UNITED STATES – PRELIMINARY DETERMINATIONS WITH RESPECT TO CERTAIN SOFTWOOD LUMBER FROM CANADA
Document: Report of the Panel
Date: 27 September 2002
Document codes: WT/DS236/R
Complainant: Canada
Respondent: U.S.
Third parties: EU, India, Japan
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. 1.1(a), 10, 17.1(b), 19.4, 32.1  Subsidies and Countervailing Measures (SCM)Art. VI:3  GATT 1994Art. 1.2, 2, 1.1(b), 14, 17.5, 3.1(a), 20.6, 19.3, 21.1, 21.2, 32.5  Subsidies and Countervailing Measures (SCM)Art. XVI:4  Agreement Establishing the World Trade Organization

UNITED STATES – PRELIMINARY DETERMINATIONS
WITH RESPECT TO CERTAIN SOFTWOOD LUMBER
FROM CANADA
Report of the Panel
The report of the Panel on is being circulated to all Members, pursuant to the DSU. The report
is being circulated as an unrestricted document from 27 September 2002 pursuant to the Procedures
for the Circulation and Derestriction of WTO Documents (WT/L/160/Rev.1). Members are reminded
that in accordance with the DSU only parties to th e dispute may appeal a panel report. An appeal
shall be limited to issues of law covered in the Panel report and legal interpretations developed by the
Panel. There shall be no ex parte communications with the Panel or Appellate Body concerning
matters under consideration by the Panel or Appellate Body.
Note by the Secretariat : This Panel Report shall be adopted by the Dispute Settlement Body (DSB) within
60 days after the date of its circulation unless a party to the dispute decides to appeal or the DSB decides by
consensus not to adopt the report. If the Panel Report is appealed to the Appellate Body, it shall not be
considered for adoption by the DSB until after the completion of the appeal. Information on the current status
of the Panel Report is available from the WTO Secretariat.

I. INTRODUCTION
A. COMPLAINT OF CANADA
1.1 On 21 August 2001, Canada requested consultations with the United States pursuant to
Article 4 of the Dispute Settle ment Understanding ("the DSU"), Article XXII of the General
Agreement on Tariffs and Trade 1994 ("GATT 1994") and Article 30 of the Agreement on Subsidies
and Countervailing Measures ("the SCM Agreement" or "the Agreement"), with regard to the
preliminary countervailing duty determination and the preliminary critical circumstances
determination made by the US Department of Commerce ("USDOC") on 9 August 2001, with respect
to certain softwood lumber from Canada, and with regard to US measures on company-specific
expedited reviews and administrative reviews.
1
1.2 On 17 September 2001, Canada and the United States held the requested consultations, but
failed to reach a mutually satisfactory resolution of the matter.
1.3 On 25 October 2001, Canada requested the establishment of a panel to examine the matter.2
B. ESTABLISHMENT AND COMPOSITION OF THE PANEL
1.4 At its meeting of 5 December 2001, the Dispute Settlement Body ("the DSB") established a
Panel in accordance with Article 6 of the DSU and pursuant to the request made by Canada in
document WT/DS236/2.
1.5 At that meeting, the parties to the dispute also agreed that the Panel should have standard
terms of reference. The terms of reference therefore are the following:
"To examine, in the light of the relevant provisions of the covered agreements cited
by Canada in document WT/DS236/2 the matter referred to the DSB by Canada in
that document, and to make such findings as will assist the DSB in making the
recommendations or in giving the rulings provided for in those agreements."
1.6 On 22 January 2002, Canada requested the Director-General to determine the composition of
the Panel, pursuant to paragraph 7 of Article 8 of the DSU. This paragraph provides:
"If there is no agreement on the panelists within 20 days after the date of the
establishment of a panel, at the request of either party, the Director-General, in
consultation with the Chairman of the DSB and the Chairman of the relevant Council or
Committee, shall determine the composition of the panel by appointing the panelists
whom the Director-General considers most appropriate in accordance with any relevant
special or additional rules or procedures of the covered agreement or covered
agreements which are at issue in the dispute, after consulting with the parties to the
dispute. The Chairman of the DSB shall inform the Members of the composition of the
panel thus formed no later than 10 days after the date the Chairman receives such a
request."

1 WT/DS/236/1.
2 WT/DS/236/2.

1.7 On 1 February 2002, the Director-General accordingly composed the Panel as follows:
Chairman: Mr. Dariusz Rosati
Members: Mr. Robert Arnott
Mr. Gonzalo Biggs
The European Communities, India and Japan reserved their third party rights.
C. PANEL PROCEEDINGS
1.8 The Panel met with the parties on 24-25 April 2002 and 4 June 2002. The Panel met with
third parties on 24 April 2002.
1.9 On 26 July 2002, the Panel provided its interim report to the parties.
II. FACTUAL ASPECTS
2.1 This dispute concerns the preliminary countervailing duty determination and the preliminary
critical circumstances determination made by the USDOC on 9 August 2001 in respect of certain
softwood lumber imports from Canada, cl assified under headings 4407.1000, 4409.1010, 4409.1020,
and 4409.1090.3 This dispute also concerns US law on expedited and administrative reviews in the
context of countervailing measures.
2.2 On 2 April 2001 an application for countervailing duties was filed with the USDOC by the
Coalition for Fair Lumber Imports Executive Committee; the United Brotherhood of Carpenters and
Joiners; and the Paper, Allied-Industrial, Chem ical and Energy Workers International Union. On
20 April 2001, the application was amended to include as applicants Moose River Lumber Co., Inc.;
Shearer Lumber Products; Shuqualak Lumber Co.; and Tolleson Lumber Co., Inc. On 30 April 2001,
the USDOC published a notice of initiation of a countervailing duty investigation in the US Federal
Register.
2.3 In May 2001, the US International Trade Commission ("ITC") published its preliminary
affirmative determination that there was a reasonable indication that the US industry was threatened
with material injury by reason of imports from Canada of softwood lumber, which were alleged to be
subsidized by the Government of Canada.
2.4 On 27 July 2001, the USDOC amended the initiation of the investigation, to exempt from
investigation imports of certain softwood lumber produced in the Maritime Provinces from timber
harvested in the Maritime Provinces.
4
2.5 On 17 August 2001, the USDOC published in the Federal Register a notice of preliminary
affirmative countervailing duty determination, preliminary affirmative critical circumstances
determination, and alignment of final countervailing duty determination with final antidumping duty
determination. Provisional measures (withholding of appraisement and posting of cash deposit or
bond) were imposed on the basis of a preliminary subsidy rate of 19.31 per cent, applicable to all
producers/exporters, and applied to all entries of the subject merchandise from Canada entered, or

3 The countervailing duty investigation concerned in this dispute is sometimes referred to as the
"Lumber IV" investigation.
4 US Department of Commerce, Notice of preliminary affirmative countervailing duty determination,
preliminary affirmative critical circumstances determ ination, and alignment of final countervailing duty
determination with final antidumping duty determination: Certain softwood lumber products from Canada ,
Exhibit CDA-1, p. 43,188.

withdrawn from warehouse, for consumption on or after 90 days prior to the date of publication of the
notice.
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
A. CANADA
3.1 Canada requests the Panel to:
• find that the Preliminary Countervailing Duty Determination of the United States in the softwood
lumber case violates Articles 10, 14, 17.1, 17.2, 17.5, 19.4 and 32.1 of the SCM Agreement and
Article VI:3 of GATT 1994;
• find that the Preliminary Critical Circumstances Determination of the United States in the
softwood lumber case violates Article 17.1(b), 17.3, 17.4, 17.5, 19.4 and 20.6 of the SCM
Agreement and Article VI:3 of GATT 1994;
• find that US countervailing duty law regarding expedited and administrative reviews and the
application of that law in the Lumber IV investigation violate Articles 10, 19.3, 19.4, 21.2 and
32.1 of the SCM Agreement and that as a result, the United States has failed to ensure that its
laws, regulations and administrative procedures are in conformity with its WTO obligations as
required by Article XVI:4 of the WTO Agreement and Article 32.5 of the SCM Agreement; and
• recommend that the United States bring its measures into conformity with the SCM Agreement
and the WTO Agreement, including by lifting the suspension of liquidation for the period of
19 May through 16 August 2001, and making company-specific expedited and administrative
reviews available to exporters and producers subject to any countervailing duty order that may be
issued as a result of the Lumber IV investigation.
B.
UNITED STATES
3.2 The United States requests that the Panel reject Canada's claims in their entirety.
IV. ARGUMENTS OF THE PARTIES
4.1 The arguments of the parties are set forth in their written and oral submissions to the Panel,
and in their answers to questions. The parties' arguments as presented in their submissions are
summarized in this section. Summaries of the parties' written answers to questions are set forth in the
Annexes to this report (see list of annexes at page ).
A. FIRST WRITTEN SUBMISSION OF CANADA
4.2 The following are Canada's arguments in its first written submission.
4.3 At issue in this dispute are the preliminary countervailing duty determination (the
"preliminary determination") and the preliminary critical circumstances determination made by the
USDOC on 9 August 2001, with respect to certain softwood lumber from Canada, which violate US
obligations under the SCM Agreement and GATT 1994. Also at issue is the denial of company-
specific expedited reviews and administrative reviews under US countervailing duty law, which
violates US obligations under the SCM Agreement and the WTO Agreement.

1. The Preliminary Countervailing Duty Determination
4.4 In the preliminary countervailing duty determination, the USDOC concluded that “provincial
stumpage programmes” in Quebec, British Columbia, Ontario, Alberta, Manitoba and Saskatchewan
are countervailable subsidies. It determined (a) that stumpage is the “provision of a good or service”,
(b) based on a “cross-border” analysis of “benefit”, that the stumpage programmes were subsidies to
softwood lumber producers, and (c) that the alleged subsidies were specific. It assumed that the
benefit was passed through to certain producers. Of the 19.31 per cent country-wide subsidy rate
calculated by the USDOC, a full 19.21 per cent is attributed to these “stumpage programmes”.
4.5 The USDOC’s findings and determinations and the provisional measures imposed as a result
are inconsistent with US obligations under the SCM Agreement and GATT 1994. Specifically:
(a) the Canadian practices in question are not “subsidies” as defined in Article 1 of the SCM
Agreement, (b) the USDOC impermissibly inflated th e alleged subsidy rate by calculating a country-
wide rate based on only a portion of Canadian production and exports of softwood lumber; and (c) the
USDOC impermissibly inflated the provisional measures imposed by applying them on an entered
value after having calculated the subsidy rate using a first mill value. Although Canada is not making
submissions regarding the USDOC’s preliminary finding of specificity, Canada does not accept that
finding as correct
5.
4.6 The Canadian practices are not “subsidies” because: (a) “stumpage” is not a “financial
contribution” within the meaning of Article 1.1(a) of the SCM Agreement; (b) the USDOC’s
determination and measurement of a “benefit” is based on a “cross-border” methodology that is not
permitted by the SCM Agreement; and (c) the USDOC’s determination assumes holders of harvesting
rights pass through an alleged benefit to softwood lumber producers, without any basis for the
assumption.
4.7 “Stumpage” is not a “financial contribution”. Mo st forest land in Canada is publicly owned
“Crown” land. As stewards of this land, Federal and provincial governments manage forestry
resources not for the benefit of specific users, bu t for the country as a whole, and with a view to
conservation and preservation of Canada’s natural heritage for future generations. Forest resource
management is, therefore, concerned with a range of economic and public interests and activities
associated with forest lands. These include timber, trapping, fishing, recreation, water quantity and
quality, wildlife habitat, wilderness and aesthetics and erosion control. The management of forestry
resources related to timber harvesting is characterized by a system of interlocking rights and
obligations between provincial and federal governments, and timber harvesters. This system of
resource management is based most frequently on tenure and licensing agreements.
4.8 Tenure and licensing agreements vary from province to province, but they are all similar in
that they are a complex bundle of rights and obligations, containing at a minimum: (a) the right to
harvest standing timber on Crown land or “stumpage”; (b) service and maintenance obligations on the
part of the concern, such as road-building and maintenance, and protection against fire; (c)
implementation of forestry management and conservation measures, including silviculture and
reforestation; and (d) payment of a volumetric “stumpage charge ”, levied upon the exercise of the
harvesting right.
4.9 “Stumpage”, as a right to exploit an in situ natural resource, takes two forms in Canada: a
servitude referred to as a profit à prendre and a licence to harvest standing timber. Both rights are in
respect of specified provincial Crown lands. A profit à prendre is a form of property right that

5 In response to a question from the Panel, Canada stated that it was not pursuing a claim pertaining to
specificity in this dispute. (Canada's Answers to Questions from the Panel after the Second Meeting with the
Panel, answer to question 36 from the Panel following the second meeting, Annex B-1.)

conveys a non-possessory interest in the land to the recipient. Similarly, a licence is a revocable right
to do something on, or to the detriment of, the land of another that would otherwise not be permitted –
in this case, the right to harvest standing timber. Other related forms of rights include: mineral
servitudes, mineral entry, timber easements, licensing quotas to harvest fish, and rights of access to
exploit inland water currents for use in irrigation or electrical power generation.
4.10 By the terms of Articles 10 and 32.1 of the SCM Agreement, to be countervailable a practice
must satisfy the definition of “subsidy” in Article 1.1. Where an investigating authority determines
the existence of a subsidy in respect of a measure that does not fit within the terms of Article 1, that
determination is not in accordance with the terms of the SCM Agreement and is, accordingly, in
violation of Articles 10 and 32.1 of the Agreement. Article 17.1(b) specifically provides that
provisional measures may be imposed only if “a preliminary affirmative determination has been made
that a subsidy exists”. (emphasis added).
4.11 Article 1 of the SCM Agreement sets out an exclusive definition for what constitutes a
subsidy for the purposes of the SCM Agreement. The Appellate Body recognized in Brazil – Export
Financing Programme for Aircraft that a subsidy as defined by Article 1 has two discrete elements:
(i) a financial contribution that (ii) confers a benefit. The panel in Export Restraints noted that the
definition of “subsidy” in Article 1 reflects the Members’ agreement not only as to the types of
government action subject to the SCM Agreement, bu t also that not all government actions that may
affect the market come within the ambit of the SCM Agreement.
4.12 Under Article 1.1(a)(1)(iii) of the SCM Agreement, a financial contribution exists where a
government provides goods. The ordinary meaning of “goods” is “tangible or movable personal
property other than money; [especially] articles of trade or items of merchandise ‹goods or services›”.
Nothing in the context of the SCM Agreement in any way detracts from or expands this ordinary
meaning. A good is a good, a product, something on the cross-border trade of which tariffs may be
imposed.
4.13 This is confirmed by the negotiating history related to the measurement of a benefit. On
4 September 1990, the Chairman of the Negotiating Group on Subsidies and Countervailing Measures
circulated seven “informal discussion papers” in preparation for issuing a revised version of the
Chairman’s text. Discussion Paper No. 6 dealt with the measurement of the amount of a subsidy and
offered draft language for the current Article 14. Draft Article 14.4(a), as set out in Discussion Paper
No. 6, reflects an understanding at the time of the negotiations on the SCM Agreement of the
fundamental difference between tangible commercial inputs and intangible real property rights. This
draft provided in relevant part that “the amount of subsidy arising from government provision of
goods, services, or extraction/harvesting rights …” (emphasis added). The terms “or
extraction/harvesting rights” are nowhere found either in the final text of Article 1.1(a)(1)(iii) or in the
final text of Article 14(d) of the SCM Agreement. This confirms that rights, such as profits à prendre,
are not included within the scope of the Agreement.
4.14 The USDOC simply asserted that stumpage is a financial contribution in the form of a
provision of goods or services. It did not declare itself as to whether, in its view, stumpage is the
provision of “goods” or “services”. The petitioner in Lumber IV, however, has argued that stumpage
is the provision of goods (“wood fiber”) in the form of timber or logs. Canada therefore understands
the USDOC to have determined that stumpage is “the provision of goods”.
4.15 The USDOC also made no attempt to examine the evidence on the record and did not analyse
how property rights, such as profits à prendre and timber harvesting licenses, are a “financial
contribution” under Article 1.1. Properly understood, profit à prendre and the license to harvest
standing timber is not the provision of “goods” within the meaning of Article 1. These rights are not
in themselves goods or services. As a simple factual matter, “stumpage” – the right to harvest

standing timber – is not a log. “Stumpage” is instead the right to exploit an in situ natural resource,
akin to the right to extract oil and minerals from public lands, quotas to harvest fish from a country’s
territorial waters, or the right of access to exploit inland water and water currents for use in irrigation
or electrical power generation. To determine otherwise is to expand the scope of “provides goods”
and, therefore, the SCM Agreement beyond all recognition.
4.16 Timber harvesters have the right to harvest timber from Crown lands by virtue of their tenures
or licenses; they do not pay stumpage charges as remuneration to acquire this right. Rather, a
“stumpage charge” is a levy on the exercise of an existing right to harvest timber. It is properly
viewed as a form of revenue collection by the government and is the economic equivalent of a tax.
4.17 The USDOC erred in determining that “stumpage” is a “financial contribution”. On a plain
reading of Article 1.1(a)(1)(iii), the term “provides goods” cannot be interpreted to include the
granting of rights such as “stumpage”. Since stumpage is not a “financial contribution” and,
therefore, not a subsidy as defined in Article 1.1, th e determination by the USDOC that it is a subsidy
and the imposition of provisional countervailing measures as a result, violates Articles 10, 17.1(b),
17.5, 19.4 and 32.1 of the SCM Agreement and Article V1:3 of GATT 1994.
4.18 The USDOC’s use of “cross-border” benchmarks to find and measure “benefit” violates the
SCM Agreement. Nothing in the SCM Agreement permits the USDOC to do so; indeed, the text,
context, and Appellate Body interpretations of Articles 1 and 14 indicate that such an analysis violates
the SCM Agreement.
4.19 The USDOC purported to establish that Canadian stumpage practices conferred a benefit by
comparing: stumpage charges levied by Canadian provinces with stumpage prices on selected state
lands in the United States, on the basis that such prices are “commercially available world market
prices…” to softwood lumber producers in Canada . The USDOC found US stumpage prices to be
higher than the charges levied by Canadian provinces. the USDOC then multiplied this difference by
what it considered the portion of the provinces’ harvest consumed in sawmills to arrive at the
calculated amount of the “stumpage subsidy”. The “stumpage subsidy” was wholly derived from the
comparisons of stumpage charges in Canada and cross-border prices for stumpage in the
United States.
4.20 Article 1.1 of the SCM Agreement provides that a subsidy exists where there is a financial
contribution by a government and “a benefit is thereby conferred”. In Canada – Aircraft , the
Appellate Body stated that “the word ‘benefit’, as used in Article 1.1(b), implies some kind of
comparison… [since] there can be no “benefit” to the recipient unless the “financial contribution”
makes the recipient “better off” than it would otherwise have been, absent that contribution.” In the
case of a government provision of goods, the question is therefore whether the purchaser of a good
from the government is “better off” than other purchasers who buy the same good from other sellers
in the country subject to the investigation.
4.21 This is confirmed by Article 14(d), which sets out guidelines to calculate the amount of a
subsidy based on a “benefit to the recipient” test in cases of an alleged government provision of
goods. It provides in particular that, “[t]he adequacy of remuneration shall be determined in relation
to prevailing market conditions for the good or service in question in the country of provision or
purchase” (emphasis added). The words of Article 14(d) are unambiguous. “In the country of
provision or purchase” means “in the country of provision or purchase.” It does not mean adequacy
can be determined as against prevailing market conditions in some other country or internationally.
Nothing in the context, object and purpose or the negotiating history of Article 14 permits reading
“in” as anything other than “in”; “in the country” does not admit of “cross-border” analysis. A cross-
border analysis using transactions in another country to determine the existence of and measure a

“benefit” is thus inconsistent with Article 1 and Article 14 as interpreted by the Appellate Body, and
viewed in context and in the light of the object and purpose of the SCM Agreement.
4.22 The USDOC’s cross-border analysis is illogical even in the context of its own previous
determinations. In each of the prior lumber cases – Lumber I , Lumber II and Lumber III – the
USDOC rejected the use of cross-border comparisons for a number of reasons, including the
USDOC’s view that they are “arbitrary and capricious”.
4.23 By using a benchmark in the United States, outside the country of the alleged provision of
goods, the United States breached its obligations under Article 14 of the SCM Agreement. The
USDOC’s finding of a subsidy based on criteria not permitted by the SCM Agreement is also
inconsistent with US obligations under Articles 10, 17.5, 19.4 and 32.1 of the SCM Agreement and
Article VI:3 of GATT 1994. Furthermore, the Un ited States violated Article 17.1 of the SCM
Agreement by imposing provisional measures with respect to a practice that is not a subsidy.
4.24 The USDOC also impermissibly assumed a pass-through of an alleged benefit. In the
preliminary determination, the USDOC found that the alleged “financial contribution” to timber
harvesters conferred a benefit on softwood lumber producers. This presumption that the alleged
benefit to timber harvesters passes through to lumber producers, without a determination that this did,
in fact, occur, is inconsistent with the SCM Agreement.
4.25 In Canada, standing timber is harvested and processed into logs. Logs are then usually
processed in sawmills and pulp mills to produce a wide variety of products including softwood
lumber. Lumber may be sold as an end product or sold to remanufacturing industries that make a vast
array of products. Both softwood lumber and remanufactured products, but not logs, are subject to the
US investigation. A significant portion of harvesting is done by entities operating at arm’s-length
from lumber producers; in these instances, logs ar e sold to lumber producers and other industries in
arm’s-length transactions.
4.26 A countervailing duty may be imposed only where all the elements of a subsidy have been
established. A subsidy is exhaustively defined in Article 1 of the SCM Agreement. A direct subsidy
exists where a financial contribution confers a benefit to the recipient of that contribution. The
criteria for an indirect subsidy are found in Article 1.1(a)(1)(iv) of that Agreement. In the context of
Article 1.1(a)(1)(iii), i.e. where the alleged financial contribution is the government provision of
goods, an indirect subsidy may be found only where a private entity is entrusted or directed by
government to provide these goods in a manner that confers a benefit. Thus, where the recipient of a
subsidy (whose products are not subject to the investigation) enters into transactions with other
entities, an investigating authority may not assume th at the subsidy has been passed on, or if so, that
the recipient was entrusted or directed by government to pass it on. Rather, the authority must
establish the existence of a subsidy in respect of the entity being investigated. This is especially the
case where the transaction is at arm’s-length.
4.27 The findings of the Appellate Body in British Steel are particularly relevant in this instance.
There, the Appellate Body agreed with the Panel that “in order to determine whether any subsidy was
bestowed on the production [of the subject merchandise], it is necessary to determine whether there
was any “benefit” to [the recipient].” This included examining, on administrative review, the
continued existence of any “benefit” already found to have been conferred by “financial
contributions” pre-dating the privatization of the original recipient of those contributions. Moreover,
this had to be done from the perspective of the producers of the imports subject to the review, not the
producer that had been privatized prior to the review (i.e. whose imports were not subject to the
review). Finally, in that case, the Appellate Body confirmed that where fair market value is paid on
privatization, no previously conferred benefit could be passed through to the acquiring entity.

4.28 The Appellate Body’s analysis in British Steel is even more apt in respect of original
determinations where an investigating authority has the duty to establish each element of a subsidy.
In such cases, the authority may find an “indirect” subsidy only where an indirect financial
contribution has been found in the sense of Article 1.1(a)(1)(iv). The reason is simple. Where
transactions take place in the market and at arm’s-length, and where there has been no “direction” or
“entrustment”, the original recipient of a subsidy must be presumed to have retained the benefit.
Conversely, to assume pass-through in such arm’s-length transactions without establishing “direction”
or “entrustment” in the sense of Article 1.1(a)(1)(iv) would nullify the clear meaning of that Article.
4.29 Since the USDOC did not do any indirect subs idy or pass-through analysis, its finding of
“benefit” is, on its face, incorrect and illegal. In the current investigation there are no allegations of
direct stumpage subsidies to the subject merchandise, softwood lumber. Softwood lumber is
processed from logs, and logs from standing timber; neither logs nor timber are within the scope of
the investigation. Logs result from the harvesting of timber – the subject matter of stumpage, which is
the allegedly subsidized economic activity. The alleged subsidies therefore are on log production.
4.30 Lumber producers may not legally be deemed to be subsidized simply because of a finding of
subsidization to upstream producers. Rather, to find that the downstream industries are subsidized,
the USDOC must first establish an indirect financial contribution, and then demonstrate a benefit
conferred upon the recipient by that contribution. The USDOC did not establish, as is required by the
SCM Agreement, that any “financial contribution” by the government to timber harvesters had been
“entrusted” or “directed” to be passed through to lumber producers or remanufacturers. It did not find
that the alleged benefit of the financial contribution in question was also passed through to and
conferred upon lumber producers or remanufacturers (the producers of the subject merchandise within
the scope of the investigation). The USDOC did not provide any analysis of either requirement of
Article 1 in respect of the merchandise on which it imposed a countervailing duty. A fortiori,
remanufacturers who buy lumber from lumber producers may not legally be presumed to have
benefited from an alleged stumpage subsidy two transactions away.
4.31 The USDOC has failed to establish the elements of a subsidy in respect of the subject
merchandise by failing to demonstrate a pass-through of financial contribution and benefit. In
imposing provisional measures on practices not properly found to be a subsidy, the United States has
violated Articles 10, 17.1(b), 19.4 and 32.1 of the SCM Agreement and Article VI:3 of GATT 1994.
4.32 The USDOC also impermissibly inflated the subsidy rate by calculating a “weighted-average
country-wide rate” based upon only a portion of Canadian production and exports. Having
determined that various federal and provincial programmes were subsidies, the USDOC calculated the
subsidy rate by 1) for each provincial stumpage programme, dividing the total calculated stumpage
benefit by the total value of the province’s production of softwood lumber and co-products by
sawmills; and 2) for other provincial and federal programmes found to be countervailable, dividing
the total calculated benefit by the value of sales (or exports, for an alleged export subsidy) of
softwood lumber and co-products by sawmills for the relevant jurisdiction. In each case, the alleged
benefit was the numerator, and the shipment value was the denominator of the calculation. The
USDOC then weight-averaged the resulting provincial rates by the provinces’ relative shares of
exports to the United States to arrive at a “country-wide” rate. In these calculations, the USDOC
impermissibly excluded Maritime shipments from the total Canadian shipments used as the
denominator for calculating certain federal programme rates and excluded Maritime exports in weight
averaging provincial rates to construct a country-wide rate.
4.33 Articles 17.2 and 19 (through Article 17.5) of the SCM Agreement, and Article VI:3 of
GATT 1994 require the USDOC to estimate “the amount of the subsidy found to exist” so as to
ensure it is representative of the actual subsidization. Accordingly, a “country-wide” countervailing
duty rate must approximate the average rate of subsidization of the subject merchandise. This means

that shipments of subject merchandise by any company in the country under investigation (including
those companies that have been excluded from the investigation or countervailing duty order) must be
included in calculating a country-wide rate. Exclusion of the Maritime Provinces’ shipments and
exports from the calculation results in imposition of provisional measures “in excess of the amount of
the subsidy found to exist.”
4.34 The impropriety of the USDOC’s country-wide subsidy rate calculation becomes all the more
evident when it is considered that the USDOC relied on import statistics that included imports from
the Maritimes to find evidence of causation of material injury or threat of material injury sufficient to
initiate the investigation. The USDOC cannot now credibly exclude these Maritime shipments from
the subsidy calculation. Likewise, the International Trade Commission based its preliminary
determination of threat of material injury on its analysis of total imports of softwood lumber from
Canada, including the Maritime Provinces. Article 17.1(b) of the SCM Agreement requires that
provisional measures may be applied only if “a preliminary affirmative determination has been made
that a subsidy exists and that there is injury to a domestic industry caused by subsidized imports.”
Here, the ITC made no finding of injury based solely on the subnational group of imports on which
the USDOC calculated provisional duties.
4.35 Since the preliminary determination inflates the weighted average country-wide subsidy rate
in violation of Article 19.4 of the SCM Agreement and Article VI:3 of GATT 1994, the United States
is also in violation of Articles 10 and 32.1 of the SCM Agreement.
4.36 The USDOC also impermissibly applied provisional measures in excess of the subsidy
preliminarily found to exist. In its preliminary determination, the USDOC found a net subsidy rate of
19.31 per cent ad valorem and stated that it was directing the US Customs Service (“Customs”) to
suspend liquidation of entries of subject merchandise and to require a cash deposit or bond in the
amount of the subsidy found . It did not in fact do so, however. Instead, the USDOC calculated the
subsidy rate on a first mill basis, but applied it on an entered value basis, with the effect of
significantly increasing the provisional measures applied to a considerable portion of Canadian
exports of softwood lumber to the United States.
4.37 In all of the USDOC subsidy calculations, described above, the denominator of the
calculation was the value of sawmill shipments or exports, i.e., the “first mill” value. Sawmills (“first
mills”) produce lumber from logs. They ship lumber to end users, and also sell some quantity of
lumber to downstream value-added remanufacturers (“final mills”) that use lumber inputs, produce
further processed lumber products (of which some are within the scope of the investigation).
4.38 A USDOC decision memorandum subsequently claimed that “[t]he record for the Preliminary
Determination supports the collection of CVD deposits on an entered value basis” and the USDOC
instructions to Customs referenced in the prelim inary determination instructed Customs to require
countervailing duty cash deposits or the posting of a bond without specifying that such provisional
measures applied to the first mill value, thus ensuring application on an entered value basis. Thus,
for example, where a 19 per cent duty calculated on first mill value is applied to the entered value
(and, for illustration, assuming an import with first mill value of $100 and final mill or entered value
of $125), the importer of the value-added product faces an actual duty not of 19 per cent but of
23.75 per cent of the first mill value.
4.39 Articles 17.2 and 19.4 (through 17.5) of the SCM Agreement and Article VI:3 of GATT 1994
establish the fundamental obligation that a duty may not exceed the subsidy found to exist. In
applying the preliminary determination on an entered value basis, the United States significantly
increased the provisional measures in violation of Articles 17.2 and 19.4 of the SCM Agreement and
Article VI:3 of GATT 1994.

2. The Preliminary Critical Circumstances Determination
4.40 Commerce also made a preliminary critical circumstances determination as a result, the
United States retroactively applied the provisional measures to entries occurring within 90 days prior
to the date of publication of the preliminary determinations, i.e. entries from May 19 through
16 August 2001. The retroactive application of provisional measures is inconsistent with US
obligations under the SCM Agreement. Even if such action were permitted under the Agreement,
Commerce’s preliminary critical circumstances determination is itself inconsistent with US
obligations under the SCM Agreement and GATT 1994.
4.41 Under Article 20.6, “critical circumstances” exist only where four conditions are satisfied: (1)
there is injury to the domestic industry that is difficult to repair; (2) such injury is caused by massive
imports in a relatively short period; (3) such imports are of a product benefiting from subsidies paid or
bestowed inconsistently with the provisions of GATT 1994 and of the SCM Agreement; and (4)
retroactive assessment of definitive countervailing duties on those imports is necessary to preclude the
recurrence of such injury.
4.42 Even where these elements are present, Article 20.6 states that the type of duties that may be
assessed are “definitive”, not “provisional”. The term “definitive” is defined as “having the function
or character of finality” or “decisive”, “conclusive” and “finally settled.” Accordingly, the ordinary
meaning of the provision prohibits any retroactive application of countervailing measures under the
Article until after a final determination is made. This understanding of the meaning of the word
“definitive” in Article 20.6 of the SCM Agreement is reinforced by the consistent distinction in the
Agreement, for example in Articles 20.1 and 20.3, and 22.4 and 22.5, between “provisional measures”
on the one hand and “countervailing duties” or “definitive duties” on the other hand. Despite the clear
application of Article 20.6 to definitive countervailing duties and not provisional measures,
Commerce acted otherwise.
4.43 In its preliminary critical circumstances determination and related analysis, Commerce
preliminarily determined that there had been “massive imports” of a product benefiting from a
prohibited export subsidy. For Commerce, this was a sufficient basis to apply countervailing
measures retroactively. Commerce recognized that the ITC had not considered (even preliminarily)
the injury factors required to be considered under Article 20.6 of the SCM Agreement, and that “[f]or
purposes of a final determination whether retroactive relief is warranted, other factors are considered
by the ITC in its final determination”. Nonetheless, Commerce applied its preliminary critical
circumstances determination on a provisional basis. Since Article 20.6 permits the retroactive
application of only definitive countervailing duties, and not provisional measures, for the reasons set
out above, the United States has violated this provision.
4.44 Moreover, since the investigation was initiated on 23 April 2001, Article 17.3 requires that
provisional measures in this case not be applied sooner than 22 June 2001. However, the
United States applied provisional measures as of 19 May 2001. Article 17.3 thus not only confirms
that Article 20.6 does not permit the retroactive application of provisional measures, but to the extent
the United States has applied such measures sooner than 22 June 2001, it has also violated
Article 17.3 outright.
4.45 Similar inconsistencies result under Article 17.4. This provision states that “[t]he application
of provisional measures shall be limited to as short a period as possible, not exceeding four months.”
Pursuant to the preliminary determination, the United States has applied provisional duties to imports
of softwood lumber from Canada for a period of four months, beginning on the date of publication of
the determination on 17 August 2001 and ending 14 December 2001. However, in also retroactively
applying provisional measures for the period from 19 May 2001 to 17 August 2001, the United States
has applied provisional measures for a total of nearly 7 months. Here again, not only does

Article 17.4 confirm that Article 20.6 does not permit the retroactive application of provisional
measures, but to the extent the United States has applied such measures from 19 May 2001 through
14 December 2001, the United States has also violated Article 17.4 on its face.
4.46 Even if provisional measures could be applied retroactively under Article 20.6, Commerce
did not establish that “critical circumstances” exist in its preliminary critical circumstances
determination. First, the IQ SMB Guarantee programme upon which the determination is based is
not a prohibited export subsidy and even if it were, the amount of subsidy found for the programme
was de minimis and thus did not provide the basis for a determination under Article 20.6. Assuming,
arguendo, that the IQ SMB Guarantee loan guarantees programme conferred a “benefit”, the
programme itself is not contingent on exports from Canada. Record information demonstrated that
the programme is contingent on developing markets outside Quebec, not outside Canada.
Accordingly, for the purposes of Commerce’s investigation, the IQ SMB Guarantee programme is not
“contingent on export performance” under Article 3.1(a) and the determination that the “massive
imports” in question have benefited from “subsidie s paid or bestowed inconsistently with the
provisions of GATT 1994 and of [the SCM] Agreement” is flawed.
4.47 Furthermore, a critical circumstances determination cannot be based on a prohibited subsidy
of a negligible amount. Commerce found that the benefit from this programme was less than
0.005 per cent, i.e. a rate that is de minimis. A de minimis rate is insufficient to provide a basis for
applying any countervailing measure (provisional or final). By its own terms, Article 11.9 of the
SCM Agreement applies to any part of a countervailing duty investigation. Therefore, a determination
under Article 20.6 is governed by the de minimis threshold under Article 11.9, since action under the
former is based solely on a subsidy that is “paid or bestowed inconsistently with the provisions of
GATT 1994 and of this Agreement” and not all alleged subsidy programmes under investigation.
Since Commerce’s preliminary critical circumstances determination is based solely on the SMB
Guarantee programme, which was not an export subsidy and was found to be de minimis, the United
States has taken action under Article 20.6 in the absence of “critical circumstances”, i.e. in violation
of that provision.
4.48 Second, even if the SMB Guarantee programme had correctly been found to be a prohibited
export subsidy, the rate applicable to the retroactive measures should have been the rate attributed to
this programme – less than 0.005 per cent – and not the rate attributable to all other alleged subsidies
taken together – 19.3 per cent. The text of Article 20.6 does not refer to “massive imports” of a
product benefiting from “any or all of the subsidies under investigation”. The provision specifically
refers to “subsidies paid or bestowed inconsistently with the provisions of GATT 1994 and of this
Agreement”. The text of Article 20.6 of the SC M Agreement and the logic behind it allow the
retroactive application of only the rate that is commensurate with the benefit bestowed by the alleged
prohibited subsidy. Furthermore, any counterva iling measures applied under Article 20.6 must
conform to the basic requirement under Articles 17.5 and 19.4 of the SCM Agreement and
Article VI:3 of GATT 1994 that they may not exceed the amount of the subsidy found to exist, i.e.
such measures can be in an amount no greater than that needed to offset the benefit conferred by the
alleged prohibited subsidies found to exist. To do so at a higher rate would countervail in an amount
in excess of that required to “preclude the recurr ence of [the] injury” caused by such subsidies in
“critical circumstances”, the object and purpose of Article 20.6. In the instant case, the applicable rate
was less than 0.005 per cent as opposed to 19.31 per cent.
4.49 In applying provisional measures retroac tively in the amount of 19.31 per cent, the
United States has violated Article 20.6 of the SCM Agreement, as well as Articles 17.5 and 19.4 of
the SCM Agreement and Article VI:3 of GATT 1994.
4.50 Third, no countervailing measure, whether provisional or final, can be applied retroactively
under Article 20.6 without the requisite injury findings and no such findings were made by US

authorities. There is no dispute that the USDOC’s determination contains no finding on the two
injury elements set out in Article 20.6 of the Agreement. First, neither the USDOC nor the ITC had
found “injury which is difficult to repair” and neither the USDOC nor the ITC had determined that
retroactive application of definitive countervailing duties was necessary “in order to preclude the
recurrence of such injury”. There can be no dispute on this point because the USDOC itself expressly
stated that these determinations would be made by the ITC when the ITC made its final determination.
Accordingly, in applying such countervailing meas ures retroactively under Article 20.6 without first
making the requisite injury findings, the United States violated outright Article 20.6 of the
Agreement.
4.51 Fourth, the USDOC’s finding of “massive imports” (1) incorrectly attributed to all imports
from Canada the alleged benefit conferred by the IQ SMB Guarantee programme, which applies only
to shipments from Quebec and (2) attributed to an alleged export subsidy an increase in imports
resulting from the impending and then actual expiration of the Canada-United States Softwood
Lumber Agreement (SLA).
4.52 The USDOC determined that imports of softwood lumber from Canada had increased
by 23.34 per cent in the three months following the filing of the petition compared to the previous
three months and on this basis that the requirement of “massive imports” over a “relatively short
period” of time had been satisfied. The SLA expired two days before the petition was filed, i.e. at the
end of the first quarter of 2001. Its impending expiration sharply reduced exports in the first quarter
of 2001 and its actual expiry led to an increase in the second quarter. These dramatic and well-
documented trade trends were nonetheless attributed by the USDOC to the existence of a de minimis
alleged export subsidy.
4.53 Even assuming that the SMB Guarantee programme were a prohibited export subsidy, it is
patently impossible to attribute the “massive imports” finding in this case, an increase of 23.34 per
cent, to a programme that did not benefit any exports during the period of investigation – and in any
event could have benefited only a small fraction of exports and only in an amount of less
than 0.005 per cent. Since the United States has applied provisional measures retroactively in the
absence of a valid finding of “massive imports”, it has violated Article 20.6.
4.54 Fifth, the USDOC’s finding of “massive imports” improperly excludes imports from the
Canadian Maritime Provinces. If it is permissible, as the USDOC did, to include shipments that have
not benefited from the prohibited subsidy, then it should include all such shipments and not simply the
portions of those shipments that suit its needs. In this respect, the USDOC’s “massive imports”
finding is defective also because it was “net of the Maritime Provinces”, i.e. the USDOC excluded
from any of its calculations imports from the Canadian Maritime provinces. Under various methods
of calculating “massive imports”, inclusion of exports from the entirety of Canada, including the
exports from the Maritime Provinces, would have resulted in a negative “massive imports” finding
under the SCM Agreement. There is no basis in Article 20.6 of the SCM Agreement for making a
“massive imports” finding on the basis of only a segment of total imports.
3. US Law is Inconsistent with US Obligations on Expedited and Administrative Reviews
4.55 Article 19.3 of the SCM Agreement expressly requires Members to grant an expedited review
to those exporters that were not individually inves tigated who have requested such a review, in order
to establish an individual countervailing duty rate for that exporter. Article 21.2 requires the same for
any interested party in cases of administrative review. The Agreement thus ensures that exporters and
producers not individually investigated will nevertheless be able to obtain an individual
countervailing duty rate if they so request. It also ensures that each exporter and producer is not
subject to a duty rate higher than that called for in its individual circumstances. The United States has
failed to implement these obligations in US law.

4.56 Section 777A(e)(1) of the Tariff Act of 1930 establishes the general rule that the USDOC will
determine an individual subsidy rate for each known exporter or producer of the subject merchandise.
Where the application of the general rule is not practicable because of the large number of exporters
or producers involved in the investigation, exception to this rule can be made under
section 777A(e)(2)(A) and (B) of the Tariff Act of 1930 (“the Act”), as interpreted by the SAA.
Under subparagraph (A), the USDOC can limit its examination to a statistically valid sample of
exporters or producers or limit its examination to those exporters and producers accounting for the
largest volume of exports of the subject merchandise that the USDOC determines can reasonably be
examined. Under subparagraph (B), the USDOC can determine a single country-wide rate to be
applied to all exporters and producers.
4.57 The regulations implementing US obligations under the SCM Agreement regarding individual
expedited and administrative reviews limit the availa bility of such reviews to instances where the
USDOC has undertaken its investigation according to subsection (A) of section 777A(e)(2). The
regulations limit the availability of expedited reviews and company-specific administrative reviews in
cases where the USDOC elects to conduct its inves tigation on an aggregate “country-wide” basis. In
such cases, the USDOC must deny individual exporters the benefit of company-specific expedited
reviews and administrative reviews.
4.58 In the case of individual expedited reviews, section 351.214(k)(l) provides for a request for
individual expedited review only if “the Secretary limited the number of exporters or producers to be
individually examined under section 777A(e)(2)(A) of the Act” (i.e. by sample or by taking account
of those exporters and producers accounting for the largest volume of exports). Significantly, this is
the case as soon as the initial decision is made as to how the investigation is to be conducted. In the
case of administrative reviews, subparagraphs (1), (2) and (3) of section 351.213(b) each expressly
bar the request by an foreign government, exporter, or importer of record for an individual
administrative review where the “investigation or prior administrative review was conducted on an
aggregate basis”. Moreover, the only requests the USDOC will consider for an individual
administrative review in cases where administrative reviews are conducted on a country-wide basis
are those for individual assessment and cash deposit rates of zero under subparagraph (1) of
section 351.213(k) and then, “only to the extent practicable.” Section 351.213(k)(2) provides,
however, that if, in the review, the USDOC calculated a country-wide rate, “that rate will supersede,
for cash deposit purposes, all rates previously determined in the countervailing duty proceeding in
question.”
4.59 This result is inconsistent with the obligations of the United States under the SCM
Agreement. Article 19.3 provides that exporters not “actually investigated” are entitled upon request
in all cases to an expedited review “in order that the investigating authorities promptly establish an
individual countervailing duty rate for that exporter”. Article 21.2 entitles exporters and producers to
a company-specific administrative review upon request in all cases . This ensures that exporters and
producers not given an individual rate during the countervailing duty investigation will be given one
in an administrative review. This also means that exporters and producers already given an individual
rate during the investigation, may be given an individual rate again in an administrative review.
Nothing in the context or object and purpose of these provisions or indeed the SCM Agreement in any
way modifies the nature of these obligations. Accordingly, section 351.214(k)(l) of the regulations
violates Article 19.3 of the Agreement and section 351.213(b) violates Article 21.2.
4.60 Section 351.213(b) on administrative reviews also violates US obligations regarding
expedited reviews under Article 19.3. Under the US retrospective duty system, final liability for
countervailing duties is not determined until the administrative review. Section 351.213(b)
specifically denies exporters and producers an administrative review if the investigation was
conducted on an aggregate basis. This means that an exporter or producer would still be denied the

opportunity to obtain a final individual countervailing duty rate contrary to Article 19.3, even if it
were given the right to an expedited review to establish an individual cash deposit rate.
4.61 Finally, since section 351.213(k)(2) mandates that the single country-wide countervailing
duty rate calculated by the USDOC in an administrative review must supersede all individual rates
previously determined, this provision violates both Article 19.3 and Article 21.2. First, mandating
that a single country-wide rate supersedes all individual rates effectively undoes the benefit of any
expedited review that an exporter or producer ma y have been granted by the USDOC pursuant to an
investigation conducted under section 777A(e)(2)(A). Second, it prevents exporters and producers
from obtaining an individual rate in an administ rative review if that review is conducted on an
aggregate basis.
4.62 The USDOC decided to conduct the Lumber IV investigation on a country-wide basis. Three
consequences flow from this decision. First, by operation of the regulations, exporters and producers
involved in the investigation are denied expedited reviews and company-specific administrative
reviews, in violation of Articles 19.3 and 21.2 of the SCM Agreement. Second, in this case, the
USDOC will, as a result, impose a countervailing duty in excess of the amount of the subsidy found.
This is because a country-wide rate necessarily imposes a duty on some exporters and producers in
excess of what would be their individual duty rate. The United States therefore also violates
Article 19.4. Third, as a consequence, the United States also violates Articles 10 and 32.1 of the SCM
Agreement.
4.63 The US failure to provide for expedited reviews and company-specific administrative reviews
in all cases means that the United States has failed to ensure the conformity of its laws, regulations
and administrative procedures with its obligations under the SCM Agreement. Thus the United States
should also be found in violation of its obligations under Articles XVI:4 of the WTO Agreement and
Article 32.5 of the SCM Agreement.
B.
FIRST WRITTEN SUBMISSION OF THE UNITED STATES
4.64 The following are the arguments of the United States in its first written submission.
1. Introduction
4.65 “No Member should cause, through the use of any subsidy . . . , adverse effects to the interests
of other Members, i.e. . . . injury to the domestic industry of another Member . . . .” 6 That obligation
is the core of the dispute now before the Panel. When one Member causes injury to the domestic
industry of another Member through the use of any subsidy, the injured Member has the right to take
countervailing measures.
4.66 The United States has acted entirely within its rights under the SCM Agreement in this case
by taking provisional countervailing measures to offset the injurious subsidies that Canada provides to
its lumber mills. Canada’s claims to the contrary are without merit. Canada is asking this Panel to
ignore the text of the SCM Agreement and create exceptions to the subsidy disciplines for Canada’s
decades-old system of subsidies to its lumber industry. In addition, Canada’s claims of WTO-
inconsistent US laws are, in reality, an effort to resolve a future dispute that may never occur.
Therefore, consistent with the SCM Agreement and the DSU, the United States asks the Panel to
reject Canada’s claims.

6 Article 5 of the SCM Agreement.

2. Statement of Facts
4.67 On 17 August 2001, the USDOC published its preliminary determination, which contained a
preliminary affirmative countervailing duty determination and a preliminary affirmative finding of
critical circumstances. In the preliminary determination, the USDOC preliminarily found that
provincial stumpage programmes in Canada provided a countervailable subsidy to Canadian lumber
producers. In addition, the USDOC found reasonable cause to believe or suspect that critical
circumstances existed based on evidence that lumber producers received prohibited export subsidies
and that there were massive imports of the subject merchandise over a relatively short period of time.
4.68 Accordingly, the USDOC imposed provisional m easures (i.e., suspension of liquidation and
posting of security in the form of cash deposits or bonds), effective on the date of publication of the
preliminary determination, i.e., 17 August 2001. In light of the affirmative finding of critical
circumstances, the USDOC ordered provisional measures applied to entries of the subject
merchandise made during the period 90 days prior to the date of the publication of the preliminary
determination.
3. Standard of Review
4.69 Article 11 of the DSU requires a panel to make an objective assessment of the matter before it
and determine whether the identified measure is consistent with the provisions of the SCM Agreement
upon which the claim is based. Panels cannot add to or diminish the rights and obligations provided
in the SCM Agreement.
4.70 A panel does not conduct a de novo review of the evidence nor substitute its judgment for that
of the competent authority. Moreover, the sufficiency of the evidence in this case should be judged in
relation to the particular measure that Canada has challenged. It is important to bear in mind the
preliminary nature of the determination at issue. The consistency of a preliminary determination with
the obligations imposed on Members should be based on the record evidence before the authority at
the time the determination was made.
4. Argument
(a) Canada Bears the Burden of Proving Its Claim
4.71 Canada, as the complainant, bears the burden of coming forward with evidence and argument
that establish a prima facie case of a violation. If the balance of evidence is inconclusive with respect
to a particular claim, Canada must be held to have failed to establish that claim.
(b) The Preliminary Countervailing Determination Is Consistent With the SCM Agreement
(i) Provincial Stumpage Programmes Constitute a “Financial Contribution”
4.72 The Canadian provincial governments own approximately 90 per cent of the forested land in
Canada (“Crown land”), and the provincial governments control access to the timber on Crown land.
The provinces enter into contractual arrangements that allow companies to harvest the timber on
Crown land in exchange for an administratively set stumpage fee and the assumption of certain forest
management obligations associated with harvesti ng operations. To be awarded such a contract,
normally the company must either have a Canadian lumber mill, or have an agreement with a
Canadian lumber mill to process all of the harvested timber. The vast majority of the Crown timber is
awarded under long-term contracts that are not subject to competition (these contracts are usually
referred to as tenures), with the fees set administratively by the provincial government.

4.73 In the preliminary determination, the USDOC concluded that these Canadian provincial
“stumpage programmes” constitute a financial contribution because they provide a good to lumber
producers within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement. That good is timber.
4.74 Article 31 of the Vienna Convention on the Law of Treaties, which reflects customary rules of
interpretation of public international law, states that a treaty shall be interpreted “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.” Article 1.1 of the SCM Agreement defines a subsidy as a “financial contribution” by a
government that confers a benefit. Article 1.1(a)(1)(iii) states that a financial contribution shall be
deemed to exist where, inter alia , the government “provides goods or services other than general
infrastructure.” The SCM Agreement does not specifically define the meaning of “provides" or
“goods.” The Panel should look to the ordinary meaning of these terms.
4.75 The New Shorter Oxford English Dictionary defines “provides” as meaning, among other
things, to “supply or furnish for use.” Black’s Law Dictionary defines “goods” as specifically
including “growing crops, and other identified things to be severed from real property.” Provincial
stumpage programmes therefore constitute a “financial contribution” because they “supply or furnish”
an “identified thing to be severed from real property,” i.e., timber.
4.76 The text of Article 1.1(a)(1)(iii) does not contain any exclusions for natural resources, nor can
such an exclusion be read into the text. To the contrary, the Members evidently considered
exceptions, and the sole exclusion from the phrase “goods and services” that they agreed on is
reflected in Article 1.1(a)(1)(iii) itself, i.e., general infrastructure. It would be extraordinary if the
Members intended sub silentio to provide a safe harbour for a broad group of government subsidies.
Rather, this sole, express exclusion demonstrates that the Members intended to include all other goods
and services.
4.77 Canada argues that provincial governments are not providing timber to lumber producers, but
rather are merely granting the right to harvest the timber. There is, however, no meaningful
distinction between providing the right to harvest timber and providing the timber itself. The
provincial stumpage systems are designed for one purpose: to provide timber to Canadian mills that
make lumber or wood pulp. Participation in these programmes is restricted to Canadian sawmills or
pulpmills, or companies that have contracts with Canadian mills to process the harvested timber.
Furthermore, each of the provincial stumpage programmes charges the tenure holder on a
“volumetric” basis. Tenure holders do not pay stumpage fees for timber that they do not harvest. In
light of these facts, it is obvious that the provincial governments are providing timber through these
stumpage systems.
4.78 Moreover, the New Shorter Oxford English Dictionary defines “provides” as meaning to
“make available” in addition to “supply or furnish for use.” Thus, even if provincial tenures are
viewed as simply providing the right to take timber off the land rather than providing the timber itself,
such a provision would still constitute the “provision of a good” within the meaning of
Article 1.1(a)(1)(iii) of the SCM Agreement because the government is making the timber available.
Therefore, the USDOC’s preliminary determination that provincial stumpage programmes constitute
the provision of a good is entirely consistent with the text of Article 1.1(a)(1)(iii) of the SCM
Agreement.
4.79 The USDOC’s Preliminary Determination is also consistent with the context, object and
purpose of Article 1.1(a)(1)(iii). The object and purpose of the SCM is to impose multilateral
disciplines on subsidies because of the “the trade-distorting potential” of government largesse. It is
evident from Article 1.1 that the Members recognized that governments have a variety of mechanisms
at their disposal to confer an advantage on specific domestic enterprises or industries and that they

intended to bring those mechanisms within the disc iplines of the Agreement. Article 1.1(a)(1)(iii)
should be interpreted in that context.
4.80 If the major input for a product is a natural resource – timber, bauxite, iron ore – a
government that provides the natural resource to producers has the ability, depending upon the price
charged, to provide an advantage that would not otherwise be available in the market. Canada’s
attempt to exempt such potentially market-distorting government practices from the disciplines of the
SCM Agreement has no basis in the text of the Agreement and is entirely at odds with its object and
purpose.
(ii) Provincial Stumpage Programmes Provide a “Benefit”
4.81 The Canada Aircraft panel stated that authorities must “determine whether the financial
contribution places the recipient in a more advantageous position than would have been the case but
for the financial contribution.” 7 In this case, the USDOC used market stumpage prices from
comparable regions of the United States, adjusted as appropriate, as the benchmark price to determine
whether the stumpage programmes administered by the Canadian provincial governments provided
timber to lumber producers on a more favorable basis than the marketplace would provide. The
USDOC declined to use non-government prices between buyers and sellers within each province as
the benchmark prices because provincial government sales constitute the overwhelming majority of
timber sales in each of the provinces. As a resu lt of the provincial governments’ dominance of the
timber market, the USDOC could not conclude that non-government prices within the provinces were
unaffected by the very distortion a market benchmark price is intended to measure, i.e., that they
reflected the market “but for” the government financial contribution.
4.82 The USDOC’s decision to use a US benchmark is consistent with Article 14 of the SCM,
which sets forth guidelines for measuring the amount of the benefit to the recipient of a government’s
financial contribution. Article 14(d) states that “the provision of goods . . . by a government shall not
be considered as conferring a benefit unless the provision is made for less than adequate remuneration
. . . . The adequacy of remuneration shall be determined in relation to prevailing market conditions
for the good or service in question in the country of provision . . . (including price, quality,
availability, marketability, transportation and other conditions of purchase or sale).”
8
4.83 The dictionary definition of “in relation to” is “with reference to.” Thus, under Article 14(d),
the prevailing conditions in the country of provis ion are a reference point, not necessarily an end
point, for the market benchmark. The proper benchmark measures the market but for the financial
contribution. Thus, the issue is finding a market benchmark with reference to what the “in country”
market would be but for the subsidy. It would therefore be improper to look outside a country simply
to determine what the market value of a good is elsewhere in the world. It is, however, entirely
proper to do so if one can use such prices, properly adjusted, to determine the market value of the
good in the country under investigation.
4.84 Moreover, Article 14(d) states that the “prevailing market conditions” to be taken into
account are the conditions of purchase or sale. Therefore, when read in context, “in relation to
prevailing market conditions” requires the authority to determine the adequacy of remuneration with
reference to market prices for transactions that, while not necessarily between buyers and sellers
within the country of provision, are (or could be adjusted to be) comparable to the government
transactions at issue with respect to the conditions of purchase or sale in the market.

7 Canada Aircraft - Measures Affecting the Export of Civilian Aircraft , WT/DS70/R, Report of the
Panel, as affirmed by the Appellate Body, adopted 20 August 1999, para. 9.112.
8 Emphasis added.

4.85 The “in relation to” language in Article 14(d) demonstrates the Members’ intent to provide
more flexibility in the selection of market benchmarks for determining the adequacy of remuneration
for the provision of goods and services. This flexibility is evident elsewhere in the Agreement. The
“market,” as generally referred to in the Agreement, is not restricted to the exporting country, but
rather encompasses the entire market available to the subsidized producer or exporter. For example,
Article 14(b) refers to comparable commercial loans available to the firm “on the market.” In Canada
Dairy, the Appellate Body recognized this flexibility, confirming that “[w]orld market prices do . . .
provide one possible measure of value of milk to producers” in Canada.9
4.86 Limiting the benchmark to the exporting country’s market would also seriously undermine
the object and purpose of the SCM Agreement generally, and Articles 1.1(b) and 14(d) specifically. If
the government were the sole provider of a good in the exporting country, for example, there would
be no non-government benchmark prices in the exporting country to use as a point of reference and it
therefore would be impossible to determine that the government had provided a benefit – even if it
provided the good for a fraction of its value.
4.87 The trade-distorting potential of the government ’s provision of a good can be identified only
by reference to an independent market price, i.e., a price that is unaffected by the very trade distortion
the test is designed to identify. If the comparison price were entirely, or almost entirely, dependent
upon the government price, as in the case where the government sales overwhelmingly dominate the
market, the analysis would become circular because the benchmark price would reflect the very
market distortion that the comparison is designed to detect. Using prices largely dictated by the
government to measure the adequacy of government prices would therefore defeat the purpose of
Article 14.
4.88 Whether a particular market benchmark price for the adequacy of remuneration is consistent
with Article 14(d) must depend upon the facts of the particular case. Canada has failed to make a
prima facie case that the USDOC’s use of stumpage prices for comparable US forests, adjusted to
take into account differences in the conditions of sale (i.e., in relation to prevailing market conditions)
in the Canadian timber market, is per se inconsistent with Article 14(d) where the government sales
dominate the Canadian market. To the contrary, the USDOC properly determined that US stumpage
prices, as adjusted, represent prices under prevailing market conditions in Canada. The adjusted US
prices represent an appropriate measure of what Canadian prices would be but for the subsidy.
(iii) The Calculation Did Not Overstate the Subsidy Found to Exist
Exclusion of Maritime Lumber
4.89 The investigation in this case initially covered softwood lumber products from all Canadian
provinces. After receiving comments from Canada, however, the USDOC subsequently excluded
from the investigation imports of softwood lumber products produced in the Canadian Provinces of
New Brunswick, Nova Scotia, Prince Edward Isla nd and Newfoundland (the “Maritime Provinces”)
from timber harvested in the Maritime Provinces (“Maritime Lumber”).
4.90 In accordance with its aggregate methodology, the USDOC then calculated a single, country-
wide rate based on the ratio of the total subsidy provided to producers of the subject merchandise to
the total sales of the subject merchandise. In this calculation, neither the numerator nor the
denominator included the excluded Maritime Lumber because Maritime Lumber was not subject
merchandise, i.e., it was not within the scope of the investigation. Canada’s alternative methodology

9 Canada - Measures Affecting the Importation of Milk and the Exportation of Dairy Products ,
WT/DS103/AB/RW, Report of the Appellate Body, adopted on 3 December 2001, para. 84.

would require the USDOC to allocate some por tion of the aggregate subsidy found for subject
merchandise to non-subject merchandise. The result of such a calculation would be a rate that would
require the United States to impose duties in an amount less than the subsidy found to exist with
respect to the subject merchandise. Articles VI:3 and 19.4 do not require such a result.
Total Value of All Sales that Canada Provided
4.91 The Panel should review the WTO consistency of the USDOC’s preliminary determination
based on the record before the Department at the time the determination was made. The record at the
time of the preliminary determination establishes that the USDOC used in the denominator of its
subsidy calculations the amount that Canada reported in its questionnaire response as the total value
of softwood lumber sales, including all sales of first-mill lumber products and remanufactured
products.
4.92 After the publication of the preliminary determination, Canada asserted, for the first time, that
the total amount reported in its questionnaire response as the total value of softwood lumber sales did
not, as indicated in its questionnaire response, include the value of remanufactured lumber shipments.
Whatever the merits of this late claim by Canada that the data it submitted did not include sales of
“remanufactured” products, that question is not before this Panel. Factual determinations should be
reviewed “as perceived by the [administering author ity] at the time it made its determination based
upon the record before it . . . .”10
(iv) Canada’s “Pass-through” Argument Is Inapposite
4.93 The stumpage subsidies at issue in this case are direct subsidies. As noted above, the
provincial governments enter into tenure contracts with producers of the subject merchandise. As a
general matter, there is no “private body” intermediary between the government and the recipient, as
that term is used in Article 1.1(a)(1)(iv). Therefore, the provisions of Article 1.1(a)(1)(iv) do not
apply to this case.
4.94 Furthermore, nothing in the SCM Agreement precludes a Member from issuing a preliminary
determination and imposing provisional measures based on data establishing the total amount of the
subsidy that the government provides to the subject merchandise. Although company-specific
subsidy calculations may be preferred, they are not required. Canada does not contest this point.
4.95 The SCM Agreement simply requires that the countervailing duty rate applied not exceed the
subsidy found to exist. As explained above, th e USDOC in this case properly determined that
Canadian federal and provincial governments provided subsidies to producers and exporters of
softwood lumber, and properly calculated a countr y-wide subsidy rate based on the total amount of
the subsidy preliminarily found to exist for the subject merchandise.
4.96 The Panel should reject Canada’s argument that the USDOC should have conducted a “pass-
through” analysis. While such an analysis might be relevant for purposes of determining the level of
subsidy received by a specific producer or exporter, no producer or exporter-specific subsidy rates are
calculated in an aggregate investigation. The US DOC did not collect company-specific information,
and Canada neither objected to the aggregate approach taken in this case nor recommended a
company-specific approach. Nor did Canada supply any company-specific data to support is claim of
the necessity of a “pass-through” analysis.

10 United States - Antidumping Measures on Stainless Steel Plate in Coils and Stainless Steel Sheet
and Strip from Korea, WT/DS179/R, Report of the Panel, adopted 2 February 2001, para. 6.29.

(c) The Preliminary Critical Circumstances Finding Is Consistent with the SCM Agreement
(i) Judicial Economy
4.97 As an initial matter, the United States notes that the USDOC issued a final negative critical
circumstances finding in this case. The USDOC’s preliminary critical circumstances finding is no
longer of any practical consequence; retroactive provisional measures have been terminated and no
retroactive assessment will be imposed. The Panel therefore should not address Canada’s critical
circumstances claim because it is not “necessary to resolve the particular matter.”
11 In this case, the
normal course of the investigative process has resolved Canada’s critical circumstances claim and has
provided Canada with the relief it seeks.
4.98 If the Panel decides to resolve this issue on the merits, it should conclude that Canada has
failed to make a prima facie case that the USDOC’s preliminary critical circumstances finding was
inconsistent with the SCM Agreement.
(ii) Authority to Impose Provisional Measures Retroactively
4.99 The USDOC’s imposition of provisional measures on merchandise entered during the 90-day
period prior to the publication of the preliminary determination is consistent with the text of
Article 20 of the SCM Agreement, as well as with its object and purpose. Article 20.1 generally
provides that provisional measures and final countervailing duties shall only be applied prospectively,
i.e., to products that enter for consumption after the date of the preliminary determination under
Article 17.1 or the final determination under Article 19.1, respectively. This rule, however, is not
absolute. Article 20.1 expressly provides that the prospective application of provisional measures and
final duties is “subject to the exceptions set out in this Article.”
4.100 Article 20.6 of the SCM Agreement provides that a Member may assess final, definitive
duties retroactively for a period “not more than 90 days prior to the date of application of provisional
measures,” if critical circumstances are present. Article 20.6 is intended specifically to provide
retroactive relief in a “critical” situation. At the time of the preliminary determination, there may be a
reasonable basis to believe or suspect that such a situation exists. However, retroactive assessment of
definitive duties cannot be ordered until a final determination has been made many months later,
following a full investigation. Absent suspension of liquidation, entries made 90 days prior to the
preliminary determination might be liquidated during the intervening period. If the entries are
liquidated, the possibility of retroactive relief, even though fully warranted, no longer exists.
4.101 Articles 17 and 20 of the SCM Agreement do not intend such an outcome. Article 17 of the
SCM Agreement provides for the imposition of provisional measures to preserve a Member’s right to
relief once there is sufficient evidence to determ ine preliminarily that such relief is warranted.
Retroactive provisional measures are essential to enable a Member to avail itself of the special remedy
provided under Article 20.6. Therefore, Article 20.1 should be interpreted as providing for retroactive
provisional measures where there is preliminary evidence of critical circumstances. A contrary
interpretation would render Article 20.6 a nullity.

11 United States - Measures Affecting Imports of Woven Wool Shirts and Blouses from India ,
WT/DS33/AB/R, Report of the Appellate Body, adopted 23 May 1997, page 18; E.C. - Measures Concerning
Meat and Meat Products (Hormones) , WT/DS26,48/AB/R, Report of the Appellate Body, adopted
13 February 1998, para. 250.

(iii) Basis for Critical Circumstances Findings
4.102 In order to find critical circumstances purs uant to Article 20.6 of the SCM Agreement, the
authority must determine that there have been “massive imports” within a relatively short period, and
that the imported product benefitted from “subsidies paid or bestowed incons istently” with the SCM
Agreement. The USDOC’s preliminary finding of critical circumstances satisfied each of these
requirements. An objective review of the facts in this case demonstrates that the USDOC had a
reasonable factual basis to preliminarily determine that a Canadian province provided an export
subsidy, which is prohibited under Article 3.1 of the SCM Agreement, and that imports of softwood
lumber from Canada had increased more than 23 per cent over the base period. Moreover, the ITC
preliminarily found that imports of softwood lumb er from Canada were injuring the US industry
before the USDOC made its preliminary critical circumstances determination. This preliminary injury
determination, together with the evidence concerning prohibited subsidies and massive imports
described above, constituted sufficient evidence to take the limited step of imposing provisional
measures retroactively, pending the outcome of the full investigation.
(d) Expedited and Administrative Reviews
4.103 Under established WTO jurisprudence, a Member’s law violates that Member’s WTO
obligations only if the law mandates action that is inconsistent with those obligations. If the law
provides discretion to authorities to act in a WTO-consistent manner, the law, as such, does not
violate a Member’s WTO obligations.
4.104 None of the US laws that Canada challenges mandates that the United States take action
inconsistent with its obligations under the SC M Agreement. US law gives the USDOC broad
discretion to conduct reviews. Until the USDOC ex ercises that discretion in a particular case, any
exploration of the issues raised by Canada would be hypothetical. That is particularly true in this case
because aggregate cases are extremely rare.
(i) Section 777A(e)(2)(A) and (B) of the Tariff Act of 1930
4.105 Section 777A of the Tariff Act of 1930, as amended (the “Act”) implemented several changes
to US law to meet obligations under the SCM Agr eement by eliminating the presumption in favor of
country-wide rates and establishing a general rule in favor of company-specific rates.
Section 777A(e)(2) contains two exceptions to the ge neral rule to address cases, such as the lumber
case, where there is such a large number of exporters and producers that it is not practicable to
investigate each company individually.
4.106 Canada has not cited a single provision in the SCM Agreement that prohibits the investigative
procedures set out in Section 777A(e)(2), and nothing in Section 777A(e)(2) limits the USDOC’s
broad authority to conduct reviews. Canada has therefore failed to establish a prima facie case of a
violation because it has utterly failed to establish that Section 777A(e)(2) is inconsistent with any
provision of the SCM Agreement.
(ii) Expedited Reviews
4.107 The USDOC’s regulations governing expedited reviews do not cover aggregate cases. As
noted above, aggregate cases are rare and, because they have only been used in cases involving
industries with an extremely large number of producers and exporters, they present unique issues with
respect to expedited reviews. Because these cases are so rare, the USDOC has not yet addressed these
issues, by regulation or in practice.

4.108 Section 751 of the Act gives the USDOC broad au thority to conduct reviews. The fact that
the USDOC has not elected to promulgate specific regulations for handling what could potentially be
an extremely large number of expedited reviews in an aggregate case does not in any way diminish
the Department’s statutory authority to conduct such reviews. Statutory authority is sufficient;
regulations are not essential. Therefore, the fact that 19 C.F.R. § 351.214(k)(1) does not cover
expedited reviews in aggregate cases does not in any way prohibit such reviews. The Panel therefore
should reject Canada’s claim that 19 C.F.R. § 351.214(k)(1) mandates that the United States violate
its obligation to provide expedited reviews.
(iii) Administrative Reviews
4.109 Section 751 of the Act also provides broad authority for the USDOC to conduct
administrative reviews. Again, Canada erroneously concludes that the USDOC’s regulations limit
that authority and require the Department to deny administrative reviews in aggregate cases.
C.
FIRST ORAL STATEMENT OF CANADA
4.110 In its first oral statement, Canada made the following arguments.
4.111 The complaint of Canada before this Panel involves three distinct sets of claims:
• first, the preliminary countervailing duty determination made by the US USDOC is
inconsistent with US obligations;
• second, there is no basis in the SCM Agreement for retroactive application of provisional
measures under a preliminary critical circumstances determination, and
• third, the denial of expedited reviews and company-specific administrative reviews where the
USDOC conducts a country-wide investigation violates US obligations.
4.112 These actions stem primarily from two US interpretations of the SCM Agreement that Canada
believes are fundamentally wrong, and that have immense implications for Members’ rights to
manage their natural resources. The first is an unwarranted reading by the USDOC of the agreed
definition of “financial contribution”. The second is the US determination that Canadian provincial
stumpage programmes confer a “benefit”.
4.113 The repeated US assertion that the appropriate comparison for determining “benefit” is
between provincial and selected US jurisdictions demonstrates that the US measures are a demand
that Canadian forest management practices mimic their own. The United States assumes that any
public ownership of forestry resources is subsidised and argues that only by auction is there any
assurance that this will not occur. The WTO Agreement does not direct Members to abandon public
ownership of their natural resources.
4.114 The repeated references to the alleged “market distorting” effects of “stumpage” also indicate
that the United States is arguing that any governme nt action that might have the potential to distort
trade is a subsidy under the SCM Agreement. This interpretation, however, was expressly rejected by
the panel in Export Restraints.
4.115 The panel in Export Restraints also found that the definition of “subsidy” in Article 1.1
reflects the Members’ agreement not only as to the types of government action subject to the SCM
Agreement, but also that not all government action that may affect the market comes within its ambit.

1. The Preliminary Countervailing Duty Determination
(a) Stumpage is not a “financial contribution”
4.116 As noted in the first written submission “stumpage” is a right to harvest standing timber.
Provinces grant these rights through tenures or through licences. Tenures and licences both carry with
them a broad range of forest management responsibilities and significant in-kind costs.
4.117 Timber harvesters have the right to harvest timber from Crown lands by virtue of their tenures
or licences; they do not pay stumpage charges as remuneration to acquire this right. Rather, a
“stumpage charge” is a levy on the exercise of an existing right to harvest timber. Stumpage charges
are properly viewed as a form of revenue collection that is the economic equivalent of a tax.
4.118 Tenures and licences both confer real property rights – the right to exploit a natural resource
on public land. They are comparable in this respect to the licensing of quotas to harvest fish or the
leasing of the right to extract oil or minerals from public lands. The United States nevertheless treats
these rights to harvest standing timber as a financial contribution in the form of a “provision of
goods”. In so doing, the United States makes two fundamental errors.
4.119 First, the ordinary meaning of the term “goods” refers to “articles of trade or items of
merchandise <goods or services>” or “saleable commodities.” The United States misinterprets the
term “goods” by confusing it with the term “property”. The United States found that property in its
widest sense, includes all a person’s legal rights of whatever description. The issue, however, is not
what property means – and certainly not what the term property might be construed to include in its
widest meaning – but rather what “goods” means in the context of the SCM Agreement. The right to
exploit an in situ natural resource – the right to harvest standing timber – is not a saleable commodity.
It is not an article of trade or an item of merchandise and therefore it does not come within the
meaning of “goods”. The right to harvest standing timber is not “wood fibre” or logs, any more than a
lease to develop petroleum resources is gas at the pump or the right to catch fish is tuna in a can.
4.120 Indeed, this meaning of the term “goods” as articles of trade or saleable commodities is the
only meaning that could have been intended by the negotiators of the WTO Agreements. As
evidenced by the “General interpretative note to Annex 1A” to the WTO Agreement “goods” subject
to GATT 1994 are those things in respect of which a tariff binding may be negotiated: in other words,
tradable things. It follows that things that are in herently incapable of being traded across borders are
not “goods”. Accordingly, standing timber cannot be considered “goods” as it cannot be traded across
borders.
4.121 The second US error relates to the determination that a “financial contribution” occurs when a
tenure holder exercises its right to harvest timber. This is confirmed by the USDOC’s finding in the
preliminary determination that benefits conferred by the provinces’ administered stumpage
programmes had been expensed in the year of receipt or when the timber was harvested. The USDOC
has thus found that the “goods” were provided during the period of investigation when timber was
harvested. The United States erred in its finding that a “financial contribution” under Article 1.1(a)
occurred through the action of the alleged recipien t, rather than in the action of a government as
required.
4.122 In addition, the claim by the United States that Canada has requested the panel to read a “safe
harbour” into subparagraph (iii) misses the entire point to having an agreed definition of “subsidy” to
define the scope of Members’ obligations under the SCM Agreement. The claim of the United States
has no support in either the text of Article 1.1 or the negotiating history of Article 14. This confirms
that real property rights were not intended to be included within the scope of the Agreement.

(b) The USDOC’s use of “cross-border” benchmarks to find and measure “benefit” violates the
SCM Agreement
4.123 There are three fundamental problems with the USDOC’s use of cross-border price
comparisons to determine whether a benefit has been conferred, and to calculate the alleged subsidy.
4.124 First, Article 14(d) of the SCM Agreement requires that the adequacy of remuneration be
determined in relation to prevailing market conditions for the good or service in question in the
country of provision. This direction is unambiguous and nothing in the context, object and purpose or
the negotiating history of Article 14 permits reading “in the country” in any other manner. In
addition, the ordinary meaning, in context, of “p revail” is “exist”. The reference to “prevailing
market conditions” is, therefore, to conditions that actually exist in the country of provision and not to
conditions that would exist only under hypothetical circumstances.
4.125 The United States offers a number of interpretations of the term “in relation to” that would
effectively read out the phrase “in the country”, and would turn the mandatory “shall” into the
discretionary “may”. The United States also attempts to justify using prices in the United States as a
benchmark by suggesting that US stumpage is available “in” Canada. It is clear that US stumpage is
not available in Canada, because producers can harvest this timber only in the United States
4.126 Second, Article 14(d) was drafted in this manner because cross-border comparisons make no
economic sense. The mere fact that the domestic price in one country is lower than the price in
another does not mean that the first country is providing a subsidy, because a wide range of complex
political and economic factors may account for differences in prices between countries. These border-
related differences make valid international comparisons substantially more difficult than
comparisons within a province or a country. As well, the USDOC itself has repeatedly recognised the
vast differences in natural and timber conditions that exist. These differences are so great that the
USDOC rejected this methodology in all three of the previous Lumber cases, finding in one instance
that such an analysis would be “arbitrary and capricious”. These determinations were factual and all
of the factors that led the USDOC to reject the use of cross-border comparisons in the past still exist
today.
4.127 Third, the USDOC’s reliance on cross-border benchmarks was based on unsubstantiated
assertions that no in-country benchmarks were available. The USDOC asserted this without bothering
to demonstrate that no valid benchmark existed “in” Canada. It simply presumed that provincial
stumpage charges are distorted because most standing timber is harvested on provincial lands.
4.128 In fact, the USDOC had compelling evidence before it related to private sales of timber
harvesting rights, competitive tenures in certain provinces, and other evidence that provinces operate
their stumpage systems on market terms. Instead of addressing this evidence, the USDOC simply
asserted that stumpage fees on private lands are largely derivative of the public land prices. In the
USDOC’s opinion this meant that stumpage fees on private lands were distorted by that very fact.
Moreover, the USDOC’s purported rationale for moving to cross-border benchmarks, i.e., that there is
distortion if the government does not auction timber harvesting rights, does not reflect its obligations
under Article 14(d) – to determine if remuneration is “adequate”.
4.129 If cross-border comparisons were permitted, then the only way Canada would ever know
whether it was conferring a “benefit” would be to examine prices and market conditions in other
countries. This interpretation is unreasonable and unduly onerous. It would also be impossible for
Canada to be certain that the benchmark examined would be acceptable to the investigating authority.
The SCM Agreement contemplates no such thing.

(c) The USDOC impermissibly presumed a pass-through of an alleged benefit
4.130 Under Article 1.1(a)(1)(iv), the USDOC must es tablish that any “financial contribution” by
the government to timber harvesters had been “entrusted” or “directed” to be passed through to
lumber producers. It also must establish that the alleged benefit of the alleged financial contribution
was passed through to and conferred upon lumber producers and remanufacturers. It is not sufficient
for the United States to simply assert, as it did here, that the subsidies at issue in this case are direct
subsidies.
4.131 In this case, there is no allegation of direct subsidisation in respect of the subject merchandise,
which is softwood lumber. Softwood lumber is produced from logs, and logs are made from standing
timber; neither logs nor standing timber are within the scope of the investigation. In fact, a significant
amount of harvesting is done by independent entities operating at arm’s-length from lumber
producers.
4.132 The United States argues that it does not matter if some producers do not receive direct
benefits because it is conducting a country-wide investigation. It is Canada’s position that lumber
producers legally may not be deemed to be subsidised simply because of a finding of subsidisation to
producers of the input product.
(d) The USDOC impermissibly inflated the subsidy rate by calculating a “weighted-average
country-wide rate” based upon only a portion of Canadian production and exports
12
4.133 This issue concerns two problems with the USDOC’s determination of the rate of
subsidisation. The first is the effect of the exclusion of goods from Maritime Provinces in the
preliminary determination on the calculation of a “country-wide” subsidy rate.
4.134 A “country-wide” rate is precisely that: the average rate of subsidisation of the exported
product. It is the total amount of a subsidy in a country divided by all shipments or exports to the
investigating Member. When the USDOC disregarded unsubsidised Maritime shipments in
calculating the country-wide duty rate, it calculated a country-wide duty exceeding the average
country-wide level of subsidisation. The SCM Agreement requires that a countervailing duty rate not
exceed the amount of the subsidy.
4.135 The United States attempts to excuse its calculation by claiming, first, that its Maritime
exclusion was a product exclusion for certain lumber produced in the Maritimes. In fact, the lumber is
indistinguishable from other lumber and the exclusion was of the “Maritime provinces”. More
specifically, the exclusion is a partial exclusion of Maritime companies for lumber they produce from
Maritime timber. This exclusion does not alter the proper method for calculating a country-wide
weighted average subsidy rate.
4.136 The United States’ second argument – that Canada simply misunderstood the US calculation
methodology – is even further from the mark. This methodology is clearly flawed as it places the
country-wide benefit in the numerator and only a portion of total shipments in the denominator.
(e) The USDOC impermissibly applied provisional measures in excess of the subsidy
preliminarily found to exist
4.137 This is the second problem relating to the application of the effective rate of duty. The
United States determined a subsidy rate of 19.31 per cent ad valorem , but it employed a different

12 In response to a question from the Panel, Canada indicated that it was no longer pursuing this claim.
(Canada's response to Question 37 from the Panel following the second meeting, Annex B-1.)

basis for calculating this rate than it later used in applying the duties. Accordingly, the provisional
measures were effectively applied at a higher rate than 19.31 per cent.
4.138 As stated in the preliminary determination, the United States calculated the amount of subsidy
on a “first mill” basis. This means that the denominator of the calculation was the value of sawmill
shipments, that is, the “first mills” that produce lumber from logs. The denominator did not include
the value of shipments by secondary value-added producers of merchandise, or “final mills”, that are
also covered by the investigation.
4.139 The United States now claims that, at the time of the preliminary determination, it did not
know that the data that it used was first mill data. It further argues that statements by the USDOC
indicating that it had used first mill data were “inadvertent” and that it was surprised to find out later
that the data was first mill data. Finally, the United States asserts that that the panel must limit its
analysis to evidence used by the importing Member in making its determination to impose the
measure.
4.140 These arguments are factually incorrect and cannot relieve the United States of its obligation,
not to apply a duty that exceeds the subsidy found to exist. The data reported in the investigation was
the same sawmill (“first mill”) data that were pr ovided and relied upon in all previous lumber
investigations. Furthermore, by the time the USDOC issued its instructions to impose duties, it had
received substantial information from Canada confirming that the data used was first mill data.
Indeed, the United States acknowledges that Canada made this clarification, but it did not act upon the
information. The US application of duties was inconsistent with its preliminary determination, and
resulted in application of provisional measures in excess of the subsidy found to exist. As such, it
violated Articles 17.2 and 19.4 of the SCM Agreement and Article VI:3 of GATT 1994.
2. The Preliminary Critical Circumstances Determination
4.141 The preliminary critical circumstances determination imposed a retroactive duty liability
going back 90 days that amounting to $300 million and violated the obligations of the United States
under Article 20.6 of the SCM Agreement. This provision permits the retroactive application of
“definitive duties” following a critical circumstances finding. Article 20 and the SCM Agreement
both indicate that “definitive duties” are distinct from preliminary or provisional measures. In the
proper context, the term “definitive duties” plainly refers to countervailing duties imposed following a
final determination. Consequently, the United States may apply measures retroactively under a
critical circumstances finding after it has made a final countervailing duty determination.
4.142 The United States argues that it is permitted to make a preliminary critical circumstances
determination and impose provisional measures retroactively. In support of its position, it relies on
the findings of the Hot Rolled Steel panel and the object and purpose of Articles 17 and 20.
4.143 The Hot Rolled Steel panel report concerned a preliminary determination of critical
circumstances under Article 10.7 of the Antidumping Agreement. The panel confirmed the limited
scope of its own findings by observing that measures taken under Article 10.7 were not based on the
evaluation of the same criteria as final measures that may be imposed at the end of the investigation.
As there is no provision that corresponds to Article 10.7 in the SCM Agreement; the Hot Rolled Steel
panel report is not relevant.
4.144 The plain text of Article 20.6 also belies the arguments of the United States concerning the
object and purpose of this provision. The term definitive means definitive; it does not mean
preliminary. The United States concedes as much, as it too equates definitive with final
determination. The United States also invokes the object and purpose of Article 17, but neglects
consideration of the specific provisions of that Article. Article 17.3 requires that a Member may not

impose provisional measures sooner than 60 days after the date of initiation of the investigation. The
preliminary critical circumstances determination imposed measures soon after the date of initiation,
immediately violating this provision. Similarl y, within a month of the preliminary critical
circumstances determination the measures had violated Article 17.4 that limits the application of
provisional measures to four months.
4.145 A “critical circumstances” measure must satisfy several requirements under the provisions of
Article 20.6; this measure violated all of these requirements.
3. US Law is Inconsistent with US Obligations on Expedited and Administrative Reviews
4.146 The United States violates Articles 19.3 and 21.2 because it does not provide for company-
specific reviews where it determines an “aggregate” subsidy level. It also violates Article 19.4, as
exporters that would have benefited from these reviews pay more in countervailing duties. Finally,
the United States proceeded with the investigation on an “aggregate” basis thereby denying exporters
expedited and individual administrative reviews in violation of Articles 19.3 and 21.2.
4.147 Article 19.3 requires WTO Members to provide an expedited review when an exporter
requests a review. The United States provides fo r expedited reviews only in non-country-wide cases.
The United States argues that the regulations do not mandate a violation because the USDOC has
broad discretion to conduct reviews and has only neglected to promulgate regulations. The United
States position is untenable, for four reasons:
• First, the United States has the burden of establishing that the measure at issue is
“discretionary”. It asserts that the USDOC may conduct reviews, but it failed to create
regulations. This explanation is insufficient to discharge this burden.
• Second, these regulations are procedural rules relating to every aspect of countervailing
proceedings. The neglect of any right as fundamental as an individual review in aggregate
cases would be deliberate. The preamble to the US regulations reinforces this conclusion,
stating that the USDOC will not individually review firms when it uses a country-wide rate.
• Third, it is a basic principle of statutory construction that if a right is provided for in certain
circumstances, its deliberate exclusion in other circumstances must be given meaning: that is,
that no such right exists in those other cases. In this respect, the practice of the USDOC and
its analysis of its own discretion with respect to the regulations concerning voluntary
respondents demonstrates that it also interprets US law in this manner.
• Finally, the United States argues that it has broad authority under section 751 of the Tariff Act
to conduct expedited reviews. This provisi on relates to annual administrative reviews and
other forms of review, but is silent with respect to expedited reviews.
4.148 The United States argues that Article 21.2 does not create an obligation to conduct company-
specific administrative reviews. In this instance, the US regulations also expressly prohibit company-
specific administrative reviews in aggregate cases. In contrast, the text of Article 21.2 clearly requires
company-specific administrative reviews. In British Steel the Appellate Body found that Article 21.2
required a Member to review the need for continued imposition of a countervailing duty when
appropriate. The Appellate Body also indicated that this provision was designed to ensure that
countervailing duties only remained in force long enough to counteract the injury caused by the
subsidisation.
4.149 The administrative review provisions also violate Article 19.3 as the single country-wide rate
arrived at in an administrative review supersedes all individual rates. Therefore, even if the
United States had discretion to grant expedited reviews, in country-wide cases the benefits of those
reviews vanish as soon as there is a country-wide rate on an administrative review. Finally, the
regulations demonstrate that the discretion provided under s. 751 does not extend to individual

administrative reviews. In fact, these regulations specifically deny the USDOC the discretion to grant
individual administrative reviews.
4.150 The United States has argued that a violation of Articles 19.3 and 21.2 exists only where it
has expressly refused to grant these reviews. This is not correct. Once the decision had been made to
make an aggregate assessment, Canadian exporters could not secure a different form of assessment.
Consequently, exporters were effectively denied these reviews as soon as the decision to make an
aggregate assessment was made thereby breaching Articles 19.3 and 21.2.
D.
FIRST ORAL STATEMENT OF THE UNITED STATES
4.151 In its first oral statement, the United States made the following arguments.
4.152 Although some of the facts of this case are technically complex and can be confusing, in the
end the issues are simple. The preliminary record indicates that the Canadian provincial governments
provide timber to lumber producers at less than market prices. Under Article 1 of the WTO
Agreement on Subsidies and Countervailing Measures (“SCM Agreement”), that is a subsidy.
4.153 Article 5 of the SCM Agreement states that “No Member should cause, through the use of any
subsidy . . . , adverse effects to the interests of other Members, i.e. . . . injury to the domestic industry
of another Member . . .” When one Member causes injury to the domestic industry of another
Member through the use of any subsidy, the injured Member has the right to take countervailing
measures. The United States’ preliminary decision to exercise that right was fully warranted in this
case.
1. Preliminary Subsidy Determination
4.154 Article 1.1 of the SCM Agreement defines a subsidy as a financial contribution by the
government that confers a benefit. Thus, there are two elements to a subsidy: financial contribution
and benefit.
(a) Financial Contribution
4.155 The USDOC preliminarily determined that the system of timber contracts administered by
the Canadian provincial governments constitutes a financial contribution within the meaning of
Article 1.1(a)(1) of the SCM Agreement. Although Canada focuses on the complexities of these
arrangements, none of those complexities alters the fundamental fact that these provincial
programmes provide timber to lumber producers.
4.156 Over 90 per cent of the forested land in Canada is held by the provincial governments
(“Crown timber”). Each province administers a system of contracts called tenures or licenses
(“timber contracts”) that allow the tenure holder or licensee to harvest the Crown timber.
4.157 There is no dispute that lumber producers participate in provincial timber contracts for one
reason – to obtain timber. The definitions discussed in the US first submission leave no doubt that
timber is a good within the ordinary meaning of Article 1.1(a)(1)(iii). Nevertheless, Canada argues
that when the provinces issue these contracts they are not providing a good – timber – to lumber
producers, but the right to take timber off the land. Neither the SCM Agreement nor the facts of this
case support Canada’s claim.
4.158 Although there are some variations across the provinces, the core elements of all timber
contracts are the same, that is, the lumber producer obtains the right to cut timber in a specified area in
exchange for an administratively set fee, the “s tumpage” fee, and the assumption of certain forest

management obligations. The lumber producer knows the specific area in which it will be able to
harvest and knows the timber, that is, the species and quality of the trees. The producer pays
stumpage fees only for the volume of timber actually harvested. The lumber producer is therefore
obtaining a specifically identified good – timber.
4.159 Moreover, the ordinary meaning of “provide” includes “make available.” Thus, the fact that a
lumber producer has to get the timber off the stump is irrelevant. The economic consequences of
providing a good or a right to a good are the same. To treat them as distinct would invite
circumvention of the subsidy disciplines and seriously undermine their purpose.
4.160 Given the ample evidence that the provinces are providing lumber producers with timber,
Canada’s only hope is that the Panel will read into the SCM Agreement an exemption for all
extraction and harvesting rights. There is no suppor t in the text for such an exemption, and a treaty
interpreter may not read into the SCM Agreement what is not there.
(b) Benefit
4.161 The USDOC preliminarily determined that the provincial governments provide timber for less
than adequate remuneration, within the meaning of Article 14(d) of the SCM Agreement, thereby
conferring a benefit.
(c) Cross-Border Benchmark
4.162 As the Appellate Body has confirmed, a benefit is conferred when the government’s financial
contribution places the recipient in a more advantageous position than would have been the case
absent the financial contribution. Moreover, the Appellate Body has recognized that the marketplace
provides an appropriate basis for comparison. In the underlying investigation, the USDOC
preliminarily determined that no market benchmarks existed in Canada, and therefore used stumpage
prices in US states with comparable forests, ad justed to reflect prevailing market conditions in
Canada.
4.163 Article 14(d) states that: “The adequacy of re muneration shall be determined in relation to
prevailing market conditions for the good or service in question in the country of provision or
purchase (including price, quality, availability, marketability, transportation and other conditions of
purchase or sale).” Canada ignores most of that language and argues, in effect, that Article 14(d)
says: “The adequacy of remuneration shall be determined in the country of provision or purchase.”
The treaty interpreter, however, must give meaning to all the words in the Agreement.
4.164 World market prices can constitute part of the “market conditions in the country of
provision.” As the European Communities (“EC”) points out, the relevance of world market prices is
recognized in item (d) of the Illustrative List of Export Subsidies in Annex I of the SCM Agreement.
4.165 Therefore, the question is not whether Article 14(d) permits a Member to use something other
than a domestic benchmark price, but when it is appropriate to do so. The facts more than adequately
support the USDOC’s preliminary decision to do so in this case.
4.166 As noted previously, 90 per cent of the forested land in Canada is held by the Crown. The
market for timber is therefore dominated by th e provincial governments. The impact of the
governments’ administratively set prices on the very small residual market is virtually inescapable.
Nevertheless, the USDOC did request information on private prices in each of the provinces. Only
three of the provinces responded, and the USDOC determined that the prices provided were not
market-based. For example, the record contained statements by a Quebec official and a Canadian

forestry expert acknowledging that private tim ber prices in Quebec are suppressed by the
overwhelming market power of low-cost Crown timber.
4.167 It is evident why Canada would insist that the United States use prices in Canada despite the
evidence of a market dominated by the provincial governments. Canada would require the
United States to measure the governments’ prices against prices that reflect the very distortion that we
are attempting to measure. Article 14(d) does no t require such an obviously flawed and circular
methodology.
(d) Benefit Calculation - Indirect Subsidies (Pass-Through)
4.168 The USDOC determined the total amount of the subsidy provided to Canadian producers of
the subject merchandise based on aggregate data from the provincial governments. The Department
then divided the total subsidy by total sales of th e subject merchandise to obtain the subsidy rate.
Canada claims that this calculation improperly assumed that benefits to tenure holders passed through
to lumber producers. The United States does not, as the EC suggests, concede that this is the case.
Some clarification of the facts is necessary to better understand the basis for the USDOC’s subsidy
calculation and shed light on the flaws in Canada’s claim.
4.169 First, an input subsidy under Article 1.1(a)(1)(iii) is a direct subsidy. Under Canada’s
interpretation, all financial contributions through the provision of a good are transformed into an
indirect subsidy under Article 1.1(a)(1)(iv). Canada’s submission suggests that there are three
distinct industries in Canada: loggers, lumber producers and remanufacturers. This is not the case.
The vast majority of the Crown softwood timber is harvested under timber contracts held by
integrated producers.
4.170 The vast majority of the timber contracts in Canada are directly between the provincial
governments and Canadian forest products producer s, or wood processing facilities. In most
instances, only wood processing facilities, such as sawmills that produce lumber, are eligible to obtain
a timber contract. Thus, Canada’s alleged middleman between the provincial governments and the
lumber producers is largely a myth.
(e) Benefit Calculation - Denominator
4.171 Canada also claims that the USDOC should have included non-subject merchandise in the
calculation of the subsidy. The United States excluded certain Maritime lumber from the scope of the
investigation, not producers. Canada nonetheless argues that the calculation of the benefit must
exclude Maritime lumber, but the denominator must include Maritime lumber. Canada’s reasoning
would result in a rate less than the subsidy found to exist with respect to the subject merchandise.
4.172 Canada also argues that the USDOC calculated the subsidy on the basis of the total value of
first milled lumber products, but then applied th e subsidy rate to the entered value of subject
merchandise. Canada’s claim ignores the fact that the Department’s calculation and application of the
subsidy rate was entirely consistent with the preliminary record before the Department at the time of
the preliminary determination. As previous panels have stated, the consistency of an authority’s
decisions must be assessed based on an objective assessment of the facts before the authority at the
time the decision was made.
2. Critical Circumstances
4.173 Canada’s claims relating to the USDOC’s imposition of retroactive provisional measures rest
on an interpretation of Article 20.6 that would render the retroactive remedies provided for a nullity.

It is beyond dispute that the general principles of treaty interpretation preclude such a reading of the
Agreement.
4.174 The general rule in Article 21 that provisional measures and definitive duties are applied
prospectively is expressly made “subject to the exceptions set out in [Article 20].” Nothing in
Article 20.1 limits the applicability of those exceptions to definitive countervailing duties.
4.175 Article 20.6 defines a set of exceptional circumstances that warrant retroactive relief. Under
the text of Article 20.1 those exceptional circumstances apply to provisional measures.
3. Reviews
4.176 Finally, Canada claims that various provisions of US law are inconsistent with its obligations
under the SCM Agreement because they preclude reviews in aggregate cases. Under established
WTO jurisprudence, a Member’s law breaches that Member’s WTO obligations only if the law
mandates action that is inconsistent with those obligations. If the law provides discretion to
authorities to act in a WTO-consistent manner, the law, as such, does not breach a Member’s WTO
obligations.
4.177 US law provides the USDOC with discretion to conduct expedited and administrative reviews
in all cases, including aggregate cases. Nothing in the regulations cited by Canada limits that
discretion. Thus, US law does not mandate action that is inconsistent with US WTO obligations. The
United States is entitled to the presumption that it will implement its obligations in good faith.
E.
SECOND WRITTEN SUBMISSION OF CANADA
4.178 In its second written submission, Canada made the following arguments.
1. Introduction
4.179 This submission responds to the incorrect factual assertions and legal arguments that the
United States has continued to make in its Oral Statement and in its Answers (“Answers”) to the
Panel’s 26 April 2002 questions. Canada will demonstrate that: the United States misunderstands the
“financial contribution” requirement of Article 1.1(a); its cross-border analysis of “benefit” is not
permitted by Article 14(d); its response to the “pass-through” question is flawed and exhibits lack of
comprehension of the “benefit” analysis that is required; in respect of critical circumstances, it
continues to make implausible arguments. As well, Canada seeks to clarify US admissions
concerning expedited reviews and will demonstrate that the US position on administrative review
misstates US law and SCM Agreement obligations.
2. The Preliminary Countervailing Duty Determination
(a) “Financial Contribution”
4.180 In its Answers, the United States asserts that, “Canada claims that the benefit is received when
the timber is harvested.” From this faulty premise, the United States wrongly attributes to Canada the
argument that, “the act of harvesting (which is not performed by the government) is the financial
contribution.” It then argues that, “[t]he provincial governments provide the timber by placing it at
the lumber producer’s disposal under the tenure contract.”

4.181 The US argument distorts Canada’s submission and conflates a series of distinct relationships
into one transaction. A right to cut a tree is not the same thing as a log; nor are timber harvesters the
same as lumber producers.
4.182 Under tenure agreements, timber harvesters have the right to harvest standing timber and
undertake a number of forest management obligations. These obligations, such as fire protection and
pest control, constitute their share of a fiduciary duty for the public good. Indeed, tenure holders must
undertake such costly obligations regardless of whether they harvest any trees. The bundle of rights
and obligations that a tenure represents does not admit of simplification into “provision of goods”.
4.183 The right to harvest trees is, in law and in fact, distinct from trees themselves (standing
timber), which is a physical thing attached to the land. Standing timber is, in turn, different from logs.
The cutting down of timber is the point at which “goods” – logs – are produced from natural
resources; this is similar to when fish are caught, or water is bottled. Logs are input goods into the
production of lumber, which is the subject matter at issue. The right to harvest a tree is, therefore,
different from the end results of harvesting (the cutting down of standing timber to produce logs) and
processing (turning logs into lumber); this right does not amount to “goods” or “services” within the
meaning of Article 1.1(a)(1)(iii). In fact, even the thing in which provincial governments convey an
interest – standing timber – is not “goods” or “services”.
4.184 The United States attempts to rebut this reading by relying on two arguments, neither of
which has merit.
4.185 First, it states that “from the reference in Article 1.1(a)(1)(iii) to goods and services other than
‘general infrastructure,’ it follows a contrario that any specific immovable object may be a covered
good.” The conclusion in no way follows the premise. The converse of “general infrastructure” is not
“any specific immovable object”. In any event, “general infrastructure” is an exception to “services”.
4.186 Second, the United States argues that “the economic consequence of providing a good and
providing a right to a good are exactly the same.” Th is argument follows the same faulty logic of the
US argument in Export Restraints that, “an export restraint is ‘functionally equivalent’ to an
entrustment of or direction to a private body to provide goods domestically.” The panel in that case
rejected the “functional equivalence” argument on the grounds that the verbs “entrust” and “direct”
implied “an explicit and affirmative action of delegation or command.” The panel also held that the
“financial contribution” element of Article 1 was concerned with actions of governments and not the
effects of those actions. The term “provides goods” implies a positive action on the part of the
government in respect of the goods themselves.
4.187 The United States then relies on one of several definitions of “provide” set out in one
dictionary, to try to persuade the Panel that the te rm “provide” should be interpreted to mean “make
available” in the broadest sense of the phrase.
4.188 The US position is untenable as the more common meaning of “provide” is “supply”. As
well, the proposed US interpretation encompasses a range of government action that goes far beyond
those actions contemplated under Article 1.1(a). To “ make available services”, for example, would
include any circumstance in which a government action makes possible the receipt of services.
4.189 Finally, throughout the WTO Agreement, the word “provide” is used to indicate the giving of
something rather than the more generally enabling someone to obtain or produce something. For
example, the word “provide” in Articles 3.2 and 8 of the Agreement on Agriculture refers not to the
availability of subsidies or support to potential recipients, but rather the giving of such support or of
subsidies. This is also the case in respect of Article XV:1 of the GATS.

4.190 The US argument also ignores the distinction: between timber harvesters and lumber
producers. Timber harvesters produce logs from trees; and logs are not subject to the investigation.
Timber harvesters “provide” these logs to their own mills or to other mills for the production of
lumber or other products. This equation of timber harvesting and production of lumber has serious
consequences in two respects.
4.191 First, the repeated and erroneous reference to “lumber producers” diverts attention from the
issue before the Panel: the provision of a right to harvest to timber harvesters. Second, it ignores the
nature of the rights and obligations contained in tenure agreements. The US assertion is based on its
contention that the laws of each province “require the tenure holders be sawmills.” This is simply
incorrect.
4.192 In B.C. a tenure holder is not required to build a sawmill. The major forms of tenure may
require an applicant to maintain a “timber processing facility,” but that facility can be any of a wide
variety of facilities, such as pulp mills, waferboard plants, etc. Moreover, the relevant provisions in
the Forest Act are more discretionary. Section 13(3)(c) has provisions regarding timber processing
facilities, but only if they are required in the invitation for application.
4.193 The United States also argues that in B.C. most loggers operate as employees or contractors
for tenure holders rather than as independent entities. There are thousands of Crown tenure holders,
unaffiliated with any sawmill, that independently harvest standing timber, produce logs, and either use
or sell the logs at arm’s-length to sawmills and other kinds of processors. The record prior to the
preliminary determination (PD) documented that of 5,932 Crown tenure holders in B.C. during the
POI, only 105, or 1.8 per cent, owned sawmills.
4.194 In Quebec, there are two common forms of te nure. The dominant form of tenure, the
TSFMA, can be and is held by any primary processing mill (for example, pulp mill, panel mill, veneer
mill, etc.) and is not limited to sawmills. The second common form, the forest management contract
(“FMC”), is rarely held by sawmills or even primary processing mills.
4.195 The United States further confuses the issues by leaving out two central facts in its discussion
of Ontario tenures. Ontario, like other provinces, routinely grants export licenses for the export of
logs. Indeed, Ontario granted export licenses pursuant to all requests.
4.196 Alberta also does not “generally require the tenure holders be sawmills.” The United States
misrepresents Alberta’s questionnaire response that “[a]ll forms of commercial tenure own and
operate sawmills”. There, Alberta was indicating that when all sawmills are considered together, one
will find among them all the types of tenures that exist in the province. Alberta at no point suggested
that all tenures were held only by sawmills, or that only sawmills could get a tenure.
(b) “Benefit”
4.197 A benefit analysis under Articles 1.1(b) and 14(d) of the SCM Agreement must use
benchmarks “in the country of provision”. Canada ’s submissions in this regard are based on three
complementary points: first, that the text of Article 14(d) did not permit “cross-border” comparisons;
second, that the injunction in Article 14(d) is based on sound economic principles; and third, that, in
any event, there were ample benchmarks inside Canada that the United States could have used to
determine “adequacy of remuneration”.
4.198 The United States argues that the concept of “commercial availability” is incorporated in
Article 14(d). Article 14(d) does not refer to “commercial” availability of goods, much less “prices
commercially available” for those goods. The term “av ailability”, read in context, refers not to the
price of a good, or commerciality of that price, but whether the goods are available in the country in

question. Article 14(d) reflects a simple economic reality: the availability of a product – its “supply”
– has an impact on its price.
4.199 In any event, even if the United States were correct in its interpretation, its conclusions do not
follow. The existence of imported goods in a market does not make the price of those goods the
“prevailing market condition”. Imported goods may, and often do, command premium prices on
domestic markets.
4.200 The United States rejects the use of benchmarks reflecting market conditions prevailing in
Canada and justifies the use of US benchmarks on grounds of subsidization and price suppression.
The United States then proceeds to “prove” such subsidization and suppression solely on the basis of
the US benchmark. Under this standard, any country enjoying a natural comparative or competitive
advantage over the United States in anything would automatically be found to be giving
countervailable subsidies.
4.201 The United States is also not correct in citing item (d) of Annex I as support for its
proposition that “in the country of provision” means outside the country of provision. Item (d)
identifies the elements of a specific practice that is considered in itself to constitute a prohibited
export subsidy. It in no sense suggests that world prices can be used as a measure of benefit to
domestic producers. Item (d) is framed in a way consistent with other items in Annex I, and it has the
same relationship to Article 1 of the SCM Agreement as those other items. For example, the first
paragraph of item (k) refers to lending at rates below the government’s cost of borrowing. However,
that does not mean that a “financial contribution” analysis must always find a cost to government.
4.202 The United States argues that it can do what the specific text of Article 14(d) does not allow,
because forestry resources are for the most part owned by the Crown. It asserts that the only way it
can determine “benefit” independently of the alleged distortion is to look beyond the borders of the
“country of provision”. The arguments of the United States must not prevail, for two reasons.
4.203 First, a “benefit” analysis seeks to identify whether a government practice has had “trade-
distorting effects” but only in the sense of Article 1.1(b). The question is whether as a result of the
financial contribution by the government, the recipi ent has got something it could not otherwise have
got on its own in the market. Article 14(d), in turn, sets out the benchmark that can be used to
determine the existence of “benefit” when the fina ncial contribution in question is in the form of
provision of goods. Neither Article 1 nor Article 14 presumes the existence of “distortion” because
there is a financial contribution by the government. Furthermore, neither of these provisions permits
dismissing benchmarks because of a presumption that these benchmarks might be “distorted” by a
financial contribution.
4.204 The US argument is circular: market prices can be “suppressed” – driven below “normal”
levels – by dominant government prices only if those government prices are below that “normal”
level. However, that is the very point a benefit analysis must demonstrate.
4.205 Article 14(d) requires an investigating authority to use in-country benchmarks to determine
and measure an alleged benefit. The finding of government dominance in the alleged supply of goods
does not establish that the remuneration it receives is not adequate. And the United States did not
make such a finding; it only asserted it. A Member also may not short-circuit the “in-country”
requirement of Article 14(d) by a finding regarding the market share of the government. Market share
does not equal market dominance; and neither may give rise to a presumption of price suppression.
4.206 Second, nothing in Article 1.1(a)(1) or in the jurisprudence of the WTO mentions alleged
“price suppression” as a reason for dispensing with the market benchmarks set out in Article 14(d) in

favour of US benchmarks. The benchmark under Article 1.1(b) is not the highest price the recipient
might have liked to get, but rather the price prevailing in the market.
4.207 There are good reasons why Article 14(d) was written the way it was: cross border
comparisons make no economic sense. The use of US stumpage prices as a benchmark rests on the
wholly unsupported premise that “there should be no difference between the private prices in the
country of exportation and world market prices, except for import taxes.” In concluding this, the
USDOC implicitly made an incorrect assumption that stumpage is a commodity product with
negligible transportation and transactions costs.
4.208 In particular, borders affect prices and “thick border effects” are substantial and notoriously
difficult to quantify. The border is highly relevant as political boundaries drive differences in
government regulatory regimes, tax regimes, investment regimes, currency, banking and financial
systems, business practices, and business climate. Government policies and other factors in different
jurisdictions may affect economic conditions, including wage rates, taxes, capital costs, and exchange
rates.
4.209 A wide variety of complex factors also affect stumpage rates. These factors include locational
characteristics, timber characteristics, measuremen t systems, operating costs, government regulation,
economic conditions, and tenure holders’ obligations and responsibilities. Adjustments for these
factors are difficult or even impossible to quantify for the following reasons:
• Locational differences : The PD assumes that tree-growing and harvesting conditions are
“comparable” (an ambiguous term the USDOC neve r bothered to define) between the Canadian
and US comparison areas. The USDOC addressed none of the contrary evidence in the record
that significant differences in topography, soil conditions, climate, availability of ground and
water transport, and distance to mills and to markets differentiate the Canadian and US market
conditions.
• Timber differences: Differences in timber characteristics such as quality and stand density affect
stumpage values but the USDOC made no adjustment for these differences
• Differences in Measurements: Differences in measurement conventions between the scales used
to measure timber volumes in the United States and Canada and in the way in which timber is
classified as “sawtimber” make cross-border comparisons impossible.
• Differences in economic conditions : Economic conditions such as wages, capital costs, taxes,
and governmental regulatory policies affect stumpage values, and cross border comparisons must
take into account these differences. The only economic condition that the USDOC made an
adjustment for was in the PD exchange rates.
• Differences in rights and obligations of timber harvesters : The bundle of rights and
obligations under any harvesting programme affects stumpage values. Canadian tenure holders
obtain harvesting rights through tenures effectively of indefinite duration. This differs from the
transactions used by the USDOC that consisted of short-term timber harvesting rights in US sales.
Similarly, the lump-sum payments to obtain timber harvesting rights in the United States are not
equivalent to stumpage charges in Canada levied on a volumetric basis that were previously
conferred. With only limited exceptions, the USDOC did not attempt adjustments for these
differences.
4.210 While Canada believes that the Panel need not address the issue of adjustments, the United
States advised the Panel that the USDOC made adjustments. It further asserted that the USDOC
examined the obligations that Canadian tenure holders were legally obligated to assume, and
calculated a per unit amount for each category, which it then added to the stumpage fee to arrive at a
total “price” for stumpage in Canada. The USDOC did not make or even attempt any adjustments for
almost all of these factors. Where it did, it did so incorrectly, including as follows:

• the USDOC refused to make adjustments for the costs Canadian timber harvesters incur scaling
(measuring) provincial logs, because it claimed that “costs related to scaling are not mandatory
and are not borne exclusively by tenure holders….”. Provincial regulations across Canada require
tenure holders to scale timber to the provinces’ requirements.
• the USDOC’s claim that it calculated “a per-unit amount for each category of Canadian
obligations that was above and beyond obligations incurred by parties paying stumpage charges in
the United States” is equally without foundation. The USDOC did not examine US costs and did
not compare US and Canadian obligations, but simply asserted that, where similar costs existed in
the United States, no adjustments were necessary.
• In Quebec, the USDOC made an adjustment for primary and secondary roads, but refused to
make an adjustment for the costs of haulage roads, rather than measuring the difference between
haulage road costs in Quebec and Maine. In Ontario, the USDOC used a different methodology,
measuring road costs by their in-kind revenue to the Crown, rather than by the actual costs
incurred by harvesters.
• In relation to B.C., the USDOC refused to adjust for timber sale costs incurred by B.C. licensees,
such as the engineering and layout costs incurred to design and layout the appropriate contours
and areas for harvesting. In Washington State lands (the benchmark the USDOC used) these
costs are not imposed on the tenure holder.
4.211 One of the most significant errors made by the USDOC was the conversion factor it used to
compare the stumpage rates in different jurisdictions. Comparing US and Canadian stumpage rates
involves different measures of log volumes. Log volumes in several of the US comparison areas used
by the USDOC are measured in thousand board feet (MBF) whereas stumpage in Canada is measured
in cubic metres (m
3) using a metric scale designed to measure the total volume of solid wood in logs..
4.212 The issue of conversion rates arises because cubic log scales attempt to measure the total
content of each log while the US log scales attemp t to measure only that portion of total log volume
that would be contained in the lumber produced from each log. This portion varies with the diameter,
taper, and length of the log. Further, that portion will vary with which US log scale is being converted
(and the United States has many different scales) the scale’s log measurement conventions, and the
scale’s allowances for volume deductions for log defects. To accurately compare stumpage rates, the
conversion factor must also account for differences in timber size and the utilization standards of the
jurisdictions being compared.
4.213 Taken together this means that there is no such thing as a constant log scale conversion factor.
Instead, the conversion factor must be specifically chosen to reflect differences in the log scales, the
measurement conventions, the current timber profiles and the utilization standards of the jurisdictions
being compared. The USDOC did not do this. Instead it took a “national” average factor and applied
it across all provinces. The application of a proper conversion factor would have resulted in a rate
substantially less than was calculated by the USDOC in the PD.
4.214 The United States continues to assert that “only the governments of Alberta, Quebec and
Ontario provided any information” in response to the USDOC’s request for in-country benchmarks,
and that only “Quebec and Ontario actually provided private prices.”
4.215 To the contrary, Alberta answered every US question and provided all documentation
requested by the United States Alberta discussed and provided information on wood volumes.
Further, Alberta responded fully to a series of follow up questions regarding Alberta’s “private market
stumpage figure.” The USDOC’s questions did not include any requests for further documentation of
the stumpage value data.
4.216 Ontario provided the USDOC with a study entitled “Ontario’s Private Timber Market” prior
to the PD. The study was conducted by Resource Information Systems Inc. and explained that:

The results of the survey suggest that the market for private timber in Ontario appears to be both
competitive and efficient. Buyers and sellers have the same information about market conditions,
sellers produce homogeneous products, they are price-takers and they can enter and exit the market
easily. Hence the market meets the classic definition of a competitive market. The market can also
be classified as efficient given its low transaction costs and low level of government involvement.
4.217 Quebec submitted to the USDOC the results of the private forest stumpage surveys conducted
annually for the three years preceding the period of investigation and explained that these surveys are
used to determine stumpage rates on public land under the Forest Act. Quebec reminded the USDOC
that it had accepted earlier versions of the same private forest surveys in Lumber III as a benchmark.
Quebec also submitted a lengthy study demonstrating that the private forest in Quebec, is an open,
competitive, and functioning market. This study analysed the conditions and circumstances of the
private forest and found that it exhibited all the indicia of a competitive market.
4.218 Finally, the United States states that B.C. did not provide private stumpage rates. However,
B.C. explained on the record before the PD that mo st private timber transactions are for logs, and log
price data was provided.
4.219 The four primary exporting provinces also provided the USDOC with information
demonstrating that they were operating their stumpage systems consistently with market principles.
This information established that each of these provinces earned substantial profits from timber
harvesting rights.
4.220 Finally, B.C. put on the record extensive economic analysis that established that B.C.’s price
setting practices were consistent with market principles. This was because provincial stumpage
charges were equal to, or even higher, than the prices that would prevail in a competitive market and
prices for logs were no lower and quantities no higher than what would prevail in a competitive
market. As well, B.C. provided the USDOC with information on competitive sales of stumpage in
B.C. through the Small Business Forest Enterprise Programme sales.
4.221 The USDOC rejected the above evidence on the basis that private stumpage prices in Canada
were not valid benchmarks for determining and measuring benefit. It stated in the PD:
"Since the stumpage fees on public lands are the price driver for the stumpage market
in those provinces, we conclude that the stumpage fees on private lands are largely
derivative of the public land prices and are therefore distorted".
and later,
"Because of the provincial government’s control of the market through a system of
administratively-set prices and other market distorting measures, there is no market-
determined price for stumpage that is independent of the distortion caused by the
government’s interference in the market".
4.222 The USDOC cited the petition in support of its posi tion. In particular, it relied on a letter of
the Quebec Minister of Natural Resources to the President of the Wood Producer’s Federation of
Quebec (an association of private land owners). The United States now argues that this letter, and
other outdated and anecdotal evidence, “[indicates] that private stumpage prices were depressed by
the overwhelming majority of government-supplied timber in the market.”
4.223 The letter is a Government response to the private land owners’ association’s criticisms of the
cost adjustments used to make public and private timber comparable in Quebec’s parity system, which

itself is used for setting public land stumpage rates. The relevant portion of the letter relied upon by
the USDOC states:
4.224 The verb “puisse,” as used in the letter, translated means “could” or “might”. It does not
translate into “does”. Therefore, the above sentence, translated, reads:
"However, I am aware that public land stumpage charges [ could or might] have an
indirect influence on the private market".
4.225 This in itself demonstrates the United States’ gross mischaracterization of the value and
import of the letter. However, the context of the above passage is equally revealing: the statement is
simply the reason given by the Minister as to why the Government of Quebec continues to undertake
meaningful dialogue with Quebec private landowners.
4.226 The United States also relies on a 1995 paper for its conclusion that Quebec private stumpage
prices are distorted. The 1995 paper cites earlier studies (published between 1972 and 1985) that
spoke to the Quebec stumpage regime that was replaced in 1989 as support for the relevant passage
used by the United States In Lumber III , the Coalition made the same “distortion” argument
regarding Quebec private stumpage prices. The USDOC addressed the argument and the evidence at
that time as follows:
"The Coalition contends the entire provincial stumpage system in Québec is not
“market-based” because private prices in Québec are distorted and depressed by
decades of artificially cheap provincial stumpage, and these prices are used to set
public stumpage.
Citing a study published in 1988 of the “20 quality zones” in Québec …, the
Coalition asserts the “cost adjustments” which Québec used to make public and
private timber comparable are utterly fanciful and lead to anomalous results.
Respondents point out that the Aktrin study cited by the Coalition is completely
outdated and irrelevant since it examined a system that was replaced in 1989 by
Québec’s current system of 28 'biophysically and geologically homogeneous
tariffing zones.'
We agree with Respondents that private prices in Québec collected under Québec’s
own contracted out surveys, which we examined in depth at verification, are a viable
benchmark. The evidence cited by the Coalition is either outdated and irrelevant or
anecdotal…"
4.227 In Lumber III the USDOC, therefore, rejected evidence that was arguably more current,
reliable and relevant than the material it is now relying on to arrive at the opposite conclusion.
(c) Pass-Through
4.228 Evidence on the record at the PD demonstrated that some lumber producers had purchased
log inputs at arm’s-length from timber harvesters; the alleged recipients of the “stumpage” subsidy.
The USDOC failed to consider or even acknowledge that evidence and proceeded to grossly overstate
the alleged benefit to lumber producers.

4.229 The United States now attempts to argue that it had, in fact, made a finding of no arm’s-length
transactions in respect of such downstream producers; and that no such analysis was necessary. This
attempt must fail, for two reasons.
4.230 First, the US position is internally illogical and contradictory. If it was not necessary to make
a finding, then the USDOC presumably did not make such a finding; and if it did make such a finding,
it was because it found that the analysis was necessary. Second, the US assertion is simply untrue.
The determination does not contain a “pass-through” analysis. In fact, there is no mention of the issue
anywhere in the determination. The USDOC undertook no factual enquiry into the question of pass-
through; it simply presumed that all lumber producers benefited from alleged subsidies.
4.231 Given the evidence on the record of arm’s-length transactions between downstream producers
of lumber and timber harvesters, the United States was under an obligation to establish an indirect
subsidy in the sense of Article 1.1(a)(1)(iv) for all those transactions. In the absence of any such
findings, even recognition of the evidence, the United States must be found in violation of its
obligations under the SCM Agreement not to impose countervailing measures without first
establishing the existence of a subsidy.
4.232 If the United States had examined the evidence on the record, it would have – indeed, should
have – determined that, first, there were arm’s-length transactions in which the pass-through of a
subsidy may not be presumed; and second, that no subsidy was in fact passed-through from timber
harvesters to arm’s-length lumber producers. The United States now concedes that, if there were in
fact independent loggers who sell logs in arm’s-length transactions, then those sales cannot be
countervailed, or at the very least, that a pass-through analysis must be conducted. To counter this,
the United States claims that it “preliminarily c oncluded that the overwhelming majority of Crown
timber is provided directly to sawmills.”
4.233 The following examples provide a sampling of the evidence on the record on this issue. In
B.C., more than 30 per cent of the timber harvested on Crown lands is harvested by entities that do
not own sawmills. Similarly, in Ontario “approximately 30 per cent of the softwood timber harvested
from Crown land during the USDOC’s period of inve stigation was sold by tenure holders to third
parties who subsequently processed this timber into forest products.” Further, forest management
contracts (“FMCs”) in Quebec are typically held by municipalities, communities, or non-profit
organizations and rarely held by primary processing mills.
4.234 This evidence was not considered by the USDOC and it made no finding on “pass-through” at
the PD. The United States has now proceeded, for the first time, to counter the evidence on the
record. It claims that there were no “true” independent loggers and cites evidence regarding the
harvesting of timber in each province. The attempt by the United States to justify its failure to analyse
evidence on the record must fail, for four reasons.
4.235 First, the facts presented by the United States do not support its conclusions. For example,
the United States expressly admits that approximately 17 per cent of B.C. Crown timber is “provided
under licenses that are normally reserved to entities not owning timber processing facilities,” and that,
in Saskatchewan, approximately 14 per cent “of the harvest was provided to smaller licenses… some
of whom have their own sawmills.” The United States also does not claim that all stumpage benefits
are direct benefits, only that an “overwhelming majority” of Crown timber is provided directly to
sawmills. Thus, notwithstanding that the United States’ belated factual conclusion is incorrect, there
was uncontroverted evidence on the record demonstrating arm’s-length transactions between
independent loggers and lumber.
4.236 Second, contrary to the United States’s claim, the presence of domestic processing
requirements or other regulations in no way preclude arm’s-length transactions. The United States

rests on the existence of an additional element in determining what constitutes an “arm’s-length”
transaction: the concept of an absence of “outside control or influence” For there to be an arm’s-
length transaction, there is no requirement that the Parties must operate independently of all other
external influences.
4.237 Third, the US attempt to dismiss the evidence on the record after the fact only further
highlights the USDOC’s unjustifiable failure to und ertake an indirect subsidy analysis in the
preliminary determination . For example, the United States argues that in B.C., most loggers operate
as employees or contractors for tenure holders rather than as independent entities. However, as noted
above, the evidence on the record indicates otherwise.
4.238 Finally, the United States is simply incorrect to suggest that no pass-through analysis is
necessary with respect to arm’s-length purchasers who produce some merchandise that is subject to
the investigation. Unaffiliated remanufacturers purchase lumber in arm’s-length transactions from
lumber producers. In those arm’s-length transactions, any alleged benefit to the lumber producers
would not be passed through to the remanufacturers.
4.239 The United States insists that no analysis of pass-through was necessary in a country-wide
investigation. According to the United States, in such cases, “[t]he precise amount of the benefit
received by any specific producer would only be determined in a company-specific review.” An
investigation undertaken on a country-wide basis does not relieve the United States of its obligation to
establish the existence and amount of a subsidy. The effect of the US’ failure to analyse the pass-
through of alleged benefits was to countervail in instances where no benefit was received and to
sharply increase the countervailing duty rate.
(d) First Mill
4.240 Although the calculation methodology in the survey makes clear that the data provided were
from a survey of “sawmills” (also noted as “first mills”), the discussion of the methodology further
intended to explain that the data also included a small portion of remanufactured products that were
produced by the sawmills. Thus the statement -- “ [b]ecause the MSM does not collect commodity
data, it was not possible to exclude ‘remanufacturers’ from its results” -- intended to say that “it was
not possible to exclude ‘re-manufactures' from its results.” Canada explained this clearly in its
August 21 and August 27 submissions, prior to th e time at which the USDOC issued its Customs
instructions implementing the decision.
3. The Preliminary Critical Circumstances Determination
4.241 The United States argues that it is not possible for the United States to apply definitive
countervailing duties retroactively, if it were not permitted to suspend liquidation provisionally with
respect to entries made before the PD that may later be subject to a definitive critical circumstances
determination. This position is untenable for three reasons.
4.242 First, the essence of the US argument appears to have become this: the only way, under US
law, the United States may exercise its right under Article 20.6 to make a definitive critical
circumstances determination, is for it to breach that Article by imposing provisional measures not
provided for by the Article, to preserve this right. At issue is not what the United States may or may
not do under US law, but rather what are the United States’s obligations under Article 20.6. If the
United States is concerned about its ability to preserve retroactive imposition of definitive
countervailing duties pursuant to a critical circumstances determination, it should ensure that its laws
provide for this.. The United States does not lose its ability to impose duties retroactively by virtue of
making a final determination of critical circumstances.

4.243 Second, the United States misinterprets Article 20.3 of the SCM Agreement. Article 20.3 in
no way limits, or in fact speaks to, the right of Members under Article 20.6 to impose definitive duties
retroactively pursuant to a critical circumstances determination. Rather Article 20.3 addresses the
amount of countervailing duties that may be collected with respect to provisional measures imposed
pursuant to a preliminary countervailing duty determination.
4.244 Third, Canada reiterates its position that the United States’ reliance on Hot Rolled Steel from
Japan is misplaced. Article 10.7 of the AD Agreement has no analogue in the SCM Agreement.
Further, Article 20.6 does not permit a preliminary critical circumstances finding.
4. US Law On Expedited Reviews And Administrative Reviews
4.245 On the basis of the United States’ replies, Canada understands US to have confirmed that:
• it has an unconditional obligation under Article 19.3 of the SCM Agreement to provide expedited
reviews to any exporter not actually investigated for reasons other than a refusal to cooperate who
requests such a review and in doing so promptly establish an individual countervailing duty rate
for that exporter; and
• it has the discretion to grant such reviews when such a request is made.
4.246 In the light of these statements, Canada further understands that the United States does not
propose to argue that its discretion to grant a review includes the discretion to reject such a review.
Any such argument would directly contradict the US acceptance of its obligation under Article 19.3.
4.247 Canada is not convinced that US law provides the United States with the discretion to meet its
obligations under Article 19.3. Nevertheless, its statements to the Panel represent declarations by the
United States of both its understanding of its obligations under the WTO Agreement and also the
operation of its laws. Therefore, Canada requests that the Panel find that the United States:
• has failed to fully implement its obligation under Article 19.3 to provide for expedited reviews in
case of specific requests to do so in country-wide cases;
• now asserts that it has the lawful “discretion” to conduct such reviews despite the absence of
specific statutory or regulatory provisions;
• may not exercise its “discretion” to deny any request for an expedited review; and
• must promptly grant all such requests made in Lumber IV, and in any other investigation.
4.248 It is critical that the USDOC give exporters subject to the country-wide countervailing duty
rate in Lumber IV expedited reviews “promptly,” as Article 19.3 requires. Within a few days, these
exporters will be required to pay cash deposits at a country-wide CVD rate of 18.8 per cent.
Moreover, expedited reviews provided months or years from now cannot, by definition, constitute the
“expedited” reviews that Article 19.3 requires.
4.249 With respect to administrative reviews, the United States’s responses effectively concede that
Canada’s understanding that US law prohibits granting exporters individual rates in country-wide
cases is correct. In paragraph 67 of its answers, for example, the United States confirms that
Section 351.213(b) of the Regulations does not provide for individual reviews in country-wide cases.
4.250 By relying on this section of the regulations, the United States asserts that its obligations with
respect to administrative reviews are not to determin e individual rates so as to ensure that individual
companies are not paying more than the extent of the subsidy they actually receive. Rather, the
United States argues that it is required to provide for individual rates only if such a rate turns out to be
zero. This interpretation turns Articles 19.3 and 21.2 on their head. If adopted, the US interpretation

would result in these provisions being read in a manner that would reduce the scope of their application
far beyond that intended by drafters of the SCM Agreement, something a treaty interpreter must not do.
4.251 Furthermore, if the Panel does not find that the United States must conduct individual
administrative reviews in country-wide cases, any relief granted regarding expedited reviews is
virtually moot. Exporters and producers would obtain individual cash deposit rates that would be in
effect only until completion of the first administrative review, given that the regulations mandate that
a single country-wide rate calculated in an ad ministrative review supersedes any individual rate
previously determined.
F.
SECOND WRITTEN SUBMISSION OF THE UNITED STATES
4.252 In its second written submission, the United States made the following arguments.
1. Introduction
4.253 Over the course of this proceeding, the issues have been focused and the facts clarified. If
there was ever a doubt, the United States has now demonstrated that the Canadian provincial
governments provide timber to lumber producers – that is a financial contribution under the WTO
Agreement on Subsidies and Countervailing Measures (“SCM Agreement”).
4.254 The United States and the European Communities (“EC”) also share the view that, in
appropriate circumstances, the benefit from the government’s provision of a good may be measured
by comparison to commercially available world market prices, consistent with Article 14(d) of the
SCM Agreement. Even Canada agrees that the use of import prices may be appropriate in certain
circumstances. Therefore Article 14(d) does no t prohibit the use of world market prices in
appropriate circumstances.
4.255 There has, however, been much debate over whether the USDOC’s recourse to such prices in
this case was appropriate. In the end, as discussed below, the evidence demonstrates that the
USDOC’s use of US stumpage prices commercia lly available to Canadian lumber producers was
entirely consistent with the SCM Agreement.
4.256 The United States has also amply rebutted Canada’s claim that the USDOC inflated the
amount of the subsidy benefit by failing to take into account so-called “independent loggers.” The
USDOC’s preliminary determination that the Canadian provincial stumpage systems provide a
subsidy to lumber producers was therefore entirely consistent with US obligations under the SCM
Agreement.
4.257 Thus, we come full circle to where we began. “No Member should cause, through the use of
any subsidy . . ., adverse effects to the interests of other Members, i.e. . . . injury to the domestic
industry of another Member.”
13 When one Member causes injury to the domestic industry of another
Member through the use of any “specific” subsidy, the injured Member has the right to take
countervailing measures. The US right to impose provisional measures to counteract the injurious
effects of billions of dollars of imports of subsidized Canadian lumber should therefore not be denied.

13 Article 5, SCM Agreement.

2. Argument
(a) The USDOC’s Preliminary Determination that the Canadian Provincial Governments Provide
a Good to Lumber Producers Is Consistent with Article 1.1(a)(1)(iii) of the SCM Agreement
4.258 It should be beyond dispute that the provincial governments are providing a good – timber –
to lumber producers, within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement. This
conclusion is inescapable under any definition of “good” in any language. It should also be beyond
dispute that when a government gives a company th e right to take a good, whether it is the right to
take widgets from a government warehouse or timber from government land, the government is
“providing” that good within the meaning of Article 1.1(a)(1)(iii). The Canadian provincial
governments give tenure holders the right to take timber off Crown land and, thus, give them the
timber itself. The only logical conclusion is that, in doing so, the provincial governments are
providing a good within the meaning of Article 1.1(a)(1)(iii).
4.259 Canada’s attempts to obfuscate this simple fact rely on logically flawed arguments, and
ignore the basic principles of treaty interpretation reflected in Article 31 of the Vienna Convention on
the Law of Treaties . For example, Canada asks the Panel to infer from the use of the phrase
“imported goods” in Article 3.1(b) of the SCM Agreement and the word “products” in Parts III and V
of the SCM Agreement, that “goods” can only mean traded goods that fall within the GATT 1994
Article II schedules. The fact that “products” are goods and “imported goods” are goods does not,
however, logically give rise to the inference that nothing else can come within the meaning of
“goods.”
4.260 To sustain its strained interpretation, Canada simply ignores the most relevant aspect of the
ordinary definition of “goods” in the source it relies upon, which is the inclusion of “growing crops,
and other identified things to be severed from real property.” Moreover, Canada’s attempt to narrow
the ordinary meaning of “goods” would render superfluous the only express limitation in the text
itself, i.e., the exclusion for “general infrastructure.” If “goods” were intended to be read as narrowly
as Canada suggests, it could never encompass any infrastructure (e.g., a building, road, etc.), let alone
general infrastructure. “Goods” must include some infrastructure, otherwise the specific exclusion in
Article 1.1(a)(1)(iii) is superfluous. Thus, the very existence of that express limitation demonstrates
that the Members intended “goods” to be read in accordance with its ordinary meaning and therefore
to include things other than those listed in the GATT 1994 tariff schedule.
4.261 In addition, Canada’s arguments are premised on the notion that the only thing at issue here
is an intangible “right” granted by the provincial governments, which Canada then proceeds to totally
divorce, analytically, from the object of the right granted. Under Canada’s theory, form is everything:
what something is called (e.g., an “exploitation right”) is more important than what it actually is. In
Canada’s truncated analysis, if the government has granted a right, the inquiry stops, regardless of
what the “right” entitles the holder of the right to do. By ignoring substance, Canada concludes that,
while granting a right may constitute a financial contribution, it can never constitute the provision of a
good. However, as the Export Restraints panel stated:
We believe, in particular, that the appropriate way to conceive of a “financial
contribution” is purely as a transfer of economic resources by a government to private
entities in the market, without regard to the terms of the transfer.
4.262 Thus, it is in fact the “right,” i.e., the terms under which the provinces transfer timber to
lumber producers, that is irrelevant. To determine whether there is a financial contribution, the treaty
interpreter should look at the reality of what actually occurs. In the case of provincial tenures, what
actually occurs is that the provincial governments grant tenure holders the right “to take” a tangible
good – timber – off the land. The right “to take” is, in fact, the mechanism (or terms) by which the

government “provides” the timber, i.e., places the timber at the disposal of the lumber producer. The
provincial governments are therefore providing goods within the meaning of Article 1.1(a)(1)(iii) of
the SCM Agreement.
4.263 Canada concedes that offering steel producers the opportunity to load and haul (i.e., “to take”)
iron ore from a government stockpile would constitute the provision of goods. In reality, there is no
meaningful difference between giving lumber producers the right to take trees off Crown land and
giving steel producers the right to take iron ore from a government stockpile. While Canada may
disagree, the United States is confident that the steel producers and the lumber producers would not.
4.264 The reality of the provincial tenure systems is readily apparent. The evidence demonstrates
that companies obtain tenures for the sole purpose of obtaining timber, not to manage the forest.
Tenure holders acquire nothing under the tenure but timber, and pay stumpage fees only on the
amount of timber actually harvested. These facts leave no doubt that through the tenure systems the
provincial governments are “providing” a “good” – timber.
(b) The USDOC Properly Measured the Benefit fr om Provincial Stumpage Systems Under
Article 14(d) of the SCM Agreement
4.265 Canada has made several claims with respect to the USDOC’s measurement of the benefit
from provincial stumpage systems. In this section, the United States will address Canada’s claims
concerning the USDOC’s selection of a market benchmark for stumpage.
(i) The Use of Commercially Available World Market Prices Is, in Appropriate Circumstances,
Consistent with Article 14(d) of the SCM Agreement
4.266 As discussed in the US prior submissions, Article 14 of the SCM Agreement sets forth
guidelines for determining the benefit conferred by a financial contribution. Prior panel and Appellate
Body reports have defined a benefit as some form of advantage that would not otherwise be available
in the marketplace, absent the financial contribution. The guidelines in Article 14(d) should therefore
be interpreted to achieve an appropriate comparison of the financial contribution to the marketplace,
i.e., a comparison that would identify the artificial advantage resulting from the government’s
financial contribution.
4.267 Article 14 does not purport to address every conceivable scenario in which a benefit must be
determined. For instance, some types of financial contributions are not addressed at all in Article 14
(e.g., grants and debt forgiveness). Thus, authorities have the discretion to develop appropriate
methodologies. It is the view of the United Stat es that an appropriate methodology is one that is
consistent with the guidelines in Article 14, considered in light of the object and purpose of Article 14
to compare the financial contribution to what would be available to the recipient in the market absent
the financial contribution.
4.268 With respect to the provision of a good, Article 14(d) of the SCM Agreement states that the
comparison should be made “in relation to prevailing market conditions for the good [] in question in
the country of provision . . . .”. There is no dispute that the basis for the comparison described in
Article 14(d) is the prevailing market conditions in the country under investigation. What constitutes
prevailing market conditions is also described in Article 14(d), i.e., “price, quality, availability,
marketability, transportation and other conditions of purchase or sale.” Where the United States and
Canada disagree is in defining what constitutes the universe of permissible market benchmarks that
could be used to measure the adequacy of remuneration “in relation to prevailing market conditions”
in the country under investigation, consistent with Article 14(d).

4.269 As the EC stated: “[t]he expression ‘market conditions in the country of provision’ in
Article 14(d) of the SCM Agreement is sufficiently broad to allow the consideration of world market
prices.” In particular, as noted above, the concept of commercial “availability” is expressly
incorporated in Article 14(d). The use of “commercially available” world market prices is also
expressly sanctioned in item (d) of the Illustrative List of Export Subsidies, and has been endorsed by
the Appellate Body. Prevailing market conditi ons in the country of provision may therefore
encompass prices commercially available on the world market to purchasers in the country under
investigation. Commercially available world market prices can therefore be used as a market
benchmark, in appropriate circumstances, consistent with Article 14(d).
4.270 As the EC points out, the issue therefore is not whether Article 14(d) permits the use of
commercially available world market prices (such as US stumpage prices) per se, but rather whether it
was appropriate to do so in this case. The facts discussed below demonstrate that the USDOC’s use
of commercially available US stumpage prices was appropriate in this case and therefore consistent
with Article 14(d) of the SCM Agreement.
(ii) There Is No Evidence of a Market Benchmark in Canada
4.271 When considering the entire universe of potential market benchmarks, the United States
agrees that prices within the country under investigation should be used whenever possible. Use of
prices within the country under investigation is, however, not always possible. The obvious example,
which the EC noted, is the case of a government monopoly for the good in question. In such a case
there is no “market” benchmark price. That example is no different in principle from the
circumstances of this case. The provincial governments control 85 to 95 per cent of the market for
timber. There is extremely limited information on non-government prices and the evidence indicates
that non-government prices are suppressed by government prices. There is therefore no “market”
benchmark price in Canada that could measure the benefit. That conclusion is not based on theory, it
is based on the record evidence.
4.272 First, only three provinces provided any private price data in response to the USDOC’s
questionnaire. Canada’s claim that there was “extensive evidence” related to private markets in those
provinces is simply not supported by the record. The limited data provided by the provinces was
inadequate for purposes of establishing a market benchmark. For example, as the United States
explained in its response to the Panel’s questions, Alberta stated that it does not have any data on
private timber used in sawmills. The so-called “extensive” data provided by Alberta was a two-page
excerpt from a KPMG survey, which contained a single estimated stumpage value derived from some
price data for log sales. Moreover, Alberta acknowledged that the estimated value was based on
information that did not distinguish between private and Crown timber.
4.273 Ontario and Quebec submitted market surveys. However, the Ontario survey was flawed in
several respects (e.g., it provided no information on quality or grade). Moreover, there was
substantial evidence on the record, including statements by an official in Quebec’s Ministry of Natural
Resources, that government prices suppressed private prices in the provinces. In fact, one Canadian
group said that “downward pressure on the price of private wood is built into the system.” The
influence of a dominant owner has been recognized in other markets as well. A study of stumpage
trends in South Australia notes:
Of the total [productive forest land] . . . [a]bout 70 per cent of the resource is publicly
owned. The percentage of the publicly owned resource was even higher in the past.
Hence it is likely that stumpage for public pine logs has held a dominating influence
on stumpage for similar logs sold by private growers in [South Australia].

4.274 The remainder of the evidence that Canada cites consists of evidence that does not actually
pertain to private prices. That evidence instead largely pertains to whether the provinces recover their
costs and earn a profit when they sell timber. The government’s profitability is, however, not the
issue. It is now well settled that the cost to the government is irrelevant in measuring benefit.
Moreover, the purported fact that the provincial governments made a profit does not establish that
they sold Crown timber at market prices. The information provided therefore does not address the
relevant inquiry, i.e., whether provincial prices for timber are more advantageous than those that
would have been available to lumber producers on the market absent the provincial governments’
financial contribution.
4.275 As the above analysis of the record demonstrates, there was insufficient evidence of “market”
prices in Canada to form a benchmark. As the EC asked, “which other benchmark should be used in
[such a case]?” The United States agrees with the EC that, in the absence of market prices in Canada,
the use of other prices commercially available to Canadian lumber producers on world markets is a
reasonable alternative. As demonstrated below, stumpage prices for comparable timber in the
United States are commercially available to lumber producers in Canada.
(iii) US Stumpage Prices Are Commercially Available to Canadian Lumber Producers
4.276 Canada agrees that some prices commercially available on the world market, specifically
import prices, can provide a benchmark consistent with Article 14(d). Canada argues, however, that it
is impossible for there to be import prices in this case. Canada does not claim that Canadian
producers cannot or do not harvest timber in the United States, or that US timber cannot be imported
into Canada. Canada simply reverts to its argument that the provincial governments are providing a
“right,” not timber, and that a “right” cannot be imported. Once again, in Canada’s view, form is all
that matters. As the United States has amply demonstrated above, the provincial governments are not
merely providing rights, they are providing timber. US timber can be, and in fact is, imported into
Canada.
4.277 More importantly, Canadian lumber producers can and do purchase US timber on the stump
for harvesting and import into Canada. The SCM Agreement states that “commercially available
means that the choice between domestic and imported products is unrestricted and depends only on
commercial considerations.” Canadian lumber producers have virtually unrestricted access to US
stumpage for import into Canada. US stumpage is therefore commercially available to Canadian
lumber producers. Because US stumpage prices are commercially available to Canadian lumber
producers, they fall within the universe of benchmarks that can be considered for purposes of
measuring the benefit from provincial stumpage, consistent with Article 14(d) of the SCM
Agreement.
4.278 In fact, based on commercial considerations, US stumpage prices are the most reasonable
world market prices to use because the terrain, topography and species mix for US timber in border
states are most comparable to those in Canada, and because the record shows that Canadian
companies do in fact purchase US timber. In fact, virtually all of Canada’s timber imports come
from the United States.
4.279 Furthermore, it is reasonable to conclude that US stumpage prices represent appropriate
market-based benchmark prices to measure whether pr ovincial prices confer an artificial advantage.
The observed price difference for Canadian and US stumpage does not reflect differences in inherent
market characteristics in Canada versus the United States. Rather, it reflects the fact that the
Canadian system precludes price arbitrage for timber. There is a fully integrated North American
lumber market that coexists with a largely segregated North American timber market. Canada exports
over half of its total lumber production to the United States, but only three per cent of its timber
production. The United States exports little lumber to Canada, but exports nearly six times as much

timber. The low volume of timber trade between the two countries is the result of domestic
processing requirements in Canada that limit the flow of Canadian logs southward, and the
advantageous stumpage prices in Canada inhibit the flow of US logs northward. The segregated
timber market in North America allows for virtually no price arbitrage in timber markets across the
border.
4.280 The unusual nature of the situation in the North American market is evident when compared
to the substantial amounts of lumber and timber exports from other countries with major timber and
lumber industries. More importantly, the data indicates that US stumpage prices are comparable to
prices in Australia, New Zealand, Finland and Chile.
4.281 The USDOC’s use of prices for comparable US timber that is commercially available to
lumber producers in Canada was therefore appropriate in this case. Moreover, in establishing the
market benchmark, the USDOC took into account othe r market conditions prevailing in Canada for
timber, such as species, quality and tenure obligations. The market benchmark that the USDOC used
in the preliminary determination was therefore consistent with Article 14(d).
(c) The USDOC Properly Calculated the Total Amount of the Subsidy to Producers of the
Subject Merchandise
4.282 Canada alleges that the USDOC improperly assumed that the benefit from a financial
contribution to one entity accrued to another entity. These allegations pertain to three distinct
situations: (1) logs harvested by one sawmill and then sold in arm’s-length transactions to other
sawmills; (2) lumber sold in arm’s-length transa ctions to companies that produce remanufactured
lumber products; and (3) timber harvested by independent loggers who sell at arm’s-length to lumber
mills. In each case, the allegations do not withstand close scrutiny.
4.283 In the first two situations, all of the alleged recipients of the financial contribution and the
benefit are producers of the subject merchandise. As discussed previously, in an aggregate case no
further analysis of these situations is necessary to perform the aggregate calculation. The numerator
(total benefit to the subject merchandise) is properly matched to the denominator (total sales of the
subject merchandise). The precise amount of the benefit received by a specific producer would only
be determined in a company-specific review.
4.284 Canada’s claim with respect to the third situation rests on the assertion that the provincial
governments provide a significant volume of Crown timber to independent loggers who then sell the
timber at arm’s-length to lumber mills. In response to the Panel’s questions on this issue, the parties
have provided record evidence concerning the operation of provincial tenures, and, in particular, the
restrictions that the provinces impose on who may acquire a tenure and what the tenure holder may do
with the harvested timber. While it is not the Panel’s task to conduct a de novo review of those facts,
a careful analysis of this evidence demonstrates that it does not support Canada’s claim that lumber
producers acquire a significant volume of timber from independent loggers.
4.285 First, as the United States has previously demonstrated, the potential volume of timber
provided by so-called “independent” loggers is small. Canada’s “evidence” to the contrary relies in
large part on confusing or irrelevant statistical data. For example, Canada claims that “large numbers
of harvesters” are independent loggers. The number of harvesters is, however, irrelevant. The issue
is not how many independent loggers there are, but rather whether they provide a significant volume
of Crown timber to lumber producers. Moreover, it is irrelevant if the harvester is “independent” if
the mill owns the license (or is tied to the license contractually, as in Ontario).
4.286 The record demonstrates that the vast majority of the Crown softwood sawlog harvest is, in
fact, under tenure to sawmills. This fact is obscured by Canada’s province-specific data. For

example, instead of estimating the volume of softwood sawlogs harvested by independent loggers in
British Columbia, which is the relevant data, Canada estimates the volume of “timber” harvested by
companies “not owning sawmills.” “Timber” includes hardwood as well as softwood, and pulpwood
as well as sawlogs. Moreover, it is completely irrelevant that some portion of the Crown timber was
harvested by a tenure holder owning a pulpmill rather than a sawmill, if that timber was not used to
make subject merchandise. The relevant fact is that more than 83 per cent of the British Columbia
Crown softwood timber harvest is provided under te nures that require the tenure holder to own a
sawmill.
4.287 Canada’s statements with respect to the potential universe of “independent loggers” in
Quebec are perhaps the most difficult to understand because they are almost entirely irrelevant. The
issue is the percentage of the Crown harvest of softwood sawlogs that is provided to lumber mills by
independent harvesters. In Quebec, 99 per cent of the Crown harvest is provided under Timber
Supply and Forest Management Agreements (“TSFMA” ). The Quebec Forest Act states that “[n]o
one except a person authorized under Title IV to construct or operate a wood processing plant is
qualified to enter into” a TSFMA. The harvest from Federal lands, which is minuscule (less than 1
per cent), and private lands is irrelevant to the benefit calculation, as is the fact that there are 40,000
registered woodlot owners. Given the TSFMA requirements, it is virtually impossible to have a
significant percentage of independent loggers harvesting Crown timber in Quebec.
4.288 Similarly, in Saskatchewan, more than 86 per cent of softwood sawlogs were harvested by
tenure holders that own sawmills and process their own timber, and in Manitoba, approximately 95
per cent of the softwood sawlogs were provided directly to sawmills. Alberta also stated that “[a]ll
forms of commercial tenure own and operate sawmills.”
4.289 Second, to the extent there may be a small portion of Crown timber harvested by entities that
do not own processing facilities, transactions between those entities and the lumber mills are not at
“arm’s-length.” A truly arm’s-length negotiation is one where neither party is under any outside
control or influence, either from the party with whom they are bargaining, or other parties.
4.290 Canada claims that tenure holders are free to sell their logs to unrelated mills. In fact, the
record evidence demonstrates the contrary. For example, Quebec indicated that there were essentially
no arm’s-length transactions involving Crown timber sold by independent loggers to sawmills.
Moreover, the record establishes that all of the provinces generally require that Crown timber be
processed in a mill within the province. Each province also imposes other restrictions that impede a
harvester’s ability to negotiate freely and that compel the harvester to sell to particular customers. For
example, in Ontario, as a condition of the license , tenure holders are required to sign “wood supply
agreements,” in which they agree to supply specific quantities of wood to specific mills. The licenses
also provide that the Ministry of Natural Resource s can direct excess log production to specific mills.
In British Columbia, major licensees are required by law to process their logs or an “equivalent
volume” of wood in their mills. Similarly, in Al berta, all licenses on the record specify a particular
fixed volume that must be processed in a specific mill. Moreover, the evidence shows that the so-
called independent loggers often operate as employees or contractors for tenure holders. In addition,
Canada’s claim of significant “sales” by independent harvesters includes transactions that are, in fact,
“swaps.”
4.291 In light of this evidence, the only reasonable conclusion is that there are no true arm’s-length
transactions for Crown timber between independent loggers and lumber mills. There is therefore no
basis for Canada’s claim.

(d) The Preliminary Critical Circumstances Finding Is Consistent with the SCM Agreement
4.292 As fully discussed in the US prior submissions, Canada has failed to make a prima facie case
that the USDOC’s preliminary critical circumstances finding was inconsistent with the SCM
Agreement. The USDOC’s imposition of provisional measures in this case on merchandise entered
during the 90-day period prior to the publication of the preliminary determination was in fact fully
consistent with the text of Article 20 of the SCM Agreement, as well as with its object and purpose.
4.293 Article 20.1 expressly provides that the prospective application of provisional measures and
final duties is “subject to the exceptions set out in this Article.” Article 20.6 provides such an
exception, stating that a Member may assess final, definitive duties retroactively for a period “not
more than 90 days prior to the date of application of provisional measures” if critical circumstances
are present. As discussed in the US prior submissions, retroactive provisional measures (including
suspension of liquidation and cash deposits or bonds) are essential to enable a Member to avail itself
of the special remedy provided under Article 20.6. It is therefore the view of the United States that a
Member may impose retroactive provisional measures if there is a reasonable basis to believe or
suspect at the time of the preliminary determination that critical circumstances exist.
4.294 With respect to Canada’s remaining critical circumstances claims, the United States will, at
this time, rely on its prior submissions.
(e) US Laws Governing Reviews Are Consistent with the SCM Agreement
4.295 No reviews have been requested, much less denied, in this case because the United States has
not yet imposed definitive countervailing duties. Canada simply claims that the US laws governing
such reviews are inconsistent with the SCM Ag reement. Under established WTO jurisprudence,
however, a Member’s law breaches that Member’s WTO obligations only if the law mandates action
that is inconsistent with those obligations. If the law provides discretion to authorities to act in a
WTO-consistent matter, the law, as such, does not breach a Member’s WTO obligations.
4.296 For the reasons fully discussed in the US prior submissions, the US laws that Canada
challenges clearly do not mandate action inconsistent with US WTO obligations. US law instead
gives the USDOC broad discretion to conduct reviews in a WTO-consistent manner.
3. Conclusion
4.297 For the reasons set forth above, the United States requests that the Panel reject Canada’s
claims in their entirety.
14
G. SECOND ORAL STATEMENT OF CANADA
4.298 In its second oral statement, Canada made the following arguments.
1. Introduction
4.299 We are here because the United States, in violation of its WTO obligations, is imposing duties
on Canadian softwood industries that are crippling our forest industries. This dispute is not just about
trees or logs or lumber . It is, rather, about how the WTO Agreement applies to a Member’s

14 Canada asserts violations of Articles 10 and 32.1 of the SCM Agreement, which are dependent on
the more specific claims addressed herein. The dependent claims are therefore also without merit for the
reasons stated above.

management of its natural resources. The United States claims a right to countervail the products of
Members who manage their natural resources in a way that differs from the way chosen by the
United States. Ignoring the SCM Agreement, the United States simply presumes that the difference
between Canadian stumpage fees and US prices is a countervailing subsidy. In effect the US view is
that where a government owns natural resources, it may exploit those resources only by auctioning
them off in the US style . Of course this is not the way Canada manages its timber resources . And it
is not the way the United States manages its natural resources, such as fisheries and mineral rights.
4.300 The US approach is also neither logical nor consistent with economic theory . For example, it
is not at all evident that auctioning off stumpage in Canada would result in higher returns than those
prevailing under Canada’s current systems. However, where there is an abundance of resources and a
small market, one would expect prices to be lowe r. And, the owner of those resources might well
command a higher return by setting rates administratively.
4.301 The United States has imposed provisional countervailing measures against practices that are
not subsidies within the meaning of the SCM Agreement. The United States has, also, impermissibly
imposed retroactive provisional measures pursuant to a “preliminary” critical circumstances
determination. Finally, in countrywide cases, the United States does not provide for expedited
reviews as required by Article 19.3, and outright prohibits company-specific administrative reviews
contrary to Article 21.2 of the SCM Agreement.
2. Subsidy
(a) Financial Contribution
4.302 The distinction between the right to harves t trees, standing timber, and logs, and the
distinction between timber harvesters and lumber producers, are at the heart of this dispute . They are
as follows:
• the right to harvest trees is a form of property interest . The owner of this right may go on
someone’s land and cut down the trees on that land;
• standing timber refers to trees in the forest, that are incapable of being traded; and
• logs are what is produced when trees are cut down and prepared for transportation;
• Sawmills, in turn, process logs into lumber, which is the subject merchandise.
The second set of distinctions relate to the different players.
• provinces own most forests in Canada;
• timber harvesters enter into agreements with provinces to manage these forestry resources .
Under these agreements, the tenure holder has the right to harvest trees, but also incurs
obligations (including reforestation, and the like), regardless of the quantity of trees harvested.
The tenure holder may or may not own a mill; or if it has a mill, it may not be able to process all
of the logs that result from its own harvest of standing timber . So the tenure holder could sell
logs, process logs itself, or export them; and
• lumber producers are the sawmill operators that process logs into lumber. They are also
secondary manufacturers that buy lumber from sawmills for further processing.
4.303 The United States assertion that provinces provide “timber” to lumber producers is, therefore,
incorrect as a matter of fact, and its assertion that provinces “provide goods” when they enter into
tenure agreements is incorrect as a matter of law.
4.304 The ordinary meaning of “provide” is to “supply”, in the sense of to “give”.

4.305 The United States proposes an alternative meaning, to “make available”, in the sense of to
“make it possible to obtain”. The verb “provide”, however, does not have such a wide scope:
• in subparagraph (iii), the converse of “provide” is “purchase” . Properly construed, therefore,
“provide” must mean “give” or “sell”; and
• elsewhere in the WTO Agreement, the verb “pro vide” is used when the drafters intended to
denote “give”.
4.306 If the negotiators had wanted to say, “make it possible to obtain”, they would have said so in
Article 1. In the light of its context, “provide” means to “give” or to “sell”.
4.307 The term “goods” has the same meaning in Article 1 as elsewhere in the SCM Agreement and
the WTO Agreement . ”Goods” in Article 1 are the “goods” to which the modifier “imported” is
applicable in Article 3; they are the same “goods” that are the subject of Article II of GATT 1994 and
the Customs Valuation Agreement . “Goods” are tradable items – products – that are capable of
bearing a tariff, and exclude real property, intellectual property and other property interests.
4.308 Moreover, the terms “goods” and “products” are used interchangeably in the WTO
Agreement. Article II of GATT 1994 refers to “products” in paragraph 1(b) and “goods” in
paragraph 1(c) – and both refer to items that may be subject to tariff bindings. The term “goods” is
translated into “ biens” and “ bienes” in Article 1 of the French and Spanish versions of the SCM
Agreement, and “ produits” and “productos” in Article 3 . The term “goods” is also translated into
“marchandises” and “ mercancías” in the French and Spanish versions of the Customs Valuation
Agreement. “Goods”, “biens”, “bienes”, “produits”, “productos”, “marchandises”, “mercancías” –
all mean the same thing: tradable items, or products in the sense of Article II of GATT 1994.
4.309 The United States persists in its argument that providing the right to produce goods is in
effect the same as providing goods . In this respect, the United States is rehashing its failed
“functional equivalence” arguments from United States – Export Restraints . Subparagraph (iii) does
not refer to the effects of a government action, but the action itself . This government action is
entering into a tenure agreement, one element of which is a right to harvest trees.
4.310
 The question before you is the scope of the phrase “provides goods” and not Article 1.1(a) of
the SCM Agreement more generally. The United States tries to justify its stretching of “provides
goods” by saying that Canada’s objections elevate form over substance. On the contrary, it is evident
that the drafters of the SCM Agreement made conscious and careful choices in defining “financial
contribution” under the SCM Agreement, and we ask the Panel to give effect to those choices.
(b) Benefit
4.311 The Parties agree: that there is a “benefit” where “the recipient has received a ‘financial
contribution’ on terms more favourable than those available to the recipient in the market”; where the
alleged financial contribution is a government provision of goods, Article 14(d) of the SCM
Agreement is the relevant guideline; and that Article 14(d) requires an investigating authority to
determine adequacy of remuneration in relation to prevailing market conditions in the country of
provision of the goods . The United States now concedes that “[t]here is no dispute that the basis for
the comparison described in Article 14(d) is the prevailing market conditions in the country under
investigation.”
4.312 This is a significant departure from the US DOC’s position in the preliminary determination
(PD) and from the position the United States took earlier in this case . In the PD, the USDOC found
that in-country benchmarks were not required. In its First Written Submission, the United States
argued that Article 14(d) “requires [an] authorit y to determine the adequacy of remuneration with

reference to market prices for transactions that, while not necessarily between buyers and sellers
within the country of provision, are (or could be adjusted to be) comparable to the government
transactions …”.
4.313 The United States now argues that out-of-country benchmarks are “commercially available”
in Canada. For the United States, it is no longer the case that “in” means “out” – rather, it is that
“out” really means “in”: that is to say the prevailing market conditions in the United States are
somehow “available” in Canada, the appropriate benchmarks in Canada are those to be found in the
United States
4.314 Moreover, Article 14(d) does not refer to “commercial” availability of the goods in question,
much less “prices commercially available” for those goods . Rather, “availability”, read in context,
refers to whether the goods are available in the country of provision.
4.315 The United States argues that the US stumpage prices from selected lands it used as
benchmarks in this case are “world market prices” . This is untenable. Goods that are capable of
having a “world market price” are essentially homogeneous commodities or ones whose
characteristics can be defined so that they are interchangeable . Standing timber is not such a
commodity. This is why the USDOC used six different US benchmarks
4.316 The United States also argues that US stumpage prices are comparable to stumpage prices in
other parts of the world and are, therefore, “appropriate” and consistent with Article 14(d). It asserts
that support for its position can be found in item (d) of the Illustrative List of Export Subsidies and
case law - Canada – Dairy.
4.317 With respect to item (d), Canada has explained that its only possible relevance to this dispute
is that it equates “goods” with “products”. Further, Canada – Dairy is not relevant because the phrase
“commercial availability” relates only to item (d) and there was no decision concerning this provision,
as the Panel’s findings were rendered moot and of no legal effect by the Appellate Body (AB). If
anything, the significance of this decision is limited to the conclusion of the AB that world market
prices did not provide a valid basis for determining whether there were “payments” under
Article 9.1(c) of the Agreement on Agriculture. The AB found that a comparison between
commercial export milk prices and world market prices gave no indication as to whether Canadian
export production had been given an advantage.
4.318 Not only are US prices not “world market prices”, they are also not “available” in Canada.
According to the United States, US stumpage is commercially available “in” Canada for two reasons:
(1) because Canadian producers can purchase US timber on the stump for harvesting, and (2) because
logs produced from timber harvested in the United States can be exported to Canada . Neither reason
is valid.
4.319 First, the fact that a Canadian can bid on timber in the United States does not make that
standing timber available in Canada. Second, that some Canadian firms can use logs produced from
US timber does not mean that they can use US timber harvesting rights in Canada . Rights to harvest
timber in the United States are available only in the United States
4.320 Moreover, US law prohibits the export of logs from the public lands in the western US that
the USDOC used as benchmarks for B.C. (Washington), Alberta (Montana) and Saskatchewan
(Montana). Thus, the United States has used as benchmarks, stumpage from public lands where the
export of logs is prohibited.
4.321 At the time of the PD the USDOC had before it ample evidence of benchmarks in Canada that
it chose to ignore. The United States initially asserted that the in-country benchmarks were unusable

because they were artificially suppressed by government involvement in the marketplace . However,
the rejection of an in-country benchmark as “distorted” because of government involvement is not
supported by the SCM agreement.
4.322 The United States now argues that the evidence was inadequate to establish a market
benchmark. Yet the USDOC did no analysis of this evidence. Alberta, Ontario and Quebec all
provided evidence on private sales of timber harvesting rights . B.C. provided private log price data.
Alberta and B.C. also provided information on competitive tenures.
4.323 In addition, these four provinces, which repr esent 96 per cent of softwood lumber exports
from Canada provided the USDOC with information demonstrating that they were operating their
stumpage systems consistently with market principles . The United States attempts to dismiss this
evidence on the basis that “cost to government” is irrelevant in determining benefit. But the point has
nothing to do with “cost to government”. Rather, the substantial profits show that the provinces are
acting consistently with market behaviour.
4.324 Moreover, the US position cannot be reconcil ed with the USDOC’s own regulations, which
provide for analysing consistency with market principles as a way to evaluate adequacy of
remuneration. The USDOC has consistently determined adequacy of remuneration using this
benchmark where it has found that the government played a dominant role in the market. Finally, the
USDOC ignored evidence that there is no benefit to lumber producers when the situation in Canada is
compared with results that would be produced in a competitive market . Regardless of what the
United States now says respecting the adequacy of this evidence, the USDOC had an obligation to
analyse it. It did not do so.
(c) Pass-through
4.325 The United States has not demonstrated that a subsidy exists in this case. Rather, it has
improperly presumed the existence of a “subsidy” to producers of subject merchandise that buy their
inputs at arm’s-length.
4.326 The United States has admitted that at least 17 per cent of Crown timber harvest is done by
independent harvesters in B.C., 14 per cent in Sa skatchewan, and 5 per cent in Manitoba, and that a
pass-through analysis is required at least in respect of companies that do not produce subject
merchandise. Prior to the PD, the record evidence indicated even higher percentages. The
requirement for a pass-through analysis, however, goes beyond this and includes instances of arm’s-
length transactions for inputs (logs or lumber) into the production of the subject merchandise . In all
these cases, the United States has failed to demonstrate the existence of a subsidy because it has not
undertaken the required pass-through analysis.
4.327 The United States now attempts to justify this violation by arguing that it does not need to
undertake a pass-through analysis in countrywide cases. This argument is not relevant because it
ignores the required elements of Article 1. More specifically, the United States has failed to establish
that governments have made a financial contribution or that the financial contribution confers a
benefit on a recipient . In arm’s length transactions the profit maximizing recipient of an alleged
subsidy must be presumed to have retained subsidies it received. Under the SCM Agreement, there
are no exceptions to the obligation to establish the existence of a subsidy.
(d) First mill
4.328 The USDOC calculated the subsidy rate on a first-mill basis, but applied it on an entered-
value basis, with the effect of significantly increasing the countervailing measures applied . There is
no dispute that the data used was first mill data.
Therefore, there should be no dispute that the United

States violated its obligations. The United States has attempted to excuse its violation, claiming that
the USDOC did not know that the data it used was first mill data. This claim is not credible. The
United States has acknowledged that the USDOC received clarification of the information provided to
it before it made its decision to impose measures on a final mill basis.
3. Critical circumstances
4.329 The United States argues that the term “definitive duties” in Article 20.6 also refers to
preliminary measures, because, first, Article 20.1 refers to both definitive duties and preliminary
measures. And second, Article 20.3 prohibits the collection of preliminary duties in an amount
greater than definitive duties . The United States then argues that it must be permitted to breach
Article 20.6 in order to be able, under its domestic law, to exercise the right to collect retroactive
duties.
4.330 Article 20.1 prohibits retroactive application of preliminary measures and countervailing
duties subject to exceptions listed in the rest of the Article . Each of the exceptions is applicable only
to the extent relevant; Article 20.6 refers to definitive duties and not preliminary measures; it does
not, therefore, create an exception in respect of preliminary measures.
4. Expedited review and Administrative review
4.331 The USDOC has posted a notice indicating that it will accept requests for expedited reviews
in the Lumber IV case. The notice contains no information on timelines or procedures for these
reviews or whether the reviews will actually be conducted for all requesting companies.
4.332 In the light of these considerations, and to ensure that there is no doubt as to the substance of
the obligations under Article 19.3, Canada requests the following findings:
• First, that the United States is required under Article 19.3 to grant expedited reviews upon request
and to establish an individual countervailing duty rate;
• Second, as the United States has repeatedly stated, nothing in US law or regulations prohibits the
United States from granting expedited reviews in all instances upon request and establishing
individual countervailing duty rates for requesting exporters; and
• Third, that the United States has no discretion to refuse to grant expedited reviews upon request or
to establish an individual countervailing duty rate for the requesting exporter.
4.333 Accordingly, Canada asks that the Panel recommend that the United States may conform to
its obligations under Article 19.3 only where it grants expedited reviews upon request and establishes
individual countervailing duty rates for requesting exporters in countrywide cases at least in
accordance with the timetable and procedures applicable to other expedited review requests.
4.334 The United States continues to deny its obligations under Article 21.2 of the SCM Agreement
and maintains that it has provided for some form of administrative review in countrywide cases . US
arguments in respect of Article 21.2 ignore two critical points.
4.335 First, the first sentence of Article 21.2 refers to “the duty” . This can only mean the
“countervailing duty” mentioned in Article 21.1. Accordingly, Article 21.2 should be read in the light
of the preceding paragraph, which reads, “A countervailing duty shall remain in force only as long as
and to the extent necessary to counteract subsidization which is causing injury.” This means that the
review must also consider the level of the countervailing duties. Second, there are three elements in
Article 21.2. Article 21.2 requires that a Member review, “the need for the continued imposition of
the duty … upon request by any interested party which submits positive information substantiating the
need for a review”. It gives a right to an inte rested party to request such reviews in respect of

“whether the continued imposition of the duty is necessary to offset subsidization” and whether injury
would continue if the duty were removed or varied. And it requires that the authorities terminate the
duty if it is no longer warranted.
4.336 Read together, in the light of Article 21.1, the obligation becomes clear: the United States
must provide for, and conduct, administrative reviews upon request to determine not only whether
countervailing duties are necessary at all, but also to establish company-specific rates.
4.337 The United States is in breach of Article 21.2 because it expressly denies administrative
reviews in countrywide cases . The United States persists in arguing that it has the “discretion” to
grant administrative reviews in certain limited ci rcumstances and subject to certain qualifications.
This is not enough . The “discretion” in question is to grant an administrative review only “where
practicable” and then only when there is a request for a “zero rate”.
4.338 Finally, if individual administrative reviews are not necessary in aggregate cases, any relief
relating to expedited reviews becomes moot. This is because the aggregate rate determined at the first
administrative review supersedes all other previously determined rates.
H. SECOND ORAL STATEMENT OF THE UNITED STATES
4.339 In its second oral statement, the United States made the following arguments.
1. Financial Contribution
4.340 The provincial governments identify specific stands of timber and enter into tenure
agreements that allow companies to harvest that ti mber, that is, to take the timber off the land, in
exchange for a fee based on the volume of timber harvested. The provincial governments are
therefore providing a good within the meaning of Article 1.1(a)(1)(iii) of the Agreement on Subsidies
and Countervailing Measures (“SCM Agreement”).
4.341 Canada’s attempts to argue to the contrary defy general principles of treaty interpretation, the
rules of logic and common sense. The essence of Canada’s argument is that when the provincial
governments grant lumber producers the right to take timber from government land, the producers
actually provide themselves with a good when they cut down a tree. To support this rather
extraordinary proposition, Canada ignores the ordinary meaning of “goods,” which includes things to
be severed from the land, such as timber. In Canada’s view, a government can identify a whole forest
of trees and give a specific lumber company the right to take those trees for free. The violence such a
theory does to the subsidy disciplines is obvious.
4.342 Canada’s strained interpretation is not supported by the text of the SCM Agreement. Based
on the ordinary meaning of the text, when the pr ovincial governments grant companies the right to
take an identified good – timber – from government land, the government makes a financial
contribution within the meaning of Article 1.1(a)(1)(iii) of the Agreement.
2. Benefit
4.343 A financial contribution confers a benefit if it provides some form of artificial advantage that
would not otherwise be available in the marketplace absent the government’s financial contribution.
Under the guidelines in Article 14(d), the benefit from a government’s provision of goods is to be
determined in relation to the prevailing market conditions for the good in the country of provision.
The United States shares the view of the Eur opean Communities that the concept of “prevailing
market conditions in the country of provision” is sufficiently broad to permit consideration of prices

for competitive goods commercially available on the world markets to purchasers in the country of
provision.
4.344 That interpretation is firmly grounded in the text of the SCM Agreement and commercial
reality. “Commercially available,” as defined in the SCM Agreement, means that the choice between
domestic and imported goods is unrestricted and depends solely on commercial considerations.
Commercially available goods, both imported and domestic, compete in the domestic market and
constitute the supply available to purchasers in the country of provision, that is, goods that the
purchasers could obtain in the market absent the government’s financial contribution.
4.345 Canada has acknowledged that “prevailing market conditions” in the country of provision
include the available supply and that imports, which are part of the available supply, can, in
appropriate circumstances, provide a market benchm ark consistent with Article 14(d). Even under
Canada’s reading of Article 14(d), therefore, prices for competitive goods commercially available on
world markets fall within the universe of potential market benchmarks in certain cases. Because
prices for competitive goods commercially available on world markets fall within the ordinary
meaning of the terms used in Article 14(d), there is no basis to interpret that provision as precluding
the use of such prices, under any circumstances.
4.346 As the Canada Aircraft panel stated, the purpose of a benefit analysis is to determine whether
the financial contribution places the recipient in a more advantageous position than would have been
the case but for the financial contribution. Likewise, the Appellate Body stated that the analysis is to
determine whether the recipient is better off than it would otherwise have been absent the financial
contribution. Private prices for a good that are driven by government prices for that good do not
represent prices that would otherwise have been available in the market absent the government
financial contribution. The USDOC’s preliminary inve stigation indicates that such is the case with
respect to private stumpage prices in Canada.
4.347 The USDOC found that the provincial governments control approximately 90 per cent of the
softwood timber supply. Moreover, tenure holders consistently harvest less than their annual
allowable cut (“AAC”) and, if necessary, a tenure holder may harvest in excess of its AAC. These
undisputed facts indicate that Canadian lumber producers would have no incentive to purchase private
stumpage unless the private seller was willing to meet, or better, the government’s administratively
set stumpage price. The record facts, when ta ken as a whole, support the USDOC’s conclusion that
private stumpage prices in Canada are integrally linked to the government prices and therefore could
not logically serve as a benchmark.
4.348 Stumpage prices in contiguous US states were the most logical choice. US stumpage is
commercially available to Canadian producers and the contiguous forests are generally comparable.
The United States is the only country from which Canada obtains significant amounts of softwood
timber. Canadian companies own timberland in the United States, bid on US stumpage and regularly
import US timber.
4.349 In sum, the Panel should find that Article 14(d) permits the use of prices commercially
available on world markets in appropriate circumstances. The Panel should also find that the use of
such a benchmark was appropriate under the specific facts of this case.
3. Critical Circumstances
4.350 Canada argues in its second submission that, if the United States wishes to preserve the
possibility of retroactively imposing definitive countervailing duties pursuant to a critical
circumstances determination, it should provide in its laws for retroactive assessment. That is,
however, precisely what suspension of liquidation do es. Furthermore, Canada’s assertion that US

Customs’ practice resolves this issue is incorrect. Under US law, an entry that is not liquidated within
one year from the date of entry is deemed liquidated by operation of law at the rate of duty in effect at
the time of entry. Countervailing duty investigations frequently take more than a year to complete;
the SCM Agreement permits the investigation to go as long as 18 months. Entries during the 90-day
retroactivity period would, in such cases, be liquidated by operation of law and no retroactive
countervailing duties could be imposed.
4.351 The United States also notes that Canada’s flexible interpretation of Article 20.3 stands in
stark contrast to its restrictive reading of Article 20.1. The United States therefore takes little comfort
in Canada’s assertion that Article 20.3, which on its face does not contain the limitations assumed by
Canada, would not be interpreted as precluding the imposition of retroactive duties where the amount
of the duties has not been guaranteed by cash deposit or bond.
4. Expedited Reviews
4.352 The United States has demonstrated that US law provides the USDOC with discretion under
section 751 of the statute to implement the United States’ obligations under Article 19.3. Canada
nonetheless asks the Panel to find “for the sake of clarity” that the United States has failed to
implement its obligations under the SCM Agreement. Moreover, Canada even goes so far as to ask
the Panel to make findings that the United States must implement its obligations in a specific fashion,
not just in this case, but “in any other investigation.” Such a request is, to say the least, inappropriate.
4.353 Where a Member’s laws do not mandate WTO-inconsistent action, the Member is accorded
the presumption that it will implement its obligations in good faith. The United States has
demonstrated that the laws and regulations at issue do not mandate WTO inconsistent action or
preclude it from implementing the obligations in Article 19.3 of the SCM Agreement. Therefore, the
measures are not inconsistent with the SCM Agreement. No further findings or recommendations are
necessary or appropriate.
4.354 Canada has also misstated the United States’ position with respect to administrative reviews.
Canada notes that the United States stated that Section 351.213(b) of the USDOC’s regulations does
not apply to aggregate cases. Canada fails to note, however, that the United States also stated that the
regulation does not restrict the USDOC’s authority to conduct reviews. More importantly, however,
the regulations cited by Canada govern only assessment proceedings and Article 21.2 does not address
assessment proceedings.
5. Factual Support for the Preliminary Determination
4.355 The factual record at the time of the prelim inary determination consists largely of the
information that Canada submitted in its initial responses to the USDOC’s questionnaire. The
United States has provided the Panel with a great deal of that information. The United States
therefore finds very disturbing Canada’s serious and entirely baseless accusation that the
United States has wilfully misrepresented certain facts concerning tenures in Alberta. The documents
provided by the United States speak for themselves.
4.356 Canada also argues at length in its second submission about the USDOC’s preliminary
adjustments. Although the United States could refute those claims, they are not before the Panel for
the simple reason that Canada has not challenged those adjustments in this proceeding. Canada’s
eleventh hour attempt to expand the Panel’s terms of reference is improper and should, therefore, be
rejected.
4.357 Moreover, Canada cites its criticisms of the adjustments in an attempt to bolster its argument
that the use of a cross-border comparison is prohibited per se. In doing so, Canada attempts to give

the impression that the study relied upon by Canada to support this argument is the only record
evidence on this issue. In fact, the record at the time of the preliminary determination contains
extensive evidence that the US stumpage prices in contiguous states provide a very reasonable and
logical basis for determining the market value of Canadian timber.
4.358 Canada also accuses the United States of engaging in post hoc rationalizations. Canada has
not, however, claimed that the preliminary determination is inconsistent with Article 22 of the SCM
Agreement regarding public notice and explanation of determinations.
4.359 The United States would now like to turn the Panel’s attention to certain record facts before
the USDOC at the time of the pre liminary determination. The debate over the record facts has
primarily centered on two issues: processing requirements imposed on tenure holders by the
provincial governments and private stumpage prices in Canada.
(a) Processing Requirements - Independent Loggers
4.360 With respect to tenure processing requirements and the existence of so-called independent
loggers, the United States would stress at the outset that the benefit calculation was based solely on
the volume of Crown timber that went into the production of softwood lumber. Data pertaining to
other tenure types, to timber from private lands or to timber going to the production of other types of
products are entirely irrelevant.
4.361 In addition, the record at the time of the pr eliminary determination indicates that the vast
majority of Crown timber obtained by lumber producers was provided by the provinces directly to
those producers. The record also indicates that, due to the restrictions imposed by the provinces, any
truly arm’s-length transactions for the small amount of timber that a lumber producer may have
acquired outside its own tenure are insignificant. In short, the record at the time of the preliminary
determination does not indicate that pass-through is an issue, nor did Canada raise it as an issue until
the day before the preliminary determination.
(b) Private Prices
4.362 Canada attempts to argue around the fact that only three provinces provided any information
concerning non-government prices for stumpage. The fact remains that Alberta provided a single
estimated stumpage value for all species and quality of trees; a value that is calculated by the province
for the purpose of settling disputes over damaged timber. The United States provided the Panel with a
copy of the Resource Information Systems study, which Ontario submitted to the USDOC. I refer the
Panel to the United States’ previous comments on the study and to the study itself, which we believe
confirm the validity of the USDOC’s assessment. With respect to Quebec, the United States notes
that the record evidence of suppression of private stumpage prices that the United States has cited is
only a sample of the record evidence.
4.363 Moreover, as discussed previously, this was not the only evidence on the record. Other facts
concerning the governments’ position as the dominant supplier of timber are consistent with the
various statements on the record concerning price suppression. All of the evidence of the dominant
influence of the provincial government on private stumpage prices, taken together, is more than
sufficient to support the USDOC’s preliminary determination that private prices could not logically
serve as a valid market benchmark.
6. Standard of Review
4.364 As previous panels have recognized, what constitutes sufficient evidence to support a
determination varies depending on the nature of the determination in question. At the time of the

preliminary determination the investigation was, of course, incomplete. Canada appears to be asking
the Panel to resolve the outstanding issues and render its own findings of fact. Accordingly, Canada
has spent a great deal of time explaining the facts and statements it provided to the USDOC prior to
the preliminary determination and even suppleme nting those facts with references to evidence
submitted after the preliminary determination. In this proceeding, however, the preliminary record
must speak for itself.
4.365 The question in this proceeding is whether Canada has established, based on the evidence
before the USDOC at the time of the preliminary de termination, that there is a breach of the cited
WTO provisions. If there is a reasonable basis for the preliminary determination, as there is in this
case, there can be no breach of the SCM Agreement. Moreover, Canada, as the complainant, bears
the burden of establishing a prima facie case of a breach. Therefore, if the balance of evidence is
inconclusive with respect to a particular claim, Cana da must be held to have failed to establish that
claim.
4.366 It is the view of the United States that an objective assessment of this matter, as presented
here and in our prior submissions, and a proper application of the standard of review will lead the
Panel to conclude that Canada has not established a breach of the cited WTO provisions.
V. ARGUMENTS OF THE THIRD PARTIES
5.1 The arguments of the third parties, the European Communities, India and Japan, as contained
in their written submissions and oral statements are summarized below.
A. THIRD PARTY WRITTEN SUBMISSION OF THE EUROPEAN COMMUNITIES
5.2 In its written submission, the European Communities made the following arguments.
1. Scope of the term “good” under Article 1.1(a)(1)(iii) of the SCM Agreement
5.3 The question whether stumpage is covered by the term “goods” can be determined at least in
two different ways:
5.4 First, stumpage presupposes the provision of land on which the harvester exercises its right.
As “land” is an “immovable” good, Article 1.1(a)(1)(iii) of the SCM Agreement may apply. The term
“good” is commonly defined as, inter alia, “property or possessions; esp. movable property, saleable
commodities, merchandise, wares” or “tangible or moveable personal property, other than money;
esp., articles of trade or items of merchandise”. The French text of the SCM Agreement uses the term
“biens”, which is defined as, inter alia, “domaine, possession, propriéte”. Finally, the Spanish version
refers to the word "bienes", which encompasses “inmobiliario" as well as "mobiliario”. Therefore,
from the ordinary meaning of the word the term “g oods” can not only apply to “movable” but also to
“immovable” objects, including “land”.
5.5 Contextually, such an understanding is corroborated by Article 1.1(a)(1)(iii) of the SCM
Agreement, which refers to “(…) goods or services other than general infrastructure (…)” (emphasis
added). According to this wording even streets, railways or channels - which are all immovable
objects – are to be considered as a “good” to the extent that they are not “general”. It follows a
contrario that any “individual” immovable object may also be covered by Article 1.1(a)(1)(iii) of the
SCM Agreement.
5.6 Second, stumpage gives a right to harvest a movable “good”, i.e. the log, but it does not
provide the object as such. In the EC’s view ev en a “right to a good” might be sufficient for
Article 1.1(a)(1)(iii) of the SCM Agreement because if one were to deny such a possibility Members

could easily circumvent the obligations of the Agreement. As the economic consequences would be
the same in both instances, the SCM Agreement should apply equally to both cases.
5.7 In the light of the complex nature of stumpage, the EC cautions that it would be necessary to
carefully assess all the rights and obligations related to stumpage in the light of Article 1.1(a)(1)(iii) of
the SCM Agreement. This is especially true because each province maintains a specific stumpage
system. In this respect, the EC notes that all of the Canadian stumpage programmes appear to provide
the beneficiary with the right to cut trees on certain “land”. Furthermore, stumpage seems to be
closely related to a defined movable good, which is the actual log to be harvested. In that respect, the
EC finds it pertinent that, according to the main parties, the stumpage fee is calculated on the basis to
the volume of the trees cut down and that appli cants for stumpage are usually required to own a
wood-processing facility.
2. Determination of a “benefit” under Article 1.1(b), 14(d) of the SCM Agreement
5.8 The starting point for the benefit analysis under Article 14(d) of the SCM Agreement should
be the prices in the country of provision, here Canada. This is not contested by the main parties.
5.9 The term “distortion”, which is used by the United States, is not mentioned in Article 14(d) of
the SCM Agreement as being relevant to the benefit analysis. The EC considers that much care should
be paid in determining the correct benchmark for the existence and amount of a benefit. As
Article 14(d) of the SCM Agreement does not set explicitly forth a hierarchy of methodologies, the
Panel should refrain from imposing any such hierarchy.
5.10 Article 14(d) of the SCM Agreement requires investigating authorities to use domestic price
information as long as these prices are market-driven and prevailing. The notion of market implies
“an opportunity for buying and selling”, “a place or group with a demand for a commodity or service
or sale as controlled by supply and demand”. Indeed, where prices are controlled or imposed by the
government and not market-driven, i.e., not freely negotiated between suppliers and purchasers, such
prices would not fulfil the key “market” criterion under Article 14(d) of the SCM Agreement. In that
respect, the EC would agree with the United States that in case of a state monopoly, there would be no
market conditions in the country of provision.
5.11 Yet, this might be a rather exceptional situation. In the case at hand, the United States has not
shown that the price for private stumpage in Cana da is not market-driven. The United States has not
demonstrated that the prices paid for stumpage rights on private lands, which may amount to 10 –
30 per cent of the provincial markets in Canada, are no longer determined by supply and demand.
5.12 Where the government manages the supply of natural resources from state owned property, it
may be that the domestic industry satisfies additional demands from the private market or through the
importation of additional resources. The EC fails to see why those domestic prices should not be
assumed to be driven by supply and demand. Also, the EC does not understand why those private
stumpage prices are not prevailing.
5.13 Thus, the mere assumption that prices on the private stumpage market are affected by the
governmental stumpage system is not sufficient to establish that no domestic market within the
meaning of Article 14(d) of the SCM Agreement exists.
5.14 Regarding the consideration of world market prices in the benefit determination under
Article 14(d) of the SCM Agreement, the EC suggests to distinguish two situations. First, imports at
world market prices may form part of the domes tic market conditions. Second, world market prices
may be a last resort where no domestic market exists.

5.15 The expression “market conditions in the countr y of provision” in Article 14(d) of the SCM
Agreement is sufficiently broad to allow the consideration of world market prices. The term “market”
defined as “an opportunity for buying and selling” suggests that world market prices may be relevant
if the product at hand is commercially available to the recipient in the country of provision.
5.16 The consideration of all commercially available prices is clearly allowed in the benefit
analysis under Article 14(b) and (c) of the SCM Agreement which only refer to “the market” but do
not contain any territorial restriction. The principal relevance of world market prices is also
recognised in the benchmark for export subsidies defined in item (d) of the Illustrative list of export
subsidies in Annex I of the SCM Agreement. There, the domestic market price is only a relevant
benchmark “provided such terms or conditions are more favourable than those commercially available
on world markets to their exporters”.
5.17 A proper analysis of the “market conditions in the country of provision” may thus include all
commercially available alternative sources for the re cipient, including the price for imports into that
market.
5.18 The EC considers that the United States did not sufficiently explain why prices for imports
from the United States into Canada are not “distorted” by the Canadian stumpage schemes or by the
different market conditions in the United States Where imports take place, the respective prices form
part of the “prevailing market conditions in the country of provision”, i.e., Canada, and should have
been considered together with the price information on private stumpage.
5.19 If the Panel found that the US correctly dismissed all price information relating to the
domestic market, including also the prices in Canada’s maritime provinces, the EC takes the view that
world market prices may serve as a subsidiary means of establishing the existence of a benefit.
5.20 As shown above, the text of Article 14(d) of the SCM Agreement does not exclude the
recourse to world market prices as a benchmark. The alternative use of the cost to government
standard does not necessarily measure the price at which the private recipient could have obtained the
good or service in the marketplace absent the financial contribution. According to Appellate Body
jurisprudence, the existence of a benefit must be measured from the perspective of the recipient. To
serve that purpose, there is a logical preference for taking account of actual prices at which the
recipient might have obtained the good, because a cost to government standard appears to be a less
precise measure whether the recipient is better off.
5.21 Finally, the EC emphasises that price information is not the sole criterion to determine the
prevailing market conditions in the country of or igin. Article 14(d) of the SCM Agreement requires
the investigating authority to assess the adequacy of the remuneration in relation to all factors
affecting the “prevailing market conditions for the good in question in the country of provision”.
These include not only the price, but according to Article 14(d) of the SCM Agreement also “quality,
availability, marketability, transportation and other conditions of purchase or sale”.
5.22 A high standard of demonstration is placed on the investigating authority through the
introductory sentence of Article 14(d) of the SCM Agreement. Thus, great care should be taken
before rejecting benchmarks in the country of exportation, particularly if this ultimately leads to the
use of the petitioner’s prices in the country of exportation.
3. The determination of a “pass-through” Benefit
5.23 The EC reserves its position on this claim because it is linked to Canada’s allegation that no
expedited reviews are foreseen under US law where the investigation has been conducted on an
aggregate basis.

4. No application of Article 20.6 of the SCM Agreement to provisional countervailing
duties
5.24 A critical circumstances determination under Article 20.6 of the SCM Agreement cannot
apply to a provisional countervailing duty. Apart from the plain language of Article 20.6 of the SCM
Agreement, which only relates to “definitive” countervailing duties, the context as well as the purpose
of this provision prevent any other approach.
5.25 Article 20.1 of the SCM Agreement provides for the general rule that neither provisional nor
definitive duties shall be applied retroactively. This concept reflects a fundamental WTO principle.
Therefore, exceptions to this rule should be stated expressis verbis in the Agreement and they should
be interpreted narrowly. Article 20.6 of the SCM Agreement is such an exception regarding definitive
countervailing duties. Thus, any extension of this provision to provisional countervailing duties by
way of analogy would run counter to this general principle.
5.26 Furthermore, the retroactive application of provisional measures under Article 20.6 of the
SCM Agreement would contradict the time constraints set out in Article 17.3 of the SCM Agreement.
Under this provision provisional measures shall not be applied any earlier than 60 days from the date
of initiation of the investigation. Yet, if Article 20.6 of the SCM Agreement were applicable to
provisional measures, provisional duties could be imposed 90 days before the application of a
provisional measure, thus, even to imports that enter before the time of the initiation of the
investigation. While it is true that Article 20.6 of the SCM Agreement provides exactly for this
consequence in case of a definitive countervailing duty, it has also to be born in mind that Article 17.3
of the SCM Agreement contains a specific time frame for provisional measures. What is more, by its
very nature provisional measures may be reversed in the final determination. Yet, a retroactive
application of a provisional measure would place an additional burden on the exporter if this
provisional duty would be reversed in the final definitive determination.
5. Requested recommendation
5.27 Canada’s requested recommendation would involve an element of retroactivity, which is
contrary to the general prospective nature of WTO remedies.
B.
THIRD PARTY ORAL STATEMENT OF THE EUROPEAN COMMUNITIES
5.28 The European Communities, in its oral statement, made the following arguments.
1. Introduction
5.29 In its written submission, the EC has already addressed certain legal issues, in particular on:
• the interpretation of the term "good" under Article 1.1(a)(1)(iii) of the SCM Agreement;
• the determination of a "benefit" in the meaning of Article 14(d) of the SCM Agreement;
• the restricted application of Article 20.6 of the SCM Agreement to "definitive" countervailing
duties.
5.30 In its oral statement, the EC does not intend to dwell further on these aspects, but rather
address two equally important questions of the case, i.e.:
• Canada's claim on the impermissible "pass through" determination of the benefit, and

• The scope of Article 19.3 of the SCM Agreement in view of an expedited review.
2. A "pass-through" benefit determination
5.31 In its first written submission, Canada takes issue with the US determination that the
"financial contribution" to timber harvesters conferred a "benefit" on softwood lumber producers. In
Canada's view, the United States incorrectly concluded that the benefit to harvesters "passes through"
to softwood lumber producers. Such a determination could according to Canada only be made under
Article 1.1(a)(1)(iv) of the SCM Agreement, which conditions were not fulfilled in the case at hand15.
(a) Article 1.1(a)(1)(iv) of the SCM Agreement not the relevant benchmark for a "pass through"
benefit determination
5.32 In the EC's view, Canada erred in its assumption that the determination of a "pass through"
benefit must be based exclusively on Article 1.1(a)(1)(iv) of the SCM Agreement.
5.33 First, Canada's position conflicts with the circumstance that under Article 1 of the SCM
Agreement the term "financial contribution" and the notion of a "benefit" have to be clearly
distinguished. Article 1.1(a)(1)(iv) of the SCM Agreement is only relevant with regard to the
"financial contribution", as is evidenced by the chapeau of Article 1.1(a)(1) of the SCM Agreement.
Furthermore, in the case Brazil – Aircraft the Appellate Body considered it as a "mistake" to "import
the notion of benefit into the definition of a financial contribution"
16.
5.34 Article 1.1(a)(1)(iv) of the SCM Agreement cannot, therefore, be relevant for the
determination of whether a "benefit" "passes through" from one recipient to another. The EC would
underline that, in particular, there is no requirement of identity between the recipient of a "financial
contribution" and the "benefit" thereby conferred. For instance, the case Brazil – Aircraft involved an
export credit programme where the government issued bonds to a financing bank. The beneficiary,
and therefore, recipient of the benefit, however, was the aircraft manufacturer.
5.35 Second, the EC notes that the purpose of Article 1.1(a)(1)(iv) of the SCM Agreement is to
clarify under which conditions payments made by private bodies can be imputed to governments.
Governments do not escape their obligations under the SCM Agreement by using a private entity to
confer a "financial contribution".
5.36 Yet, the case at hand differs from this scenario. The Canadian government does not use
timber harvesters to distribute "financial contributions". Timber harvesters rather act autonomously
when entering into contractual relationships with lumber producers.
5.37 The EC, therefore, considers that Article 1.1(a)(1)(iv) of the SCM Agreement is not relevant
in this case.
(b) Determination of a "benefit" according to Article 1.1(b) of the SCM Agreement
5.38 In the EC's view any "benefit" determination, including a case of an alleged "pass through",
has to abide by the normal rules as laid down in Article 1.1(b) and 14 of the SCM Agreement.
Therefore, it is essential to determine whether the downstream producer has received a "benefit" and
whether a causal link between the "financial contribution" and the "benefit" exists.

15 Canada's first written submission, paras. 54 to 68.
16 Appellate Body Report, Brazil – Export Financing Programme for Aircraft, WT/DS46/AB/R,
adopted 20 August 1999, para. 157.

5.39 In this context, the EC woul d recall the jurisprudence on Article VI:3 of GATT 1947, which
might give further guidance on this issue. In United States – Pork from Canada , the panel explicitly
stated that a countervailing duty may only be imposed on a downstream product "if a subsidy has
been determined to have been bestowed on the production of [that product]".17 It further held that any
subsidy granted to the upstream producer could only be considered to be bestowed on the downstream
producer if this has led to a decrease in the level of prices for the primary product below the level that
would be commercially available from other sources of supply.
18
5.40 The EC considers that in the case at hand, the United States appears not to have carried out a
proper "pass through" analysis with respect to those producers operating at arm's length from
Canadian harvesting companies. It has also not correctly determined the existence of a "benefit" for
downstream producers under Article 14(d) of the SCM Agreement 19 nor established a causal linkage
between the "financial contribution" and the "benefit".
3. The scope of Article 19.3 of the SCM Agreement for an "expedited review"
5.41 Canada claims that the United States implemented incorrectly Article 19.3 of the SCM
Agreement by denying the possibility of an individual expedited review in case of an investigation
that was conducted on a country-wide basis. 20 Canada argues that Article 19.3 of the SCM
Agreement applies also to provisional measures by virtue of Article 17.5 of the SCM Agreement.21
5.42 Article 19.3 second sentence of the SCM Agreement refers only to a "definitive
countervailing duty". Yet, as Article 17.5 of the SCM Agreement provides that "the relevant
provisions of Article 19 shall be followed in the application of provisional measures" (emphasis
added) the key issue before the Panel is to determine whether Article 19.3 second sentence of the
SCM Agreement is pertinent.
5.43 In the EC's view, Article 19.3 second sentence of the SCM Agreement does not apply to
provisional countervailing duties. The EC basis its conclusion on the following reasons:
5.44 First, the plain language of Article 19.3 second sentence of the SCM Agreement refers,
expressis verbis, only to a "definitive" countervailing duty. This restriction is all the more significant
as Article 19 of the SCM Agreement elsewhere uses the broader notion of "countervailing duties"
without any further indication whether this encompa sses "provisional" as well as "definitive" duties.
The explicit limitation in Article 19.3 therefore strongly indicates that Article 19.3 second sentence of
the SCM Agreement applies only to "definitive" countervailing duties and cannot be one of the
"relevant provisions" under Article 17.5 of the SCM Agreement.
5.45 Secondly, the predecessor to Article 19.3 of the SCM Agreemen6t, Article 4.3 of the Tokyo
Round Subsidies Agreement, did not mention the requirement of expedited review. Article 5.4 of the
Tokyo Round Subsidies Agreement, which is the predecessor to Article 17.5 of the SCM Agreement,
could therefore not refer to such an obligation simply because it did not exist. To restrict Article 19.3
second sentence of the SCM Agreement to "definitive" countervailing duties (as the language
indicates) would thus be in line with the legal situation, which existed already under the Tokyo Round
Subsidies Agreement. Indeed, if the drafters of the SCM Agreement had intended to broaden the
scope of Article 17.5 one would have expected to do so explicitly.

17 GATT Panel Report, United States – Countervailing Duties on Fresh, Chilled and Frozen Pork from
Canada, DS7/R, adopted 11 July 1991, BISD 38/30, para. 4.5.
18 Id., para. 4.9.
19 EC third party submission, paras. 10 to 35.
20 Canada' first written submission, paras. 147 to 178.
21 Id., footnote 87.

5.46 Finally, the EC considers that the restriction of an expedited review to "definitive
countervailing duties" is also justified in view of the specific nature of a provisional measure. In fact,
every provisional measure is by itself subject to a review because the investigating authorities will
always have to determine whether or not they impose a definitive countervailing duty. In this respect,
the EC notes that Article 17.4 of the SCM Agreement limits the application of a provisional measure
to a maximum of four months. Thus, extendin g Article 19.3 second sentence of the SCM Agreement
to provisional measures would place a heavy burden on the investigating authorities as they were at
the same time obliged to complete the normal countervailing duty investigation.
4. Conclusion
5.47 To sum up, the EC considers that
• the determination of a "pass through" benefit has to establish, first, a benefit within the meaning
of Article 14(d) of the SCM Agreement and, second, a causal link between the "financial
contribution" and the "benefit".
• Article 19.3 second sentence of the SCM Agreement does not apply to "provisional"
countervailing duties.
C.
THIRD PARTY ORAL STATEMENT OF INDIA
5.48 India did not make a written submission. In its oral statement, India made the following
arguments.
5.49 This dispute raises several issues of systemic interest. One such issue is whether the SCM
Agreement permits the use of "cross-border" benchmarks to find and measure "benefit".
5.50 In this dispute, the USDOC sought to establish that Canadian stumpage practices "conferred"
a benefit by comparing stumpage charges levied in Canada with stumpage prices levied in certain
parts of the United States, on the basis that such prices are "commercially available world market
prices…" to softwood lumber producers in Canada. Finding the US stumpage prices to be higher than
the charges levied in Canada, the USDOC concluded that Canadian stumpage charges conferred a
benefit. The USDOC thus derived the "stumpage subsidy" from the comparisons of stumpage charges
in Canada and cross-border prices for stumpage in the United States.
5.51 India does not consider that the SCM Agreement permits such comparison.
5.52 Article 1.1 of the SCM Agreement provides that a subsidy exists where there is a financial
contribution by a government and "a benefit is thereby conferred". The Appellate Body considered
the meaning of "benefit" in Article 1 of the SCM Agreement in the dispute, Canada – Aircraft
(DS70). According to the Appellate Body, "the word 'benefit', as used in Article 1.1(b) implies some
kind of comparison. This must be so, for there can be no 'benefit' to the recipient unless the 'financial
contribution' makes the recipient 'better off' than it would otherwise have been, absent that
contribution. In our view, the marketplace provides an appropriate basis for comparison in
determining whether a 'benefit' has been 'conferred', because the trade-distorting potential of a
'financial contribution' can be identified by determining whether the recipient has received a 'financial
contribution' on terms more favourable than those available to the recipient in the market".
22

22 Appellate Body Report, Canada – Measures Affecting th e Export of Civilian Aircraft,
WT/DS70/AB/R, adopted 20 August 1999, para. 157.

5.53 In the case of a government provision of goods, the question is therefore whether the
purchaser of a good from the government is "better off" than other purchasers who buy the same good
from other sellers in the country subject to the investigation. This is confirmed by Article 14(d) of the
SCM Agreement, which sets out guidelines to calculate the amount of a subsidy based on a "benefit to
the recipient" test in cases of an alleged government provision of goods. It provides that:
"(d) the provision of goods or services or purchase of goods by a government shall
not be considered as conferring a benefit unless the provision is made for less than
adequate remuneration, or the purchase is made for more than adequate remuneration.
The adequacy of remuneration shall be determined in relation to prevailing market
conditions for the good or service in question in the country of provision or purchase
(including price, quality, availability, marketability, transportation and other
conditions of purchase or sale)". (Emphasis added.)
5.54 The words or Article 14(d) are clear and unambiguous. The expression "in the country of
provision or purchase" means "in the country of prov ision or purchase". It does not mean prevailing
market conditions in some other country . Similarly, Article 14(d) does not allow adequacy to be
determined as against market conditions internationally. We agree with Canada that nothing in the
text, context, object and purpose of Article 14(d) of the SCM Agreement permits reading "in" as
anything other than "in"; "in" manifestly does not mean "out"; "in the country" does not admit of
"cross-border" analysis. Therefore, it is not open to an investigating authority to look outside the
country of provision.
5.55 For the purposes of Part V of the SCM Agreement, the proper benchmark in a provision of
goods context is therefore the home market price of a good, and not its price in some other market. A
cross-border analysis using transactions in another country is thus inconsistent with Articles 1 and 14
as interpreted by the Appellate Body, and viewed in context and in the light of the object and purpose
of the SCM Agreement.
D. T
HIRD PARTY WRITTEN SUBMISSION OF JAPAN
5.56 In its third party written submission, Japan made the following arguments. Japan did not
make an oral statement.
1. Introduction
5.57 A standing timber price, which is included in log production cost, generally forms a part of
production cost of lumber. Assuming that the cost of processing logs into lumber is fixed, when a
standing timber price gets higher, the production cost of lumber using that standing timber as raw
material would rise, and it works on the direction where production of lumber is discouraged. On the
contrary, when the standing timber price is set significantly low, the production cost of lumber would
also remain low, and it works on the direction that production of lumber is encourage. It can also lead
to lowering a price of lumber by producers.
5.58 The issue before this Panel, however, is not the adequacy of Canadian lumber export pricing
itself. Issues presented in this proceeding are whether the United States may countervail the stumpage
programmes of Canadian provinces in accordance with the provisions of the SCM Agreement and
Article VI:3 of GATT 1994.
5.59 Japan has no intention to argue whether assessment of underlying facts in the specific
circumstances of this case is consistent with the SCM Agreement. This case, however, raises certain
important systemic issues. In the interests of the sound interpretation of the SCM Agreement, Japan
respectfully submits the following comments.

2. Arguments
(a) Indirect Subsidies
5.60 According to Canada, provincial stumpage programmes are granted to timber harvesters, and
timber is further processed by downstream producers in Canada into lumber, some of which in turn
are exported to the United States.
5.61 Article VI:3 of GATT 1994 and footnote 36 of the SCM Agreement provide that an importing
Member may impose countervailing duties on a product for the purpose of offsetting any subsidy
granted (or bestowed), "directly or indirectly, on the manufacture, production or export of" such
product. (Emphasis added.)
5.62 Article VI:3 and footnote 36 also provide that in order to be countervailable a subsidy does
not have to be granted directly on manufacture of a product. Such subsidy may be granted on
exported products "indirectly". A subsidy may be countervailable even if the subsidy is granted on
manufacture of exported products through something else. For example, a subsidy may be
countervailable when the subsidy is granted to the raw material supplier upon its sales of its raw
material to producers of an exported product, if a benefit accrues to such producers by the subsidy.
But it should be noted that the term "indirectly" may not be construed beyond its meaning.
5.63 Japan respectfully requests that this Panel make its finding on the countervailability of the
Canadian stumpage programme based on our consideration stated above.
(b) Existence of a financial contribution by a government
5.64 Canada claims that stumpage programmes are not governmental provision of "goods or
services other than general infrastructure" in Article 1.1(a)(1)(iii) of the SCM Agreement, and thus the
provincial governments have not provided "a financial contribution" under Article 1.1(a)(1) of the
SCM Agreement. Canada further claims that the stumpage is a right to exploit an in situ natural
resource, and therefore, this right is not a good or service within the meaning of Article 1.1(a)(1)(iii)
of the SCM Agreement
23.
5.65 Canada explained in paragraph 33 of its first submission that timber harvesters are given the
right to harvest standing timber under stumpage programmes. These harvesters pay actual stumpage
charges to provincial governments not when they acquire and maintain the right to harvest standing
timber, but when they cut and acquire the timber. The amount of consideration is decided by
multiplying the wood volume by unit prices defined by the provincial government. Although
stumpage could be a "right" instead of "good" itself as Canada mentioned, a person given such a right
will acquire the timber after all.
5.66 Japan respectfully requests that this Panel provide its finding of whether this stumpage should
be distinguished from governmental provision of "goods or services other than general infrastructure".
(c) Benefits conferred
5.67 The other question that Japan wishes to address in this submission is how "financial
contribution" of a good should be adequately measur ed. This question is equivalent to whether the
provision of a good is made for less than adequate remuneration "in relation to prevailing market
conditions for the good or service in question in the country of provision or purchase (including price

23 Canada's first written submission, at para. 34.

quality, availability, marketability, transportation and other conditions of purchase or sale)" (emphasis
added) under Article 14(d) of the SCM Agreement.
5.68 The USDOC found in its preliminary determination that the financial benefit conferred by the
Canadian provincial governments be valued by comparing the stumpage charge with stumpage prices
in the United States with comparable forests 24. Canada claims that this "cross-border" analysis is
inconsistent with Article 14(d) of the SCM Agreement because the Article does not mean that
adequacy can be based on prevailing market conditions in some other country or internationally
25.
5.69 In Japan's view, this Article means that the adequacy of remuneration be based, in principle,
on prevailing market conditions in the territory of the exporting Member. Firstly, the text of
Article 14(d) does not explicitly permit "cross-border" analysis. Secondly, the interpretation by the
United States of Article 14(d) would create incongruous results. When the interpretation by the
United States is strictly followed, in order to avoid granting a subsidy, a Member would be required to
review prices in all foreign markets, to which a product would be exported, when the Member sells or
purchases the product. This interpretation imposes an unreasonable burden on Members.
5.70 However, the question whether "cross-border" analysis has no ground for justification under
any circumstances, or if it is ever permissible, a nd what are the conditions for a Member to use such
an analysis, still remains. Japan hopes this question would be properly addressed in this Panels
findings.
VI. INTERIM REVIEW
6.1 On 19 August 2002, the United States submitted a written request for review by the Panel of
particular aspects of the interim report issued on 26 July 2002. Canada did not provide any comments
on the interim report. Canada commented on the United States' request for interim review on
26 August 2002. Neither party requested an additional meeting with the Panel.
6.2 We have reviewed the comments presented by the United States and the reaction thereto by
Canada and have finalized our report. We note that in response to the comments received, the Panel
corrected typographical and other clerical errors throughout the interim report.
6.3 The United States requested changes to the last sentence of paragraph 7.59 of the interim
report. The United States posited that the Panel should have declined to consider the issue of
adjustments to the benchmark price used by the USDOC, as this issue did not form part of the Panel's
terms of reference. Canada urged the Panel to reject the United States' suggestion. Canada argued
that its claim relating to the USDOC's determina tion and measurement of benefit was sufficiently
identified in its request for establishment of a pa nel. According to Canada, the US was confusing
"claims" and "legal arguments". We considered that paragraph 7.59 of the interim report referred to
certain arguments which had been developed by Canada before us as part of its claim
 relating to the
measurement of benefit by the USDOC. In particular , we were of the view that Canada's arguments
concerning the appropriateness of the adjustments used by the USDOC to calculate the benchmark
stumpage price formed part of Canada's claim concerning the benchmark for measuring the benefit, as
set forth in its panel request. Canada developed a number of arguments under this claim, and as we
had already found against the US on this claim on the basis of other more principal arguments, we
saw no reason to address this additional Canadian argument in support of its claim. We have adjusted
the drafting of paragraph 7.59 to clarify this point.

24 US first written submission at para. 50.
25 Canada's first written submission at para. 44.

6.4 The United States further took issue with the Panel's statement in the first sentence of
paragraph 7.74. According to the US, it had not conceded, as the Panel suggested, that in a certain
number of cases the lumber producers were independent from the tenure harvesters and may have had
to pay an arm's-length price to obtain the allegedly subsidized logs from the harvesters. The US also
commented that the last sentence of the preceding paragraph 7.73 referred to arm's-length purchases
of timber from private lands or from US suppliers , not purchases of Crown timber. The US therefore
requested the Panel to revise the first sentence of paragraph 7.74. Canada commented that in its view
the Panel's factual conclusion in paragraph 7.74 was correct and that the US was simply disagreeing
with the Panel's appreciation of the evidence on the record. Moreover, Canada argued that the
passage quoted by the Panel in the last sentence of paragraph 7.73 also referred to lumber producers
purchasing logs at arm's-length in addition to lumber producers purchasing logs from private lands
and US suppliers. We considered that the facts set out in paragraph 7.73, which had been confirmed
by the US in its answers to questions from the Panel, were not contested. According to these
uncontested facts, a certain percentage of Crown timber harvest is done by independent harvesters
(i.e. harvesters that are not related to lumber producers). As the evidence on the record showed, this
percentage differed from province to province. In the first sentence of paragraph 7.74, we only
summarized that the factual information provided to us by the US in the course of the proceedings
showed that in a certain number of cases, the lu mber producers were independent from the tenure
harvesters and may have had to pay an arm's-length price to obtain the logs from the harvesters. We
acknowledge that the US has on various occasions during the proceedings argued that the evidence
does not support Canada's claim that there is a significant volume of Crown timber that the provincial
governments provide to truly independent loggers who then sell the timber at arm's-length to the
lumber mills. However, as paragraph 7.74 did not state that the US conceded that there was a
significant number of such transactions nor that the US conceded that these transactions were "actual"
arm's-length transactions between "truly" independent harvesters, we saw no reason to amend the text
of paragraph 7.74 as suggested by the US.
6.5 The United States finally requested a change to footnote 146 regarding the US position. We
decided to amend this sentence taking into account the comment made.
VII. FINDINGS
7.1 Canada is challenging the imposition of provisional measures by the United States on imports
of softwood lumber from Canada on the basis of the United States Department of Commerce
(USDOC) Preliminary Countervailing Duty De termination (hereafter: the "Preliminary
Determination") and the USDOC Preliminary Determination of Critical Circumstances (hereafter: the
"Preliminary Critical Circumstances Determination"). In addition, Canada is challenging certain
provisions of the US laws and regulations concerning expedited and administrative reviews. We will
discuss these three sets of claims in the order in which they were presented to us by Canada. We will
therefore first address the first set of claims which relates to the preliminary findings and
determinations of the USDOC concerning subsidization of softwood lumber from Canada as set out in
the USDOC Preliminary Determination. We will then discuss the second set of claims which
concerns the USDOC's preliminary determination of the existence of critical circumstances which
formed the basis for the retroactive application of provisional measures in this case. Finally, we will
examine the third and final set of claims which refers to the consistency of the US legislation with the
WTO Agreement, in particular, US countervailing duty laws and regulations on expedited and
administrative reviews as well as the application of the legislation in the challenged investigation of
softwood lumber from Canada.
7.2 As a preliminary matter, we note that in the course of these proceedings, we decided to accept
for consideration one unsolicited amicus curiae brief from a Canadian non-governmental
organization, the Interior Alliance . This brief was submitted to us prior to the first substantive

meeting of the Panel with the parties and the parties and third parties were given an opportunity to
comment on this amicus curiae brief. After this meeting, we received three additional unsolicited
amicus curiae briefs. For reasons relating to the timing of these submissions, we decided not to
accept any of these later briefs.
A. CLAIMS RELATING TO THE PRELIMINARY COUNTERVAILING DUTY
DETERMINATION
1. Introduction
7.3 Canada is challenging the USDOC's Preliminary Countervailing Duty Determination with
respect to certain softwood lumber from Canada of 9 August 2001. Canada argues that the USDOC
preliminary findings and determinations and the imposition of provisional measures by the US are
inconsistent with its obligations under the Agreement on Subsidies and Countervailing Measures
("SCM Agreement") because:
(a) the Canadian "stumpage" 26 practices in question are not “subsidies” as defined in
Article 1 of the SCM Agreement. Specifically:
• “stumpage” is not a “financial contribution” within the meaning of Article 1.1(a) of the SCM
Agreement,
• even if stumpage were a financial contribution, the USDOC's determination and measurement of a
“benefit” is based on a “cross-border” methodology that is not permitted by the SCM Agreement,
and
• even if a cross-border methodology were permitted, the USDOC's determination assumes holders
of harvesting rights pass through an alleged be nefit to softwood lumber producers, without any
basis for the assumption;
(b) the USDOC impermissibly inflated the alleged subsidy rate by calculating a country-
wide rate based on only a portion of Ca nadian production and exports of softwood
lumber
27, and
(c) the USDOC impermissibly inflated the provisional measures imposed by applying
them on an entered value basis after having calculated the subsidy rate using first mill
value.
7.4 Canada therefore requests that the Panel find that the Preliminary Countervailing Duty
Determination of the United States in the softwood lumber case violates Articles 10, 14, 17.1, 17.2,
17.5, 19.4 and 32.1 of SCM Agreement and Article VI:3 of the GATT 1994.
7.5 The United States asserts that the USDOC correctly determined the existence of a subsidy to
Canadian softwood lumber producers in accordance with the SCM Agreement as it found that the
Canadian provincial stumpage programmes conferred a benefit on Canadian softwood lumber

26 Canada uses this term to refer to the "right to harvest standing timber on Crown land". Canada's First
Written Submission, para. 18.
27 This claim by Canada related to the exclusion of the Maritime provinces from the country-wide duty
rate. In response to a question from the Panel after the second meeting, Canada stated that it was "no longer
pursuing its claims in respect of the “Maritimes” question in this proceeding". Canada's Answers to Questions
from the Panel after the Second Meeting, para. 69. In light of this statement, we consider that there is no need
for us to address this claim, and neither will we make any ruling in respect of this claim.

producers. The US therefore requests the Panel to reject all of Canada's claims relating to the
Preliminary Countervailing Duty Determination.
2. Claim 1: inconsistent finding of the existence of a financial contribution.
(a) Arguments of the parties
(i) Canada
7.6 Canada considers that the USDOC erred in determining that "stumpage" is a financial
contribution in the form of the provision of a good by the government. 28 Canada argues that the
practice of stumpage, which it views as a right to exploit an in situ natural resource, or more
specifically, the right to harvest standing timber, is not a financial contribution. According to Canada,
it is a form of a property right which cannot be equated to the provision of a good or a service by the
government as required by Article 1.1(a)(1)(iii) SCM Agreement. 29 In Canada's view, rights such as
profits à prendre and licences (two different forms of stumpage) are not included within the scope of
the Agreement.30 In Canada's view, the ordinary mean ing of a "good" in the SCM and GATT/WTO
context is tangible or movable personal property; and as an intangible real property right, stumpage is
thus not a good. Canada also refers to the negotiating history of Article 14 SCM Agreement in
support of its argument that harvesting rights like stumpage are not "goods". 31 Canada submits that
even if one were to consider that in fact it is standing timber, rather than harvesting rights, which is
made available through the tenure or licence agreements, standing timber is not a "good" in the sense
of Article 1.1(a)(1)(iii) SCM Agreement. Furthermore, in Canada's view, the term "goods" in
Article 1.1(a)(1)(iii) SCM Agreement has the same meaning and scope as "products" used elsewhere
in the SCM Agreement and the WTO Agreement, in particular Article II of GATT 1994, i.e. tradeable
items with an actual or potential customs classification. According to Canada, standing timber which
cannot be traded across borders is, for this reason as well, not a "good" in the sense of
Article 1.1(a)(1)(iii) SCM Agreement.
7.7 In addition, Canada submits, to "provide goods" implies a positive action on the part of the
government in respect of the goods themselves, and not any other action that merely allows someone
to obtain goods or which has the same economic effect as the government action which consists of

28 The USDOC Preliminary Determination equates stumpage to the provision of a good. See USDOC
Preliminary Countervailing Duty Determination ("USDOC Preliminary Determination"), 66 Fed. Reg.,
p. 43,192. (Exhibit CDA-1). Canada submits that Commerce’s legal analysis and conclusion with respect to the
requirement of a “financial contribution” consists, in its entirety, of two sentences:
"We preliminarily determine that the provision of stumpage by the provincial governments
constitutes the provision of a good or service under section 771(5)(D)(iii) of the [Tariff Act of
1930, as amended]. Thus, we preliminarily determine that the provincial governments have
provided a financial contribution as defined under section 771(5)(D) of the Act to Canadian
softwood lumber producers."
29 In Canada’s view, the cutting down of timber is the point at which the “goods” – logs- are produced
from natural resources.
30 Canada notes that a stumpage charge is not money paid to obtain the right to harvest timber, but
rather a levy on the exercise of the existing right to harvest timber. According to Canada, it should be viewed as
a form of revenue collection by the government and the equi valent of a tax. Canada's Oral Statement at the First
Meeting of the Panel with the Parties (hereafter: "Canada's First Oral Statement"), para. 13.
31 Canada's First Written Submission, para. 30. According to Canada, an earlier draft of what later
became Article 14 SCM Agreement mentions harvesting rights separately from "goods or services". This, in
Canada's view, demonstrates that harvesting rights are a category separate from goods. Canada argues that, as
harvesting rights are not mentioned in Article 1.1(a)(1) (iii) SCM Agreement, but only "goods or services", the
granting of harvesting rights cannot constitute the provision of a financial contribution under subparagraph (iii)
of Article 1.1 SCM Agreement. Exhibit CDA-20, p.17.

providing goods.32 Canada asserts that the United States' broad interpretation of the word "provide"
as "to make available" is untenable, for it offers an interpretation of the term "provide" that makes
little sense in context and that is not consistent with the way that term is used throughout the WTO
Agreement. Throughout the WTO Agreement, the word "provide" is used to indicate the giving of
something, rather than more generally enabling so meone to obtain or produce something. According
to Canada, the more common meaning of "provide" is "supply". 33 Canada argues that, given the use
of the word "purchase" as an opposite of "provide" in subparagraph (iii), this sense of provide,
implying to give or to sell, is far more contextu ally logical than the general term "make available".
Canada further asserts that the proposed United States interpretation encompasses a range of
government actions that go far beyond those contemplated under Article 1.1(a)(1)(iii) SCM
Agreement. According to Canada, to " make available services", for example, would include in the
US interpretation any circumstance in which a government action makes possible the receipt of
services. Canada submits that the financial contribution test is not concerned with the consequences
of a government action, however, but with those actions themselves.34
7.8 Canada submits therefore that the USDOC Preliminary Determination that the right to harvest
standing timber (stumpage) constitutes a "financial contribution" is inconsistent with Article 1.1(a)
SCM Agreement and as a result violates Articles 10, 17.1(b), 17.5, 19.4 and 32.1 of the SCM
Agreement and Article VI:3 of GATT 1994.
(ii) United States
7.9 The United States is of the view that the Canadian provincial stumpage programmes provide a
financial contribution, in the form of a good, stan ding timber, to the softwood lumber producers in
Canada. The United States argues that the ordinary meaning of a "good" includes an "identified thing
to be severed from real property". 35 According to the United States, Canada is elevating form over
substance when it argues that stumpage only confers the right to harvest timber. In the view of the
United States, there is no meaningful distinction between providing standing timber as such or
providing the right to harvest standing timber as the clear purpose of the stumpage programmes is to
provide timber to Canadian mills that make lumber or wood pulp. According to the United States, the
ordinary meaning of "to provide", the verb used in Article 1.1(a)(1)(iii) SCM Agreement, is "to make
available".
36 In the US view, Canada is certainly making the standing timber available to the loggers
by providing the right to harvest the timber standing on Crown land.
7.10 The US argues that there is no "natural resources" exception in the SCM Agreement, and that
the provision of a good, like timber, thus constitutes a financial contribution in the sense of
Article 1.1(a)(1)(iii) SCM Agreement. The only exception provided for in the Article is for general
infrastructure. The United States asserts that the context, object and purpose of Article 1 SCM
Agreement confirm that if the government provides a good in the form of a natural resource which
constitutes the major input for a product, this practice is covered by Article 1 SCM Agreement as it is

32 Canada rejects the United States argument that “the economic consequence of providing a good and
providing a right to a good are exactly the same.” In Canada's view, this argument follows the same faulty logic
of the earlier argument of the United States before the Export Restraints panel that, “an export restraint is
‘functionally equivalent’ to an entrustment of or direction to a private body to provide goods domestically.”
Canada's Second Written Submission, para. 12, referring to United States – Measures Treating Export
Restraints as Subsidies, Report of the Panel, WT/DS194/R, adopted 23 August 2001, at para 8.22.
33 Canada points out that the Concise Oxford Dictionary does not list “make available” as a meaning
for “provide”. See The Concise Oxford Dictionary of Current English, 8th ed. (Oxford: Clarendon Press, 1990),
at 962. (Exhibit CDA-79)
34 Canada's Second Written Submission, para. 13.
35 Black’s Law Dictionary, 7th ed. (St. Paul: West, 1999), p. 701 –702. Exhibit CDA-17.
36 The US argues that according to the New Shorter Oxford English Dictionary , “provides” means to
“make available” in addition to “supply or furnish for use.” Exhibit US-5.

a practice through which the government has the ability to provide an advantage that would not be
available on the market. According to the US, the "negotiating history" to which Canada refers in
support of its argument that harvesting rights are excluded from the scope of Article 1 SCM
Agreement is an informal discussion paper which does not shed light on the consensus view. The
United States therefore requests the Panel to reject Canada's claim concerning the USDOC's
Preliminary Determination of the existence of a financial contribution.
(b) Analysis
7.11 Canada claims that the USDOC Preliminary Determination that the Canadian provincial
stumpage programmes constitute a financial contribution in the form of the provision of a good is
inconsistent with Article 1.1 (a) SCM Agreement. Article 1.1 SCM Agreement provides as follows:
Article 1
Definition of a Subsidy
“1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:
(a)(1) there is a financial contribution by a government or any public body
within the territory of a Member (referred to in this Agreement as
"government"), i.e. where:
(i) a government practice involves a direct transfer of funds (e.g. grants, loans,
and equity infusion), potential direct transfers of funds or liabilities (e.g. loan
guarantees);
(ii) government revenue that is otherwise due is foregone or not collected (e.g.
fiscal incentives such as tax credits);
(iii) a government provides goods or services other than general
infrastructure, or purchases goods;
(iv) a government makes payments to a funding mechanism, or entrusts or directs
a private body to carry out one or more of the type of functions illustrated in
(i) to (iii) above which would normally be vested in the government and the
practice, in no real sense, differs from practices normally followed by
governments;
or
(a)(2) there is any form of income or price support in the sense of Article XVI of
GATT 1994;
and
(b) a benefit is thereby conferred.” (emphasis added)
7.12 Article 1.1 SCM Agreement defines a subsidy as a financial contribution by the government
which confers a benefit. An investigating authority, in a countervailing duty (CVD) investigation will
thus as a first step need to establish the existence of a financial contribution by the government.

Subparagraph (iii) of Article 1.1(a)(1) SCM Agreement states that a financial contribution exists if the
government provides "goods or services other than general infrastructure". In its Preliminary
Determination, the USDOC stated that :
"We preliminarily determine that the provision of stumpage by the provincial
governments constitutes the provision of a good or service under
section 771(5)(D)(iii) of the [ Tariff Act of 1930 ]. Thus, we preliminarily determine
that the provincial governments have provided a financial contribution as defined
under section 771(5)(D) of the Act to Canadian softwood lumber producers."37
7.13 In order to determine whether the USDOC correctly concluded that "stumpage" by the
government constitutes the "provision" to the Canadian softwood lumber industry of a "good", in the
sense of the SCM Agreement, we consider that it is important to first clarify the exact meaning and
operation of the Canadian provincial stumpage programmes in question. We will then examine
whether these stumpage programmes constitute the "provision of a good" in the sense of
Article 1.1(a)(1)(iii) SCM Agreement. We recall that in the interpretation of this provision we are
guided by the customary rules of interpretation of public international law, as laid down in Articles 31
and 32 of the Vienna Convention on the Law of Treaties. Article 31 of the Vienna Convention on the
Law of Treaties 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 light of its object and
purpose".
(i) How do the stumpage programmes operate?
7.14 On the basis of the information and documents on the record of the investigation concerning
the operation of stumpage programmes, including the forest legislation and various timber sales
agreements submitted by Canada
38, and as clarified by the parties before us, we understand that most
forest land in the covered provinces39 of Canada is Crown land40 and that interested persons who want
to harvest on such Crown land have to enter into tenure or licensing agreements with the provincial
governments.41 In general, such tenure and licensing agreements, the terms of which may vary slightly
from province to province, allow the licensee or tenure holder (hereafter referred to as the "tenure
holder") to harvest the standing timber on a particular parcel of Crown land. In return, the tenure
holders commit themselves to a number of obligations, including at a minimum (i) service and
maintenance obligations, such as road-building and maintenance, and protection against fire, disease,
and insects; (ii) implementation of forestry management and conservation measures, including
silviculture and reforestation; and (iii) payment of a volumetric “stumpage charge ” that is levied
upon the exercise of the harvesting right.
7.15 The Canadian provinces as the owners of the land and the trees standing thereon typically
employ these tenure arrangements or licenses to confer rights to harvest standing timber. Canada
agrees that if any company wants to log trees standing on Crown land for inter alia further processing
or sale, it will have to enter into tenure or license stumpage agreements with the provincial
government. Canada further acknowledges that the tenure agreements contain various processing
requirements as well as certain minimum and maximum cut requirements. For example, tenure

37 USDOC Preliminary Determination, p. 43,192.
38 Exhibits CDA-63, 64, 67and 68 are some examples of such provincial tenure agreements which,
according to Canada, are generally representative of the long term and short term tenures found in Canada.
39 We recall that the USDOC Preliminary Determination excluded softwood lumber from the Maritime
provinces.
40 The term Crown land refers to land that is not privately owned.
41 Exhibit CDA-69 for example includes Alberta's Forest Act. Under this Act, the Crown may provide
the exploitation of timber in one or more of the following ways: through forest management agreements;
through the sale of timber quota certificates; and through the issuance of timber permits.

agreements in Alberta, Ontario and Québec contain maximum cut limits. According to Canada,
Ontario and Québec have no minimum cut requirements. Canada further asserts that some of
Alberta’s tenures also contain minimum cut requirements, but that they are not enforced. In British
Columbia, licensees under certain designated types of tenures are subject to minimum cut
requirements, which require the harvester to harvest plus or minus 50 per cent of the annual allowable
cut for that licensee in any given year, and plus or minus 10 per cent over a five year period.42
(ii) Do stumpage programmes provide standing timber?
7.16 Canada seems to suggest that a distinction should be made between a government extending
a right to take the trees from its land, and that government selling the trees as such. In our view,
however, and according to the record, the trees which grow on the publicly owned Crown land are
government owned.43 We consider that there are a number of ways in which the government may be
providing timber, by auctioning off the trees as such, by entering into short term tenure agreements or
by concluding long term tenure or licence agreements. The conclusion of tenure or licence
agreements is in our view one way in which the government supplies timber. When the government
enters into a contract with a harvesting company whereby it allows this company to exercise this right
and to cut the trees, it is in fact supplyin g trees, standing timber, to such companies.
44 The fact that
the main purpose of the stumpage programmes is to provide trees to harvesting companies is
confirmed by the various processing requirements as well as the minimum and maximum cut
requirements in most stumpage agreements.
45 In fact, if a company does not cut and process a certain
number of trees for a determined period of time, it risks losing the licence. We wish to note that we do
not deny that the Canadian provinces may well be pursuing broader forestry management policy goals
in addition to ensuring the appropriate exploitation of the forestry resources when entering into
stumpage arrangements with the harvesting compan ies. Indeed, it is normal that when a government
makes a financial contribution, including where it provides a subsidy, that there is a mix of policy
objectives. However, the fact of the matter remains that, from the harvesting company's point of
view, the only reason to enter into such tenure or licensing agreements is to cut trees for processing or
sale. As Canada acknowledged, the main interest of tenure holders is the end-product of the harvest.
46
Ultimately, and in this context, from the tenure holder's point of view, there is no difference between
receiving from the government the right to harves t standing timber and the actual supply by the
government of standing timber through the tenure holder's exercise of this right.
7.17 Canada argues that even if one were to accept that the issuance of harvesting rights by the
provincial governments is equal to the provinces making standing timber available to the loggers, this
still does not qualify as the "provision" of a good. According to Canada, "to provide" means "to give"
or "to sell" and not just "to make available". We note that both parties agree that the ordinary
meaning of the verb "to provide" is "to supply".
47 Canada is right that the provinces do not provide

42 Canada's Answers to Questions from the Panel after the Second Meeting, paras. 33 –36.
43 Canada states that “the Canadian provinces have title to the majority of public property and exercise
exclusive jurisdiction to legislate in relation to the development, conservation and management of" inter alia
forestry resources. According to Canada, "In the various provincial systems, the provinces retain ownership of
the land, typically employing tenure agreements or licences that confer rights to exploit the resource”. Canada’s
Answers to Questions from the Panel after the First Meeting, paras. 21 -22.
44 It is interesting to note in this respect that a Canadian court has recognized that "Stumpage is the
price a licensee must pay the Crown for its timber". British Columbia v. Canadian Forest Products
(8 February 1998). US Answers to Questions from the Panel after the First Meeting, para.13, footnote 31.
45 A discussion of the minimum and maximum cut requirements per province may be found in
Canada's Answers to Questions from the Panel after the Second Meeting, paras. 33 –36.
46 Canada's Answers to Questions from the Panel after the Second Meeting, para. 37.
47 The Concise Oxford Dictionary , ninth edition, Clarendon Press, Oxford p. 1102. See US Second
Written Submission, footnote 5; Canada's Second Written Submission, para 13.

logs to lumber producers when they make it possible for timber harvesters to harvest trees. 48 In our
view, however, the issue is whether the provinces supply standing timber, not logs, to the tenure
holders who harvest the trees and turn the timber into logs. In our view the only way to supply
standing timber to harvesting companies is by allowing them to harvest the timber. We consider that
this is precisely what the stumpage agreements do. We therefore find that standing timber is provided
to the tenure holders through the provincial stumpage programmes.
7.18 In sum, and in the context of Article 1.1(a) (1)(iii) SCM Agreement, we are of the view that
where a government allows the exercise of harvesting rights, it is providing standing timber to the
harvesting companies.49 From the perspective of the harvesting company the situation is clear: most
forest land is Crown land, and if the company wants to cut the trees for processing or sale, it will need
to enter into a stumpage contract with the provincial government, under which it will have to take on a
number of obligations in addition to paying a stumpage fee for the trees actually harvested. We thus
view the service and maintenance obligations, the obligations to undertake various forestry
management, conservation and other measures, combined with the stumpage fees required by the
stumpage agreements, as the price the tenure holder has to pay for obtaining and exercising its
harvesting rights.
(iii) Is standing timber a "good"?
7.19 We recall that Article 1.1 (a) (1) (iii) SCM Agreement provides that:
“1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:
(a)(1) there is a financial contribution by a government or any public body
within the territory of a Member (referred to in this Agreement as
"government"), i.e. where: …
(iii) a government provides goods or services other than general
infrastructure, or purchases goods;
7.20 We concluded above that when a provincial government enters into tenure or licence
stumpage agreements, it is in fact "providing" the trees that stand on Crown land. The question we
will need to answer next is whether the USDOC correctly determined that the supply of standing
timber through the provincial stumpage programmes constitutes the provision of a good under
Article 1.1(a)(1)(iii) SCM Agreement, in short, whether standing timber is a "good" in the sense of
this provision.
50
7.21 The term "goods" has been defined in many ways in various dictionaries. Black's Law
Dictionary, for example, defines "goods" as "tangible or movable personal property other than money;
especially articles of trade or items of merchandise ‹goods and services›". 51 Black's Law Dictionary
adds that "[g]oods means all things, including specially manufactured goods, that are movable at the

48 Canada's Oral Statement at the Second Substantive Meeting of the Panel with the Parties, para 22.
49 We note that of course there will be technical differences between the various ways of supplying
timber, which will no doubt be reflected in for example the costs for obtaining the timber.
50 We recall that Article 3.2 DSU requires a pa nel to interpret the Agreement in accordance with
customary rules of interpretation of public international law, as laid down in Articles 31 and 32 of the Vienna
Convention on the Law of Treaties. Article 31 of the Vienna Convention on the Law of Treaties 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 light of its object and purpose".
51 Black’s Law Dictionary, p. 701 (Exhibit CDA-17). See also New Shorter Oxford English Dictionary
(Oxford: Clarendon Press, 1993), p. 1116 (“Saleable co mmodities; merchandise, wares; [in singular] a type of
merchandise”) (Exhibit CDA-18).

time of identification to a contract for sale and future goods. The term includes the unborn young of
animals, growing crops, and other identified things to be severed from real property …". 52
7.22 Other dictionaries define a "good" as "personal property having intrinsic value but [usually]
excluding money, securities, and negotiable instruments." 53 The ordinary meaning of the word
"goods" is thus very broad and in and of itself does not seem to place any limits on the kinds of
"tangible or movable personal property, other than money" that could be considered a "good".
7.23 In Article 1.1(a)(1)(iii) SCM Agreement, "goods" is used in the context of "goods or services
other than general infrastructure". We consider th at the context in which the term "goods" is used in
Article 1.1(a)(1)(iii) SCM Agreement confirms the broad ordinary meaning of "goods" as tangible or
movable personal property, other than money. In our view, the sentence "goods or services other than
general infrastructure" refers to a very broad spectrum of things a government may provide. The fact
that the only exception provided for in subparagraph (iii) is general infrastructure reinforces our view
concerning the unqualified meaning of the term goods as used in this provision.
7.24 The object and purpose of Article 1.1 SCM Agreement is to provide a definition of a subsidy
for the purposes of the SCM Agreement. Article 1.1(a)(1) SCM Agreement provides that the first
element of a subsidy is a "financial contribution by the government". Subparagraphs (i) through (iv)
then explain that a financial contribution can exis t in a wide variety of circumstances including, of
course, the direct transfer of funds. But subparagraphs (ii) and (iii) show that a financial contribution
will also exist if the government does not collect the revenue which it is entitled to or when it gives
something or does something for an enterprise or purchases something from an enterprise or a group
of enterprises. Subparagraph (iv) ensures that government directed transfers effected through a
private entity do not thereby cease to be government transfers.
54 In other words, Article 1.1(a)(1)
SCM Agreement provides that a financial contribution can exist not only when there is an act or an
omission involving the transfer of money, but also in case goods or certain services are provided by
the government. In short, Article 1.1(a)(1)(iii) SCM Agreement in its context and in light of its object
and purpose establishes that a financial contribution also exists in case goods or services are provided
which can be valued and which represent a value to the beneficiary in question. The word "goods" in
this context of "goods or services" is intended to ensure that the term financial contribution is not
interpreted to mean only a money-transferring acti on, but encompasses as well an in-kind transfer of
resources, with the exception of general infrastructure.
7.25 Canada argues that rights to exploit in situ natural resources are not covered by
Article 1.1(a)(1) (iii) SCM Agreement. Canada can not point to any provision in particular in the
Agreement in support of this view, but instead reaches this conclusion on the basis of a working paper
from the time of the Uruguay Round negotiations which explicitly mentioned harvesting rights
separately from goods or services.
7.26 We note that the text of the SCM Agreement does not in any way provide an exception for the
right to exploit natural resources.
55 The only exception from the term "goods or services" provided for

52 Black’s Law Dictionary, p. 701 (Exhibit CDA-17).
53 Webster’s Ninth New Collegiate Dictionary (Markham: Merriam-Webster, 1991), p. 527. (Exhibit
CDA-19).
54 We note here the finding of the Panel in the case United States – Measures Treating Export
Restraints as Subsidies , that "Subparagraph (iv) ensures that the same kinds of government transfers of
economic resources, when undertaken through explicit delegation of those functions to a private entity, do not
thereby escape disciplines". Panel Report, United States – Measures Treating Export Restraints as Subsidies ,
WT/DS 194/R, adopted 23 August 2001, para. 8.73.
55 We agree with the Appellate Body that "a proper interpretation is first of all a textual interpretation".
Appellate Body Report, Japan – Taxes on Alcoholic Beverages , WT/DS8/AB/R, WT/DS10/AB/R,
WT/DS11/AB/R, adopted 1 November 1996, page 17.