UNITED STATES – INVESTIGATION OF THE INTERNATIONAL TRADE COMMISSION IN SOFTWOOD LUMBER FROM CANADA
Document: RECOURSE TO ARTICLE 21.5 OF THE DSU BY CANADA AB-2006-01
Date: 13 April 2006
Document codes: WT/DS277/AB/RW
Complainant: Canada
Respondent: U.S.
Third parties: China, EU, Japan, South Korea
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. VI:6  GATT 1994Art. 1, 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.8, 12, 18.1  Anti-dumpingArt. 10, 15.1, 15.2, 15.3, 15.4, 15.5, 15.7, 15.8, 22, 32.1  Subsidies and Countervailing Measures (SCM)

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

RECOURSE TO ARTICLE 21.5 OF THE DSU BY CANADA

AB-2006-01

Report of the Appellate Body

APPELLATE BODY

Recourse to Article 21.5 of the DSU by Canada

Canada, Appellant
United States, Appellee

China, Third Participant
European Communities, Third Participant
 AB-2006-01

 Present:

 Baptista, Presiding Member
 Abi-Saab, Member
 Ganesan, Member

I. Introduction
1. Canada appeals certain issues of law and legal interpretations developed in the Panel Report,
United States – Investigation of the Interna tional Trade Commission in Softwood Lumber from
Canada, Recourse to Article 21.5 of the DSU by Canada (the "Panel Report").
1 The Panel was
established to consider Canada's compla int regarding the consistency with the Agreement on
Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the "Anti-Dumping
Agreement") and the Agreement on Subsidies and Countervailing Measures (the "SCM Agreement")
of a measure taken by the United States to comply with the recommendations and rulings of the
Dispute Settlement Body (the "DSB") in the US – Softwood Lumber VI proceedings.2
2. The original dispute related to the determin ation of the United States International Trade
Commission (the "USITC"), on 16 May 2002, that the United States softwood lumber industry was
threatened with material injury by reason of dumpe d and subsidized imports of softwood lumber from
Canada (the "original determination").
3 This original determination of a threat of material injury,
along with separate determinations of dumping and subsidization by the United States Department of

1WT/DS277/RW, 15 November 2005.
2The recommendations and rulings of the DSB resulted from the adoption on 26 April 2004, by the
DSB, of the Original Panel Report, US – Softwood Lumber VI.
3USITC Report, Softwood Lumber from Canada, Investigations Nos. 701-TA-414 and 731-TA-928
(Final), USITC Pub. No. 3509 (May 2002) (Exhibit CDA-2 submitted by Canada to the Panel).

Commerce, served as the basis for the imposition of definitive anti-dumping and countervailing duties
on imports of Canadian softwood lumber later that month.
4
3. Canada alleged before the panel in US – Softwood Lumber VI (the "original panel") that
several aspects of the USITC's investigation and dete rmination of a threat of material injury were
inconsistent with the Anti-Dumping Agreement and the SCM Agreement , in particular, with
Articles 3.5 and 3.7 of the Anti-Dumping Agreement and Articles 15.5 and 15.7 of the
SCM Agreement.5
4. The original panel concluded, inter alia, that:
… the USITC determination is not consistent with Article 3.7 the
[Anti-Dumping] Agreement and Article 15.7 of the SCM Agreement
in that the finding of a likely imminent substantial increase in imports
is not one which could have been reached by an objective and
unbiased investigating authority in light of the totality of the factors
considered and the reasoning in the USITC determination [and]
… the USITC determination is not co nsistent with Article 3.5 of the
[Anti-Dumping] Agreement and Article 15.5 of the SCM Agreement
in that the causal analysis is based on a finding which is, itself, not
consistent with Article 3.7 the [ Anti-Dumping] Agreement and
Article 15.7 of the SCM Agreement.
6
5. The original panel report was not appealed and was adopted by the DSB on 26 April 2004. 7
On 1 October 2004, Canada and the United States join tly informed the DSB that they had mutually
agreed that the reasonable period of time to impl ement the recommendations and rulings of the DSB
would be nine months, ending on 26 January 2005.8

4Notice of Amended Final Determination of Sales at Less Than Fair Value and Antidumping Duty
Order: Certain Softwood Lumber Products From Canada, United States Federal Register , Vol. 67, No. 99
(22 May 2002), pp. 36068-36070; Notice of Amended Fi nal Affirmative Countervailing Duty Determination
and Notice of Countervailing Duty Order: Certain Softwood Lumber Products From Canada, United States
Federal Register, Vol. 67, No. 99 (22 May 2002), pp. 36070-36077.
5Panel Report, para. 2.4.
6Original Panel Report, paras. 8.1-8.2.
7WT/DS277/5.
8WT/DS277/7.

6. On 24 November 2004, the USITC published a new injury determination 9 pursuant to
Section 129 of the Uruguay Round Agreements Act 10 (the "Section 129 Determin ation"). As part of
this new proceeding, the USITC "reopened the record of the original investigation to gather additional
information from public data sources and from ques tionnaires sent to [United States] and Canadian
producers, held a public hearing, and gave parties opportunities to submit written comments." 11 The
USITC concluded that "an industry in the United States is threatened with material injury by reason of
imports of softwood lumber from Canada found to be subsidized"12 and dumped in the United States.
7. On 25 January 2005, the United States notified the DSB that the United States' anti-dumping
and countervailing duty orders on softwood lumber from Canada had been amended to reflect the new
injury determination and that the DSB's recommendations and rulings deriving from the original panel
report had thus been implemented.13
8. Canada considered that the United States had failed to bring its measures into conformity with
the United States' obligations under the Anti-Dumping Agreement and the SCM Agreement. Canada
therefore requested that the matter of compliance be referred to a panel pursuant to Article 21.5 of the
Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU"). 14 O n
25 February 2005, the DSB referred the matter to the original panel. 15 Before the Article 21.5 Panel
(the "Panel"), Canada claimed that the United Stat es had failed to comply with the recommendations
and rulings of the DSB in the Section 129 Determina tion and, thereby, continued to act inconsistently
with Articles 3.5 and 3.7 of the Anti-Dumping Agreement , and with Articles 15.5 and 15.7 of the
SCM Agreement.

9Views of the Commission in Softwood Lumber from Canada, Investigations Nos. 701-TA-414 and
731-TA-928 (24 November 2004) (Exhibit CDA-1 submitted by Canada to the Panel).
10Public Law No. 103-465, § 129, 108 Stat. 4836, United States Code , Title 19, Section 3538 (2000)
(Exhibit CDA-5 submitted by Canada to the Panel).
11Panel Report, para. 2.9.
12Section 129 Determination, p. 2.
13WT/DSB/M/182, para. 26.
14WT/DS277/8.
15WT/DSB/M/184, para. 4.

9. The Panel Report was circulated to the Members of the World Trade Organization
(the "WTO") on 15 November 2005. The Panel found that:
... the determination of the USIT C in the section 129 proceeding
investigation is not inconsistent with the asserted provisions of:
• Article 3.5 of the [Anti-Dumping] Agreement,
• Article 3.7 of the [Anti-Dumping] Agreement,
• Article 15.5 of the SCM Agreement, and
• Article 15.7 of the SCM Agreement.
16
10. The Panel therefore considered that:
… the United States has implemented the decision of the [original
panel], and the DSB, to bring its measure into conformity with its
obligations under the [Anti-Dumping] and SCM Agreements.
17
11. The Panel concluded:
Having found that the United States did not act inconsistently with its
obligations under the asserted WTO Agreements, we consider that no
recommendation under Article 19.1 of the DSU is necessary, and we
make none.
18
12. On 13 January 2006, Canada notified the DSB, pursuant to Article 16.4 of the DSU, of its
intention to appeal certain issues of law covered in the Panel Report and certain legal interpretations
developed by the Panel and filed a Notice of Appeal 19 pursuant to Rule 20 of the Working Procedures
for Appellate Review (the "Working Procedures").20 On 20 January 2006, Canada filed an appellant's
submission.21 On 7 February 2006, the United St ates filed an appellee's submission. 22 On the same
day, the European Communities filed a third participant's submission 23, and China notified the
Appellate Body Secretariat that it intended to appear at the oral hearing and make an oral statement. 24

16Panel Report, para. 8.1.
17Ibid., para. 8.2.
18Ibid., para. 8.3.
19WT/DS277/16 (attached as Annex I to this Report).
20WT/AB/WP/5, 4 January 2005.
21Pursuant to Rule 21 of the Working Procedures.
22Pursuant to Rule 22 of the Working Procedures.
23Pursuant to Rule 24(1) of the Working Procedures.
24Pursuant to Rule 24(2) of the Working Procedures.

13. On 18 January 2006, the Director of the Appellate Body Secretariat received a letter from the
United States requesting to change the date sc heduled for the oral hearing in this appeal
—23 February 2006—on the grounds that "lead counsel for the United States [was] not available on
that date, due to a long-established prior commitmen t." Neither Canada nor the third participants
objected to the United States' request. 25 By letter dated 26 January 2006, the Division informed the
participants and the third participants that it had d ecided to change the date of the oral hearing to
24 February 2006.
14. In its third participant's submission, the European Communities requested the Division
hearing this appeal to allow the third participants additional time to make their presentations at the
oral hearing. The European Communities based this request on "the particularly complex context of
this dispute and the importance of factual issues" 26 and the need for the European Communities to
have time to reflect on the United States' appelle e's submission. The participants and third
participants were given an opportunity to comment on this request 27 and were then informed, by letter
dated 21 February 2006, that the Division had decide d to allow 10 minutes to the third participants to
deliver their oral presentations.

25By letter dated 19 January 2006, the Appellate Body Division hearing this appeal referred to
Rule 16(2) of the Working Procedures and invited the United States to provide further details in support of its
request, in particular, the nature of the "exceptional ci rcumstances", as well as the "manifest unfairness" that
would ensue in the absence of a change to the date of the oral hearing. Canada and the third participants were
also invited to submit comments on the United States' request. On 20 January 2006, the United States submitted
additional reasons in support of its request. On 24 January 2006, Canada informed the Division that it preferred
to have the oral hearing proceed on the originally scheduled date, although Canada also indicated that a delay of
one day could "be accommodated". Neither China nor the European Communities submitted any comments on
the United States' request.
26European Communities' third participant's submission, para. 8.
27By letter to the participants and third participants dated 14 February 2006, the Division indicated that
it had preliminarily decided to allocate 10 minutes to each of the third participants to make its presentation at the
oral hearing. The Division invited the European Communities, once it had reviewed the United States'
submission, to inform the Division whether 10 minutes would be sufficient or, if not, how much extra time the
European Communities was requesting. The Division also asked China, the other third participant in this
appeal, whether it sought additional time for the presentation of its oral statement. Canada and the United States
were invited to comment on the European Communities' request. On 20 February 2006, the European
Communities responded by requesting 15 minutes for its oral presentation. Canada expressed no objection, with
the understanding that any extension of time would not prejudice Canada's rights, including the time to make its
oral presentation. The United States objected to the request, arguing that none of the arguments advanced by the
European Communities justified giving third participants additional time for their oral presentations; the United
States noted, in particular, that, under the currently applicable timetable for appeals, third participants, as a rule,
file their submissions on the same day as the appellee(s), and, thus do not have time to reflect on the appellee's
submission before filing their submission.

15. By letter dated 8 March 2006, Canada requested authorization from the Division to correct
certain clerical errors in its appellant's submission, although the deadline for such a request had
passed. On 9 March 2006, the Division invited th e United States and the third participants to
comment in writing on Canada's request.
28 No objections were received. By letter dated
17 March 2006, the Division granted the request becau se: the correct information was, in any event,
set forth in one of the exhibits submitted by Canada to the Panel; the matter had been discussed at the
oral hearing; and the United States did not object to the request.
16. The oral hearing in this appeal was held on 24 February 2006. The participants and third
participants presented oral arguments and respond ed to questions posed by the Members of the
Division hearing the appeal.
II. Arguments of the Participants and the Third Participants
A. Claims of Error by Canada – Appellant
1. Standard of Review
17. Canada asserts that the Panel failed to comply with its duties under Article 11 of the DSU to
make an objective assessment of the matter be fore it in examining the USITC's Section 129
Determination. Canada, therefore, requests the Appellate Body to reverse the Panel's finding
that the Section 129 Determination was consistent with the Anti-Dumping Agreement and the
SCM Agreement.
(a) Objective Assessment of the Matter – Threat Factors
18. Canada submits that the Panel failed to interpre t the legal provisions relevant to the finding of
a threat of material injury, and failed to apply these provisions properly to the USITC's Section 129
Determination. According to Ca nada, the Panel failed to undert ake an objective assessment of
whether the USITC's Section 129 Determination w as consistent with the legal requirements of
Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the SCM Agreement . Rather than
engage in an interpretation of the specific obligations imposed by these provisions and an examination
of whether the USITC's conclusions conformed to them, the Panel erred "by reducing each issue to
whether the USITC's conclusions were 'not unreasonabl e' or 'could not' have been [reached] by an

28By letter dated 14 March 2006, the United States indicated that, although it would ordinarily have
concerns about a participant's untimely request to modify its submission, in this case the United States did not
object to Canada's request, given th at the errors at issue were discussed at the oral hearing. The third
participants did not submit any comments.

'objective and unbiased' investigating authority."29 In so doing, the Panel failed to apply the law to the
facts, and thus failed to examine whether the USITC's conclusions were in conformity with
Article 3.7 and Article 15.7.
19. In Canada's view, the Panel's failure to interpre t and apply Article 3.7 and Article 15.7 is also
evidenced by its failure to recognize the "high standard" 30 that the Anti-Dumping Agreement and the
SCM Agreement impose upon investigating authorities in ma king a threat determination. In this
respect, Canada draws attention to two misconcepti ons in the Panel Report relating to the role of
investigating authorities and panels in threat cases. The first misconception was in the Panel holding
the investigating authority to a lower standard of care on the grounds that it made a determination of
threat of injury rather than a determination of current material injury. This is contrary to the ordinary
meaning of Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the SCM Agreement, as
well as to the Appellate Body's finding in Mexico – Corn Syrup (Article 21.5 – US) that these
provisions impose a "high standard" for a dete rmination of threat of injury. The second
misconception was when the Panel, in conducting its own review of the USITC's determination,
adopted a more deferential standard on the grou nds that the case involved a threat of injury
determination. However, nothing in Article 11 of the DSU or in Appellate Body jurisprudence
suggests that panels should apply a more deferential standard in threat cases. Canada submits that,
rather than repeatedly and inappropriately deferring to the USITC's conclusions as "not
unreasonable", the Panel should have evaluated whet her those conclusions were based on facts and
not merely on conjecture, whether they demonstr ated a clearly foreseen and imminent change in
circumstances that would cause ma terial injury, and whether the totality of the factors relied upon by
the USITC led to the conclusion that material in jury would occur in the absence of protective
measures.
20. Canada argues that the Panel's error is particul arly evident with respect to Article 3.7(i)
and (iii) of the Anti-Dumping Agreement and Article 15.7(ii) and (iv) of the SCM Agreement . As
regards Articles 3.7(i) and 15.7(ii), Canada states that, even though the Pa nel acknowledged Canada's
argument that these provisions required consideration of the rate of increase of dumped/subsidized
imports on a year-to-year basis, the Panel "undertook no interpretation of its own, and instead found
that '[t]he fact that the USITC concluded that th e rate of increase was significant based on the overall
rate of increase over the period of investigation rath er than the year-on-year rate of increase is not

30Ibid., para. 78 (referring to Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US) ,
para. 100).

demonstrably unreasonable '".
31 As for Article 3.7(iii) of the Anti-Dumping Agreement and
Article 15.7(iv) of the SCM Agreement, Canada argues that the Panel "completely ignored"32 Canada's
legal argument that these provisions require a compar ison between the price level or trends at which
imports are entering and the price level or trends for the domestic product. Instead of examining
whether the USITC's application of Articles 3.7( iii) and 15.7(iv) was c onsistent with a proper
interpretation of these provisions, the Panel me rely concluded that the USITC did not act
"unreasonably" in reaching its conclusions.33
(b) Objective Assessment of the Facts
21. Canada submits that the Panel failed to make an objective assessment of the facts, as required
by Article 11 of the DSU, because it did not conduct "a critical and active analysis" 34 of the USITC's
conclusions and explanations. Instead, the Panel simp ly "repeated over and over again its mantra that
[the] USITC conclusions were 'not unreasonable'."35
22. Canada asserts that, contrary to the Appellate Body's statement in US – Lamb as to what
panels should not do, the Panel merely summarized the arguments advanced by the United States and
Canada, and then concluded that the explanati on offered by the USITC was "not unreasonable",
without undertaking any "substantive review" or "critical examination" of the arguments and evidence
submitted by both parties. 36 Canada argues that the Panel's application of a "not unreasonable"
standard represents "an abdica tion of its review function". 37 It explains that the Panel treated as
legally irrelevant the fact that Canada offered what the Panel acknowledged as "plausible alternative
explanations" of the evidence, notwithstanding the Appe llate Body's clear statement that it is a panel's
obligation to assess the adequacy of the investigating authority's explan ation in the light of plausible
alternative explanations. 38 The Panel effectively, and erroneously, shifted the burden to Canada to
demonstrate that the USITC "could not"39 have reached a particular conclusion.

31Canada's appellant's submission, para. 93 (quotin g Panel Report, para. 7.27). (emphasis added by
Canada)
32Ibid., para. 84.
34Ibid., para. 97.
35Ibid.
36Ibid., paras. 98-103 (referring in footnotes to Appellate Body Report, US – Lamb , paras. 103, 106,
and 147-148).
37Ibid., para. 104.
38Ibid., para. 105 (referring to Appellate Body Report, US – Lamb , para. 106; and Appellate Body

23. Canada asserts that the Panel failed to make an objective assessment of the facts concerning
two issues related to the USITC's causation analysis. The first was the USITC's failure to reconcile its
finding of threat of injury with the fact that incr easing imports were correlated with an improving, not
declining, financial condition of the United States industry in the last 12 months of the period of
investigation. According to Canada, if the mo st recent data show that a domestic industry is
experiencing improving prices and profitability no twithstanding increasing imports, this would
strongly contradict any conclusion that the subject imports threaten to cause material injury in the
imminent future. In this case, the evidence that Canada identified to the Panel showed improving
profitability and prices during the last 12 months of the period of investigation, despite the so-called
"significant" rate of increase in imports followi ng the expiration of the Canada-United States
Softwood Lumber Agreement (the "SLA"). Yet, the Panel, according to Canada, failed to take
account of the fact that the USITC provided no explanation in its Section 129 Determination as to
how the improvements in profitability and pri ces during a period of increasing imports were
consistent with its finding that likely increases in im ports threatened to cause material injury in the
imminent future, even though they had not caused such effects in the immediate past.
24. Secondly, Canada argues that the Panel failed to conduct an objective assessment of the
USITC's conclusion that United States domestic overproduction would not be a cause of oversupply
in the United States market in th e imminent future, even though it had been a cause of oversupply in
the recent past. Canada submits that the USIT C's prediction about the United States industry's
contribution to oversupply in the imminent future was based exclusively on the United States
industry's actual historical conduct, which it contrast ed with the Canadian industry's projected future
conduct. However, because the recent historical data were essentially equivalent for the United States
and Canadian industries, they provided no objec tive basis for concluding that "[United States]
producers 'had brought their production into line with consumption' by the end of 2001 or 'restrained
[their] overproduction' any more than Canadian producers had, or for predicting that [United States]
overproduction would contribute any less to excess s upply in the imminent future than it had in the
recent past." 40 Canada asserts that the Panel "simply ignored" 41 the fact that comparable historical
data at the end of the investigation period s howed that the Canadian industry had brought its
production into line with consumption just as much as had the United States industry. In so doing, the
Panel failed to analyze the "legally relevant question" 42, namely, whether United States producers

40Canada's appellant's submission, para. 134 (referrin g to Panel Report, para. 7.60; and Section 129
Determination, p. 69).
41Ibid., para. 142.
42Ibid., para. 144.

would respond differently than Canadian producers to market conditions in the imminent future,
despite having responded similarly in the recent past.
25. In addition, Canada argues that the Pane l failed to objectively examine the USITC's
conclusion that domestic supply and third-country imports were not "other known factors" causing
injury to the United States domestic industry and th at, therefore, it was unnecessary to conduct a non-
attribution analysis of these factors. With rega rd to United States oversupply, Canada argues that
comparable information for both the United States and Canadian industries indicated that the United
States industry was no less likely than the Canadian industry to contribute to oversupply in the
imminent future. The Panel thus erred in failing to conduct a cr itical and active assessment of the
USITC's conclusion and analysis of the oversupply factor.
26. As for third-country imports, Canada emphasi zes that the new evid ence collected by the
USITC in the Section 129 proceedings showed that the increase of third-country imports accelerated
substantially in the first quarter of 2002. Canada identifies four alleged errors in the Panel's review of
the USITC's approach to this issue. First, the Panel did not critically examine the USITC's reliance on
the fact that the absolute or "baseline" volume and market share were much larger for subject imports
than for third-country imports. Secondly, the Pane l erroneously relied on the USITC's assertion that
the volume of third-country imports was not likely to increase because these imports were not
restrained during the period of investigation. Thirdly, the Panel did not critically examine the
USITC's reliance on the higher average unit values of third-country imports as compared to subject
imports. Fourthly, the Panel simply accepted the US ITC's reliance on the fact that imports from any
single third-country were small, without consideri ng the relevant question of whether the cumulative
effect of such imports from all third countries, take n together, posed a threat of injury to the United
States industry.
27. Finally, Canada contends that the Panel erred by failing to address the issue of the cumulative
impact of potential increases in cumulated third-country imports taken together with additional supply
from the United States industry itself. In this case, the Panel was obliged to decide whether the non-
attribution provisions of Article 3.5 of the Anti-Dumping Agreement and Article 15.5 of the
SCM Agreement required the USITC to determine whether the cumulative effect of United States-
produced lumber and third-country imports constituted an "other known causal factor" to which the
USITC should attribute injury that it otherwise would mistakenly attribute to subject imports. For all
of these reasons, Canada concludes that the Panel failed to conduct a detaile d and searching analysis
of the USITC's causation and non-attribution fi ndings, and thus failed to make an objective
assessment of the facts of the case.

(c) The Panel's Treatment of the Findings of the Original Panel
28. Canada submits that the Panel erroneously concl uded that the findings in the original panel
report were "irrelevant" to its review of the USITC's Section 129 Determination.43 Canada asserts that
the findings of the original panel, which were not appealed by the United States and were adopted by
the DSB, "represent the final resolution of all claims in that dispute … between the parties regarding
the original determination of threat of material injury made by the USITC." 44 Canada argues that an
examination of the findings of the original panel is particularly critical in cases such as this one,
where the implementing measure is closely related to the original measure, and the claims made in the
Article 21.5 proceedings closely resemble the claims made in the original panel proceedings.
29. With respect to the USITC's tr eatment of the export projections of Canadian producers,
Canada argues that, even though the percentage of total production projected to be exported to the
United States remained "well within the historical range"45, the USITC nonetheless concluded that the
projections were "inconsistent with other record evidence" 46 because they showed a smaller
proportion of the projected production increases being exported to the United States than in the past.
This conclusion had been rejected by the original panel. However, the Panel did not examine
Canada's challenge to this aspect of the Section 129 Determination, and did not acknowledge the prior
findings of the original panel on this issue. Instead, the Panel simply found that the USITC's
explanation "provides reasoned support for the USIT C's conclusion that there would be a substantial
increase in imports in the near future."
47 Canada asserts that this constitutes a serious omission on the
part of the Panel in the context of a review under Article 21.5 of the DSU, and a failure to conduct an
objective assessment of the matter as provided for in Article 11.
30. Canada argues that the Panel furthermore failed to make findings consistent with the original
panel report, when it considered the USITC's conclu sion in the Section 129 Determination that import
trends over the 1994–1996 period sup ported a finding that imports would increase substantially in the
imminent future. According to Canada, notwithsta nding the original panel's criticism of the USITC's
attempt to rely on import trends from this much ear lier period to draw infere nces about likely future
import trends, the USITC again relied on the incr ease in imports between 1994 and 1996 as "highly

44Ibid., (referring to Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 93; Appellate
Body Report, Mexico – Corn Syrup (Article 21.5 – US) , para. 109; and Appellate Body Report, US – Softwood
Lumber IV (Article 21.5 – Canada), paras. 68-69).
46Section 129 Determination, p. 39.
47Panel Report, para. 7.42.

probative"
48 evidence of how subject imports would ente r the United States market in the imminent
future. The Panel, however, did not take into account the USITC's failure to address the problems
identified by the original panel. Canada asserts that the Panel was bound by the findings of the
original panel to reject the USITC's reliance on 1994–1996 import trends.
(d) Whether the USITC Changed its Position as Compared to the
Original Determination
31. Canada argues that the Panel failed to ensu re that the USITC provided a reasoned and
adequate explanation when, in two instances in th e Section 129 Determination, the USITC simply
changed the characterization of the evidence that had been before it in the original determination.
First, Canada notes that in its original determina tion, the USITC concluded that the SLA appeared to
have had "some"49 restraining effect. In its Section 129 De termination, the USITC concluded that the
SLA had a "significant" 50 restraining effect on the volume, market share, and price effects of subject
imports. Canada argues that "some" and "signifi cant" are not synonyms. The Panel affirmed the
USITC's change of position on the effect of th e SLA without conducting any analysis to determine
whether this change in position was justified. Seco ndly, Canada notes that the original panel pointed
out that the USITC's finding of "strong and improving" 51 United States demand in the original
determination did not support its conclusion that the United States industry was threatened with
material injury. Canada points out that the USIT C's response to the original panel's finding was to
change its position and predict "relatively stable" 52 United States demand, even though the record on
this issue was the same in both the original pro ceedings and the Section 129 proceedings. The Panel
failed to assess the USITC's revised conclusion in the light of its own original finding.
32. Canada argues that these errors, individually and as a whole, demonstrate a failure on the part
of the Panel to fulfil its duties under Article 11 of the DSU.

48Section 129 Determination, p. 28.
49Original Determination, p. 41.
50Section 129 Determination, p. 16.
51Original Panel Report, para. 7.95.
52Canada's appellant's submission, para. 193 and footnote 210 thereto.

2. Threat of Injury
33. Canada argues that the Panel committed a lega l error in finding that the USITC's threat
analysis was consistent with Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the
SCM Agreement. Canada challenges, in particular, the Pa nel's affirmation of the USITC's findings:
(i) that there would be a likely substantial increase in import volumes; and (ii) that imports were
entering at prices likely to have a significant depressing or suppressing effect on domestic prices.
34. First, Canada takes issue with the Panel's re view of the USITC's finding concerning the likely
increase in subject imports. Canada argues that the Panel failed to acknowledge its argument that
the USITC should, under Articles 3.7(i) and 15.7( ii), have examined the rate of increase of
dumped/subsidized imports on a year-to-year basis. In addition, Canada notes that two of the
conclusions underlying the USITC's finding were its decision to reject Canadian producers' export
projections—which the USITC acknowledged showed only a "slight increase" in exports to the
United States in the imminent future—and its c onclusion that import trends between 1994 and 1996,
when Canadian imports were not restricted, mean t that imports would increase substantially in 2002–
2003 in the absence of protective measures. Th e USITC was not entitled to rely on these two
conclusions because the original panel had found that these intermediate conclusions were not
consistent with the United States ' obligations under the covered agreements and did not support the
USITC's subsequent conclusion of an imminent and substantial increase in imports. Neither the
evidence nor the reasoning cited by the USITC in its Section 129 Determination for these two
intermediate conclusions addressed the deficiencies id entified by the original panel in respect of the
original determination.
35. Secondly, Canada argues that Article 3.7(iii) of the Anti-Dumping Agreement and
Article 15.7(iv) of the SCM Agreement require a comparison of prices of imported lumber with
prices of domestically produced lumber. Accordi ng to Canada, the prices at which imports are
entering can threaten to cause imminent and si gnificant price depression or price suppression, and
increase demand for further imports, only if those prices are lower than prices for the comparable
domestic product, or if the trends in those prices otherwise adversely affect prices for the comparable
domestic product (for example, by falling faster, or rising slower, than domestic prices). Only this
type of comparative analysis can support the ultimat e conclusion that "further dumped [or subsidized]
exports are imminent and that … material injury wo uld occur" in the absence of protective measures.

36. Canada asserts that no such price comparison was undertaken by the USITC, as is clear on the
face of the Section 129 Determination. Instead, the USITC noted only that prices for both United
States-produced and Canadian softwood lumber products followed the same general trends throughout
the period of investigation. The USITC's failure to undertake a price comparison in the Section 129
Determination between imported and domestic prices means, according to Canada, that the Panel
erred in sustaining the USITC's conclusion that "impor ts at the end of the period are entering at prices
that are likely to have a significant depressing or suppressing effect on domestic prices, and are likely
to increase demand for further imports."
53
3. Causation and Non-attribution
37. Canada submits that the Panel erred in in terpreting and applying Article 3.5 of the
Anti-Dumping Agreement and Article 15.5 of the SCM Agreement.
38. Canada points out that the USITC's causation an alysis relied on its conclusions concerning
the likelihood of increased imports and their adverse price effects. Because these conclusions were, in
Canada's view, inconsistent with Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the
SCM Agreement, it must follow that the USITC's causation an alysis also resulted in violations of
Article 3.5 of the Anti-Dumping Agreement and Article 15.5 of the SCM Agreement. Canada argues
that the Panel also erred when it affirmed the USIT C's causation analysis despite the failure of the
USITC to address the fact that, in the most recen t 12 months, both prices and industry profitability
improved and imports increased. Canada asserts that, in those circumstances, the USITC was obliged
to provide a "very compelling" explanation as to wh y the requisite causal link between injury and the
dumped/subsidized imports would exist in the imminent future. 54 Moreover, Canada asserts that the
Panel erred in affirming the USITC's conclusion concerning the future contribution of the United
States industry to oversupply, because that conclusion was based on "conjecture" 55: the data
concerning the most recent period showed that th e Canadian industry had curbed overproduction at
least as much as had the United States industry, and the USITC cited no positive evidence that the
United States industry's projected production a nd capacity would increase any less than would
Canadian production and capacity. Therefore, Cana da asserts, the Panel committed legal error by
finding that the USITC determination was not inconsistent with Article 3.5 of the Anti-Dumping
Agreement and Article 15.5 of the SCM Agreement due to the USITC's failure to demonstrate a causal
relationship between the dumped or subsidized imports and the injury to the domestic industry.

53Section 129 Determination, pp. 45-46.
54Canada's appellant's submission, para. 236 (referring to Appellate Body Report, Argentina –
Footwear (EC), para. 144, in turn quoting Panel Report, Argentina – Footwear (EC), para. 8.238).
55Ibid., para. 237.

39. Canada argues that the Panel also erred in a ffirming the USITC's findings with respect to
"other known causal factors". Canada explains that the USITC justified its refusal to conduct a proper
non-attribution analysis on the basis that the United States industry would stop contributing to
oversupply of the United States market, and third-c ountry imports are not an "other known causal
factor", either individually, or taken together with United States-produced lumber. According to
Canada, these premises are not justified. First, the USITC's explanation for its conclusion that the
United States industry would no longer contribute to oversupply was "pure conjecture". 56 Secondly,
the USITC's explanation for dismissing third-countr y imports as an "other" potential cause of injury
was neither reasoned nor adequate. Thirdly, the USITC did not consider whether a non-attribution
analysis was required of the cumulative impact of third-country imports and United States-produced
lumber.
40. Canada asserts that, because the USITC failed to attribute properly injury caused by other
known factors, the Appellate Body should reverse th e Panel's finding that the USITC's determination
with respect to non-attribution was c onsistent with Article 3.5 of the Anti-Dumping Agreement and
Article 15.5 of the SCM Agreement.
4. Article 12.7 of the DSU
41. Canada claims that the Panel failed to set out a "basic rationale" for its findings as required
under Article 12.7 of the DSU. Referr ing to the Appellate Body Report in Mexico – Corn Syrup
(Article 21.5 – US)57, Canada argues that the Panel offered no legal analysis or explanation about how
it interpreted and applied the relevant lega l provisions in Articles 3.5 and 3.7 of the Anti-Dumping
Agreement and Articles 15.5 and 15.7 of the SCM Agreement in its review of the USITC's
conclusions, or why the Panel's assessment of the facts led it to conclude that an "objective and
unbiased" investigating authority could have reached those conclusions.
42. Canada argues that, if, like this Panel, all pa nels merely summarized the arguments of the
disputing parties and then concluded that the i nvestigating authority's conclusions were "not
unreasonable", WTO Members would have no guidance as to the legal requirements of the covered
agreements. This would defeat the purpose of th e WTO dispute settlement system, as set forth in
Article 3.2 of the DSU, to "provid[e] security and predictability to the multilateral trading system ... to
clarify the existing provisions of [the covered] agreem ents". Canada adds that the Panel's failure to
provide the basic rationale and legal explanations fo r its conclusions also obstructs the correct course
of appellate review.

57Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 108.

5. Conclusion

43. Canada requests the Appellate Body to rever se the Panel's findings affirming the USITC's
Section 129 Determination and to find, instead, th at the USITC's determination was not consistent
with the United States' obligations under Articles 3.5 and 3.7 of the Anti-Dumping Agreement and
Articles 15.5 and 15.7 of the SCM Agreement.
B. Arguments of the United States – Appellee
1. Standard of Review
44. With respect to standard of review in general, the United States underlines the distinct roles of
the USITC, the Panel in these Article 21.5 proceedings, and the Appellate Body, and contends that
Canada's appeal on this issue fails to recognize these distinctions and mischaracterizes the role of the
Panel. The United States also emphasizes that, not withstanding Canada's focus on Article 11 of the
DSU, the applicable standard of review is found in both Article 11 of the DSU and Article 17.6 of
the Anti-Dumping Agreement, as the original panel properly recognized. Canada's appeal, however,
seeks to downplay the importance of Article 17.6, as well as the point that "a panel [may not]
substitute its judgment for that of the investigati ng authorities, even though the [p]anel might have
arrived at a different determination were it considering the record evidence for itself."
58
(a) Objective Assessment of the Matter – Threat Factors
45. The United States argues that the Panel's assessment of the USITC's Section 129
Determination was entirely consistent with Article 11 of the DSU. Contrary to Canada's assertions,
the Panel not only set forth the pa rties' arguments, but also addressed each of these arguments as part
of its assessment of whether the Section 129 De termination was consiste nt with the covered
agreements.
46. The United States observes that the role of a panel reviewing a determination by an
investigating authority is distinct from the role of an investigating authority making a determination.
The investigating authority is responsible for estab lishing the facts, evaluating the facts, and drawing
conclusions in the light of its evaluation. In revi ewing an investigating authority's determination, the
role of a WTO panel is not to find the facts, weigh the evidence, or substitute its judgement for that of
the investigation authority; such an approach would constitute a de novo review. Instead, the role of
a WTO panel is to apply the applicable standard of review in assessing whether the investigating
authority has established and evaluated the facts c onsistently with the obligations under the covered

58Original Panel Report, para. 7.15.

agreements. The United States additionally notes that the role of the Appellate Body is also distinct
from the role of a panel. According to the United St ates, the Appellate Body's role with respect to a
panel is not to second-guess the panel's appreciation of the evidence, but, rather, to assess whether the
panel has made an objective assessment of the matter before it.
47. Turning to Canada's allegation that the Panel incorrectly used a "not unreasonable" standard,
the Unites States asserts that, by using the phrase, th e Panel has not invented a "new" standard. The
United States points out that the Panel referred to the Appellate Body's statement, in
US – Countervailing Duty Investigation on DRAMS, that "a panel examining the evidentiary basis for
a subsidy determination should, on the basis of the record evidence before th e panel, inquire whether
the evidence and explanation relied on by the investigating authority reasonably supports its
conclusions."59 Moreover, according to the United States, th e Panel, in its application of Article 11 of
the DSU, used the phrase "not unreasonable" as a shorthand means of expressing its conclusions
regarding particular intermediate inferences that the USITC drew in the course of reaching its ultimate
determination of threat of material injury.
48. The United States also disputes Canada's assertion that the Panel failed to interpret and apply
the relevant provisions of the Anti-Dumping Agreement and the SCM Agreement. The United States
notes that the key interpretive issu es were resolved by the original panel. Therefore, the Panel
properly observed that "there are no new issues of legal interpretation raised" 60 in the Article 21.5
proceedings.
49. The United States also points out that the Panel did not purport to apply a lower standard in
reviewing the USITC's threat of injury determin ation. According to the United States, Canada
mistakenly reads the Panel's recognition of the future -oriented nature of a threat determination as an
expression of the view that a "lower standard of car e" applies in cases involving threat of injury as
compared with cases involving present injury. Furt hermore, the Panel's discussion of the future-
oriented nature of a threat determination was c onsistent with Appellate Body reports discussing the
very same issue.61

59United States' appellee's submission, para. 74 (quoting Appellate Body Report, US – Countervailing
Duty Investigation on DRAMS, para. 188). (emphasis added by the United States)
60Panel Report, para. 7.14.
61Referring to Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US) , para. 85; Appellate
Body Report, US – Lamb, para. 136; and Appellate Body Report, US – Cotton Yarn, footnote 50 to para. 77.

50. The United States asserts that, contrary to Cana da's allegation, the Panel did interpret the
threat of injury provisions in the Anti-Dumping Agreement and the SCM Agreement, and found that
"[n]othing in Articles 3.7, 15.7, or any other provisions of the [ Anti-Dumping] and SCM Agreements,
establishes methodological requirements for the inves tigating authorities' consideration of the factors
set out in those Articles, or sets out standard s for determining the significance of the various
factors."
62 The Panel correctly concluded that Article 3.7(i) of the Anti-Dumping Agreement and
Article 15.7(ii) of the SCM Agreement do not prescribe any particular methodology for the
determination of the rate of increase of dumped/su bsidized imports. Likewise, the Panel correctly
concluded that Article 3.7(iii) of the Anti-Dumping Agreement and Article 15.7(iv) of the SCM
Agreement do not prescribe any particular methodology for the determination of the price suppression
or depression effects of subject imports.
51. Therefore, according to the United States, th e Panel did not fail to make an objective
assessment of the matter as required by Article 11 of the DSU.
(b) Objective Assessment of the Facts
52. The United States asserts that the Panel objec tively assessed the facts. The United States
contests Canada's allegations that the Panel "abdicated" its responsibility or failed to conduct a critical
and searching analysis of the USITC's conclusions. Consistent with the approach set out by the
Appellate Body in US – Countervailing Duty Investigation on DRAMS, the Panel reviewed the totality
of the factors considered by the USITC as a whole, ra ther than piecemeal, and appropriately reviewed
the USITC's determination on its own terms. Canada 's arguments mistakenly assume that a critical
review of an investigating authority's explanatio n requires the rejection of an explanation if the
reviewer identifies a plausible alternative explan ation. As the Appellate Body recognized in
US – Lamb , in order to conclude that an explanation is "not reasoned", it is not sufficient that an
alternative explanation is merely found to be "pla usible". Rather, the expl anation under review must
not seem "adequate in the light of that alternative explanation". 63 Thus, the existence of alternative
plausible explanations with respect to any given f actor does not necessarily preclude a finding that the
investigating authority's conclusions could have been reached by an objective and unbiased decision-
maker.
53. In response to Canada's argument that the Panel failed to objectively assess the USITC's
treatment of facts showing that increasing imports coincided with an improving condition of the
United States industry at the end of the period of investigation, the United States observes that the

62Panel Report, para. 7.28.

Panel recognized that the USITC explicitly discu ssed the relationship between movements in all
factors for the most recent period and placed these movements in the context of the period of
investigation as a whole. In contrast to Canada's suggestion that data for the most recent period
should be evaluated on its own, th e Panel correctly recognized that recent short-term data should be
placed in the context of the entire period of inv estigation. The United States points out that the
USITC found that the evidence demonstrated that the coexistence of substantial increases in subject
imports, rising prices, and some improvement in financial performance for the most recent period
resulted from temporary increases in consumption. The evidence of sharp declines in United States
housing starts in March 2002 indicated that this increase in consumption was not likely to be
sustained. Moreover, the USITC's specific analysis of each factor showed that subject imports
increased at a substantially higher rate than appa rent United States consumption, and that while
increases in prices generated some improvement in the domestic industry's financial performance,
prices in the first quarter of 2002 were at levels as low as they had been in 2000.
54. As regards domestic oversupply, the United States notes that the Panel recognized that, in the
Section 129 Determination, the USITC relied on evidence regarding United States production and
capacity to support its finding that United States producers had brought their production in line with
consumption. The USITC also found, based on the evidence, that, although domestic production had
come in line with consumption, it had not kept p ace with the increases in consumption in the first
quarter of 2002. Furthermore, according to the United States, the Panel understood that the
availability of capacity in Canada, likely increases in production, and the likeli hood that exports will
be shipped predominantly to the United States mark et are factors that "do not affect the question
whether excess supply from domestic sources pot entially threatens the domestic industry."
64 At the
same time, the Panel recognized that "those factor s support the conclusion that imports from Canada
are likely to increase". 65 Thus, in response to what Canada calls the "legally relevant question" 66, the
USITC found, based on its evaluation of the ev idence, that United States producers would respond
differently than would Canadian producers to market conditions in the imminent future. The Panel
found the determination of the USITC to be one that an objective and unbiased decision-maker could
have made.
55. The United States submits, furthermore, that the Panel assessed whether the USITC evaluated
evidence of third-country imports in an unbiased and objective manner, and whether it provided an
adequate explanation as to how the evidence supporte d its findings. The United States asserts that the

65Ibid. (quoted in United States' appellee's submission, para. 189).

Panel did critically examine Canada's arguments, in cluding the argument that the USITC should have
based its analysis on incrementa l increases in third-country imports. The Panel considered that
argument in the light of the fact that the USITC ev aluated incremental increases in the context of the
"baseline" volume of third-country imports, recogni zing that third-country imports were non-subject
imports, and that third-country imports had higher unit values than subject imports. The United States
adds that there was no basis for th e USITC to examine the collective effect of third-country imports,
or to assess the collective effect of cumulated third-country imports and United States overproduction.
(c) The Panel's Treatment of the Findings of the Original Panel
56. The United States contends that Canada's argu ments, with respect to the issues of export
projections of Canadian producers and import trends during the 1994–1996 period, assume incorrectly
that the original panel made findings that constr ained what the Panel could find in the Article 21.5
proceedings. According to the United States, the or iginal panel's statements regarding these issues
pertained only to the sufficiency of the explanations provided by the USITC in its original
determination. The Panel confirme d this reading of the original panel report, stating that "[the]
original [panel's] conclusions concerning lack of evidence did not refer to whether evidence existed
on a particular point, but rather whether the USITC's determination relied upon and explained relevant
evidence in such a way as to lend reas oned support to the determination."
67 The United States adds
that the USITC addressed the original panel's findings in the Section 129 Determination by providing
explanations that had been absent in its original determination.
57. The United States argues that Canada also "overstates and mischaracterizes" 68 previous
Appellate Body observations on the significance of or iginal panel reports for the analysis to be
undertaken by panels established unde r Article 21.5 of the DSU. Th e United States contends that
previous Appellate Body reports do not support Canada's position on this issue, because they address
circumstances readily distinguish able from those in this case. 69 The United States submits that the
Panel correctly understood the relevance of the orig inal panel report to the Article 21.5 proceedings
and, in the light of the findings in that original panel report, the Panel focused on the explanations that
the USITC had provided in the Section 129 Determination. Accordingly, the United States concludes
that there is no merit in Canada's assertion that the discussion of these factual issues in the original
panel report constituted a final resolution of these issues.

67Panel Report, footnote 55 to para. 7.11.
69The United States refers to Appellate Body Report, EC – Bed Linen (Article 21.5 – India) , para. 89;
Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US) , paras. 78-79 and 109; Appellate Body
Report, US – Softwood Lumber IV (Article 21.5 – Canada), para. 68.

58. As regards export projections, the United Stat es notes that the original panel faulted the
USITC, not for failing to provide an objective and unbiased rationale for its finding on this issue, but
for providing no rationale at all. The United States submits that the USITC corrected this flaw in the
Section 129 Determination, which contains detailed analyses and explanations of Canadian producers'
capacity, sufficient excess capacity, and project ed increases in production and capacity in 2002
and 2003, as well as the fact that Canadian exports that are tied to the United States market accounted
for 60–65 per cent of Canadian production and shipments during the period of investigation.
59. The United States additionally notes that, in the original determination, the USITC did not
discuss the increase in subject imports during the period 1994 to 1996 in the context of market
conditions that existed at that time. The USITC corr ected this in its Section 129 Determination. In
particular, the USITC placed the increases in subject imports during the 1994–1996 period (before the
entry into force of the SLA) in the context of import trends for United States demand and United
States production.
(d) Whether the USITC Changed its Position as Compared to the
Original Determination
60. The United States argues that there is no basis fo r Canada's contention that the Panel erred by
not questioning the findings in the Section 129 Dete rmination that Canada believes to be new or
changed as compared with the original determination. According to the United States, the role of a
panel pursuant to Article 21.5 of the DSU is not to assess the measure taken to comply against the
original panel report but, rather, to assess it agains t the obligations under the covered agreements.
Thus, the Panel was correct in observing that it ha d to review the Section 129 Determination "on its
own term[s]" and that "[t]he fact that the US ITC made somewhat different findings, or expressed
different conclusions based on diffe rent or additional analysis and evidence than in the original
determination is simply not dispositive [of] whether the section 129 determination is inconsistent with
the United States obligations under the [Anti-Dumping] and SCM Agreements."70
61. The United States argues, furthermore, that Ca nada's argument is based on the incorrect
assumption that the USITC's findings in the Section 129 Determination concerning the restraining
effects of the SLA were different from its findings in the original determination. The original panel
found that "[t]he USITC determination simply does not address why the expiration of an agreement
during the term of which exports nonethel ess increased, would result in an imminent substantial
increase in exports."
71 The USITC corrected this in its Section 129 Determination by considering

evidence demonstrating that the constraints on the vol ume of subject imports resulted in higher prices
for such imports and higher costs for construction than in the absence of th e SLA, and that while the
SLA was in effect, imports did not keep pace with increases in demand. The evidence did not
demonstrate that the SLA had merely resulted in a shift in imports. Reviewing the USITC's
evaluation under the applicable standard, the Pane l found that the USITC's explanation did indeed
seem adequate. Therefore, the Panel properly asse ssed whether the USITC evaluated evidence of the
restraining effect of the SLA in an unbiased a nd objective manner, and whether it provided an
adequate explanation as to how the evidence supported its findings.
62. The United States submits that Canada's allegation concerning forecasts of United States
demand is also misplaced. The original panel expressed concern about the absence of any finding that
imports from Canada would increase more than dema nd, thereby accounting for an increased share of
the United States market, and the absence of any di scussion of Canadian market share. The USITC
corrected this in the Section 129 Determination. The United States observes that the Panel recognized
that, in the Section 129 Determination, "the USITC found that there was no basis in the record
evidence to conclude that likely substantial incr eases in imports would be outpaced by increases in
demand."
72 Consequently, in the United States' view , the Panel properly assessed whether the USITC
evaluated evidence of United States demand projecti ons in an unbiased and objective manner, and
whether it provided an adequate explanation as to how the evidence supported its findings.
2. Threat of Injury
63. The United States argues that the Panel prope rly found the USITC's determination of the
existence of a threat of injury to be consistent with the relevant provisions of the covered agreements.
The Panel correctly noted the five factors on whic h the USITC based its finding that imports were
likely to increase substantially in the imminent fu ture, and properly assessed Canada's challenges to
those factors. Neither the Anti-Dumping Agreement nor the SCM Agreement prescribes any
particular methodology that would require the USITC to evaluate rates of increase of imports on a
year-to-year basis.
64. As for the Panel's review of the USITC's finding that imports were entering at prices likely to
have significant depressing or suppressing effects on domestic prices, the United States contends that,
contrary to Canada's allegation, the Panel properly interpreted Article 3.7(iii) of the Anti-Dumping
Agreement and Article 15.7(iv) of the SCM Agreement . The Panel correctly concluded that these
provisions do not prescribe any particular met hodology for determining the price suppression or
depression effect of imports. The United States explains that Article 3.7(iii) of the Anti-Dumping

72Panel Report, para. 7.38.

Agreement and Article 15.7(iv) of the SCM Agreement do not specify the type of evidence or analysis
necessary to support a finding with respect to this factor. For instance, they do not identify price
underselling as a necessary consideration or finding in the context of a threat analysis. The United
States points out that, in contrast, Article 3.2 of the Anti-Dumping Agreement and Article 15.2 of the
SCM Agreement expressly require consideration of both pr ice underselling (undercutting) and price
depression or suppression in a present material injury analysis.
65. The United States further submits that Canada 's argument "ignores the fact that, during the
Section 129 proceeding, '[a]ll parties to the investigations agreed that making direct cross-species
price comparisons in order to assess underselling was inappropriate.'"
73 The USITC found that,
although the differences in tree species for much of the imported and domestic softwood lumber limit
the meaningfulness of any direct price comparisons, the evidence indicated competition across species
such that prices of one particular species will affect the prices of other species, particularly those that
are used in the same or similar applications . The USITC also concluded that imported and
domestically produced softwood lumber were interc hangeable and substitutable. Furthermore, the
United States explains that the USITC relied on pu blished United States and Canadian lumber price
series, evidence of substitutability of United Stat es and Canadian lumber, and evidence of cross-
species price effects, to determine that subject imports were entering at prices that were likely to have
a significant depressing or suppressing effect on domestic prices. According to the United States,
Canada has not shown that any of the alternative types of evidence that it suggested the USITC should
have used would have undermined the USITC's finding on the likely price effects of imports.
3. Causation and Non-attribution

66. The United States argues that the Panel did not err in concluding that the USITC's
Section 129 Determination is consis tent with Article 3.5 of the Anti-Dumping Agreement and
Article 15.5 of the SCM Agreement.
67. The United States observes that the USITC was jus tified, in its causation analysis, in relying
on its findings of a likely increase in imports and price effects of the imports, because the findings
were consistent with Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the
SCM Agreement. In addition, the United States observ es that, as the Panel recognized, the USITC
explicitly discussed the relationship between move ments in all factors—not only selected ones—for
the most recent period and placed these recent move ments in the context of the entire period of
investigation. The United States also challenges Canada's relian ce on data allegedly showing the
improving financial performance of the United States industry at the end of the period of

73United States' appellee's submission, para. 120 (quoting Section 129 Determination, p. 47).

investigation, pointing out that the data to which Canada refers
74 related to a subset of the industry
which is substantially more profitable than the industry as a whole.
68. As regards Canada's arguments on non-attribu tion, the United States notes that the USITC
found that none of the alleged "other factors" expressly referred to in the original panel report
constituted "other known factors". To put it differently, the other known factors "had effectively been
found not to exist". 75 Having made these findings, the USITC had no basis to undertake a further
examination to ensure that injury caused by those factors was not attributed to subject imports. The
United States argues that this approach is consiste nt with the approach the Appellate Body found, in
EC – Tube or Pipe Fittings76, to be permissible under the Anti-Dumping Agreement.
69. The United States submits that Canada has no basi s for its contention that the Panel erred by
failing to address whether the USITC should have ev aluated the cumulative impact of third-country
imports, and the collective impact of th ird-country imports and domestic supply. The United States
argues, first, that the Appellate Body should reject these arguments, because they are based on
Canada's erroneous assumption that these alleged "oth er factors" had been found to be "other known
factors." Moreover, contrary to Canada's argument, the Appellate Body Reports in US – Steel
Safeguards, EC – Tube or Pipe Fittings , and US – Hot-Rolled Steel do not support the proposition
that a collective analysis of other known factors is required or even the norm. 77 Secondly, the United
States submits that Canada's reliance on the cumulation provision in the Anti-Dumping Agreement
and the SCM Agreement , as the basis for asserting that the USITC was required to consider third-
country non-subject imports on a cumulative basis, is entirely unfounded because third-country
imports are fairly traded and not subject to anti-dumping or countervailin g duty investigations.
Contrary to Canada's argument, the observation of the Appellate Body, in EC – Tube or Pipe Fittings,
concerning cumulation of dumped imports "is not 'equa lly relevant to an analysis of [non-subject
imports and] causation under Article 3.5 of the [Anti-Dumping] Agreement.'"78

74See Canada's appellant's submission, para. 116.
75United States' appellee's submission, para. 137 (quoting Appellate Body Report, EC – Tube or Pipe
Fittings, para. 178). (original emphasis)
76Appellate Body Report, EC – Tube or Pipe Fittings, para. 178.
77Appellate Body Report, US – Steel Safeguards , para. 490; Appellate Body Report, EC – Tube or
Pipe Fittings, para. 192; Appellate Body Report, US – Hot-Rolled Steel, para. 228.
78United States' appellee's submission, para. 140 (quoting Canada's appellant's submission,
footnote 166 to para. 158).

70. The United States adds that, even accepting, arguendo, Canada's premise that an examination
of the cumulative effect of imports from all sources is required, Canada ha s failed to point to any
evidence in the USITC record that would have s upported a finding that the requisite conditions of
competition existed with respect to third-country im ports that would have justified their collective
consideration. Canada's argument also fails to a ddress the fact that imports from each third country
would have been considered negligible w ithin the meaning of Article 5.8 of the Anti-Dumping
Agreement and Article 11.9 of the SCM Agreement.
4. Article 12.7 of the DSU
71. According to the United States, the Panel met the requirement of Article 12.7 of the DSU to
set forth a "basic rationale". The Panel's basic ratio nale is plain from the analysis set forth in the
Panel Report itself, from the Panel's incorporation, where appropriate, of other documents (including
the original panel report), and from the Panel's expl anation of the relevance of the Appellate Body
Report in US – Countervailing Duty Investigation on DRAMS and other panel a nd Appellate Body
reports to which it referred. The Panel did interpre t and apply the relevant provisions of the covered
agreements, and its report clearly shows that it made an objective assessment of the matter before it.
As Canada's argument under Article 12.7 rests on the same flawed bases as its arguments under
Article 11 of the DSU, the former must fail for the same reasons as the latter.
5. Conclusion

72. The United States requests the Appellate Body to reject Canada's claims of error in their
entirety and uphold the Panel's findings and conclusi ons. The United States adds that, in the event
that the Appellate Body were to find that the Pa nel had not conducted an objective assessment of the
matter, it should not complete the analysis in th is case because Canada ha s not provided any "road
map" as to how this might be done, and because of the complexities of the facts and the number of
different variables that would have to be considered in order to do so.79
C. Arguments of the Third Participants
1. China
73. Pursuant to Rule 24(2) of the Working Procedures , China chose not to submit a third
participant's submission. In its statement at the oral hearing, China addressed the issue of the proper
standard of review that the Panel should have applied.

79United States' response to questioning at the oral hearing.

2. European Communities

74. The European Communities considers these proceed ings under Article 21.5 of the DSU to be
"rather unusual", because the USITC's Section 129 Determination was made in 2004 regarding the
existence of a threat of material injury dating back to 2002. 80 The European Communities is of the
view that, while it may be possible to implement DSB rulings and recommendations relating to a trade
defence measure by reviewing the original measure and correcting any defects, this possibility may
not always be appropriate, especially in a case su ch as this one where the original determination
related to a prediction.
75. The European Communities observes that the Panel seems to have ignored the findings of the
original panel and looked at the case "with a fresh eye". 81 The European Communities asserts that,
although a "fresh eye" approach may have some validity in the case of a new measure, it may not be
appropriate in a case involving a corrected determin ation. The European Communities explains that
an Article 21.5 proceeding is not only about the c onsistency of a measure taken to comply with the
covered agreements, but also about the existence of such a measure. Thus, if the recommendations
and rulings of the DSB have not been complied with, a measure taken to comply does not "exist", at
least in part.
76. As regards the standard of review, the European Communities emphasizes that the application
of the standard of review in specific cases will vary, depend ing upon the requirements of the
particular provisions and agreements at issue. In this case, the Panel appeared to have applied an
extremely deferential "not unreasonable" or "not demonstrably unreasonable" standard of review.
82 In
this regard, the European Comm unities agrees with Canada that the Panel should not have only
concluded that the USITC's conclusions were "not unreasonable", it should also have carried out a
more in-depth evaluation as to whether those conc lusions were actually based on facts and not on
mere allegation or conjecture. According to th e European Communities, Article 17.6(i) of the Anti-
Dumping Agreement requires more than a finding of "not unreasonableness". In any event, the
European Communities asserts that Article 17.6(i) do es not apply to determinations made pursuant to
the SCM Agreement. Given that the USITC made a single injury determination for the anti-dumping
and countervailing duty investigations relating to Canadian softwood lumber, the stricter standard of
review applies to that determination, namely, the standard set out in Article 11 of the DSU.83

80European Communities' third participant's submission, para. 10.
81Ibid., para. 12.
82Ibid., para. 18.
83European Communities' response to questioning at the oral hearing.

77. The European Communities agrees with Canada's assertion that the Panel's failure to interpret
and apply Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the SCM Agreement "is also
evident in its apparent misapprehension of th e high standard … impose[d] upon investigating
authorities in making a threat determination." 84 Furthermore, the European Communities supports
Canada's argument that a proper interp retation of Article 3.7(iii) of the Anti-Dumping Agreement and
Article 15.7(iv) of the SCM Agreement requires a comparison between current import prices and
prices for the domestic product. According to th e European Communities, the examination of import
price trends in isolation, without comparing th em to domestic prices for like products, and without
examining the effect that the former would have on th e latter, would not be consistent with the correct
interpretation of these provisions or with the high standard that investigating authorities need to
maintain when considering a threat of material injury.
78. Finally, the European Communities agrees with Canada that, when there is "a lack of
coincidence"85 between increased imports and injury to dom estic industry, an in vestigating authority
is required to provide a compelling explanatio n of the existence of a causal link between
dumped/subsidized imports and a threat of material injury. The European Communities adds that this
also is an essential factor in the interpretation of Article 3.5 of the Anti-Dumping Agreement and
Article 15.5 of the SCM Agreement.

III. Issues Raised in This Appeal
79. The following issues are raised in this appeal:
(a) whether the Panel failed to make an objectiv e assessment of the matter, including an
objective assessment of the facts, because it articulated or applied an improper
standard to review the Sec tion 129 Determination, and, th ereby, acted inconsistently
with Article 11 of the DSU;
(b) if the Panel is found to have acted inc onsistently with Article 11 of the DSU,
whether:
(i) the finding of threat of injury in the Section 129 Determina tion is consistent
with the United States' obligations under Article 3.7 of the Anti-Dumping
Agreement and Article 15.7 of the SCM Agreement; and/or,

84Canada's appellant's submission, para. 78 (quote d in European Communities' third participant's
submission, para. 22).
85European Communities' third participant's submission, para. 25.

(ii) the causation and non-attribution analyses in the Section 129 Determination
are consistent with the United States' obligations under Article 3.5 of the
Anti-Dumping Agreement and Article 15.5 of the SCM Agreement;
(c) if the Panel is found to have acted consis tently with Article 11 of the DSU, whether
the Panel erred in concluding that:
(i) the finding of threat of injury in the Section 129 Determina tion is consistent
with the United States' obligations under Article 3.7 of the Anti-Dumping
Agreement and Article 15.7 of the SCM Agreement; and/or,
(ii) the causation and non-attribution analyses in the Section 129 Determination
are consistent with the United States' obligations under Article 3.5 of the
Anti-Dumping Agreement and Article 15.5 of the SCM Agreement; and
(d) whether the Panel failed to comply with its duties under Article 12.7 of the DSU
because it failed to set out the applicability of relevant provisions and to provide a
"basic rationale" for its findings.
IV. Background and Procedural History
80. In the original US – Softwood Lumber VI proceedings, Canada cha llenged the determination
of the United States International Trade Commissi on (the "USITC"), on 16 May 2002, that the United
States softwood lumber industry was threatened with material injury by reason of dumped and
subsidized imports of softwood lumber fro m Canada (the "original determination").
86 Canada alleged
that this determination was inconsistent with the Anti-Dumping Agreement and the SCM Agreement,
in particular, with Articles 3.5 and 3.7 of the Anti-Dumping Agreement and Articles 15.5 and 15.7 of
the SCM Agreement.87
81. The panel in US – Softwood Lumber VI (the "original panel") found the original determination
to be inconsistent with Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the SCM
Agreement because "the finding of a likely imminent substa ntial increase in imports is not one which
could have been reached by an objective and unbiased i nvestigating authority in light of the totality of
the factors considered and the reasoning in the USITC determination." 88 In consequence, the original
panel also found that the USITC's causal analysis, which rested upon the finding relating to the

86USITC Report, Softwood Lumber from Canada, Investigations Nos. 701-TA-414 and 731-TA-928
(Final), USITC Pub. No. 3509 (May 2002) (Exhibit CDA-2 submitted by Canada to the Panel).
87Panel Report, para. 2.4.
88Original Panel Report, para. 8.1(a).

likelihood of an imminent substa ntial increase in imports, was inconsistent with Article 3.5 of the
Anti-Dumping Agreement and Article 15.5 of the SCM Agreement. 89 Although this finding was
sufficient to rule on Canada's claims relating to causation, the original panel nevertheless proceeded to
examine Canada's allegations that the USITC had fa iled in its causation analysis to comply with
applicable obligations governing non-attribution. 90 The original panel expressed "serious concerns" 91
with this part of the USITC's analysis, and stated that it "would [have] conclude[d] that the USITC
determination is not consistent with the obligation in Article 3.5 of the [ Anti-Dumping] Agreement
and Article 15.5 of the SCM Agreement that 'inj uries caused by these other factors must not be
attributed' to the subject imports."92
82. Following adoption by the DSB of the or iginal panel report on 26 April 2004 93, the United
States Trade Representative, on 27 July 2004, requested the USITC, pursuant to Section 129 of the
Uruguay Round Agreements Act 94, to issue a new injury determination 95 "that would render the
[USITC's] action in connection with [the USITC's or iginal affirmative threat of material injury
determination] not inconsis tent with the findings of the [original] panel". 96 In the proceedings that it
undertook pursuant to this request, the USITC "reopene d the record of the original investigation to
gather additional information from public data sources and from questionnaires sent to [United States]
and Canadian producers, held a public hearing, and gave parties opportunities to submit written
comments."97 The USITC sought to address "only the issues related to the [original panel's] findings
... and did not address issues that were not in disput e in the original [p]anel proceeding or which the
[original panel] had found not in consistent with the United States' obligations under the WTO

89Original Panel Report, para. 7.122.
90The original panel did so in order to assist the Appellate Body in completing the analysis in the
event that the original panel's finding regarding the USITC's original determination of threat of injury were to be
91Ibid., para. 7.132. The original panel noted that the USITC did not refer "at all" to imports from third
countries, despite the increase of imports from these coun tries and the fact that the issue was raised during the
investigation. (para. 7.134) The original panel also criticized the absence of a "discussion of the relationship
between predicted increases in impor ts and the predicted strong and in creasing demand for lumber in the
[United States] market". (para. 7.134) It furthermore described the USITC's failure to discuss the likely future
effects of domestic lumber production as a "glaring omission". (para. 7.135) The original panel suggested, in
this regard, that there was a lack of evidence to support the USITC's "conclusion that there would be no [United
States] oversupply affecting lumber pri ces in the future", as well as a failure to link that conclusion "to the
USITC's analysis of causation of material injury in the near future". (para. 7.135)
92Ibid., para. 7.137.
93WT/DS277/5.
94Supra, footnote 10.
95Supra, footnote 9.
96Section 129 Determination, p. 1.
97Panel Report, para. 2.9. See also Section 129 Determination, p. 4.

Agreements."
98 The USITC stated its understanding that the original panel had based its findings of
inconsistency on "insufficient explanation" in the original determination and, therefore, the USITC
understood that it was "to provide more explanation and reasoning for its decision".99
83. On 24 November 2004, the USITC issued its vi ews in the Section 129 Determination. The
USITC determined, on the basis of the record from the original investigation, the original panel
report, additional information collected in th e Section 129 proceedings, and comments received
during those proceedings, that an indu stry in the United States was thr eatened with material injury by
reason of imports of softwood lumber from Canada found to be subsidized and dumped in the United
States.100
84. The principal elements of the Section 129 Dete rmination were summarized by the Panel in
the following manner.
(a) With respect to future imports of Canadian softwood lumber, the USITC found:
... based on a significant rate of increase in imports from a significant
baseline volume level, and taking into account increases in imports
during periods of no import restrain ts, that there was a likelihood of
substantially increased imports, and concluded that dumped and
subsidized imports would increase in the imminent future. Looking
at current import trends, the restraining effects of the [United States]-
Canada Softwood Lumber Agreement (SLA), excess Canadian
capacity and projected increases in capacity, capacity utilization and
production, and demand projections , the USITC concluded that
imports would increase at a substantial rate in the imminent future
beyond historical levels.
101
(b) With respect to price effects, the USITC:
... concluded that imports were ente ring the United States at prices
that were likely to have a significant depressing or suppressing effect
on domestic prices and likely to increase demand for further imports,
and that imports were therefore likely to adversely impact the [United
States] lumber industry in the imminent future.
102

98Panel Report, para. 2.9. See also Section 129 Determination, p. 4.
99Section 129 Determination, pp. 5-6.
100Panel Report, para. 2.8. See also Section 129 Determination, p. 6. One USITC Commissioner
dissented and found that the domestic industry producin g softwood lumber was not threatened with material
injury. (Panel Report, footnote 54 to para. 7.10. See also Section 129 Determination, pp. 89-101)
101Panel Report, para. 7.10.
102Ibid.

(c) In its analysis of other factors pot entially threatening injury, the USITC:
... concluded that excess supply from the domestic industry, third
country imports, importation relative to demand, the integration of
the North American softwood lumber industry, subs titute products,
and domestic production constraint s, were not other factors
potentially causing injury to the domestic industry, and therefore
considered that there was no basi s to examine whether any injury
could be attributed to them.
103 (footnote omitted)
85. The Panel found that the Section 129 Determina tion was not inconsistent with Articles 3.5
and 3.7 of the Anti-Dumping Agreement or with Articles 15.5 and 15.7 of the SCM Agreement104, and,
therefore, that "the United States has implemented the decision of the [original panel], and the DSB,
to bring its measure into conformity with its obligations under the [ Anti-Dumping] and
SCM Agreements."105
86. The United States maintains before us, as it did before the Panel, that, in the Section 129
Determination, the USITC addressed all of th e concerns expressed by the original panel 106 and

103Panel Report, para. 7.10.
104Ibid., para. 8.1.
105Ibid., para. 8.2.
106The original panel identified prob lems with each of the six elements relied upon by the USITC in
reaching its finding of a substantial imminent increase in imports.
(i) As regards the increase in the volume of Cana dian softwood lumber imports over the period of
investigation, the original panel determined that the USITC did not rely on a significant rate of
increase during that period. (Original Panel Report, para. 7.90)
(ii) As regards the Canadian producers' alleged excess capac ity and projected increases in
capacity, capacity utilization and production, the original panel found that the evidence before
the USITC did not support a conclusion that ther e would be a substantial increase in capacity
(para. 7.90), or that excess capacity indicated a likelihood of substantially increased exports.
(para. 7.91)
(iii) With respect to the alleged "export orient ation" of Canadian producers—that is, the USITC's
reliance on the historical pattern of exports from Canada to the United States—the original
panel stated that the USITC determination di d not address how the projected increases in
exports to the United States, which were in line with historical patterns, supported the finding
that imports would increase substantially. (para. 7.92)
(iv) Regarding the effects of the expiration of the SLA, the original panel found that the USITC
had not addressed why the expiration of that agreement would result in an imminent
substantial increase in exports when exports had, in any event, increased during the term of the
SLA. (para. 7.93)
(v) Regarding the USITC's treatment of import trends during periods when trade restrictions were
not in effect, the original panel noted that the USITC had not analyzed market conditions
during the period before the imposition of the SLA, and the period immediately after the
expiration of the SLA, in such a way as to su pport the conclusion that imports would increase
substantially. (para. 7.94)
(vi) The original panel found that the USITC's "forecast of strong and improving demand" did not
support a finding that imports would increase substantially, particularly in the absence of any
finding that imports from Canada would increase by more than demand. (para 7.95)

properly reached a determination, supported by the evidence on record, that imports from Canada
would increase at a substantial rate in the imminent future.
107 The United States submits that the
USITC evaluated the significance of the volume of subject imports and increases in imports in
context, which included taking into account the sign ificant restraining effect of the Canada-United
States Softwood Lumber Agreement (the "SLA") 108 and the impact that the expiration of that
agreement would have on the market for softwood lu mber. In addition, the USITC analyzed capacity
and found that Canadian producers had sufficien t excess capacity, and had projected substantial
increases in capacity and production in 2002 and 2003, to substantially increase exports to the United
States.109 The USITC analyzed the import trends before and during the period of investigation,
specifically in the context of the prevailing market conditions. 110 The United States further points out
that, in the Section 129 Determination, the USIT C found that there was no evidentiary basis to
conclude that likely substantial increases in subj ect imports would be outpaced by increases in United
States demand.111
87. As regards price effects, the United States obser ves that the USITC found that the substantial
and increasing volume of subject imports at si gnificantly declining prices during the period of
investigation adversely affected prices for the domestic product. 112 In addition, the United States
notes that dumped/subsidized imports of softwood lumber from Canada were increasing substantially
after expiration of the SLA and at the end of the period examined, and that imports were entering at
prices at their lowest levels dur ing the period of investigation. 113 The USITC found that the declines
in the domestic industry's performance made it vulnerabl e to future injury, and that this was the case
notwithstanding certain improvements in the industr y's financial performance in the first quarter
of 2002. The USITC found that data for a single qu arter were not necessarily an accurate indicator of
industry performance, and that the improvements in the industry's performance were attributable to
temporary increases in prices that were not likely to be sustained.114

108Softwood Lumber Agreement between the Government of Canada and the Government of the United
States of America , 29 May 1996, Can. T.S. 1996 No. 16 (entered into force 29 May 1996 with effect from
1 April 1996). (Exhibit CDA-16 submitted by Canada to the Panel) Pursuant to the SLA, which expired on
31 March 2001, the United States undertook not to take action under its trade remedy laws against imports of
Canadian softwood lumber, and Canada agreed to require export permits for exports of softwood lumber to the
United States, and to collect fees for export quantities above specified volume thresholds.
109United States' appellee's submission, para. 34 (referring to Section 129 Determination, pp. 31-40).
110Ibid., para. 27 (referring to Section 129 Determination, pp. 20-31).
111Ibid., para. 32 (referring to Section 129 Determination, pp. 17 and 75-80).
112Ibid., para. 38 (referring to Section 129 Determination, pp. 46 and 53-54).
113Ibid., para. 39.
114Ibid., paras. 39 and 40.

88. With respect to causation, the United States expl ains that the original panel report expressed
concern with what the original panel saw as an in adequate treatment by the USITC of other factors
that might be potentially causing injury to the domestic industry.115 According to the United States, in
the Section 129 Determination, the USITC integrated its causation discussion into its analysis of the
threat factors and, particularly in its analysis of the likely volume and likely price effects of subject
imports, demonstrated a causal relationship between the likely substantial increases in subject imports
and the likely price effects, and their consequent threat in the imminent future to the already
vulnerable domestic industry. 116 The United States submits that the USITC also provided a detailed
and reasoned analysis of six other factors allege d to be causing injury to the domestic industry 117 and
found that the evidence did not demonstrate that any of these factors was an "other known factor".118

V. Standard of Review
A. The Applicable Standard of Review
89. On appeal, Canada asserts that the Panel acted inconsistently with Article 11 of the DSU in
three principal ways: (i) by failing to make an objective assessment of the applicability of relevant
provisions of the covered agreements and the confor mity of the Section 129 Determination with those
provisions119; (ii) by failing to make an objective assessment of the facts 120; and (iii) by failing to
consider and apply adopted finding s from the original panel report. 121 Several of the findings that,
according to Canada, demonstrate the Panel's failure to comply with its duties under Article 11, are
also the subject of separate Canadian claims that the Panel erred in its interpretation and application of
the relevant substantive provisions of the Anti-Dumping Agreement and the SCM Agreement 122,
and/or that the Panel failed to set out a "basic rati onale" for its findings as required by Article 12.7 of
the DSU.123

115United States' appellee's submission, para. 41 (referring to Original Panel Report, paras. 7.134-
7.136).
116Ibid., para. 42.
117Ibid., para. 43 (referring to Section 129 Determination, pp. 68-85).
118Ibid., para. 43.
120Ibid., para. 62.
121Ibid., para. 63.
122Ibid., paras. 205-245.
123Ibid., para. 196-204.

90. At the core of Canada's various claims under Ar ticle 11 of the DSU is the allegation that the
Panel erred in the standard of review that it articul ated and applied to the Section 129 Determination.
Before turning to the details of Canada's arguments , we wish to highlight two particular features of
the measure at issue. First, we note that, in these proceedings under Article 21.5 of the DSU, we must
review the Panel's assessment of the Section 129 Dete rmination because that is the "measure taken to
comply" with the recommendations and rulings of th e DSB. At the same time, we are cognizant of
the "continuum of events" that led to this appeal including, in particular, the close relationship
between the Section 129 Determination and the original determination.
124 Secondly, as in the original
determination, the Section 129 De termination served as the basis for the imposition of anti-dumping
and countervailing duties.
91. As regards the standard of review to be a pplied when a single injury determination is
challenged under both Agreements, we recall that panels are to assess the consistency of measures
challenged under the SCM Agreement in accordance with the general standard of review set out in
Article 11 of the DSU. 125 Measures challenged under the Anti-Dumping Agreement, however, are to
be scrutinized in accordance with th e standard of review expressly prescribed in Article 17.6 of the
Anti-Dumping Agreement , along with Article 11 of the DSU. 126 Although Canada challenged the
Section 129 Determination under both the Anti-Dumping Agreement and the SCM Agreement ,
Canada's appeal focuses on the standard of review under Article 11 of the DSU. 127 The United States
considers that Canada's appeal deliberately dow nplays the significance of Article 17.6 of the
Anti-Dumping Agreement, but the United States does not request us to give "separate consideration"

124The Section 129 Determination was intended to rec tify the WTO-inconsistencies that the original
panel identified in the original determination. More over, the record before the USITC in the Section 129
Determination included the entirety of the record from the original USITC investigation, as well as certain
additional evidence, and parts of the analysis contai ned in the Section 129 Determination are expressly
incorporated from the original determination. (See infra para. 102 and footnotes 151-153 thereto) In similar
circumstances, the Appellate Body observed that:
In proceeding under Article 21.5 of the DSU, the Panel conducted its work
against the background of the original proceedings, and with full cognizance
of the reasons provided by the original panel. The original determination
and original panel proceedings, as well as the redetermination and the
panel proceedings under Article 21.5, form part of a continuum of events.
(Appellate Body Report, Mexico — Corn Syrup (Article 21.5 — US), para. 121 (emphasis added)) See also
Appellate Body Report, US – FSC (Article 21.5 – EC II), para. 87.
125Appellate Body Report, US – Lead and Bismuth II, para. 51.
126Appellate Body Report, US – Hot-Rolled Steel, para. 55.
127We note that in footnote 60 to paragraph 60 of its appellant's submission, Canada states:
Because Canada's appeal raises no issu es requiring separate consideration
under Article 17.6 of the [ Anti-Dumping] Agreement, this submission refers
exclusively to Article 11 of the DSU.

to the issues on appeal as a result of that provision. 128 The United States also points out that the
original panel considered this issue and, af ter referring to the Appellate Body Report in US – Hot-
Rolled Steel 129 and the Declaration on Dispute Settlement Pursuant to the Agreement on
Implementation of Article VI of the General Ag reement on Tariffs and Trade 1994 or Part V of the
Agreement on Subsidies and Countervailing Measures 130, concluded that it was not "necessary or
appropriate to conduct separate analyses of the [original] determination under the two Agreements."131
92. We need not, in this appeal, answer the questi on of whether there may ever be circumstances
in which separate consideration of a single injury de termination would be required in the light of the
standards of review under the Anti-Dumping Agreement and the SCM Agreement. In our view, this is
not such a case, and neither of the particip ants requests such separate consideration. 132 We also wish
to add that whether such separate consideration is called for may depend not only on Article 11 of the
DSU and Article 17.6 of the Anti-Dumping Agreement, but also on the substantive provisions of the
 Anti-Dumping Agreement and SCM Agreement that are at issue in the dispute. This is because, as

128United States' response to questioning at the oral hearing.
129In that report, the Appellate Body considered the relationship between Article 17.6(i) of the Anti-
Dumping Agreement and Article 11 of the DSU, and stated that there is no "conflict" between these provisions.
Both Articles 17.6(i) of the Anti-Dumping Agreement and Article 11 of the DSU "require[] panels to 'assess' the
facts and this … clearly necessitates an active review or examination of the pertinent facts." The Appellate
Body also said that while Article 17.6(i) "does not expressly state that panels are obliged to make an assessment
of the facts which is ' objective' ... it is inconceivable that Article 17.6(i ) should require anything other than that
panels make an objective 'assessment of the facts of the ma tter'." (Appellate Body Report, US – Hot Rolled
Steel, para. 55. (original emphasis))
The Appellate Body also characteri zed Article 17.6(ii) as "supplemen ting, rather than replacing, the
DSU, and Article 11 in particular", observing that this provision "simply adds that a panel shall find that a
measure is in conformity with the Anti-Dumping Agreement if it rests upon one permissible interpretation of
that Agreement." (para. 62)
130This Declaration provides as follows:
Ministers,
Recognize, with respect to dispute settlement pursuant to the Agreement on
Implementation of Article VI of GATT 19 94 or Part V of the Agreement on
Subsidies and Countervailing Measures , the need for the consistent
resolution of disputes arising from anti-dumping and countervailing duty
measures.
131Original Panel Report, para. 7.17. The original panel also recognized that, although there might be
cases in which the operation of Article 17.6(ii), together with the application of the relevant principles of
interpretation codified in the Vienna Convention on the Law of Treaties (done at Vienna, 23 May 1969, 1155
UNTS 331; 8 International Legal Materials 679) could lead to a different conclusion under the Anti-Dumping
Agreement than under the SCM Agreement, the case before it did not present any instances involving more than
one permissible interpretation of the text of the Anti-Dumping Agreement. (para. 7.22)
132We note that in its oral statement at the hearing in this appeal, the European Communities stated that
a single standard of review should be applied to the Section 129 Determination, but argued that such standard of
review must correspond to the most demanding standard of review under either of the Agreements. According
to the European Communities, this is the consequence that necessarily flows from the United States' choice to
make only one injury determination for two separate trade defence instruments covered by two different
WTO agreements.

the Appellate Body has previously observed, and as discussed further below, the proper standard of
review to be applied by a panel must also be unders tood in the light of the specific obligations of the
relevant agreements that are at issue in the case.
133
93. We begin our analysis with an examination of the requirements of Article 11 of the DSU in
the context of the review by a panel of determinati ons made by investigating authorities. As Canada's
appeal is primarily focused on the Panel's examina tion of how the USITC treated the evidence before
it, we examine first the duties that apply to panels in their review of the factual components of the
findings made by investigating authorities. Th e Appellate Body has considered these duties on
several previous occasions. 134 It is well established that a panel must neither conduct a de novo
review nor simply defer to the conclusions of the national authority. A pane l's examination of those
conclusions must be critical and searching, and be based on the information contained in the record
and the explanations given by the authority in its p ublished report. A panel must examine whether, in
the light of the evidence on the record, the conclu sions reached by the investigating authority are
reasoned and adequate. What is "adequate" will inevitably depend on the facts and circumstances of
the case and the particular claims made, but several general lines of inquiry are likely to be relevant.
The panel's scrutiny should test whether the reasoning of the authority is coherent and internally
consistent. The panel must undertake an in-depth examination of whether the explanations given
disclose how the investigating authority treated the facts and evidence in the record and whether there
was positive evidence before it to support the infe rences made and conclusions reached by it. The
panel must examine whether the explanations provi ded demonstrate that the investigating authority
took proper account of the complexities of the data be fore it, and that it explained why it rejected or
discounted alternative explanations and interpretations of the record evidence. A panel must be open
to the possibility that the explanati ons given by the authority are not reasoned or adequate in the light
of other plausible alternative explanations, and must take care not to assume itself the role of initial
trier of facts, nor to be passive by "simply accept[ing] the conclusions of the competent
authorities".135

133Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 184; Appellate
134See Appellate Body Report, Argentina – Footwear (EC) , paras. 119-121; Appellate Body Report,
US – Cotton Yarn , paras. 74-78; Appellate Body Report, US – Countervailing Duty Investigation on DRAMS ,
paras. 183, and 186-188; Appellate Body Report, US – Hot-Rolled Steel , para. 55; Appellate Body Report,
US – Lamb, paras. 101 and 105-108; Appellate Body Report, US – Steel Safeguards, para. 299; and Appellate
Body Report, US – Wheat Gluten, paras. 160-161.
135Appellate Body Report, US – Lamb, para. 106. (original emphasis)

94. A key aspect of how a panel must review a determination relates to the evidentiary basis for
both the intermediate factual findings made by a national authority, as well as for its overall
conclusions. In its Report in US – Countervailing Duty Investigation on DRAMS , the Appellate Body
considered how a panel is to review the evidentia ry basis for findings when the overall conclusions
are based on the authority's assessment of the tota lity of multiple pieces of circumstantial evidence.
The Appellate Body observed that, even where the investigating authority draws its conclusion from
the totality of the evidence, it will often be appropriate , or necessary, for a panel "to examine the
sufficiency of the evidence supporting an investigat ing authority's conclusion ... by looking at each
individual piece of evidence".136 In addition to such review of how the investigating authority treated
individual pieces of evidence, the A ppellate Body underlined that a pa nel must also, with due regard
to the approach taken by that authority, examin e how the totality of the evidence supports the overall
conclusion reached. In this connection, the Ap pellate Body emphasized th at panels have "the
obligation to consider, in the context of the totality of the evidence, how the interaction of certain
pieces of evidence may justify certain inferences that could not have been justified by a review of the
individual pieces of evidence in isolation."137
95. In US – Countervailing Duty Investigation on DRAMS , the Appellate Body further pointed
out that the standard of review to be applied in a given case is also a function of the substantive
provisions of the specific covered agreements that are at issue in the dispute. 138 In disputes involving
a threat of injury determination under the Anti-Dumping Agreement and the SCM Agreement , the
provisions of the two Agreements relevant to the st andard of review include: Articles 3.1, 3.5, 3.7,
3.8, and 12 of the Anti-Dumping Agreement; and Articles 15.1, 15.5, 15.7, 15.8, and 22 of the SCM
Agreement.
96. Article 3.1 of the Anti-Dumping Agreement and Article 15.1 of the SCM Agreement are
"overarching provision[s]" that reinforce elements of Article 11 of the DSU by imposing certain
"fundamental" obligations, in particul ar, that determinations of injury, including threat of injury, be
based on positive evidence and an ob jective examination of the specific factors set out in these

136Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 145.
137Ibid., para. 157. (original emphasis) In other words, "a piece of evidence that may initially appear to
be of little or no probative value, when viewed in isolation, could, when placed beside another piece of evidence
of the same nature, form part of an overall picture that gives rise to a reasonable inference of entrustment or
direction." (para. 154 (original italics ; boldface added)) In this regard, we wish to point out the particular
circumstances of that case, where the question before the Appellate Body was how a panel should scrutinize the
evidentiary basis for a determination by an investigating authority when that basis consisted of circumstantial
evidence.
138Ibid., para. 184. See also Appellate Body Report, US – Cotton Yarn , paras. 75-78; and Appellate
Body Report, US – Lamb , para. 105. The European Communities stresses this point in its third participant's
submission. (European Communities' third participant's submission, paras. 16-17)

provisions.
139 Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the SCM Agreement
combine positive requirements—that such a determ ination "be based on facts" and show how a
"clearly foreseen and imminent" change in circum stances would lead to further dumped/subsidized
imports causing injury in the near future—with an express prohibition of a determination based
"merely on allegation, conjecture or remote possibility". These provisions enjoin a panel to scrutinize
carefully the inferences and explanations of the inv estigating authority in order to ensure that any
projections or assumptions made by it, as to likely future occurrences, are adequately explained and
supported by positive evidence on the record. 140 A panel should also keep in mind that Article 3.8 of
the Anti-Dumping Agreement and Article 15.8 of the SCM Agreement exhort Members to exercise
"special care" when considering and deciding to apply anti-dumping and countervailing measures in
cases of threat of injury.141
97. Finally, we observe that it is in the nature of anti-dumping and countervailing duty
investigations that an investigating authority w ill gather a variety of information and data from
different sources, and that these may suggest diffe rent trends and outcomes. The investigating
authority will inevitably be called upon to reconcile this divergent information and data. However,
the evidentiary path that led to the inferences and overall conclusions of the investigating authority
must be clearly discernible in the reasoning and explanations found in its report. When those
inferences and conclusions are challenged, it is the task of a panel to assess whether the explanations
provided by the authority are "reasoned and ade quate" by testing the relationship between the
evidence on which the authority relied in drawing specific inferences, and the coherence of its
reasoning. In particular, the panel must also ex amine whether the investigating authority's reasoning
takes sufficient account of conflicting evidence and r esponds to competing plausible explanations of
that evidence. This task may also require a panel to consider whethe r, in analyzing the record before
it, the investigating authority evaluated all of the relevant evidence in an objective and unbiased
manner, so as to reach its findings "without favouring the interests of any interested party, or group of
interested parties, in the investigation."142
98. In sum, a panel charged with reviewing the factua l basis for a threat of injury determination
must determine whether the investigating auth ority has provided "a reasoned and adequate
explanation" of:

139Appellate Body Report, Thailand – H-Beams, para. 106.
140Appellate Body Report, US – Lamb , para. 136. See also Appellate Body Report, Mexico – Corn
Syrup (Article 21.5 – US), para. 85.
141See Original Panel Report, Section VII.G, entitle d "Alleged Violations of Article 3.8 of the [ Anti-
Dumping] Agreement and Article 15.8 of the SCM Agreement Requirements Regarding 'Special Care'".
142Appellate Body Report, US – Hot-Rolled Steel, para. 193.

(a) how individual pieces of evidence can be re asonably relied on in support of particular
inferences, and how the evidence in the record supports its factual findings;
(b) how the facts in the record, rather than a llegation, conjecture, or remote possibility,
support and provide a basis for the overall threat of injury determination;
(c) how its projections and assumptions show a high degree of likelihood that the
anticipated injury will materialize in the near future; and
(d) how it examined alternative explanations a nd interpretations of the evidence and why
it chose to reject or discount such alternatives in coming to its conclusions.
99. Moreover, the injunction that panels should not substitute their own conclusions for those of
the competent authorities does not mean that all a panel needs to do in order to comply with its
duties when reviewing a determination is to consider whether the investigating authority's findings or
conclusions appear to be "reasonable" or "plausible " in the abstract. To the contrary, a panel can
assess whether an authority's explanation for its determination is r easoned and adequate only if the
panel critically examines that explanation in the light of the facts and the alternative explanations that
were before that authority. A panel's consideration of whether a certain inference can reasonably be
drawn from individual pieces of evidence and/or from evidence in its totality is one of the means by
which a panel satisfies its duty to examine whether a determination was based on positive evidence on
the record. In its assessment, the panel should seek to review the determination while giving due
regard to the approach taken by the investigating authority, or it risks constructing a case different
from the one put forward by that authority. Fina lly, in its assessment of whether the conclusions
reached by an investigating authority are reasoned and adequate, "[a] panel may not reject an
[investigating authority's] conclusions simply b ecause the panel would have arrived at a different
outcome if it were making the determination itself."
143
B. Canada's Appeal
100. Canada claims that the Panel articulated and applied an incorrect standard of review in
assessing the Section 129 Determination. In Canada's view, the Panel's explanation, at the outset of
its findings, as to how it intended to go about its task reveals the following errors: (i) the Panel
incorrectly explained its role in the context of these Article 21.5 proceedings 144; (ii) the Panel
erroneously identified a standard to be used to review a determination of threat of injury that is

143Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 187.
144Canada's appellant's submission, paras. 166-169.

lower than the standard to be app lied to review a determination of current material injury
145; and
(iii) the Panel used an overly deferential standa rd of review, asking only whether the USITC's
findings "could" have been reached by an unbiased and objective decision-maker on the facts. 146
Canada adds that the Panel went on to apply the wr ong standard of review throughout its analysis and
cites, as evidence of this "ex cessively deferential" standard147, the Panel's repeated characterization of
various USITC findings as "not unreasonable".148
1. The Role of an Article 21.5 Panel Assessing a Redetermination
101. We begin with Canada's arguments relating speci fically to the role of a panel acting pursuant
to Article 21.5 of the DSU. Canada makes two se ts of claims of error relating to how the Panel
assessed the Section 129 Determination in the light of the findings of the original panel and in the
light of the original USITC threat of injury determination. Canada asserts that the Panel failed to
make an objective assessment of the matter before it because it failed to apply findings from the
original panel report even though these findings ha d been adopted by the DSB and are binding upon
the parties to the dispute. Canada's arguments seem to assume that a panel is required to evaluate
the facts in an Article 21.5 proceeding in exactly the same way as it evaluated those facts in the
original panel proceedings, and to hold an inves tigating authority making a redetermination to the
inferences that it drew from the same evidence in the original determination. Canada points to
paragraph 7.12 of the Panel Report as exposing the errors in the approach taken by the Panel.149
102. Article 21.5 of the DSU identifies the task of a panel operating pursuant to that provision as
resolving disagreements "as to the existence or consistency with a covered agreement of a measure
taken to comply with the recommendations and ruli ngs" of the DSB. This task cannot be done in
abstraction from the measure that was subject of the original proceedings.
150 The measure taken to

145Canada's appellant's submission, paras. 79-80.
146Ibid., para. 106.
147Ibid., para. 109.
148Ibid., paras. 2, 9, 97, and 199.
149See infra, para. 105.
150Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada) , para. 68; Appellate
Body Report, US – FSC (Article 21.5 – EC II) , para. 61. The Appellate Body has already recognized certain
circumstances in which the scope of proceedings under Ar ticle 21.5 may be limited by the scope of the original
proceedings. For example, a party cannot make the same claim of inconsistency ag ainst the same measure (or
component of a measure) in an Article 21.5 proceeding if the original panel and Appellate Body found the
measure to be consistent with the obligation at issue (Appellate Body Report, US – Shrimp (Article 21.5 –
Malaysia), paras. 89-99), or if the original panel found that the complaining party had not made out its claim
with respect to the measure (or component of a measure). (Appellate Body Report, EC – Bed Linen (Article 21.5
– India), paras. 92-93 and 99) Similarly, a party may not, in proceedings under Article 21.5 of the DSU, seek to
have the Appellate Body "revisit the original panel report" when that report was not appealed. (Appellate Body
Report, Mexico – Corn Syrup (Article 21.5 – US), para. 78)

comply in this case is the Section 129 Determinat ion. Although it is distinct from the original
determination, the Section 129 Determ ination incorporates by reference many parts of the analysis in
the original determination 151, and retains and relies on much of th e evidence collected in the original
investigation. As explained in the Section 129 De termination, the USITC not only sought "to provide
more explanation and reasoning for its decision", that is , to fill in the gaps that the original panel had
found in the reasoning and explanation in the original injury determination 152; it also re-opened the
record and collected more information and evidence. 153 Furthermore, Canada's claims under
Articles 3.5 and 3.7 of the Anti-Dumping Agreement and Articles 15.5 and 15.7 of the
SCM Agreement required the Panel to review, inter alia, how the investigating authority treated the
totality of the factors and evidence considered, incl uding the new elements. This involved review of
the USITC's analysis of how those factors and th e various pieces of evidence interacted. In these
circumstances, we do not see why the Panel would be bound by the findings of the original panel.
103. This does not mean that a panel operating u nder Article 21.5 of the DSU should not take
account of the reasoning of an investigating authority in an original determination, or of the reasoning
of the original panel. Article 21.5 proceedings do not occur in isolation but are part of a "continuum
of events". 154 This is a consequence of the mandate of an Article 21.5 panel, namely, to examine
whether recommendations and rulings from the origin al dispute have been implemented consistently
with the covered agreements. When an investig ating authority making a redetermination provides
different explanations of, or draws different infe rences from, specific pieces of evidence that were
also before it in the original investigation, this may be relevant to the assessment of whether its
reasoning is adequate and based on positive eviden ce. Such deviations from prior reasoning may
raise questions about the objectivity of the authority' s assessment of the eviden ce or the credibility of
its explanations. Similarly, doubts could arise a bout the objective nature of an Article 21.5 panel's
assessment if, on a specific issue, that panel were to deviate from the reasoning in the original panel
report in the absence of any change in the underlyi ng evidence in the record and explanations given

151At pages 6-7 of the Section 129 Determination, the USITC stated:
We adopt from the original Commission report our prior views and findings
in their entirety regarding domestic like product, domestic industry and
related parties, use of publicly available information, conditions of
competition, cross-cumulation, Maritime Provinces, effects of subsidies or
dumping, and consideration of the nature of the subsidy and its likely trade
effects. (footnote omitted)
152Section 129 Determination, pp. 5-6 and footnote 20.
153Ibid., p. 4.
154Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 121.

by the investigating authority in a redetermination.
155 These concerns are not, however, based on the
binding effect of the adopted findings of the original panel.
104. Given the particular circumstances of this cas e, and the way in which the USITC approached
its task in the Section 129 Determination, we belie ve that it may well have been necessary for the
Panel, in order to properly consider the adequ acy of the USITC's reasoning and explanation on
specific points, to refer to either the original determination and/or the reasoning and findings and
conclusions contained in the original panel report. We must, therefore, examine whether the Panel
viewed its role in this way.
105. Canada alleges that paragra ph 7.12 of the Panel Report 156 reveals the "critical legal
error"157 made by the Panel in explaining its role un der Article 21.5 of the DSU. We agree with

155We would have concerns, for example, if an Article 21.5 panel were to see no problem in a particular
inference drawn by an investigating authority in a rede termination in circumstances where the original panel
found that such inference lacked proper support and the inference drawn in the redetermination was based on the
same evidence and explained in the same way as in the original determination.
156Paragraph 7.12 of the Panel Report reads:
The role of a Panel in an Article 21.5 proceeding is to evaluate the
challenged measure to determine its consistency with the defending
Member's obligations under the relevant WTO Agreements. Thus, the Panel
is not limited by its original analysis and decision – rather, it is to consider,
with a fresh eye, the new determinati on before it, and evaluate it in
light of the claims and arguments of the parties in the Article 21.5
proceeding. While it is true that "a panel acting pursuant to Article 21.5 of
the DSU would be expected to refer to the initial panel report, particularly in
cases where the implementing measure is closely related to the original
measure, and where the claims made in the proceeding under Article 21.5
closely resemble the claims made in the initial panel proceedings", in a case
involving a new determination in the sa me case, it is clear that the facts
are likely to be very similar to the original. Thus, what is most important
for our analysis is the reasoning and explanation of the USITC in its
section 129 determination. Consequently, our findings concerning the
original determination have little if any persuasive effect in our review of
the determination now before us. In this regard we note that Canada argues
in a number of instances that the USITC's section 129 determination fails to
address certain questions raised by the Panel in its original determination.
While we cannot preclude the possibility that a Member might implement a
DSB recommendation by specifically answering points raised by a panel (or
the Appellate Body) in the relevant decisions, this is by no means required
by the DSU. Nor is it the only means by which implementation may be
achieved. In this case, the USITC has provided a determination in the
section 129 proceeding which purports to re-examine the evidence, and
additional evidence, and address those aspects of its original decision we
found to be insufficient in light of the obligations of the [Anti-Dumping] and
SCM Agreements. We must review that determination on its own merits, as
a whole. Whether the USITC addressed particular questions we raised may
be relevant in our review, but is no t necessarily determinative. (emphasis
added; footnotes omitted)

Canada that certain statements made by the Panel in that paragraph (a panel must "consider, with a
fresh eye" and "our findings concerning the origin al determination have little if any persuasive
effect") could be seen as problematic to the extent that they suggest that the Panel totally disregarded
the original proceedings in conduc ting its assessment. Yet, when these statements are read in the
context of the whole paragraph, it is clear that the Panel's approach is more nuanced. The Panel
referred to the Appellate Body statement in Mexico – Corn Syrup (Article 21.5 – US) to the effect
that Article 21.5 panels can be expected to refer to their original panel reports, in particular, when
matters before them are closely related to the matters before the original panels. The Panel concluded
this paragraph by expressly acknowledging that the issue of "[w]hether the USITC addressed
particular questions [the original panel] raised [in the original pane l report] may be relevant" to its
examination of the Section 129 De termination. Accordingly, wh en paragraph 7.12 of the Panel
Report is read as a whole, we do not see that it contains any clear error in the Panel's articulation of its
role under Article 21.5 of the DSU, given the nature of the Section 129 Determination. This does not,
however, answer the question whether the Panel took proper account of divergences in the way in
which the USITC treated particular facts and evid ence in the Section 129 Determination, as compared
with the original determination.
2. Whether the Panel Identified an Improper Standard of Review for a Threat of
Injury Determination
106. Canada also argues that the Panel erred in identif ying the appropriate standard of review to be
applied in reviewing a determination of threat of injury, in particular, by identifying a lower standard
for such determinations. Canada points, in particular, to the following statements made by the Panel:
The possible range of reasonable predictions of the future that may
be drawn based on the observed events of the period of investigation
may be broader than the range of reasonable conclusions concerning
the present that might be drawn based on those same facts. That is to
say, while a determination of threat of material injury must be based
on the facts, and not merely on allegation, conjecture, or remote
possibility, predictions based on the observed facts may be less
susceptible to being found, on review by a panel, to be outside the
range of conclusions that might be reached by an unbiased and
objective decision maker on the basis of the facts and in light of the
explanations given.
158
107. According to Canada, the above statements show that the Panel wrongly "held the
investigating authority to a lower standard of care and explanation on the grounds that it made a
determination of threat rather than a de termination of current material injury" 159 and also reveal that

158Panel Report, para. 7.13.
159Canada's appellant's submission, para. 79. (original emphasis)

"the Panel's own review was conducted according to a more deferential standard because it involved a
threat of injury determination."
160 The United States, in response, contends that the above statements
by the Panel in no way suggest a lower standard of care applicable to threat determinations, but
simply recognize the future-oriented nature of such determinations. The United States suggests that
Canada mischaracterizes the Panel's statements and ignores the context in which they were made.161
108. We do not read the above statements by the Panel as carrying the significance that Canada
seeks to attribute to them. The Panel itself did not say that it was identifying the applicable standard
of review when it made those statements. Rather, the statements come at the end of a paragraph on
determinations of threat of injury, a paragraph which begins with the sentence "[w]e must also keep in
mind the nature of the determination we are reviewing".
162 Within the paragraph itself, the Panel
reproduced a quote from the Appellate Body Report in Mexico – Corn Syrup (Article 21.5 – US) ,
which recognized that, notwithstanding the "intrinsic uncertainty" of future events:
... a "proper establishment" of facts in a determination of threat of
material injury must be based on ev ents that, although they have not
yet occurred, must be "clearly foreseen and imminent"[.]163
109. When they are placed in this context, we are not persuaded that the Panel's statements amount
to a denial of the high standard that applies to a threat of injury determination. In particular, the
excerpt from the Panel Report relied upon by Canada does not seem, to us , to be inconsistent with the
requirement that the reasoning set out by an inves tigating authority making a determination of threat
of injury must clearly disclose the assumptions and ex trapolations that were made, on the basis of the
record evidence, regarding future occurrences. Nor are the Panel's st atements inconsistent with the
requirements that the reasoning of the investigati ng authority demonstrate that such assumptions and
extrapolations were based on positive evidence and not merely on allegation, conjecture, or remote
possibility; and show a high degree of likelihood that projected occurrences will occur.
110. At the same time, the Panel's reasoning does raise two concerns. First, the Panel stated that
"predictions based on the observed facts may be less susceptible to being found, on review by a panel,
to be outside the range of conclusions that might be reached by an unbiased and objective decision
maker on the basis of the facts and in light of the explanations given." 164 Taken at face value, this
could imply a greater likelihood of panels upholding a threat of injury determination, as compared to

161United States' appellee's submission, paras. 100-107.
162Panel Report, para. 7.13.
163Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 85.
164Panel Report, para. 7.13.

a determination of current material injury, when those determinations rest on the same level of
evidence. Any such implication would be errone ous, but we do not view the Panel's statement as
having such an implication. Of somewhat greater concern, however, is the Panel's statement that the
"possible range of reasonable predictions of the future that may be drawn based on the observed
events of the period of investigation may be br oader than the range of reasonable conclusions
concerning the present that might be drawn based on those same facts." 165 We are not persuaded that,
in making this observation, the Panel intended to express the view that a threat of injury determination
must be upheld if the investigating authority's report discloses the occurrence of injury as one
reasonable prediction within the possible range of fu ture occurrences. If this were the Panel's view,
then it would be erroneous.
3. Whether the Panel's Standard of Review was "Excessively Deferential"
111. We turn now to examine the various statem ents and findings made by the Panel that,
according to Canada, prove that the Panel applied an incorrect and "excessively deferential" standard
to review the Section 129 Determination.166 Canada points, first, to the fact the Panel explained that it
would inquire only whether the USITC's findings "could" have been reached by an unbiased and
objective decision-maker on the basis of the record evid ence. Canada adds that the Panel went on to
apply the wrong standard of review throughout its an alysis and cites, as evidence of this, that the
Panel repeatedly characterized various findings of the USITC as "not unreasonable".
167
112. We are not persuaded that the Pane l erred in stating that its task was to consider "whether the
conclusions reached, in light of the explanations given, were such as could have been reached by an
unbiased and objective decision maker based on the facts." 168 Indeed, such a standard is
consistent with previous Appellate Body statements on the standard of review, including the appeal in
US – Countervailing Duty Investigation on DRAMS , upon which the Panel relied. 169 We do not,
however, consider the Panel's repeated findings, that it had not been demonstrated that an objective
and unbiased authority "could not" have reached the same conclusion that the USITC had reached 170,
as amounting to the same standard.

165Panel Report, para. 7.13. (emphasis added)
167Ibid., paras. 2, 9, 97, and 199.
168Panel Report, para. 7.19. (emphasis added)
169Ibid., para. 7.20.
170See, for example, Panel Report, paras. 7.39, 7.57, and 7.63.

113. Similarly, although we consider that a panel w ould be acting consistently with the applicable
standard of review if it sets out to determine whether an objective and unbiased authority could
reasonably find that a particular piece of evidence suppor ts an intermediate factual finding, we are
not persuaded that this is the same as the Panel's version of this standard, which appears simply to
involve testing whether the USITC's conclusions were "not unreasonable". In our view, the Panel's
repeated references to the USITC's conclusions as "not unreasonable" suggest that the Panel applied
an insufficient degree of scrutiny to the Section 129 Determination
171 and failed to engage in the type
of critical and searching analysis called for by Article 11 of the DSU. Inquiring into whether an

171(i) With respect to the allegedly "new" finding that the rate of increase in Canadian imports over
the period of investigations was "significant", the Panel stated that: "[t]he fact that the USITC
concluded that the rate of increase was significant based on the overall rate of increase over
the period of investigation rather than the year-on-year rate of increase is not demonstrably
unreasonable" (Panel Report, para. 7.27 (emphasis added)) and "the conclusion that a
2.8 percent increase in imports was significant is not unreasonable, in light of the totality of
the factors considered by the USITC". (para. 7.27 (emphasis added))
(ii) With respect to import trends, and the question of whether the USITC was required to
compare trends in the 1994–1996 period (before the SLA came into effect) with the trends in
the April–August 2001 period (immediately after the expiry of the SLA), as well as the issue
of the significance of the trends in the latter period, the Panel stated that "[w]e cannot conclude
that the USITC's analysis ... is unreasonable." (para. 7.35 (emphasis added))
(iii) With respect to forecasts of United States demand and the relationship of imports to demand
(this is, whether demand growth would outstrip import increases), the Panel stated that the
Section 129 Determination "provides a not unreasonable explanation for its conclusion
(para. 7.39 (emphasis added))
(iv) As regards various issues raised in connec tion with the USITC's reasoning on the likely price
effects of increased imports, the Panel stated th at it could not "conclude that the USITC acted
 unreasonably in finding that increased imports at such price levels posed a threat of injury to
the [United States] industry, when viewed, as the USITC did, against the background of the
circumstances of the industry during the period of investigation." (para. 7.52 (emphasis
added))
(v) With respect to the USITC's findings that the United States industry was vulnerable, the Panel
found that "we cannot conclude that the USITC's finding is unreasonable or not based on
(vi) With respect to alleged inconsistencie s between the USITC's findings regarding present
material injury and threat of material injury, the Panel found that "while it is possible to
disagree with the USITC's analysis , we cannot conclude that it is unreasonable." (para. 7.57
(emphasis added))
(vii) With respect to the causal link, the Panel reasoned that "[w]hile it is possible to disagree with
the USITC's analysis, we cannot conclude that it is unreasonable." (para. 7.63 (emphasis
added))
(viii) With respect to non-attribution, the Panel expressed the view that "there is nothing
unreasonable in the USITC's conclusion that the mere fact of cross-border integration, even if
increasing, does not pose a potential threat of in jury to the [United Stat es] lumber industry."
(para. 7.71 (emphasis added))

authority's finding is "not unreas onable" does not, in our view, necessarily answer the question of
whether that finding is based on positive evidence rather than conjecture or remote possibility.172
114. Moreover, a number of other statements made by the Panel belie the standard of review that
the Panel indicated, at the outset of its analysis, that it would apply to the Section 129 Determination.
For example, the Panel stated:
On review, a panel must consider whether the determination made is
one that could be reached by an unbiased and objective investigating
authority on the basis of the facts before it and in light of the
explanations given. Merely that alternative conclusions might also
be within the range of possible dete rminations that would satisfy that
standard does not demonstrate that the conclusions actually reached
are not consistent with the requirements of the [ Anti-Dumping] and
SCM Agreements.
173
115. The Panel further observed that:
While Canada's arguments demonstrate that there is a plausible
alternative line of reasoning that could be followed, under the
standard of review applicable in this case, this is not sufficient for us
to find a violation. Moreover, we consider that while it may be
possible to debate each aspect of the USITC determination, and come
to different conclusions depending on the starting point and focus of
each line of argument and analysis, our obligation is to consider
whether the USITC's reasoning and conclusion as set forth in its
determination were those of an objective decision maker in light of
the facts, and not whether every possible argument is resolved in
favour of that determination.
174

172The line of inquiry apparently taken by the Panel is also distinct from an inquiry into the question of
whether a specific inference can reasonably be drawn fr om particular pieces of ci rcumstantial evidence, which
was the issue discussed at paragraph 188 of the Appellate Body Report in US – Countervailing Duty
Investigation on DRAMS.
173Panel Report, para. 7.28.
174Ibid., para. 7.35.

116. According to the United States, Canada's argu ments "confuse the concept of reviewing an
explanation in light of plausible alternative explan ations, on the one hand, and automatically rejecting
an explanation upon finding an alternative explanati on to be plausible, on the other." The United
States asserts that the "[o]bjective assessment [ under Article 11] requires the former but not the
latter."
175
117. In our view, a panel is not compelled under Article 11 to "automatically reject" the
explanation given by an investigating authority me rely because a plausible alternative explanation has
been proffered. At the same time, a panel ma y find the investigating authority's explanation
inadequate when, even though that explanation see med "reasoned and adequate" at the outset, or in
the abstract, it no longer seems so when viewed in th e light of the plausible alternatives. In other
words, it is not the mere existence of plausible a lternatives that renders the investigating authority's
explanation "implausible". Rather, in undertakin g its review of a determination, including the
authority's evaluation (or lack thereof) of alterna tive interpretations of the evidence, a panel may
conclude that conclusions that in itially, or in the abstract, seem ed "reasoned and adequate" can no
longer be characterized as such.176
4. Review of Specific Examples of the Panel's Standard of Review
118. A close examination of the Panel's findings pe rsuades us that the Panel used an improper
standard of review throughout its Report. Our view is based on the entirety of the Panel Report, of
which the three examples below are particularly illustrative.

176A panel's duty to consider whether the investigating authority's explanation is "reasoned and
adequate" in the light of alternative plausible explanations should not be read as a requirement that panels must
reject the authority's explanation if it does not rebut th e alternatives. Rather, a panel must verify that the
investigating authority has taken account of and responded to plausible alternative explanations that were raised
before it and that, having done so, the explanations provided by it in support of its determination remain
"reasoned and adequate".

(a) The Panel's Review of the Injury Determination
119. The Panel summarized the basis for the USITC's findings of a likely substantial imminent
increase in imports as follows:
The USITC's overall conclusion was that, based on 1) the trends
during the period of investigation, which it concluded showed a
significant rate of increase in imports, 2) the restraining effects of the
SLA during the period of investigation and the likely effects of its
expiration, 3) import volumes and trends in import volumes during
periods of no import restrictions, 4) evidence of excess capacity,
projected increases in capacity, capacity utilization and production,
and export orientation in Canada , and 5) [United States] demand
forecasts, there would be a substantial increase in imports.
177
120. Although our concerns are also evident in othe r parts of the Panel's review of the USITC
analysis of each of the factors, we consider the Pa nel's treatment of the issues arising in connection
with the fourth factor—excess capacity; proj ected increases in capacity, capacity utilization and
production; and export orientation—as clearly illustra ting the deficiencies in the standard of review
applied by the Panel.
121. The Panel summarized Canada's challenge to th e USITC's reliance on this fourth factor as
follows:
... Canada asserts that the USITC continued to rely on "slight"
increases in projected capacity in support of its finding that imports
would increase substantially in the imminent future, despite Canadian
producer projections that were within the range of historical
experience. In Canada's view, the USITC's conclusion that Canadian
producer projections were inconsiste nt with other data, and therefore
not to be relied upon, was improper in light of new data that was
consistent with the projections originally reported by Canadian
producers.
178

177Panel Report, para. 7.18.
178Ibid., para. 7.40.

122. The Panel then summarized the United States' defence of the USITC's approach as follows:
... on the issue of available excess Canadian capacity, the [original
panel] had found that the USITC's discussion regarding the Canadian
industry's export orientation did not support the conclusion that
excess capacity would be exported to the United States beyond the
"historical" level. In response, in its section 129 determination, the
USITC analyzed capacity and concluded that Canadian producers
had sufficient excess capacity, and projected increases in production
and capacity in 2002 and 2003, to substantially increase exports to
the United States. In this regard , the USITC noted that Canada has
substantial capacity to produce softwood lumber, equal to about
60 percent of [United States] consumption. Excess Canadian capacity
in 2001 had increased to a level e quivalent to 10 percent of [United
States] apparent consumption, as capacity utilization declined to
84 percent from 90 percent in 1999. The USITC found even more
telling the fact that Canadian producers projected increases in
production and capacity utilizati on from 2001 to 2003, a period
during which demand in the [United States] market was forecast to
remain relatively unchanged or increase only slightly. In the United
States' view, Canada's arguments focus inappropriately on the
incremental increase in production capacity, without putting the
information into context. In this regard, the United States notes that
Canadian production is tied to the [United States] market, the
most important market for Canadian producers, accounting for
60-65 percent of Canadian production and shipments. Data
considered in the section 129 investigation showed that in the first
quarter 2002, as apparent Canadi an consumption declined by
23 percent compared with the first quarter of 2001, Canadian
producers shifted sales from the home market to the [United States]
market. The United States maintains that the USITC properly
focused on this eviden ce of the export orientation of Canadian
lumber producers, and discounted Canadian producers' projections
that additional production would be exported to the United States at
below historical levels.
179 (footnotes omitted)
123. Having narrated the respective arguments of the pa rties, the Panel limited its own analysis of
these competing explanations to the following single sentence:
Once more, the explanation concerni ng the available excess capacity
in Canada and the likelihood that a substantial portion of projected
increases in production would enter the [United States] market, set
forth in the section 129 determin ation provides reasoned support for
the USITC's conclusion that there would be a substantial increase in
imports in the near future.
180

179Panel Report, para. 7.41.
180Ibid., para. 7.42.

124. The brevity of the Panel's analysis of this issu e is, in our view, difficult to reconcile with its
duty to conduct a critical and searching analysis. W ith this sentence, the Pa nel appears to accept that
the USITC's explanation "provide[d] reasoned supp ort" for its conclusion, without examining the
specific reasoning which led the USITC to that conc lusion, and without looking behind the reasoning
to test its adequacy in the light of the evidence on the record. The Panel also failed to distinguish
between the distinct, but related, factors that were discussed in the arguments of the parties, namely:
(i) projected increases in production and capacity; (ii) capacity utiliza tion and available excess
capacity in Canada; and (iii) the export orientation of Canadian producers.
125. Furthermore, we recall that Canada argues that the Panel's finding on this issue was
inconsistent with its duties under Article 11 of the DSU because the Panel accepted the USITC's
explanation without any reference to or acknowledgeme nt of the findings in the original panel report,
which included the following:
The share of total Canadian shipments represented by exports to the
United States during the period of investigation was 57.4 per cent in
1999 and 2000, and increased to 60. 9 per cent in 2001. Canadian
producers projected a decline in that share, but only to 58.8 per cent
in 2002 and 58.5 per cent in 2003, figures well within the historical
range. These figures cannot, in our view, support the conclusion that
excess capacity indicates a likelihood of substantially increased
exports.
181 (footnote omitted)
The data regarding exports to the United States do not ... suggest that
there would be any notable change in the levels of exports to the
United States, but rather a continuation of the historical patterns .
Nothing in the USITC determination addresses how the projected
increases in exports to the United States supports the finding that
imports would increase substantially.
182 (emphasis added)
126. As discussed above, an investigating authority making a redetermination is not bound to give
the same explanations of, or draw the same infere nces from, specific pieces of evidence as it did in its
original determination. Nevertheless, a marked de parture from the explanations given in the original
determination may, when the evidence is essentially the same and no explanation is given for that
departure, undermine the extent to which the explan ations in the redetermination can be viewed as
"reasoned and adequate". The Panel, however, simply did not examine the question of the extent to
which the same evidence that was before the USITC in the original determination was the basis for
different explanations in the Section 129 Determination.

181Original Panel Report, para. 7.91.
182Ibid., para. 7.92.

127. Canada also argued, before the Panel, that new evidence collected in the Section 129
proceedings "vindicate[d]" the export projections made by Canadian producers in the original
investigation, and made clear that those projections should not have been rejected by the USITC.
According to Canada, that new data showed that the behaviour of all Canadian producers during the
investigation period was consistent with the beha viour that a subset of the Canadian industry
projected for 2002 and 2003, and that those projec tions were also consistent with the USITC's
hypothesis that projected increases in production woul d likely be distributed among the United States,
Canadian, and other markets in shares consistent with historical experience.
183
128. In our view, Canada's arguments identify a number of issues that the Panel should have
scrutinized carefully. For example, the Panel shoul d have examined whether the rate of increase of
dumped/subsidized imports during the period of inve stigation supported the USITC's finding of likely
"substantial" increased imports in the imminent futu re. In addition, the Panel should have questioned
the extent to which, in reaching this finding, the USITC relied on projected capacity increases and, if
so, whether these projections provided support for its finding of a likely substantial imminent increase
in imports. 184 The Panel should have scrutinized the ev identiary basis, and the adequacy of the
reasons given, for the USITC's decision to accep t Canadian producers' projected increases in
production, but not their projected incr eases in exports to the United States. 185 In the light of the
reason given by the USITC, in the Section 129 De termination, for rejecting Canadian producers'
projected export levels 186, the Panel should have asked whether it was reasonable for the USITC to
rely on projected incremental increases in Canadian production as a basis for rejecting projected
incremental increases in exports.187 The Panel should, in this regard, have examined the record before

183Canada's first written submission to the Panel, paras. 83 and 84.
184The USITC repeatedly referre d to projected increases in capacity, capacity utilization, and
production. The Panel did not break down these references into their constituent elements and examine whether
each element was supported by the evidence. In contrast, the original panel did so and, with respect to projected
increases in capacity, observed: "the evidence before the USITC indicated that Canadian capacity was projected
to increase by less than one per cent in 2002, and a further 0.83 per cent in 2003. This certainly does not, in our
view, support a conclusion that there would be a subs tantial increase in capacity, and indeed, the USITC does
not appear to have found otherwise." (Original Panel Report, para. 7.90 (footnote omitted))
185Again, such an inquiry would seem even more appropriate in these Article 21.5 proceedings, given
that the original panel had criticized the USITC in the original determination for rejecting the projected levels of
exports to the United States, when those projected levels were consistent with historical averages. ( Ibid.,
para. 7.91)
186The USITC explained that "Canadian producers' export projections implausibly posited that
the [United States] market would suddenly no longer account for at least 60 percent of additional Canadian
production, consistent with historical levels, but rath er that only 20 percent of additional Canadian production
would be exported to the United States." (Section 129 Determination, p. 39 (footnote omitted))
187In response to a question at the oral hearing as to what the USITC meant by "oversupply", the United
States pointed out that, in the first quarter of 2002, Canadian producers had decreased production but increased
exports to the United States and explained, in this connection, that the behaviour of Canadian producers was
such that production levels had nothing to do with the levels of exports to the United States.

the USITC in order to ascertain whether, histori cally, there was any meaningful correlation between
incremental changes in Canadian production and th e incremental changes in Canadian exports to the
United States. The Panel might also have scrutini zed how the USITC treated the projected evolution
of demand in the Canadian market in connection with its decision to reject Canadian producers'
projected supply to that market188, or how the USITC dealt with the variety of different data that were
before it in the Section 129 proceedings.189
(b) The Panel's Analysis of the Causal Relationship
129. The Panel's scrutiny of the USITC's causation an alysis also demonstrates the error in the
Panel's approach. In examining the USITC's analys is of the causal link, the Panel again began its
analysis by summarizing the respective arguments of the parties. The Panel recognized that "Canada
ha[d] presented a reasonable alternative inte rpretation of the evidence in the record". 190 However, the
Panel concluded that Canada had "f ailed to demonstrate that the USITC's analysis and determination
that the projected increased levels of imports, in light of the prices at the end of the period of
investigation and given the vulnerable condition of th e domestic industry, threatened material injury
to the [United States] industry is not one that could be reached by an objective and unbiased
investigating authority."191 The Panel distinguished the case befo re it from the original proceedings,
in which the original panel had found that the USITC's conclusion that imports would increase
substantially was inconsistent with Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the
SCM Agreement .192 The Panel found no such inconsistenc y with respect to the USITC's findings

188The USITC stated that "Canadian producers projected that home market shipments would somehow
increase beyond 2000 levels" notwithstanding that "Canadian demand had declined by almost 20 percent from
2000 to 2001 and was not fo recast to return imminently to 2000 levels". (Sectio n 129 Determination, p. 40
(footnote omitted)) The USITC did not cite a specific source as the basis for the forecast of Canadian demand.
189Between the time of the original investigation an d the Section 129 proceedings, Statistics Canada
had changed its methodology for reporting softwood lumber production, with the result that the annual Canadian
production figures for 1996 to 2001 were different than the annual figures obtained in the original investigation
for the same period. The USITC also observed, in this connection, that in the light of the lower questionnaire
response rate and the change in methodology, "[d]ata from public sources and questionnaire responses in this
proceeding, therefore, are not n ecessarily comparable with data from the original investigation."
 (Section 129
Determination, p. 34) It is certainly the case that thes e methodological issues complicate the task of reviewing,
in particular, how the USITC dealt with Canadian producti on, capacity, and capacity utilization in the course of
its analysis. Yet, just as these methodological diffi culties do not excuse the USITC from clearly explaining the
basis for its determination, neither do they excuse the Panel from rigorously reviewing that determination and
the various factual findings on which it was based.
190Panel Report, para. 7.62.
191Ibid.
192Ibid.

regarding the likely imminent substantial increase in imports. The Panel observed that, "[w]hile it is
possible to disagree with the USITC's analysis, we cannot conclude that it is unreasonable."
193 The
Panel added:
It is the task of the investigati ng authority to weigh the evidence and
make a reasoned judgement—this implies that there may well be
evidence, and arguments, that detract from the conclusions reached.
Unless such evidence and arguments demonstrate that an unbiased
and objective investigating authority could not reach a particular
conclusion, we are obliged to sust ain the investigating authorities'
judgment, even if we would not have reached that conclusion
ourselves.
194 (original boldface)
130. It is difficult to reconcile the above statement by the Panel with its duty to carry out a critical
and searching analysis to ensure that the inves tigating authority's explan ations are reasoned and
adequate, and remain so even in the light of plausible alternative explanations put forward by
interested parties. Moreover, the Panel's appro ach also imposes on complaining parties an unduly
high burden of proving a negative; of proving that an unbiased and objective investigating authority
could not have reached the particular conclusion.
131. In addition, the original panel observed that "[h]aving found that a fundamental element of
the causal analysis is not consistent with the Agre ements, it is clear to us that the causal analysis
cannot be consistent with the Agreements." 195 The Panel in these proceedings under Article 21.5 of
the DSU seems to have assumed that the opposite of th is statement must also be true—that is, having
found that one fundamental element (injury) of the causal analysis is consistent with the Agreements,
the Panel seems to have concluded that the entire ca usal analysis must also be consistent with the
Agreements. This is not the case. The Panel ha d a duty to examine, first, whether the USITC's
finding, in the Section 129 Determination, of a lik ely imminent substantial increase in imports, was
consistent with the requirements of Article 3.7 of the Anti-Dumping Agreement and Article 15.7 of the
SCM Agreement; and, secondly, whether the USITC's analysis of causation was consistent with the
requirements of Article 3.5 of the Anti-Dumping Agreement and Article 15.5 of the SCM Agreement.
That the USITC chose to conduct an "integrated" or "unitary" analysis of threat of injury and

193Panel Report, para. 7.63.
194Ibid.
195Original Panel Report, para. 7.122.

causation196 did not relieve the USITC of the need to co mply with each of the requirements set out in
these provisions, nor did it relieve the Panel of its duty to examine whether the Section 129
Determination demonstrated how compliance with these distinct sets of obligations had been
achieved.
132. In this regard, we also wish to highlight th at this part of the Panel's analysis makes no
mention of the positive requirement, in Article 3.5 of the Anti-Dumping Agreement and Article 15.5
of the SCM Agreement , that an investigating authority demonstrate that further dumped/subsidized
imports would cause injury. The Panel does not quote from these provisions and it does not refer
back to the original panel report, which also does not analyze the requirement to demonstrate a causal
link. In particular, the Panel did not examine whether the USITC identified and explained the positive
evidence establishing a genuine and subs tantial relationship of cause and effect between imports and
threat of injury. 197 There is no indication in the Panel Re port that the Panel identified the reasons
given by the USITC that supported the establishment of the causal link, or that it looked behind those
reasons to test their basis in the record and thei r continued adequacy in the light of the plausible
alternative explanations put forward by the interested parties.
(c) The Panel's Analysis of Non-Attribution
133. We also see error in the approach taken by the Panel to review the USITC's treatment of
"other factors".
198 This is particularly evident in its findings on Canada's claim that the USITC had
acted inconsistently with the second sentence of Article 3.5 of the Anti-Dumping Agreement and
Article 15.5 of the SCM Agreement by failing to carry out a non-attribution analysis in respect of the

196According to the United States, in the Section 129 Determination, "the [US]ITC integrated its
causation discussion into its analysis of the threat factors." (United Stat es' appellee's submission, para. 42)
The United States further explains th at the USITC's analysis of the thr eat factors "subsumes the causal link
question" and is, therefore "best characterized as a un itary analysis, whereby the [US]ITC considers whether a
domestic industry is being threatened with material injury 'by reason of' subject imports as a single question."
(footnote 39 to para. 42)
197Appellate Body Report, US – Wheat Gluten, para. 69.
198Although the Panel did not, in this part of its Re port, expressly refer to the interpretations of the
second sentences of Article 3.5 of the Anti-Dumping Agreement and Article 15.5 of the SCM Agreement that
were contained in the original panel report, we consider the Panel's statement, at the outset of its analysis, that
"there are no new issues of legal interpretation raised" (Panel Report, para. 7.14) to be an incorporation by
reference of the interpretations made in the original panel report. That report did contain some discussion of the
content of the so-called "non-attribution" requirement.

issue of potential future oversupply from United States producers.
199 The Panel's consideration of this
issue is set out in paragraph 7.73 of the Panel Report:
Finally, with respect to potential [United States] oversupply, we note
that the principal basis for the US ITC's conclusion that the condition
of the industry during the period of investigation could not be
attributed to Canadian imports was the fact that [United States]
supply contributed to the price declines in the market. In the
section 129 determination, the USITC explained that, in light of the
increased correlation between [United States] production, capacity
and demand at the end of the period of investigation, excess supply
from [United States] sources was not a potential threat of injury. The
availability of capacity in Canada, likely increased production, and
the likelihood that exports will be predominantly to the [United
States] market are not relevant to the question whether the USITC
erred in so concluding. While those factors support the conclusion
that imports from Canada are likely to increase, they do not affect the
question whether excess supply from domestic sources potentially
threatens the domestic industry.
134. In our view, the Panel's analysis of this issue is wholly inadequate. The Panel's analysis is
limited to the second sentence of the above excerpt , where the Panel merely refers to the USITC
explanation "that, in light of the increased co rrelation between [United States] production, capacity
and demand at the end of the period of investiga tion, excess supply from [United States] sources was
not a potential threat of injury." The Panel's lack of analysis on this issue is all the more surprising
given that the original panel, in its analysis of th e same issue, characterized the USITC's "failure to
discuss the likely future effects of domestic supplies of lumber" as a "glaring omission".
200
135. In this appeal, the United States does not seem to dispute Canada's assertion that, for purposes
of non-attribution, "the legally relevant question, and the one the USITC itself sought to answer, was
whether [United States] producers would respond di fferently from Canadian producers to market
conditions in the imminent future, even though th ey had responded similarly in the recent past." 201
According to the United States, the USITC did answ er this question in a proper manner. Regardless

199Before the Panel, Canada argued that the potential future "oversupply" of the market by United
States producers was an "other known factor" for which the USITC was required to conduct a non-attribution
analysis. (Panel Report, paras. 7.64 and 7.65) Canada emphasized that the USITC had found that Canadian
imports did not cause present material injury because excess supply from both Canadian imports and domestic
production led to price declines during the period of inve stigation. Canada also relied on the fact that the
original panel had criticized the USITC's failure, in the original determination, to discuss the likely future effects
of domestic lumber production, and had suggested that there was a lack of eviden ce to support the USITC's
conclusion that there would be no United States oversupply affecting lumber prices in the future. ( Supra,
footnote 91)
200Original Panel Report, para. 7.135.
201Canada's appellant's submission, para. 144 (quoted in United States' appellee's submission,
para. 186).

of how this question was addressed by the USIT C in the Section 129 Determination, we see no
indication in the Panel Report that the Panel properly reviewed the USITC's treatment of this
question. The only analysis made by the Panel is confin ed to the second sentence of the excerpt
quoted above. But this sentence contains no specifi c reference to the Sec tion 129 Determination and
no analysis of whether the USITC's conclusion on this point was supported by positive evidence. The
Panel did not engage in any meaningful review of the USITC's treatment of projected United States
supply, and, in particular, of whether the US ITC's finding that United States producers would not
contribute to future oversupply could be reconciled w ith its finding, in the context of its analysis of
present material injury, that both United States and Canadian producers contributed to oversupply in
the past.
202
136. We note that the Section 129 Determination makes clear that the USITC's finding that
domestic oversupply was not an other causal factor rested on two principal bases: first, on the
evidence regarding domestic production and capacity; and, secondly, on evidence indicating that
domestic producers had brought their pr oduction in line with consumption. 203 The Panel should have
tested the evidentiary foundations for these bases, but it failed to do so.204 The Panel should also have
satisfied itself that the inferences that the USITC dr ew from these two bases were consistent with the
way in which the USITC treated evidence relating to the likely future behaviour of Canadian
producers. We further note, in this connection, that analyzing future "oversupply" implies some
comparison against future demand, yet the USITC itself observed that demand forecasts from industry
analysts were "somewhat mixed" 205, and that this "raised questions about the usefulness of these
forecasts."206
(d) The Totality of the Evidence and Factors Considered
137. Lastly, we wish to mention one further concern that we have with the standard of review
applied by the Panel. The Panel examined, separ ately, the various USITC findings challenged by
Canada, but did not undertake any assessment of whether the totality of the factors and evidence

202Original determination, pp. 31-37. In the Section 129 Determination, the USITC stated that
"[b]ecause we find that excess supply from both subject imports and domestic production led to declines in price
and deterioration in the domestic industry's condition in 2000, we do not conclude that subject imports had a
significant impact resulting in present material injury to the domestic industry." (Section 129 Determination,
p. 58 (footnote omitted))
203Section 129 Determination, p. 69.
204For example, the Panel could have sought to identify what data regarding United States production
and capacity the USITC relied upon in finding that future oversupply was no longer a risk, and to test whether
such data supported the conclusion drawn from it. The Panel could have tested the evidentiary basis for the
finding that United States producers would not engage in future oversupply in a similar manner.
205Section 129 Determination, p. 77.
206Ibid., p. 79.

considered supported the ultimate finding of a threat of material injury. In neglecting this aspect of its
review, the Panel does not seem to have taken account of the express requirement in Article 3.7 of the
Anti-Dumping Agreement and Article 15.7 of the SCM Agreement t h a t " t h e totality of the factors
considered must lead to the conclusion that furt her [dumped/subsidized] exports are imminent and
that, unless protective action is taken, material injury would occur." (emphasis added) This neglect is
particularly striking given that the original panel recognized the need to unde rtake such an analysis,
and the Panel asked Canada a specific question in this regard.
207
(e) Summary
138. In sum, the Panel's analysis, viewed as a whole, reveals a number of serious infirmities in the
standard of review that it articulated and app lied in assessing the consistency of the Section 129
Determination with Articles 3.5 and 3.7 of the Anti-Dumping Agreement and Articles 15.5 and 15.7
of the SCM Agreement. First, the Panel's repeated reliance on the test that Canada had not
demonstrated that an objective and unbiased authority "could not" have reac hed the conclusion that
the USITC did, is at odds with the standard of revi ew that has been articulated by the Appellate Body
in previous reports. As we noted earlier, the st andard applied by the Panel imposes an undue burden
on the complaining party. Secondly, the "not unreasonable" standard employed by the Panel at
various reprises is also inconsistent with the sta ndard of review that has been articulated by the
Appellate Body in previous repor ts, and it is even more so for ultimate findings as opposed to
intermediate inferences made from particular pieces of evidence. Thirdly, the Panel did not conduct a
critical and searching analysis of the USITC's findi ngs in order to test whether they were properly
supported by evidence on the record and were "rea soned and adequate" in the light of alternative
explanations of that evidence.
208 Fourthly, the Panel failed to conduct an analysis of whether the
totality of the factors and evidence considered by the USITC supported the ultimate finding of a threat
of material injury.
139. We emphasize that we are not finding here that the Section 129 Determination does not
contain sufficient support for the inferences that th e USITC made from the evidence on the record, or
that the conclusions reached by the USITC were not reasoned or adequate. Our conclusion is, rather,
that the Panel has not engaged in the requisite degree of scrutiny to enable it to have made the

207Question 8 posed by the Panel to the parties.
208As we noted earlier, the Panel's failure is evident, in particular, in: (i) the Panel's treatment of the
USITC's analysis of capacity, capacity utilization, produc tion, and the export orientation of Canadian producers
in the context of the USITC's finding of a likely substa ntial imminent increase in imports; (ii) the Panel's
treatment of the USITC's demonstration of the causal li nk between imports and injury; and (iii) the Panel's
treatment of the USITC's analysis of why United States producers could not contribute to future oversupply and
could not, therefore, be an "other factor" contributing to future injury.

findings it did on the basis of an objective assessment, as required by Ar ticle 11 of the DSU. In our
view, this inadequate level of scrutiny, resting as it did on the Panel's reliance on a "not unreasonable"
standard and on a standard that an unbiased and obj ective authority "could not" have reached such
conclusions, permeates the entire Panel Report.
5. Conclusion
140. We find that, taken together, all of the above demonstrates that the Panel failed to comply
with its duties under Article 11 of the DSU in the standa rd of review that it ar ticulated and applied to
assess the consistency of the Section 129 Determ ination with Articles 3.5 and 3.7 of the Anti-
Dumping Agreement and Articles 15.5 and 15.7 of the SCM Agreement. The Panel's failure in this
regard means that the substantiv e findings and conclusions that the Panel made as a result of its
scrutiny of the Section 129 Determination must also fall. Accordingly, we reverse the Panel's
findings, in paragraph 8.1 of the Panel Report, that:
... the determination of the USITC in the section 129 proceeding
investigation is not inconsistent with the asserted provisions of:
• Article 3.5 of the [Anti-Dumping] Agreement,
• Article 3.7 of the [Anti-Dumping] Agreement,
• Article 15.5 of the SCM Agreement, and
• Article 15.7 of the SCM Agreement.
141. We note that, having reversed these findings on the grounds that the Panel articulated and
applied an incorrect standard of review to the Section 129 Determination, we need not examine
Canada's claim that the Panel failed to satisfy its duty, under Article 12.7 of the DSU, to provide a
"basic rationale" for its findings and conclusions.

VI. Canada's Request to Complete the Analysis
A. Introduction
142. Having reversed the Panel's findings on the above basis, we now consider Canada's request
that we find the Section 129 Determination inconsistent with Articles 3.5 and 3.7 of the Anti-Dumping
Agreement and Articles 15.5 and 15.7 of the SCM Agreement.
143. We note that, in its appellant' s submission, Canada did not expressly request the Appellate
Body "to complete the analysis". At the oral he aring, Canada asserted that, although it did not use the

phrase "complete the analysis", it clearly made such a request by asking the Appellate Body to "find
that the USITC's determination was not consis tent with the United States' obligations under
Articles 3.5 and 3.7 of the [ Anti-Dumping] Agreement and Articles 15.5 and 15.7 of the
SCM Agreement."
209 Canada explained that the Appellate Body could find the USITC's Section 129
Determination to be inconsistent with these provisions on the basis of errors of legal interpretation and
the USITC's treatment of certain factors. 210 The United States argued that the Appellate Body should
not accept Canada's request because Canada did not clearly request the Appellate Body to complete
the analysis, and did not provide a "road map" for th e Appellate Body to follow if it decided to do
so.211 This also meant that the United States was not gi ven an opportunity to respond to the request to
complete the analysis. The United States added that, in any event, the complexity of the facts of this
case would not allow the Appellate Body to complete the analysis.212
144. We begin with the claims that Canada has descr ibed as involving errors of legal interpretation
on the part of the Panel and then turn to Canada's claims regarding the USITC's treatment of certain
factors.
B. Canada's Allegations Involving Errors of Legal Interpretation
1. Threat of Injury – Likelihood of Increased Importation
145. Canada submits, first, that there is a legal requirement under Article 3.7(i) of the
Anti-Dumping Agreement and Article 15.7(ii) of the SCM Agreement to determine the "rate" of
increase of dumped/subsidized imports on a "year-to-y ear" or annual basis. According to Canada, the
"rate" of increase cannot simply be determined by comparing the increase in volume of imports
between the beginning and the end of the investiga tion period, as the USITC did in this case. At the
oral hearing, however, Canada conceded that there is no "legal requirement" to determine the rate of
increase of dumped/subsidized imports solely on the basis of a year-to-year comparison or annual
basis, and argued, instead, that the USITC should have determined the rate of increase on the basis of
whether there was a significant increase in the ma rket share of the imports in the United States
market.213 The United States responds that Article 3. 7(i) and Article 15.7(ii) do not prescribe a
particular methodology to determine the rate of increase of imports or the likelihood of increased

210Canada's response to questioning at the oral hearing.
211United States' response to questioning at the oral hearing.
212Ibid. (referring to Appellate Body Report, US – Hot-Rolled Steel, para. 236).
213According to Canada, neither the average yearly increase in Canadian imports between 1999 and
2000 and between 2000 and 2001 (which was only 1.4 per cent), nor the market share of Canadian imports
(which was practically stable during the investigation period), supports the USITC's finding of a likelihood of
substantially increased imports in the near future. (Canada's response to questioning at the oral hearing)

importation. Moreover, according to the United St ates, the evidence on the record provided a proper
basis for the USITC's finding of a likelihood of substantially increased importation.214
146. Article 3.7(i) of the Anti-Dumping Agreement and Article 15.7(ii) of the SCM Agreement
provide that, in making a threat of injury determin ation, an investigating authority should consider
whether there is "a significant rate of increase of [dumped/subsidized] imports into the domestic
market indicating the likelihood of substantia lly increased importation". These provisions lay
emphasis on two aspects: first, that there is a "si gnificant" rate of increase in imports; and secondly,
that such a rate of increase rev eals the likelihood of "substantially" increased importation in the near
future. Taken together, they refer to the observed behaviour of the volume of imports.
147. Although the concept of a "rate" of increase imp lies measuring the increase with reference to
some time period, neither of these provisions s tipulates any specific time period or any specific
methodology for measuring the rate of increase of imports. As for Canada's argument at the oral
hearing regarding market share, we observe that these provisions do not prescribe that the
measurement be done with reference to market sh are of the imports or any other index. We,
therefore, agree with the Panel that Article 3.7(i) of the Anti-Dumping Agreement and Article 15.7(ii)
of the SCM Agreement do not prescribe a specific methodology for determining the rate of increase in
imports. Whatever be the methodology followed by an investigating authority, its determination must
show, on the basis of positive evidence and an objectiv e examination, that the rate of increase of
dumped/subsidized imports is "significant" so as to indicate the likelihood of "substantially" increased
imports in the near future.
148. At the oral hearing, Canada agreed that Article 3.7(i) of the Anti-Dumping Agreement and
Article 15.7(ii) of the SCM Agreement do not prescribe a particular methodology to be used by
investigating authorities in every case. Thus, Canada's argument is essentially directed at the USITC's
appreciation of the evidence on the record, that is, at the question whether the evidence supported the
USITC's finding that the rate of increase in dumped/subsidized imports was "significant" and that it

214The United States explains that the USITC's analysis began by noting that subject import volumes
were already at significant levels during the period of investigation, accounting for between 33.2 per cent and
34.7 per cent of the United States market. Over this high baseline, these imports increased by 2.8 per cent from
1999 to 2001, even w ith the restraining effect of the SLA in pl ace and a decline in apparent United States
consumption of 0.4 per cent. Moreover, the USITC found th at there was a greater increase in subject imports at
the end of the period of investigation, when such imports were no longer subject to the SLA, including when
they were not yet subject to preliminary anti-dumping or countervailing duties. Thus, there was a pattern of
substantially increasing subject imports at the end of the pe riod of investigation, with increases of 2.4 per cent
from 2000 to 2001, 4.9 per cent from April to December 2001, and 14.6 per cent in the first quarter 2002 as
compared to the first quarter of 2001. (United States' appellee's submission, paras. 27-31 (referring to
Section 129 Determination, pp. 20-31))

indicated that imports would increase "substantially" in the near future. We return to this issue
below.
215
2. Threat of Injury – Price Effects
149. We turn to Canada's arguments concerning the USITC's analysis of adverse price effects.
Canada asserts that the Section 129 Determination is inconsistent with Article 3.7(iii) of the Anti-
Dumping Agreement and Article 15.7(iv) of the SCM Agreement, because these provisions impose a
requirement to compare the prices of imports with domestic prices. Canada argued before the Panel
that these provisions "require a comparison between the price levels or trends at which 'imports are
entering' and the price levels or trends for the domestic product." 216 According to Canada, "[t]his is
because the prices at which 'imports are entering' can only threaten to cause imminent price
depression or price suppression, and increase demand for further imports, if those prices are lower
than prices for the comparable domestic product, or if trends in those prices otherwise adversely affect
prices for the domestic product ( e.g., by falling faster, or rising slower, than domestic prices)." 217
Canada explains that the USITC conducted no such comparison between import prices and prices of
the domestic product. Instead, "the USITC noted only that prices for both [United States]-produced
and Canadian softwood lumber products followed th e same general trends throughout the period of
investigation."218
150. The United States responds that Article 3.7( iii) and Article 15.7(iv) do not prescribe a
particular methodology with respect to either a comparison of prices or a determination of price
effects. In addition, the United States explains that differences in the tree species used to produce
softwood lumber in Canada and in the United States do not permit a direct price comparison in this
case between the imported and the like domestic product.219
151. Article 3.7(iii) of the Anti-Dumping Agreement and Article 15.7(iv) of the SCM Agreement
state that investigating authorities should consider, as part of their determination of threat of injury,
"whether imports are entering at prices that will have a significant depressing or suppressing effect on
domestic prices, and would likely increase demand for further imports". These provisions do not
prescribe a particular methodology for the examination of the price effects of dumped/subsidized
imports. Regardless of the methodology followed by an investigating authority, it is clear from the

215See infra, Section VI.C.
216Canada's appellant's submission, para. 86. (original emphasis; footnote omitted)
217Ibid., para. 86.
218Ibid., para. 216. (original emphasis)

plain language of these provisions that the authority must examine: (i) the trends in the prices at
which "imports are entering"; (ii) the "effect" of those prices on "domestic prices"; and (iii) the
"demand for further imports". Discerning the "e ffect" of prices of imports on domestic prices
necessarily calls for an analysis of the interaction between the two. 220 Otherwise, the links between
the prices of imports and the depressing or suppressi ng effect on domestic prices, and the consequent
likelihood of a "demand for further imports" may not be properly established.
152. At the oral hearing, Canada agreed that Article 3.7(iii) of the Anti-Dumping Agreement and
Article 15.7(iv) of the SCM Agreement do not prescribe a particular methodology for examining the
effect of the prices of imports on domestic prices. Rather, Canada's case was that the USITC did not
make a proper price comparison. The United States responded at the oral hearing that, even though
direct price comparisons were difficult because of the different species involved, the USITC did
examine pricing data for the species most comm only produced in Canada and the United States.
221
Therefore, like its arguments relating to the rate of increase, Canada's claim is essentially directed at
the appreciation of the evidence by the USITC, th at is, at the question whether the evidence on the
record supported a finding that the prices of im ports were having a depressing or suppressing effect
on domestic prices and would likely increase demand for further imports.222
3. Causal Link – Collective Non-attribution Analysis
153. Finally, Canada asserts that, as part of its non- attribution analysis, the USITC was required to
conduct an examination of the cumulated effect of third-country imports, as well as of the collective
effect of cumulated third-country imports and United States oversupply. 223 Canada finds support for
this proposition in several Appellate Body reports. 224 The United States responds that such collective
analyses were not required because the USITC found that neither third-country imports nor United

220The United States seems to acknowledge that an investigating authority must examine the correlation
between imported and domestic prices. According to the United States, "[a] price suppression or depression
analysis considers trends for import and domestic prices to determine certain correlations between them."
(United States' appellee's submission, para. 119 (emphasis added))
221At the oral hearing, Canada st ated that the "domestic prices" that should be examined under
Article 3.7(iii) of the Anti-Dumping Agreement and Article 15.7(iv) of the SCM Agreement are exclusively the
prices of domestically produced goods, and do not include the prices of the imported goods. In this case, the
USITC relied on indexes of composite prices, and explained that the indexes distinguished between the species
of trees used to produce softwood lumber and not by the country of production. In our view, whether an
investigating authority may properly rely on a specific index in examining domestic prices will depend on the
particular facts of the case.
222See infra, Section VI.C
224Ibid., paras. 241-243 (quoting Appellate Body Report, US – Hot-Rolled Steel , paras. 222-223;
Appellate Body Report, EC – Tube or Pipe Fittings, paras. 178 and 192; and Appellate Body Report, US – Steel
Safeguards, para. 491).

States oversupply were "other known factors" thr eatening to cause injury to the United States
domestic industry.
225
154. Article 3.5 of the Anti-Dumping Agreement and Article 15.5 of the SCM Agreement require
investigating authorities to "examine any known f actors other than the [dumped/subsidized] imports
which at the same time are injuring the domestic industry, and the injuries caused by these other
factors must not be attributed to the [dumped/ subsidized] imports." The Appellate Body has
considered the issue of whether the non-attribution requirement of Article 3.5 of the Anti-Dumping
Agreement obliges investigating authorities to examine the collective effects of "other known
factors", or whether it is sufficient to look at the individual effects of several different "other known
factors". The Appellate Body held that "Article 3.5 does not compel, in every case, an assessment of
the collective effects of other causal factors". 226 At the same time, the Appellate Body recognized
that "there may be cases where, because of the specifi c factual circumstances therein, the failure to
undertake an examination of the collective impact of other causal factors would result in the
investigating authority improperly attributing the effects of other causal factors to dumped imports."227
155. Accordingly, answering the question whether the USITC was required to conduct a non-
attribution analysis of cumulated third-country impor ts, or of the collective effect of cumulated third-
country imports and United States oversupply, requires an examination of the particular facts of this
case. It follows that this argument of Canada is also essentially directed at the appreciation of the
evidence on the record.
C. The USITC's Appreciation of the Relevant Factors
156. We turn now to consider whether we can conduct our own review of the USITC's Section 129
Determination. As noted above, Canada takes issue with two aspects of the USITC's determination of
threat of injury, namely: (i) the USITC's consider ation of the rate of increase of dumped/subsidized
imports and the likelihood of increased importation in the near future; and (ii) the effects of the prices
of imports on domestic prices. In addition, Ca nada challenges several aspects of the USITC's

226Appellate Body Report, EC – Tube or Pipe Fittings, para. 191. (original emphasis)
227Ibid., para. 192. (footnote omitted) The last sentence of this paragraph reads:
We are therefore of the view that an investigating authority is not required
to examine the collective impact of other causal factors, provided that, under
the specific factual circumstances of th e case, it fulfils its obligation not to
attribute to dumped imports the injuries caused by other causal factors.

causation and non-attribution analyses. Canada argues that the USITC's causation analysis is flawed
because the USITC failed "to address the fact that , in the most recent 12 months, imports were
increasing at the same time that prices and industry profitability were improving." 228 Canada also
raises questions about the USITC's finding that oversupply from United States domestic producers
had ceased by the end of the period of investigation, and would not recur in the near future.
229
157. In previous appeals, the Appellate Body has st ated that, in certain circumstances, it may be
appropriate for it to complete the analysis in orde r to contribute to the prompt settlement of the
dispute.230 However, the Appellate Body has emphasized th at in order for it to complete the analysis
there must be sufficient factual findings by the panel or undisputed facts in the record to enable it to
do so. 231 Canada, as the complaining party, must persuade us that there are sufficient uncontested
facts on the record to enable us to complete the analysis by stepping into the shoes of the Panel. We
observe, in this regard, that one of the bases for Cana da's appeal of the standard of review applied by
the Panel is that the Panel failed to carry out a critical and searching analysis of the explanations
provided by the USITC in the light of the alterna tive explanations of the evidence on the record put
forward by Canadian interested parties. There is thus an element of contradiction between Canada's
assertion that we have before us a sufficient record of uncontested facts or factual determinations by
the Panel on which to complete the analysis, and it s appeal with respect to the standard of review
applied by the Panel.
158. We also note that, according to Article 3.7 of the Anti-Dumping Agreement and Article 15.7
of the SCM Agreement , a finding of threat of material injury must be based on the "totality of the
factors considered". In this case, several closel y inter-related factors are at play in the USITC's
determination of threat of material injury. Cont ested facts underlie the analysis of both the specific
threat factors and of those factors acting collectiv ely. For example, in order to assess whether the
evidence supports the USITC's determination that imports were increasing at a "significant" rate,
indicating a likelihood of "substantially" increased im portation, we would have to review the data on
the trends in the volume of imports, the effects of the SLA during the period of investigation, and the
impact of its expiration, as well as the USITC's findings concerning Canadian excess capacity. The
record indicates that the effect of the SLA is a matter that is highly contested between the participants.

229Ibid., para. 237.
230Appellate Body Report, US – Steel Safeguards, para. 431.
231Appellate Body Report, US – Section 211 Appropriations Act , para. 343; Appellate Body Report,
EC – Asbestos, para. 78.

Indeed, at the oral hearing, Canada referred to th is as "the single most litigated issue" before the
USITC during the initial investigation. Canada al so contested the USITC's findings concerning the
SLA in these Article 21.5 proceedings.
232 Likewise, Canada challenged the USITC's findings
concerning Canadian capacity in these Article 21.5 proceedings. 233 The USITC's finding of adverse
price effects is premised on its finding of like lihood of increased imports. Thus, it would not be
possible to assess the USITC's finding of price effects without having reached a conclusion on the
USITC's finding of increased importation. The task of assessing the USITC's examination of price
effects is further complicated by the need to re view extremely detailed factual issues, such as the
comparability between species and the use of composite price indexes.
159. Contested facts also underlie the USITC's causation and non-attribution analyses. For
example, it is unclear what data was before the USITC regarding the alleged coincidence of
increasing imports and the improving performance of the United States industry. 234 The United States
asserts, in this regard, that the data on the indus try's operating margins referred to by Canada are
based on a subset of the industry that is substan tially more profitable than the industry as a whole. 235
Furthermore, Canada contests the evidence relied upo n by the USITC to conclude that United States
producers would not contribute to oversupply in the imminent future. 236 Canada alleges, in this
regard, that the USITC took opposite approaches to future supply from Canadian and United States

232Canada argued before the Panel that the studies relied upon by the USITC "do not address the key
issue of whether the SLA had any significant restraining effect at the time it expired." (Panel Report, para. 4.23
(original emphasis)) Canada stated that a study introduced by petitioners in the Section 129 proceedings had
serious methodological deficiencies. (para. 4.24) At the oral hearing, the United States denied that the USITC
had relied exclusively on this study.
 In addition, Canadian interested parties had asserted before the USITC that the SLA had resulted in a
redistribution, among Canadian provinces, of exports of softwood lumber to the United States. The USITC
concluded that "[t]he record does not show that the SLA merely led to a redistribution of exports from Canadian
provinces not covered by the SLA, particularly the Mar itime Provinces, and that up on its expiration, pre-SLA
provincial trade patterns returned." (Section 129 Determination, p. 26 (footnote omitted))
233According to Canada, the capacity of Canadian pr oducers was projected to increase only slightly,
and excess capacity would be used primarily to supply markets other than the United States. (See Panel Report,
paras. 4.37-4.40)
234Canada was unable to confirm at the oral hearing whether it submitted to the USITC the data upon
which it now relies to argue that the condition of the United States industry was improving over a 12 month
period ending in the first quarter 2002, rather than in just the first quarter of 2002.
235United States' appellee's submission, para. 178 (referring to Canada's appellant's submission,
para. 116).

producers.237 The record also shows that whether Un ited States demand for softwood lumber would
remain stable, decrease, or increase in the near future was contested. Finally, the integrated nature of
the USITC's threat of injury and causation an alyses further complicates any effort aimed at
completing the analysis.238
160. Thus, completing the analysis in this case would require us to review extensive aspects of the
USITC's threat of injury and causation analyses, a nd would require us to engage in a comprehensive
examination of highly complex and contested facts. 239 The fact that Canada, the participant making
the request, focused its arguments on the errors made by the Panel and provided little information to
enable us to complete the analysis does not facilitate this task.
161. For all these reasons, we are unable to complete the analysis and determine whether the
Section 129 Determination meets the require ments of Articles 3.5 and 3.7 of the Anti-Dumping
Agreement and Articles 15.5 and 15.7 of the SCM Agreement. Therefore, we express no views on the
consistency or inconsistency of the Section 129 Determination with these provisions.

VII. Findings and Conclusions
162. For the reasons set forth in this Report, the Appellate Body:
(a) finds that the Panel acted inconsistently with Article 11 of the DSU because it
articulated and applied an improper standa rd of review in its assessment of the
Section 129 Determination a nd, consequently, reverses the Panel's findings, in
paragraphs 7.57, 7.63, 7.74, and 8.1 of the Panel Report, that the Section 129
Determination is not inconsistent with the obligations of the United States under
Articles 3.5 and 3.7 of the Anti-Dumping Agreement and Articles 15.5 and 15.7 of
the SCM Agreement;

237Canada's response to questioning at the oral hear ing. Canada asserts that the USITC examined
export projections of Canadian producers, but not fo r United States producers. Instead, the USITC used
historical data for United States producers and discounted the United States producer-supplied data. However,
according to Canada, historical data showed that Canadi an producers had curbed production as much as their
United States counterparts. In addition, Canada argues that the USITC failed to acknowledge that the relatively
steady capacity utilization rates of United States producers were not strikingly dissimilar to those of Canadian
producers, and that, in 2001, United States producers had more total unused capacity than had Canadian
producers. (Canada's appellant's submission, paras. 131-133)
238See supra, para. 131.
239See Appellate Body Report, US – Hot-Rolled Steel, para. 236.

(b) does not find it necessary to examine whether the Panel failed to comply with its
duties under Article 12.7 of the DSU to set out the applicability of relevant provisions
and to provide a "basic rationale" for its findings;
(c) is unable to complete the analysis and determine whether the Section 129
Determination is consistent with the Un ited States' obligations under Articles 3.5
and 3.7 of the Anti-Dumping Agreement and Articles 15.5 and 15.7 of the
SCM Agreement;
(d) and, consequently, reverses
 the Panel's conclusion, in paragraph 8.2 of the Panel
Report, that "the United States has implem ented the decision of the Panel, and the
DSB, to bring it measure into conformity with its obligations under the [ Anti-
Dumping] and SCM Agreements."
163. As a result of these findings, the Appellate Body is unable to make a recommendation to the
Dispute Settlement Body.

Signed in the original in Geneva this 24th day of March 2006 by:

Luiz Olavo Baptista
Presiding Member

 _________________________ _________________________
 Georges Abi-Saab A.V. Ganesan
 Member Member

ANNEX I

16 January 2006
 (06-0177)
 Original: English

Recourse to Article 21.5 of the DSU by Canada

Notification of an Appeal by Canada
under Article 16.4 and Article 17 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes (DSU),
and under Rule 20(1) of the Working Procedures for Appellate Review

 The following notification, dated 13 January 20 06, from the Delegation of Canada, is being
circulated to Members.

Pursuant to paragraph 4 of Article 16 of the Understanding and Rules and Procedures
Governing the Settlement of Disputes (the "DSU") and Rule 20 of the Working Procedures for
Appellate Review, Canada hereby notifies its decision to appeal certain issues of law and certain legal
interpretations covered in the Panel Report on : Recourse to Article 21.5 of the DSU by Canada
(WT/DS/277/RW dated 15 November 2005).
Canada seeks review by the Appellate Body of the Panel's conclusion that the United States
implemented the rulings and recommendations of the Dispute Settlement Body
1 and the Panel's
findings that the November 24, 2004 threat of injury determination by the U.S. International Trade
Commission (USITC) was not inconsistent with Articles 15.5 and 15.7 of the Agreement on Subsidies
and Countervailing Measures ("SCM Agreement") 2 and Articles 3.5 and 3.7 of the Agreement on
Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 ("AD
Agreement").3 The Panel has erred in law and in its lega l interpretations of the applicable provisions
of the covered agreements. Canada therefore seeks review of the following:
1. The Panel's failure to carry out its duty under Article 11 of the DSU to make an objective
assessment of the matter before it, by:

1, Recourse by Canada to Article 21.5 (DS257), Report of the Panel, WT/DS277/RW, circulated
November 15, 2005, para. 8.2.
2Ibid., paras. 7.57 and 8.1.
3Ibid., paras. 7.74 and 8.1.

(a) failing to assess the applicability of the re levant covered agreements to the USITC's
determination and failing to assess the conf ormity of the determination with those
agreements, and, more specifically, by fa iling to apply the specific provisions of
Article 3.7 of the AD Agreement and Artic le 15.7 of the SCM Agreement to the
findings and conclusions in the USITC determination, and as a result, failing to
examine whether those findings and conclu sions were in conformity with those
provisions;4
(b) declining to examine the USITC's determina tion in light of the adopted findings of the
original panel in this dispute5;
(c) failing to make an objective assessment of the facts of the case by not conducting a
detailed and searching analysis of the USITC's findings that:
(i) there was a clearly foreseen and immi nent change in circumstances that
would threaten injury to the domestic industry in the absence of protective
measures
6; and
(ii) there was a causal link between the subject imports and a threat of material
injury to the domestic industry and th at it was not required to conduct a non-
attribution analysis7.
2. The Panel's failure to carry out its duti es under Article 12.7 of the DSU to set out the
applicability of relevant provisions and provide a "basic rationale" for its findings.8
3. The Panel's errors in finding that the USITC determination was not inco nsistent with Article
3.7 of the AD Agreement and Article 15.7 of the SC M Agreement, and in particular, its failure to
apply the requirements of those provisions that:
(a) a threat of material injury determination must be based on a clearly foreseen and
imminent change in circumstances which would create a situation in which the
dumping or subsidy would cause injury and mu st be based on facts and not merely on
allegation, conjecture or remote possibility; and
(b) the totality of the factors considered must lead to the conclusion that further dumped
or subsidized exports are imminent and, unless protective action is taken, material
injury would occur.
9
4. The Panel's errors in finding that the USITC's conclusion that subject imports were entering
the United States at prices likely to have adverse price effects is not inconsistent with Article 3.7 of
the AD Agreement and Article 15.7 of the SCM Agre ement, despite the USITC's failure to conduct a
comparison of import and domestic prices as required by those provisions.
10

4Ibid., paras. 7.19 – 7.22, 7.26-7.28, 7.35, 7.39, 7.42, 7.50-7.52, 7.55-7.57.
5Ibid., paras. 7.12, 7.35, 7.39, 7.42.
6Ibid., paras. 7.13, 7.35, 7.39, 7.42, 7.52.
7Ibid., paras. 7.62-7.63.
8Ibid., paras. 7.24-7.57.
9Ibid., paras. 7.13, 7.19 -7.22, 7.26-7.28, 7.35, 7.39, 7.42, 7.50-7.52, 7.55-7.57, 7.62-7.63, 7.72-7.73).
10Ibid., paras. 7.50-7.52.

5. The Panel's errors in finding the USITC's conclusion that the volume of subject imports
would increase substantially in the imminent future is not inconsistent with Article 3.7 of the AD
Agreement and Article 15.7 of the SCM Agreem ent when this conclusion relied on two other
conclusions that the DSB had already found, in the or iginal proceeding, to be inconsistent with the
United States' WTO obligations.
11
6. The Panel's errors in finding the USITC's dete rmination not inconsistent with Article 3.5 of
the AD Agreement and Article 15.5 of the SCM Agre ement despite the failure of the USITC to: (i)
demonstrate "a causal relationship between the dumped or subsidized imports and the injury to the
domestic industry"; (ii) examine "any known factor s other than the dumped or subsidized imports
which at the same time are injuring the domestic industry"; and (iii) properly attribute injuries caused
by these other factors. In particular, the Panel erred by:
(a) affirming the USITC's conclusion that th ere was a causal link between dumped and
subsidized imports and future material in jury to the domestic industry even though
fundamental elements of the USITC's analysis were in error;12
(b) affirming the USITC's decision not to conduc t a non-attribution analysis based on its
erroneous conclusion that there were no known "other causal factors" potentially
threatening material injury to the U.S. industry;13
(c) failing to require the USITC to separate and di stinguish the threat of injury posed by
other sources of supply in the marketpl ace, considered both individually and on a
cumulative basis, from the alleged threat attributed to oversupply from Canadian
imports alone.14
Canada respectfully requests that the Appellate Body reverse the findings and conclusions of
the Panel and find that the United States has failed to implement the DSB's rulings and
recommendations.

11Ibid., paras. 7.26-7.28, 7.35, 7.39, 7.42.
12Ibid., paras. 7.62-7.63.
13Ibid., paras.7.71-7.74.
14Ibid., paras. 7.71-7.73.