private
volume divided by 12,349,143 total volume equals 1.1 per cent).

beginning in 1993, Alberta has had a consultant collect information on an annual
basis on the value of arms length log purchases in the province. This information,
which does not differentiate between private and crown wood, has been used by the
province to develop a means for mediating disputes between timber operators and
other industrial operators concerning the value of standing timber adversely affected
by industrial operations.
22
Moreover, in its rebuttal brief submitted to the Commerce Department in the underlying investigation,
Alberta stated that the TDAs are “simply a set of voluntary guidelines outlining value calculations that
can be used by private parties with rights on pr ovincial land who are involved in negotiating
appropriate compensation for damages one party has committed related to those activities.”
23
17. British Columbia : B.C. provided government auction data from (1) the small and very
restricted Small Business Forest Enterprise Programme (“SBFEP”), and (2) a study prepared for
purposes of the investigation which contained a very small number of selected prices (the “Norcon
Study”). As previously noted, the SBFEP sales are government sales of Crown timber, not private
sales. Moreover, the United States rejected SPFEP auctions prices because most potential bidders are
excluded from participating in the auctions. The prices are therefore not representative of market
prices.
18. On 26 July 2001, the United States issued a supplemental questionnaire requesting, in part,
that B.C. “provide the volume and value by grade and species of softwood stumpage (standing timber)
from private lands . . .”
24 The British Columbia Lumber Trade Council (“BCLTC”) subsequently
submitted the Norcon Study. The Norcon Study identified 99,779 cubic meters of private timber,
which is 0.17 per cent of the 58,559,158 cubic meters of Crown timber harvested during the period of
investigation, or 0.15 per cent of the 65,405,994 cubic meters of the province’s total sawlog harvest
for the period of investigation. In addition to the fact that the data represent a minuscule portion of
the B.C. harvest, Norcon noted that “the data on purchases of private standing timber are not broken
down by grade and species because such detail was not available”.
25 Moreover, Norcon noted that
“[n]one of these purchases to the best of Norcon’s knowledge was made pursuant to a bid or tender
process”.26 No additional information was provided. There was, therefore, more than sufficient
reason for the United States’ conclusion that the Norcon study did not provide a sufficient basis for
establishing market benchmark prices.27
19. Ontario: On 30 July 2001, Ontario submitted a study conducted by Resource Information
Systems, Inc. (“RISI”).28 The RISI survey, which was conducted for purposes of the investigation,
collected data for both hardwood and softwood timber for all types of destination mills. Recognizing
the limitations in this data, on 18 December 2001, Ontario submitted a study by Charles River

22 Response of the Government of Alberta to the Department of Commerce’s 1 May 2001
Questionnaire, vol. 1, page AB I-8 (Exhibit US-69) (emphasis added).
23 Rebuttal Brief of the Government of Alberta, vol. 2, at 65, fn. 94 (1 March 2002) (Exhibit US-55).
24 Letter from Steptoe & Johnson LLP to Dona ld Evans (December 21, 2001) with attached Survey of
Primary Sawmills’ Arm’s Length Log Purchas es in the Province of British Columbia (prepared by
PricewaterhouseCoopers LLP and Norcon Forestry Ltd.) (“Norcon Study”) at 7-8 (Exhibit US-70). The chart
contained on page 7, which identifies the region, the vo lume and value, is the sum total of the private price
information provided.
25 Id. at 8.
26 Id.
27 Issues and Decision Memorandum, at 76-77 (Exhibit CDA-1).
28 Response of the Government of Ontario to US Department of Commerce 25 July 2002 First
Supplemental Questionnaire (3 Aug. 2001), at ON-SUP-2 - ON-SUPP-8 (Exhibit CDA-39).

Associates (“CRA”),29 which analyzed the RISI survey data re lating solely to softwood timber going
to sawmills. The only data on private softwood timber that CRA was able to extract from the RISI
study related to 111,000 cubic meters of timber and this data was not species specific.
20. In addition, as noted in the Final Determination, the United States learned at verification that:
large parcels of private land in the northern parts of Ontario, where the bulk of
softwood timber is harvested, are owned by mills themselves or large integrated
concerns that also hold SFLs and FRLs. Further, we learned that many of these
private parcels have been managed for years by these concerns.30
21. Quebec: As noted in our first written submission 31, Quebec provided actual prices from non-
government transactions. Substantial record evidence, however, demonstrated that the private
stumpage prices in the provinces, including Quebec, do not represent “market” prices, i.e., prices
undistorted by the government’s financial contribution.
Q11. With regard to its pass-through claim, coul d Canada clarify whether it is arguing that a
pass-through analysis was required in all cases in th e investigation, i.e. even in case of complete
identity between the timber harvester and the sawmills (lumber producers); or does Canada
consider that a pass-through analysis was requi red only in those cases where there allegedly
existed arm's length transactions between timber harvesters and lumber producers and between
lumber producers and remanufacturers?
Reply
22. When a lumber producer harvests timber from its own provincial tenure and pays less than
adequate remuneration to the province, there can be no question that the benefit flows directly to that
lumber producer. As discussed further in response to Question 12, consistent with the SCM
Agreement, that benefit may be allocated over the producer’s total sales, and any portion of those
sales that are exports to the United States may be subject to countervailing duties.
Q12. On remanufactured products, assuming subsidies were provided to lumber producers
through stumpage programmes, and those lumber producers sold lumber at arms length to
remanufacturers, whose products were the expo rted products, how and why in the US view
would this situation NOT affect the subsidy amount (numerator) of the subsidization
calculation? Please provide a concrete numerical example to illustrate your reasoning.
Reply
23. To answer the Panel’s question the United States will use a hypothetical case involving one
sawmill and one remanufacturer that purchases lumber from the sawmill at arm’s length and then
exports the remanufactured lumber to the United States. We will demonstrate how the subsidy
calculation is performed on an aggregate basis, and then compare that calculation to the calculation
that would be performed if the two companies were individually investigated.

29 Charles River Associates, An Economic Analysis of the Appropriateness of Relying on Ontario’s
Private Timber Sales , Exhibit ON-SUP2-12, Questionnaire Response of the Province of Ontario to the
Department’s Second Supplemental Questionnaire (18 December 2001) (Exhibit CDA-38).
30 Issues and Decision Memorandum, at 98 (Exhibit CDA-1) (citations omitted).
31 See First Written Submission of the United States, para. 66 (22 January 2003) (“US First Written
Submission”).

24. Aggregate Investigation : Based on data submitted by the government, the investigation
establishes that the government has provided one million cubic meters of Crown timber to sawmills
for $1/cubic meter less than the market price. The total subsidy benefit is, therefore, $1 million, but
data on specific recipients of the benefit is unknown because company-specific investigations were
not conducted.
Benefit: $1 million
Sawmill /g228Lumber sales of $1 million /g228Remanufacturer
 ↓ ↓
Lumber exports $9 million Lumber exports $2 million
 (Total sales $10 million) (Total sales $2 million)
Countervailing Duty Calculation: $1 million (total benefit) divided by $12 million (total sales of
products) equals an 8.33 per cent rate, which is applied to $11 million in exports of subject
merchandise.
25. Company-Specific Investigation : The company-specific investigation establishes that one
million cubic meters was harvested from a tenure held by the sawmill. Some sawmills are integrated,
producing both milled and remanufactured lumber, and some remanufacturers have tenure. However,
for purposes of this hypothetical, the remanufacturer is independent and does not hold tenure, and a
company-specific analysis demonstrates that the sales of lumber from the sawmill to the
remanufacturer did not result in any benefit accruing to the remanufacturer.
Sawmill ► Lumber sales of $1 million ► Remanufacturer
Benefit: $1 million
↓↓
Lumber exports $9 million Lumber exports $2 million
(Total sales $10 million)
Sawmill Countervailing Duty Calculation: $1 million divided by $10 million equals 10 per
cent applied to $9 million in exports.
Remanufacturer Countervailing Duty Calculation: $0 divided by $2 million equals 0 per cent
applied to $2 million in exports.
26. In both hypothetical cases, the duties do not exceed the subsidy benefit found to exist. The
illustrations demonstrate that, although the compa ny-specific subsidy rates differ from the aggregate
subsidy rate, the total amount of the subsidy benefit remains unchanged because the basis for the
subsidy, i.e., the volume of timber entering the sawmill, is unchanged. In the company-specific
analysis, only the company-specific benefits (numerators) change, not the aggregate amount of the
subsidy, because the allocation of the benefit is based on company-specific information. As the
United States explained in its first written submission and oral statement,
32 however, the SCM
Agreement does not require a company-specific analysis in an investigation.
27. The United States also notes that, in the hypothetical investigation of specific companies, as
in the aggregate investigation, exporters of the subject merchandise that were not individually
investigated could be subject to duties, consistent with Article 19 of the SCM Agreement, even

32 See, US First Written Submission, at paras. 108-114; Oral Statement of the United States at the First
Meeting of the Panel, para. 32 (11 February 2003) (“US First Opening Statement”).

though those exporters may not have received any benefit. As the United States explained in its first
written submission and oral statement,33 subjecting uninvestigated companies to countervailing duties
does not constitute an impermissible presumption that those companies received a subsidy benefit.
Members routinely apply countervailing duties to exports from companies that were not individually
investigated, as envisioned in Article 19.3, even though the producers may not have received any
subsidy benefit or may have a subsidy rate significantly lower than the rate applied. Thus, if
allocating some portion of the subsidy to remanufacturers that were not individually investigated and
subjecting their exports to duties is inconsistent with the SCM Agreement, then Members are
routinely violating the Agreement when they apply any subsidy rate to an exporter that was not
individually investigated.
Q13. Could Canada take the Panel through its analysis of each of the provisions it alleges
have been violated by the failure of the USDOC to conduct a pass-through analysis, and indicate
why it considers each of these provisions has been violated?
Reply
28. In paragraph 129 of its first written submission, Canada claimed that the United States
violated Articles 10, 19.1, 19.4, and 32.1 of the SCM Agreement and Article VI:3 of the General
Agreement on Tariffs and Trade (“GATT 1994”).
29. Article 19.1 of the SCM Agreement requires a final determination of the amount of the
subsidy and a final determination of injury as pre-conditions to the imposition of a countervailing
duty. Article 19.1 does not, however, establish any requirements concerning how a subsidy or injury
is to be determined.
30. Article 19.4 of the SCM Agreement establishes an upper limit on the amount of the
countervailing duty that may be levied, i.e., the amount of the subsidy found to exist. In other words,
Article 19.4 expressly addresses the levying of duties after a subsidy has been “found to exist.”34 The
sole calculation requirement in Article 19.4 is a requirement to calculate the subsidy on a per-unit
basis; Article 19.4 does not establish any other requirements concerning how the subsidy is to be
calculated.35 Similarly, Article VI:3 of GATT 1994 establishes that the amount of the subsidy found
is the upper limit on the amount of the countervailing duty that may be levied 36, but does not address
how the subsidy is to be calculated.

33 See US First Written Submission, at para. 109; US First Opening Statement, at para. 33.
34 Article 20.3 of the SCM Agreement provides that, “[i]f the definitive duty is less than the amount
guaranteed by the cash deposit or bond, the excess amount shall be reimbursed . . . .” The possibility that the
duty actually levied may be lower than the definitive duty “found to exist” in the investigation unavoidably
includes the possibility that the duty actually levied may be zero because, on examination in a review, the
particular producer in question may be found not to have received a subsidy. Therefore, the SCM Agreement
does not require that each exporter be found to have recei ved a subsidy in order to be subject to countervailing
duties.
35 As the Panel recognized in Question 15, Canada, in fact, has conceded that its claim under
Article 19.4 is dependent upon the existence of an inconsistency with some other provision of the SCM
Agreement that imposes obligations with respect to the subsidy calculation. See Canada First Written
Submission, at para. 179.
36 Thus, for example, if a Member determines a subsidy of $12 per unit has been granted, the Member
may not impose a countervailing duty of $20 per unit.

31. Although Canada also references Articles 10 and 32.1 of the SCM Agreement, because those
claims are dependent on the other provisions cited by Canada, they must likewise fail.37
Q14. The US refers to recent amendments to an EC regulation to argue that other Members
such as the EC also consider that in certain ci rcumstances it is warranted to consider world
market prices rather than in-country prices. Could the US please react to the EC's clarification
in its third party submission that these amendm ents are not relevant for the resolution of this
dispute since these amendments relate to a situation where there are no market conditions?
Could the US please also react to the clarifications made in the EC's oral statement that its
amended regulation applies only when there are no market conditions in the country of
provision and that it "agrees with Canada and the panel in United States - Lumber
(Provisional) that the US determination of benefit violated Article 14 (d) of the SCM
Agreement" (EC oral statement para. 8). In the light of these clarifications by the EC, does it
remain the US view the EC's regulation and practice support its position in this case?
Reply
32. In its third party written submission, the European Communities (“EC”) states that “the
problem with the ‘cross-border’ methodology attacked by Canada is not that it eventually allows
consideration of world market prices, but under which conditions recourse may be had to alternative
benchmarks”.38 The EC’s regulation states that, “when appropriate”, an alternative to prices in the
country of provision may be used to measure the adequacy of remuneration. The preamble to the
EC’s regulation states that it is appropriate to consider world market prices where market benchmark
prices in the country of provision “do not exist or are unreliable”.
39 In its written submission and oral
statement, the EC does not address the issue of unreliable prices. The EC does, however, argue that
Article 14(d) permits consideration of world market prices where no “market” conditions exist, and it
defines “market” conditions as “prices determined by independent operators following the principle of
supply and demand.”
40 The EC’s interpretation of Article 14(d) of the SCM Agreement therefore
supports the United States’ position that where, as in the present case, there are no “market” prices in
the country of provision, Article 14(d) permits the use of alternative benchmarks.
33. The EC concedes that “as a third party [it] is obviously not in a position to comment on the
availability of independent market-driven prices for non-governmental stumpage (be it from private
Canadian land or imported)”.41 The EC, however, does precisely that when it supports its argument
with erroneous factual assertions such as “the USDOC rejected the use of actual market prices,”42 and
that the reason for such rejection was “the mere assertion that such prices are driven by the stumpage
prices on Crown land.”43
34. As discussed in our first written submission and oral statement 44, and in our responses to other
questions from the Panel contained herein, the facts on the record of the investigation demonstrate
that there were no “independent market-driven pr ices for non-governmental stumpage” available in

37 See e.g., Panel Report, United States – Section 129(c)(1) of the Uruguay Round Agreements Act ,
WT/DS221/R, adopted 30 August 2002, para. 6.133 (where consequential claims were rejected because the
main claims were not successful).
38 Third Party Submission by the European Communities, para. 31(“EC Third Party Submission”)
(emphasis in original).
39 S ee Notification of Laws and Regulations Under Article 32.6 of the Agreement, European
Communities, G/SCM/N/1/EEC/2/Suppl.3 (18 November 2002) (Exhibit US-15).
40 Id. at para. 27.
44 See US First Written Submission, at paras. 64-76; US First Opening Statement, at paras. 23-26.

Canada. Most of the provinces failed to provide any price data on private stumpage sales or provided
inadequate data. Moreover, the evidence established that the limited price data that was provided did
not represent independent market-driven prices.
35. The EC characterizes the United States’ reliance on evidence that prices for timber on private
lands are driven by the administered stumpage prices for Crown timber as a “flawed hypothetical
undistorted market” methodology.45 On this point the United States strongly disagrees with the EC.
We first note the inconsistency of this statement by the EC with its apparent recognition that the
proper benchmark is “independent market-driven prices”. Moreover, as discussed in our first written
submission and oral statement 46, the United States has never advocated a “hypothetical undistorted”
market standard. Nevertheless, to determine whether a benefit exists, the point of comparison must be
prices that are determined by market forces, not the government’s financial contribution. The United
States fails to see how a price artificially suppressed by the government’s financial contribution can
be considered an “independent market-driven price”. To argue that the United States is required to
use such prices turns the SCM Agreement on its head, making government-driven rather than market-
driven prices the standard by which the benefit is measured.
Q17. Assuming, arguendo, that th e total amount of subsidy benefit has been determined in
conformity with the Agreement, could both part ies clarify what, in their view, was or should
have been the product scope of the numerator and the denominator in the USDOC
subsidization calculation?
Reply
36. Tenure holders pay for the volume of trees they harvest. The subsidy benefit is the extent to
which they pay less than adequate remuneration for the trees they harvest. Thus, the proper basis for
calculating the total benefit is to multiply the total volume of harvested Crown timber entering the
sawmills
47 by the difference between the market benchmark stumpage price and the government
stumpage price. For example, if the sawmill paid $2/cubic meter for 500,000 cubic meters of
harvested timber, and the market benchmark is $4/cubic meter, the total benefit to the sawmill is
$1 million ($4 - $2 = $2 x 500,000).
37. The denominator of the subsidy calculation should be the sales value of all products resulting
from the processing of the timber. 48 This includes milled and remanufactured softwood lumber
products and by-products that result from the processing of the timber.
38. At the first substantive meeting of the Panel, Canada asserted that certain other products, such
as posts and ties, should also have been included in the denominator. The United States would have
included such products in the denominator had Canada provided data from which the value of these
sales could have been derived. Canada, however, failed to do so. Rather, Canada argued that a
category of products labelled “residual products” should have been included in the denominator. The
StatsCan information provided by Canada consisted of a single number representing the total

45 See EC Third Party Submission, at para. 32.
46 See US First Written Submission, at para. 72; US First Opening Statement, at para. 14.
47 Crown timber harvested by remanufacturers from their own tenures should also be included in the
numerator. However, as the United States explained in its first written submission and at the first panel meeting,
the United States did not have this data, which would have increased the total benefit calculation. US First
48 The lumber production process includes remanufactured softwood lumber. Remanufacturers
perform minor operations, such as cutting to odd lengths or finger jointing. By contrast, products such as
particle board involve substantial additional manufacturing processes. For example, particle board requires not
only the pressing of pieces of wood, but also a chemical treatment to act as an adhesive. Products resulting from
such additional manufacturing processes do not belong in the denominator.

shipments that fell within the residual products category and a list of products contained in the
residual products category.49 The list included products, such as particle board and spruce logs, that
did not result from the processing of timber. 50 Canada did not, however, provide any information
concerning the break out of the residual products category. 51 The United States therefore could not
determine which specific products from the list provided made up what percentage of the total number
provided for in the residual products category. Accordingly, because Canada did not provide enough
information concerning the make-up of the residual products category, the United States could not
include that category in the denominator.
52
Q19. According to Canada, the USDOC used "manifestly incorrect data" (para. 132
Canada's oral statement) in its selection of a conversion factor which led to the inflation of the
subsidy and amounts to a legal error. In Canada's view, was it manifestly incorrect of the
USDOC not to accept the conversion factor suggested by Minnesota in its Public Stumpage
Price Review and Price Index (CDA-113), when it is clearly noted in this Minnesota document
that "the reader should use caution when comparing the prices shown in this report with actual
prices received or expected on any specific timber sale. Individual sale prices will vary
significantly from the averages shown in this report because of variability in both economic and
physical conditions"? (CDA-113, p. IV.A)
Reply
39. While Canada asserted in paragraph 132 of its oral statement that the United States used
“manifestly incorrect data” in its selection of conversion factors, Canada failed to point to any record
evidence demonstrating that the conversion factors used by the United States were inaccurate. Rather,
in response to the Panel’s enquiry, Canada merely referred to alternative sources of conversion
factors: (1) the Minnesota 2000 Corrected Public Stumpage Price Review (“Minnesota Stumpage
Price Review”)53, and (2) an Analysis of Comparative Factors Between the Public Forests of Quebec
and the Private Forests of Maine.54
40. Moreover, while Canada alleges that the United States ignored the conversion factor used in
the Minnesota Stumpage Price Review, its argument is based on a misreading of this document.
Canada contends that the Minnesota Stumpage Price Review applied a conversion factor of 6.25.
However, the first page of the document indicates that the 6.25 conversion factor only applied to the
data contained in Table 2, which contained calculated volume and average prices received for pulp
and bolts. The United States used the data from Table 1 to calculate certain benchmark prices
because that table contained data on sawtimber. Unlike the pulp and bolts data in Table 2, the
sawtimber data in Table 1 did not include any conversion factor.
Q20. Could each party clarify how it sees the role of the Panel in respect of the calculation-
related claims, in light of the Panel's standard of review?

49 See Memorandum from Eric Greynolds to Melissa Skinner, Countervailing Duty Investigation of
Softwood Lumber Products from Canada: Verification of the Questionnaire Responses Submitted by the
Government of Quebec (15 February 2002) at 8, 10, Exhibit 13 (Exhibit US-71).
50 Id. at Exhibit 13 (Exhibit US-71).
51 See Issues and Decision Memorandum, at 22 (Exhibit CDA-1).
52 Id. at 22-23 (Exhibit CDA-1).
53 Minnesota 2000 Corrected Public Stumpage Price Review and Price Index , State of Minnesota,
Department of Natural Resources, Division of Forestry (Exhibit CDA-113).
54 Del Degan, Masse et Associates Inc., Quebec/Maine Analysis of Com parative Factors Between the
Publis Forests of Quebec and the Private Forests of Maine (December 2001), at 8-10 (Exhibit CDA-114).

Reply
The Panel’s standard of review is set forth in Article 11 of the DSU:
[A] panel should make an objective assessment of the matter before it, including an
objective assessment of the facts of the case and applicability of and conformity with
the relevant covered agreements, and make such other findings as will assist the DSB
in making the recommendations or in giving the rulings provided for in the covered
agreements.
42. In making an objective assessment of the matter before it, this Panel is to address
only those provisions of the covered agreements cited by Canada in its request for the
formation of a panel.55 Canada has claimed that Articles 10, 19.1, 19.4, and 32.1 of the SCM
Agreement and Article VI:3 of GATT 1994 essentially imposes on Members obligations with
respect to the calculation of the subsidy rate. In light of the Panel’s standard of review,
therefore, the role of the Panel is inter alia to determine the “applicability” of these cited
provisions in assessing the calculation methodologies used by the United States.
43. As the United States noted in its closing statement, however, Canada has failed to cite to any
language in Articles 10, 19.1, 19.4 or 32.1 of the Subs idies Agreement, or Article VI:3 of the GATT
1994 establishing any obligations applicable to Canada’s calculation-related claims.56
44. As such, because none of these provisions cited by Canada contains any obligations
concerning the methodology of calculating the ad valorem subsidy rate, the Panel should find that
Canada has failed to make a prima facie case that the United States has acted inconsistently with the
SCM Agreement or GATT 1994, and that there is no inconsistency between the ad valorem subsidy
calculation and the United States’ obligations under the SCM Agreement.
Q21. Could the US explain how it considers the USDOC complied with its obligations under
Article 12.8 of the SCM Agreement with regard to the change in the US benchmark state from
Montana to Minnesota? What, in the US view, is the difference between the
obligations/requirements of Articles 12.1 and 12.3 on the one hand and Article 12.8 on the
other?
Reply
45. Article 12.1 of the SCM Agreement provides:
Interested Members and all interested parties in a countervailing duty investigation
shall be given notice of the information which the authorities require and ample
opportunity to present in writing all evidence which they consider relevant in respect
of the investigation in question.
The nature of the obligation contained in Article 12.1 is further elaborated upon in Articles 12.1.1,
12.1.2, and 12.1.3 which discuss questionnaires, availa bility of non-confidential submissions, and
provision of the application for an investigation. Canada does not dispute that it was notified of the

55 See Article 7.2, WTO Understanding on Rules and Procedures Governing the Settlement of Disputes
(“DSU”); Appellate Body Report, Brazil – Measures Affecting Desiccated Coconut , WT/DS/22/AB/R, adopted
20 March 1997, p. 22; Panel Report, Egypt – Definitive Anti-Dumping Measures on Rebar from Turkey ,
56 Closing Statement of the United States at the First Meeting of the Panel, paras. 7-8.

information the Commerce Department required and that it had ample opportunity to present
information to the Department.
46. Article 12.3 of the SCM Agreement provides:
The authorities shall whenever practicable provide timely opportunities for all
interested Members and interested parties to see all information that is relevant to the
presentation of their cases, that is not confidential as defined in paragraph 4 and that
is used by the authorities in a countervailing duty investigation, and to prepare
presentations on the basis of this information.
The Commerce Department’s regulations provide that all information submitted by interested parties
must be served on all other interested parties. All non-proprietary information is also placed on the
public record.
57 While confidential business information is protected from disclosure, any party
submitting business confidential information must also supply a public summary of the submission
consistent with Article 12.4.1 of the SCM Agreement. In addition, information obtained by
Commerce Department officials on their own was placed in the public record and made available to
all interested parties during regular business hours. Parties regularly made use of their ability to
prepare presentations based on information made available to them and the record of the investigation
contained more than 1500 documents.
47. Article 12.8 of the SCM Agreement states:
The authorities shall, before a final determination is made, inform all interested
Members and interested parties of the essential facts under consideration which form
the basis for the decision whether to apply definitive measures. Such disclosure
should take place in sufficient time for the parties to defend their interests. (Emphasis
added.)
The reference to facts “under consideration” cannot be equated with the facts “finally determined” to
be the proper basis for the determination. Such an interpretation would render the obligations in
Article 22.5 of the SCM Agreement redundant.
48. In other words, Canada’s suggestion, in paragraph 143 of its first oral statement, that the
United States was obligated to inform Alberta and Saskatchewan of its final choice of benchmark
prior to making its final determination, cannot be reconciled with Article 22.5 of the SCM Agreement.
Article 22.5 provides that the final determination in an investigation must provide “all relevant
information on the matters of fact and law and reasons which have led to the imposition of final
measures”. If Members are to be prohibited from selecting among different facts on the record when
making their final determinations unless their reliance on such facts has been previously announced,
there would be no point in providing for such deta iled notices of final determinations. All of the
“essential facts” actually relied upon would have been identified to the parties prior to the final
determination, according to Canada’s interpretation, thus obviating the need for the obligations in
Article 22.5 of the SCM Agreement.
49. The “essential facts under consideration” include competing sources of information that may
serve as the basis of the final determination, and not necessarily a single set of facts upon which the
final determination will rely. Indeed, the interests of the parties may differ, resulting in the parties
viewing different facts as essential to the investig ating authority’s determination. In order to defend
their interests, therefore, interested parties need to have access to the competing sources of
information under consideration, not just what one party may believe is essential.

57 See 19 C.F.R. § 351.303(f)(1) (Exhibit US-45).

50. Moreover, it is the view of the United States that when the investigating authority provides a
detailed preliminary determination, access to the ad ministrative record, detailed verification reports
identifying the items examined during verification and any discrepancies found, exchange of case
briefs and rebuttal briefs in which parties identify both legal and factual issues and advocate
approaches to those issues, these processes reasonably inform the parties of all essential facts under
consideration, consistent with Article 12.8 of the SCM Agreement.
658
Q22. Is it the US view that the rate of subsidization found to exist varies depending on which
US state is chosen as a basis for the comparison ? If yes, would this not imply that the actual
state used as the basis for the comparison is essential to the determination of the rate of
subsidization? Is it the US view that the in terested parties were informed of the choice of
Minnesota as the benchmark state before the final determination was issued?
Reply
51. With respect to the first part of the Panel’s question, it is axiomatic that the amount of benefit
found may vary with the selection of the benchmark price against which the government price will be
measured. To that end, when multiple possible benchmarks are available, the United States does not
dispute that selection of the benchmark is highly significant to the subsidy calculation. As discussed
in response to question 21, however, this does not mean that the United States was obligated to
announce its final choice of benchmark prior to issuing its final determination.
52. In this case, the United States announced in the Preliminary Determination its preliminary
decision to use northern US border states as the basis for calculating the benchmarks for each
province.659 The United States also announced which criteria it considered in selecting the benchmark
sources, including species-mix, climate, and topography. Moreover, the record contained information
from a limited number of potential benchmarks for all Canadian provinces being examined:
Washington, Idaho, Montana, North Dakota, Minnesota, Michigan, New York, Vermont,
New Hampshire, Maine, and Alaska. Therefore, based on the evidence contained in the record, and
on the criteria announced in the Preliminary Determination, all parties were informed that a limited
pool of potential benchmark sources was under consideration as the basis for the benefit calculations.
53. Minnesota is a US northern border state, and the record contained all of the information
necessary to use Minnesota as the basis for a benchmark prior to the parties’ submission of briefs.
660
Canada, Alberta, and Saskatchewan all were active parties to the investigation and received copies of
all information concerning Minnesota. These fa cts, combined with the recognition that the
United States had indicated that it was considering a limited pool of potential market benchmarks
which included Minnesota, leave no doubt that the United States complied with Article 12.8 by giving

58 4 See Panel Report, Argentina – Anti-Dumping Measures on Imports of Certain Floor Tiles from
Italy, WT/DS189/R, adopted 5 November 2001, para. 6.125 (clarifying the obligation under Article 6.9 of the
Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 , the analogous
provision to Article 12.8 of the SCM Agreement).
59 5 See Notice of Preliminary Affirmative Countervaili ng Duty Determination, Preliminary Affirmative
Critical Circumstances Determination, and Alignment of Final Countervailing Duty Determination with Final
Antidumping Duty Determination: Certain Softwood Lumber Products from Canada , 66 Fed. Reg. 43186,
43197 (17 August 2001) (Exhibit CDA-20) (“Preliminary Determination”).
60 6 See Memorandum from the Team to File, Calculations for the Preliminary Affirmative
Countervailing Duty Determinations: Stumpage Programmes in the Investigation of Certain Softwood Lumber
Products from Canada (9 August 2001) (“Preliminary Determination Calculations Memorandum ”) (Exhibit US-
50).

Canada notice that the use of Minnesota stumpage prices was among the “essential facts under
consideration.”661
Q25. Could both parties comment on the views of the EC concerning Article 12.8 as presented
in paragraphs 23 and 24 of the EC's oral statement ?
Reply
54. The United States does not agree that the use of the plural, “presentations”, necessarily means
that the interested parties must have the opportunity to make a formal counter-rebuttal. Rather, the
EC has taken the word “presentations” out of its context in Article 12.3 of the SCM Agreement. In its
entirety, Article 12.3 states:
The authorities shall whenever practicable provide timely opportunities for all
interested Members and interested parties to see all information that is relevant to the
presentation of their cases, that is not confidential as defined in paragraph 4, and that
is used by the authorities in a countervailing duty investigation, and to prepare
presentations on the basis of this information.
662
In its context, Article 12.3 refers to multiple parties presenting “their cases”. The use of the plural,
“presentations,” parallels the plural terms “interested Members and interested parties,” and “their
cases” and merely refers to the fact that each part y participating in the investigation has the ability to
make its own presentation. The language does not require Members to provide opportunities for each
party to make more than one presentation, as the EC argues.
55. Moreover, with respect to paragraph 24 of the EC oral statement, as the United States noted in
response to Question 21, it makes the administrative record accessible to all interested parties
throughout the investigation. Indeed, the US regulations require that all submissions to the record are
provided by the submitting party to all other interested parties at the time of submission, subject to
protections for proprietary information.
Q26. Could the parties please provide an overview of the dates of the communications
concerning the MFPC report, and explain the natu re of such communications in each case ?
Could the US explain why this MFPC letter wa s not put on the record when it was received by
the administration, and indicate where in the record these reasons are reflected? Please provide
a copy of the USDOC regulations concernin g submission and service of documents in
countervailing duty investigations.
Reply
56. Canada argues that it was denied the opportunity to rebut information contained in two
reports submitted by the petitioners on 4 March 2002 in response to the Maine Forest Products
Council (“MFPC”) letter. The 4 March 2002 letter663 contained commentary on the MFPC letter, and

61 7 During the first substantive Panel meeting, Canada asserted that nothing would stop the
United States from changing the starting point of the benchmark calculations from Montana or Minnesota to the
United Kingdom or Russia. In contrast to the necessary Minnesota data, the Commerce Department’s record
did not contain any information concerning the United Kingdom or Russia. Thus, it is clear that the
United Kingdom and Russia were not under consideration as potential bases for the benchmark calculations.
Canada’s example is therefore inapposite.
62 8 Emphasis added.
63 9 Letter from John J. Ragosta to Secretary of Commerce (March 4, 2002) (Exhibit CDA-112)
(“4 March 2002 letter”).

tables containing information that Quebec itself submitted on 4 January 2002. Specifically, a report
authored by the James W. Sewall Company (“Sewall Report”) attached to the 4 March 2002 letter
contains tables with information derived from th e Maine Forest Service 2000 Stumpage Price Report
and 2000 Wood Processor Report. 764 Quebec submitted those reports as an attachment to its
4 January 2002 submission.765 Therefore, much of what Canada complains about is commentary on
factual information Quebec had placed on the record.766
57. The chronology of events concerning the March 4, 2002 letter is provided below.
58. On 30 October 2001, Deputy Assistant Secretary Bernard Carreau (“DAS Carreau”) and other
Commerce Department officials met with representatives of the MFPC. During this meeting, the
MFPC gave the officials a survey of US private landowners and Quebec border mill owners. On
31 October 2002, the Commerce Department placed a memorandum in the administrative record
stating that this meeting took place, which contained a copy of the survey that the MFPC had
presented to the Commerce Department.
767
59. During this meeting, the MFPC asserted that the Commerce Department should not have used
only sawlogs when it calculated the weighted-average stumpage price for Maine. According to the
MFPC, DAS Carreau “invited” the MFPC to provide the Commerce Department with more
information concerning standing timber prices in Maine.768
60. On 20 December 2001, the MFPC sent a letter addressed to DAS Carreau 769, in which the
MFPC stated that studwood was used in the product ion of lumber in Maine. This letter included
tables based on information from a survey conducted by the Maine Forestry Service containing prices
for studwood in Maine. 770 The MFPC did not submit this letter in accordance with the Commerce
Department’s regulations.
61. Section 351.303(b) of the regulations 771 require the submission of all documents to “the
Secretary of Commerce, Attention: Import Admi nistration, Central Records Unit.” Properly
addressed submissions are processed through th e Administrative Protective Order Office (“APO

64 0 See James W. Sewall Company, Review of Letter from Jonathan Ford to Department of Commerce,
attached to 4 March 2002 letter (Exhibit CDA-112).
65 1 See Letter from Arent Fox to Secretary of Commerce (4 January 2002), Attachment 1 –
Quebec/Maine Analysis of Comparative Factors Between the Public Forests of Quebec and the Private Forests
of Main (“Quebec/Maine Analysis”), Appendix 7 to the Quebec/Maine Analysis – Maine Forest Service, 2000
Stumpage Reports, and Appendix 8 to the Quebec/Maine Analysis – Maine Forest Service, 2000 Wood
Processor Report (Exhibit US-73).
66 2 Exhibit 1 to the Sewall Report does contain species-specific studwood stumpage prices that was not
placed on the record previously. James W. Sewall Company, Review of Letter from Jonathan Ford to
Department of Commerce, attached to March 4, 2002 letter (Exhibit CDA-112). Quebec had placed on the
record aggregate studwood stumpage prices by counties in Maine through Appendix 7 of its 4 January 2002
submission. See Quebec/Maine Analysis (Exhibit US-73).
67 3 Memorandum from Melissa G. Skinner, Re: Ex Parte Meeting with the Maine Forest Products
Council Concerning the Countervailing Duty Investigation on Softwood Lumber from Canada
(31 October 2001) (Exhibit US-72).
68 4 Letter from MFPC to Bernard Carreau (20 December 2001) (Exhibit CDA-100). Often in such
informal ex parte meetings, parties may attempt to present to Commerce Department officials oral information
concerning the case. When that occurs, Commerce Department officials routinely request that the party
formally file any relevant information in written form.
69 5 Pursuant to Commerce Department regulations, parties filing documents with the Commerce
Department must address those documents to the Secretary of Commerce. See 19 C.F.R. § 351.303(b) (Exhibit
US-45).
70 6 Letter from MFPC to Bernard Carreau (20 December 2001) (Exhibit CDA-100).
71 7 The United States provided a copy of these regulations to the Panel as Exhibit US-45.

office”). The APO office controls access to business proprietary information, ensures that all
documents have a certificate of service, and distributes the documents to appropriate Commerce
Department officials. Commerce Department offi cials, such as DAS Carreau, normally receive
submissions through this process.
62. Section 351.303(f)(1)(i) of the Commerce Department’s regulations also requires that “a
person filing a document with the Department simultaneously must serve a copy of the document on
all other persons on the service list by personal service or first class mail.” Section 351.303(f)(2)
requires that all documents be accompanied by a certificate attesting to such service.772
63. Because the Commerce Department relies on these regulations to ensure that information is
placed on the record and provided to interested parties, it was not immediately apparent that the
MFPC letter had not been formally placed on the record. On 8 February 2002, Quebec filed a letter
with the Commerce Department informing it that the MFPC letter had not been placed on the
record.
773 The Commerce Department then took immediate steps to rectify this situation.
64. On 20 February 2002, the Commerce Department provided a copy of the MFPC letter to all
interested parties, and requested comments, including information intended to rebut, clarify or correct
information. Interested parties had the option of commenting on the MFPC letter in their rebuttal
briefs, which were due to the Commerce Department on March 1, 2002. The Commerce Department
indicated that it would accept rebuttal comments and information on the MFPC letter up to
4 March 2002.
65. On 1 March 2002, Quebec submitted its rebuttal brief, which commented on the information
contained in the MFPC letter. 874 On March 4, 2002, the petitioners submitted comments on the
MFPC letter, and rebuttal information, including the Sewall Report.875
66. This chronology establishes that all parties had an opportunity to comment on, clarify or rebut
the information in the MFPC letter. The fact that the parties were not afforded an opportunity for sur-
rebuttal is not consistent with the SCM Agreement.

72 8 Commerce Department regulations also require that each document submitted must include on the
first page in the upper right hand corner: (1) the case number; (2) whether the document concerns an
investigation or some other administrative proceed ing; (3) the office within the Commerce Department
conducting that proceeding; and (4) whether the document contains business proprietary information. 19 C.F.R.
§ 351.303(d)(2) (Exhibit US-45). This information had to be hand-written on the document by a Commerce
Department official when it was formally placed on the record.
73 9 Letter from Arent Fox to US Department of Commerce Regarding Request that Department Place
Information Received from Maine Landowners on the Record (Feb. 8, 2002) (Exhibit CDA-101).
74 0 Rebuttal Brief of the Gouvernement du Quebec (Exhibit US-51). This was not Quebec’s only
opportunity to discuss the issue of whether to include studwood in the stumpage prices from Maine. Rather, on
4 January 2002, Quebec submitted a report authored by Del Degen, Masse Associates Inc., dated
December 2001, which argued that the studwood, pulpwood and sawlogs in Maine must be considered. See
Quebec/Maine Analysis (Exhibit US-73).
75 1 See James W. Sewall Company, Review of Letter from Jonathan Ford to Department of Commerce,
attached to 4 March 2002 letter (Exhibit CDA-112).