UNITED STATES – ANTI-DUMPING MEASURES APPLYING DIFFERENTIAL PRICING METHODOLOGY TO SOFTWOOD LUMBER FROM CANADA (DS 534)
Document: REPORT OF THE PANEL Addendum
Date: 9 April 2019
Document codes: WT/DS534/R/Add.1; WT/DS534/R.
Complainant: Canada
Respondent: U.S.
Third parties: Brazil, China, EU, Japan, Kazakhstan, South Korea, Russia, Vietnam
Dispute stage: Panel
Agreements cited: Art. 2.4.2, 2.4, 1, 2.1  Anti-dumpingArt. VI:1, VI:2  GATT 1994

UNITED STATES – ANTI-DUMPING MEASURES APPLYING DIFFERENTIAL PRICING
METHODOLOGY TO SOFTWOOD LUMBER FROM CANADA (DS 534)

REPORT OF THE PANEL
Addendum
This addendum contains Annexes A to C to the Report of the Panel to be found in document

LIST OF ANNEXES
ANNEX A
PANEL DOCUMENTS
Contents Page
Annex A-1 Working Procedures of the Panel 4
Annex A-2 Additional Working Procedures on Business Confidential Information 10
Annex A-3 Additional Working Procedures on Open Meetings 12
Annex A-4 Timetable for the Panel proceedings 13
Annex A-5 Interim Review 15
ANNEX B
ARGUMENTS OF THE PARTIES
Contents Page
Annex B-1 First integrated executive summary of the arguments of Canada 18
Annex B-2 Second integrated executive summary of the arguments of Canada 23
Annex B-3 First integrated executive summary of the arguments of the United States 30
Annex B-4 Second integrated executive summary of the arguments of the United States 41
ANNEX C
ARGUMENTS OF THE THIRD PARTIES
Contents Page
Annex C-1 Integrated executive summary of the arguments of Brazil 53
Annex C-2 Integrated executive summary of the arguments of China 55
Annex C-3 Integrated executive summary of the arguments of the European Union 57
Annex C-4 Integrated executive summary of the arguments of Japan 59

ANNEX A
PANEL DOCUMENTS
Contents Page
Annex A-1 Working Procedures of the Panel 4
Annex A-2 Additional Working Procedures on Business Confidential Information 10
Annex A-3 Additional Working Procedures on Open Meetings 12
Annex A-4 Timetable for the Panel proceedings 13
Annex A-5 Interim Review 15

ANNEX A-1
WORKING PROCEDURES OF THE PANEL
Adopted on 20 June 2018

General

1. (1) In this proceeding, the Panel shall follow the relevant provisions of the Understanding
on Rules and Procedures Governing the Settlement of Disputes ("DSU"). In addition, the
following Working Procedures apply.
(2) The Panel reserves the right to modify these procedures as necessary, after consultation
with the parties.
Confidentiality
2. (1) The deliberations of the Panel and the documents submitted to it shall be kept
confidential. Members shall treat as confidential information that is submitted to the Panel which
the submitting Member has designated as confidential.
(2) Nothing in the DSU or in these Working Procedures shall preclude a party or third party
from disclosing statements of its own positions to the public.
(3) If a party submits a confidential version of its written submissions to the Panel, it shall
also, upon request of a Mem ber, provide a non -confidential summary of the information
contained in its submissions that could be disclosed to the public.
(4) The parties and third parties shall treat business confidential information in accordance
with the procedures set forth in t he Additional Working Procedures of the Panel Concerning
Business Confidential Information.
Submissions

3. (1) Before the first substantive meeting of the Panel with the parties, each party shall
submit a written submission in which it presents the facts of the case and its arguments, in
accordance with the timetable adopted by the Panel.
(2) Each party shall also submit to the Panel, prior to the second substantive meeting of
the Panel, a written rebuttal, in accordance with the timetable adopted by the Panel.
(3) Each third party that chooses to make a written submission prior to the first substantive
meeting of the Panel with the parties shall do so in accordance with the timetable adopted by
the Panel.
(4) The Panel may invite the parties or third parties to make additional submissions in the
course of the proceeding, including with respect to requests for preliminary rulings in accordance
with paragraph 4 below.
Preliminary rulings
4. (1) The following procedures shall apply if the responding party asks for a ruling that certain
measures or claims are not properly before the Panel:
If the United States considers that the Panel should make a ruling prior to the issuance of the
Report that certain measures or claims in the panel request or Canada's first written submission
are not properly before the Panel, the following procedure applies. Exceptions to this procedure
shall be granted upon a showing of good cause.

a. the United States shall submit any such request for a preliminary ruling at the earlies t
possible opportunity and in any event no later than in its first written submission to the
Panel. Canada shall submit its response to the request prior to the first substantive
meeting of the Panel, at a time to be determined by the Panel in light of the request.
b. The Panel may issue a preliminary ruling on the issues raised in such a preliminary ruling
request before, during or after the first substantive meeting, or the Panel may defer a
ruling on the issues raised by a preliminary ruling request until i t issues its Report to the
parties.
c. In the event that the Panel finds it appropriate to issue a preliminary ruling prior to the
issuance of its Report, the Panel may provide reasons for the ruling at the time that the
ruling is made, or subsequently in its Report.
d. Any request for such a preliminary ruling by the United States prior to the first meeting,
and any subsequent submissions of the parties in relation thereto prior to the first meeting,
shall be served on all third parties. The Panel may provide all third parties with an
opportunity to provide comments on any such request, either in their submissions as
provided for in the timetable or separately. Any preliminary ruling issued by the Panel
prior to the first substantive meeting on whether certain measures or claims are properly
before the Panel shall be communicated to all third parties.
(2) The procedure set out in paragraph (1) is without prejudice to any of the parties' right
to request other types of preliminary or procedural rulings in the course of the proceeding, and
to the procedures that the Panel may follow with respect to such requests.
Evidence
5. (1) Each party shall submit all evidence to the Panel no later than during the first
substantive meeting, except evidence necessary for purposes of rebuttal, or evidence necessary
for answers to questions or comments on answers provided by the other party. Additional
exceptions may be granted upon a showing of good cause.
(2) If any new evidence has been admitted upon a showing of good caus e, the Panel shall
accord the other party an appropriate period of time to comment on the new evidence submitted.
6. (1) Where the original language of an exhibit or portion thereof is not a WTO working
language, the submitting party or third party shall simu ltaneously submit a translation of the
exhibit or relevant portion into the WTO working language of the submission. The Panel may
grant reasonable extensions of time for the translation of exhibits upon a showing of good cause.
(2) Any objection as to the accuracy of a translation should be raised promptly in writing,
preferably no later than the next submission or meeting (whichever occurs earlier) following the
submission which contains the translation in question. Any objection shall be accompanied by a
detailed explanation of the grounds for the objection and an alternative translation.
7. (1) To facilitate the maintenance of the record of the dispute and maximize the clarity of
submissions, each party and third party shall sequentially number its exhibit s throughout the
course of the dispute, indicating the submitting Member and the number of each exhibit on its
cover page. Exhibits submitted by Canada should be numbered CAN -1, CAN-2, etc. Exhibits
submitted by the United States should be numbered USA -1, USA-2, etc. If the last exhibit in
connection with the first submission was numbered CAN -5, the first exhibit in connection with
the next submission thus would be numbered CAN-6.
(2) Each party shall provide an updated list of exhibits (in Word or Excel f ormat) together
with each of its submissions, oral statements, and responses to questions.
(3) If a party submits a document that has already been submitted as an exhibit by the
other party, it should explain why it is submitting that document again.

Editorial Guide
8. In order to facilitate the work of the Panel, each party and third party is invited to make its
submissions in accordance with the WTO Editorial Guide for Panel Submissions (electronic copy
provided).
Questions

9. The Panel may pose questions to the parties and third parties at any time, including:
a. Prior to any meeting, the Panel may send written questions, or a list of topics it intends to
pursue in questioning orally in the course of a meeting. The Panel may ask different or
additional questions at the meeting.
a. The Panel may put questions to the parties and third parties orally in the course of a
meeting, and in writing following the meeting, as provided for in paragraphs 14 and 20
below.
Substantive meetings

10. The parties shall be present at the meetings only when invited by the Panel to appear before it.
The Panel may open its meetings with the parties to the public, subject to appropriate procedures
to be adopted by the Panel after consulting the parties.
11. (1) Each party has the right to determi ne the composition of its own delegation when
meeting with the Panel.
(2) Each party shall have the responsibility for all members of its delegation and shall
ensure that each member of its delegation acts in accordance with the DSU and these Working
Procedures, particularly with regard to the confidentiality of the proceeding and the submissions
of the parties and third parties.
12. Each party shall provide to the Panel the list of members of its delegation no later than 5.00 p.m.
(Geneva time) three working days preceding the first day of each meeting with the Panel.
13. A request fo r interpretation by any party should be made to the Panel as early as possible,
preferably at the organizational stage, to allow sufficient time to ensure availability of
interpreters.
14. The first substantive meeting of the Panel with the parties shall be conducted as follows:
a. The Panel shall invite Canada to make an opening statement to present its case first.
Subsequently, the Panel shall invite the United States to present its point of view. Before
each party takes the floor, it shall provide the Panel and other participants at the meeting
with a provisional written version of its statement. In the event that interpretation is
needed, each party shall provide additional copies for the interpreters.
b. Each party should avoid lengthy repetition of the arguments in its submissions. Each party
is invited to limit the length of its opening statement to 60minutes. If either party considers
that it requires more time for its opening statement, it should inform the Panel and the
other party at least 5days prior to th e meeting, and it should also provide, at the same
time, an estimate of the length of its statement. The Panel will accord equal time to both
parties for their statements.
c. After the conclusion of the opening statements, the Panel shall give each party th e
opportunity to make comments or ask the other party questions.
d. The Panel may subsequently pose questions to the parties.
e. Once the questioning has concluded, the Panel shall afford each party an opportunity to
present a brief closing statement, with Canada presenting its statement first. Before each

party takes the floor, it shall provide the Panel and other participants at the meeting with
a provisional written version of its closing statement, if available.
f. Following the meeting:
i. Each party shall submit a final written version of its opening statement no later than
5.00 p.m. (Geneva time) on the first working day following the meeting. At the same
time, each party should also submit a final written version of any prepared closing
statement that it delivered at the meeting.
ii. Each party shall send in writing, within the timeframe established by the Panel prior
to the end of the meeting, any questions to the other party to which it wishes to receive
a response in writing.
iii. The Panel shall send in writing, within the timeframe established by the Panel prior to
the end of the meeting, any questions to the parties to which it wishes to receive a
response in writing.
iv. Each party shall respond in writing to the questions from the Panel, and to any
questions posed by the other party, within the time -frame established by the Panel
prior to the end of the meeting.
15. The second substantive meeting of the Panel with the parties shall be conducted in the same
manner as the first substantive meeting with the Panel, except t hat the United States shall be
given the opportunity to present its oral statement first. If the United States chooses not to avail
itself of that right, it shall inform the Panel and the other party no later than 5.00pm (Geneva
time) three working days day prior to the meeting. In that case, Canada shall present its opening
statement first, followed by the United States. The party that presented its opening statement
first shall present its closing statement first.
Third party session

16. The third parties shall be present at the meetings only when invited by the Panel to appear
before it.
17. (1) Each third party has the right to determine the composition of its own delegation when
meeting with the Panel.
(2) Each third party shall have the responsibility for all members of its delegation and shall
ensure that each member of its delegation acts in accordance with the DSU and these Working
Procedures, particularly with regard to the confidentiality of the proceeding and the submissions
of the parties and third parties.
18. A request for interpretation by any third party should be made to the Panel as early as possible,
preferably upon receiving the working procedures and timetable for the proceeding, to allow
sufficient time to ensure availability of interpreters.
19. (1) Each third party may present its views orally during a session of the first substantive
meeting with the parties set aside for that purpose.
(2) Each third party shall indicate to the Panel whether it intends to make an oral statement
during the third party session, along with the list of members of its delegation, in advance of
this session and no later than 5.00 p.m. (Geneva time) three working days preceding the first
day of the third party session of the meeting with the Panel.
20. The third party session shall be conducted as follows:
a. All parties and third parties may be present during the entirety of this session.
b. The Panel shall first hear the oral statements of the third parties, who shall speak in
alphabetical order. Each third party making an oral statement at the third party session

shall provide the Panel and other participants with a provisional written version of its
statement before it takes the floor. In the event that interpretation of a third party's oral
statement is needed, that third party shall provide additional copies for the interpreters.
c. Each third party should limit the length of its statement to 15 minutes, and avoid repetition
of the arguments already in its submission.
d. After the third parties have made thei r statements, the parties shall be given the
opportunity to pose questions to any third party for clarification on any matter raised in
that third party's submission or statement.
e. The Panel may subsequently pose questions to any third party.
f. Following the third party session:
i. Each third party shall submit the final written version of its oral statement, no later
than 5.00 p.m. (Geneva time) on the first working day following the meeting.
ii. Each party may send in writing, within the timeframe to be establishe d by the Panel
prior to the end of the meeting, any questions to a third party or parties to which it
wishes to receive a response in writing.
iii. The Panel may send in writing, within the timeframe to be established by the Panel
prior to the end of the meeti ng, any questions to a third party or parties to which it
wishes to receive a response in writing.
iv. Each third party choosing to do so shall respond in writing to written questions from
the Panel or a party, within a timeframe established by the Panel prio r to the end of
the meeting.
Descriptive part and executive summaries

21. The description of the arguments of the parties and third parties in the descriptive part of the
Panel report shall consist of executive summaries provided by the parties and third parties, which
shall be annexed as addenda to the report. These executive summaries shall not in any way
serve as a substitute for the submissions of the parties and third parties in the Panel's
examination of the case.
22. Each party shall submit two integrated executive summaries. The first integrated executive
summary shall summarize the facts and arguments as presented to the Panel in the party's first
written submission, its first oral statement, and where possible, its responses to questions
following the fi rst substantive meeting. The second integrated executive summary shall
summarize its second written submission, its second oral statement, and where possible, its
responses to the second set of questions and comments thereon following the second
substantive meeting. The timing of the submission of these two integrated executive summaries
shall be indicated in the timetable adopted by the Panel.
23. Each integrated executive summary shall be limited to no more than 15 pages.
24. The Panel may request the parties and third parties to provide executive summaries of facts and
arguments presented in any other submissions to the Panel for which a deadline may not be
specified in the timetable.
25. Each third party shall submit an integrated executive summary of its arguments as presented in
its written submission and statement in accordance with the timetable adopted by the Panel.
This integrated executive summary may also include a summary of responses to questions, if
relevant. The executive summary to be provided by each third party shall not exceed six pages.

Interim review

26. Following issuance of the interim report, each party may submit a written request to review
precise aspects of the interim report and request a further meeting with the Panel, in accordance
with the timetable adopted by the Panel. The right to request such a meeting shall be exercised
no later than at the time the written request for review is submitted.
27. In the event that no further meeting with the Panel is requested, each party may submit written
comments on the other party's written request for review, in accordance with the timetable
adopted by the Panel. Such comments shall be limited to commenting on the other party's
written request for review.
Interim and Final Report
28. The interim report, as well as the final report prior to its official circulation, shall be kept strictly
confidential and shall not be disclosed.
Service of documents

29. The following procedures regarding service of documents shall apply:
a. Each party and third party shall submit all submissions, exhibits, oral statements,
responses to questions, comments on responses, comments on comments, comments on
the descriptive part of the Panel report, and comments on the Interim Report of the Panel
by filing them via the Digital Dispute Settlement Registry (DDSR) by 5.00 p.m. (Geneva
time) on the due dates established by the Panel. The electronic version uploaded into the
DDSR shall constitute the official version for the purposes of the record of the dispute.
Upload into the DDSR shall also constitute electronic service on the Panel, the other party,
and the third parties.
b. In case any party or third party is unable to meet the 5.00 p.m. deadline because of
technical difficulties in uploading these documents into the DDSR, the party or third party
concerned shall send these documents by e-mail to DSRegistry@wto.org, WTO Secretariat
staff whose e -mail addres ses have been provided to the parties in the course of the
proceeding, the other party, and where appropriate, the third party by 6.00 pm. The
uploading to the DDSR shall be made on the following working day.
c. Any request for technical assistance regarding the use of DDSR shall be addressed to
DSRegistry@wto.org and ddsrsupport@wto.org (assistance available only during WTO
working hours).
d. For all documents that were filed via DDSR, each party and third party shall file one paper
copy of such documents with the DS Registry the working day following the electronic
filing.
e. The Panel shall provide all documents and communications to the parties and the third
parties via e -mail. When the Panel provides the parties or third parties both paper and
electronic versions of a document, the electronic version shall constitute the official version
for the purposes of the record of the dispute.
Correction of clerical errors in submissions
30. The Panel may grant leave to a party or third party to correct clerical errors in any of its
submissions (including paragraph numbering and typographical mistakes). Any such request should
identify the nature of the errors to be corrected, and should be made promptly following the filing
of the submission in question.

ANNEX A-2
ADDITIONAL WORKING PROCEDURES ON BUSINESS CONFIDENTIAL INFORMATION
Adopted on 20 June 2018

1. The following procedures apply to business confidential information (BCI) submitted in the
course of the present Panel proceedings.
2. For the purposes of these proceedings, BCI is defined as any information that has been
designated as such by a party or a third party submitting the information to the Panel. The parties
or third parties shall only designate as BCI information that is not available in the public domain, the
release of which would cause serious harm to the interests of the originator(s) of the information.
BCI may include information that was previously treated by the US Department of Commerce as
confidential or proprietary information protected by Administrative Protective Order in the course of
the antidumping proceeding at issue in this dispute, entitled Softwood Lumber from Canada
(A-122-857). In addition, these procedures do not apply to any BCI if the entity which provided the
information in the course of the aforementioned investigation has agreed in writing to make the
information publicly available.
3. If a party considers it necessary to submit to the Panel BCI as defined above from an entity
that submitted that information in the investigation at issue, the party shall, at the earliest possible
date, obtain an authorizing letter from the entity and provide such authorizing letter to the Panel,
with a copy t o the other party. The authorizing letter from the entity shall authorize both Canada
and the United States to submit in this dispute, in accordance with these procedures, any confidential
information submitted by that entity in the course of the investiga tion. Each party shall, at the
request of the other party, facilitate the communication to an entity in its territory of any request to
provide an authorizing letter referred to above. Each party shall encourage any entity in its territory
that is requested to grant the authorization referred to in this paragraph to grant such authorization.
4. No person may have access to BCI except a member of the Secretariat or the Panel, an
employee of a party or third party, or an outside advisor to a party or third pa rty for the purposes
of this dispute. However, an outside advisor to a party or third party is not permitted access to BCI
if that advisor is an officer or employee of an enterprise engaged in the production, sale, export, or
import of the products that were the subject of the investigation at issue in this dispute, or an officer
or employee of an association of such enterprises.
5. A person having access to BCI shall treat it as confidential, i.e. shall not disclose that
information other than to persons a uthorized to have access to it pursuant to these procedures.
Each party and third party is responsible for ensuring that its employees and/or outside advisors
comply with these procedures. BCI obtained under these procedures may be used only for the
purpose of providing information and argumentation in this dispute and for no other purpose. All
documents and electronic storage media containing BCI shall be stored in such a manner as to
prevent unauthorized access to such information. Third parties' access to BCI shall be subject to the
terms of these procedures.
6. A party submitting BCI shall mark the cover and/or first page of the document containing BCI,
and each page of the document, to indicate the presence of such information. The specific
information in question shall be placed between double brackets, as follows: [[xx,xxx.xx]]. The first
page or cover of the document shall state "Contains Business Confidential Information on
pages xxxxxx", and each page of the document shall contain the notice "Contai ns Business
Confidential Information" at the top of the page. A party submitting BCI in the form of, or as part
of, an Exhibit shall, in addition to the above, so indicate by putting "BCI" next to the exhibit number
(e.g. Exhibit CAN-1 (BCI)).
7. Where BCI is submitted in electronic format, the file name shall include the terms "Business
Confidential Information" or "BCI". In addition, where applicable, the label of the storage medium
shall be clearly marked with the statement "Business Confidential Information" or "BCI".
8. Where a party submits a document containing BCI to the Panel, the other party or third party
referring to that BCI in its documents, including written submissions and oral statements, shall

clearly identify all such information in those documents. All such documents shall be marked and
treated as described in paragraph 6. In the case of an oral statement containing BCI, the party or
third party making such a statement shall inform the Panel before making it that the statement will
contain BCI, and the Panel will ensure that only persons authorized to have access to BCI pursuant
to these procedures are present or observing the session at that time. The written versions of such
oral statements submitted to the Panel shall be marked as provided for in paragraph 6.
9. If a party or third party considers that information submitted by the other party or a third
party should have been designated as BCI and objects to its submission without such designation,
it shall forthwith bring this objection to the attention of the Panel and the other party, and, where
relevant, the third parties, together with the reasons for the objection. Similarly, if a party or third
party considers that the other party or a third party designated as BCI information which should not
be so designated, it shall forthwith bring this objection to the attention of the Panel and the other
party, and, where relevant, the third parties, together with the reasons for the objection. The Panel
shall decide whether information subject to an objection will be treated as BCI for the purposes of
these proceedings on the basis of the criteria set out in paragraph 2.
10. The Panel will not disclose BCI, in its report or in any other way, to persons not authorized
under these procedures to h ave access to BCI. The Panel may, however, make statements of
conclusion drawn from such information. Before the Panel circulates its final report to the Members,
the Panel will give each party an opportunity to review the report to ensure that it does not contain
any BCI.
11. Submissions, exhibits, and other documents or recordings containing BCI will be included in
the record forwarded to the Appellate Body in the event of an appeal of the Report of the Panel.

ANNEX A-3
ADDITIONAL WORKING PROCEDURES ON OPEN MEETINGS
Adopted on 20 June 2018

1. The Panel will start substantive meetings with the parties (dates of substantive meetings
provided for in its Timetable) with a session open to the public at which no confidential information
shall be referred to or disclosed ("non-confidential session").
2. At such sessions, each party will be asked to make opening and closing statements which shall
not include confidential information. After both parties have made their opening statements, each
party will be given the opportunity to pose questions or make comments on the other party's
statement, as described in the Working Procedures adopted by the Panel. The Panel may pose any
questions or make any comments during such session. Such questions shall not include confidential
information.
3. To the extent that the Panel or either of the parties considers it necessary, the Panel shall
proceed to a closed session ("confidential session"), during which the parties will be allowed to make
additional statements or comments and pose questions that involve confidential information. The
Panel may also pose questions during the confidential session.
4. The Panel will start the third party session of its first substantive meeting with the parties by
opening a portion of this session to the public ("non-confidential third party session"). At this portion
of the third party session, no confidential information shall be referred to or disclosed. Each third
party wishing to make its statement in the non-confidential third party session shall do so, but shall
ensure that its statement does not include confidential information. After such third parties have
made their statements, questions or comments from the parties or the Panel may be presented
concerning these statemen ts, as foreseen in the Working Procedures adopted by the Panel. Such
questions or comments shall not include confidential information. To the extent that the Panel or
any of the other third parties considers it necessary, the Panel shall then conclude this portion of
the third party session and proceed to a third party closed session ("confidential third party session")
during which other third parties shall make their statements.
5. During the confidential sessions referred to above, the following person s shall be admitted
into the meeting room:
• Members of the Panel;
• Members of the delegations of the parties;
• Members of the delegations of the third parties throughout the third party session;
• WTO Secretariat staff assisting the Panel.

6. As set out below in paragraph 7, a live closed-circuit television broadcast of the Panel meeting
to a separate viewing room in the WTO shall be used to allow other WTO Members, Observers, staff
members, and registered members of the public to observe the non-confidential sessions.
7. The viewings will be open to officials of WTO Members, Observers and staff members of the
WTO Secretariat upon presentation of their official badges. Accredited journalists and
representatives of relevant non-governmental organizations (NGOs) may indicate to the Secretariat
(Information and External Relations Division) their interest in attending the viewings. No later than
four weeks before the substantive meetings, the WTO Secretariat will place a notice on the WTO
website informing the public of the non-confidential sessions. The notice shall include a link through
which members of the public can register directly with the WTO. The date(s) of the deadline for
public registration will be informed to the parties as soon as it has been established.

ANNEX A-4
TIMETABLE FOR THE PANEL PROCEEDINGS1
Adopted on 20 June 2018
Revised on 7 December 2018

Panel established on 9 April 2018
Panel composed on 22 May 2018

Description Dates2
a. Receipt of first written submissions
i. Canada

22 June 2018

ii. United States

24 July 2018

b. Receipt of third parties' written submissions 31 July 2018
c. First substantive meeting with the parties 12, 13 September 2018
 Third party session 13 September 2018
d. Receipt of responses to questions posed by the Panel 27 September 2018
e. Receipt of integrated executive summaries of third parties
Receipt of the first integrated executive summaries of the parties
4 October 2018
f. Receipt of written rebuttals of the parties 17 October 2018

g. Second substantive meeting with the parties

4 December 2018 (and
5 December if necessary)

h. Receipt of responses to questions posed by the Panel 19 December 2018

i. Receipt of comments on responses to questions posed by the Panel 10 January 2019

j. Receipt of second integrated executive summaries of parties 17 January 2019

k. Issuance of descriptive part of the report to the parties 29 January 2019

1 The above timetable may be changed in the light of subsequent developments.
2 The exact time of the deadline for receipt of documents are 5 p.m. of the date indicated in this column
unless the Panel separately otherwise indicates.

Description Dates2
l. Receipt of comments by the parties on the descriptive part of the
report
8 February 2019
m. Issuance of the interim report, including findings and conclusions
to the parties
28 February 2019
n. Deadline for parties to request review of part(s) of the report and
to request interim review meeting
7 March 2019
o. Interim review meeting, if request ed – If no meeting requested,
deadline for comments on requests for review
13 March 2019
p. Issuance of final report to the parties 27 March 2019
q. Circulation of the final report to the Members 9 April 2019

ANNEX A-5
INTERIM REVIEW
1. INTRODUCTION
1.1. In accordance with Article 15.3 of the DSU, this Annex sets out our discussion of the arguments
made at the interim review stage. We have revised certain aspects of the Interim Report in light of
the comments received during the interim review process. In addition, we have made certain
editorial changes to improve the clarity and accuracy of the Final Report, or to correct typographical
and non-substantive errors, including those suggested by the United States. The para graph and
footnote numbers in the Final Report remain unchanged.
2. SPECIFIC REQUESTS FOR REVIEW SUBMITTED BY THE PARTIES
2.1. Paragraph 7.19
2.1. Noting that we observed in paragraph 7.19 of the Interim Report that it is "well established by
now in WTO jurisprudence" that "zeroing is prohibited under the W-W and T-T methodologies", the
United States contends that this sentence as drafted may suggest that WTO rights and obligations
originate in WTO panel or Appellate Body reports, rather than the covered agreements.1 Thus, the
United States requests us to modify this sentence. Canada opposes the United States' request,
asserting that this request is premised on a misinterpretation of Article 3.2 of the DSU and that
interim review is not an appropriate time to reopen such an issue.2
2.2. We have made the modifications suggested by the United States because they do not change
the meaning or scope of what is already stated in this paragraph of the Interim Report. We also do
not share Canada's concerns with respect to the United States' request. In this regard, we note that
the modifications made do not affect our own analysis or findings in this dispute.
2.2. Paragraph 7.25
2.3. The United States requests us to modify paragraph 7.25 of the Interim Report where we stated
that the USDOC used "statistical analysis" to consider whether the difference in the weighted average
prices to the test group and the comparison group was significant.3 The United States submits that
our description of the USDOC's actions is inaccurate because the USDOC did not assert that it was
conducting formal "statistical analysis".4 The United States requests that we remove the reference
to the USDOC's use of "statistical analysis" and instead state that the USDOC used "the Cohen's d
coefficient, which is a generally recognized statistical measure of the extent of the difference
between the mean of a test group and the mean of a comparison group". 5 Canada opposes the
United States' request, noting that because it has not challenged the C ohen's d test, this
test's precise nature is not an issue that is either before the Panel or that would be appropriate for
the Panel to determine.6
2.4. We were not required to, and did not, express any view in these panel proceedings on whether
the Cohen's d coefficient is a "generally recognized statistical measure". Making the drafting changes
proposed by the United States may incorrectly suggest to the reader of our Report that we expressed
such a view. Therefore, we decline to modify this paragraph in the manner proposed by the
United States. Nonetheless, we have made certain changes to more accurately reflect the
USDOC's description of the Cohen's d test.

1 United States' request for interim review, para. 4.
2 Canada's comments on the United States' request for interim review, para. 3.
3 United States' request for interim review, para. 5.
4 United States' request for interim review, para. 5.
5 United States' request for interim review, para. 5. (emphasis omitted)
6 Canada's comments on the United States' request for interim review, para. 5.

2.3. Paragraphs 7.28 and 7.32
2.5. The United States requests us to make certain changes in par agraphs 7.28 and 7.32 to
accurately describe how the USDOC applied the DPM in the underlying investigation. 7 Canada does
not comment on the United States' request.
2.6. We have made the changes requested by the United States.
2.4. Paragraph 7.36(b)
2.7. The United States requests us to modify this paragraph by noting that the pattern found by
the USDOC in the underlying investigation included prices to purchasers, regions or time periods
that differed significantly because they were significantly lower than export prices to other
purchasers, regions or time periods.8 Canada does not comment on the United States' request.
2.8. We decline to make the modifications requested by the United States. In paragraphs 7.36
and 7.37 we set out the issues that the parties disagree on as "a matter of law". The parties do not
disagree that a pattern of export prices which differ significantly may include export prices that differ
significantly because they are significantly lower than export prices to other purchasers, regions or
time periods. Thus, the modifications proposed by the United States would affect the clarity of our
Report. We also note that paragraph 7.31 of our Report already sets out the relevant facts in this
regard.
2.5. Paragraph 7.46
2.9. The United States requests us to make certain changes to accurately reflect its arguments. 9
Canada does not comment on the United States' request.
2.10. We have made the changes requested by the United States.
2.6. Paragraph 7.83
2.11. The United States requests us to modify this paragraph to accurately reflect the text of the
pattern clause.10 Canada does not comment on the United States' request.
2.12. We have made the modification requested by the United States.
2.7. Paragraph 7.107
2.13. The United States opposes the reference to "cogent reasons" in this paragraph and asks us
to make edits by removing this reference. 11 Canada opposes the United States' request, noting in
this regard that interim review is not the appropriate stage for the Unite d States to reopen this
issue.12
2.14. We decline to make the changes suggested by the United States in interim review and
consider that our Report adequately sets out the legal as well as factual basis for our conclusions in
this dispute.

ANNEX B
ARGUMENTS OF THE PARTIES
Contents Page
Annex B-1 First integrated executive summary of the arguments of Canada 18
Annex B-2 Second integrated executive summary of the arguments of Canada 23
Annex B-3 First integrated executive summary of the arguments of the United States 30
Annex B-4 Second integrated executive summary of the arguments of the United States 41

ANNEX B-1
FIRST INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF CANADA
I. INTRODUCTION

1. This dispute concerns the continued improper application of the U.S. Differential Pricing
Methodology ("DPM") – a measure that the Dispute Settlement Body has ruled to be "as such"
inconsistent with Articles 2.4 and 2.4.2 of the Agreement on Implementation of Article VI of the
General Agreement on Ta riffs and Trade 1994 ("Anti-Dumping Agreement"), when it adopted the
Appellate Body and panel reports in US – Washing Machines on September 26, 2016.

2. On November 25, 2016, the Committee Overseeing Action for Lumber International Trade
Investigations or Negotiations ("Petitioner") filed an anti -dumping petition concerning Certain
Softwood Lumber Products from Canada . Commerce initiated an anti -dumping investigation on
December 15, 2016. On January 27, 2017, Commerce selected Canfor Corporation, Canadian Forest
Products Ltd. and Canfor Wood Products Marketing Ltd. ("Canfor"), Resolute FP Canada Inc.
("Resolute"), Tolko Marketing and Sales Ltd. ("Tolko"), and West Fraser Mills Ltd. ("West Fraser")
as mandatory respondents.

3. On June 23, 2017, Commerce issued its preliminary determination and applied the DPM. The
Governments of Canada, Ontario, and Québec as well as the British Columbia Lumber Trade Council,
the Conseil de l'industrie forestière du Québec, and the Ontario Forest Industries Association filed a
joint case brief on August 7, 2017, arguing that the Appellate Body Report in US – Washing Machines
found the DPM to be "as such" inconsistent with the United States' WTO obligations and therefore
argued that Commerce should not apply it in this case. Nonetheless, Commerce continued to apply
the DPM its Final Determination, which it issued on November 1, 2017.

4. Following the U.S. International Trade Commission's final affirmative injury determination,
Commerce published its anti-dumping duty order on January 3, 2018.

5. The DPM is a methodology that Commerce uses to bypass the regular methodologies for
calculating a margin of dumping. Article 2.4.2 of the Anti-Dumping Agreement provides that margins
of dumping shall normally be calculated using either the weighted -average-to-weighted-average
("W-W") or transaction-to-transaction ("T-T") comparison methodologies. In order to have recourse
to the exceptional weighted-average-to-transaction ("W-T") methodology, an investigating authority
must meet the criteria set out in the second sentence of Article 2.4.2. Commerce applies the DPM
in all cases, and, ignoring the crit eria in Article 2.4.2, utilizes the DPM in an attempt to justify its
frequent recourse to the exceptional W-T methodology.

6. Applying the DPM, and the W -T methodology to all transactions with zeroing, Commerce's
final calculations yielded margins for Resolute, Tolko, and West Fraser of 3.20%, 7.22%, and 5.57%.
The use of this methodology increased their respective margins from 0.00%, 4.07%, and 2.28%,
under the default W-W methodology.

II. THE USE OF THE DPM IN THIS INVESTIGATION VIOLATED THE ANTI -DUMPING
AGREEMENT

7. Commerce erred when it applied the DPM in its investigation into Certain Softwood Lumber
Products from Canada . Commerce's reliance on the DPM is contrary to the plain wording of
Article 2.4.2 of the Anti -Dumping Agreement. Moreover, the app lication of the DPM in this
investigation was the identical methodology the Appellate Body found "as such" inconsistent in
US - Washing Machines.

8. Article 2.4.2 is a tool that allows Members to address targeted dumping and therefore permits
an investiga ting authority to have recourse to the exceptional W -T methodology, albeit in very
limited circumstances. Article 2.4.2 expressly requires that, before resorting to the W -T
methodology, an investigating authority must identify a "pattern of export prices w hich differ
significantly among different purchasers, regions or time periods."

9. The Appellate Body has confirmed that the ordinary meaning of the term "pattern" means that
a pattern must constitute a regular and intelligible form or sequence discernible in certain actions or
situations. The Appellate Body further confirmed that the use of the term "among" requires that
each category be considered on its own. A "pattern" must therefore exist with respect to certain
purchasers, to certain time p eriods, or to certain regions. Finally, when Article 2.4.2 is read in the
context of its purpose of addressing targeted dumping, and in the wider context of the Anti-Dumping
Agreement as a whole, it is clear that the relevant transactions for the purpose o f identifying a
pattern are low priced transactions.

10. The DPM, however, fails to identify a pattern of any kind. Instead, it compares all export
transactions across the different categories, identifies both high and low priced transactions as part
of the claimed pattern, and then aggregates the results from these unrelated categories. The plain
language meaning of the term "pattern" simply cannot be reconciled with Commerce's approach of
weighing the value of sales that happen to pass the DPM's statisti cal test with no assessment of
whether there is regularity or a sequence to the export prices that have passed the test. The DPM
merely identifies differences in price rather than a pattern of export prices.

11. In its investigation, Commerce improperly a ggregated the results of its application of the
Cohen's d test in the DPM for all categories (purchasers, regions, and time periods) before using this
aggregated total to determine that the DPM's 66% threshold was met for each of the respondents.
In applyi ng the DPM, Commerce also improperly aggregated both high priced and low priced
transactions and combined transactions that passed the Cohen's d test based on purchasers, regions,
and time periods. The use of this process to justify the application of the exceptional W -T
methodology was therefore improperly based on both high priced and low priced transactions and
ignored the requirement set out in Article 2.4.2 to identify a pattern among purchasers, regions or
time periods. One cannot have a "pattern" con sisting of fundamentally different prices. This is
contrary to the ordinary meaning of the word "pattern".

12. Consequently, on the basis of all of the above, Commerce acted inconsistently with
Article 2.4.2 of the Anti -Dumping Agreement when it applied t he exceptional W-T methodology to
Resolute, Tolko, and West Fraser.

III. THE USE OF ZEROING AS PART OF THE DPM IN THIS INVESTIGATION VIOLATED THE
ANTI-DUMPING AGREEMENT

13. Commerce further erred when it applied zeroing as part of the DPM in its investig ation. The
Appellate Body has confirmed that the zeroing methodology is inconsistent with the Anti -Dumping
Agreement when applying any of the three comparison methodologies permitted under Article 2.4.2.
In US – Washing Machines, the Appellate Body express ly found that Commerce's reliance on the
DPM to reintroduce zeroing through the W -T methodology was "as such" inconsistent with the
United States' WTO obligations.

14. Despite clear guidance as to the WTO -inconsistency of zeroing in the DPM, Commerce
nevertheless relied on the DPM to apply this same zeroing technique in its W -T methodology when
calculating the dumping margins for Resolute, Tolko, and West Fraser. The use of zeroing as part of
the DPM as applied in Commerce's investigation into Certain Softwood Lumber Products from Canada
is necessarily WTO-inconsistent for at least three reasons.

15. First, zeroing is simply impermissible during the application of the W -T methodology. This is
clear both from the text of Article 2.4.2 and from the Anti -Dumping Agreement as a whole. The
concepts of "dumping" (as defined by Article 2.1) and "margins of dumping" are the same throughout
the Anti-Dumping Agreement. This means that the previous interpretations related to these terms
over some 18 years of WTO jurisprudence are equally applicable to the interpretation of the second
sentence of Article 2.4.2. Intermediate transactions are not margins of dumping.

16. WTO panels and the Appellate Body have also consistently held that the zeroing methodology
is inconsistent with the Anti-Dumping Agreement. This is because zeroing effectively alters certain
transactions or treats them as less than their actual value.

17. Second, zeroing in the W -T methodology does not account for all of the purported "pattern"
transactions in calculating the margin of dumping. As the Appellate Body confirmed in US – Washing

Machines, while export prices within an Article 2.4.2 "pattern" must differ significantly from other
export prices, the pattern ultimately used in the W-T calculation must be composed of all the export
prices to one or more particular purchasers, regions, or time periods, not just those export prices
that are below normal value. The Appellate Body further determined, in that dispute, that there is
no basis for excluding pattern transactions that are priced above normal value.

18. These Appellate Body findings are firmly rooted in the text of the Anti -Dumping Agreement.
Article 2.4.2 allows an investigating authority to narrow the universe of export transactions. For the
purposes of the numerator in a W -T comparison, this means that all of the export transactions in
the relevant universe of sales under consideration must be considered. The second sentence of
Article 2.4.2, with its emphasis on "individual export transac tions", distinguishes the universe of
sales under consideration for the W -T comparison process from the universe of export sales under
consideration in the first sentence, which is all export sales. The text requires that, if an investigating
authority chooses to use the W-T methodology, it is required to assess the whole pattern, and not
only part of it. Zeroing within an identified pattern detaches the notion of "pattern" in the second
sentence of Article 2.4.2 from the pattern to which the W -T comparison methodology is applied for
establishing margins of dumping in order to address targeted dumping. Zeroing within the W -T
methodology thus improperly considers only those transactions that fall below the normal value
rather than, as required by Article 2.4. 2, the entire universe of export transactions that fall within
the pattern as properly identified. The narrowing of the universe of export transactions to all pattern
transactions, and the inclusion of all transactions in the denominator, ensures that the resultant
dumping margin is for the product as a whole.

19. Third, zeroing does not lead to a fair comparison of export prices as required by Article 2.4 of
the Anti-Dumping Agreement. The chapeau of Article 2.4 requires that "[a] fair comparison shall be
made between the export price and the normal value", while the introductory clause to Article 2.4.2
expressly provides that the dumping calculation methodologies set out in that Article are subject to
the fair comparison obligation in Article 2.4.

20. Disregarding the results of certain intermediate comparisons is inconsistent with the obligation
to make a "fair comparison" under Article 2.4. The ordinary meaning of "fair" requires impartiality
and a lack of bias. The Appellate Body in US – Corrosion-Resistant Steel Sunset Review found that
there is an inherent bias in the zeroing methodology as the methodology may inflate the magnitude
of a dumping margin and may also distort a finding of the very existence of dumping itself.

21. In the context of zeroing in the W -T methodology, in US – Washing Machines, the Appellate
Body confirmed that setting to zero intermediate negative comparison results inflates the magnitude
of dumping and also makes positive determinations of dumping more likely whe re export prices
above normal value exceed those below normal value. It also concluded that, by setting to zero
"individual export transactions" that yield a negative comparison result, an investigating authority
fails to compare all comparable export tran sactions that form Article 2.4.2's "universe of export
transactions". Zeroing in applying the W-T methodology thus fails to make a fair comparison between
export prices and normal value.

22. In this case, zeroing produced the unfair results foreseen by the Appellate Body. It not only
inflated the margins of dumping for Tolko and West Fraser, but it also created a positive
determination of dumping for Resolute where none otherwise existed. Whil e Resolute's calculated
margin of dumping was -2.61%, Commerce's use of zeroing in the W -T methodology ultimately
inflated Resolute's margin of dumping by 5.81 percentage points. As a result, a company that on
average sold for a price that was higher than normal value in the United States is subject to an anti-
dumping order because of zeroing.

23. Despite all of the above, the United States argues that, without zeroing, all three of the
comparison methodologies yield the same result, a concept it calls "ma thematical equivalency".
However, the Appellate Body expressly found in US – Washing Machines that mathematical
equivalency is not determinative of the meaning of the text. Moreover, the United States itself
acknowledged during the Appellate Body hearing f or US – Washing Machines that calculating a
margin of dumping focused only on pattern transactions would lead to a mathematically different
result.

24. Canada further notes that, when the W-T and W-W methodologies are applied correctly, they
yield mathematically different results. The W -T and the W -W methodologies, as described in the

Anti-Dumping Agreement, and when properly interpreted, cannot be applied to the same set of
export transactions. In order to manipulate the W -T calculation to yield mathemati cally equivalent
results to the W-W methodology, among other choices that would need to be made in the calculation,
the W -T calculation would have to be applied to all export transactions. However, Article 2.4.2
clarifies that the W -T methodology may be ap plied only to "pattern" sales and not to all export
transactions. Had Commerce correctly applied the W-W and W-T methodologies to Resolute, Tolko,
and West Fraser, without zeroing, they would have yielded mathematically different results.

25. The United States also argues that the Panel should resort to the negotiating history of the
Anti-Dumping Agreement to interpret this provision. However, as the meaning of the second
sentence of Article 2.4.2 is clear, there is no need to resort to negotiating history to interpret it.

26. Consequently, on the basis of all of the above, when Commerce applied zeroing as part of the
DPM in calculating the dumping margins using the W -T methodology for Resolute, Tolko, and West
Fraser, it breached the United States' obliga tions under the second sentence of Article 2.4.2 and
Article 2.4.

IV. PANELS ARE EXPECTED TO FOLLOW APPELLATE BODY REPORTS

27. Panels are expected to follow Appellate Body reports, absent cogent reasons to do otherwise,
to ensure the security and predictability of the multilateral trading system. The Appellate Body has
repeatedly confirmed this principle, which arises directly from the provisions of the Dispute
Settlement Understanding ("DSU").

28. The DSU specifies that the Appellate Body may, on appeal, uphold, modify or reverse the legal
findings and conclusions of a panel. The DSU therefore clearly creates a hierarchical system. In all
legal systems the decisions of a hierarchically superior court or tribunal are generally followed by
subsidiary bodies. For this reason, while reports formally bind only the parties to a particular dispute,
panels cannot disregard adopted Appellate Body decisions.

29. This is clear from the text of Article 3.2 of the DSU. In US — Stainless Steel (Mexico) , the
Appellate Body confirmed that this Article informs a panel's function under the DSU. Article 3.2
states that the dispute settlement system "is a central element in providing security and
predictability" and serves "to clarify" the provisions of the WTO agreements. A ppellate Body
oversight of panel decisions promotes security and predictability by ensuring the consistent
interpretation of the WTO agreements. In US — Stainless Steel (Mexico), the Appellate Body noted
that the reference to clarification in Article 3.2 d emonstrates that adopted reports are relevant
beyond the application of a particular provision in a particular case and found that a panel that fails
to follow the Appellate Body undermines the development of a coherent and predictable body of
jurisprudence.

30. The Appellate Body in US – Shrimp (Article 21.5 – Malaysia) also confirmed that adopted
reports are part of the WTO acquis and that these reports create legitimate expectations among the
Members. For this reason, every panel and Appellate Body rep ort cites to previous findings and
Members repeatedly cite prior reports in their pleadings. The United States itself does this, including
in the present dispute.

31. Finally, in US — Oil Country Tubular Goods Sunset Reviews , the Appellate Body expressly
found that where a panel relies on the Appellate Body's conclusions with respect to the exact same
issue, it will not have failed to make an objective assessment for the purposes of Article 11 of the
DSU. To the contrary, it is appropriate for a panel to rely on the Appellate Body's conclusions.

32. In this dispute, however, the United States has gone so far as to expressly invite this Panel to
ignore Appellate Body guidance. It has also suggested that Canada's position is contrary to
Article IX:2 of the Marrakesh Agreement Establishing the World Trade Organization. Jurisprudence
addresses the relationship between this Article and adopted reports. The panel in US – Countervailing
and Anti -Dumping Measures (China) considered that, if a multilateral interpre tation under
Article IX:2 conflicts with a prior Appellate Body interpretation, cogent reasons may exist for a panel
to refuse to follow the Appellate Body. There is no multilateral interpretation relevant to this dispute,
and there are no cogent reasons to depart from Appellate Body findings with respect to the DPM.

33. Consequently, this Panel must objectively assess whether the DPM is the same DPM that was
at issue in US – Washing Machines. If it is, and it is, this Panel must follow the Appellate Body' s
decision in that dispute.

ANNEX B-2
SECOND INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF CANADA
I. INTRODUCTION

1. This dispute concerns the continued improper application of the United States' Differential
Pricing Methodology ("DPM ") – a measure that the Dispute Settlement Body has ruled to be "as
such" inconsistent with Articles 2.4 and 2.4.2 of the Agreement on Implementation of Article VI of
the General Agreement on Tariffs and Trade 1994 ("Anti-Dumping Agreement"), when it adopt ed
the Appellate Body and panel reports in US – Washing Machines on September 26, 2016.

2. The DPM is a methodology that the United States Department of Commerce ("Commerce")
uses to bypass the regular methodologies for calculating a margin of dumping. Ar ticle 2.4.2 of the
Anti-Dumping Agreement provides that margins of dumping shall normally be calculated using either
the weighted -average-to-weighted-average ("W -W") or transaction -to-transaction ("T -T")
comparison methodologies. In order to have recourse to the exceptional weighted -average-to-
transaction ("W-T") methodology, an investigating authority must meet the criteria set out in the
second sentence of Article 2.4.2. Commerce applies the DPM in all cases, and, ignoring the criteria
in Article 2.4.2, utilizes the DPM in an attempt to justify its frequent recourse to the exceptional W-T
methodology.

3. Applying the DPM, and the W -T methodology to all transactions with zeroing, Commerce's
final calculations yielded margins for Resolute FP Canada Inc. ("R esolute"), Tolko Marketing and
Sales Ltd. ("Tolko"), and West Fraser Mills Ltd. ("West Fraser") of 3.20%, 7.22%, and 5.57%. The
use of this methodology increased their respective margins from 0.00%, 4.07%, and 2.28%, under
the default W-W methodology.

II. THE USE OF THE DPM IN THIS INVESTIGATION VIOLATED THE ANTI -DUMPING
AGREEMENT

4. Commerce erred when it applied the DPM in its investigation into Certain Softwood Lumber
Products from Canada . Commerce's reliance on the DPM is contrary to the plain wording of
Article 2.4.2 of the Anti -Dumping Agreement. Moreover, the application of the DPM in this
investigation was the identical methodology the Appellate Body found "as such" inconsistent in
US - Washing Machines.

5. The second sentence of Article 2.4.2 is a tool that allows Members to unmask and address
targeted dumping by an exporter. It permits an investigating authority to have recourse to the
exceptional W -T methodology, albeit in very limited circumstances. Before resorting to the W -T
methodology, an i nvestigating authority must identify a "pattern of export prices which differ
significantly among different purchasers, regions or time periods". The application of the Article
therefore hinges on the identification and proper analysis of the requisite pattern.

6. The Appellate Body has confirmed that the ordinary meaning of the term "pattern" means that
a pattern must constitute a regular and intelligible form or sequence discernible in certain actions or
situations. The Appellate Body further confirmed t hat the use of the term "among" requires that
each category be considered on its own. A "pattern" must therefore exist with respect to certain
purchasers, to certain time periods, or to certain regions. This narrowing of the universe of export
transactions is clearly provided for in the text. The text does not, however, create a relationship
between the term "pattern" and normal value. Consequently, both pattern transactions and
non-pattern transactions may be above or below normal value.

7. Once a pattern is identified, all the pattern transactions are part of the comparison. Finally,
when Article 2.4.2 is read in the context of its purpose of addressing targeted dumping, and in the
wider context of the Anti-Dumping Agreement as a whole, it is clear that t he relevant transactions
for the purpose of identifying a pattern are lower priced transactions.

8. The DPM, however, fails to identify a pattern of any kind. Instead, it compares all export
transactions across the different categories, identifies both high and low priced transactions as part
of the claimed pattern, and then aggregates the results from these unrelated categories. The plain

language meaning of the term "pattern" simply cannot be reconciled with Commerce's approach of
weighing the value of s ales that happen to pass the DPM's statistical test with no assessment of
whether there is regularity or a sequence to the export prices that have passed the test. The DPM
merely identifies differences in price rather than a pattern of export prices. It is therefore
unsurprising that Commerce determined that all four respondents, Canadian Forest Products Ltd
("Canfor"), Resolute, Tolko, and West Fraser, had a "pattern" of export prices that differ
significantly.1

9. While the United States initially asser ted that Commerce undertook a "rigorous, holistic
examination" to determine whether a pattern existed in this case 2, it subsequently admitted that
Commerce had failed to identify specific transactions that formed part of the pattern.3 This admission
cannot be reconciled with the assertion that the USDOC determined that a pattern existed. It is
inconceivable that an investigating authority would purport to have identified a pattern but not be
able to specify what that pattern is. In this case, the Commerce d id not identify a pattern because
the DPM does not identify a pattern.

10. All Commerce did was apply its ratio test. This exclusive reliance on the ratio test is not
consistent with the wording of the second sentence of Article 2.4.2. The ratio test is designed to sum
the value of transactions that are identified by the Cohen's d test as differentially priced. The ratio
test in no way determines whether there is a regular or intelligible sequence to the identified
transactions, as required by the ordinary meaning of the term "pattern".

11. Commerce also improperly aggregated th e results of its application of the Cohen's d test in
the DPM for all categories (purchasers, regions, and time periods) and improperly aggregated both
high priced and low priced transactions and combined transactions that passed the Cohen's d test
based on purchasers, regions, and time periods. The United States defends the use of this process
on the basis that a pattern would "transcend multiple purchasers, regions, or time periods". 4 This
approach is nonsensical. There can be no regular and intelligible sequence that transcends the
differences between purchasers, and the differences between regions, and the differences between
time periods. Aggregating different types of transactions cannot identify the requisite regular or
intelligible sequence. There is no relationship or similarity between these transactions grouped
together and there is no "pattern" whatsoever.

12. The United States contends that a pattern could also consist of every transaction in an
investigation.5 This is incorrect. As the panel in US – Anti-Dumping Methodologies (China) found,
the "export prices which form part of that discernible group form the relevant 'pattern' rather than
the larger universe of export prices from which that group is discerned or distinguished".6 The word
"pattern" suggests a subset of export prices that is discernable from the larger universe of export
prices. It is those export prices —which form part of the discernable group —that form the pattern,
not the larger universe of export prices from which they differ.7

1 For Resolute: US Department of Commerce, Antidumping Duty Investigation of Certain Softwood
Lumber Products: Analysis of Data Submitted by Resolute FP Canada, Inc. for the Final Determination
(A-122-857), November 1, 2017, Exhibit CAN-07 (BCI), p.7. For Tolko: US Department of Commerce,
Antidumping Duty Investigation of Certain Softwood Lumber Products: Analysis of Data Submitted by Tolko
Marketing and Sales Ltd. and Tolko Industries Ltd for the Final Determination (A-122-857), November 1, 2017,
Exhibit CAN-08 (BCI), p.8. For West Fraser: US Department of Commerce, Antidumping Duty Investigation
of Certain Softwood Lumber Products from Canada: Analysis of Data Submitted by West Fraser Mills Ltd. for
Final Determination (A-122-857), November 1, 2017, Exhibit CAN-09 (BCI), p.7. For Canfor: US Department
of Commerce, Antidumping Duty Investigation of Certain Softwood Lumber Products from Canada: Analysis of
Data Submitted by Canfor Corporation, Canadian Forest Products Ltd., and Canfor Wood Products Marketing
Ltd. for the Amended Final Determination (A-122-857), December 4, 2017, Exhibit CAN-06, p.3.
2 United States' second written submission, para. 21.
3 United States' response to Panel question No. 4 in connection with the second substantive meeting,
para. 43.
4 United States' second written submission, para. 42.
5 United States' first written submission, para. 62; United States' second written submission, para. 48;
where the United States maintains that the pattern is the overall pricing behaviour of an exporter.
6 Panel Report, US – Anti-Dumping Methodologies (China), para. 7.178.
7 Appellate Body Report, US – Anti-Dumping Methodologies (China), para. 5.31; see also Panel Reports,
US – Washing Machines, para. 7.142, and US – Anti-Dumping Methodologies (China), para. 7.178; Appellate
Body Report, US – Washing Machines, para. 5.31.

13. The United States also asserts that aggregation is necessary to account for the product as a
whole.8 However, the United States offers no explanation as to why the correct approach, as
discussed in the Appellate Body's report in US – Washing Machines, fails to account for the product
as a whole. In fact, by searching for a pattern in only one category, all relevant transactions are
considered. This permits an analysis of the product as a whole.

14. Finally, in an attempt to find textual sup port for its position, United States suggests that the
word "among" would appear three times in Article 2.4.2 if that term was meant to limit the
identification of a pattern to the consideration of transactions within a single category, e.g., before
"purchasers", "regions", and "time periods".9 At the second substantive meeting of the Panel, Canada
demonstrated that this approach was misguided. The word "different" clearly qualifies each of the
categories and yet it too occurs only once.

15. Consequently, on the basis of all of the above, Commerce acted inconsistently with
Article 2.4.2 of the Anti -Dumping Agreement when it applied the exceptional W -T methodology to
Resolute, Tolko, and West Fraser.

III. THE USE OF ZEROING AS PART OF THE DPM IN THIS INVESTIGATION VIOLATED THE
ANTI-DUMPING AGREEMENT

16. Commerce further erred when it applied zeroing as part of the DPM in its investigation. The
Appellate Body has confirmed that the zeroing methodology is inconsistent with the
Anti-Dumping Agreement when appl ying any of the three comparison methodologies permitted
under Article 2.4.2. In US – Washing Machines, the Appellate Body expressly found that Commerce's
reliance on the DPM to reintroduce zeroing through the W-T methodology was "as such" inconsistent
with the United States' WTO obligations.

17. Despite clear guidance as to the WTO -inconsistency of zeroing in the DPM, Commerce
nevertheless relied on the DPM to apply this same zeroing technique in its W -T methodology when
calculating the dumping margins fo r Resolute, Tolko, and West Fraser. Canada has demonstrated
that the use of zeroing as part of the DPM as applied in Commerce's investigation into Certain
Softwood Lumber Products from Canada is necessarily WTO-inconsistent for at least three reasons.

18. First, zeroing is impermissible during the application of the W -T methodology. This is clear
both from the text of Article 2.4.2 and from the Anti-Dumping Agreement as a whole. The concepts
of "dumping" (as defined by Article 2.1 and Article VI:1 of the GATT 1994) and "margins of dumping"
are the same throughout the Anti-Dumping Agreement. This means that the previous interpretations
related to these terms over some 18 years of WTO jurisprudence are equally applicable to the
interpretation of the second se ntence of Article 2.4.2. 10 Intermediate comparison results are not
margins of dumping. The second sentence of Article 2.4.2 cannot be used as a justification to depart
from any other obligation. It cannot change the definition of dumping or transform an intermediate
comparison result into a margin of dumping.

19. Second, zeroing in the W-T methodology does not account for all of the "pattern" transactions
in calculating the margin of dumping. As the Appellate Body confirmed in US – Washing Machines,
while export prices within an Article 2.4.2 "pattern" must differ significantly from other export prices,
the pattern ultimately used in the W-T calculation must be composed of all the export prices to one
or more particular purchasers, regions, or time periods, not just those export prices that are below
normal value. The Appellate Body further determined, in that dispute, that there is no basis for
excluding pattern transactions that are priced above normal value.

20. These Appellate Body findings are firmly rooted in the text of the Anti -Dumping Agreement.
Article 2.4.2 allows an investigating authority to narrow the universe of export transactions in
accordance with the text. For the purposes of the numerator in a W -T comparison, this means that
all of the e xport transactions in the relevant universe of sales under consideration must be

8 United States' response to Panel question No. 1 in connection with the second substantive meeting,
para. 3.
9 United States' first written submission, para. 86; United States' second written submission, para. 41;
United States' opening statement at the first substantive meeting of the Panel, para. 27.
10 WTO panels and the Appellate Body have also consistently held that the zeroing methodology is
inconsistent with the Anti-Dumping Agreement. This is because zeroing effectively alters certain transactions or
treats them as less than their actual value.

considered. The second sentence of Article 2.4.2, with its emphasis on "individual export
transactions", distinguishes the universe of sales under consideration for the W -T co mparison
process from the universe of export sales under consideration in the first sentence, which is all
export sales. The text requires that, if an investigating authority chooses to use the W -T
methodology, it is required to assess the whole pattern, and not only part of it. As the Appellate Body
clarified, "the 'targeted dumping' to be 'unmasked' corresponds to the properly identified 'pattern',
and not to a set of sales below normal value within that pattern for which there exists neither a
textual no r a contextual basis in the second sentence". 11 Zeroing within an identified pattern
detaches the notion of "pattern" in the second sentence of Article 2.4.2 from the pattern to which
the W-T comparison methodology is applied for establishing margins of dumping in order to address
targeted dumping. Zeroing within the W -T methodology thus improperly considers only those
transactions that fall below the normal value rather than, as required by Article 2.4.2, the entire
universe of export transactions that fall within the pattern as properly identified.

21. The narrowing of the universe of export transactions to all pattern transactions, and the
inclusion of all transactions in the denominator, ensures that the resultant dumping margin is for
the product as a whole. By contrast, the Appellate Body has repeatedly found that zeroing fails to
take into account the product as a whole. Indeed, zeroing arbitrarily manipulates the data such that
they no longer reflect the underlying transactions.

22. Third, zeroing does not lead to a fair comparison of export prices as required by Article 2.4 of
the Anti-Dumping Agreement. The chapeau of Article 2.4 requires that "[a] fair comparison shall be
made between the export price and the normal value", while the introductory clause to Article 2.4.2
expressly provides that the dumping calculation methodologies set out in that Article are subject to
the fair comparison obligation in Article 2.4.

23. Disregarding the results of certain intermediate comparisons is inconsistent with the obligation
to make a "fair comparison" under Article 2.4. The ordinary meaning of "fair" requires impartiality
and a lack of bias. The Appellate Body in US – Corrosion-Resistant Steel Sunset Review found that
there is an inherent bias in the zeroing methodology as the methodology may inflate the magnitude
of a dumping margin and may also distort a finding of the very existence of dumping itself.

24. In the context of zeroing in the W -T methodology, in US – Washing Machines , the
Appellate Body confirmed that setting to zero intermediate negative comparison results inflates the
magnitude of dumping and also makes positive determinations of dumping more likely where export
prices above normal value exceed those below normal value. It also concluded that, by setting to
zero "individual export transactions" that yield a negative comparison result, an investigating
authority fails to compare all comparable e xport transactions that form Article 2.4.2's "universe of
export transactions". Zeroing in applying the W-T methodology thus fails to make a fair comparison
between export prices and normal value.

25. In this case, zeroing produced the unfair results fore seen by the Appellate Body. It not only
inflated the margins of dumping for Tolko and West Fraser, but it also created a positive
determination of dumping for Resolute where none otherwise existed. While Resolute's calculated
margin of dumping was -2.61%, Commerce's use of zeroing in the W -T methodology ultimately
inflated Resolute's margin of dumping by 5.81 percentage points. As a result, a company that on
average sold for a price that was higher than normal value in the United States is subject to an anti-
dumping order because of zeroing. Nonetheless, the United States asserts that both the Appellate
Body's approach in US – Washing Machines and zeroing are "in reality and effect, essentially the
same"12, and therefore, zeroing cannot violate the fair comparison requirement.13 This assertion is
untrue. At the second substantive meeting of the Panel, Canada demonstrated that both approaches
would produce different results for Resolute and that zeroing was actually necessary to manufacture
a margin of dumping for that company.14

26. Despite all of the above, the United States attempts to support zeroing by arguing that,
without zeroing, the comparison methodologies described in Article 2.4.2 and a so -called mixed

11 Appellate Body Report, US – Washing Machines, para. 5.156.
12 United States' second written submission, para. 83.
13 United States' second written submission, paras. 84 and 85.
14 Canada's opening statement at the second substantive meeting of the Panel, 4 December 2018,
paras. 9-11; Resolute's Margin of Dumping, Exhibit CAN-13 (BCI); Alternative Margin Analysis, Resolute,
Exhibit CAN-32 (BCI).

methodology (W-T and W-W) would "always yield" the same result15, a concept it calls "mathematical
equivalency". The United States' arguments concerning purported mathematical equivalency are not
well founded.

27. First, any potential, and hypothetical, mathematical equivalency is not determinative of the
correct interpretation of Article 2.4.2.16

28. Second, it would be incorrect to interpret the meaning of the Article based on the purported
mathematical equivalency of the WTO -inconsistent mixed methodology. The Appellate Body has
found that the use of two separate methodologies to calculate a margin of dumping is not permitted
under the Anti-Dumping Agreement.17 The three permissible methodologies are expressly set out in
Article 2.4.2, which specifies that margins of dumping "shall normally be esta blished" on the basis
of the W-W or the T-T methodology, and then creates an exceptional methodology that may be used
when the requirements of the second sentence are met. There is, however, no support in the text
for the United States' proposed mixed comparison methodology. Conducting separate comparisons
would undermine the purpose of the second sentence of Article 2.4.2, which is to unmask targeted
dumping.18 Moreover, the export transactions to which the W -T methodology would apply would
merely re-assess a subset of the same transactions already captured by the W -W analysis, which
necessarily compares all transactions.

29. Finally, Canada has concretely demonstrated that mathematical equivalence will not arise in
every case. At the second substantive me eting of the Panel, Canada established that the correct
application of the W-T methodology without zeroing19 to Resolute's transactions in this case clearly
yields mathematically different results when compared to the W -W methodology.20 Similarly, in its
responses to Panel questions in connection with the second substantive meeting, Canada calculated
margins of dumping for a hypothetical set of transactions. For the mixed methodology example, the
W-T calculation compared a quarterly weighted average normal va lue to each pattern transaction,
while the W -W calculation compares annual weighted average prices. These comparisons yielded
different margins of dumping.21

30. Relying on its highly problematic mathematical equivalency theory, the United States claims
that zeroing is necessary to unmask evidence of dumping.22 However, in so doing, the United States
ignores that the purpose of Article 2.4.2 is to unmask targeted dumping. In US – Washing Machines,
the Appellate Body clarified that the text narrows the universe of export transactions with references
both to the "pattern" and "individual export transactions" (terms rooted in the text). Targeted
dumping is properly unmasked by narrowing the universe of export transactions to the pattern
transactions for the purpose of calculating the numerator, regardless of whether they are above or
below normal value.23 The Appellate Body's approach does not exclude from the numerator all sales
above normal value, as zeroing does. Moreover, as mentioned above, zeroing finds no basis in the
text whatsoever and actually alters certain intermediate comparison results based solely on their
relationship to normal value.24

15 United States' response to Panel question No. 2(a) in connection with the second substantive
meeting, para. 32.
16 Appellate Body Reports, US – Washing Machines, para. 5.128, and US – Softwood Lumber V
(Article 21.5 – Canada), para. 99.
17 Appellate Body Report, US – Washing Machines, para. 5.120.
18 Appellate Body Report, US – Washing Machines, para. 5.122.
19 Note that Canada's calculations below do not correct for errors in failing to identify a pattern.
20 Effect of Comparison Methodology on Resolute's Margin of Dumping, Exhibit CAN-31.
21 Mixed Methodology Calculation, Exhibit CAN-33. Canada also notes that the United States itself
acknowledged during the Appellate Body hearing for US – Washing Machines that calculating a margin of
dumping focused only on pattern transactions would lead to a mathematically different result.
22 United States' response to Panel question No. 2(a) in connection with the second substantive
meeting, para. 22.
23 The United States asserts that the WTO-consistent manner of properly narrowing the universe of
export transactions, as articulated by the Appellate Body, is simply the "findings of two Appellate Body
Members" (United States' response to Panel question No. 8 in connection with the second substantive meeting,
para. 55). This is wrong on its face as the findings in an Appellate Body report are the findings of that Body, as
a whole. The United States' assertion is further undermined because the entire division agreed that the
universe of export transactions should be narrowed.
24 Appellate Body Report, US – Washing Machines, para. 5.170; Panel Report, US – Anti-Dumping
Methodologies (China), para. 7.208.

31. The United States also argues that the Panel should resort to the negotiating history of the
Anti-Dumping Ag reement, including previous drafts, to interpret Article 2.4.2, at least in part
because it alleges that the Appellate Body invented a new methodology for calculating margins of
dumping that is unsupported by the text of the Article. This is incorrect for several reasons.

32. At the outset, it is not necessary to have recourse to the negotiating history to confirm the
meaning of the second sentence of Article 2.4.2.25 The Appellate Body did not invent an entirely new
methodology. It merely clarified the WT O-consistent functioning of the W -T methodology with
reference to the text of the Article. That clarification is consistent both with the approach taken by
the panels in US - Washing Machines and in US-Anti-Dumping Methodologies (China)26 and with the
interpretation of the provision provided by the third parties in this dispute. 27 This common
understanding of the meaning of the text suggests that the Appellate Body's interpretation was
indeed contemplated by the Members. As the meaning of the second sentence of Article 2.4.2 is
clear, there is no need to resort to negotiating history to interpret it.

33. Moreover, attempting to interpret the current text of Article 2.4.2 with reference to past drafts
is problematic as those earlier texts did not contain some of the key terms that are crucial to
understanding the different comparison methodologies. In particular, unlike previous drafts, the final
text specifically indicates that the W -W methodology is a comparison of "all comparable export
transactions", while the discussion of the exceptional weighted-average-to-transaction methodology
in the second sentence of the final draft expressly does not contain a similar reference to "all"
transactions. This demonstrates that the exceptional methodology, as adopted in the final text, is
not meant to apply to the same universe of transactions.

34. An analysis of Article 2.4.2 demonstrates that it is the United States, and not the
Appellate Body, that has invented a methodology that does not have a basis in the text.

35. Consequently, on the basis of all of the above, when Commerce applied zeroing as part of the
DPM in calculating the dumping margins using the W -T methodology for Resolute, Tolko, and West
Fraser, it breached the United States' obligations under the se cond sentence of Article 2.4.2 and
Article 2.4.

IV. PANELS ARE EXPECTED TO FOLLOW APPELLATE BODY REPORTS

36. Panels are expected to follow Appellate Body reports, absent cogent reasons to do otherwise,
to ensure the security and predictability of the mul tilateral trading system. The United States
continues to argue that there is no textual support for this principle28, ignoring that it arises directly
from the provisions of the Dispute Settlement Understanding ("DSU").

37. The DSU specifies that the Appellate Body may, on appeal, uphold, modify or reverse the legal
findings and conclusions of a panel. The DSU therefore clearly creates a hierarchical system. In all
legal systems the decisions of a hierarchically superior court or tr ibunal are generally followed by
subsidiary bodies. For this reason, while reports formally bind only the parties to a particular dispute,
panels cannot disregard adopted Appellate Body decisions.

38. This is confirmed by Article 3.2 of the DSU. In US — Stainless Steel (Mexico) , the
Appellate Body determined that this Article informs a panel's function under the DSU. Article 3.2
states that the dispute settlement system "is a central element in providing security and
predictability" and serves "to clarify" the provisions of the WTO agreements. Appellate Body
oversight of panel decisions promotes security and predictability by ensuring the consistent
interpretation of the WTO agreements. In US — Stainless Steel (Mexico), the Appellate Body noted
that the ref erence to clarification in Article 3.2 demonstrates that adopted reports are relevant
beyond the application of a particular provision in a particular case.

39. The Appellate Body in US – Shrimp (Article 21.5 – Malaysia) also confirmed that a dopted
reports are part of the WTO acquis and that these reports create legitimate expectations among the

25 Appellate Body Report, US – Washing Machines, para. 5.167.
26 Panel Reports, US – Washing Machines, para. 7.160, and US – Anti-Dumping Methodologies (China),
para. 7.208.
27 Brazil's third party statement, para. 13; European Union's third party submission, para. 22; Japan's
third party submission, paras. 19-22.
28 United States' second written submission, para. 12.

Members. For this reason, every panel and Appellate Body report cites to previous findings and
Members repeatedly cite prior reports in their pleadings. The United States itself does this, including
in the present dispute.

40. Finally, the Appellate Body expressly found that where a panel relies on the Appellate Body's
conclusions with respect to the exact same issue, it will not have failed to make an object ive
assessment for the purposes of Article 11 of the DSU.29 To the contrary, it is appropriate for a panel
to rely on the Appellate Body's conclusions and that Body expects panels to accede to the hierarchical
structure of WTO dispute settlement and to foll ow previous adopted Appellate Body reports. 30 The
Appellate Body has also determined that a panel's decision to depart from these reports is of deep
concern and has serious implications for the dispute settlement system.31 In this dispute, however,
the United States has gone so far as to expressly invite this Panel to ignore Appellate Body guidance.

41. The United States argues that Canada's position is contrary to Article IX:2 of the
Marrakesh Agreement Establishing the World Trade Organization. Jurisprudence addresses the
relationship between this Article and adopted reports. If a multilateral interpretation under
Article IX:2 conflicts with a prior Appellate Body interpretation, cogent reasons may exist for a panel
to refuse to follow the Appellate Body. There is no multilateral interpretation relevant to this dispute,
and there are no cogent reasons to depart from Appellate Body findings with respect to the DPM.

42. The United States also relies on an out -of-context statement by the Appellate Body in
Japan - Alcoholic Beverages II.32 This reliance is misplaced. First, the Appellate Body was considering
whether adopted reports constituted either "subsequent practice" or other decisions of the
Contracting Parties under the GATT.33 These questions are not before this Panel. Moreover, in that
report, the Appellate Body expressly acknowledged that adopted reports form part of the acquis,
create legitimate expectations amongst the Members, and ought to be taken into account when they
are relevant.34 Second, in US – Stainless Steel (Mexico) , the Appellate Body cited its decision in
Japan – Alcoholic Beverages II for the proposition that subsequent panels are not free to disregard
the legal interpretations and findings in adopted Appellate Body reports.35

43. Consequently, this Panel must objectively assess whether the DPM is the same DPM that was
at issue in US – Washing Machines. If it is, and it is, this Panel must follow the Appellate Body's
decision in that dispute.

29 Appellate Body Report, US — Oil Country Tubular Goods Sunset Reviews, para. 188.
30 Appellate Body Report, US — Continued Zeroing, paras. 362 and 365.
31 Appellate Body Report, US – Stainless Steel (Mexico), para. 162.
32 United States' second written submission, para. 14.
33 Appellate Body Report, Japan – Alcoholic Beverages II, p. 14.
34 Appellate Body Report, Japan – Alcoholic Beverages II, p. 14.
35 Appellate Body Report, US – Stainless Steel (Mexico), para. 158.

ANNEX B-3
FIRST INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF THE UNITED STATES
I. INTRODUCTION

1. In this dispute, Canada challenges the determination of the U.S. Department of Commerce
("USDOC") in an antidumping investigation of softwood lumber from Canada. Specifically, Canada
claims that the USDOC's determination is inconsistent with the Agreement on Implementation of
Article VI of the General Agreement on Tariffs and Trade 1994 ("AD Agreeme nt") and the
General Agreement on Tariffs and Trade 1994 ("GATT 1994").

2. Canada begins its first written submission by asserting that "this dispute is a profoundly simple
one: the Panel must follow the [Dispute Settlement Body ("DSB")] rulings in US – Washing Machines"
and find that the USDOC's application of a differential pricing analysis and its use of zeroing in the
antidumping investigation of softwood lumber from Canada is inconsistent with Articles 2.4 and 2.4.2
of the AD Agreement. Canada's portr ayal of the role of the Panel in this dispute is fundamentally
contrary to the Understanding on Rules and Procedures Governing the Settlement of Disputes
("DSU") and the Agreement Establishing the World Trade Organization ("WTO Agreement").

3. To resolve this dispute, rather, the Panel will need to make an objective assessment of the
matter before it and undertake an interpretive analysis of the terms of the second sentence of
Article 2.4.2 of the AD Agreement in accordance with the customary rules of interpretation of public
international law. A WTO dispute settlement panel has no authority under the DSU or the WTO
Agreement simply to apply an interpretation in a report adopted by the DSB in a prior dispute, rather
than to interpret and apply the text of the covered agreements. And under the DSU, neither the
Appellate Body nor any panel can issue, because the DSB has no authority to adopt, an authoritative
interpretation of the covered agreements. That authority is reserved to the Ministerial Conference
or the General Council acting under a special procedure.

4. Canada has not done anything to help the Panel accomplish the task it has been given under
the DSU. Instead of presenting interpretive analyses of the AD Agreement applying customary rules
of inter pretation to support its claims, Canada simply refers to and relies on interpretations
presented in prior Appellate Body reports. However, the interpretations for which Canada advocates
cannot be reconciled with the customary rules of interpretation. When they are subjected to scrutiny,
all of Canada's proposed interpretations of the AD Agreement simply are not supported by the
ordinary meaning of the text of the AD Agreement, read in context, and in light of the object and
purpose of the AD Agreement.

5. In fact, Canada's proposed interpretation of Article 2.4.2 of the AD Agreement effectively
rewrites the second sentence of that provision and reads the alternative, average -to-transaction
comparison methodology out of the AD Agreement entirely. In doing so, Canada's proposed
interpretation effectively renders this provision inutile by failing to "give meaning and effect to all
the terms of the treaty". Accordingly, all of Canada's legal claims lack merit, and should be rejected.

II. STANDARD OF REVIEW, RULES OF INTERPRETATION, AND BURDEN OF PROOF

6. Article 3.2 of the DSU provides that the dispute settlement system of the WTO "serves to
preserve the rights and obligations of Members under the covered agreements, and to clarify the
existing provisions of those agreements in accordance with customary rules of interpretation of
public international law." The applicable standard of review to be applied by WTO dispute settlement
panels is that provided in Article 11 of the DSU and, with regard to antidumping measures,
Article 17.6 of the AD Agreement. Per these standards, the Panel should "review whether the
authorities have provided a reasoned and adequate explanation as to (i) how the evidence on the
record supported its factual findings; and (ii) how those factual findings support the overall
determination."

7. There is no provision in the DSU or any of the covered agreements that establishes a system
of "case law" or "precedent," or that otherwise requires a panel to follow or be bound by the findings
in previously adopted panel or Appellate Body reports. There is no provision in the DSU or the

covered agreements that refers to "cogent reasons" or that suggests that a panel must justify legal
findings not consistent with the reasoning set out in prior reports.

8. To the contrary, Article 3.9 of the DSU expressly states that the DSU, including adoption of
panel and Appellate Body reports by the DSB, is without prejudice to the procedure to obtain an
authoritative interpretation by the Ministerial Conference or General Council. Article IX:2 of the
WTO Agreement provides that "[t]he Ministerial Conference and the General Council shall have the
exclusive authority to adopt interpretations of this Agreement and of the Multilateral Trade
Agreements." Article IX:2 also sets out a special adoption procedure for those authoritative
interpretations. Thus, the adoption by the DSB of reports from panels or the Appellate Body cannot
constitute authoritative interpretations that a subsequent panel must follow.

9. Finally, it is a "generally-accepted canon of evidence" that "the burden of proof rests upon the
party, whether complaining or defending, who asserts the affirmative of a particular claim or
defence." Canada must establish a prima facie case of inconsistency with a provision of a WTO
covered agreement before the United States, as the defending party, has the burden of showing
consistency with that provision.

III. CANADA'S CLAIMS RELATED TO THE USDOC'S APPLICATION OF THE ALTERNATIVE,
AVERAGE-TO-TRANSACTION COMPARI SON METHODOLOGY SET FORTH IN THE SECOND
SENTENCE OF ARTICLE 2.4.2 OF THE AD AGREEMENT LACK MERIT

A. Introduction and Overview of Article 2.4.2 of the AD Agreement

10. Article 2.4.2 sets forth three comparison methodologies for determining the "existence of
margins of dumping." The two primary comparison methodologies are the average -to-average and
transaction-to-transaction comparison methodologies. The Appellate Body has observed that "there
is no hierarchy between them" and "it would be illogical to interpret" them "in a manner that would
lead to results that are systematically different."

11. The second sentence of Article 2.4.2 describes a third comparison methodology, the average-
to-transaction comparison methodology, which may be used only when two conditions are met. First,
an investigating authority must "find a pattern of export prices which differ significantly among
different purchasers, regions or time periods" and, second, the investigating authority must provide
an explanation "as to why such differences cannot be taken into account appropriately by the use of
a weighted average -to-weighted average or transaction -to-transaction comparison." The
Appellate Body has observed that the third methodology is an "exception." As an exception, the third
comparison methodology, logically, should "lead to results that are systematically different" from
the two "normal" comparison methodologies when the conditions for its use have been met.

12. Canada seeks to rewrite the second sentence of Article 2.4.2, and to read the alternative,
average-to-transaction comparison methodology out of the AD Agreement entirely. Canada's
proposed interpretation is erroneous and does not accord with the customary rules of interpretation
of public international law.

B. Canada's Claims Regarding the "Pattern Clause" of the Second Sentence of
Article 2.4.2 of the AD Agreement Lack Merit

13. The "pattern clause" in the second sentence of Article 2.4.2 requires finding a regular and
intelligible form or sequence of export pri ces that are unlike in an important manner or to a
significant extent as between different purchasers, regions, or time periods. An investigating
authority examining whether a "pattern of export prices which differ significantly" exists should
employ rigorous analytical methodologies and view the data holistically.

14. In the antidumping investigation of softwood lumber from Canada, the USDOC used
analytically sound methods that relied upon objective criteria and verified factual information.
Specifically, the USDOC applied a differential pricing analysis, in which it used the "Cohen's d test"
to "evaluate the extent to which the prices to the particular purchaser, region, or time period differ
significantly from the prices of all other sales of comparable merchandise", and the USDOC also used
the "ratio test" to "assess the extent of the significant price differences for all sales as measured by
the Cohen's d test."

15. The USDOC undertook a rigorous, holistic examination of each respondent's export prices in
order to ascertain whether there existed a regular and intelligible form or sequence of export prices
that were unlike in an important m anner or to a significant extent as among different purchasers,
regions or time periods. A proper interpretive analysis pursuant to the customary rules of
interpretation of public international law reveals that that is precisely what the "pattern clause" o f
the second sentence of Article 2.4.2 of the AD Agreement requires an investigating authority to do.
In addition to explaining its analytical approach in the preliminary decision memorandum and the
final issues and decision memorandum, the USDOC addressed arguments raised by interested
parties concerning the USDOC's analysis. Those memoranda provide a reasoned and adequate
explanation of the USDOC's determination and demonstrate that the USDOC's application of a
differential pricing analysis is not inconsi stent with the "pattern clause" of the second sentence of
Article 2.4.2 of the AD Agreement.

16. Canada advances two main arguments. First, Canada argues that the USDOC's differential
pricing analysis is inconsistent with the "pattern clause" of the secon d sentence of Article 2.4.2
because it considers both high -priced and low -priced export sales transactions. Second, Canada
contends that the USDOC's differential pricing analysis breaches the "pattern clause" because it
aggregates transactions across purchasers, regions, and time periods and does not identify a pattern
among purchasers, regions, or time periods. Each of Canada's arguments lacks merit.

i. The USDOC's Consideration of Both Low and High Prices Is
Not Inconsistent with the "Pattern Clause" of the Second
Sentence of Article 2.4.2 of the AD Agreement
17. A differential pricing analysis seeks to identify a "pattern" by looking for export prices to a
purchaser, region, or time period which are either significantly higher or significantly lower than the
export prices to other purchasers, regions, or time periods. Such an analysis is consistent with the
express terms of the "pattern clause" of the second sentence of Article 2.4.2 of the AD Agreement,
which calls upon investigating authorities to find "export prices which differ significantly," but which
does not require or foreclose a focus either on lower-priced or higher-priced export sales. Logically,
any analysis pursuant to the "pattern clause" must examine both lower and higher export prices to
establish the presence of export prices which differ significantly.

18. In US – Washing Machines , the Appellate Body found that "the relevant 'pattern' for the
purposes of the second sentence of Article 2.4.2 is comprise d of the export prices to one or more
particular purchasers which differ significantly from the prices to the other purchasers because they
are lower than those other prices (with the same applying to regions and time periods,
respectively)", and "the relevant 'pattern' … cannot be identified by considering prices that are higher
than other prices." These findings, on which Canada relies, are not consistent with the terms of the
"pattern clause" of the second sentence of Article 2.4.2 of the AD Agreement. A set of lower-priced
export sales to a particular purchaser (or to a particular region or during a particular time period) is
not "a pattern of export prices which differ significantly". It would be a pattern of export prices which
are similar to one another, and which happen also to be lower than export prices to other purchasers
(or regions or time periods). Additionally, a set of lower-priced export sales to a particular purchaser
(or to a particular region or during a particular time period) is not "a p attern of export prices …
among different purchasers, regions or time periods". It would be a pattern of export prices to a
particular purchaser (or to a particular region or during a particular time period). In effect, the
Appellate Body in US – Washing Machines rewrote the "pattern clause" of the second sentence of
Article 2.4.2 by changing the word "among" to "from". The pattern described by the Appellate Body
simply is a different pattern than that which is described in the "pattern clause" of the secon d
sentence of Article 2.4.2 of the AD Agreement.

19. The Appellate Body also explained that: "[w]e fail to see how an investigating authority could
identify and address 'targeted dumping' by considering significantly higher export prices. If the prices
found to differ significantly are higher than other export prices, the other (lower) export prices would
not 'mask' the (higher) dumped prices found to form the pattern." This reasoning, too, makes no
sense, and is inconsistent with other Appellate Body find ings in US – Washing Machines . The
Appellate Body explained that "an investigating authority would analyse the prices of all export sales
made by the relevant exporter or producer to identify a pattern". Necessarily, an analysis of the
prices of all export sales would entail consideration of both higher- and lower-priced sales. So, the
Appellate Body's interpretation simultaneously requires and prohibits the consideration of lower -
priced and higher-priced export sales transactions. That is a logical impossibility.

20. By comparing export prices to different purchasers, regions, and time periods, the differential
pricing analysis seeks to identify both lower and higher export prices, because such export prices
differ significantly, as expressly contemplated by the "pattern clause" of Article 2.4.2 of the
AD Agreement.

ii. The USDOC's Aggregation of Price Differences Among
Different Purchasers, Regions, or Time Periods Is Not
Inconsistent with the "Pattern Clause" of the Second
Sentence of Article 2.4.2 of the AD Agreement
21. Although the second sentence of Article 2.4.2 of the AD Agreement has been described as a
provision that addresses "targeting" or "targeted dumping," the United States agrees with the US –
Washing Machines panel and most of the third pa rties to that dispute, including Canada, who
indicated their understanding that "targeted dumping" is merely a shorthand reference to the terms
of the second sentence of Article 2.4.2. However, the terms "targeting" and "targeted dumping" are
not present i n Article 2.4.2 nor anywhere else in the AD Agreement. As it is written, the second
sentence of Article 2.4.2 provides that investigating authorities are to examine "export prices" to
determine whether there is "a pattern of export prices which differ sign ificantly among different
purchasers, regions or time periods." A "target" analysis is just one kind of analysis an investigating
authority might undertake when searching for "a pattern of export prices which differ significantly
among different purchasers , regions or time periods." Investigating authorities might take other
approaches to analyzing a "pattern" that also are consistent with the terms of the "pattern clause."

22. When it applied a differential pricing analysis in the antidumping investigatio n of softwood
lumber from Canada, the USDOC aggregated the results of the Cohen's d test as part of the ratio
test to determine the extent of the export prices that were found to differ significantly among
different purchasers, regions, or time periods. In other words, the USDOC aggregated the results of
the Cohen's d test among different purchasers, regions, or time periods found to pass the Cohen's d
test (without double counting those export sales that passed the Cohen's d test for more than one
category, i.e., by purchaser, region, or time period). The UDSOC aggregated the results of the
Cohen's d test in this manner so that it could consider the exporter's pricing behavior in the
United States market for the product as a whole, i.e., whether "a pattern" exists of export prices
which differ significantly. This accorded with the USDOC's understanding that the Cohen's d test
results reflect different aspects of an exporter's overall pricing behavior, and it accords with prior
Appellate Body findings regarding the concept of "product as a whole."

23. Contrary to Canada's assertion, the USDOC's differential pricing analysis did not aggregate
random and unrelated price variations. A respondent's pricing behavior, which reflects its market
strategies and corporate goals that logically follow economic principles in a market economy, cannot
reasonably be described as "random." The results of the Cohen's d test by purchaser, region, or time
period represented different aspects of the particular respondent's overall pricing behavior. Through
the Cohen's d and ratio tests, the differential pricing analysis considered the pricing behavior of the
respondent exporter in the United States market as a whole.

24. Nothing in the text of the "pattern clause" of the second se ntence of Article 2.4.2 of the AD
Agreement suggests that the significant export price differences among each category ( i.e.,
purchasers, regions, or time periods) cannot be considered together when assessing whether there
exists "a pattern of export price s which differ significantly among different purchasers, regions or
time periods." To the contrary, the text of the "pattern clause," on its face, contemplates a pattern
of export prices that would transcend multiple purchasers, regions, or time periods. I n particular,
the "pattern clause" directs an investigating authority to consider whether there exists a pattern of
export prices which differ significantly "among different purchasers, regions or time periods".

25. Rather than engage in its own textual analysis, Canada primarily relies on the Appellate Body's
findings in US – Washing Machines. The Appellate Body reasoned that "a pattern involves export
prices which differ significantly in relation to specified sub -groups, namely, 'among different
purchasers, regions or time periods'", and "these terms determine how the relevant 'pattern' must
be identified." The Appellate Body's analysis focused, in particular, on the words "or" and "among".

26. The Appellate Body's reading of the word "or" is exceedingly narrow. As the Appellate Body
itself acknowledged, "depending on the context in which it is used, the conjunction 'or' can be

exclusive or inclusive." The presence of the word "or," and not the w ord "and," might just as likely
indicate that it is possible for an investigating authority to find a pattern of export prices which differ
significantly among different purchasers, different regions, or different time periods, or any
combination of the ab ove, but it is not necessary to find a pattern of export prices which differ
significantly among all three, as would be suggested by the word "and". The Appellate Body's
conclusion appears to have been colored by its misunderstanding of the relevant "pattern" as being
limited to low-priced sales to a "target". That understanding is not consistent with the terms of the
"pattern clause", nor is it logical.

27. The Appellate Body's understanding of the implications of the word "among" also appears to
have been colored by its misunderstanding of the relevant "pattern." The Appellate Body observed
that "the term 'among' refers to something 'in relation to the rest of the group [it belongs] to '."
Importantly, the differential pricing analysis applied by the USDOC involved comparisons of export
prices to each purchaser with export prices to the other purchasers , export prices to each region
with export prices to the other regions, and export prices during each time period with export prices
during the other ti me periods. This is logical and consistent with the understanding of the word
"among" articulated by the Appellate Body, in particular the Appellate Body's observation that "each
category should be considered on its own".

28. The differential pricing analysis also sought to identify "a pattern" for an exporter and product
as a whole by considering all of that exporter's export prices to discern whether significant
differences in the export prices were exhibited collectively among different purchasers, or d ifferent
regions, or different time periods. This approach is not inconsistent with the text of the "pattern
clause" of the second sentence of Article 2.4.2 of the AD Agreement, which directs investigating
authorities to consider whether there exists a pat tern of export prices which differ significantly
"among" different purchasers, regions, or time periods.

29. The term "among" is only used one time in the second sentence of Article 2.4.2 and it is placed
before the identified groups of "purchasers, regions or time periods." Such usage suggests that those
groups may be considered collectively in identifying a pattern of export prices which differ
significantly. For the Appellate Body's reading of "among" to be correct, one would expect the term
"among" to appear before the mention of each group, i.e., "among different purchasers, among
different regions or among different time periods." That is not how the "pattern clause" is written.

30. The Appellate Body considered that such "repetition would have conve yed an identical
meaning to that of the existing text." However, when the Appellate Body later summarized its own
findings concerning the interpretation of the "pattern clause," it used the term "among" three times:
"[w]e have found above that a pattern ca n only be found in prices which differ significantly either
among purchasers, or among regions, or among time periods, not across these categories." This is
yet another internal inconsistency in the US – Washing Machines Appellate Body report that
demonstrates the incorrectness of the findings in that report and undermines the persuasiveness of
that report.

31. A more plausible reading of the text of the "pattern clause" of the second sentence of
Article 2.4.2 contemplates a holistic analysis of the exporter's pricing behavior for the product as a
whole, which is consistent with the Appellate Body's guidance in prior reports that a dumping margin
must be exporter-specific and determined for the product as a whole. That is what the USDOC sought
to accomplish by applying a differential pricing analysis in the antidumping investigation of softwood
lumber from Canada.

C. Canada's Claims that the Use of Zeroing in Connection with the
Application of the Alternative, Average -to-Transaction Comparison
Methodology Is Inconsistent with Articles 2.4.2 and 2.4 of the AD
Agreement Lack Merit
32. An examination of the text and context of Article 2.4.2 of the AD Agreement leads to the
conclusion that zeroing is permissible – indeed, it is necessary – when applying the alt ernative,
average-to-transaction comparison methodology, if that "exceptional" comparison methodology is
to be given any meaning. This conclusion follows from a proper application of the customary rules
of interpretation of public international law. This c onclusion also accords with and is the logical
extension of the Appellate Body's findings in previous disputes relating to the use of zeroing in
connection with the comparison methodologies provided in the first sentence of Article 2.4.2 of the

AD Agreement. And this is the conclusion reached by one Appellate Body member in US – Washing
Machines.

1. Canada's Arguments Against the Use of Zeroing in Connection with the
Alternative, Average-to-Transaction Comparison Methodology Lack Merit

33. Canada does not present an interpretive analysis of the second sentence of Article 2.4.2 of
the AD Agreement. Instead, Canada simply summarizes various findings in prior Appellate Body
reports. In approaching this dispute as it has, Canada has failed to help the Panel di scharge its
function under Article 11 of the DSU, which requires the Panel to make its own "objective assessment
of the matter before it". Such an objective assessment involves an objective assessment of "the
applicability of and conformity with the releva nt covered agreements," and necessarily includes an
interpretive analysis of any of the provisions of the covered agreements that Canada claims the
United States has breached.

34. More problematic, in presenting a selection of findings from prior reports, Canada has chosen
to place emphasis on findings related to the concept of "product as a whole," a concept which the
Appellate Body has developed in prior reports. The term "product as a whole," of course, is not
present in the AD Agreement. Additionally, the Appellate Body majority in US – Washing Machines
prescribed a new alternative methodology for addressing targeted dumping that explicitly does not
account for all transactions and cannot credibly be called a margin of dumping for the "product as a
whole." In the words of the Appellate Body majority: "dumping and margins of dumping under the
[average-to-transaction] comparison methodology applied pursuant to the second sentence of
Article 2.4.2 are to be determined by conducting a comparison between norm al value and 'pattern
transactions', without having to take into account 'non pattern transactions'." Thus, the Appellate
Body majority's approach literally requires that a margin of dumping be determined not for the
product as a whole, and in a manner that explicitly does not take into account all export transactions.

35. Canada further argues that zeroing is impermissible in the context of the average -to-
transaction comparison methodology because zeroing within an identified pattern fails to "further
'unmask' targeted dumping." In making this assertion, Canada again fails to engage in any
interpretive analysis of the relevant text in Article 2.4.2 of the AD Agreement, and instead relies on
the findings of two members of the Appellate Body in US – Washing Machines. The Appellate Body
majority in US – Washing Machines, though, based its findings concerning the operation of the
alternative, average -to-transaction comparison methodology and zeroing on its flawed
understanding of the relevant "pattern." Those findings are erroneous.

36. The Appellate Body majority also stated that, in interpreting the text of Article 2.4.2, it found
that the term "individual export transactions" "refers to the pattern of export prices identified by the
investigating authority" that differ because they are the lower export prices. The Appellate Body
majority indicated that it found "no such textual and contextual support to conclude that the term
'individual export transactions' in the second sentence of Article 2.4.2 refers only to those
transactions that form part of the identified pattern but are priced below normal value." Elsewhere
in the Appellate Body report, however, the Appellate Body considered that the word "individual" also
delineates the scope of application of the a lternative, average -to-transaction comparison
methodology. Thus, in the Appellate Body majority's view, the word "individual" simultaneously
reduces and expands the scope of transactions to be included in the average -to-transaction
comparisons under the se cond sentence of Article 2.4.2 of the AD Agreement. These divergent
conclusions about the meaning of the term "individual" are internally inconsistent, and neither
conclusion is supported by the ordinary meaning of the term "individual," read in its context.

2. A Proper Application of the Customary Rules of Interpretation Reveals
that the Use of Zeroing in Connection with the Application of the
Alternative, Average -to-Transaction Comparison Methodology Is Not
Inconsistent with the Second Sentence of Articl e 2.4.2 of the AD
Agreement

a. Initial Comments on the Text and Context of the Second Sentence
of Article 2.4.2 of the AD Agreement

37. When the Appellate Body found prohibitions on the use of zeroing in connection with the
comparison methodologies described in the first sentence of Article 2.4.2 of the AD Agreement, its

interpretations were rooted in the text of that sentence. Specificall y, the Appellate Body has found
that the textual basis for the prohibition on the use of zeroing in connection with the application of
the average-to-average comparison methodology is the presence in the first sentence of Article 2.4.2
of the word "all" in "all comparable export transactions." The Appellate Body has found that the
textual basis for the prohibition on the use of zeroing in connection with the application of the
transaction-to-transaction comparison methodology is the "the reference to 'a com parison' in the
singular" and the term "basis."

38. There is no similar textual basis in the second sentence of Article 2.4.2 for finding a prohibition
on the use of zeroing in connection with the application of the alternative, average -to-transaction
comparison methodology when the conditions for its use have been established.

39. Additional contextual analysis of the second sentence of Article 2.4.2 of the AD Agreement
demonstrates that zeroing is permissible – and indeed, it is necessary – when apply ing the
alternative, average-to-transaction comparison methodology provided for in the second sentence of
Article 2.4.2 of the AD Agreement.

b. The Average -to-Transaction Comparison Methodology in the
Second Sentence of Article 2.4.2 of the AD Agreement I s an
Exception to the Comparison Methodologies in the First Sentence
of Article 2.4.2 and Should Be Interpreted So that It May Yield
Results that Are "Systematically Different" from the Comparison
Methodologies "Normally" Applied

40. As an exception to th e two symmetrical comparison methodologies that an investigating
authority must use "normally," each of which logically, the Appellate Body has explained, should not
"lead to results that are systematically different," the third comparison methodology, by logical
extension, should "lead to results that are systematically different" from the "normal[]" comparison
methodologies when the conditions for its use have been established. The Appellate Body also has
found that this exceptional methodology provides a means by which Members can "unmask targeted
dumping."

41. Interpreting the second sentence of Article 2.4.2 of the AD Agreement in a manner that would
lead to the average-to-transaction comparison methodology systematically yielding results that are
identical or similar to the results of the normal comparison methodologies would deprive the second
sentence of Article 2.4.2 of any meaning; it would no longer be "exceptional" and would no longer
provide a means to "unmask targeted dumping." Such an interpre tation would not be consistent
with the customary rules of interpretation of public international law.

c. Mathematical Equivalence

42. If zeroing is prohibited under both the average -to-average and average -to-transaction
comparison methodologies, then both methodologies, when applied to the same set of transactions,
will always yield identical results, with respect to the total amount of all comparison results, the total
amount of dumping, and the weighted average dumping margin for an exporter for the pr oduct
under investigation. This is true because, for both methodologies, the calculation of the margins of
dumping is based on the same normal value and export sales data, but the mathematical operations
simply are conducted in a different order.

d. The Appellate Body's Consideration of Mathematical Equivalence in
Previous Disputes Does Not Compel Rejection of the Mathematical
Equivalence Argument in this Dispute

43. The Appellate Body has considered the mathematical equivalence argument in previous
disputes, including in US – Washing Machines. The findings concerning the mathematical equivalence
argument in prior Appellate Body reports neither support nor compel the Panel's rejection of the
mathematical equivalence argument in this dispute.

44. The Appellate Body majority in US – Washing Machines actually acknowledged the reality of
mathematical equivalence, referring to "the fact that the application of the [average-to-transaction]
comparison methodology to [the] pattern of export prices leads to equiva lent results as the
application of the [average-to-average] comparison methodology to the same pattern". The panels

in US – Washing Machines and US – Anti-Dumping Methodologies (China) also recognized the fact
of mathematical equivalence. No WTO panel, nor the Appellate Body, has ever found that the United
States is incorrect that the average-to-average comparison methodology (without zeroing) and the
average-to-transaction comparison methodology (also without zeroing) yield the same mathematical
result when applied to the same set of export transactions.

45. Even though it acknowledged the fact of mathematical equivalence, the Appellate Body
majority evaded the U.S. argument in US – Washing Machines. The majority observed that "the
United States' argument on mathematical equivalence is premised on its understanding of what
constitutes the relevant 'pattern' for the purposes of the second sentence of Article 2.4.2," but
recalled that the Appellate Body had "concluded above that the 'pattern of export prices which differ
significantly' within the meaning of the second sentence of Article 2.4.2 comprises only a subset of
all the export transactions". The majority reasoned that "[c]omparing normal value with 'pattern
transactions' only will not normally yield results that are mathematically or substantially equivalent
to the results obtained from the application of the [average -to-average] comparison methodology
to all export transactions."

46. As an initial matter, the Appellate Body's interpretation of the term "pattern" in the second
sentence of Article 2.4.2 of the AD Agreement is erroneous and does not follow from a proper
application of the customary rules of interpretation of public international law. Thus, the
Appellate Body majority's finding concerning the mathematical equivalence argument, which rests
on the Appellate Body's earlier flawed finding, is, as a consequence, itself flawed.

47. Even assuming, for the sake of argument, that the Appellate Body's interpretation of the term
"pattern" is correct, the fact of mathematical equivalence, and the Appellate Body majority's
recognition of that fact, undercuts the Appellate Body majority's conception of the operation of the
alternative, average -to-transaction comparison methodolog y. The application of the average -to-
average comparison methodology to any set of transactions (without zeroing) is mathematically
equivalent to the application of the average-to-transaction comparison methodology to the same set
of transactions (without zeroing). Thus, how the relevant "pattern" is defined under the second
sentence of Article 2.4.2 of the AD Agreement is completely irrelevant to the mathematical
equivalence argument.

48. This is because, by finding that the second sentence of Article 2.4. 2 requires the application
of the average -to-transaction comparison methodology to a subset of transactions while also
prohibiting the use of zeroing , the Appellate Body majority found, in effect, that the application of
the average-to-average comparison methodology to that subset of transactions (without zeroing) is
what actually is contemplated by the second sentence of Article 2.4.2. The Appellate Body majority
effectively rewrote the second sentence of Article 2.4.2, changing it from allowing the application of
the average-to-transaction comparison methodology under certain circumstances to allowing the
application of the average -to-average comparison methodology to a subset of transactions under
certain circumstances. The Appellate Body maj ority invented an entirely new methodology for
calculating a margin of dumping that is divorced from the text of the second sentence of Article 2.4.2,
and which does not appear to have been contemplated by any WTO Member previously, neither
during the Uruguay Round negotiations nor at any time after. Ultimately, the Appellate Body majority
read the average-to-transaction comparison methodology out of the second sentence of Article 2.4.2
of the AD Agreement altogether, contrary to the principle of effectiveness.

49. The Appellate Body majority noted the U.S. argument in this regard. The Appellate Body
majority's reasoning is dismissive of – but not responsive to – the U.S. argument. Again, the
Appellate Body majority recognized "the fact that the application of the [average -to-transaction]
comparison methodology to [the] pattern of export prices leads to equivalent results as the
application of the [average-to-average] comparison methodology to the same pattern". Thus, just
as the United States contends, the Appellate Body majority rewrote the second sentence of
Article 2.4.2 of the AD Agreement such that investigating authorities now are to address targeted
dumping by applying what is, in effect, the average-to-average comparison methodology to a subset
of transactions. That is not what the second sentence of Article 2.4.2 of the AD Agreement provides.

50. In a footnote, the Appellate Body majority also referred to earlier consideration of the
mathematical equivalence argument in prior Appellate Body reports, including US – Softwood
Lumber V (Article 21.5 – Canada), US – Stainless Steel (Mexico), and US – Zeroing (Japan). Like
the Appellate Body majority's findings in US – Washing Machines, the Appellate Body's consideration

of the mathematical equivalence arg ument in those earlier disputes neither supports nor compels
rejection of the mathematical equivalence argument in this dispute.

51. The Appellate Body first addressed the mathematical equivalence argument in US – Softwood
Lumber V (Article 21.5 – Canada). In that dispute, the Appellate Body "disagree[d] with the Panel's
analysis of the 'mathematical equivalence' argument for several reasons." Some of the reasons the
Appellate Body gave are distinguishable from the current situation, while others are instructive.

52. The Appellate Body disagreed with the panel in US – Softwood Lumber V (Article 21.5 –
Canada) on the grounds that, "[b]eing an exception, the comparison methodology in the second
sentence of Article 2.4.2 (weighted average -to-transaction) alon e cannot determine the
interpretation of the two methodologies provided in the first sentence, that is, transaction -to-
transaction and weighted average-to-weighted average." In this dispute, the United States does not
offer the mathematical equivalence arg ument to support a proposed interpretation of the
transaction-to-transaction and average-to-average comparison methodologies in the first sentence
of Article 2.4.2 of the AD Agreement. Rather, the mathematical equivalence argument is offered
here to suppor t the contextual argument that, as an exception, the alternative, average -to-
transaction comparison methodology should not be interpreted in a way that would lead, invariably,
to that comparison methodology yielding results that are identical or systematic ally similar to the
results of the normal comparison methodologies. Nor should the second sentence of Article 2.4.2 be
interpreted so as to rewrite that provision such that targeted dumping is addressed not by the
application of the average-to-transaction comparison methodology but, in effect, by the application
of the average-to-average comparison methodology to a subset of transactions.

53. The Appellate Body further observed in US – Softwood Lumber V (Article 21.5 – Canada) that
"the United States' 'mathematical equivalence' argument assumes that zeroing is prohibited under
the methodology set out in the second sentence of Article 2.4.2. The permissibility of zeroing under
the weighted average-to-transaction comparison methodology provided in the second sentence of
Article 2.4.2 is not before us in this appeal, nor have we examined it in previous cases." The
Appellate Body was correct, of course, that the mathematical equivalence argument is premised on
the assumption, for the purpose of argument, that ze roing is prohibited under the average -to-
transaction comparison methodology. The United States offers the mathematical equivalence
argument here as an argument against finding that that is the case. That the Appellate Body
suggested that the U.S. assumptio n in US – Softwood Lumber V (Article 21.5 – Canada) was a
reason for its disagreement with the panel's analysis of the mathematical equivalence argument in
that context suggests that the use of zeroing should not be prohibited in connection with the
alternative, average-to-transaction comparison methodology set forth in the second sentence of
Article 2.4.2 of the AD Agreement.

54. The Appellate Body also noted in US – Softwood Lumber V (Article 21.5 – Canada) that "there
is considerable uncertainty regardi ng how precisely the third methodology should be applied."
Similarly, in US – Stainless Steel (Mexico) , Mexico and the third participants argued that "the
'mathematical equivalence' argument works only under the assumption that the weighted average
normal value used in the weighted average-to-transaction … comparison methodology is identical to
that used in the [average-to-average] comparison methodology," and Mexico pointed out that that
was "not the case under the United States' system."

55. In US – Softwood Lumber V (Article 21.5 – Canada) and US – Stainless Steel (Mexico), as well
as in US – Zeroing (Japan), the Appellate Body signalled that it saw merit in the arguments of the
participants and third participants described above. In US – Stainless Steel (Mexico), the Appellate
Body expressed the view that "the 'mathematical equivalence' argument works only under a specific
set of assumptions, and ... there is uncertainty as to how the [average -to-transaction] comparison
methodology would be applied in practice."

56. Those prior disputes, however, did not involve an actual application of the average -to-
transaction comparison methodology. In the softwood lumber antidumping investigation challenged
here, and generally, the weighted average normal value use d in the application of the average -to-
average comparison methodology is no different from the weighted average normal value used in
the application of the average-to-transaction comparison methodology.

57. The panel in US – Washing Machines "rejected Korea's argument that the use of different
weighted average normal values could avoid mathematical equivalence." "Neither was the Panel

persuaded by Korea's argument that mathematical equivalence could be avoided if the investigating
authority undertook a 'granular analysis' of the transactions involved in the [average-to-transaction]
comparison methodology and a detailed approach to price adjustments, i.e. by rethinking the
adjustments that might be necessary to ensure price comparability." In its discussion of
mathematical equivalence, the Appellate Body majority noted Korea's argument on appeal that "the
possibility of changing the normal value or the adjustments to export prices breaks mathematical
equivalence." Aside from summarizing the panel's findings a nd Korea's arguments on appeal,
though, the Appellate Body majority did not analyze – and did not reverse – the US – Washing
Machines panel's findings in this regard.

58. Because of the different underlying factual situations in US – Softwood Lumber V
(Article 21.5 - Canada), US – Stainless Steel (Mexico), and US – Zeroing (Japan), as contrasted with
the factual situation in this dispute, and because of the flaws in the reasoning of the Appellate Body
majority in US – Washing Machines , the Appellate Body's consideration of the mathematical
equivalence argument in those disputes does not compel rejection of the mathematical equivalence
argument in this dispute.

e. The Negotiating History of the AD Agreement Confirms that Zeroing
is Permissible when Applying the Asymmetrical Comparison
Methodology Set Forth in the Second Sentence of Article 2.4.2 of
the AD Agreement

59. The "asymmetrical" nature of the "third methodology," and the fact that it may be used "only
in exceptional circumstances," when considered together with the negotiating history of the
AD Agreement, confirms that zeroing is permissible under the alternative, average -to-transaction
comparison methodology set forth in the second sentence of Article 2.4.2 of the AD Agreement.

60. Of particular relevance are proposals from GATT Contracting Parties that sought changes to
the Tokyo Round Antidumping Code to address concerns about certain investigating authorities that
used an asymmetrical comparison methodology, in which "the 'negative' dumping margin by which
the normal value falls below the export price in the value term will be treated as zero instead of
being added to the other transactions to offset the dumping margin." It is clear from these proposals
that the demandeurs viewed asymmetry and zeroing as one and the same problem.

61. The ultimate compromise agreed by the WTO Members is, of course, reflected in the text of
Article 2.4.2 of the AD Agreement. Article 2.4.2 provides that "normally" a symmetrical comparison
methodology must be used, but when certain conditions are met, an investigating authority "may"
use an asymmetrical comparison methodology to, in the words of the Appellate Body, "unmask
targeted dumping." The negotiating history documents confirm that zeroing was understood to be a
key feature of the asymmetrical comparison methodology, and essential for its application to address
masked dumping.

3. Canada's Claim that the Use of Zeroing in Connection with the Application
of the Alternative, Average -to-Transaction Comparison Methodology is
Inconsistent with Article 2.4 of the AD Agreement Lacks Merit

62. Canada claims that the use of zeroing in connection with the application of the alternat ive,
average-to-transaction comparison methodology is inconsistent with Article 2.4 of the AD
Agreement. Canada's claim lacks merit.

63. The text of Article 2.4 of the AD Agreement requires that "[a] fair comparison shall be made
between the export price and the normal value", and then goes on the describe how such a "fair
comparison" is to be made, including specifying that "[t]he comparison shall be made at the same
level of trade … and in respect of sales made at as nearly as possible the same time." A rticle 2.4
also describes various adjustments ("[d]ue allowance[s]") that an investigating authority must make
to export price and normal value to ensure a "fair comparison". The text of Article 2.4 says nothing
about whether zeroing is fair or unfair. As the panel in US – Zeroing (Japan) noted, the "precise
meaning of" the fair comparison requirement "must be understood in light of the nature of the
activity at issue." The panel concluded that "the 'fair comparison' requirement cannot have been
intended to allow a panel to review a measure in light of a necessarily somewhat subjective judgment
of what fairness means in the abstract and in complete isolation from the substantive context."

64. Canada once again seeks to support its claim not with a discussion of the terms of Article 2.4
of the AD Agreement, but instead by relying on findings in prior Appellate Body reports, including
the findings of two Appellate Body members in US – Washing Machines. However, the findings of
the majority in US – Washing Machines are internally inconsistent, and the Panel should not consider
those findings persuasive.

65. The Appellate Body majority treated nearly identical factual situations differently, deeming
one (zeroing) to be unfair while deeming another (the Appellate Body majority's own prescription
for addressing targeted dumping) to be fair. There is no textual or logical support for the
Appellate Body majority's finding.

66. Given the Appellate Body majority's inconsistent treatment of nearly identical factual
situations, it appears that the Appellate Body majority's finding that the use of zeroing is inconsistent
with Article 2.4 of the AD Agreement is, in reality, dependent on and follows directly from the finding
that the use of zeroing is inconsistent with Arti cle 2.4.2 of the AD Agreement. As demonstrated
above, the use of zeroing in connection with the application of the alternative, average -to-
transaction comparison methodology is not inconsistent with Article 2.4.2 of the AD Agreement.

67. Furthermore, ther e is no basis for finding that the use of zeroing in connection with the
alternative, average-to-transaction comparison methodology is in any way not "fair," or that it is
inconsistent with any "fair comparison" obligation in Article 2.4 of the AD Agreement. Canada argues
that the Appellate Body has interpreted the term "fair" under Article 2.4 of the AD Agreement as
connoting "impartiality, even -handedness, or lack of bias." It does not follow from that
Appellate Body finding, however, that Article 2.4 of AD Agreement prohibits the use of zeroing in
connection with the alternative, "exceptional" average -to-transaction comparison methodology
when the conditions set forth in the second sentence of Article 2.4.2 have been met.

68. As explained above, the sec ond sentence of Article 2.4.2 of the AD Agreement provides
Members a means to "unmask targeted dumping" in "exceptional" situations. It is "fair" to take steps
to "unmask targeted dumping" by faithfully applying the comparison methodology in the second
sentence of Article 2.4.2, when the conditions for its use are met. Doing so is entirely consistent
with the obligation that an investigating authority be impartial, even-handed, and unbiased, as one
Appellate Body member agreed in US – Washing Machines.

D. Canada's Consequential Claims under Articles 1 and 2.1 of the AD Agreement
and Articles VI:1 and VI:2 of the GATT 1994 Lack Merit

69. Canada offers no support for its claims under Articles 1 and 2.1 of the AD Agreement and
Articles VI:1 and VI:2 of the GATT 1994. Canada does not even discuss its claims under those
provisions except to assert in passing that breaches of those provisions purportedly follow as a
consequence of alleged breaches of Articles 2.4 and 2.4.2 of the AD Agreement. As the United States
has established, Canada's claims that the United States has acted inconsistently with Articles 2.4
and 2.4.2 of the AD Agreement lack merit. As a consequence, Canada's claims under under Articles 1
and 2.1 of the AD Agreement and Articles VI:1 and VI:2 of the GATT 1994 are equally without merit.

IV. CONCLUSION

70. The United States respectfully requests that the Panel reject all of Canada's claims.

ANNEX B-4
SECOND INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF THE UNITED STATES
I. INTRODUCTION

1. The U.S. first written submission demonstrates why Canada's claims under the Agreement on
Implementation of Article VI of the General Agreement on Tariffs and Tra de 1994 (the
"AD Agreement") and the General Agreement on Tariffs and Trade 1994 (the "GATT 1994") fail. As
the United States has shown, Canada's proposed interpretations of the AD Agreement are not
supported by the ordinary meaning of terms of the AD Agre ement, read in context, and in light of
the object and purpose of the AD Agreement.

2. Canada's statements during the first substantive meeting and its responses to the Panel's
questions have not improved Canada's case. Canada continues to refer to and re ly on findings
presented in prior Appellate Body reports without presenting interpretive analyses of the
AD Agreement applying the customary rules of interpretation to support its claims. Where the
United States has identified errors and inconsistencies in the Appellate Body findings on which
Canada relies, Canada has ignored the U.S. arguments, simply repeating, for example, that the
Panel "must follow the Appellate Body's decision" in US – Washing Machines.

3. Canada's understanding of the role of the Panel in this dispute remains fundamentally contrary
to the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU") and
the Agreement Establishing the World Trade Organization ("WTO Agreement"). To resolve this
dispute, the Panel will need to make an objective assessment of the matter before it and undertake
an interpretive analysis of the terms of the second sentence of Article 2.4.2 of the AD Agreement in
accordance with the customary rules of interpretation of public internation al law. Canada still has
done nothing to help the Panel accomplish the task it has been given under the DSU.

II. CANADA MISUNDERSTANDS THE ROLE OF DISPUTE SETTLEMENT PANELS UNDER
THE DSU

4. The U.S. first written submission discusses the role of WTO dispute settlement panels in
disputes concerning antidumping measures. The role of panels in such disputes is established by
Articles 3.2, 3.9, 11, 19.1, and 19.2 of the DSU and Article 17.6 of the AD Agreement.

5. In sum, the role of a WTO dispute settlement panel established by the DSB is to examine the
matter referred to the DSB by the complaining party and to make such findings as will assist the
DSB in making a recommendation to bring a measure into conformity under Article 19.1 of the DSU.
In undertaking that examination, the DSU further specifies that a panel is to make an "o bjective
assessment of the matter before it", including an objective assessment of "the applicability of and
conformity with the covered agreements". That assessment is one of conformity with the covered
agreements – not prior reports adopted by the DSB. The DSU provides that this objective assessment
of the applicability of the covered agreements occurs through an interpretive analysis of the terms
of the applicable covered agreements "in accordance with the customary rules of interpretation of
public international law".

6. Nevertheless, Canada maintains that WTO panels are "expected to follow Appellate Body
reports, absent cogent reasons to do otherwise, to ensure the security and predictability of the
multilateral trading system." Canada asserts that the notion that WTO panels are "expected" to
follow Appellate Body reports "arises directly from the provisions of the [DSU]". Canada is mistaken,
and such a notion is directly contrary to the DSU and the WTO Agreement.

7. Under the DSU, the DSB has no autho rity to adopt an authoritative interpretation of the
covered agreements – and, therefore, neither the Appellate Body nor any panel can issue such an
authoritative interpretation. Per Article IX:2 of the WTO Agreement, that authority is reserved to the
Ministerial Conference or the General Council acting under a special procedure. And Article 3.9 of
the DSU expressly states that the DSU, including adoption of panel and Appellate Body reports by
the DSB, is without prejudice to the procedure to obtain an auth oritative interpretation by the

Ministerial Conference or General Council. Accordingly, a WTO dispute settlement panel has no
authority under the DSU or the WTO Agreement simply to apply an interpretation in a report adopted
by the DSB in a prior dispute.

8. This was the view expressed by the Appellate Body in one of its first reports, in Japan –
Alcoholic Beverages II. The United States is not aware that the Appellate Body has ever disavowed
this understanding, which is contained in a report adopted by the DSB.

9. The appropriate course for a WTO panel, as prescribed by Article 3.2 of the DSU, is to apply
the "customary rules of interpretation of public international law." The Appellate Body has recognized
that Article 31 of the Vienna Convention on the Law of Treaties ("Vienna Convention") reflects such
customary rules. Article 31 of the Vienna Convention provides that "[a] treaty shall be interpreted
in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their
context and in the light of its object and purpose."

10. Ideally, WTO panels and the Appellate Body will apply the customary rules of interpretation
correctly, and thus different adjudicators will consistently reach similar conclusions concerning the
interpretation of the covered agreements. After a panel first applies the customary rules of
interpretation itself and reaches its own preliminary conclusion concerning the interpretation of a
covered agreement, it is appropriate for the panel to take into accoun t the interpretive findings in
prior panel and Appellate Body reports that have been adopted by the DSB. Where a panel's
preliminary interpretive conclusion accords with the conclusion in a prior report, the panel can have
greater confidence in the correct ness of its own conclusion and reflect that in its own report.
However, where a panel's preliminary interpretive conclusion differs from the conclusion in a prior
report, it may be appropriate for the panel to further consider the matter, and assess whethe r the
panel has erred in its own application of the customary rules of interpretation, or whether the panel
considers that the interpretive finding in a prior report is erroneous. Such an approach would be
consistent with the role of a WTO dispute settlement panel, as provided in the DSU, while also taking
appropriate account of prior reports adopted by the DSB.

11. On the other hand, starting (and perhaps even ending) a so-called "interpretive analysis" with
prior reports adopted by the DSB is not what WTO dispute settlement panels are "expected" to do,
per the terms of the DSU. Taking such an approach would constitute a failure by a panel to fulfil its
role under the DSU.

III. CANADA'S CLAIMS RELATED TO THE USDOC'S APPLICATION OF THE ALTERNATIVE,
AVERAGE-TO-TRANSACTION COMPARISON METHODOLOGY SET FORTH IN THE
SECOND SENTENCE OF ARTICLE 2.4.2 OF THE AD AGREEMENT LACK MERIT

A. Introduction

12. The U.S. first written submission demonstrates that the interpretations that the United States
proposes are those that result from the proper application of the customary rules of interpretation
of public international law.

13. Canada has declined to provide the Panel with an interpretive analysis of the AD Agreement
based on the customary rules of interpretation, i.e., a discussion of the ordinary meaning of the
terms of the AD Agreement in their context and in light of the object and purpose of the
AD Agreement. Instead, Canada insists that this dispute is "narrow" and incorrectly urges the Panel
simply to "follow Appellate Body reports." As the United States has demonstrated, the Panel is not
authorized by the DSU to take the approach Canada proposes.

14. Furthermore, aside from not being based on an application of the customary rules of
interpretation, Canada's p roposed interpretations are untenable because they would read the
average-to-transaction comparison methodology described in the second sentence of Article 2.4.2
out of the AD Agreement entirely.

15. As the United States has explained, the USDOC, through its application of a differential pricing
analysis in the antidumping investigation of softwood lumber from Canada, undertook a rigorous,
holistic examination to determine whether there exists a patter n of export prices which differ
significantly among different purchasers, regions, or time periods, and the USDOC did so in a manner

that gives effect to the "pattern clause" and the "methodology clause" of the second sentence of
Article 2.4.2 of the AD Agreement.

16. For the reasons given below, the United States continues to urge the Panel to engage in a
thorough interpretive analysis in accordance with the customary rules of interpretation of public
international law. The United States remains confident that doing so will lead the Panel to conclude
that Canada's claims are without merit, and the USDOC's determination in the antidumping
investigation of softwood lumber from Canada is not inconsistent with the AD Agreement or the
GATT 1994.

B. Canada's Claims Regarding the "Pattern Clause" of the Second Sentence of
Article 2.4.2 of the AD Agreement Lack Merit

17. The U.S. first written submission demonstrates that the phrase "a pattern of export prices
which differ significantly among different purchasers, regions or time periods" in the second sentence
of Article 2.4.2 of the AD Agreement – the "pattern clause" – means a regular and intelligible form
or sequence of export prices that are unlike in an important manner or to a significant extent as
between different purchasers, regions, or time periods. This is the interpretive conclusion that follows
from a proper application of the customary rules of interpretation of public international law.

18. The U.S. first written submission further shows that the USDOC undertook a rigorous, holistic
examination of each respondent's export prices in order to ascertain whether there existed a regular
and intelligible form or sequence of export prices that were unlike in an important manner or to a
significant extent as among different purchasers, regions or time periods. In addition to explaining
its analytical approach in the preliminary decision memorandum and the final issues and decision
memorandum, the USDOC addressed arguments raised by interested parties concer ning the
USDOC's analysis. Those memoranda provide a reasoned and adequate explanation of the USDOC's
determination and demonstrate that the USDOC's application of a differential pricing analysis is not
inconsistent with the "pattern clause" of the second sentence of Article 2.4.2 of the AD Agreement.

19. Finally, the U.S. first written submission explains that Canada's arguments regarding the
meaning and application of the "pattern clause" lack merit. In its statements at the first substantive
meeting and in its responses to the Panel's questions, Canada has done nothing to improve its
deficient arguments against the USDOC's determination. Instead, Canada largely repeats arguments
it made in its first written submission, and Canada continues to rely on fin dings in prior reports
rather than on interpretive analyses pursuant to the customary rules of interpretation. Canada's
arguments continue to lack merit.

1. The USDOC's Consideration of Both Low and High Prices Is Not
Inconsistent with the "Pattern Clause" of the Second Sentence of
Article 2.4.2 of the AD Agreement

20. The U.S. first written submission demonstrates that the USDOC's consideration of both low
and high prices is not inconsistent with the "pattern clause" of the second sentence of Article 2.4.2
of the AD Agreement.

21. Canada asserts that "[t]he analysis must begin from the ordinary meaning of the term
'pattern.'" The United States agrees, and Canada's assertion is consistent with the customary rules
of interpretation of public international law, as reflected in Article 31 of the Vienna Convention. The
United States and Canada also are in agreement about the ordinary meaning of the term "pattern,"
which can be discerned from the dictionary definition of that term.

22. Canada, however, quoting the Appellate Body report in US – Washing Machines, contends that
the use of the term "pattern" "means that the sales that are part of the pattern must demonstrate
some similarities. One cannot have a 'pattern' consisting of fundamentally different prices." Canada's
argument fails to account for the context in which the term "pattern" is used.

23. The relevant "pattern" within the meaning of the second sentence of Article 2.4.2 is "a pattern
of export prices which differ significantly among different purchasers, regions or time periods". Such
a "pattern" necessarily includes both lower and higher export prices that "differ significantly" from
one another. A set of lower -priced export sales to a particular purchaser, for example, is not "a

pattern of export prices which differ significantly". It would be a pattern of export prices which are
similar to one another, and which happen also to be lower than export prices to other purchasers.

24. Canada further contends that its proposed interpretation is "consistent with the phrase 'differ
significantly among different purchasers, regions or time periods,' because the sales in the pattern
differ significantly from the sales to other purchasers, or other regions, or other time periods." The
U.S. first written submission addresses this precise contention, but Canada has ignored the U.S.
argument. A set of lower -priced export sales to a particular purchaser (or to a particular re gion or
during a particular time period) is not "a pattern of export prices … among different purchasers,
regions or time periods". It would be a pattern of export prices to a particular purchaser (or to a
particular region or during a particular time period). Canada, like the Appellate Body in US – Washing
Machines, in effect rewrites the "pattern clause" of the second sentence of Article 2.4.2 by changing
the word "among" to "from". The "pattern clause" describes "a pattern of export prices which differ
significantly among different purchasers, regions or time periods", not a pattern of export prices
which differ significantly from different purchasers, regions or time periods. The pattern described
by Canada and the Appellate Body simply is a different pa ttern than that which is described in the
"pattern clause" of the second sentence of Article 2.4.2 of the AD Agreement.

25. Finally, Canada argues that its proposed interpretation "is further reinforced when the Article
is read in the light of the purpose of the second sentence of Article 2.4.2 and the
Anti-Dumping Agreement as a whole." Canada's proposal that the Panel interpret the second
sentence of Article 2.4.2 of the AD Agreement in light of the purpose of the second sentence itself
is inconsistent with the customary rules of interpretation. The customary rules of interpretation do
not contemplate reading the terms of a provision of a treaty in light of the purpose of the provision.
Doing so would carry a high risk of engaging in circular reasoning. For example, one might incorrectly
reason that the purpose of a provision is X, therefore the terms of the provision must mean X. But
one cannot know what the purpose of a provision is prior to interpreting the provision. Applying the
customary rules of int erpretation, an adjudicator can discern the meaning (and the purpose) of a
provision by interpreting the provision "in good faith in accordance with the ordinary meaning to be
given to the terms of the treaty in their context and in the light of [the treaty's] object and purpose."
Canada's proposed interpretive approach is precisely backwards.

26. Canada asserts that "[t]he second sentence of Article 2.4.2 allows an investigating authority
to focus on a more limited universe of export sales than under the normal comparison methodologies
in order to address possible 'targeted dumping.'" Canada refers to paragraph 135 of the Appellate
Body report in US – Zeroing (Japan) as support for the proposition that "'individual export
transactions' refers to transactions that fall within the 'pattern'."

27. There is reason for the Panel to exercise caution when considering whether to draw guidance
from paragraph 135 of the Appellate Body report in US – Zeroing (Japan). That paragraph contains
an error. The US – Zeroing (Japan) Appellate Body report misquotes the second sentence of
Article 2.4.2 when it states th at "[t]he emphasis in the second sentence of Article 2.4.2 is on a
'pattern', namely a 'pattern of export prices which differs [sic] significantly among different
purchasers, regions or time periods[]'". Where the Appellate Body report uses the term "diffe rs,"
the second sentence of Article 2.4.2 uses the term "differ." The presence of the term "differs" would
suggest that the "pattern" is what "differs" from something that is not the "pattern" – or the export
prices in the "pattern" are what differs from e xport prices that are not in the "pattern". However,
the terms of the second sentence of Article 2.4.2 provide that the relevant pattern is one that
includes "export prices which differ significantly among different purchasers, regions or time
periods." The brevity of the Appellate Body's discussion that follows the misquotation makes it
difficult to determine whether the Appellate Body's reasoning follows from the misquotation and is
thus itself also erroneous for that reason.

28. In US – Washing Machines, the Appellate Body addressed the U.S. argument. The United
States does not agree that it is clear from paragraph 135 of the Appellate Body report in US –
Zeroing (Japan) that the Appellate Body correctly understood the terms of the second sentence of
Article 2.4.2 of the AD Agreement. Thus, the United States would caution the Panel against relying
on the findings in that paragraph.

29. Concerning the object and purpose of the AD Agreement as a whole, the interpretation of the
"pattern clause" proposed by the United States is consistent with and supports the object and
purpose of the AD Agreement. Although the AD Agreement "does not conta in a preamble or an

explicit indication of its object and purpose," guidance can be found in Article VI:1 of the GATT 1994,
in which Members have recognized that injurious dumping "is to be condemned." Of course, the
AD Agreement also provides detailed rul es governing the application of antidumping measures,
including procedural safeguards for interested parties and substantive rules on the calculation of a
margin of dumping. The AD Agreement thus appears to be aimed at providing a balanced set of
rights and obligations regarding the use of antidumping measures to remedy injurious dumping.

30. While the AD Agreement may be said to be concerned with injurious dumping and low-priced
sales, there exists the possibility, as the parties and third parties appear to agree, that low-priced
sales that would be evidence of dumping may be masked by higher-priced sales that would conceal
the evidence of dumping. The Appellate Body, too, has observed that the second sentence of
Article 2.4.2 of the AD Agreement provides Members a means to "unmask targeted dumping" in
"exceptional" situations. Interpreting the "pattern clause" as proposed by the United States – i.e.,
as requiring an investigating authority to undertake a rigorous, holistic examination of the data in
order to find a regular and intelligible form or sequence of export prices that are unlike in an
important manner or to a significant extent as among different purchasers, regions, or time periods
– serves the aim of the second sentence of Article 2.4.2, as described by the Appellate Body, and is
consistent with the overall balance of rights and obligations struck in the AD Agreement. The
interpretation proposed by the United States also is that which follows from a proper application of
the customary rules of interpretation, as we have demonstrated.

2. The USDOC's Aggregation of Price Differences Among Different
Purchasers, Regions, or Time Periods Is Not Inconsistent with the
"Pattern Clause" of the Second Sentence of Article 2.4.2 of the
AD Agreement

31. The U.S. first written submission demonstrates that the USDOC's aggregation of price
differences among different purchasers, regions, or time periods is not inconsistent with the "pattern
clause" of the second sentence of Article 2.4.2 of the AD Agreement.

32. Canada argues that the United States is asking the Panel "essentially to rewrite [the pattern
clause] so that it allows amalgamation across purchasers, regions, and time periods." It is not the
United States that asks the Panel to rewrite the "pattern cl ause". The United States has
demonstrated that Canada's proposed interpretation would require rewriting the pattern clause,
specifically by adding two more instances of the word "among" in places in which that term does not
appear. The United States has demonstrated this by putting before the Panel an interpretive analysis
of the text of the "pattern clause" undertaken in accordance with the customary rules of
interpretation. Canada, for its part, continues to quote the findings in prior Appellate Body repo rts,
but has steadfastly refused to set forth a fulsome interpretive analysis that engages seriously with
the text of the second sentence of Article 2.4.2; nor has Canada responded to the arguments
presented by the United States.

33. Nothing in the text o f the "pattern clause" of the second sentence of Article 2.4.2 of the
AD Agreement suggests that the significant export price differences among each category ( i.e.,
purchasers, regions, or time periods) cannot be considered together when assessing whether there
exists "a pattern of export prices which differ significantly among different purchasers, regions or
time periods." To the contrary, the text of the "pattern clause," on its face, contemplates a pattern
of export prices that would transcend multiple purchasers, regions, or time periods. In particular,
the "pattern clause" directs an investigating authority to consider whether there exists a pattern of
export prices which differ significantly "among different purchasers, regions or time periods".

34. In response to a question from the Panel, Canada presents arguments based on the
negotiating history of the AD Agreement. Canada's arguments are not well founded. The "pattern"
described in the New Zealand III text, to which Canada points, is a different p attern than that
described in the text to which Members ultimately agreed. Canada's proposed interpretation appears
to be more similar to the pattern in the New Zealand III text, i.e., a pattern "to particular customers",
as opposed to the pattern describe d in the second sentence of Article 2.4.2 of the AD Agreement,
i.e., "a pattern of export prices which differ significantly among different customers, regions or time
periods".

35. Canada also refers to the text of the Carlisle II draft. Once, again, Canada misunderstands
the implication of the changes made from the draft text to the final text. The Carlisle II text was not

simply modified "to remove the repetitious and unnecessary 'or's", as Canada suggests. Also gone
from the final text are the modifiers in " specific customers", " different regions", and " certain
periods". While the Carlisle II text might have supported the interpretation Canada proposes – i.e.,
that the relevant subset of transactions is limited to " specific customers", "different regions", or
"certain periods" – that is not the text to which WTO Members ultimately agreed.

36. The evolution of the text of what eventually became the second sentence of Article 2.4.2 of
the AD Agreement reveals changes that negotiators made to the negotiated text. The Panel should
take the evolution of the text into account to confirm the meaning of the "pattern clause" of the
second sentence of Article 2.4.2 of the AD Agreement, which, as the United States has shown, can
be ascertained by a proper application of the customary rules of interpretation.

37. As the United States has demonstrated, the differential pricing analysis sought to identify "a
pattern" for an exporter and product as a whole by considering all of that exporter's export p rices
to discern whether significant differences in the export prices were exhibited collectively among
different purchasers, or different regions, or different time periods. This approach is not inconsistent
with the text of the "pattern clause" of the se cond sentence of Article 2.4.2 of the AD Agreement,
which directs investigating authorities to consider whether there exists a pattern of export prices
which differ significantly "among different purchasers, regions or time periods".

C. Canada's Claims that the Use of Zeroing in Connection with the Application of
the Alternative, Average -to-Transaction Comparison Methodology Is
Inconsistent with Articles 2.4.2 and 2.4 of the AD Agreement Lack Merit

38. The U.S. first written submission demonstrates that an examination of the text and context of
Article 2.4.2 of the AD Agreement leads to the conclusion that zeroing is permissible – indeed, it is
necessary – when applying the alternative, average-to-transaction comparison methodology, if that
"exceptional" comparison methodology is to be given any meaning. This conclusion follows from a
proper application of the customary rules of interpretation of public international law. This conclusion
also accords with and is the logical extension of th e Appellate Body's findings in previous disputes
relating to the use of zeroing in connection with the comparison methodologies provided in the first
sentence of Article 2.4.2 of the AD Agreement. And this is the conclusion reached by one
Appellate Body member in US – Washing Machines.

39. In its opening statement at the first panel meeting and in response to certain of the Panel's
questions, Canada addresses the U.S. arguments related to zeroing. The United States takes the
opportunity in this submission to reply to Canada's new arguments. Where appropriate, rather than
repeating arguments made in the U.S. first written submission, we respectfully refer the Panel to
the relevant portions of the U.S. first written submission that address Canada's arguments.

1. The U.S. Interpretive Analysis of the Second Sentence of Article 2.4.2 of
the AD Agreement Remains Unrebutted

40. The U.S. first written submission presents an interpretive analysis of the second sentence of
Article 2.4.2 of the AD Agreement that app lies the customary rules of interpretation of public
international law. The U.S. first written submission also directly addresses findings related to the
interpretation of the second sentence of Article 2.4.2 in prior Appellate Body reports and identifies
a number of errors in those findings.

41. Canada has made no attempt to rebut the U.S. arguments. Instead, Canada simply reiterates
its assertion that the findings in prior Appellate Body reports are correct, and does not engage at all
with the U.S. arguments.

42. For example, Canada asserted in its opening statement at the first substantive meeting that
"the findings in [the US – Washing Machines Appellate Body] report are consistent with both the
text of the Agreement and more than 17 years of Appellat e Body jurisprudence on zeroing." The
U.S. first written submission demonstrates that the Appellate Body majority incorrectly interpreted
the second sentence of Article 2.4.2 of the AD Agreement, and the Appellate Body majority's findings
not only departed from the findings of one Appellate Body member in US – Washing Machines, but
the majority's findings cannot be reconciled with findings related to zeroing in prior Appellate Body
reports. Canada has made no attempt to respond to these U.S. arguments.

43. Furthermore, despite Canada's suggestion to the contrary, before US – Washing Machines,
the Appellate Body had never previously made findings concerning the use of zeroing in connection
with the alternative, average -to-transaction comparison methodology s et forth in the second
sentence of Article 2.4.2. That is clear from reading prior Appellate Body reports discussing zeroing.
Prior to US – Washing Machines, the Appellate Body had found zeroing impermissible in the context
of the average-to-average and transaction-to-transaction comparison methodologies, which are to
be used "normally" under the first sentence of Article 2.4.2. The Appellate Body also had found
zeroing impermissible in the context of the U.S. application of an average-to-transaction comparison
methodology in administrative reviews, in a situation where the conditions set forth in the second
sentence of Article 2.4.2 were not established.

44. The Appellate Body had never found, however, that zeroing is impermissible in the context of
the application of the average-to-transaction comparison methodology when the conditions set forth
in the second sentence of Article 2.4.2 have been established. The Appellate Body had not even
confronted that situation in any prior dispute.

45. Accordingly, the permissibility of zeroing under the alternative, average -to-transaction
comparison methodology provided in the second sentence of Article 2.4.2 was an issue of first
impression for the Appellate Body in US – Washing Machines. At this point, only two Appellate Body
members have ever found zeroing to be prohibited in connection with the alternative, average -to-
transaction comparison methodology.

46. Canada asserts that " zeroing is inconsistent with the terms 'dumping' and 'margin of
dumping'." However, that is not what the Appellate Body majority found in US – Washing Machines,
nor has the Appellate Body ever found that the terms "dumping" and "margin of dumping" are
themselves the source of the prohibition on zeroing. If that were the case, the Appellate Body could
have made that clear long before US – Washing Machines, but the Appellate Body carefully avoided
making any such finding.

47. The Appellate Body majority in US – Washing Machines does refer to the terms "dumping"
and "margins of dumping". The U.S. first written submission explains why the findings in the US –
Washing Machines Appellate Body report cannot be reconciled with findings in prior Appellate Body
reports concerning the concept of "product as a whole". The Appellate Body majority in US – Washing
Machines prescribed a new alternative methodology for addressing targeted dumping that explicitly
does not account for all transactions and cannot credibly be called a margin of dumping for the
"product as a whole." In the words of the Appellate Body majority: " dumping and margins of
dumping under the [average -to-transaction] comparison methodology applied pursuant to the
second sentence of Article 2.4.2 are to be determined by conducting a comparison between normal
value and 'patter n transactions', without having to take into account 'non-pattern transactions'."
Thus, the Appellate Body majority's approach literally requires that a margin of dumping be
determined not for the product as a whole, and in a manner that explicitly does not take into account
all export transactions. The Appellate Body majority's finding cannot be reconciled with the reasoning
in prior Appellate Body reports.

48. Canada's assertion concerning the terms "dumping" and "margin of dumping" is thus
unavailing and fails to rebut the U.S. arguments.

49. Canada further asserts that "it was entirely consistent with their past reasoning when in US –
Washing Machines, the Appellate Body found that transaction specific intermediate results in the W-
T methodology are not margins of dumping." The United States has demonstrated that the findings
in the US – Washing Machines Appellate Body report cannot be reconciled with findings in prior
Appellate Body reports. Additionally, the United States does not argue here that "transaction specific
intermediate results in the W -T methodology" are themselves "margins of dumping". Canada is
making a straw man argument. The United Sta tes argues that the results of intermediate
comparisons may be evidence of dumping and that such evidence of dumping can be masked by
higher-priced sales that are above normal value. The U.S. view, in this regard, is consistent with the
logic underlying the findings in the US – Washing Machines Appellate Body report.

50. In responses to questions from the Panel, Canada also refers to the terms "pattern" and
"individual export transactions". Canada does not engage in any interpretive analysis of those terms,
however. Canada merely asserts, for example, that "the text of the second sentence of Article 2.4.2
allows an investigating authority to focus on 'individual export transactions' when it is conducting

the comparison of export prices to a weighted average normal value." Canada makes no attempt to
explain why this is so. Canada just reiterates its support for the findings in the panel and
Appellate Body reports in US – Washing Machines.

51. Canada also asserts that "[b]y using the words 'pattern' and 'ind ividual export transactions'
the text explicitly provides for a focus on those transactions." The use of those terms does not make
that explicit at all. Canada's assertion simply is not credible.

52. Finally, Canada asserts that "[t]he text of the second sentence prohibits zeroing." Again,
Canada suggests that the source of such a prohibition is the terms "pattern" and "individual export
transactions". The United States notes that elsewhere Canada suggests that zeroing is prohibited
throughout the AD Agreement by the terms "dumping" and "margin of dumping". Canada has made
no attempt to reconcile its conflicting assertions and explain precisely what in the AD Agreement
establishes a prohibition – or multiple prohibitions – on the use of zeroing.

53. The U.S. first written submission explains why the interpretations of the terms "pattern" and
"individual export transactions" in the US – Washing Machines Appellate Body report do not follow
from a proper application of the customary rules of interpretation of public international law, and
the U.S. first written submission also points to specific internal logical inconsistencies in the
Appellate Body report. Canada has not responded to the U.S. arguments, which remain unrebutted.

54. In sum, Canada still has n ot presented the Panel with an interpretive analysis of the second
sentence of Article 2.4.2 of the AD Agreement. Canada persists in simply summarizing or referencing
various findings in prior Appellate Body reports without engaging or responding to the U. S.
arguments that have identified errors in those reports. In approaching this dispute as it has, Canada
has failed to help the Panel discharge its function under the DSU, which requires the Panel to make
its own "objective assessment of the matter before it". Such an objective assessment involves an
objective assessment of "the applicability of and conformity with the relevant covered agreements,"
and necessarily includes an interpretive analysis of any of the provisions of the relevant covered
agreements "in accordance with customary rules of interpretation of public international law". The
United States has demonstrated that such an analysis leads to the conclusion that zeroing is
permissible – indeed, it is necessary – under the alternative, average -to-transaction comparison
methodology set forth in the second sentence of Article 2.4.2.

2. The U.S. Arguments Concerning Mathematical Equivalence Remain
Unrebutted

55. The U.S. first written submission demonstrates that if zeroing is prohibited under both the
average-to-average and average -to-transaction comparison methodologies, then both
methodologies, when applied to the same set of transactions, will always yield identical results, with
respect to the total amount of all comparison results, the total amount of dumping, and the weighted
average dumping margin , which would render the second sentence of Article 2.4.2 of the
AD Agreement inutile, contrary to the principle of effectiveness. The U.S. first written submission
establishes this using hypothetical examples as well as the actual data from the softwood lumber
antidumping investigation.

56. Canada briefly addressed the U.S. argument during the first substantive p anel meeting,
suggesting that the United States "ignores" findings related to mathematical equivalence in prior
Appellate Body reports. On the contrary, the U.S. first written submission discusses the
Appellate Body's prior consideration of mathematical eq uivalence at length, demonstrating that
those findings neither support nor compel the Panel's rejection of the mathematical equivalence
argument in this dispute. Canada has ignored the U.S. arguments and made no attempt to rebut
them.

57. Canada further a sserts that the United States " also ignores the fact that the United States
itself has acknowledged during the Appellate Body hearing for US – Washing Machines that
calculating a margin of dumping focused only on pattern transactions would lead to a mathematically
different result." The position of the United States during the Appellate Body hearing on this issue
hardly seems relevant. The Appellate Body majority expressly made that very finding in the US –
Washing Machines Appellate Body report. The U.S. f irst written submission directly addresses why
that finding is not responsive to the mathematical equivalence argument.

58. To summarize, by finding that the second sentence of Article 2.4.2 requires the application of
the average -to-transaction comparison methodology to a subset of transactions while also
prohibiting the use of zeroing , the Appellate Body majority found, in effect, that the application of
the average-to-average comparison methodology to that subset of transactions (without zeroing) is
what actually is contemplated by the second sentence of Article 2.4.2. The Appellate Body majority
effectively rewrote the second sentence of Article 2.4.2, changing it from allowing the application of
the average-to-transaction comparison methodology under certain circumstances to allowing the
application of the average -to-average comparison methodology to a subset of transactions under
certain circumstances. The Appellate Body majority invented an entirely new methodology for
calculating a margin of dumping that is divorced from the text of the second sentence of Article 2.4.2,
and which does not appear to have been contemplated by any WTO Member previously, neither
during the Uruguay Round negotiations nor at any time after. Ultimately, the Appellate Body majority
read the average-to-transaction comparison methodology out of the second sentence of Article 2.4.2
of the AD Agreement altogether, contrary to the principle of effectiveness. The Appellate Body
majority did all of this in a rather awkward – but fut ile – attempt to avoid the problem of
mathematical equivalence.

59. Canada has ignored the U.S. arguments and made no attempt to rebut them.

60. Finally, the Panel asked Canada whether it agrees "that if the W-T and the W-W methodologies
are applied to the same set of export transactions, the dumping margin obtained under these two
methodologies would be mathematically equivalent". Canada responded, "No." However, Canada
obfuscates by qualifying its response, explaining that, "[w]hen the two m ethodologies are applied
correctly, they yield mathematically different results", and "the W -W and the W -T methodologies,
as described in the Anti -Dumping Agreement, properly interpreted, cannot be applied to the same
set of export transactions." Thus, Canada has avoided answering the question that the Panel asked.
Canada has not demonstrated that the United States is incorrect about the fact of mathematical
equivalence.

61. Even the Appellate Body majority in US – Washing Machines acknowledged the reality of
mathematical equivalence, referring to "the fact that the application of the [average-to-transaction]
comparison methodology to [the] pattern of export prices leads to equivalent results as the
application of the [average-to-average] comparison methodology to the same pattern". The panels
in US – Washing Machines and US – Anti-Dumping Methodologies (China) also recognized the fact
of mathematical equivalence. No WTO panel, nor the Appellate Body, has ever found that the
United States is incorrect that t he average-to-average comparison methodology (without zeroing)
and the average -to-transaction comparison methodology (also without zeroing) yield the same
mathematical result when applied to the same set of export transactions.

62. The United States continues to respectfully request that the Panel make a factual finding that,
if zeroing is prohibited under both the average -to-average and average-to-transaction comparison
methodologies, then those two methodologies, when applied to the same set of tran sactions, will
yield mathematically equivalent results in all cases, including in the challenged antidumping
investigation. This fact remains unrebutted.

3. The U.S. Arguments Concerning the Negotiating History of the AD
Agreement Remain Unrebutted

63. The U.S. first written submission demonstrates that the n egotiating history of the
AD Agreement confirms that zeroing is permissible when applying the asymmetrical, alternative,
average-to-transaction comparison methodology set forth in the second sentence of Article 2.4.2 of
the AD Agreement.

64. In its opening statement at the first panel meeting, Canada argued that "negotiating history
is a supplemental means of treaty interpretation that can only be relied upon where the meaning of
the text is unclear." Canada is incorrect. As explained in the U.S. first written submission, Article 32
of the Vienna Convention has been recognized by the Appellate Body as reflecting a customary rule
of interpretation of public international law. The United States has not s uggested that the meaning
of the second sentence of Article 2.4.2 is unclear. Rather, the meaning of that provision – specifically
that zeroing is permissible when applying the comparison methodology set forth in that provision –
can be confirmed through recourse to documents from the negotiating history of the AD Agreement.

65. Japan, in its responses to the Panel's questions, likewise argues that "[t]he negotiating history
confirms that the second sentence of Article 2.4.2 was indeed aimed at addressing the issue of
targeted dumping." Japan appears to agree with the principle under the customary rules of
interpretation that negotiating history documents can be used by a treaty interpreter to confirm the
meaning that results from the application of Article 31 of the Vienna Convention.

66. The U.S. first written submission discusses particular documents from the negotiating history
of the second sentence of Article 2.4.2 of the AD Ag reement as well as the consideration of those
documents in the US – Washing Machines Appellate Body report. Canada has made no effort to
respond to the substance of the U.S. arguments.

67. The U.S. argument – that the correct understanding of the negotiat ing history confirms the
interpretation of the second sentence of Article 2.4.2 of the AD Agreement proposed by the
United States – remains unrebutted.

4. Canada's Claim that the Use of Zeroing in Connection with the Application
of the Alternative, Avera ge-to-Transaction Comparison Methodology is
Inconsistent with Article 2.4 of the AD Agreement Lacks Merit

68. The U.S. first written submission demonstrates that Canada's claim that the use of zeroing in
connection with the application of the alternative, average-to-transaction comparison methodology
is inconsistent with Article 2.4 of the AD Agreement lacks merit.

69. Canada has made no new arguments in support of its claim under Article 2.4 in its statements
during the first substantive meeting, nor in its responses to the Panel's questions. Canada simply
reiterated its support for the findings in prior Appellate Body reports without addressing the U.S.
arguments that those findings are erroneous and contain logical inconsistencies.

70. For example, Canada asserts that, "in the context of both W -W and T-T, the Appellate Body
found that zeroing altered certain transactions or treated them as less than their actual value.
Relying on these prior interpretations, the Appellate Body concluded that the same reasoning applies
to the W -T methodology", and "[t]he Appellate Body was also relying on its prior interpretations
when it found that zeroing inflates the magnitude of dumping and makes positive determinations
more likely when sales above normal value exceed those below normal value."

71. The United States has explained that the "exclusion of 'non -pattern transactions' from the
establishment of dumping and margins of dumping" is, in reality and effect, essentially the same as
zeroing. Following, for argume nt's sake, the logic of the Appellate Body majority in US – Washing
Machines, the "exclusion of 'non -pattern transactions'" "does not take fully into account the prices
of all comparable export transactions." There has never been any suggestion that non -pattern
transactions are somehow not comparable to corresponding normal value transactions. Thus,
applying the methodology and logic of the Appellate Body majority would mean that not all
comparable export transactions would be taken into account. Indeed, th e Appellate Body majority
itself described the methodology it prescribed in US – Washing Machines in the following terms:
"dumping and margins of dumping under the [average -to-transaction] comparison methodology
applied pursuant to the second sentence of A rticle 2.4.2 are to be determined by conducting a
comparison between normal value and 'pattern transactions', without having to take into account
'non-pattern transactions'."

72. Additionally, the so-called non-pattern export transactions that are to be excluded under the
methodology prescribed by the Appellate Body majority would be, following the majority's logic,
higher-priced export transactions. Thus, the "exclusion of 'non -pattern transactions'" would mean
that the margin of dumping determined under the majority's methodology would be higher, and a
positive determination of dumping would be more likely in circumstances where the "non -pattern"
export prices are above normal value and the "pattern transactions" are below normal value.

73. The Appellate Body majority treated nearly identical factual situations differently, deeming
one (zeroing) to be unfair while deeming another (the Appellate Body majority's own prescription
for addressing targeted dumping) to be fair. There is no textual o r logical support for the
Appellate Body majority's finding.

74. Canada has not responded to the U.S. arguments, and they remain unrebutted.

75. Another serious concern highlighted by Canada's statements is that, as Canada notes, the
Appellate Body majority was "relying on [the Appellate Body's] prior interpretations" when it made
its findings in US – Washing Machines, rather than applying the customary rules of interpretation
and then taking into account findings in prior adopted reports. The danger in u ndertaking an
interpretive analysis by relying on prior interpretations – aside from that being contrary to the
customary rules of interpretation – is that doing so leaves the adjudicator further and further
removed from the treaty text being interpreted, making it more likely that an erroneous
interpretation will result.

76. Finally, Canada suggests that, "[i]n the present dispute, it could not be clearer that the
Appellate Body was correct", asserting that "[a] company that on average sold for a higher price in
the United States finds itself subject to an anti -dumping order because of zeroing." That could just
as well be true under the approach prescribed by the Appellate Body majority in US – Washing
Machines, depending on the data. This is no indication that the approach taken by the USDOC was
somehow not "fair" within the meaning of Article 2.4 of the AD Agreement, and it tells one nothing
about the proper interpretation of the AD Agreement.

77. As the United States has explained, the second sentence of Article 2.4.2 of the AD Agreement
provides Members a means to "unmask targeted dumping" in "exceptional" situations. It is "fair" to
take steps to "unmask targeted dumping" by faithfully applying the comparison methodology in the
second sentence of Arti cle 2.4.2, when the conditions for its use are met. Doing so is entirely
consistent with the obligation that an investigating authority be impartial, even -handed, and
unbiased, as one Appellate Body member agreed in US – Washing Machines.

78. For these re asons, the USDOC's use of zeroing in connection with the application of the
alternative, average-to-transaction comparison methodology in the softwood lumber antidumping
investigation is not inconsistent with Article 2.4 of the AD Agreement.

D. Canada's Consequential Claims under Articles 1 and 2.1 of the AD Agreement
and Articles VI:1 and VI:2 of the GATT 1994 Lack Merit

79. The U.S. first written submission demonstrates that Canada offered no support for its claims
under Articles 1 and 2.1 of the AD Agreement and Articles VI:1 and VI:2 of the GATT 1994 beyond
suggesting that breaches of those provisions follow as a consequence of breaches of Articles 2.4
and 2.4.2 of the AD Agreement . As the United States has established, Canada's claims that the
United States has acted inconsistently with Articles 2.4 and 2.4.2 of the AD Agreement lack merit,
and thus Canada's claims under under Articles 1 and 2.1 of the AD Agreement and Articles VI:1
and VI:2 of the GATT 1994 are equally without merit. Canada made no f urther reference to its
consequential claims, neither in its opening statement at the first substantive meeting nor in
response to the Panel's questions.

IV. CONCLUSION

80. For the reasons set forth above, along with those set forth in other U.S. written filings and
oral statements, the United States respectfully requests that the Panel reject Canada's claims.

ANNEX C
ARGUMENTS OF THE THIRD PARTIES
Contents Page
Annex C-1 Integrated executive summary of the arguments of Brazil1 53
Annex C-2 Integrated executive summary of the arguments of China2 55
Annex C-3 Integrated executive summary of the arguments of the European Union 57
Annex C-4 Integrated executive summary of the arguments of Japan 59

1 Brazil submitted the text of the oral statement as its integrated executive summary.
2 China submitted the text of the oral statement as its integrated executive summary.

ANNEX C-1
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF BRAZIL
Mr. Chair, distinguished Members of the Panel,

1. Brazil appreciates the opportunity to appear before you as a third party in the current
proceedings. This oral statement will focus on two issues of systemic importance: first, Brazil would
like to express its views on the relevance of prior Appellate Body reports in the settlement of
subsequent disputes in volving similar matters; and second, Brazil would like to elaborate on the
proper interpretation of Article 2.4.2 of the Anti-Dumping Agreement.

2. In this dispute, Canada claims that the United States has acted inconsistently with the
Anti-Dumping Agreement in two manners. First, the United States Department of Commerce
(USDOC) has resorted to a weighted-average-to-transaction (W-T) comparison methodology without
fulfilling the requirements provided for in the second sentence of Article 2.4.2 of the
Anti-Dumping Agreement. Second, in calculating the margin of dumping, the United States
Department of Commerce (USDOC) has also inflated the results by applying "zeroing". According to
Canada, both conducts by the United States have already been found to be inconsistent with WTO
law in previous disputes, as confirmed by the Appellate Body Report in US – Washing Machines.

3. In response, the United States argues that the panel must make its own assessment of the
matter, regardless of what was decided in US – Washing Machines, because the text of Article 3.2
of the DSU does not expressly attribute any interpretative value to previous reports of the
Appellate Body. In addition, the United States argues that, if the panel were to interpret Article 2.4.2
of the Anti-Dumping Agreement according to the customary rules of interpretation of public
international law, it would find that both the choice by the United States Department of Commerce
(USDOC) to apply the weighted-average-to-transaction (W-T) methodology and the introduction of
"zeroing" in the calculation were consistent with the covered agreements.

Relevance of Prior Appellate Body reports

4. Brazil would first like to address the United States' argument that the Appellate Body findings
in US – Washing Machines should not influence the resolution of this dispute, because, according to
the DSU, previous reports adopted by the DSB are not binding for future panels. Brought to its limits,
this argument appears to be quite a broad refutation of the interpreta tive value of prior panel and
Appellate Body reports in the WTO dispute settlement mechanism as a whole.

5. In order to support its argument, the United States refers to a portion of Article 3.2 of the
DSU according to which, in clarifying the meaning of the covered agreements, panels are required
to apply the "customary rules of interpretation of public interna tional law." 1 The underlying
implication seems to be that, because precedents of the Appellate Body are not expressly listed as
a criterion for legal interpretation in the DSU, panels are free to disregard their content when making
their rulings on similar matters. It is noteworthy that, immediately after making this argument, the
United States seeks to validate its own interpretation of Article 3.2 by referring to an Appellate Body
finding in US- Gasoline.2

6. In US – Oil Country Tubular Goods Sunset Rev iew, the Appellate Body noted that "following
the Appellate Body's conclusions in earlier disputes is not only appropriate, but is what would be
expected from panels, especially where the issues are the same."3 It seems to Brazil, however, that
the expecta tion that panels will not disregard previous case law is not exclusive to the
Appellate Body; it is, rather, shared by the Membership and supported by both law and practice.

7. From a legal perspective, Article 3.2 of the DSU, refers to the entire dispute settlement
system, which includes the panel and appellate stages, as being a central element in providing
security and predictability to the multilateral trading system. Therefore, one could conclude that,

1 United States' First Written Submission, para. 23.
2 Ibid.
3 US – Oil Country Tubular Goods Sunset Reviews, Appellate Body Report, para. 188.

according to Article 3.2, both panels and the Appellate Body play a shared role in providing security
and predictability to the multilateral trading system.

8. Brazil considers that a system in which different panels are free to issue conflicting versions
of what they consider to be the correct interpretation of a single provision, especially when the issues
are the same, would offer less security and predictability than a system in which adjudicators strive
to interpret WTO law in a consistent manner.

9. From a practical perspective, it is an irrefuta ble fact that Members resort to prior reports of
the Appellate Body in their submissions quite frequently, and in doing so reveal a very clear
expectation that those precedents will influence panels' decisions. A glance at the "tables of cases"
that appear on the first pages of all Member's submissions confirms this to be the case. This practice
does not indicate that Members consider adopted Appellate Body reports to be authoritative
interpretations or amendments to the covered agreements. They simply believe that the application
of the customary rules of interpretation of public international law to the agreed texts should yield
consistent, rather than erratic, results.

10. Moreover, it may be useful to recall that, when interpreting the covered agreement s, the
Appellate Body is held by the exact same standards as panels. This means that the Appellate Body
is also required to apply "customary rules of interpretation of public international law" and, as a
result, its reports offer guidance on precisely the same analysis that panels are expected to conduct.

Interpretation of Article 2.4.2 of the Anti-Dumping Agreement

11. Brazil will now comment briefly on the proper interpretation of Article 2.4.2 of the
Anti-Dumping Agreement. Brazil notes that the partie s seem to be in agreement with the fact that
the two symmetrical methods - weighted-average to weighted -average and transaction to
transaction (W-W and T-T) - provided for in the first sentence of Article 2.4.2 are normally to be
used first in order to calculate the margin of dumping. Thus, the third method - weighted-average-
to-transaction (W-T) - is clearly an exception, to be used exclusively as a means to counteract the
practice of "targeted dumping" and only in the presence of certain requirements.

12. In this context, the panel should first analyze whether the requirements for the recourse to
the weighted-average-to-transaction (W-T) methodology were present in the investigation at hand.
To this end, the panel should verify whether United States Department of Commerce (USDOC) was
able to detect a "pattern of export prices which differ significantly among different purchasers,
regions or time periods" and also whether the investigating authority was able to explain why the
symmetrical comparison methodo logies could not appropriately take into account such identified
"pattern".

13. If the panel is satisfied that the United States Department of Commerce (USDOC) resorted
legitimately to the weighted -average-to-transaction (W-T) comparison methodology, it m ust then
establish whether the margins of dumping were properly calculated. In this second stage of the
analysis, it is important for the panel to determine whether the exceptional methodology was applied
exclusively to the sales that presented the "patter n" of "targeted dumping" and also whether the
actual calculation observed mathematical standards consistent with the Anti-Dumping Agreement.

14. Mr. Chair, distinguished members of the Panel, this concludes Brazil's statement. Thank you
for your attention.

ANNEX C-2
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF CHINA
1. Mr. Chairman, Members of the Panel. China welcomes this opportunity to present its views in
this dispute.

2. Today, we will focus on two critical issues in relation to Canada's claims on the USDOC's use
of differential pricing methodology ("DPM"): (i) the identification of a pattern; and (ii) the
permissibility of zeroing, under the second sentence of Article 2.4.2 of the Anti-dumping Agreement
("ADA").

3. As the Panel is aware, this case is not the first one regarding how WTO disciplines shall apply
to the use of the "weighted average -to-transaction" ("W -T") comparison methodology in
anti-dumping investigations. In this regard , China believes that the previous panel and
Appellate Body reports adopted by the DSB have provided clear guidance for addressing issues
raised in this dispute.

4. First, with respect to the proper identification of a pattern in the second sentence of A DA
Article 2.4.2 , China notes that this is a key condition to be satisfied before resorting to the
asymmetrical W-T comparison methodology to "determine the existence of margins of dumping" .
We believe that the exceptional nature of the W -T methodology, as consistently held by the
Appellate Body1 and agreed by the parties to this dispute 2, warrants a strict interpretation of the
pattern requirement.

5. Pursuant to ADA Article 2.4.2, when employing the W -T methodology, an investigating
authority shall iden tify a "pattern" of export prices that "differ significantly among different
purchasers, regions or time periods" (emphasis added). The Appellate Body fo und that while the
conjunction "or" may be exclusive or inclusive, the word "among" requires that each category be
considered on its own, in the sense that a pattern of prices among different purchasers must be
found within purchasers, as between particular purchasers and other purchasers (with the same
applying to regions and time periods, respectivel y).3 The combined use of the words "or" and
"among" in that phrase means that different categories cannot be considered cumulatively to find
one single pattern.4

6. However, according to Canada 5, in applying the DPM , the USDOC has done the opposite by
aggregating the results of comparisons of export prices to purchasers, regions and time periods to
identify the pattern. In our view, such a practice cannot be compatible with the plain language of
the second sentence of ADA Article 2.4.2.

7. Second, zeroing is not permissible even when the strict criteria of W-T methodology have been
met. WTO panels and the Appellate Body have consistently held that the use of zeroing is
inconsistent with ADA under any of the three comparison methodologies, i.e. "weighted average-to-
weighted average" ("W -W"), "transaction -to-transaction" ("T -T") or W -T methodology, as
contemplated in ADA Article 2.4.2.6

8. In the recent US – Anti-Dumping Methodologies (China) and US – Washing Machines (Korea)
cases, the panel and Appellate Body reaffirmed the inconsistency of the use of zeroing in the W -T

1 Appellate Body Report, US – Washing Machines, para. 5.18; see also Appellate Body Report, US –
Softwood Lumber V (Article 21.5 Canada), para. 55; Appellate Body Report, US – Stainless Steel (Mexico),
para. 48.
2 See e.g. Canada’s first written submission to the Panel, para. 37; United States’ first written
3 Appellate Body Report, US – Washing Machines, para. 5.31.
4 Ibid. para. 5.33.
5 Canada’s first written submission to the Panel, paras. 40-42.
6 See, e.g., Appellate Body Reports, US – Softwood Lumber V (Article 21.5 – Canada), para. 123; US –
Continued Zeroing, paras. 314-316; US –Stainless Steel (Mexico), paras. 133-134; US – Zeroing (EC),
paras. 263(b); US – Zeroing (Japan), paras. 121-129 and 190; US – Washing Machines, paras. 6.9-6.11.

methodology scenario. 7 In China's view, any contrary position would be inconsistent with the
foundational "exporter-specific" and "product-related" conception of dumping.8

9. The mathemat ical equivalence argument of the United States has also been carefully
considered and consistently rejected by the Appellate Body in various disputes. 9 Mathematical
equivalence only holds under a specific set of assumptions. If the assumptions are varied, W-T and
W-W will generally yield different results.10

10. The US mathematical equivalence argument also fails to grapple with the relevance of the
T-T methodology. T-T methodology will generally yield results that are different from both W-W and
W-T methodology, even though zeroing is not permissible under the T-T methodology.11

11. In conclusion, DPM has been ruled "as such" inconsistent with the WTO covered agreements.12
China sees no "cogent reason" for the Panel to depart from the previous panel and Appellate Body
reports adopted by the DSB.

12. Mr. Chairman, Members of the Panel, thank you for your attention. China also wishes to thank
the Secretariat team for their hard work. We look forward to your questions.

7 Panel Report, US – Anti-Dumping Methodologies (China), paras. 7.201-7.209; Appellate Body Report,
US – Washing Machines, paras. 6.9-6.11.
8 See, e.g., Appellate Body Report, US – Stainless Steel (Mexico), para. 94.
9 See e.g., Appellate Body Reports, US – Softwood Lumber V (Article 21.5 – Canada), paras. 97-100;
US – Zeroing (Japan), paras. 135-136; US – Stainless Steel (Mexico), paras. 126-127; and US – Continued
Zeroing, para. 298.
10 Appellate Body Report, US – Washing Machines, paras. 5.125-5.128.
11 Appellate Body Report, US – Softwood Lumber V (Article 21.5 Canada), para. 88.
12 Appellate Body Report, US – Washing Machines, paras. 6.3.b, 6.4.c, 6.9.a, 6.10.a, and 6.11.a.

ANNEX C-3
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF THE EUROPEAN UNION
1. This executive summary integrates comments made by the European Union at the Third Party
Hearing on 13 September and its replies to the Panel's questions to Third Parties of
27 September 2018. The European Union considers that the present case raises important systemic
questions, in particular on the role of prior Appellate Body Reports and on the interpretation and
application of the Agreement on the Implementation of Article VI of the General Agreement on Tariffs
and Trade 1994 ("Anti-Dumping Agreement"). The European Union's submissions focussed on those
systemic questions, without taking a definitive position on the facts of the case.

I. The role of prior Appellate Body Reports

2. Concerning the United States' argument contesting the releva nce of the Appellate Body's
findings in US – Washing Machines, it is standing case -law that adopted Appellate Body Reports
create legitimate expectations amongst Members as to the interpretations of WTO law contained
therein. Thus, the legal interpretation embodied in adopted panel and Appellate Body reports
becomes part and parcel of the acquis of the WTO dispute settlement system. Ensuring "security
and predictability" in the dispute settlement system, as contemplated in Article 3.2 of the DSU,
implies that, absent cogent reasons, an adjudicatory body will resolve the same legal question in
the same way in a subsequent case.1

3. The creation of the Appellate Body by WTO Members to review legal interpretations developed
by panels shows exactly that the entire WTO Membership recognized the importance of consistency
and stability in the interpretation of their rights and obligations under the covered agreements.
Consistency and stability ensure legal certainty. In turn, legal certainty provides an indispensab le
condition for international trade to flow smoothly, and must therefore not be jeopardized.

4. An important nuance must be made between legal interpretations and the application of the
law to the facts. While the application of a provision may be regard ed as confined to the context in
which it takes place, the relevance of clarification contained in adopted Appellate Body reports is not
limited to the application of a particular provision in a specific case. Interpretations of the law by the
Appellate Bo dy should thus not change depending on the case at hand. T he possibility of
authoritative interpretations under Article IX:2 of the WTO Agreement does not diminish the value
of interpretations by the Appellate Body.

II. Article 2.4.2 of the Anti-Dumping Agreement

5. The Appellate Body has clarified that the asymmetrical W -T comparison methodology in the
second sentence of Article 2.4.2 of the Anti -Dumping Agreement may be used if the following two
conditions are met: first, "the authorities find a pattern of export prices which differ significantly
among different purchasers, regions or time periods"; and, second, "an explanation is provided as
to why such differences cannot be taken into account appropriately by the use of a weighted
average-to-weighted average or transaction-to-transaction comparison.2

6. The Appellate Body explained that the "pattern" must be understood as a regular and
intelligible form or sequence of export prices which differ significantly. 3 Hence, a pattern must be
identified as consisting of prices that differ significantly among different purchasers, regions or time
periods. There must be regularity to the sequence of "export prices which differ significantly" and
this sequence must be capable of being understood. The Appellate Bo dy stressed that the word
"intelligible" excludes the possibility of a pattern merely reflecting random price variation.

7. In reply to a question from the Panel, the European Union considers that the differences in
prices have to be significant, either in quantitative or qualitative sense. Hence, the starting point is

1 Appellate Body Report, US – Stainless Steel (Mexico), paras. 158-161.
2 Appellate Body Report, US – Washing Machines, para. 5.16, referring to Appellate Body Report, US –
Softwood Lumber V (Article 21.5 – Canada), para. 86; and US – Zeroing (Japan), para. 131.
3 Appellate Body Report, US – Washing Machines, para. 5.27.

the comparison of the prices of export transactions, not a comparison in export volumes. The
European Union does not exclude that export volumes could be relevant to assess the significance
of a price difference, but that would depend on specific facts of the case.

8. The Appellate Body has explained that in order to ascertain whether there is a "pattern" an
investigating authority may, starting from the set of all export transactions attrib utable to an
investigated producer/exporter, select for further consideration a sub-set, which must consist of all
that producer's/exporter's export transactions to a particular purchaser (as opposed to other
purchasers) or to a particular region (as opposed to the remainder of the territory of the importing
Member) or during a particular time period (as opposed to the remainder of the investigation
period).4 The so-selected prices of transactions within the sub-set of transactions (grouped according
to purchaser, region, or time period) are then compared with the prices of all transactions.

9. A pattern must pertain to all the export transactions to one particular category (a purchaser,
region or time period). Related purchasers and adjacent regions or tim e periods are considered as
a single category. For the purposes of finding a pattern, it is not possible to combine export
transactions from different purchasers, different regions, or different time periods. Nor is it possible,
for the purposes of finding a pattern, to combine export transactions from one of the three types of
possible category with export transactions from another one of the three types of category.5

10. The Appellate Body has also clarified that for there to be a pattern, the export pri ces in the
sub-set (considered as a whole) must be lower than the export prices outside the sub-set (considered
as a whole); a sub-set of higher export prices is not a relevant pattern for the purposes of the second
sentence of Article 2.4.2 of the Anti-Dumping Agreement.6

11. The W-T comparison methodology may only be applied to the export transactions constituting
the relevant pattern, and not to the export transactions that fall outside the sub-set constituting the
pattern.7 Therefore, if the investigating authority has decided to rely on the W -T comparison
methodology under the conditions of Article 2.4.2 of the AD Agreement to address targeted dumping,
it cannot include the transactions outside the pattern in the numerator for calculating the dumping
margin.

12. Finally, the Appellate Body has also rightly found that in applying the W -T comparison
methodology to the transactions in the sub-set constituting the pattern zeroing is not permitted. The
fact that in US – Washing Machines, one member has provided a separate opinion in this regard
does not diminish the value of the adopted Appellate Body Report or of the legal interpretation
contained therein.

13. Thus, all export transactions in the sub -set must be fully taken in to account irrespective of
whether they are above or below normal value. When combining intermediate results of comparisons
between a weighted average normal value and individual export transactions, export transactions
above normal value must be treated as having been made at the price at which they were actually
made, and the results of such intermediate comparisons must not be set to zero before determining
the dumped amount for the targeted sub-set as a whole.8

14. As set out above, if the conditions o f Article 2.4.2 are met, the investigating authority is
permitted to establish a dumping amount for the transactions that are part of the pattern and thus
to disregard the transactions that are not part of the pattern. There is nothing in the text of
Article 2.4.2 that would permit an investigating authority to do more, and disregard further certain
transactions that are part of the sub -set (namely those for which the export price is above the
average normal value). Thus, apart from the specificities provid ed for in Article 2.4.2, the normal
rules for calculating dumping margins apply, and with them, the general prohibition of zeroing as it
has now been established in decades of prior case -law, for all types of dumping and all types of
determinations.

4 Appellate Body Report, US – Washing Machines, para. 5.29.
5 Appellate Body Report, US – Washing Machines, paras. 5.30-5.34.
6 Appellate Body Report, US – Washing Machines, para. 5.29.
7 Appellate Body Report, US – Washing Machines, paras. 5.50-5.55.
8 Appellate Body Report, US – Washing Machines, paras. 5.151-5.160.

ANNEX C-4
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF JAPAN
I. The USDOC's Methodology Does Not Meet the "Pattern" Requirement

1. The second sentence of Article 2.4.2 of the Agreement on Implementation of Article VI of the
General Agreement on Tariffs and Trade 1994 (the "Anti-Dumping Agreement" or the "Agreement")
mandates that, before investigating authorities may apply the "exceptional" W -T comparison
methodology, they must identify "a pattern of export prices which differ significantly among different
purchasers, regions or time periods", rather than to find merely "export prices which differ
significantly".1 The "differential pricing methodology" ("DPM") used by the United States Department
of Commerce ("USDOC") is inconsistent with this "pattern" requirement in the following three
respects.

A. A "Pattern" Must Help Unmask Targeted Dumping

2. First, the DPM examines both lower and higher export prices to establish the presence of
export prices which differ significantly.2 This approach is inconsistent with the "pattern" requirement.

3. As the Appellate Body has explained, and the United States appears to agree 3, a "pattern"
means "[a] regular and intelligible form or sequence discernible in certain actions or situations".4 A
"regular and intelligible form or sequence" must be capable of being understood, which means that
random price variations do not constitute a "pattern". 5 However, the USDOC's evaluation of both
lower and higher export prices by a methodo logy that relies exclusively on numerical benchmarks 6
will only reveal such random variations – that is, the mere presence, or absence, of export prices
which differ significantly – rather than a pattern of export prices which differ significantly.7

4. Also, because the function of the second sentence of Article 2.4.2 is to identify and address
"targeted dumping", the relevant "pattern" can only comprise prices that are significantly lower than
other export prices among different purchasers, regions or time periods.8

B. A "Pattern" Must Consist of Prices that "Differ Significantly", Both
Quantitatively and Qualitatively

5. Second, by employing a purely quantitative threshold that is applied to all cases for the
determination of targeted dumping, the DPM fails to satisfy the precondition set forth in the second
sentence of Article 2.4.2 that the relevant pattern must be one o f export prices that "differ
significantly." The Appellate Body has found that the term "significantly" "has both quantitative and
qualitative dimensions." 9 Even limiting the definition of the term "significantly" to mean "to a
significant extent" 10, as the United States does, the assessment of whether significant price
differences are present must include consideration of certain qualitative factors, such as the
"circumstances regarding the nature of the product under consideration, the industry at issue, t he
market structure, or the intensity of competition in the markets at issue, depending on the case at
hand."11

1 United States' first written submission, para. 68.
2 United States' first written submission, paras. 68, 74.
3 United States' first written submission, paras. 49, 52; Appellate Body Report, US – Washing Machines,
fn. 108.
4 Appellate Body Report, US – Washing Machines, para. 5.25.
5 Appellate Body Report, US – Washing Machines, para. 5.25.
6 United States' first written submission, para. 77.
7 United States' first written submission, paras. 68, 74.
8 Appellate Body Report, US – Washing Machines, para. 5.29.
9 Appellate Body Report, US – Washing Machines, paras. 5.63, 5.66.
10 United States' first written submission, para. 49.
11 Appellate Body Report, US – Washing Machines, para. 5.66. See also Appellate Body Report, US –
Washing Machines, para. 5.63.

C. A "Pattern" Cannot Transcend Categories

6. Third, in applying the DPM, the USDOC aggregates all the price differences among different
purchasers, regions, or time periods. This aggregation is inconsistent with the concept of a "pattern"
as used in the second sentence of Article 2.4.2. The terms "among" and "or" in the second sentence
of Article 2.4.2, along with the definition of the term "pattern", call for the identification of a pattern
of export prices which differ significantly among different purchasers, or among different regions, or
among different time periods.12 Japan agrees with the Appellate Body's reasoning that "[a] single
'pattern' comprising prices that are found to be significantly different from other prices across
different categories would effectively be composed of prices that do not form a regular and intelligible
sequence."13

7. The United States contends that the DPM does not aggregate random and unrelated price
variations, because a respondent's pricing behavior cannot be described as "random".14 But this logic
would lead to the incorrect conclusion that any jumble of export sales by a respondent comprises a
"pattern". The United States fails to explain how a respondent's pricing behavior towards a purchaser
A is related to its pricing behavior to wards region B, or time period C as a general matter. Without
demonstrating a link between these pricing behaviors, the existence of a pattern or regular sequence
of export prices cannot be found. This, in turn, means that the precondition for the aggregat ion of
all the alleged price differences has not been met.

II. The USDOC's methodology does not meet the "explanation" requirement

8. The USDOC also fails to meet another requirement under the second sentence of Article 2.4.2
– namely, to provide an "exp lanation" as to "why such differences cannot be taken into account
appropriately by the use of" the W -W or T-T comparison methodologies. "[S]uch differences" refer
back to the phrase, "a pattern of export prices which differ significantly".15 In the DPM, the USDOC
just confirms that "there is a meaningful difference between the weighted-average dumping margin
calculated using the [W-W] method and that calculated using […] the [W-]T method."16 This form of
"explanation" merely identifies quantitative differenc es in the outcomes obtained through the
application of the different comparison methodologies, and fails to explain why the pattern of prices
that differ significantly cannot be taken into account appropriately by the W -W or T-T comparison
methodology.

9. Moreover, due to the USDOC's use of zeroing with respect to the W-T comparison methodology
but not to the W-W (or T-T) comparison methodology, the quantitative impact of the W-T comparison
is inflated, and the existence of a "meaningful difference" between the margins calculated using the
different comparison methodologies is all but guaranteed. In other words, that difference is
exaggerated through the USDOC's W-T methodology that is WTO-inconsistent. An explanation based
on such a flawed foundation cannot suffice.

III. The USDOC improperly applies the W-T methodology to the entire universe of export
sales

10. In certain instances the USDOC applies the W -T methodology to all export transactions,
including both pattern and non -pattern sales. However, the application of the W -T comparison
methodology to non-pattern sales is inconsistent with the second sentence of Article 2.4.2.

11. Specifically, the universe of export transa ctions that comprise a "pattern" under the second
sentence of Article 2.4.2 "would necessarily be more limited" than the "universe" of all export
transactions under the first sentence. 17 Further, in light of the function of the second sentence to
address "t argeted dumping", Japan agrees with the Appellate Body that " the W -T comparison
methodology should only be applied to those transactions that justify its use, namely, those
transactions forming the relevant 'pattern'."18

12 Appellate Body Report, US – Washing Machines, para. 5.33.
13 Appellate Body Report, US – Washing Machines, para. 5.32 (emphasis original).
14 United States' first written submission, para. 78.
15 Emphasis added.
16 See Lumber Final I&D Memo, p. 56 (Exhibit CAN-01).
17 Appellate Body Report, US – Zeroing (Japan), para. 135.
18 Appellate Body Report, US – Washing Machines, para. 5.55.

IV. Zeroing Is Impermissible Under The Second Sentence of Article 2.4.2 of the
Agreement

12. The United States further violates the second sentence of Article 2.4.2 of the Agreement by
applying the "zeroing" procedures when calculating a margin of dumping pursuant to the W -T
comparison methodology.

13. It is well established through consistent WTO jurisprudence that zeroing is impermissible in
the calculation of dumping margins in a ny context or proceeding in which such margins are
calculated. The concepts of "dumping" and "margins of dumping" are the same throughout the
Agreement, which establishes the basic principle that margins of dumping are established for the
product under inv estigation "as a whole". 19 On this basis, the Appellate Body concluded that
"[z]eroing the negative intermediate comparison results within the pattern" is not "consistent with
the establishment of dumping and margins of dumping as pertaining to the 'univers e of export
transactions' identified under the second sentence of Article 2.4.2."20

14. The United States attempts to justify the USDOC's use of zeroing by raising the "mathematical
equivalence" argument. 21 However, this argument has already been thoroughly considered and
repeatedly rejected by the WTO 22, and the United States provides no reason for the Panel to
reconsider it.

15. The United States nonetheless insists that there is no textual basis to exclude "non -pattern
transactions" from the establishment of dumping and margins of dumping in W-T comparisons, which
is "essentially the same as zeroing." 23 However, the differences between the exceptional W -T
comparison methodology under the second sentence of Article 2.4.2 and the two methodologies
under the first sentence result from the presence of targeted dumping, which is to be "unmasked"
according to the purpose of the second sentence of Article 2.4.2.24 "Such differences" in the pricing
patterns will therefore justify the use of the exceptional W -T methodology when they cannot be
appropriately taken into account by the methodologies under the first sentence (and as properly
explained by the investigating authority).

16. On the other hand, zeroing the negative intermediate comparison results – whether within or
outside the pattern – is not necessary to "unmask" "targeted dumping" among the "pattern
transactions".25 To the contrary, zeroing merely leads to the defect of unreasonably inflating the
dumping margin, or creating a margin where one otherwise would not exist, which is inconsistent
with the obligations established by Articles 2.4 and 2.4.2 of the Agreement.

17. The United States also tries to justify zeroing by referring to the comments on "asymmetrical"
nature of the comparison methodology authorized by the second sentence of Article 2.4.2 in some
decisions by the Appellate Body 26 and the negotiating history of the Agreement.27 However, these
comments merely pointed out that the W-T comparison pursuant to the second sentence consisted
of the weighted average price of all domestic sales, on the one hand, and individual export
transaction prices, on the other hand, which were not "symmetric".

Stainless Steel (Mexico), para. 127.
25 Appellate Body Report, US – Washing Machines, paras. 5.156, 5.160.
26 United States' first written submission, para. 179.
27 United States' first written submission, paras. 183-186.