UNITED STATES – FINAL COUNTERVAILING DUTY DETERMINATION WITH RESPECT TO CERTAIN SOFTWOOD LUMBER FROM CANADA
Document: Recourse by Canada to Article 21.5 (DS257) Report of the Panel
Date: 1 August 2005
Document codes: WT/DS257/RW
Complainant: Canada
Respondent: U.S.
Third parties: China, EU, India, Japan
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. 10, 11, 32, 1, 2, 12, 14, 19, 22  Subsidies and Countervailing Measures (SCM)Art. VI, X:3  GATT 1994Art. 21  Subsidies and Countervailing Measures (SCM)

UNITED STATES – FINAL COUNTERVAILING DUTY
DETERMINATION WITH RESPECT TO CERTAIN
SOFTWOOD LUMBER FROM CANADA

Recourse by Canada to Article 21.5
(DS257)

Report of the Panel

I. PROCEDURAL BACKGROUND
1.1 On 17 February 2004, the Dispute Settleme nt Body ("DSB") adopted the recommendations
and rulings in the reports of the original panel and the Appellate Body in US – Softwood Lumber IV.
1.2 In respect of pass-through, the original panel concluded that:
"the USDOC's[ 1] failure to conduct a pass-through analysis in respect of upstream
transactions for log and lumber inputs be tween unrelated entitie s was inconsistent
with Article 10 SCM Agreement and Article VI:3 of GATT 1994."2
1.3 More specifically, the original panel found that:
"the USDOC's failure to conduct a pass-throug h analysis in respect of logs sold by
tenure-holding timber harvesters (whether or not also lumber producers) to unrelated
sawmills producing subject softwood lumber; and in respect of lumber sold by
tenure-holding harvester/sawmills to unr elated lumber re-manufacturers was
inconsistent with Article 10 and thus Article 32.1 SCM Agreement, and with
Article VI:3 of GATT 1994."3
1.4 The original panel therefore upheld Canada's claim that the United States' imposition of
countervailing duties in respect of such transactions was inconsistent with Articles 10 and 32.1 SCM
Agreement and Article VI:3 of GATT 1994.4
1.5 The United States appealed from the original pa nel's pass-through conclusion. The Appellate
Body stated that the United States "contend[ed] that the [original panel] erred in finding that a pass-
through analysis is required in respect of sales of logs from tenure-holding sawmills producing
softwood lumber to unrelated sawmills, and for sales of lumber by tenure-holding sawmills to
unrelated lumber remanufacturers." 5 According to the Appellate Body, the United States "[did] not
appeal the [original panel's] finding that, wher e a subsidy is received by an independent timber
harvester[6], a pass-through analysis is required in respect of sales to unrelated sawmills or unrelated
remanufacturers".7
1.6 In respect of pass-through, the Appellate Body stated that it upheld the original panel's finding
that:
"USDOC's failure to conduct a pass-through anal ysis in respect of arm's length sales of logs
by tenured harvesters/sawmills to unrelated sawmills is inconsistent with Articles 10
and 32.1 of the SCM Agreement and Article VI:3 of the GATT 1994."8
1.7 The Appellate Body stated that it reversed the original panel's finding that:

1 We shall continue the original panel's practice of referring to the US Department of Commerce as
"USDOC".
2 Panel Report, US – Softwood Lumber IV (hereinafter "Panel Report"), para. 8.1(c).
3 Panel Report, para. 7.99.
4 Panel Report, para. 8.1(c).
5 Appellate Body Report, US – Softwood Lumber IV, (hereinafter "Appellate Body Report"), para. 16,
emphasis in original.
6 Before the Appellate Body, the United States used the term "independent harvester" in the same way
as it had in the original dispute, namely, "'entities that do not produce [softwood lumber] product[s] under
investigation'". Appellate Body Report at para. 127. In the Section 129 Determination, the USDOC used the
term "independent harvester" to refer to "tenured independent harvesters/sawmills" (see note 52 infra).
7 Appellate Body Report, para. 16, footnote omitted.
8 Appellate Body report, para. 167 (e), emphasis in original.

"USDOC's failure to conduct a pass-through analysis in respect of arm's length sales
of lumber by tenured harvesters/sawmills to unrelated remanufacturers is
inconsistent with Articles 10 and 32.1 of the SCM Agreement and Article VI:3 of the
GATT 1994."
9
1.8 At the DSB meeting of 17 December 2004, the United States informed the DSB that it had
complied with the DSB's recommendations and rulings.
1.9 On 30 December 2004, Canada requested the establishment of a panel pursuant to
Article 21.5 of the Understanding on Rules and Procedures Go verning the Settlement of Disputes
("DSU").10 At the same time, Canada also requested authorization from the DSB to suspend the
application to the United States of certain con cessions or other obligations, pursuant to DSU
Article 22.2.
1.10 At its meeting of 14 January 2005, the DSB d ecided, in accordance with DSU Article 21.5, to
refer to the original panel the matter raised by Canada in document WT/DS257/15. At that meeting, it
also was agreed that the Panel should have standard terms of reference as follows:
"To examine, in the light of the relevant provisions of the covered agreements cited
by Canada in document WT/DS257/15, the ma tter 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".
11
1.11 The Panel was composed as follows:
Chairman: Mr Elbio O. Rosselli
 Members: Ms Marta Calmon Lemme
 Mr Remo Moretta

1.12 On 14 January 2005, the DSB also referred the matter of suspension of concessions to the
Panel for arbitration pursuant to DSU Article 22.6.
12
1.13 China and the European Commun ities reserved their rights to participate in the Panel
proceedings as third parties.
1.14 The Panel met with the parties and third parties on 21 April 2005.
1.15 The Panel submitted its interim report to the parties on 20 May 2005. The Panel submitted its
final report to the parties on 3 June 2005.
II. FACTUAL ASPECTS
2.1 With a view to implementing the rulings and r ecommendations of the DSB in respect of this
dispute, on 19 November 2004, the United States issu ed a draft determination pursuant to Section 129
of the Uruguay Round Agreements Act . The United States issued its final Section 129 Determination
on 6 December 2004 (the "Section 129 Determination").
2.2 On 20 December 2004, the United States published the final results of the first assessment
review of the countervailing duties on imports of softwood lumber from Canada (the "First

9 Appellate Body Report, para. 167 (f), emphasis in original.
10 WT/DS257/15.
11 WT/DS257/19.
12 WT/DS257/20.

Assessment Review"). Pursuant to the US retrospective system of duty assessment, the First
Assessment Review provided for retrospective fina l assessment of the countervailing duties to be
levied on import entries of softwood lumber from Canada between 22 May 20 02 and 31 March 2003.
The First Assessment Review also determined the cash deposit rate to be levied on imports of
softwood lumber from Canada as of 20 December 20 04. The First Assessment Review was initiated
in July 2003, pursuant to a request in May 2003 from Canada and other interested parties.
2.3 The arguments of the parties and third parties as presented to the Panel are contained in their
written and oral submissions, the texts of which are appended to this report.
III. INTERIM REVIEW
3.1 The Panel issued its interim report to the parties on 20 May 2005. On 24 May 2005, both
parties submitted written requests to the Panel to review precise aspects of the interim report but
neither party requested an interim review meeti ng. On 26 May 2005, both parties commented in
writing on the other party's requests for review of the interim report. This section summarizes the
parties' requests and comments, and contains the Panel's responses thereto, and forms part of the
Panel's findings.
A.
REQUEST BY CANADA FOR REVIEW OF PRECISE ASPECTS OF THE PANEL REPORT
1. Request of Canada
3.2 Canada asks the Panel to introduce changes into paragraphs 4.71-4.73, 4.82, 4.83, 4.88, and
4.89.
3.3 Canada asks the Panel to make findings, in paragraph 4.73, concerning the USDOC's
exclusion of certain transaction-specific data on log sales (submitted by Tembec (Manitoba)). Canada
notes that although the USDOC excluded these data fr om pass-through analysis for reasons other than
not being at arm's length 13, these reasons were "equally inconsistent" with the United States'
obligations pursuant to the DSB's recommendations and rulings. Canada asserts that the parties
would "benefit" from findings by the Panel on the Tembec (Manitoba) data.
3.4 Canada also asks the Panel to expand the d escription of Canada's arguments in paragraph
4.83, concerning the USDOC's treatment of aggregat e data submitted by Canadian respondents. The
suggested amendments would expand on the descripti on of Canada's arguments that the sample data
submitted by Canadian respondents were representativ e, that it was impossible for respondents to
provide the full data requested by the USDOC, or more data than they did provide, and that USDOC
was obliged to use the data provided by the respondents as the basis of the pass-through analysis.
3.5 Concerning paragraph 4.88, Canada takes issue wi th the Panel's statement that Canada "has
not disputed that the USDOC needed" company-sp ecific and/or transaction-specific data for the
purpose of determining affiliation of parties to th e log sales transactions, which according to Canada
is inaccurate in the light of the totality of Canada 's arguments, as reflected in Canada's suggested
redraft of paragraph 4.83. Canada also asks the Panel to insert a statement that the USDOC accepted
that aggregate data could, and did, control for affiliation.
3.6 In paragraph 4.89, Canada asks the Panel to in sert a statement that "investigating authorities
nevertheless have an obligation to perform analyses, on the basis of available data, in a manner that is
consistent with the obligation under Article VI :3 of GATT 1994 and Articles 10 and 32.1 of the SCM

13 According to both parties, USDOC did not conduct a pass-through analysis in respect of these log
sales because the sales were made after the end of the period of investigation.

Agreement not to presume that the subsidy passed through to an unrelated purchaser of the input
product".
3.7 Canada states that the Panel finds in para graphs 4.71-4.73, and 4.82 that the USDOC was
required to conduct a pass-through analysis irrespectiv e of any considerations as to whether or not
sales were at "arm's length". Canada requests that the Panel insert a statement in this context that
"even if the U.S. arguments on 'arm's length' were accepted, the five 'factors' identified by USDOC in
this case, including who pays the stumpage and th e presence of non-cash components to a transaction,
do not transform an arm's-length transaction into one that is not at arm's length".
2. Comments of the United States
3.8 The United States submits that the Panel should reject all of the amendments proposed by
Canada. Concerning paragraph 4.73, the United St ates argues that the issue concerning Tembec
(Manitoba) raised by Canada in its request for interim review is outside the Panel's terms of reference,
as Canada's claim on pass-through was concerned w ith the appropriateness of USDOC's arm's length
analysis. The United States further argues that in any case, as acknowledged by Canada, Tembec
(Manitoba) submitted no data to the USDOC concerning log sales during the period of investigation.
3.9 The United States objects to Canada's request to expand the description of Canada's
arguments in paragraph 4.83, stating that the origin al summary is sufficient, and that if Canada's
request were accepted, without an equivalent expans ion of the description of the US arguments, this
would create an appearance of imbalance. Furtherm ore, given that the submissions of the parties are
appended to the report, the United States considers a full recitation of detailed arguments unnecessary.
3.10 Concerning paragraph 4.88, the United States disagrees as a factual matter that Canada
disputed the USDOC's need fo r company-specific and/or tran saction-specific for purposes of
determining affiliation. The United States asserts th at Canada is confusing the question of whether
the USDOC needed certain data with whether the USDOC should have accepted whatever data
Canada offered.
3.11 The United States also disagrees with Canada's suggested amendment to paragraph 4.89,
stating that the suggestion is inappropriate, and would directly contradict the Panel's immediately
preceding statement that the Panel is reluctant to instruct investigating authorities concerning data
issues in pass-through analysis.
3.12 Finally, the United States takes issue with Canada's suggested amendment to paragraphs 4.71-
4.73 and 4.82 to "clarify" certain points in respect of the USDOC's arm's length factors. According to
the United States, given that the Panel found that the USDOC should have conducted a pass-through
analysis regardless of the issue of arm's length, Canada's suggestion is irrelevant and would call on the
Panel to make substantial new findings that would then need to be subjected to additional interim
review.
B.
REQUEST BY THE UNITED STATES FOR REVIEW OF PRECISE ASPECTS OF THE PANEL REPORT
1. Request of the United States
3.13 The United States requests the Panel to make certain technical drafting corrections and
clarifications to paragraphs 2.2, 4.20, 4.21, and 4.48, and to footnote 45 of the interim report (footnote
47 of the final report). The United States also reque sts substantive changes to paragraphs 4.38, 4.41,
4.47, 4.48 and 4.49.
3.14 First, the United States requests that in para graphs 4.38, 4.41 and 4.49, we change the
references to "dispute settlement decisions" to "dispute settlement reports", to avoid potential

confusion with "decisions" that might be made, for example, pursuant to Article IX of the Marrakesh
Agreement.
3.15 Second, the United States asserts that at paragraph 4.47, the Panel mischaracterizes the United
States' argument concerning the EC – Bed Linen (Article 21.5) dispute. The United States indicates
that its argument on that point is correctly summarized at paragraph 4.45.
3.16 Third, the United States contends that paragraph 4. 48 is factually incorrect in stating that the
Final Determination and the First Assessment Review involve "'pass-through of the subsidy benefit, in
respect of the same import entries . . . . '"
2. Comments of Canada
3.17 Canada only comments on the last of the United States' comments, concerning the factual
accuracy of the reference to "the same import entries" in paragraph 4.48. A ccording to Canada, this
statement is factually accurate, and the issue is corr ectly described at paragraph 4.41, the accuracy of
which the United States does not contest.
C. EVALUATION BY THE PANEL
1. Request of Canada
3.18 Concerning Canada's request in respect of para graph 4.73, we have not made any findings in
respect of the issue concerning Tembec (Manitoba)'s sales of logs. We consider that this issue falls
outside our terms of reference, as set by the re quest for establishment of the Panel, as it does not
correspond to any of the legal claims set forth in th e first four "tirets" on page two of the request
(WT/DS257/15).
3.19 In response to Canada's request s concerning the summary of its arguments in paragraph 4.83,
we have slightly modified the text of that paragraph, and have inserted footnote 65.
3.20 Concerning paragraph 4.88, we do not consider that Canada has disputed the USDOC's need
for company-specific and/or transaction-specific da ta to determine affiliation of parties to log
transactions. We have introduced footnote 66 to cl arify our understanding of the nature of, and the
USDOC's use of, the aggregate data that the USDOC accepted for purposes of determining affiliation.
3.21 We have not introduced in paragraph 4.89 th e statement requested by Canada, but have
introduced a final sentence to that paragraph, as well as footnote 67, to clarify our view in respect of
the issues raised by Canada's comment.
3.22 We have not introduced in paragraphs 4.71-4.73 and 4.82 the statement requested by Canada
concerning certain of the arm's length factors applied by the USDOC. Such a statement would be
inappropriate in view of our findings that p ass-through analysis should have been conducted in
respect of log sales between unrelated parties, irre spective of any considerations as to whether or not
such sales were "arm's length".
2. Request of the United States
3.23 We have accepted the United States' suggested changes to paragraphs 2.2, 4.20, 4.21, and
4.48, and to footnote 45 of the interim report (footno te 47 of the final report). We also have made
other technical corrections to the report, as necessary.
3.24 We have not accepted the United States' sugges tion in respect of paragraphs 4.38, 4.41 and
4.49, because we believe that it is clear from the context that the word "decisions" refers to the

findings cited in that section of the report, and is not used in a generic sense that could potentially
sweep in other kinds of actions.
3.25 In the light of the US comments, we have ame nded paragraph 4.47 slightly, to refer to what
we see as the implication of the US argument, rather than to refer to the US argument as such.
3.26 We have added footnote 44, to clarify to wh ich import entries the phrase in paragraph 4.48
"the same import entries" refers. Footnote 44 contai ns a cross-reference to paragraph 4.41, cited by
Canada in its comments on the US suggestion concerning this paragraph.
IV. FINDINGS
4.1 This case concerns Canada's claim that the US DOC failed to properly implement the rulings
and recommendations of the DSB in respect of the US – Softwood Lumber IV proceeding. In
particular, Canada claims that, in the Section 129 Determination and First Assessment Review, the
USDOC continued to presume pass-through of subsid y benefit in respect of various categories of
sales of logs to unrelated purchasers. Before exam ining Canada's claims, we shall first rule on a
preliminary ruling requested by the United States.
A.
US REQUEST FOR PRELIMINARY RULING
1. Arguments of the parties
4.2 The United States requests a preliminary ruling th at the final results of the First Assessment
Review of the countervailing duty order on softwo od lumber from Canada are not “measures taken to
comply” with the recommendations and rulings of the DSB under Article 21.5 of the DSU.
According to the United States, these results fall outside the scope of Article 21.5, and this Panel lacks
jurisdiction to review them.
4.3 The United States submits that the First Assess ment Review was a proceeding: separate from
both the original countervailing duty investigatio n determination challenge d by Canada and the
Section 129 Determination at issue here; initiated prior to the DSB’s adoption of recommendations
and rulings in this dispute; that had nothing to do with complying with the recommendations and
rulings of the DSB.
4.4 The United States notes that the EC – Bed Linen (Article 21.5 – India) panel granted the
European Communities’ preliminary ruling request to exclude from consideration certain antidumping
duty measures taken by the European Communities that were cited by India, but that the panel found
were not “taken to comply.” The United States asser ts that, in that dispute, in which the European
Communities was found to have incorrectly calculate d anti-dumping duties in an investigation of bed
linens from India, the European Communities volunta rily applied the revised calculation method to
anti-dumping duties imposed on Pakistan and Egypt. The United States asserts that, after concluding
that no duties should be imposed on bed linen from t hose sources (as a result of the recalculation), the
European Communities re-examined whether imports from India, considered alone, caused injury to
the domestic industry. According to the United States, the European Co mmunities concluded that
they did, and therefore affirmed the imposition of anti-dumping duties on bed linen from India. The
United States asserts that India challenged this fi nding of injury and the resulting imposition of duties
on bed linen from India as a WTO-inconsistent measure “taken to comply” under Article 21.5.
4.5 The United States notes that the panel, in deciding not to review the latter measure, stated that
"[T]he fact that the EC, subsequent to its re-examination of the dumping
determinations with respect to imports from Egypt and Pakistan, and in the context of
a review initiated on the request of Eurocoto n, carried out an analysis of whether

injury was caused by imports from India alone does not, ipso facto , establish that
Regulation 696/2002 is a measure “taken to comply”. Rather the opposite would
seem to be the case – that Regulation would seem to be an entirely new
determination, reached as a result of events subsequent to the EC having adopted a
measure to comply with the DSB’s recommendation."
14

4.6 The United States submits that the final resu lts of the First Assessment Review are not
“measures taken to comply”. The United States asser ts that, before the original panel, Canada
challenged the USDOC’s Final De termination in the countervailing duty investigation on softwood
lumber from Canada. 15 After the DSB adopted its recomme ndations and rulings, and within the
agreed “reasonable period of time”, the United States made the Section 129 Determination, in which it
conducted a “pass through” analysis and recalculated the countervailing duty rate.16 The new reduced
rate was applicable to entries of subject merchandise on or after 10 December 2004. The
United States submits that original investiga tions and assessment reviews are different processes
which serve distinct purposes. The purpose of an inv estigation is to determine the existence, degree,
and effect of any alleged subsidy; the purpose of an assessment review is to determine the amount of
duty to be assessed on previous imports of subject merchandise and the estimated countervailing duty
rate to be applied to future imports. The United States argues that the distinction between
countervailing duty investigations and assessment procedures is explicitly recognized in the
Agreement on Subsidies and Countervailing Measures ("SCM Agreement").
17
4.7 The United States submits that the First Assessment Review was not a measure taken to
comply with the recommendations and rulings of the DSB. Rather, it resulted from a separate
affirmative request by Canada, among others, that USDOC review new sales and subsidies data for
the purposes of assessing countervailing duties for impor ts during the review period and of setting a
new estimated countervailing duty rate for subsequent imports.
4.8 The United States also argues that the First As sessment Review was initiated on 1 July 2003,
eight months before the DSB's recommendations and rulings in this dispute were adopted. The
United States asserts that the First Assessment Review , therefore, had nothing whatsoever to do with
“implementing” the DSB's recommendations and rulings. The United States submits that, for obvious
temporal reasons, the results of this assessment review – which was initiated before the DSB issued its
recommendations and rulings – cannot be considered “measures taken to comply”. By contrast, the
United States asserts that the USDOC initiated th e Section 129 proceeding for the specific purpose of
addressing the DSB’s recommendations and rulings. The United States further asserts that the
agreement of the parties on the “reasonable peri od of time” to implemen t the recommendations and
rulings in this dispute was negotiated in the light of, and specifically refers to, the US procedures for
implementing WTO reports18 – that is, the Section 129 procedures.
4.9 The United States submits that Article 21.5 proceed ings are by their nature more focused and
limited than other panel proceedings under Article 6. 2 of the DSU. The United States argues that it is
beyond the scope of such a limited 90-day inquiry to fully examine an entirely new set of assessment
review results based on a wholly new administra tive record, consisting of new sales, new imports,
potentially new respondents and potentially new subsidy programmes.
4.10 Canada submits that the final results of the First Assessment Review rendered non-existent
the pass-through analysis and adjustment under the Section 129 Determination, and that the final
results of the First Assessment Review are therefore an integral part of the Panel’s determination “as

14 EC – Bed Linen (Article 21.5 – India) (Panel), para. 6.20.
15 Panel Report, paras 2.1 - 2.4.
16 Section 129 Determination. Exhibit CDA-5.
17 The US refers in this regard to SCM Agreement, fn. 52.
18 WT/DS257/13.

to the existence … of measures taken to comply” under Article 21.5 of the DSU. Canada also argues
that upholding the US preliminary objection woul d be contrary to the purpose of Article 21.5
proceedings.
4.11 Regarding the Section 129 Determination be ing rendered non-existent by the First
Assessment Review, Canada argues that in Australia – Leather II (Article 21.5 - US) , the United
States itself argued that measures that undo measures taken to comply appropriately fall within the
scope of Article 21.5 of the DSU:
Under Article 21.5, this pane l is to consider “the existence or consistency with a
covered agreement of measures taken to comply with the recommendations and
rulings.” Plainly, if this Panel can de termine the “existence” of measures taken to
comply with the recommendations, it can c onsider whether the measures purportedly
taken to comply were effectively rendered non-existent.
4.12 Furthermore, Canada asserts that, in declin ing to include certain EC measures in its
compliance review, the abovementioned EC – Bed Linen (Article 21.5 - India) panel specifically
noted that India “does not argue that the subsequent two measures undo the compliance effectuated by
the first measure.”
19
4.13 Canada also submits that the final results of the First Assessment Review are properly before
the Panel because they are inextricably linked to the recommendations and rulings of the DSB and to
what the United States claims as being its “measures taken to comply”. Canada asserts that the
treatment by USDOC of the pass-through issue in the final results of its First Assessment Review is
nearly identical to its treatment of pass-through in the Section 129 Determination. Canada also notes
that USDOC published preliminary results for the First Assessment Review containing a “pass-
through” section nearly four months after the DSB made its recommendations and rulings, and issued
final results nearly ten months after those reco mmendations and rulings. Canada asserts that the
Section 129 Determination and the First Assessment Review are inextricably linked to the DSB
recommendations because they both address the obliga tions of the United States to conduct pass-
through analyses with respect to independent ha rvester and sawmill-to-sawmill log transactions for
the same exports for the same period of time.
4.14 Regarding the US argument that assessment review s and original investigations are different
proceedings, and that the review was initiated prior to the recommendations and rulings of the DSB,
Canada submits that the United States ignores the fact that, under US law, the USDOC may
implement the recommendations and rulings of the DSB concerning an original investigation through
a subsequent administrative review.
20
4.15 Canada asserts that Article 21.5 of the DSU requires a compliance panel to examine the
substance of a Member’s measures notwithstanding any argument that the form of the measures could
preclude compliance review. Canada notes that in Australia – Automotive Leather II (Article 21.5 -

19 EC – Bed Linen (Article 21.5) , Panel Report, at para. 6.21. Canada also refers to the Third Party
Submission of the European Communities (Annex C-3), at para. 26, citing Dominican Republic – Import and
Sale of Cigarettes, at paras. 7.11-7.21.
20 Canada refers in this regard to the “Statement of Administrative Action” in Message from the
President of the United States Transmitting the Uruguay Round Agreements, Texts of Agreements Implementing
Bill, Statement of Administrative Action and Required Supporting Statements , H.R. Doc. No. 103-316, vol. 1 at
656 (Exhibit CDA-1), at 356-357. (“Furthermore, while subsection 129(b) [of the Uruguay Round Agreements
Act] creates a mechanism for making new determinations in response to a WTO report, new determinations may
not be necessary in all situations. In many instances, such as those in which a WTO report merely implicates the
size of a dumping margin or countervailable subsidy rate (as opposed to whether a determination is affirmative
or negative), it may be possible to implement the WTO report recommendations in a future administrative
review under section 751 of the Tariff Act.”)

US), for example, the panel found that the subseque nt loan was within its jurisdiction to examine
under Article 21.5 of the DSU because it was “inextri cably linked to the steps taken by Australia in
response to the DSB’s ruling in this dispute, in view of both its timing and its nature.” 21 Canada also
notes the finding of the panel in Australia – Salmon (Article 21.5 - Canada) that:
… an Article 21.5 panel cannot leave it to the full discretion of the implementing
Member to decide whether or not a measure is one “taken to comply”. If one were to
allow that, an implementing Member could simply avoid any scrutiny of certain
measures by a compliance panel, even where such measures would be so clearly
connected to the panel and Appellate Body reports concerned, both in time and in
respect of the subject-matter, that any impartial observer would consider them to be
measures “taken to comply”.
22
4.16 Canada submits that the US reliance on EC – Bed Linen (Article 21.5 - India) is misplaced, as
the panel in that dispute found that the EC measures in question were not “taken to comply” within
the meaning of Article 21.5 of the DSU because th ey did not deal with the subject matter upon which
the DSB had made recommendations and rulings. Cana da submits that the panel expressly noted that
“[t]he situation might be different had there been a claim in the original dispute challenging the
cumulative assessment of the effects of imports from India, Egypt, and Pakistan.”23
4.17 Canada asserts that the US argument that an Article 21.5 panel does not have jurisdiction to
evaluate USDOC's treatment of additional record evidence concerning exports subject to a US
definitive countervailing duty misses the point entirely, as a panel’s assessment “as to the existence or
consistency with a covered agreem ent of measures taken to comply” under Article 21.5 of the DSU
necessarily involves an examination of new factual info rmation. Canada notes in this regard that the
Appellate Body stated in EC – Bed Linen (Article 21.5 - India) that:
[A]n Article 21.5 panel is not confined to examining the “measures taken to comply”
from the perspective of the claims, arguments, and factual circumstances relating to
the measure that was the subject of the original proceedings. Moreover, the relevant
facts bearing upon the “measure taken to comply” may be different from the facts
relevant to the measure at issue in the orig inal proceedings. It is to be expected,
therefore, that the claims, arguments, and factual circumstances relating to the
“measure taken to comply” will not, necessarily , be the same as those relating to the
measure in the original dispute. Indeed, a complainant in Article 21.5 proceedings
may well raise new claims, arguments, and factual circumstances different from those
raised in the original proceedings, becau se a “measure taken to comply” may be
inconsistent with WTO obligations in ways different from the original measure.
24
4.18 Canada also submits that the US request for a preliminary ruling runs contrary to the very
purpose of an Article 21.5 panel in its review of the imposition of countervailing measures, since the
US obligation to demonstrate whether, and to what extent, alleged subsidies to log production pass
through arm’s length log purchases before imposi ng duties on softwood lumber products would
remain in dispute for each annual assessment revi ew under Article 21 of the SCM Agreement during
the potential five-year life (or longer) of the US definitive countervailing measure. Canada asserts
that such a result would leave th e DSB in the absurd situation of having made numerous identical

21 Panel Report, Australia – Automotive Leather II (Article 21.5 – US), para. 6.5.
22 Australia – Salmon (Article 21.5 - Canada) , at para. 7.10(22) [emphasis added]. Canada also refers
to EC – Bed Linen (Article 21.5), Panel Report, at para. 6.17.
23 EC – Bed Linen (Article 21.5), Panel Report, at para. 6.18, fn. 36.
24 EC – Bed Linen (Article 21.5) , Appellate Body Report, at para. 79 [emphasis in original]. Canada
also refers to the EC Third Party Submission (Exhibit C- 3), at para. 28, referring in addition to the Appellate
Body’s report in US – Shrimp (Article 21.5 – Malaysia), at para. 86.

recommendations and rulings concerning a defin itive countervailing duty for which compliance may
never be secured. In this regard, Canada notes that the United States argued in Australia – Salmon
(Article 21.5 - Canada) that:
[W]e also wish to express the agreement of the United States with the broad and
inclusive approach the Panel has taken t hus far in defining the scope of this
proceeding. The Panel’s approach is the only one consistent with the purpose of the
WTO dispute settlement system as reflected in Articles 3 and 21 of the Dispute
Settlement Understanding: the prompt settleme nt of disputes. Disputes could not be
settled “promptly” if a defending party were permitted to thwart a thorough review of
its WTO compliance by staging the introduction of details of new measures over a
period of time, and then arguing that they must escape WTO scrutiny for a further
period of time.
25
4.19 The United States denies that the results of the First Assessment Review rendered the Section
129 Determination non-existent. The United States submits that the Section 129 Determination, in
implementing the recommendations and rulings of th e DSB with respect to the final investigation
determination, confirmed that the resulting impositio n of countervailing duties on May 22, 2002, was
consistent with the SCM Agreement. According to the United States, the very fact that Canada is,
itself, challenging the Section 129 Determination shows that Canada believes that it is of ongoing
effect and relevant to the issue of compliance.
4.20 The United States asserts that the present case is not a situation like that presented in
Australia – Automotive Leather II (Article 21.5 - US), in which a WTO-inconsistent subsidy was both
withdrawn and “regranted” in another form on the sa me day, in “inextricably linked elements of a
single transaction.”26 The United States asserts that first, in Australia – Leather II (Article 21.5 - US),
the United States was arguing that the panel should review whether a prohibited subsidy had actually
been withdrawn, as specifically required by Article 4.7 of the SCM Agreement, when the repayment
of a grant had been contingent on the simultaneous grant of a loan on non-commercial terms. The
United States submits that, in contrast, this proceeding involves the question of whether a measure has
been brought into conformity with a WTO agreement.
4.21 The United States submits that second, the Australia – Leather II (Article 21.5 - US) panel
concluded that the subsid y had not been withdrawn at all, because the supposed repayment and the
non-commercial loan were, in effect, a single transac tion in which the subsidy simply shifted form.
The United States asserts that, in this dispute, the Section 129 Determination and the First Assessment
Review results are separate and independent actions. The United States asserts that the Section 129
Determination was made to bring the measure in di spute into conformity with the SCM Agreement as
recommended by the DSB, whereas the First Asse ssment Review was conducted for a completely
unrelated reason. According to the United States, therefore, the First Assessment Review in no way
affects that result of the Section 129 Determination.
4.22 The United States also submits that the results of the First Assessment Review are not
inextricably linked, either to the Section 129 Dete rmination, or to the recommendations and rulings of
the DSB. The United States notes Canada's reliance on Australia – Leather II (Article 21.5 - US), and
that panel's finding that the relevant subsid y had not been withdrawn, because the supposed
repayment and the non-commercial loan were “inextricably linked elements of a single transaction.”27
The United States asserts that that situation is very different from this one. In particular, the United
States notes that the Section 129 Determination and th e First Assessment Review results were not in

25 Australia – Salmon (Article 21.5 - Canada) , Third Participant Submission of the United States,
26 Panel Report, Australia Leather II (Article 21.5 - US), para. 6.50.
27 Australia –Leather II (Article 21.5 - US), para. 6.50.

any sense contingent on one another, nor were they in any sense part of a single transaction. The
United States submits that the First Assessment Revi ew would have taken place regardless of whether
there was a Section 129 proceeding under way, and, indeed, regardless of whether there even was a
WTO dispute.
4.23 The United States notes that Canada also relies on Australia – Salmon (Article 21.5 -
Canada). The United States asserts that the imposition of a ban by Tasmania, one of Australia's sub-
federal units, was obviously a response to the modifica tion of the ban. The United States asserts that
the Tasmanian ban did not arise from a proceeding init iated as a matter of domestic law requirements,
irrespective of any WTO challenge, but was rather an ad hoc action taken after the DSB had made
recommendations and rulings against an Australian im port ban and after Australia had taken action to
modify the ban. By contrast, the United States asserts that the assessment review was initiated:
 - upon request of the parties (including Canada), eight months before the DSB’s
recommendations and rulings were even adopted;
- pursuant to a US statutory provision that requires initiation upon request on a specific
schedule and under specific deadlines; and
- for the purpose of assessing countervailing du ties on entries not previously examined
– not for the purpose of implementing any recommendations or rulings.
4.24 Regarding Canada's argument that the facts of EC – Bed Linen (Article 21.5 - India) should be
distinguished from the present case, the United States submits that the EC – Bed Linen (Article 21.5 -
India) dispute demonstrates that a new determination th at was made in a subsequent segment of an
antidumping or countervailing duty proceeding – and not made to implement recommendations and
rulings of the DSB – falls outside the jurisdiction of Article 21.5 panels.
4.25 The United States further submits that properly applying DSU Article 21.5 does not “ignore
the purpose of compliance proceedings”. The Unite d States asserts that, contrary to Canada’s
arguments, a review under Article 21.5 of the Section 129 Determination permits the prompt
settlement of disputes: Canada complained abou t an inconsistency in the final investigation
determination, and this Panel w ill review whether that inconsistency has been corrected. The
United States argues that Canada appears to sugg est that the US system of retrospective duty
assessments somehow compels the Panel, in the sp ecial case of the United States, to sweep the
assessment review into this Article 21. 5 proceeding.28 The United States submits, however, that there
is nothing in Article 21.5 or in the SCM Agreem ent that requires a different interpretation of
“measures taken to comply” for those Members that employ a retrospective duty assessment system,
rather than a prospective one.
2. Arguments of the third parties
4.26 The European Communities consid ers that the US view (if accepted) would turn the US
system of countervailing duty assessment into a movi ng target that escapes the WTO disciplines. The
European Communities submits that the phrase “taken to comply” cannot be read to limit the 21.5
proceeding to those measures that were explicitly take n to replace the measure at issue in the original
proceedings, but must be read together with its immediate and broader context as well as the purpose
of the DSU to reach a prompt solution of a disput e. The European Communities asserts that because
the phrase is preceded by the term “existenc e” and followed by the expression “with the
recommendations and rulings of the DSB”, an Articl e 21.5 panel is tasked to assess whether or not
there is a failure to comply and wh ether or not the original dispute has been resolved (as opposed to
assessing the conformity of a particular measure with a particular provision of the Agreement

28 The United States refers in this regard to Cana da's Second Written Submission, para. 27 (Annex A-
2).

Establishing the World Trade Organization ("WTO Agreement"), as panels are required to do in
initial proceedings).
4.27 The European Communities submits that the broa der purpose of Article 21.5 of the DSU is to
secure the solution of a dispute between two WTO Members relating to the measures brought before
the original Panel. The European Communities asserts that this was explicitly recognised by the panel
in Australia – Salmon (Article 21.5 - Canada) , which even considered a measure taken during the
Article 21.5 proceeding since "to do otherwise would, in our view, go against the principle of prompt
settlement of disputes
 and could hamper implementation of both DSB recommendations in the
original dispute and our findings in this case."29
4.28 The European Communities submits that the US view is b ased on the assumption that the
measures to be attacked in countervailing duty cases ar e the determinations made by the investigating
authorities. The European Communities asserts that this is false, since Article 10 of the SCM
Agreement clarifies that the measure of concern is the “imposition of a countervailing duty”, defined
as a “special duty levied” for the purpose of offsetting a subsidy. The European Communities submits
that it is the duty itself that interferes with trad e and is the measure of concern. The European
Communities asserts that the assessment review at ha nd in this case is a hybrid instrument. It fixes
the final duty rate for the assessment period with retr ospective effect, but is not a fully-fledged review
of both the subsidy and injury within the meaning of Article 21 of the SCM Agreement. 30 The
European Communities notes that the assessment review does not change the date of the expiry of the
measure under Article 21.3. The European Co mmunities does not accept the US argument that
footnote 52 of the SCM Agreement recognises that these types of assessment review are separate from
the original determination (and / or a Section 129 determination). The European Communities also
notes that the United States has not disputed Cana da’s characterisation of the First Assessment
Review as superseding both the original count ervailing duty determination and the Section 129
Determination. The European Communities asserts th at, at the date of the establishment of the Panel
(14 January 2005), only the First Assessment Revi ew was effectively in place. The European
Communities submits that, according to WTO jurisp rudence, a measure that essentially replaces an
earlier measure remains within the terms of reference of an original Panel. 31 The European
Communities submits that, a fortiori, an Article 21.5 Panel must be in a position to assess whether an
annual administrative review determination that conf irms and supersedes the original determination
relating to the same countervailing duty constitutes a “continuing violation”.
4.29 The European Communities also rejects the US argument that EC – Bed Linen (Article 21.5 -
India) stands for a general proposition that any review measure is outside the scope of a 21.5
proceeding. The European Communities asserts that the review measures at issue in that case were
entirely different in nature. In particular, those measures were either specific reviews of antidumping
duties imposed on exporters from other Members (Egypt and Pakistan) or entirely new determinations
in a review based on results of an event subsequent to the European Communities having adopted the
implementing measure in EC – Bed Linen (Article 21.5 - India) . In other words, they were dismissed
because they did not relate to the original dispute between the European Communities and India.
4.30 According to the European Co mmunities, accepting the US view that the First Assessment
Review is not subject to a DSU 21.5 panel review would turn the US system of duty assessment into a
moving target that escapes from countervailing duty di sciplines. Each assessment review would have
to be subject to a new panel request, and by the time the panel, Appellate Body and implementation
procedure was completed, another assessment review would have overtaken the results of any Section

29 Panel Report, Australia – Salmon (Article 21.5 - Canada), para. 7.21.
30 Panel Report US – Softwood Lumber III, para 7.151.
31 The European Communities refers to the Panel Report in Dominican Republic – Import and Sale of
Cigarettes, paras. 7.11-7.21

129 determination. A new panel w ould have to be started against this review, creating a “Groundhog
Day” situation.
4.31 China asserts that, on the one hand, the First Assessment Review was made in a totally
separate investigation procedure and based on the import da ta that is irrelevant to that of the original
investigation. On the other hand, China asserts that the two determinations at issue were made under
the framework of the same set of proceedings wh ich effectively affects import of softwood lumber
from Canada and the First Assessment Review supersedes the Section 129 Determination. In China’s
view, the first argument relates to the question of whether the First Assessment Review is a
“measure[] taken to comply”, while the second argument concerns the matter whether the Section 129
Determination is rendered non-existent.
4.32 Although China acknowledges that the First As sessment Review may not be properly
categorized as a “measure[] taken to comply”, China argues that this consideration does not lead to a
decisive answer to the question of whether this meas ure is properly before this panel. China recalls
that, on the basis of the plain language of Article 21.5, the purpose of the proceedings under this
provision is to review and solve the dispute on “the existence or consistency with a covered agreement
of measures taken to comply with the recommendations and rulings” of the DSB. China believes that
“existence” and “consistency” are two distinct asp ects of the subject measure. The latter involves
review that is not only “limited to ‘the issue of whether or not [a Member] has implemented the DSB
recommendation’” 32, but also “in the light of any provision of any of the covered agreements.” 33 On
the other hand, the former relates to the status of the revised new measure. According to China, both
aspects are equally important though the “existence” matter is crucial in solving the threshold issue in
these proceedings.
4.33 China asserts that the dispute of Australia – Automotive Leather II (Article 21.5 - US)
demonstrates a similar fact pattern that should be re ferenced by this Panel. China notes that, in that
case, the Article 21.5 panel said:
The 1999 loan is inextricably linked to the steps taken by Australia in
response to the DSB's ruling in this dispute, in view of both its timing and its
nature. In our view, the 1999 loan cannot be excluded from our consideration
without severely limiting our ability to judge, on the basis of the
United States' request, whether Australia has taken measures to comply with
the DSB's ruling. In the absence of any compelling reason to do so, we
decline to conclude that a measure spec ifically identified in the request for
establishment is not within our terms of reference.
34

4.34 In China’s view, in an Article 25.1 procedur e, if the complaining party submits that a
“measure[] taken to comply” is invalidated by a subsequent measure, the compliance panel should at
least assess this claim that relates to the “measure[] taken to comply” on the basis of relevant facts –
the subsequent measure. China asserts that to ex clude the second measure would put the panel at the
risk of failing to make a comprehensive and we ll-founded judgement on the existence of a measure
taken to comply with DSB recommendations and ru lings. China believes that, as a result of the
countervailing duty assessment system adopted by the US, the results of an assessment review may, at
least in form, replace the original final determination. In particular, China notes that the results of the
First Assessment Review were announced ten days af ter the Section 129 Determination took effect.
Thus, the First Assessment Review established a ne w rate for cash deposit for the goods from Canada
and replaced the rate in the Section 129 Determina tion. According to Chin a, such changes in the
applicable duty rate deserve further considera tion on whether the First Assessment Review, in

32 Canada - Aircraft (Article 21.5), Appellate Body Report, para.40.
34 Australia – Automotive Leather II (Article 21.5 - US), para. 6.5.

substance, rendered the Section 129 Determination non-existent. China therefore submits that the
facts presented by Canada in these proceedings, at least, have demonstrated that there is likelihood
that the First Assessment Review may nullify the Section 129 Determination.
4.35 In summary, China is of the opinion that, although the First Assessment Review may not be a
measure taken to comply, it is closely linked to and may have an important effect on the existence of
the purported measure taken to comply – the Secti on 129 Determination. On such basis, China
believes it is the mandate of this Panel to consider the First Assessment Review in these proceedings.
3. Evaluation by the Panel
4.36 The US request for a preliminary ruling concerns the scope of Article 21.5 of the DSU, which
provides in relevant part:
Where there is disagreement as to the ex istence or consistency with a covered
agreement of measures taken to comply with the recommendations and rulings such
dispute shall be decided through recourse to these dispute settlement procedures,
including wherever possible resort to the original panel.
4.37 In particular, the US request requires us to determine whether or not the First Assessment
Review, or at least the treatment of pass-through c ontained therein, constitut es a "measure[] taken to
comply" with the rulings and recommendations of the DSB in respect of the Final Determination.
4.38 In addressing this issue, we are guided by disp ute settlement decisions regarding the scope of
DSU Article 21.5. These decisions indicate that Article 21.5 proceedings are not restricted to
measures formally, or explicitly, taken by Member s to implement DSB rulings and recommendations.
In this regard , we note that the panel in Australia – Salmon II (Article 21.5 – Canada) found that:
an Article 21.5 panel cannot leave it to the full discretion of the implementing
Member to decide whether or not a measure is one "taken to comply". If one were to
allow that, an implementing Member could simply avoid any scrutiny of certain
measures by a compliance panel, even where such measures would be so clearly
connected to the panel and Appellate Body reports concerned, both in time and in
respect of the subject-matter, that any impa rtial observer would c onsider them to be
measures "taken to comply".
35
4.39 That case concerned Australia's implemen tation of DSB rulings and recommendations
regarding import restrictions on untreated fresh, chilled or frozen salmon from Canada. Australia
stated that it implemented the DSB's rulings a nd recommendations through a series of import risk
analyses that entered into force on 19 July 1999 . On 20 October 1999, during the course of the
Article 21.5 proceedings concerning the measures adop ted by Australia in July 1999, the Government
of Tasmania adopted measures restricting all im ports of salmonids. The panel employed the
following terms in finding that the October 1999 measure fell within the terms of its DSU Article 21.5
review:
"Without attempting to give a precise definition of "measures taken to comply" that
should apply in all cases, we are of the view that in the context of this dispute at least
any quarantine measure introduced by Aust ralia subsequent to the adoption on
6 November 1998 of DSB recommendations and rulings in the original dispute – and
within a more or less limited period of time thereafter -- that applies to imports of
fresh chilled or frozen salmon from Canada, is a "measure taken to comply". The
Tasmanian ban, introduced on 20 October 1999, imposes an import prohibition on all

35 Australia – Salmon (Article 21.5 – Canada), page 106.

imports of salmonids into part of Austra lia on quarantine grounds. We thus find that
it is a measure taken to comply in the sense of Article 21.5."36
4.40 The scope of DSU Article 21.5 proceedings was also addressed by the panel in Australia –
Leather II (Article 21.5 - US) . That case concerned Australia's implementation of DSB's rulings and
recommendations regarding the withdrawal of a prohi bited export subsidy. In September 1999, the
subsidy recipient repaid the prospective element of the subsidy. Simultaneously, the Government of
Australia provided a loan to the original subsidy r ecipient. In finding that both the repayment of the
original subsidy, and the new loan, fell within th e scope of its DSU Article 21.5 review, the panel
stated:
The 1999 loan is inextricably linked to the steps taken by Australia in response to the
DSB's ruling in this dispute, in view of both its timing and its nature. In our view, the
1999 loan cannot be excluded from our c onsideration without severely limiting our
ability to judge, on the basis of the United States' request, whether Australia has taken
measures to comply with the DSB's ruling. In the absence of any compelling reason
to do so, we decline to conclude that a me asure specifically identified in the request
for establishment is not within our terms of reference.
37
4.41 The parties agree that the Section 129 Determ ination falls within the scope of these DSU
Article 21.5 proceedings. In our view, and taking into account previous dispute settlement decisions
regarding DSU Article 21.5, the USDOC's treatmen t of pass-through in the First Assessment Review
is also covered by these proceedings, because it is cl early connected to the panel and Appellate Body
reports concerning the Final Determination, and becau se it is inextricably linked to the treatment of
pass-through in the Section 129 Determination. In particular, we note that certain import entries
subject to the prospective effect of the Final Determ ination are also subject to the retrospective effect
of the First Assessment Review. Thus, while the First Assessment Review resulted in an assessment
rate for import entries during the period 22 May 2002 – 31 March 2003, those entries had initially
been subject to the cash deposit rate de termined in the Final Determination. 38 Furthermore, the
prospective effect of the Section 129 Determination was superseded by the prospective effect of the
First Assessment Review, in the sense that import en tries that would have been subject to the cash
deposit rate fixed by the Section 129 Determination became subject to the cash deposit rate fixed by
the First Assessment Review, once the latter to ok effect. Thus, even though the period of
investigation of the Final Determination and Sec tion 129 Determination may differ from the period of
review of the First Assessment Review, and even though the latter was initiated before the DSB
adopted any rulings or recommendations regarding this matter, there is in fact considerable overlap in
the effect of these various measures. Since the pass-through analysis in the First Assessment Review
could, therefore, have an impact on, and possibl y undermine, any implementation of the DSB rulings
and recommendations regarding pass-through by the S ection 129 Determination, we consider that the
pass-through analysis in the First Assessment Review should also fall within the scope of these DSU
Article 21.5 proceedings.
39

36 Australia – Salmon (Article 21.5 – Canada), page 106 (footnote deleted).
37 Australia – Leather II (Article 21.5 - US), para. 6.5.
38 Import entries subject to the Section 129 Determination cash deposit would be assessed pursuant to a
subsequent assessment review, if requested. We do not attach importance to the fact that import entries subject
to the Section 129 Determination cash deposit were not formally subject to the First Assessment Review, since
the Section 129 Determination amended and replaced the Fi nal Determination, such that there is no need to
distinguish between the coverage of these two measures for present purposes.
39 We do not here mean to imply that, on the basis of our interpretation and analysis of the scope of
DSU Article 21.5, other elements of the First Assessment Review, dealing with issues unrelated to the scope of
the DSB's adopted recommendations and rulings in the orig inal dispute between the par ties, could be treated as
part of a "measure[] taken to comply" and thereby challenged through an Article 21.5 proceeding.

4.42 The United States argues that the findings of the Australia – Leather II (Article 21.5 - US)
panel should be distinguished, because the Section 129 Determination and First Assessment Review
were not contingent on one another. We acknow ledge that the First Assessment Review was not
contingent on the Section 129 Determ ination, and note that the Firs t Assessment Review might very
well have been initiated even if the Section 129 Determination had not been undertaken. However,
the degree of contingency between the relevant me asures was clearly not the sole, or determining
factor, in the reasoning of the Australia – Leather II (Article 21.5 - US) panel regarding the inclusion
of the loan in the DSU Article 21.5 proceeding.
40 That panel was concerned more generally with the
"timing and nature" of the subsequent loan. As noted above, we consider that there is sufficient
overlap in the timing, or temporal effect, and nature of the Final Determination, Section 129
Determination and First Assessment Review for the la tter to fall within the scope of the present DSU
Article 21.5 proceedings.
4.43 The United States also argues that the findings of the panel in Australia – Salmon
(Article 21.5 - Canada) should be distinguished because that case concerned an ad hoc action taken
after the DSB adopted its rulings and recommenda tions, whereas the First Assessment Review was
initiated pursuant to domestic law requirements, eight months before, and independent of any
consideration of, the rulings and recommendations of the DSB in US – Softwood Lumber IV . We
note, however, that the Australia – Salmon (Article 21.5 - Canada) panel made no reference to the ad
hoc nature of the Tasmanian import ban in its findings. Accordingly, since the ad hoc nature of that
import ban did not influence that panel's findings, this is no basis on which to distinguish those
findings from the present case. In an y event, we consider that the Australia – Salmon (Article 21.5 -
Canada) panel was concerned primarily with the timi ng and subject-matter of the Tasmanian import
restriction, and its subsequent impact on th e July 1999 implementing measures adopted by the
Government of Australia, just as we are concerned primarily with the potential impact of the results of
the First Assessment Review on the Final Determination and Section 129 Determination.
4.44 The United States also argues that the First Assessment Review is a new determination,
separate from the Final Determination and Secti on 129 Determination, and initiated prior to the
DSB’s adoption of recommendations and rulings in this dispute. The United States relies on the
following findings of the panel in EC – Bed Linen (Article 21.5 - India):
[T]he fact that the EC, subsequent to its re-examination of the dumping
determinations with respect to imports from Egypt and Pakistan, and in the context of
a review initiated on the request of Eurocoto n, carried out an analysis of whether
injury was caused by imports from India alone does not, ipso facto , establish that
Regulation 696/2002 is a measure “taken to comply”. Rather the opposite would
seem to be the case – that Regulation would seem to be an entirely new
determination, reached as a result of events subsequent to the EC having adopted a
measure to comply with the DSB’s recommendation.41
4.45 According to the United States, the EC – Bed Linen (Article 21.5 - India) dispute
demonstrates that a new determination that was ma de in a subsequent segment of an anti-dumping or

40 In its comments on Canada's reply to Question 21 from the Panel, the US asserts that "the fact that
the grant repayment was conditioned on the provision of the new non-commercial loan was central to the panel's
finding that the two actions were 'inextricably linked elem ents of a single transaction'". We note that the US
refers in this regard to para. 6.50 of the Australia – Leather II (Article 21.5 - US) report, where the panel was
addressing the substantive issue of whether or not Australia had withdrawn its prohibited subsidies.
Contingency between the subsidy repayment and new loan was not mentioned explicitly by that panel at
para. 6.5 of its report, where it was determining whether or not to include the new loan in the scope of its DSU
Article 21.5 proceeding.
41 EC – Bed Linen (Article 21.5), para. 6.20 (bold emphasis added).

countervailing duty proceeding – a nd not made to implement reco mmendations and rulings of the
DSB – falls outside the jurisdiction of DSU Article 21.5 panels.42
4.46 In EC – Bed Linen (Article 21.5 - India) , the European Communities imposed anti-dumping
duties on imports of bed linen from Egypt, India and Pakistan. The European Communities made a
cumulative injury assessment. The European Communities was found to have incorrectly calculated
anti-dumping duties on imports from India. The European Communities amended its calculation in
respect of such imports from India. The parties agreed that the re-determination of dumping in
respect of imports from India fell within the scope of DSU Article 21.5. The European Communities
also applied the revised calculation method to other anti-dumping duties imposed on imports from
Egypt and Pakistan. As a result, the European Communities found that anti-dumping duties should
not be imposed on such imports. Consequently , the European Communities conducted a separate
injury analysis in respect of imports from Indi a, to determine whether such imports alone caused
injury to the domestic industry. The European Communities found that they did, and therefore
affirmed the imposition of anti-dumping duties on imports of bed linen from India. India claimed that
the determinations in respect of Egypt and Paki stan, and the finding of injury and the resulting
imposition of anti-dumping duties on bed linen from I ndia, were measures "taken to comply" under
DSU Article 21.5. The above panel finding relied on by the United States concerns the Panel's
exclusion of the India-specific injury determ ination from the scope of the DSU Article 21.5
proceedings.
4.47 While we acknowledge that the First Assessment Review is a new determination made in a
subsequent segment of a countervailing duty proceeding, we disagree with what we see as the
implication of the United States argument, i.e., that EC – Bed Linen (Article 21.5 – India) stands for
the principle that a measure taken in a subsequent segment of a proceeding could never constitute a
"measure[] taken to comply" in the meaning of DSU Ar ticle 21.5, if it is not explicitly so identified.
Rather, we understand the panel in EC – Bed Linen (Article 21.5 – India) to have ruled that, in the
particular circumstances of that case, the measure taken in a subsequent segment of a proceeding did
not constitute a "measure[] taken to comply". In our view, the above finding of the EC – Bed Linen
(Article 21.5) panel can be distinguished from the present case, as the First A ssessment Review does
not concern "events subsequent" to the Final De termination and Section 129 Determination. The
relevant measure in EC – Bed Linen (Article 21.5 - India) concerned an injury determination initiated
as a result of a re-determination of dumping in re spect of imports that were not covered by the
relevant rulings and recommendations of the DSB. Thus, not even the re-determination of dumping in
respect of those imports was a "measure[] taken to comply", let alone the new injury determination
prompted by that re-determination of dumping. By contrast, the First Assessment Review is far more
closely connected to what the United States consider s is the "measure[] taken to comply", i.e., the
Section 129 Determination. In particular, the Firs t Assessment Review is concerned with the same

42 The US also argues that Article 21.5 proceedings are by their nature more focused and limited than
other panel proceedings under Article 6. 2 of the DSU, and that it is beyond the scope of such a limited 90-day
inquiry to fully examine an entirely new set of assessment review results based on a wholly new administrative
record, consisting of new sales, new imports, potentially new respondents and potentially new subsidy
programmes. We note, however, that US law allows DSB rulings and recommendations to be implemented
through administrative reviews in certain circumstances (see “Statement of Administrative Action” in Message
from the President of the United States Transmitting the Uruguay Round Agreements, Texts of Agreements
Implementing Bill, Statement of Administrative Action and Required Supporting Statements, H.R. Doc. No. 103-
316, vol. 1 at 656 (Exhibit CDA-1), at 356-357). This undermines the US argument that assessment reviews
should be excluded from the scope of DSU Article 21.5 proceedings. Furthermore, we note that measures taken
to comply with the rulings and recommendations of the DSB may be every bit as complex, if not more so, than
the original measure in dispute. DSU Article 21.5 does not provide for acceler ated procedures because
implementation measures are necessarily simple, or straightfo rward. It does so in order to ensure that justice is
delivered swiftly. In any event, we note that we are only finding that part of the First Assessment Review (i.e.,
the pass-through analysis) is covered by these DSU Artic le 21.5 proceedings. We are not finding that the
entirety of the First Assessment Review is covered by these proceedings.

substantive issue as the Section 129 Determinati on, i.e., pass-through. In addition, the First
Assessment Review applies to import entries that were initially subject to the cash deposit rate fixed
by the measure subsequently replaced by the Sectio n 129 Determination. Furthermore, the panel in
EC – Bed Linen (Article 21.5 - India) explicitly noted that India "[did] not argue that the subsequent
two measures und[id] the compliance effectuated by the first measure".
43 We can only assume that
the panel would have reached a different conclusion if India had argued that the subsequent measures
undid the compliance effectuated by the first measure, as Canada has done in the present case.
4.48 We further note that in addressing the scope of the Article 21.5 proceedings in EC – Bed
Linen (Article 21.5 - India) , the Appellate Body had regard to "the object and purpose of the DSU".
In this regard, the Appellate Body noted that, by virtue of Article 3.3 of the DSU, "the prompt
settlement of disputes" is "essential to the effectiv e functioning of the WTO". Given the overlap in
effect of the Final Determination, Section 129 De termination, and the First Assessment Review, we
are very conscious that if we exclude the pass-th rough analysis in the First Assessment Review from
these proceedings, Canada and the United States will s till dispute the same issue, i.e., pass-through of
subsidy benefit, in respect of the same import entries 44, as they did in the original proceedings
concerning the Final Determination. In our view, th is would be wholly inconsistent with the object
and purpose of the DSU which, as noted above, is to ensure the prompt settlement of disputes.
4.49 Before concluding, we note that Canada, Chin a and the European Communities have made a
number of arguments that might suggest that DSU Article 21.5 should be interpreted broadly in the
present case because of the peculiaritie s of the system of retrospective duty assessment applied by the
United States. We do not consid er it appropriate to base our findings on such arguments, because the
interpretation and application of DSU Article 21.5 must accommodate both prospective and
retrospective duty assessment systems. As a con sequence, we have considered carefully the
operation of DSU Article 21.5 in the context of both prospective and retrospective duty assessment
systems, in light of the abovementioned dispute settlement decisions.
4.50 For the foregoing reasons, we reject the US re quest for a preliminary ruling that the First
Assessment Review falls outside the scope of th ese DSU Article 21.5 proceedings, in so far as the
pass-through analysis is concerned.
B. SCOPE OF USDOC'S PASS-THROUGH ANALYSIS
4.51 Canada's main argument in this proceeding is that USDOC, in implementing the rulings and
recommendations of the DSB, continued to presume a pass-through of subsidy benefits, rather than
conducting the required analysis. Canada claims th at this resulted in the imposition of countervailing
duties in a manner inconsistent with Articles 10 and 32.1 of the SCM Agreement, and Article VI:3 of
the GATT 1994. In particular, Canada argues th at USDOC completely excluded entire groups of
transactions, on the basis that these were not arm's le ngth sales, and in addition erred by rejecting the
aggregate data and information provided by Cana da in support of its pass-through claim, requiring
instead company-specific data 45, and also by applying "inappropriate" 46 benchmark prices for those
transactions that were individually examined for pass-through. Canada also claims that, in the Section
129 Determination and the First As sessment Review, the USDOC continued to presume pass-through

44 We refer to those import entries for which the Final Determination set the cash deposit rate, and the
First Assessment Review finalized the duty assessment. See, para. 4.41, supra.
45 We recall here that the United States objected (a t our substantive meeting with the parties) to
Canada's assertion that the USDOC had "rejected" any data submitted by Canada in the Section 129 proceeding
(Canada's first written submission, para. 32). In commenti ng on this argument, Canada clarified that it was not
claiming that the United States had out right rejected the information in que stion, but instead that the USDOC
had failed to analyse various record data when any of the five factors existed (Canada's reply to Question 27
from the Panel).
46 Canada's first written submission, page 22, heading 2 (Annex A – 1).

in respect of purchases of logs from sawmills by unrelated tenure-holding sawmills. Furthermore,
Canada claims that the USDOC presumed pass-t hrough in respect of all sawmill-to-sawmill
transactions in the context of the First Assessment Re view. Canada claims that, as a result of all the
above, the United States impermissibly inflated the amount of countervailing duties levied on imports
of softwood lumber from Canada. We shall examine each of these claims in turn.
47
1. Arm's length transactions
(a) Arguments of the parties
4.52 Canada asserts that pass-throug h should be investigated when ever there is a transaction
between unrelated parties. In both the Section 129 Determination and the Fi rst Assessment Review,
however, USDOC only investigated pass-through in respect of a narrower category of transactions,
namely those that were found by USDOC to be at arm's length. Canada states that the USDOC found
that transactions between unrelated parties were not at arm's length if any one of the following factors
existed in the province: (1) limitations on log sales in Crown tenure contracts; (2) wood supply
commitment letters; (3) payment of the stumpage fees by the downstream log purchaser; (4) log
purchase agreements of a certain structure; or (5) fibre exchange agreements between tenured
sawmills.
4.53 Canada disputes the application of what Canada refers to as USDOC's "external factor" test.
According to Canada, a transaction between unrelat ed parties is by definition an arm's length
transaction. Canada asserts that, because the ex ternal factors identified by the USDOC do not
transform an arm’s length transaction into one that is not at arm’s length, the existence of any such
factors cannot excuse the United States from its obligation to conduct the required benefit pass-
through analysis. According to Canada, none of the factors identified by USDOC alters the fact that
sellers of logs attempt to obtain the best price available in transactions with unrelated purchasers.
4.54 The United States asserts that the DSB's r ecommendations and rulings concerned only
(1) arm's length sales (2) between unrelated parties. According to the United States, both of these
conditions must be fulfilled before a pass-through analysis becomes necessary. In particular, the
United States argues that sales between formally unrelated parties are not necessarily arm's length.
The United States asserts that the DSB’s reco mmendations and rulings themselves recognize a
distinction between arm’s length and affiliation, presenting arm’s length sales as a subset of sales
between unrelated entities, since the DSB (by virtue of para. 167(e) of the Appellate Body's report)
ruled that USDOC should have conducted “a pass-through analysis in respect of arm’s length sales of
logs . . . to unrelated sawmills.” (emphasis in orig inal) The United States argues that whether the
entities operate “at arm’s length” involves more than just a question of formal affiliation; it involves
an analysis of whether one party effectively “cont rols” the other or whether the parties have roughly
equal bargaining power. The United States argues th at its five factor test addresses this issue of
control, since many of the circumstances of sales of lumber in Canada are controlled by government
mandates and other government-imposed conditions.
4.55 The United States asserts that USDOC identif ied two categories of government-mandated
restrictions whereby log sellers are not free to act in their best interests to choose and negotiate among

47 Canada's request for establishment of a panel also refers to a claim concerning the USDOC "applying
the results of the 'pass-through' analysis to a counter vailing duty cash deposit rate invalidated as a result of
judicial review proceedings conducted in accordance with US law, and fa iling to apply the results to a valid
rate" (WT/DS257/15, page 2). Although this claim was alluded to in the introduction to Canada's first written
submission (para. 10) (see Annex A – 1), Canada did not revert to this claim in the substantive part of that
submission. Nor did Canada pursue this claim in its s ubsequent oral or written submissions to the Panel. We
therefore consider that Canada has effectively abandoned th is claim. In any event, we find that the very brief
reference to this issue at para. 10 of Canada's first written submission is insufficient to establish a prima facie
case in support of Canada's claim.

potential buyers: (1) limitations on log sales that ar e contained in Crown tenure contracts, such as
appurtenancy and local processing requirements, and (2) wood supply agreements. The United States
asserts that USDOC also determined that many of the Canadian log sales could not be considered to
be at arm’s length because the actual structure of certain log purchase agreements empowered the
purchasing sawmill to control many aspects of the tran saction. Specifically, with respect to certain
log purchase agreements, the sawmill actively manag es all aspects of harvest and delivery. With
respect to others, the sawmill finances or provides other goods or services as part of the transaction.
4.56 The United States asserts that USDOC also cons idered that it was not required to conduct a
pass-through analysis when two other factors were present: (i) payment of the stumpage fees by the
downstream lumber producers and (ii) fibre exch ange agreements between Crown tenure holders.
Although the United States submits that these factors are "not exclusively arm's-length issues",
48 it is
clear that the USDOC found that transactions were not arm's length when these factors existed.49
4.57 The United States argues that its approach to implementing the DSB's recommendations and
rulings is based on the explicit language of the Appellate Body's ruling.
(b) Evaluation by the Panel
4.58 The United States has emphasized before us thro ughout this Article 21.5 proceeding that it
based its approach to pass-through, in the Section 129 Determination 50, on the language of the
Appellate Body's report, and specifically on the Appe llate Body's use of the phrase "arm's length" in
its ruling. We recall that the exact wording of the Appellate Body's ruling is:
"the Appellate Body ... upholds the Panel's finding ... that USDOC's failure to contact
a pass-through analysis in respect of arm's length sales of logs by tenured
harvesters/sawmills to unrelated sawmills is inconsistent..."51
We further recall that our finding being upheld by th e Appellate Body makes no reference to the term
"arm's length".

(i) Scope of original panel findings compared with scope of appeal and scope of Appellate Body
rulings
4.59 Before entering into the details of the Appellate Body's ruling, and its potential implications
for the parties, we first recall that in the orig inal dispute there were three broad categories of
transactions in respect of which we found that th e United States' failure to conduct a pass-through
analysis was inconsistent with various provisions of the covered Agreements. Specifically, these
categories were: (1) sales of logs by tenured timber harvesters that do not produce lumber to
unrelated lumber producers; (2) sales of logs by tenured harvester-sawmills to unrelated sawmills; and
(3) sales of lumber by tenured harvester-sawmills to unrelated lumber re-manufacturers. The
United States did not appeal our finding in respect of the first of these categories of transactions. It
did appeal our findings in respect of the second a nd third categories of transactions. The Appellate
Body, in turn, upheld our finding in respect of the second category, and reversed our finding in
respect of the third category.

48 US second written submission, para. 23 (see Annex B – 2).
49 See, for example, page 4 of Section 129 Determination (Exhibit CDA-5) ("where we determined that
any of the sales reported by the Canadian parties were affected by one or several of the five factors listed above,
we concluded that the transactions were not conducted at arm's length").
50 The US arguments in this pr oceeding did not cover USDOC's conduct of the Final Assessment
Review. We note, however, that the USDOC adopted the same approach to pass-through in the First
Assessment Review as in the Section 129 Determination.
51 Appellate Body Report, para. 167(e) (italic emphasis in original, bold emphasis supplied).

4.60 Given both the scope and the outcome of the US appeal, the DSB's recommendations and
rulings which the United States was obliged to im plement in respect of the first category of
transactions consist exclusively of our findings . In respect of the second category, these
recommendations and rulings consist of our findings and the relevant findings of the Appellate Body.
In respect of the third category, in view of the reversal on appeal of our findings, there were no DSB
recommendations and rulings for the United States to implement. We take up the first and second
categories separately.52
(ii) Sales of logs by tenured timber harvesters that do not produce lumber to unrelated lumber
producers
4.61 Canada objects to USDOC's application of the five factors in all situations in order to identify
for further pass-through analysis log sale transactio ns that were made at "arm's length". Canada
argues that, instead, a pass-through analysis is requ ired in respect of all log sales between unrelated
entities. The United States did not appeal our finding s in respect of sales of logs by tenured timber
harvesters that do not produce lumber to unrelated lumber producers. Thus, as noted, our findings
alone constitute the substance of the DSB's recommendations and rulings in respect of this category of
transactions. We therefore start by recalling the details of our analysis and findings on the pass-
through issue in general, along with our sp ecific pass-through findings on this category of
transactions.
4.62 We recall that, as a general matter, the primary focus of our discussion and findings on pass-
through in our Panel Report centred on affiliation. Thus, we described the "basic question" presented
by Canada's pass-through claim as
"whether USDOC was obligated to conduct a pass-through analysis in respect of the
input transactions between timber harvesters (both those that produce lumber and
those that do not) and unrelated sawmills, and between sawmills and unrelated re-
manufacturers ...".
53
4.63 We then explained that we understood Canada's claim to be
"that where upstream transactions between unrelated entities exist for inputs, any
subsidies to the producers of those inputs ca nnot be assumed also to be subsidies to
the downstream product under investigation."54
4.64 We noted that
"[w]here the subsidies at issue are received by someone other than the producer of
the investigated product, the question arises whether there is subsidization in respect
of that product."55

52 We note that Canada's arguments concerning the USDOC pass-through analysis refer to transactions
between "independent harvesters" and sawmills. This co uld mean that Canada's claim is limited to the first
category of transactions identified above. However, since note 2 of the USDOC's Section 129 Determination
provides that "[f]or purposes of this determina tion, the referenced log sales by tenured independent
harvesters/sawmills will be referred to as sales by independent harvesters", we understand Canada's claim
concerning "independent harvester" transactions to include both of categories of transactions. Furthermore, we
understand that both categories of transactions were co vered by the Section 129 Determination, whereas only
the first category of transaction was covered by the Fi rst Assessment Review. If the USDOC were to have
applied its five factor approach in respect of the second category of transactions in the First Assessment Review,
our evaluation would have been the same as for the USDOC 's treatment of that categor y of transactions in the
Section 129 Determination.

4.65 We then stated that
"[t]he heart of the pass-through issue is whether, where a subsidy is received by
someone other than the producer or exporter of the product under investigation, the
subsidy nevertheless can be said to have conferred benefits in respect of that
product."
56
4.66 Finally, we concluded, at paragraph 7.99 of our report, that
the USDOC's failure to conduct a pass-through analysis in respect of logs sold by
tenure-holding timber harvesters (whether or not also lumber producers) to unrelated
sawmills producing subject softwood lumber ... was inconsistent with Article 10 and
thus Article 32.1 SCM Agreement, and with Article VI:3 of GATT 1994.57
4.67 This conclusion was repeated in similar terms in the final section of the Panel Report, where
we held that:
"the USDOC's failure to conduct a pass-through analysis in respect of upstream
transactions for log and lumber inputs between unrelated entities was inconsistent
with Article 10 SCM Agreement and Article VI:3 of GATT 1994".58
4.68 At most places in our analysis and conclusions, therefore, we did not use the term "arm's
length" in discussing the pass-through issue, but in stead addressed the potential obligation to conduct
a pass-through analysis as pertaining to transactions between unrelated parties.
4.69 We acknowledge, however, that we did make some limited references to the term "arm's
length" in our findings, although we did not define that term. Footnote 163 of our Panel Report,
which was included in a sentence describing the "b asic question presented by [Canada's] claim" as
concerning the need to conduct a pass-through analys is in respect of transactions between unrelated
entities, states, in relevant part:
"We note that this claim only concerns such alleged arms'-length transactions
between unrelated entities ..."59
4.70 We also used the term "arm's length" at paragr aphs 7.94 and 7.95 of our report, in the context
of the first category of transactions, namely log sales to lumber producers by timber harvesters that do
not produce lumber. In particular, in paragraph 7.94 we identified such sales as the first type of
"arms' length" transaction that we needed to a ddress. We then summarized the US position as being
that no pass-through analysis w as needed for such transactions because of their small volume and
because they might not be at "arms' length". This latter was a reference back to the US argument,
summarized at paragraph 7.76 of our report, that "the many restrictions imposed on tenure holders,
including requirements to process timber locally, 'suggests that all or most of the sales by independent
loggers may not be at arms'-length'". We noted, at paragraph 7.95 of our report, that the United States
neither cited to any record evidence establishing "the volume of the possible arms'-length sales at
issue", nor argued that USDOC had made efforts to co llect such information. We went on to say that
the United States had not conducted the required pass- through analysis for these transactions, and had
"point[ed] to no factual basis in the record for its conclusion that such an analysis was not necessary".

58 Panel Report, para. 8.1(c) (emphasis supplied).
59 Panel Report, note 163 (emphasis supplied).

4.71 As noted above, however, our overall conclusi on in respect of all categories of log sales
(including by timber harvesters not owning sawmills to sawmills) was clear in stating that pass-
through analysis was required where the parties to such transactions were unrelated
. In short, based
on the language of our conclusion and the underlying la nguage of our analysis, in the original dispute
before us, our primary focus in respect of the p ass-through issue was in fact transactions between
unrelated parties.
4.72 Indeed, in the present Article 21.5 proceeding, even the United States explicitly acknowledges
that our findings were not premised on or restricted by any concept of "arm's length" transactions. In
particular, in response to one of our questions, the United States notes that
"as evident in paragraph 7.95, however, the original panel's findings did not depend
upon whether or not the sales claimed by Canada were, in fact, arm's length sales."60
4.73 We thus conclude that, in respect of log sal es by tenure-holding timber harvesters that do not
own sawmills to unrelated sawmills, the USDOC's ex clusion from pass-through analysis of certain
such sales on the grounds that they were not at "arm 's length" was inconsistent with the United States'
obligations pursuant to the DSB's recommendations and rulings.
(iii) Sales of logs by tenured harvester-sawmills to unrelated sawmills
4.74 We now turn to the second broad category of log sales at issue in this Article 21.5 proceeding,
in respect of which the United States appealed our finding that a pass-through analysis was required.
For this category – log sales by tenured harvester /sawmills to unrelated sawmills – the Appellate
Body upheld our finding but in doing so introduced th e term "arm's length", which does not appear in
our finding. We recall that in the original disput e and before the Appellate Body, both parties used
the term "arm's length" at various points in their arguments, apparently with considerably different
meanings. They presented no arguments concerning th e issue of "arm's length" as such, however. As
noted above, in the Panel Report we did make some limited referenc es to the term "arm's length",
although not in the context of the second category of log sales, and we did not ascribe any particular
definition to this term. In addition, and most si gnificantly for this Article 21.5 proceeding, the term
arm's length appears in numerous places in the A ppellate Body's analysis (although without being
defined), especially in its ruling at paragraph 167( e) upholding our finding in respect of this category
of log sales.
4.75 We understand the United States to argue in the present proceeding that it based its
implementation of the DSB's recommendations a nd rulings on the explicit wording used by the
Appellate Body, which according to the United Stat es upheld our finding to the extent of "arm's
length" sales of logs by tenured harvester/sawmill s to unrelated sawmills. In other words, the
United States views the Appellate Body (and thus the DSB) as having modified, albeit implicitly, our
conclusions concerning the pass-though issue in respect of this category of log sales. On this basis, a
primary focus of the USDOC's analysis in the S ection 129 Determination in respect of log sales by
tenured harvester/sawmills to unrelated sawmills was to identify which transactions in the universe of
such sales were and were not at arm's length. Fo r Canada, however, the term "arm's length" has to do
exclusively with corporate affiliation – any transac tion between unaffiliated parties is, by definition,
an arm's length transaction. Thus, for Canada, th e Appellate Body used the term "arm's length"
synonymously with "unrelated".
61 Canada argues that therefore, the USDOC, by not conducting a
competitive benefit analysis in respect of the sales be tween unrelated parties that it found not to be at
"arm's length", failed to comply with the DSB's recommendations and rulings.

60 US Answers to Panel's questions, 29 April 2005 (Article 21.5 proceeding), at paragraph 9.
61 See, for example, para. 10 of Comments of Canada on the Responses by the United States Following
the Substantive Meeting of the Panel.

4.76 We thus find ourselves confronted with significant ambiguity surrounding the issue of pass-
through in the DSB's recommendations and rulings in respect of log sales by tenured
harvester/sawmills to unrelated sawmills, which ambigui ty seems to have arisen from the inclusion of
the term "arm's length" in the conclusion set forth at para. 167(e) of the Appellate Body Report.
62 It is
not clear to us why the Appellate Body chose to incl ude this term in its ruling. This ambiguity is
compounded by the fact that the participants in the appellate proceedings were each relying on
separate meanings of that term. In this regard , while we can understand that the United States sought
to give meaning to the Appellate Body's use of th e term "arm's length", we disagree with the United
States' reasoning.
4.77 There are several important factors in respect of which we are in no doubt. First, the scope of
the DSB recommendations and rulings to be im plemented by the United States is not based
exclusively on the adopted findings of the Appellate Body. The findings of the original panel adopted
by the DSB are also relevant in this regard.
4.78 Second, as noted above and as ac knowledged by the United States, our overall conclusion in
respect of all categories of log sales (whether or not the tenured log seller owns a sawmill) was clear
in stating that pass-through analysis was require d where the parties to such transactions were
unrelated.
4.79 Third, the explicit language used by the Appella te Body at para. 167(e) of its report was to
"uphold" our conclusion in respect of log sales by tenured harvester/sawmills to unrelated sawmills,
as set forth in the relevant part of the first sente nce of para. 7.99 of the Panel Report. That is,
para. 167(e) of the Appellate Body Report contains no explicit modifi cation of the finding at para.
7.99 of the Panel Report in respect of log sales by tenured harvester/sawmills to unrelated sawmills.
4.80 Nor does the United States argue that there is such an explicit modification. Rather, the
United States' argument is that the Appellate Body, in introducing the word "arm's length" into its
ruling, implicitly modified our conclusion. In this context we recall that Article 17.13 of the DSU
permits the Appellate Body to "uphold, modify or re verse" the findings of a panel. We would expect,
however, that any such action would be explicit. In particular, if the Appellate Body intended to
modify a finding that it was explicitly upholding, such modification presumably likewise would be
made explicitly. Indeed, in other cases, the Appella te Body has been very explicit when modifying a
panel's findings, identifying precisely which finding (or which part of a finding) was being
modified.
63 In this case, however, the Appellate Body Report contains no discussion of the meaning
of the term "arm's length", nor any explanation of how it may have intended to distinguish that term
from the word "unrelated". We consider that for an Article 21.5 panel to accept, in such
circumstances, that the Appellate Body had implicitly modified the underlying panel findings could
have serious systemic implications, since it could result in significant uncertainty regarding the import
of Appellate Body reports, and the resultant DS B rulings and recommendations. For these reasons, it
would not be appropriate for us to proceed on the b asis that the Appellate Body may have intended to
modify our findings in respect of sales by tenu red harvester/sawmills to unrelated sawmills but
refrained from saying so explicitly.
4.81 In any event, while acknowledging the existence of a certain ambiguity, on balance we are not
persuaded that the Appellate Body's finding that a pass-through analysis was required in respect of

62 We recall here that the United States does not consider that our findings in the original dispute were
conditioned on any concept of "arms' length". See para. 4.72, supra.
63 See, for example, para. 196(d) of the Appellate Body Report in Brazil –Aircraft. See also paras. 199
and 263(f) of the Appellate Body Report in US – Line Pipe. Although para. 168 of the Appellate Body Report
refers to modification of the Panel Report, there is no indication precisely which part of the Panel Report is
being modified. In such circumstances, there is no reason to believe that the Appellate Body was referring to
anything other than the modification resulting from the Appellate Body's explicit reversal of certain of the
original panel's findings.

"arm's length sales of logs by tenured harvesters/sawmills to unrelated sawmills" is necessarily
different from (in the sense that it would modify ) our finding that a pass-through analysis was
required in respect of "logs sold by tenure-holding timber harvesters (whether or not also lumber
producers) to unrelated sawmills". In particular, we note that the Appellate Body used a virtually
identical formulation – also including a reference to "arm's length sales" - at para. 123 of its Report.
Footnote 147 to para. 123 confirms that, in para . 123, the Appellate Body was indeed referring to
para. 7.99 of the Panel Report. Since para. 123 of the Appellate Body report marks the beginning of
the Appellate Body's introduction to the pass-through issue, we do not understand the Appellate Body
to be substantively modifying para. 7.99 of the Panel Report at that juncture. Instead, it would seem
much more reasonable to conclude that the Appe llate Body was merely paraphrasing the relevant
finding set forth at para. 7.99 of the Panel Report. Equally, we do not agree that a modification
should necessarily be implied from the use of virtuall y identical language later in the Appellate Body
Report. Instead, one could again understand the Appellate Body to be merely paraphrasing the
relevant finding of the original panel.
4.82 In light of all of the foregoing considerations, and notwithstanding our acknowledgement of a
certain ambiguity in respect of the term "arm's length", we do not accept the US argument, based on
para. 167(e) of the Appellate Body Report, that the rulings and recommendations of the DSB only
required a pass-through analysis in respect of "arm 's length" log sales by tenured harvester/sawmills
to unrelated sawmills. Instead, given that the A ppellate Body upheld, without explicit modification,
the relevant finding at para. 7.99 of the Panel Repor t, we consider that the United States was required
to implement the recommendations and rulings of the DSB by conducting a pass-through analysis in
respect of all log sales by tenured harvester/sawmills to unrelated sawmills -- covered by the finding
at para. 7.99 of the Panel Report regarding sales of logs by "tenure-holding harvesters (whether or not
also lumber producers) to unrelated sawmills pr oducing softwood lumber" -- irrespective of any
considerations as to whether or not such sales were "arm's length".
2. Rejection of aggregate data
(a) Arguments of the parties
4.83 Canada claims that in its Section 129 De termination, USDOC considered only company-
specific, transaction-by-transaction data for the pass-through analysis, disregarding all aggregate
transaction and pricing data submitted as an alternative by the Canadian respondents
64,65. Canada
asserts that the specific data requested by USDOC was impossible to collect as it involved hundreds
of thousands of transactions by thousands of co mpanies in Canada. Canada claims that USDOC
nevertheless refused to provide reasonable altern atives for data submission, even though its CVD
investigation was undertaken on an aggregate basis. Canada claims that the Panel already made it
clear that company-specific data are not necessar ily required to conduct a pass-through analysis.
Canada refers in this regard to para. 7.98 of the Panel Report, where the Panel stated that it was "not
convinced that the need to conduct a pass-through an alysis for these transactions would necessarily or
inevitably convert every aggregate case into a compan y-specific case." Canada also refers to footnote
170 of the Panel Report, where the Panel stated "[f] or example, inquiry into possible relationships
between the entities concerned, and the use of sampling or other statistical techniques in respect of the
relevant transaction at issue, might offer possible approaches to be explored."

64 As noted above, however, Canada clarified in response to questioning by the Panel that it did not
claim that USDOC outright rejected the data. Rather, Canada challenged how the USDOC did and did not use
them. See para. 4.51 and footnote 45, supra.
65 Concerning these alternative data, Canada asserts that in many instances, Canadian respondents
provided data from a representative sample of Canadian companies. According to Canada, the data provided
were as much as were practicably av ailable, and could and should have been used by the USDOC to complete
its pass-through analysis.

4.84 The United States asserts that, to conduct its pass-through analysis, the USDOC first had to
obtain data from Canada supporting Ca nada’s claim that a portion of the total volume of Crown logs
processed into lumber – as reported by Canada – should be reduced to account for arm’s length log
sales between unrelated parties in which no benef it passed through. The United States submits that,
because the USDOC had conducted the original inv estigation on an aggregate basis and not on a
company-specific basis and had not previously conducted such a pass-through analysis, the
administrative record did not contain evidence supporting Canada’s claims.
4.85 The United States asserts that the USDOC theref ore asked Canada, through questionnaires, to
identify the volume of log sales subject to its p ass-through claims, and to provide specific information
necessary to determine whether during the period of investigation there were arm’s length sales of
logs by independent harvesters to unrelated sawmills and by tenured harvesters/sawmills to unrelated
sawmills. According to the United States, this w ould allow the USDOC to identify transactions that
were eligible for the last phase of the analysis (competitive benefit). The requested information
related to, inter alia, the relationship between the parties to the specific transactions (such as whether
the parties were affiliated) and the circumstances surrounding the subject sales.
4.86 The United States further submits that the DSB's recommendations and rulings treated pass-
through as a company-specific issue. In particular, the United States notes that the Appellate Body
referred to the need to determine whet her a benefit conferred "on the input producer" passed through
to the "producer of the processed product" (emphasis supplied).
4.87 The United States rejects Canada's argument that the Panel already indicated that company-
specific data are not necessarily required to con duct pass-through analyses. The United States argues
that, in response to US arguments to the effect th at there is a mismatch between an investigation
conducted on an aggregate basis and the company-sp ecific nature of the pass-through issue, the Panel
simply found that pass-through can indeed be examined during an aggregate investigation. According
to the United States, the Panel did not suggest that company-specific information should not be used
to analyze whether there was a pass-through of subsidies.
(b) Evaluation by the Panel
4.88 First, we note the US argument that the USDOC needed company-specific and / or
transaction-specific data in order to determine whet her or not the parties to the transactions were
related. Canada has not disputed that the USDO C needed such data for this purpose. Since the
question of affiliation is central to the threshold issue of whether or not a pass-through analysis is
required, we see no reason why the USDOC should be prevented from collecting company-specific
and /or transaction-specific data for this purpose.
66
4.89 Second, Canada has not argued that a company-sp ecific and/or transaction-specific analysis is
inconsistent with any particular provision of the SCM Agreement. In the absence of specific
provisions, we are reluctant to in struct investigating authorities what data they should collect, and
how they should use those data, in the context of their pass-through analyses. Nor do we consider that
investigating authorities have an obligation simp ly to accept such alternative data as may be

66 We note that the USDOC did accept some aggregate data for purpos es of determining affiliation in
respect of parties to log transactions in certain provinces. The Section 129 Draft Decision Memorandum (Exh.
CDA-6 at pp. 9, 10, 13, 14) indicates that the basis for doing so was certifications provided with the data to the
effect that the individual companies included in the aggregate figures were unaffiliated. Thus, our
understanding is that it was these certifications , which necessarily conc erned only the specific companies
involved, that were accepted by the USDOC.

volunteered to them by respondents based on the respondents' assessment that the authorities'
information requests are too burdensome.67
4.90 Third, Canada has not established that a company-specific and/or transaction-specific analysis
is precluded by the rulings and recommendations of the DSB. Although we stated in our Panel Report
that we were "not convinced that the need to conduct a pass-through analysis for these transactions
would necessarily or inevitably convert every aggregate case into a company-specific case", 68 we
certainly did not state that the USDOC should be precluded from proceeding on a company-specific
basis if it chose to do so.
4.91 Finally, we recall that Canada has acknow ledged that it does not assert that the USDOC
rejected outright all of the aggregate information submitted by Canadian respondents.
69
4.92 For the above reasons, we reject Canada's cl aim that the USDOC improperly disregarded all
aggregate transaction and pricing data submitted by the Canadian respondents.
3. Sawmill-to-sawmill transactions
(a) Arguments of the parties
4.93 Canada claims that in the Section 129 Determination, the USDOC continued to presume pass-
through in respect of all log transactions between tenured sawmills. Canada's claim is based on its
assertion that, in the Section 129 Determination, the USDOC did not investigate sales of logs between
tenured sawmills. Canada asserts that the origin al Panel and Appellate Bo dy findings provide no
basis for refusing to conduct a pass-through anal ysis simply because the purchasing sawmill holds
tenure.
4.94 Canada also claims that in the First Ass essment Review, USDOC presumed pass-through in
respect of all sawmill-to-sawmill tr ansactions since it failed to requ est information on any purchases
of logs by sawmills from other sawmills.
4.95 Regarding the USDOC's Section 129 Determination, the United States asserts that the scope
of the Appellate Body's ruling was limited – by foot note 151 of the Appellate Body's report – to sales
of logs to sawmills that "do[] not hold a stumpage c ontract", i.e., to sawmills that do not hold tenure.
According to the United States, the Appellate Body th erefore only upheld the original panel's finding
that the USDOC should have conducted a pass-through analysis with respect to transactions between
tenured timber harvester/sawmill s and unrelated, non-tenure holding sawmills. The United States
submits that the USDOC properly implemented th e rulings and recommendations of the DSB by
following the specific direction issued by the Appellate Body.
4.96 The United States does not respond to Canada's claim concerning the scope of the information
requested by USDOC in the First Assessment Review.
(b) Evaluation by the Panel
4.97 We shall first address Canada's claim regarding the scope of the information requested by the
USDOC in its Section 129 Determination. We sha ll then examine Canada's claim regarding the First
Assessment Review.

67 In this regard, we consider that the accuracy of certain aggregate da ta in respect of affiliation is not
informative of whether the substance of the aggregate data in terms of volum e and price is either representative
or accurate. These are entirely separate issues.
68 Panel Report, para. 7.98.
69 See footnote 45 supra.

(i) Section 129 Determination
4.98 As a preliminary matter, we note that Canada 's claim does not cover purchases of logs by
sawmills from tenured timber harv esters that do not themselves pr oduce lumber. Canada's claim
concerning the scope of the USDOC's investigation is restricted to sawmill-to-sawmill transactions.
70
4.99 On substance, we note that the United States' de fence to this claim is based on the definition
of "sawmill" found at footnote 151 of the Appellate Bo dy Report. That definition explicitly restricts
the term "sawmill" as used in the Appellate Body Report to "an enterprise that processes logs into
softwood lumber and does not hold a stumpage contra ct". Our Panel Report, however, does not adopt
the same definition of "sawmill" as employed by th e Appellate Body. Rather, our findings regarding
inter-sawmill transactions concerned purchases by a ll sawmills, whether or not they hold a stumpage
contract. 71 Furthermore, in the panel proceedings, neither party suggested that the definition of
"sawmill" should be restricted in any way.
4.100 Second, we recall that the Appellate Body did no t explicitly modify our finding at para. 7.99
of the Panel Report concerning inte r-sawmill transactions. Rather, our finding was explicitly upheld
by the Appellate Body. The United States submits that, because of the definition of "sawmill" set
forth at footnote 151 of the Appellate Body Repor t, our finding regarding inter-sawmill transactions
(as set forth at para. 7.99 of the Panel Report) was only upheld by the Appellate Body in so far as it
concerned log purchases by sawmills that did not hold a stumpage contract. We disagree.
4.101 The considerations that we highlight at para. 4.80, supra, in respect of the issue of implicit
modification of a panel's findings are equally pertinent here, to the extent that the US argues that the
Appellate Body made such an implicit modifica tion. We do acknowledge the possibility that the
Appellate Body's use of a different, narrower definiti on of "sawmill" in its report than we did in the
Panel Report may have led to a certain ambiguity as to the scope of the Appellate Body's, and thus the
DSB's rulings, and it is not clear to us why the Ap pellate Body introduced this narrower definition.
That said, however, the practical effect of the definition set forth at footnote 151 of the Appellate
Body Report is that the Appellate Body's findings re garding inter-sawmill transactions were restricted
to transactions involving purchases by sawmills that did not hold a stumpage contract. In other
words, the Appellate Body made no findings re garding our conclusion concerning inter-sawmill
transactions involving purchases by sawmills that did hold a stumpage contract. In the absence of any
findings by the Appellate Body regarding this la tter category of transactions, our findings regarding
such transactions stand, and form the sole basis for the DSB's recommendations and rulings in respect
of these transactions.
4.102 We note the US argument in this regard that in its notice of appeal, the United States
challenged "the entirety of the findings of the or iginal panel that Commerce had to conduct a pass-
through analysis with respect to transac tions between producers of subject merchandise" 72. We
understand the United States to argue that the scope of its appeal therefore covered the Panel's
findings regarding purchases by all sawmills, whether or not they hold a stumpage contract, and that
the Appellate Body's findings should therefore reflect the scope of the US appeal. This would mean
that our conclusion regarding log purchases by saw mills that do hold a stumpage contract would
somehow be subject to the findings of the Appellate Body. While we see merit in such an argument
(in the sense that the scope of the Appellate Body's findings should normally reflect the scope of the

70 Thus, at para. 55 of its first written submission (see Annex A – 1), Canada accuses the United States
of ignoring the findings of the original panel and Appellate body concerning "sawmill-to-sawmill transactions" .
Canada does not complain, in the context of this claim, that the USDOC failed to investigate sales by tenured
timber harvesters that do not produce lumber.
71 In order to avoid any uncertainty, in these proceedings we continue to use the term "sawmill" to refer
to an enterprise that processes logs into softwood lumber, whether or not it holds a stumpage contract.
72 See US Response to Question 1 from the Panel.

appellant's appeal), we note that the Appellate Body 's "sawmill" definition would appear to apply to
the entirety of the Appellate Body Report, includi ng the section entitled "Claims of Error by the
United States – Appellant". In that section, the Appellate Body states that the United States "contends
that the Panel erred in finding that a pass-through analysis is required in respect of sales of logs from
tenure-holding sawmills producing softwood lumber to unrelated sawmills".
73 Furthermore, in
describing the "Scope of the Issue Appealed", the Appellate Body states that "[t]his appeal thus
concerns the situations where: (i) a tenured tim ber harvester owns a sawmill and processes some of
the logs it harvests into softwood lumber, but at the same time sells at arm's length some of the logs it
harvests to unrelated sawmills for processing into lumber ...". 74 Notwithstanding the terms of the US
Notice of Appeal, therefore, the issue addressed by the Appellate Body, and therefore the scope of the
Appellate Body's findings, was explicitly restricted (as a result of footnote 151 of the Appellate
Body's Report) to inter-sawmill transactions involving log purchases by sawmills not holding a
stumpage contract. Inter-sawmill transactions involving log purchases by sawmills holding a
stumpage contract were therefore not covered by the Appellate Body's findings. 75 Accordingly, our
finding regarding such transactions could not have been reversed or otherwise modified by the
Appellate Body.
4.103 Since our finding at para. 7.99 of the Pane l Report regarding inter-sawmill transactions
involving log purchase by sawmills holding a stumpage contract could not have been reversed or
otherwise modified by the Appellate Body, that finding must be reflected in the scope of the rulings
and recommendations of the DSB. Thus, by failing in the Section 129 Determination to analyse pass-
through in respect of inter-sawmill transactions involving purchases by (unrelated) sawmills that hold
a stumpage contract, the United States failed to pr operly implement the rulings and recommendations
of the DSB regarding such transactions.
(ii) First Assessment Review
4.104 Canada submits that, in its administrative re view, the USDOC failed to request information
on any sawmill-to-sawmill transactions. Canada asser ts that, in its only request for information on
arm’s length log transactions, the USDOC restricted its request in its initial questionnaire to the
volume and value of Crown logs sold by independent harvesters (i.e., “by any person or company that
did not own or operate a sawmill” or “by non-mi ll-owning tenure holders”) to softwood lumber
producers. Canada refers in this regard to the questionnaires sent by the USDOC to various Canadian
provinces (Exhibit CDA-9), and the USDOC's Preliminary Assessment Review Determination
Exhibit CDA-10).
4.105 The United States did not respond to Canada's cl aim, which concerns the conduct of the First
Assessment Review. When asked a question regard ing this claim, the United States responded on the
basis of the information requested by the USDOC in the Section 129 Determination, rather than the
First Assessment Review.
76 We presume that the United States declined to respond in respect of the
First Assessment Review because of its view that the latter measure falls outside the scope of the
present proceedings. We recall, however, our find ing that the First Assessment Review does fall
within the scope of these proceedings insofar as the pass-through issue is concerned. We also recall
that we warned the parties at our substantive mee ting with them in the present proceeding that, in the

73 Appellate Body Report, para. 16 (italic emphasis in original, bold emphasis supplied).
74 Appellate Body Report, para. 128 (emphasis supplied).
75 The scope of the appeal is described in the penultimate sentence of para. 124 of the Appellate Body
Report. That sentence refers to certain sales of logs and lumber "to sawmills". Si nce the word "sawmills" is
qualified by the abovementioned footnote 151, it is clear th at the scope of the appeal was restricted to certain
sales of logs and lumber to "enterprise[s] that process[] logs into softwood lumber and do[] not hold a stumpage
contract".
76 See US Response to Question 4 from the Panel.

absence of any ruling on the US preliminary request at that time, the parties should assume in their
arguments and submissions that the First Assessment Review falls within these proceedings.
4.106 We find that Canada has prima facie established, on the basis of the abovementioned
Exhibits, that the USDOC failed in the First Assessment Review to investigate pass-through in respect
of any sawmill-to-sawmill transactions. Given th e original panel and Appellate Body findings
regarding sawmill-to-sawmill transactions, we do not see how the USDOC could have properly
implemented the rulings and recommendations of the DSB in this case without also analysing pass-
through in respect of sales of logs between sawm ills in the First Assessment Review. In the absence
of any argumentation concerning this matter by the United States, we find on the basis of the above
that Canada has established a prima facie case that the United States has failed to properly implement
the rulings and recommendations of the DSB by excluding sawmill-to-sawmill transactions from the
pass-through analysis in the First Assessment Review.
C.
THE BENCHMARKS USED IN THE USDOC'S PASS-THROUGH ANALYSIS
1. Arguments of the parties
4.107 In its first submission, Canada challenges the benchmarks used by the USDOC in determining
whether subsidy benefits passed thr ough in certain log sales between unrelated parties. In particular,
Canada challenges the import price data used by th e USDOC (in conjunction with price data for logs
purchased from private holders of forested land) in constructing the market price benchmarks for
determination of benefit.
4.108 The United States disputes this challenge on two grounds. First, the United States asserts that
this issue is outside the Panel's terms of referenc e as it is not referred to in Canada's request for
establishment of a panel. Second, the United States ar gues that even if the issue were properly before
the Panel, it has no substantive merit, as the im port data used by USDOC were reasonable, and
Canada has pointed to no provision of any covered agreement that has been violated by the use of
these data.
2. Evaluation by the Panel
4.109 Turning to whether this challenge is outside our terms of reference, we recall that Canada's
request for establishment refers to four specific a lleged failures by the United States to comply with
the DSB's recommendations and rulings, which can be summarized as (1) excluding certain categories
of transactions from pass-through analysis; (2) pres uming that certain transactions were not at arm's
length and thus that benefits passed through; (3) a pplying the results of the pass-through analysis to a
countervailing duty cash deposit rate that had been invalidated in judicial review procedures under US
law77; (4) failing to conduct a pass-through analysis in the first administrative review of the lumber
CVD measure.
4.110 None of these four alleged failures refers to or has any evident connection with either the
methodology or the data that USDOC used in its calculations of pass-through of benefits in respect of
those transactions where it performed such calculati ons. Rather, this issue is distinct from and
independent of the four listed a llegations. While Canada, in res ponse to a question from us, asserts
that "Canada identified its challenge to the pass-through benchmarks in its panel request", it points to
no specific language in the request in this regard, and we find no such refere nce. Canada's argument
seems to be, rather, that the statement in the re quest that the United States' measure(s) taken to
comply are "inconsistent with Articles 10 and 32.1 of the SCM Agreement and Article VI:3 of the
GATT 1994" is sufficient to bring this challenge w ithin our terms of reference. We disagree.

77 We have already expressed our view that Canada has effectively abandoned th is claim, or at least
failed to establish a prima facie case in support thereof. See note 47 above.

Canada's request describes the four specific alleged violations (legal claims), none of which has to do
with the benchmarks used, and then identifies th e various measures which in Canada's view are
inconsistent by virtue of these alleged violations. Thus, we find that the issue of the market
benchmarks used by USDOC represents a separat e challenge, not referred to in the request for
establishment. It therefore falls outside our terms of reference.
4.111 In light of the above, we reject Canada's claim regarding the benchmarks used by the USDOC
in its pass-through analysis.
D. COUNTERVAILING DUTY AMOUNT
1. Arguments of the parties
4.112 Canada submits that the effect of the failu re by the United States to comply with the
recommendations and rulings of the DSB is an impermissible inflation of the amount of its
countervailing duties. Canada submits that the Unite d States is now required to do one of two things:
either (1) conduct an appropriate pass-through an alysis for all Crown log transactions involving
unrelated parties, including through the use of aggr egate data; or (2) exclude from the calculation of
the overall ad valorem subsidy rate amounts of subsidy that have been presumed to pass through such
transactions.
4.113 The United States submits that the USDOC pr operly calculated the revised countervailing
duty rate by reducing the numerator of the ad valorem subsidy rate by C$ 28,344,121.
2. Evaluation by the Panel
4.114 We have identified a number of deficiencies in the USDOC's implementation of the rulings
and recommendations of the DSB regarding US – Softwood Lumber IV , in particular in respect of the
pass-through issue in both the Section 129 Determination and the First Assessment Review.
4.115 As a result of such failures to properly impl ement the rulings and recommendations of the
DSB, the USDOC included in its numerator transactions for which it had not demonstrated that the
benefit of subsidized log inputs had passed throug h to the processed product. As in the original
proceeding, we find that this results in th e imposition of countervailing duties in a manner
inconsistent with Articles 10 and 32.1 of the SCM Agreement, and Article VI:3 of the GATT 1994.
V. CONCLUSIONS AND RECOMMENDATIONS
5.1 In light of the above, we reject:
• the US request for a preliminary ruling that th e First Assessment Review falls outside the
scope of the present DSU Article 21.5 proceeding, insofar as the pass-through analysis is
concerned;
• Canada's claim that the USDOC improperly disr egarded all aggregate transaction and pricing
data submitted by the Canadian respondents;
• Canada's claim against the benchmarks used by the USDOC in its pass-through analysis;
5.2 We uphold Canada's claims that:
• in the Section 129 Determination, and in the treatment of pass-through in the First Assessment
Review, the United States failed to properly implement the recommendations and rulings of
the DSB in this dispute by failing to conduct a pass-through analysis in respect of sales, found

by USDOC not to be at arm's length, of logs by tenured timber harvesters, whether or not they
also produce lumber, to unrelated lumber producers, whether or not they hold a stumpage
contract; and
• in the Section 129 Determination, and in the First Assessment Review, the USDOC therefore
included in its subsidy numerator transactions for which it had not demonstrated that the
benefit of subsidized log inputs had passed through to the processed product.
5.3 We do not consider it necessary to make any conclusion regarding the claim identified in
Canada's Request for Establishment of a panel re garding USDOC "applying the results of the 'pass-
through' analysis to a countervailing duty cash depos it rate invalidated as a result of judicial review
proceedings conducted in accordance with US law, and failing to apply the results to a valid rate".
5.4 We therefore conclude that the United States re mains in violation of Article 10 and 32.1 of
the SCM Agreement, and Article VI:3 of the GATT 1994.
5.5 Under Article 3.8 of the DSU, in cases where there is infringement of the obligations assumed
under a covered agreement, the action is considered prima facie to constitute a case of nullification or
impairment of benefits under that agreement. Ac cordingly, we conclude that, to the extent the
United States has acted inconsistently with the provisions of the SCM Agreement and of GATT 1994,
and failed to properly implement the recommendations and rulings of the DSB in this dispute, it has
nullified or impaired benefits accr uing to Canada under that Agreement. Pursuant to Article 19.1 of
the DSU, therefore, we recommend that the Unite d States bring its Section 129 Determination and
First Assessment Review into conformity with these provisions.
5.6 Pursuant to DSU Article 19.1, Canada has re quested that we suggest ways in which the
United States could implement our recommenda tion. In particular, Canada suggests
78 that the
United States do one of the following two things:
• It should refund the amount of the countervailing duties it imposed to offset alleged subsidy
amounts impermissibly presumed to pass through;
or
• It should revise its measures to meet its WTO obligations and refund the amount of the
countervailing duties it imposed to the extent th at they exceeded the amount of the alleged
subsidy demonstrated to have passed through to the production of softwood lumber.
5.7 Given the complexities of the issue at hand, we consider that in the first instance the
modalities of the implementation of our recommendati on are for the United States to determine. We
therefore decline to make the suggestions proposed by Canada.